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By Kenneth D. Thompson, WBA Board chair, president and CEO of Capitol Bank, Madison

Ken Thompson HeadshotWe are closing out this calendar year with a better understanding of COVID-19 than we had at this time one year ago in 2020, however the ongoing pandemic casts a heightened degree of uncertainty onto predictions for the 2022 economy. As bankers, we are responsible for interpreting economic data and trends that will impact the financial health of our institutions, our customers, and our communities. To support us in this important aspect of our work, the Wisconsin Bankers Association and partners organize the Midwest Economic Forecast Forum annually. This year’s event is set to be an exciting opportunity to hear from nationally renowned experts as they present their perspectives on economic conditions that continue to be susceptible to the risks and challenges posed by the pandemic.

The forum will be held virtually on January 4, 2022 from 10:30 a.m.–noon CT. Individual and group rates will be available, giving banks the opportunity to invite their staff, business customers,
directors, and others to join in on the viewing as part of their group registration.

Headlining the event will be Federal Reserve Bank President Neel Kashkari, who will provide an economic outlook. Kashkari took office as president and chief executive officer of the Federal Reserve Bank of Minneapolis on January 1, 2016. In this role, he serves on the Federal Open Market Committee, bringing the Ninth District’s perspective to monetary policy discussions in Washington, D.C. In addition to his responsibilities as a monetary policymaker, Kashkari oversees all operations of the Bank, including supervision and regulation, treasury services, and
payments services.

Presenting on the topic of “Economic Mega Trends 2022 and Beyond” will be David Kohl, Ph.D., professor emeritus, Virginia Tech. Kohl will cover questions such as: What are the global economic disruptors and power shifts? How will trade, geopolitics, supply chains, climate changes, and weather in extremes impact competitors? How will the stimulus package and Central Bank’s accommodative policy impact strategic positioning? What are some major mega trends on the horizon? What are the lead and lag indicators that need to be on the dashboards of decision makers?

With the level of uncertainty surrounding our economy moving forward, bankers should be especially interested in attending this engaging and informative event. The year ahead will no doubt be affected by excess liquidity in the banking system, supply chain delays/disruptions, labor shortages, and inflation fears. Bankers need to have a keen eye on how these key economic drivers will impact their banks and clientele. I look forward to the discussion on these topics at the Midwest Economic Forecast Forum and hope many of you will join us.

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By Fahad Nazer, Official Spokesperson, Embassy of the Kingdom of Saudi Arabia

The relationship between the United States and Saudi Arabia entered a new era on February 14, 1945, when King Abdulaziz Al-Saud met President Franklin Delano Roosevelt aboard the USS Quincy. In the 76 years since, relations between our two nations have continued to deepen and to broaden. Indeed, our partnership is rich and multilayered. It has political, security, cultural, and importantly, economic dimensions that have served the interests of both nations and our peoples. Strong bilateral ties between the U.S. and Saudi Arabia have helped advance stability across the Middle East and have led to decades of economic strength for both Saudis and Americans.

Saudi Arabia’s economic relationship with the U.S. is a critical component of this partnership. The U.S. is one of Saudi Arabia’s largest and most important trading partners. In 2019, there was over $17 billion in trade between the U.S. and Saudi Arabia. While much of the attention on trade has focused on the critical role that Saudi Arabia plays as the world’s biggest exporter of crude oil, the economic partnership between the U.S. and Saudi Arabia has steadily diversified over the years. Today, our economic relationship includes cooperation across high-tech sectors, Artificial Intelligence (AI), sustainable development and green technologies, and even tourism and entertainment that bring our two countries closer together. This economic diversification will further strengthen the relationship and will undoubtedly provide opportunities for companies in both Saudi Arabia and the U.S., including in Wisconsin.

This rapid economic diversification is a key pillar of the historic transformation currently underway in Saudi Arabia known as Vision 2030. Under the leadership of Saudi Arabia’s King Salman bin Abdulaziz Al-Saud and His Royal Highness the Crown Prince, Mohammed bin Salman, Vision 2030 was unveiled in 2016 to serve as a blueprint for developing Saudi Arabia’s potential and achieving our ambitions for the 21st century. While Vision 2030 has impacted all facets of Saudi life, it seeks to develop a thriving economy for the Kingdom through innovation, diversification, and utilizing the Kingdom’s youth power to create a sustainable economy for the future.

