Category: Banking

It’s hard enough to find the right property for your business. How do you decide if you should buy or lease commercial real estate? Of course, there are pros and cons with both options, including the opportunity to build equity and profit off a future resale that comes with buying property. In this guide, we’ll walk you through the step-by-step process of figuring out whether to rent or buy, and then how to secure financing for a purchase if you go that route. As always, our friendly and experienced Commercial Lending Team is here to answer any questions you have.

Renting Commercial Real Estate: Pros and Cons

Learn about the potential benefits of renting commercial office or business space.

• Lower upfront costs (security deposit and first month’s rent instead of a down payment and closing costs)
• No ongoing maintenance costs after you’ve set up the space the way you want it
• If you outgrow your space or don’t like it anymore, you can move when your lease is up
• Access to desirable locations/buildings that may not be for sale

On the other hand, keep these possible downsides in mind as you decide.

• No opportunity to build equity or benefit from capital appreciation
• No passive income from renting out part of your space to others
• Monthly rent expense never goes away, unlike if you pay off a commercial mortgage
• May have upkeep expenses on some leases
• Potential for rent increases (potentially annually, cost variability becomes a possibility)

Buying Commercial Real Estate: Pros and Cons

Leaning towards purchasing a space of your own in northern Vermont or northern New Hampshire instead of renting? The advantages for your business include:

• Build equity as you pay down your commercial real estate loan and the property value increases
• May be able to take tax deductions for interest, depreciation, and other expenses
• More control over the property and decisions about your office/business space
• Potential for passive income from renting part or all of the space to others
• Any improvements you make to the space will add value for you as the owner
• Fixed monthly mortgage payments instead of variable rent costs

On the other hand, buying commercial real estate may come with some or all of the following challenges:

• Up-front down payment will range from 10-25% for an existing structure and roughly 40% for land, as well as closing costs and other fees
• May have trouble qualifying for a commercial real estate loan
• Ongoing maintenance costs
• Less flexibility to move
• Liability

Commercial Real Estate Trends in New Hampshire

The pandemic has disrupted the commercial real estate market across the country, making it hard to predict trends in northern New Hampshire. When making your own decisions about investing in commercial real estate or purchasing a property for your business, take your time to do the research and pay attention to current labor trends, tenancy rates, and real estate prices. Helpful resources include:

• LoopNet’s Market Trends provides commercial real estate statistics dating to 2006 for several New Hampshire metro areas.
• The Federal Reserve of Boston publishes a monthly economic summary for New Hampshire with data on income, housing permits, exports, etc. The Federal Bureau of Labor Statistics updates New Hampshire labor data each month as well.

Commercial Real Estate Trends in Vermont

For those looking to take their next step in researching commercial real estate in Vermont, there are similar resources available that can help you learn more:

Legal Considerations

If you decide to purchase commercial real estate in northern Vermont, make sure you’re aware of the legal responsibilities and considerations.

• The Vermont Landlord Association (VLA) is a trade association representing commercial landlords.
• In Vermont, commercial and nonresidential property owners may charge rental application fees.

Financing Options for Commercial Real Estate

Real estate is a local business, so when you’re looking for a commercial land loan or other type of commercial real estate loan in northern Vermont or northern New Hampshire, you want to work with a local bank who knows the market, especially in Coos. Grafton and Carroll county. Union Bank offers a full range of real estate loan options for purchasing and building commercial real estate:

• Commercial Construction Loans
• Commercial Land Loans
• Real Estate Development Loans

Learn More About Real Estate Loans from Union Bank!

As a business owner, you have plenty of options for your business’s headquarters/home base. So, consider what is best for your needs when deciding between renting and buying. Still have questions or ready to start exploring the buying process? For more help with the buying process, Union Bank is here to be your local commercial real estate expert for northern Vermont and northern New Hampshire, including Coos, Grafton and Carroll county.

At Union Bank, our real estate development lenders provide personalized service throughout the application process. We are here to answer your questions, help you complete your paperwork, and more.

Stay Local with all of your Real Estate Loan needs and Go Far!

Want to learn more? Get in touch with our Commercial Lending Team and we’ll walk you through the best options for your business needs.

The Federal Reserve has a mandate from Congress to promote stable prices and maximum sustainable employment. The Federal Open Market Committee’s (FOMC’s) monetary policy framework spells out its strategy to achieve these goals over the medium and longer run.

During 2019 and the first half of 2020, the Fed undertook a review of its monetary policy strategy, tools and communications. Following that review, the Fed introduced a new monetary policy framework in August 2020. The one-year anniversary provides an opportunity to reflect on the FOMC’s execution of the new framework so far, particularly with respect to inflation.

Some Key Changes to the Framework

The FOMC made several key changes to its statement on longer-run goals and monetary policy strategy, a few of which I will discuss here.

Two of the main changes were related to the employment side of the Fed’s mandate. In the updated statement, the FOMC stressed that the employment goal is broad-based and inclusive, affecting all parts of the labor market and not just certain segments. The updated statement also suggests that monetary policy decisions will aim to reduce shortfalls—rather than deviations (as the prior statement said)—of employment from its maximum sustainable level. With this second change, the FOMC is stressing that it will react to high unemployment but not to particularly low unemployment unless inflation is threatening the economy.

Another key change to the statement on longer-run goals is related to how the FOMC aims to achieve the price stability goal. Under the new framework, the FOMC will focus on hitting an inflation rate of 2% on average over time. To do so, the FOMC will aim for inflation to run moderately higher than the 2% target for some time to make up for past misses of inflation to the low side of the target. This new strategy is referred to as flexible average inflation targeting, and it should help center longer-term inflation expectations at 2% and reinforce the inflation target.

