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5 Economic Trends to Watch in Commercial Banking

2020 was a chaotic year for everyone, and the financial sector was no exception. Early 2020 saw massive disruption to supply lines and a cratering stock market, and though the stock market has largely recovered, the job market and consumer confidence will take longer to bounce back.

With COVID-19 vaccines rolling out and infection rates dropping, the economy is likely to begin recovering this year. We might not see a V-shaped return to 2019 levels, but there are a few trends that we’re keeping our eye on going forward.

1. A Return to Pre-Pandemic GDP

GDP dropped significantly in 2020, though much of the gap was made up by enormous stimulus packages for individuals and small businesses. Now, following growth of 5–7 percent in the fourth quarter, GDP has nearly recovered its losses.

Bolstering this growth is the household saving rate, which almost doubled last year to 12.9 percent. Since consumers haven’t been able to vacation or go out to eat for the better part of a year, this adds up to a potential $1.5 trillion in unspent cash that experts believe will be spent in large part by the end of this year, helping businesses bounce back.

2. Rapid Fiscal Recovery in Early 2021

Though the disruptions of the pandemic haven’t gone away — restaurant occupancy is still nowhere near pre-pandemic levels, for example — Congress has passed several stimulus packages aimed at households and businesses that amount to about 4.5 percent of GDP.

Though the stimulus packages don’t include funding for state and local governments, the tax shortfalls expected in 2020 haven’t been as bad as expected. In addition, the Federal Reserve is likely to keep interest rates low for the foreseeable future, helping businesses recover.

3. Slow Job Recovery

Employment is not likely to recover as quickly as other economic factors. More than 10 million jobs were lost in 2020, and even if job growth recovers at double its pre-pandemic rate, a return to the unemployment rate of 2019 will take years.

The Federal Reserve anticipates steady job creation throughout 2021, but their median forecast projects that unemployment will fall to around five percent by the end of the year — still a long way from the 3.5 percent rate we saw in January of 2020 before the pandemic took effect.

4. Minimal Risk of Inflation

There are concerns that these unprecedented stimulus packages might create a spike in inflation, but we’re not concerned. Rather than creating artificial demand, these packages have largely replaced lost income. As unemployed workers find new jobs and business revenues climb, federal aid will taper off organically.

We also expect that the U.S. dollar will hold its value against major global currencies. In addition, bond markets were mostly unaffected by the CARES Act, since most of the new debt was absorbed by the Fed’s asset purchasing program. Our long-term outlook on inflation is optimistic.

5. Strong Equity Markets

We were all surprised at how quickly the stock market recovered during the pandemic — the dip that took nearly four years to bounce back after the 2008 crash took only six months in 2020. While the pandemic damaged companies in the short term, investors always assumed that its effects would be transitory.

Globally, the emerging economies of China and India haven’t gone away during the pandemic, and their long-term growth is likely to drive American expansion for decades to come.

Talk to First Western Bank

At First Western Trust Bank, we’ve been keeping a close eye on the chaos and turbulence of the pandemic and ensuing economic effects. Looking forward, we’ll have our fingers on the pulse of developing trends that might affect your commercial banking goals. We pride ourselves on a holistic approach to banking — we know that every company is different, so we’ll examine every aspect of your company’s finances, values, and priorities to craft a financial plan that’s right for you. Ready to get started? Contact us today.

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