For Wisconsin companies, Vision 2030 is an opportunity for generating continued growth and developing new partnerships. Saudi Arabia and Wisconsin companies have already established strong ties. For example, Fincantieri Marinette Marine currently has a multi-billion-dollar contract to build four ships for the Saudi Navy, the Oshkosh Corporation has a joint venture with a Saudi company called Al Tadrea, and according to the U.S. Census Bureau, Wisconsin in 2020 exported $234,237,738 worth of commodities to Saudi Arabia and imported $1,641,938 of commodities that same year. Both of our countries benefit from these business relationships.

Additional opportunities and expanding the existing trade relationship between Wisconsin and Saudi Arabia are essential to the future of the U.S.-Saudi partnership. Our bond with the U.S. is strengthened and improved when every region and state in America is included and prospers because of the partnership. I would encourage Wisconsin business leaders to consider Saudi Arabia as not just a new market for expansion but as a long-term economic partner that can become an important ally for The Badger State, through collaboration, investment, and trade.

Finally, while I hope that my description of the historic transformation occurring in Saudi Arabia is informative, there is no substitute to visiting the Kingdom. I would invite all the newsletter’s readers, all those interested in learning more about Saudi Arabia, our people, and the significant investment and economic opportunities in the Kingdom, to come visit us and to see this exciting transformation for themselves.

For more information, please contact Info.was@mofa.gov.sa.

The New York Federal Reserve Bank’s Center for Microeconomic Data released recent survey results which shows households' expectations about year-ahead earnings growth and the likelihood of finding a job increased sharply in July. Short-term inflation expectations were unchanged while medium-term inflation expectation ticked up. While remaining elevated, home price growth expectations declined.  

The NY Fed’s July 2021 Survey of Consumer Expectations provides findings in the areas of inflation, labor market, and household finance. The survey contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans' views about job prospects and earnings growth and their expectations about future spending and access to credit. The survey also provides measures of uncertainty regarding consumers' outlooks. Expectations are also available by age, geography, income, education, and numeracy.  

The survey is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, the panel allows the NY Fed to observe the changes in expectations and behavior of the same individuals over time. The press release provides a summary of the main findings from the survey.

Additional data, analysis, and resources may be viewed here.

By, Cassie Krause

The Centers for Disease Control and Prevention (CDC) issued a new eviction moratorium order last week having determined the evictions of tenants for failure to make rent or housing payments could be detrimental to public health control measures to slow the spread of SARS-CoV-2, the virus that causes COVID-19. The latest CDC order is narrower than previous moratoriums in that it applies in U.S. counties experiencing substantial and high levels of community transmission levels of SARS-CoV-2, as those terms are defined by CDC, as of August 3, 2021. The order is to expire on October 3, 2021. 

The eviction moratorium order sets forth that, subject to the limitations of the order’s applicability, a landlord, owner of a residential property, or other person with a legal right to pursue eviction or possessory action, shall not evict any covered person from any residential property in any county or U.S. territory while the county or territory is experiencing substantial or high levels of community transmission of SARS-CoV-2. For purposes of the order, CDC has defined “person” to include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.  

A “covered person” means any tenant, lessee, or resident of a residential property who provides to their landlord, the owner of the residential property, or other person with a legal right to pursue eviction or a possessory action, a declaration under penalty of perjury which indicates that:  

(1) The individual has used best efforts to obtain all available governmental assistance for rent or housing; 

(2) The individual either (a) earned no more than $99,000 (or $198,000 if filing jointly) in calendar year 2020 or expects to earn no more than $99,000 in annual income for calendar year 2021 (or no more than $198,000 if filing a joint tax return); (b) was not required to report any income in 2020 to the IRS; or (c) received an Economic Impact Payment (stimulus check); 

(3) The individual is unable to pay the full rent or make a full housing payment due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;  

(4) The individual is using best efforts to make timely partial rent payments that are as close to the full rent payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses;  

(5) Eviction would likely render the individual homeless — or force the individual to move into and reside in close quarters in a new congregate or shared living setting — because the individual has no other available housing options; and  

(6) The individual resides in a U.S. county experiencing substantial or high rates of community transmission levels of SARS-CoV-2.

The order defines both “substantial” and “high” for the purpose of determining which U.S. counties may be subject to the moratorium. Counties experiencing substantial transmission levels are experiencing 50.99-99.99 new cases in the county in the past 7 days divided by the population in the county multiplied by 100,000; and 8.00-9.99% positive nucleic acid amplification tests in the past 7 days (number of positive tests in the country during the past 7 days divided by the total number of tests performed in the county during the past 7 days).  

