Economic Growth Refuses To Quit! How Should Business Bankers Take Advantage Of This Opportunity?

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The folks at Costar recently published an article on the state of economy. I found it useful because it gave a good snapshot of the industries that are performing well, but it also peppered the article with some caution on the engine that powers the economy. If you want to succeed in Business Banking, you need to adjust your sail based on direction that the economic wind is blowing! If you keep your finger on the pulse of the economy, you will always know where to look for your next deal! The Costar article below includes a chart of the industries that are performing in the current economy. You should put together a list of the top prospects in these industries and reach out to them. If you are in the Southern California market, I can help you build a highly effective prospect list!

Although the economy has been exceptionally resilient, we know that was goes up must come down at some point! The Costar article briefly talks about the engine that powers the economy: consumer spending. The article includes a chart that shows personal expenditures outpacing personal income! How should Business Bankers interpret this nugget of information? Well, your credit officers will attempt to determine which industries are likely to be affected when consumers start putting the brakes on personal spending because they’ve got no more money to spend! As a Business Banker, this is not something to need to worry about right now! When you start hearing that consumers are scaling back on spending, you will need to adjust your strategy! At that point, you will need to figure out which industries are going to be the most impacted. Chances are that your credit folks are not going to have a “strong appetite” for those industries! That is just how the economic wind blows!

Below is what the folks at Costar had to say about the economy!

The economy grew at a robust rate in the second quarter, defying predictions that growth would slow as the Federal Reserve keeps interest rates in restrictive territory. The?surprise showing?should quell fears of an imminent downturn.

The economy expanded by 2.8% in the second quarter at a seasonally adjusted annual rate, reaccelerating after the sluggish growth registered in the year's first quarter. This was far stronger than the consensus estimate of 1.9% and was supported by resilient consumers and solid business investment.

Consumer spending grew by 2.3% (annualized) in the second quarter, a rate foreshadowed by the solid?retail sales report for June?that included upward revisions of data reported for April and May. Spending on durable goods, such as furniture and automobiles, grew by 4.7%, and nondurable goods, such as groceries and clothing, rose by 1.4%. Spending on services, such as restaurant meals, entertainment and health care, grew by 2.2% over the quarter, slowing down from the prior two quarters. Consumer spending contributed 1.6 percentage points to the economy's overall growth.

Meanwhile, business fixed investment rose 8.4% in the second quarter, accounting for 1.5 percentage points of economic growth. Nonresidential investment grew by 5.2%, primarily due to a surge of spending on business equipment, which grew by 11.6% in the quarter.?

Construction spending for nonresidential and residential structures fell during the quarter, with the former pulling back after a surge in expenditures motivated by fiscal policies and the latter more sensitive to higher construction and capital costs.?

The two most volatile components of gross domestic product — change in inventories and net trade, usually responsible for outliers in the GDP print — offset each other in the second quarter and barely impacted the overall growth number, contributing 0.1 percentage point.

A?separate Bureau of Economic Analysis report provided?a monthly update for personal spending and income in June, adjusted for inflation, and confirmed that consumers continue to open their wallets. Even after price changes were accounted for, monthly increases in spending of over 1% were seen in recreational products, furniture, clothing and gasoline.

The fall in motor vehicle spending in June suggests that recreational products are still attracting broad attention. Real spending on motor vehicles in June was only 6.1% higher than the average monthly spend during the 12 months before the onset of the pandemic, while real spending on furnishings in June was 23% higher and on recreational goods 75% higher.

On a more ominous note, the report shows that annual spending growth still outpaces yearly personal income growth, as it has for 37 of the prior 39 months. Consumers will eventually exhaust their savings, and debt burdens will begin to strain household finances.

What We’re Watching …

That economic growth in the second quarter was surprisingly solid should alleviate some of Fed officials' concerns about the economy's strength. Indeed, real final sales to domestic purchasers, which exclude the volatile categories of net trade and change in inventories from GDP, provide a better measure of the economy’s underlying growth rate. These grew by 2.7% in the second quarter (on a seasonally adjusted annualized rate), following 2.4% growth in the first quarter, a sign that the economy still has underlying momentum and giving the Fed more breathing room before deciding to cut rates.

However, that momentum is slowing, and weaker data is expected in the months ahead as the full impact of the Federal Reserve’s tightening program becomes apparent.?

Several regions of the nation are already reporting slower economic activity and weaker labor markets, according to the Federal Reserve’s recent?Beige Book, which compiles anecdotal economic updates from its 12 districts. Five districts reported slowing or flat activity, three more than did so in May. More districts are likely to report similar conditions in September’s release, so, for now, it appears the Fed is balancing its risks.

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