Savannah Chamber

8 2 credit. Lenders will loosen credit to most customers—even those with poor credit scores. Job growth, the lower unemployment rate, and appreciated asset values will support credit growth. Household balance sheets are in very good shape, which bodes well for credit growth. Due to fiscal stimulus, low interest rates, surging home prices, and forbearance, bankruptcy filings fell to historic lows in 2021. Credit will be more available and very inexpensive. As forbearance policies end, bankruptcies probably will increase, but will be curtailed by the improving economy and higher home prices. Most consumers are well positioned to take on additional credit because their debt burdens are low. Specifically, the ratio of debt service payments to households' after-tax income was under 10 percent before the Covid recession and fell to 9 percent in 2021. The ratio is expected to rise slightly to 10 percent in 2022, which is low. In comparison, the debt service ratio was 13 percent leading up to the Great Recession. Another positive for consumer spending is that many households have locked in historically low mortgage rates. Excellent housing market conditions will encourage homeowners to spend heavily for home improvements using accumulated savings, funds from mortgage refinancing, and funds obtained by taking on slightly more home equity debt. Such spending is high octane fuel for the economy. The proportion of homeowners who extract cash from the refinancing of their home mortgages will rise, but it will not surge like it did during the last housing boom. Consumer confidence will support growth in consumer spending. In 2022, job growth should keep confidence from wavering, but concerns about inflation will prevent confidence from increasing further. Nonetheless, steady confidence will support stronger spending for leisure travel and personal services, which favors the use of bankcard credit. Less positively, wealth-effect spending will probably be absent and could turn negative in 2022. Over the last two years, the global savings glut pushed up the prices of almost all types of assets. Many assets are overvalued, but housing is not. People currently put a higher priority on home ownership than they did prior to the pandemic. We believe there's still some upside potential for single-family home prices given strong demand coupled with a limited supply of existing homes on the market, and the relative paucity of new homes under construction. Nonetheless, home price increases will be more modest and thus will not add enough to households' net worth to compensate for potentially lower prices for bonds and equities. By any historical measure, bonds and equities are very richly valued. Bond prices probably will weaken only slightly in 2022 but will be vulnerable to larger corrections a bit further out on the forecast horizon. Equity markets will be vulnerable to correction, however. The absence of wealth-effect spending and the heightened possibility its reversal is a fundamental concern for consumer spending in 2022. Growth in household wealth has risen since 2009, exceeding income growth in most years. A downturn in stock markets would reduce financial equity wealth, which would be a negative for consumer spending. Still, due to the excess of savings accumulated over 2020-21, it would take a major stock market reversal to produce an outright decline in consumer spending. Since we do not see an obvious trigger for a major reversal, a moderate decline in equity prices is the most likely outcome. That would slow, but not stop growth in consumer spending. Spending for services will increase faster than spending for goods. In part, this represents easy comparisons to low prior -year bases as well as the satisfaction of deferred demand for services that were not purchased during the pandemic. Nonetheless, pent-up demand for services does not accumulate to the same degree that it does for durable goods due to the nature of services. Vaccinations and some degree of herd immunity will boost sales for many of the high-contact service businesses that are unable to fully normalize as long as people remain highly concerned about catching Covid. Among services, providers of healthcare will see above-average growth in spending.

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