High transmission level is defined as ≥100 new cases in the county in the past 7 days divided by the population in the county multiplied by 100,000; and ≥ 10.00% positive nucleic amplification tests in the past 7 days (number of positive tests in the country during the past 7 days divided by the total number of tests performed in the county during the past 7 days). CDC has created a COVID Data Tracker which can be used to search the level of community transmission on a county level.

Before a landlord may proceed with an eviction, the landlord must review the virus transmission levels of the county where the residential property is located to determine whether the eviction moratorium is applicable. Landlords should also be aware that residential property means any property leased for residential purposes. This includes any house, building, mobile home or land in a mobile home park, or similar dwelling leased for residential purposes. The term includes manufactured housing communities. The term does not include any hotel, motel, or other guest house rented to a temporary guest or seasonal tenant as defined be state, tribal, or local laws.  

Currently, not all counties in Wisconsin are at the substantial or high-level community transmission level. Transmission levels will obviously change as each community is impacted by the virus, thus making monitoring of county transmission levels an important step. As mentioned above, the CDC order applies in U.S. counties experiencing substantial and high levels of community transmission levels of SARS-CoV-2 as of August 3. If a U.S. county that was not covered by the order as of August 3 later experiences substantial or high levels of community transmission while the order is in effect, then that county will become subject to the order as of the date the county begins experiencing the substantial or high levels of community transmission.  

If a U.S. county that is covered by the order no longer experiences substantial or high levels of community transmission for 14 consecutive days, then the order will no longer apply in that county, unless and until the county again experiences substantial or high levels of community transmission while the order is in effect.  

To assist covered persons with qualifying for protection under the order, CDC has created a standardized declaration form that can be completed and signed by the covered person. The form may be downloaded here.

Other resources to assist consumers seek help with rent and utilities may be found here.

WI DATCP Landlord Tenant COVID-19 FAQs

The CDC eviction moratorium order may be viewed here.

 

 

By, Cassie Krause

WBA Releases Results of Bank CEO Economic Conditions Survey

MADISON, Wis. – In the Wisconsin Bankers Association's biannual Economic Conditions Survey of Wisconsin bank CEOs, 76 percent of respondents rated the current economy at "good," followed by 15 percent at "excellent" and 10 percent at "fair." This marks a positive change from the end of 2020 when the survey was last conducted and 58 percent of respondents rated the economy at "fair," followed by 38 percent at "good," 3 percent at "excellent," and 1 percent at "poor."

"Wisconsin bank CEOs are in a unique position to provide insight on the economy because they see the day-to-day happenings with their customers and put that knowledge together with data and industry expertise," said WBA President and CEO Rose Oswald Poels. "It is very encouraging to see the economy improving as people begin to resume their spending on products and leisure activities in ways they were unable or hesitant to do six months or a year ago."

Many bank CEOs linked favorable economic conditions to pent-up demand for goods and services as COVID-19 restrictions lift, with government stimulus money, low unemployment, low interest rates, and savings built up from staying home bolstering consumer confidence. Commonly cited sources of economic concern, on the other hand, were workforce shortages, supply chain issues, and uncertainty surrounding COVID-19.

Wisconsin's economy will continue to grow over the next six months, predict 48 percent of respondents, while 39 percent predict it will stay the same and 13 percent predict it will weaken.

The survey was conducted the last two weeks of July with 62 respondents. Sums may not equal 100 percent due to rounding. Below is a breakdown of the survey questions and responses.

How would you rate the current health of the Wisconsin economy. . .

 

Excellent

15%

Good

76%

Fair

10%

Poor

0%

 

 

In the next six months, do you expect the Wisconsin economy to. . .

 

Grow

48%

Weaken

39%

Stay the same

13%

 

 

Rate the current demand in the following categories:

 

Business loans

 

Excellent

10%

Good

30%

Fair

52%

Poor

8%

 

 

Commercial real estate

 

Excellent

13%

Good

44%

Fair

33%

Poor

10%

 

 

Residential real estate

 

Excellent

40%

Good

48%

Fair

12%

Poor

0%

 

 

Agricultural

 

Excellent

2%

Good

34%

Fair

56%

Poor

8%

 

 

In the next six months, do you anticipate the demand for the following loan categories will. . .

