Looking at 2010, there are some very significant indicators of how the world and markets will trend. The recession has thrown a kink into goal-setting based on historical data, so in order to predict what will happen in 2010, it’s important to look at the following indices:
• Cash flow - The unemployment, saving and spending rates illustrates whether or not the population has cash flow to spend. They also help to show how consumers look at the world and how they feel the economy is performing.
• Housing market - Once considered the ultimate investment to have, the housing market has taken a beating over the past few years. However, sales and foreclosures are important sectors to look at because they will also help to indicate buyer confidence in the market and significant revenue impacts to the financial industry.
• Government – Under the Obama administration, there has been a lot of talk about reining in the financial industry to help prevent future financial crises. With more policies aimed at tighter lending laws, the government will play a significant role in 2010.
First and foremost is the consumer. In December 2009, the US received a silver lining on the recession cloud. The unemployment rate had gone down in November and then remained unchanged in December. While this is excellent news that provides a glimpse of hope, the unemployment rate is still at 10 percent. This percentage represents a total of 15.3 million who are currently unemployed, according to the Bureau of Labor Statistics. This number of unemployed citizens has more than doubled since the start of the recession in December 2007 when there were only 7.5 million unemployed. So, while there is good news that the rate of unemployment may be slowing, this is still a significant number of Americans who are out of work and, as consequences, will not be spending and may also face foreclosure.
The personal saving rate was 4.7 percent in November 2009. Although this may be shocking to the financial industry compared with numbers from .8 to 2.6 percent prior to the financial crisis, it is a decent percentage rate of saving that has remained stable for the past year. In 2010 this rate will surely continue—if not decrease—as consumer confidence continues to rise. It’s important for financial institutions to recognize that consumers are still interested in saving their money, and should therefore be prepared to offer or feature their savings options in their marketing.
One trend that will help the economy in 2010 is that the consumer on average received a bump in disposable personal income by .5 percent in November 2009. While this may have led to increases in retail sales for the December 2009 holiday, it’s impossible to know how this has impacted the economy. With wages on the rise and the amount of personal income increasing,
2010 is a good time to start focusing on investments, as there has been significant turnaround in the stock market in 2009. While this may indicate that there will be a return of the economy, there’s never certainty in the stock market. The rise in stock prices does help to reinforce consumer confidence, but consumers are equally as volatile as the stock market. Any major dip and consumers may get scared and pull their money, which becomes a self-fulfilling prophecy.
Despite a turnaround in consumer spending and income, 2009 was not a good year for lending. For the first time in 37 years, the real estate market had negative growth in lending. Consumer loans as well had decreased growth, but the biggest impact in lending is in the commercial and industrial lending area. This area can really make or break a financial institution. Because commercial loans tend to be large and their growth in areas like commercial retail space and home development is heavily dependent on the economy, the major decline in lending equates to revenue loss for many financial institutions. Additionally, the sale of new residential properties suffered from continued decline. The construction industry is not likely to rebound anytime soon and continued decline in commercial loans is expected in 2010. The biggest thing to watch out for in this category is that construction companies are going to have difficulties unloading inventory to make their monthly payments; financial institutions should continue to work with the borrowers to make sure that payments will continue.
On the consumer side, the housing market last year wasn’t as grim as it could have been. Government programs like the first time homebuyer tax credits have helped to keep the inventory of homes lowered. But unless the government continues to institute new programs to keep the housing market moving, it will stall out again in 2010. On the mortgage lending side, FHA loans have helped to keep the market from completely crashing. According to the National Association of Realtors, 39 percent of recent buyers used an FHA-insured loan. In 2010, it is extremely important for lenders to focus on offering FHA loans because of their popularity. The inventory of homes has been decreasing, which, according to the principles of economics, should help to increase the price. Unfortunately, in 2009 prices continued to decline and January is already showing signs of being a slow month—so prices may continue to decline in 2010, hurting both sellers and bank-owned properties as well.
There is hope, however. Foreclosure activity is starting to show a decline. While November 2009 decreased by 8 percent over the previous month, there are still a significant number of properties being foreclosed on. Foreclosures will continue well into 2010, but the slowing of the number being foreclosed on is definitely a positive sign. If the government increases its programs for homebuyers, this will help to keep the prices from falling.
Government policies have impacted the rules by which the credit and lending industry needs to live by in 2010. This should come as no surprise to anyone. The housing crisis and loose lending rules have led to more strict lending guidelines. But more so than that, the Obama administration is striving to really change the way that consumers are protected. In 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act that will go into effect in February 2010. According to the White House, Americans pay around $15 billion in penalty fees each year. That’s a lot of revenue that credit card companies are going to have to survive without. 2010 may prove to be a year when many financial industries continue to struggle.
As the debate over government-mandated financial regulation continues, one thing is clear: the government will continue to look at policies aimed at keeping lending guidelines more strict so that we don’t repeat the 2008 financial crisis. This will help to shape how 2010 will fare in the financial industry and is extremely important to watch.
2010 will be a year of ups and downs. While it looks like the economy on the consumer side is turning around, it will be a year in which financial institutions will really have to reach out to consumers to capitalize on their disposable income and positive outlook.
Keeping up with the customer in 2010 means changing the way you communicate. With new products and lending guidelines changing, it will be more difficult than ever to keep your customers updated. Some of the emerging technologies have been mobile banking and the use of social networking. Using these media as a way to keep in touch with consumers will establish your financial institution as a thought leader in the ever-changing times of 2010 and may help you stave off significant losses.
