Deposits Poised to Drop as Inflation Impacts Workers & Retirees

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Record-high banking deposits are poised to finally decline going into summer of 2022 as local households continue drawing down their unprecedented savings to afford today’s price inflation for goods and services. This is according to the latest analysis by the California and Nevada Credit Union Leagues (view 13 local-trend geographies across California and Nevada here).

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What’s more: even as inflation is expected to begin moderating sometime later this year, former workers and recent retirees may start trickling back into the job market at a faster pace this summer, which continues posting a record-high number of employment openings. Some households will decide the way to combat recent inflation going into the second-half of 2022 is to go back to work and recoup household earnings, which might push up the labor force (pool of individuals able and willing to work) closer to its pre-COVID pandemic level.

The Latest Trend
Going into second-quarter 2022, workers in the local labor market were reaping the benefits of a major historical financial cushion coming out of late 2021 and early 2022. Local household “savings” in checking and all other combined deposit accounts hit their highest levels ever experienced at 279 locally-headquartered credit unions in California and 15 in Nevada, with this total-deposit figure skyrocketing 37 percent in California from pre-pandemic fourth quarter 2019 to fourth quarter 2021 (and 45 percent in Nevada).

This trend represents an unprecedented two-year increase according to the latest California Credit Union Industry Snapshot and Nevada Credit Union Industry Snapshot reports released this week by the Leagues. By extension, the entire U.S. credit union industry is most likely experiencing this same phenomenon by banking consumers nationwide.

The Big Picture
“As households’ financial flexibility is eroded by inflation and they continue drawing down their deposit savings, some former workers and recent retirees are starting to take note of the healthy jobs market and record-high number of open positions,” said Dr. Robert Eyler, contract economist for the Leagues. “This summer will be an interesting inflection point as record-high employment openings intersect with persistent inflation costs on households and ongoing ‘recession’ jitters — all against the backdrop of rising short-term interest rates for deposits and lending.”

Putting aside any potential economic recession, Eyler said businesses and policymakers in California and Nevada can expect the excess demand for workers by employers to continue through 2022 as part of the “shadow effect” of the COVID-19 pandemic and resulting public health policies. “How employers look for workers going into 2023 will depend on how the national and state economies experience anticipated slower growth with rising global uncertainty and any potential lingering effects of COVID-19,” he said.

Deposit and Loan Data
Collectively, deposits made by California credit union members rose from $177 billion to $243 billion during the December 2019 to December 2021 period and from $4.7 billion to $6.8 billion in Nevada — a statistically significant barometer of local financial and banking activity. No other two-year period in recent history has experienced such an unprecedented boost in California and Nevada credit union deposits by members and households to the tune of a combined-state net positive $68 billion.

Altogether in California, credit union members (individual consumers), total loans, and total deposits either remained-at or reached record highs by Dec. 31, 2021 compared to the year-ago period, with 13.3 million members (consumers) and $154 billion in outstanding loans supporting local consumers and businesses.

Altogether in Nevada, credit union members (individual consumers), total loans, and total deposits either remained-at or reached record highs by Dec. 31, 2021 compared to the year-ago period, with 382,000 members (consumers) and $3.6 billion in outstanding loans supporting local consumers and businesses.

You can view the individual California and Nevada snapshot reports (above) for details on local first mortgages, HELOCs/home equity loans, new auto loans, used auto loans, credit card lending, and business loans, as well as checking accounts, savings accounts, money market accounts, certificates of deposit, and IRA/Keogh accounts. Local regions include: Bay Area, California, Central Coast, Central Valley, Greater Napa Valley, Northern California, Sacramento County, San Diego Region, Southern California, Ventura County, Nevada, Southern Nevada, and Northern Nevada.

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