 

Business loans

 

Grow

43%

Weaken

7%

Stay the same

51%

 

 

Commercial real estate

 

Grow

31%

Weaken

8%

Stay the same

31%

 

 

Residential real estate

 

Grow

14%

Weaken

41%

Stay the same

46%

 

 

Agricultural

 

Grow

18%

Weaken

6%

Stay the same

76%

 

 

In the next six months, are the businesses in your bank’s market area likely to. . .

 

Hire employees

82%

Maintain current staffing levels

15%

Lay off employees

3%

 

 

In the next six months, is your bank likely to. . .

 

Hire employees

48%

Maintain current staffing levels

45%

Lay off employees

6%

 

 

In general, how would you say the pandemic has affected your business customers?

 

Very positively

10%

Positively

34%

No impact

16%

Negatively

39%

Very negatively

2%

 

 

In general, how would you say the pandemic has affected your retail customers?

 

Very positively

3%

Positively

37%

No impact

17%

Negatively

41%

Very negatively

2%

 

 

 

By, Cassie Krause

  • The CPI jumped 0.9% in June, with the core CPI also up 0.9% over the month. A few categories experiencing strong demand and limited supplies coming out of the pandemic boosted inflation over the month.
  • Inflation as measured on a year-ago basis was at the highest levels in decades. However, this is overstated because of comparisons with the period of weak prices at the beginning of the pandemic.
  • Inflation will slow in the second half of 2021 as supply starts to catch up with demand.
  • With the current pickup in inflation due largely to one-time factors, the Federal Reserve is not expected to raise the federal funds rate until mid-2023.

The consumer price index for urban consumers jumped 0.9% in June from May, the biggest one-month increase since June 2008. The consensus expectation was for a 0.5% increase. The core CPI, excluding food and energy prices, was also up 0.9% over the month. This was the strongest one month of core inflation since the early 1980s. Overall CPI inflation was 0.6% in May, with core inflation at 0.7%.

Prices once again rose quickly for goods and services that are experiencing strong demand, but also supply disruptions, coming out of the pandemic. Used car and truck prices jumped 10.5% over the month, the biggest one-month gain ever (going back to 1953), after increases of 10.0% in April and 7.3% in May. The increase in used car prices alone accounted for more than one-third of overall inflation in June. New car prices were up 2.0% in June, lodging away from home costs were up 7.0% over the month, and airfares rose 2.7%, after a 7.0% increase in May. Energy prices rose 1.5% in June, including a 2.5% increase in gasoline prices. Food prices rose 0.8% over the month.

On a year-ago basis overall inflation was 5.4% in June, with core inflation of 4.5%, the fastest pace since 1991. However, this overstates inflation, because prices declined in March and April of 2020 when the pandemic came to the U.S. The overall CPI was up 4.7% in June from February 2020, before the pandemic, with the core CPI up 4.2% over the same period. Used car prices were up an astonishing 45% in June from a year earlier, rental car prices were up 88%, and auto insurance was up 11%. On the flip side, medical care costs were up a scant 0.4% in June from a year ago.

The headline inflation numbers have been eye-popping in recent months, but underlying inflation remains under control. Once again a few categories—used vehicles, airfares, rental cars, hotels—are experiencing huge price gains because of the recovery from the pandemic, and once again comparisons with weak prices a year earlier are overstating inflation. Both factors will wash out of the data in the near term. Used car prices are temporarily elevated because of very strong demand from stimulus payments, people returning to work, and limited supplies of new cars; used car supplies are also very low. Used car prices will fall back to earth later this year as new car production picks back up.

Similarly, airfares will decline as the airlines add capacity. And gasoline demand has picked up more quickly than supply as people return to work and start traveling again, but eventually higher prices will induce more oil production, resulting in lower energy prices. Also, comparisons with the period of very weak prices in the early stages of the pandemic will fade from the data, slowing inflation on a year-over-year basis.

Monthly inflation will be much slower in the second half of 2021 than in the first half of the year as demand pressures from the economic reopening fade and supply starts to catch up as businesses increase production. Year-over-year inflation will also be softer in the second half of the year. The Federal Reserve has made it clear that it views the current high inflation as due to transitory factors and will not tighten monetary policy until inflation is consistently at or above 2%, excluding one-time factors. (The Fed uses a different price index, the personal consumption expenditures price index, which tends to run a bit slower than the CPI.) PNC does not expect the next increase in the fed funds rate until mid-2023.

The big concern is that current high inflation gets built into consumers’ and businesses’ expectations, leading to higher long-run inflation, as happened in the 1970s. However, the temporary nature of current inflation pressures, and Fed watchfulness, should prevent this from happening.

Faucher is PNC's Chief Economist.

By, Ally Bates

By Rose Oswald Poels

Promoting financial education is an objective that I know many of you hold near and dear, especially as it relates to teaching our state’s youth about the importance of saving and maintaining good spending habits. This spring, over 60 banks gave virtual or in-person presentations to local schools through the Wisconsin Bankers Foundation’s Reading Raises Interest Kits. I know you are all dedicated to this spread of education year-round and I thank all of you for the work you do in the name of financial literacy. Still, we face a larger issue that continues to impact households across the country.

Wisconsin is ranked as one of the top states for households that have savings or checking accounts. In 2016, a survey found that 3.4% of its residents were considered unbanked compared to a 5% national average. While our leadership is something to be proud of, we can’t stop here. There are still many people who could benefit from the financial security of having a bank account. As part of WBA’s goals related to Diversity, Equity, and Inclusion (DEI) set by our Board and DEI Advisory Group, WBA continues to promote Bank On as an effective way for banks to offer these unbanked individuals and families with financial services.

Bank On was created by the Cities for Financial Empowerment (CFE) Fund to support the efforts of financial institutions and coalitions in connecting consumers to safe and affordable bank accounts. The reasons that someone may not have a bank account or is underbanked are widely varied, from issues with credit history to an overall distrust of financial institutions. Banks are in a unique position to turn these obstacles and misconceptions around.

Part of this solution has been the development of National Account Standards, which provide a benchmark for account partnerships with financial institutions. These standards include ways of eliminating socioeconomic barriers such as the omission of fees surrounding overdraft, account activation, closure, dormancy, inactivity, or low balances. For those banks that already meet the standards listed, I invite you to apply for the free national certification to raise awareness of your offerings. For those just shy of marking off the core features, I encourage you to review the potential steps toward meeting these requirements. It will undoubtedly offer a life-changing solution for unbanked and underbanked members of your community.

Nationally, nearly half of all Black households are unbanked or underbanked, and Hispanic households currently fall at 42%. Aiming to bring more people into the banking system might not feel groundbreaking at first, but it is a crucial part of bridging a gap and striving toward equity in our financial institutions. In doing so, we can assure that everyone has access to the support, security, and peace of mind that a bank can offer. It is important for banks to be on lists such as the one associated with the Bank On certification as the media, elected officials, and members of the public pay attention to them. Participating in Bank On helps close the economic gap and demonstrates the leadership role your bank and the industry are taking in this important effort. Thank you for considering this certification and contributing to the positive impacts it will have on individuals and the economy throughout our state.

The agricultural industry faces many challenges, and these have only been emphasized as a result of the pandemic. Through necessary reform such as the Enhancing Credit Opportunities in Rural America ECORA Act — legislation authored by Congressman Ron Kind (WI-03) to remove taxation on income from certain farm real estate loans made by FDIC-backed institutions — banks would be able to provide significant help by lowering loan rates and serving these borrowers in a more efficient manner. Advocating for the success of this industry requires a collective effort, and Senator Tammy Baldwin is one of these individuals making a powerful difference in Wisconsin’s ag community.

On April 29, Sen. Baldwin held her first hearing as chair of the Senate Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. The hearing, titled “Diversifying On-Farm Income: Opportunities to Strengthen Rural America” focused on how diversifying the operations of agriculture producers can result in more on-farm income as well as the challenges and opportunities of the industry.

“In Wisconsin and across the country, a strong agricultural economy is vital to a strong rural economy. As the pandemic continues to weigh on our rural communities and agriculture sector, we must deliver more support and solutions so our farmers and small businesses have the tools they need to get through this economic crisis,” said Sen. Baldwin.

Accessing newer and fairer markets has been a priority for Baldwin as well. As the discussion around climate change becomes more pressing, there is a growing number of farmers, ranchers, and agricultural workers looking to address this. Being able to assure profitability for these workers, who are also looking at solutions to climate issues, is a critical part of assisting the industry, though it has not come without obstacles.

Following the passage of the Economic Aid Act, farming partnerships were shut out from using a new and more generous loan calculation despite a co-authored provision by Baldwin and Sen. John Thune to allow sole-proprietor and self-employed farmers to use their gross income to calculate their maximum Paycheck Protection Program (PPP) loan. As a result of this, Sen. Baldwin along with several other legislators introduced bipartisan legislation titled PPP Flexibility for Farmers, Ranchers, and the Self-Employed Act to extend more relief to farmers in Wisconsin through PPP changes. This also included a fix that allowed self-employed farmers already receiving loan forgiveness to retroactively apply for another loan. The amount of the loan would be the difference between the former and latter loan, based on gross income.

“I’ve been working to make more resources and funding available for Wisconsin farmers so they can access the relief they need,” said Sen. Baldwin. “And as chair of the Senate Appropriations Subcommittee on Agriculture and Rural Development, I’m going to keep working across the aisle to ensure farmers and agriculture businesses have the tools they need to succeed and strengthen our rural economy.”

WBA looks forward to continuing its work with Sen. Baldwin to support Wisconsin’s agricultural industry by addressing these challenges and push for legislation.

By, Alex Paniagua

Statement on the release of first-quarter 2021 Federal Deposit Insurance Corporation (FDIC) numbers from Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association

  • The numbers demonstrate banks' financial strength and an improving economy.
  • Wisconsinites continue to save money as deposits have increased over the prior year (17%) and loan volume grew slightly.
  • A decrease in noncurrent loans and leases compared to last year (11%) shows more customers are up to date on their payments.
  • Banks continue to demonstrate their health through strong earnings and positive growth.

“Wisconsin banks maintained a strong financial position throughout the last year as they assisted with the financial stresses of their customers through the pandemic. Commercial and industrial loans grew nearly 20 percent year over year in part due to Paycheck Protection Program (PPP) lending, providing businesses with critical money to ensure employees were paid. Looking ahead, strong capital and liquidity levels position Wisconsin banks well to respond to customers' lending needs.” 

FDIC-Reported Wisconsin Numbers*  

  

 3/31/2021

 3/31/2020

 YoY Change 

Net loans and leases  

 92,216,891

 88,536,369

 +4.16%

Total deposits  

 111,104,235 

 94,965,014

 +16.99%

Commercial and industrial loans  

 18,592,639

 15,494,730

 +19.99% 

Residential loans  

 22,702,118

 24,007,126

 -5.44%

Farmland loans  

 3,490,057

 3,568,243

 -2.19%

Farm loans  

 3,690,631

 3,970,903

 -7.06%

Total assets  

 136,441,222

 121,634,760 

 +12.17%

Noncurrent loans and leases  

 610,802

 689,260

 -11.38%

 * dollar figures in thousands 

###

About the Wisconsin Bankers Association
Founded in 1892, WBA is the state’s largest financial industry trade association, representing more than 200 commercial banks and savings institutions, their branches, and over 21,000 employees. The Association represents banks of all sizes in Wisconsin, and nearly 98 percent of banks in the state are WBA members. 

By, Cassie Krause

  • After-tax personal income rose 24% in March from February, the biggest increase on record, thanks to stimulus payments.
  • Consumer spending rose 4% over the month.
  • Consumer spending growth will remain very strong for the next couple of years as households gradually spend their saved stimulus payments.
  • Inflation accelerated somewhat in March but remains under control.

Personal income jumped more than 21% between February and March as many households received government stimulus payments. Transfer payments almost doubled over the month (up 95%) while labor income rose 1%. Disposable personal income (after-tax income) rose 24% over the month. These were the largest increases in personal income and after-tax personal income in U.S. history.

Spending rose more than 4% in March from February. Spending on durable goods jumped 11%, while spending on nondurable goods rose more than 6%. Services spending rose a more modest 2% over the month, as the pandemic and associated government restrictions remained a drag. Spending growth during the recovery from the Viral Recession has skewed very heavily towards goods.

While the March gain in spending was extremely large, it was smaller than the 9% increase in May 2020 and the 6% increase in June 2020 as businesses began to reopen after the early stages of the pandemic. Some of the March increase in spending came from a rebound from February, when spending fell 1%, in part because of winter storms in much of the country.

With a huge increase in income, and a large but much smaller increase in consumer spending, the personal saving rate jumped to 27.6%, the second-highest monthly saving rate on record, behind only the 34% rate in April 2020. The personal saving rate was 13.9% in February, already well above the long-run average.

The personal consumption expenditures price index rose 0.5% over the month, in part because of higher gasoline prices. This was the highest month of PCE inflation since 2009. Core PCE inflation, excluding volatile food and energy prices, rose 0.4% in March (0.36% before rounding), somewhat higher than the recent trend. But PCE inflation on a year-ago basis was still mild: 2.3% for overall and 1.8% for core. These were accelerations from February (1.5% and 1.4%, respectively), but much of the acceleration came from comparisons with March 2020, when prices outright declined as the pandemic took hold. At this point, inflation is not ringing alarm bells at the Federal Reserve.

Real (after adjustment for inflation) disposable personal income rose 23% in March, also the biggest increase on record. Real consumer spending was up 3.6%.

Consumer spending growth will be exceedingly strong through the rest of 2021 and into 2022, supporting a robust U.S. economic recovery. Households have saved up a lot of money from stimulus payments over the last year and will be looking to spend those funds thanks to vaccinations, falling coronavirus caseloads, and easing government restrictions. Overall personal income will fall as transfer payments fade, but huge levels of savings will allow consumers to buy more. Other positives for consumer spending over the next couple of years will be job gains, very low interest rates, and rising home values and stock prices that are boosting household wealth. Spending growth will shift from goods to services as the pandemic recedes.

Inflation picked up in March but remains under control. Some of the increase came from comparisons with March 2020, when prices started to fall as demand plummeted at the beginning of the pandemic. This will remain a factor over the next few months. But some of the acceleration in inflation is also coming from price pressures. Demand is very strong for some goods and services, and supply-chain disruptions are restricting supplies of some goods. These factors will remain in play throughout 2021. But inflation has been too low for years from the Fed’s perspective, and it would welcome somewhat higher inflation. Given this, U.S. monetary policy is likely to remain highly expansionary for another couple of years. The Fed will prevent inflation from getting out of hand, however.

By, Cassie Krause

Events

Don’t miss this unique Midwest and national economic forecast for 2022!

Presented by the Wisconsin Bankers Association, in partnership with the Minnesota Bankers Association and Montana Bankers Association.

Tuesday, January 4, 2022 – 10:30 a.m. – Noon CT (11:30 a.m.–1:00 p.m. ET or 9:30–11:00 a.m. MT)

Prepare for 2022 by joining an economic outlook with Minneapolis Fed President Neel Kashkari during this virtual event. Then listen to Dr. David Kohl, Economist and Professor Emeritus with Virginia Tech, as he dives into the economic mega trends he expects in 2022 and beyond.

Bankers are encouraged to invite their best clients to virtually share these economic insights. Individual and group registration rates are available.

Virtual Forum Agenda

10:30 – 11:15 a.m. CT

An Economic Outlook with Federal Reserve Bank President Neel Kashkari

Time will be allotted for open Q & A.

11:15 a.m.–Noon CT

Economic Mega Trends 2022 and Beyond with Dr. David Kohl

The pandemic and geopolitical risk has accelerated change in economics and businesses in the U.S. and globally. Bankers, financial services representatives, and regulators must be in the position to interpret both domestic and global economic forces and mega trends that will impact the financial health of their institutions and customers. What are the global economic disruptors and power shifts? How will trade, geopolitics, supply chains, climate changes, and weather in extremes impact competitors? How will the stimulus package and Central Bank’s accommodative policy impact strategic positioning? What are some major mega trends on the horizon? What are the lead and lag indicators that need to be on the dashboards of decision makers? Join Dr. Kohl, an economist and small business person who has traveled over 10 million air miles, delivered 9,000 plus speeches, and presented over 350 webinars connect the dots, and provide wisdom for those walking in the ever-changing economic and business space.

Who Should Attend?

Bank leaders with an interest in the economic and business environment will find value in hearing from our nationally-recognized speakers. Bankers are encouraged to invite their business customers to attend as a part of the bank’s group of attendees. Group pricing is available for your bank. Associate Members of the presenting state bankers associations are also invited to register to attend.

Registration Information

Registration is available individually or as a group. Take advantage of our group pricing to invite additional staff and business customers to join your bank in attending!

  • Individual Registration – $39/connection
  • Group Registration – up to 10 virtual connections – $149/group

Limited sponsorship opportunities are available for this multi-state event. Contact WBA’s Lori Kalscheuer via email for more information.

Media Inquiries: For a Media Registration for the event, please contact WBA’s Cassandra Krause at 608-441-1216 or ckrause@wisbank.com. Advance registration is required.