Importance of Credibility for Inflation Target

The credibility of monetary policymakers is one of the most important aspects in central banking. In January 2012, the FOMC established an explicit inflation target of 2%, which is an international standard. But U.S. inflation generally came in below target over the next several years, with inflation averaging about 1.4% from 2012 to 2020 (as measured by the year-over-year percentage change in the price index for personal consumption expenditures [PCE]). This caused some concern on the FOMC that the 2% inflation target was losing credibility.

By making up for past misses under the new framework, the idea is that inflation will average 2% over time, which will enhance credibility for the inflation target. This also means that investors, businesspeople and consumers can confidently make economic decisions knowing what the inflation outcomes are going to be.

Inflation Moderately Above Target for Some Time

When the FOMC announced last year that we would allow inflation to run moderately above target for some time, many wondered how we would get inflation above target given that it had been below target for several years. As it turned out, we happen to be in a situation in the very first year of the new framework in which inflation is actually above target and some measures of inflation expectations have moved higher. The graph below shows two such measures.

NOTES: The market-based inflation expectations shown in the graph are based on consumer price index inflation measures. I subtracted 30 basis points to roughly translate to a PCE inflation basis.

The FOMC’s Summary of Economic Projections from June indicates that the FOMC expects that inflation will be above target for some time. Both headline PCE inflation and core PCE inflation are projected to be well over 2% in 2021 and continue to be over 2% in 2022 and 2023, according to the median projections among the FOMC participants. For instance, the median projections for core PCE inflation are 3.0% in 2021, 2.1% in 2022 and 2.1% in 2023. For illustration purposes, if those projections are realized, then inflation will have run above target for some time (in this case, three years) and would average about 2% from 2019 to 2023.

Of course, data are noisy, and other factors may affect inflation in unexpected ways over the next few years. But taking this simple calculation at face value illustrates what the FOMC is trying to do under the new framework, which is to allow inflation to run moderately above target for some time and hit an average inflation rate of 2% over time. Should this occur over the coming years, it would support the strategy of flexible average inflation targeting.

Endnotes

1. The mandate also includes promoting moderate long-term interest rates.
2. Fed Chair Jerome Powell announced the new framework in a speech on Aug. 27, 2020, at the Kansas City Fed’s economic policy symposium in Jackson Hole, Wyo. Also see the FOMC’s latest “Statement on Longer-Run Goals and Monetary Policy Strategy.”
3. Although this is not discussed in detail here, the FOMC also enhanced its references to financial stability as an important consideration in policy deliberations.
4. FOMC participants’ projections are made under their assumption of optimal monetary policy.

Since the COVID-19 pandemic began in March 2020, the world economy has been affected in many ways. Poorer countries have suffered the most, but, despite their greater resources, wealthier countries have faced their own challenges. This article looks at the impact of COVID-19 in different areas of the world.

First, I put 171 nations into three groups according to per capita income: low, middle and high income. Second, I examined health statistics to show how hard-hit by the virus these nations were. Then, by comparing economic forecasts the International Monetary Fund (IMF) made in October 2019 (pre-pandemic) for 2020 with their actual values, I obtained estimates for the pandemic’s impact on growth and key economic policy variables.

Low- and high-income groups each compose 25% of the world’s countries, and the middle-income group makes up 50%. Average income per capita in 2019 was more than five times larger in the middle-income group than in the low-income group. In the high-income countries, it was almost 20 times larger.

Health Outcomes and Policies

The first table shows that COVID-19 had a significant impact on all three groups. Average excess mortality, which indicates how much larger the number of deaths was relative to previous years, was more than 34% in low-income countries, almost 14% in middle-income countries and about 10% in high-income countries. And even though poorer countries were more affected by deaths, their COVID-19 testing was much more limited given their smaller resources.

Since the beginning of the pandemic, high-income countries did more than one test per person, while low-income countries did only one test per 27 people (or 0.037 per person). Given the significant differences in testing, it is not surprising that reported cases were much higher in wealthier countries. Finally, note that there were significant differences in the progress of vaccination. As of June 2021, nearly 20% of the population in the wealthiest countries was fully vaccinated compared to about 2% in the poorest countries.

Impact on GDP Growth

COVID-19-related lockdowns were very common during 2020-21, directly impacting economic activity. The figure below shows the impact on GDP. To isolate the impact of COVID-19 from previous trends, I plotted the difference between the actual GDP growth in 2020 and the IMF forecast made in October 2019.

The immediate consequence of closing many sectors of the economy was a significant decline in GDP growth, which was as large as 8.7 percentage points for the median middle-income countries. Wealthier countries suffered a bit less, with a median of 6.4 percentage points, mainly because they began to recover before the end of 2020. The impact of COVID-19 was smaller in poorer countries because many did not have the resources to implement strict lockdowns. However, even in this group of countries, median GDP growth was 5.2 percentage points lower than expected.

SOURCES: IMF World Economic Outlook Reports (April 2021 and October 2019), Penn World Table (version 10.0) and author’s calculations.

NOTE: The COVID-19 impact is the difference between the actual gross domestic product growth rate in 2020 and the IMF forecast for it made in October 2019.

Economic Policies

Differences in GDP performance are not only related to lockdowns but also to economic policy responses. The second table contains information about six policy variables.

In particular, the first three rows present the fiscal response to the pandemic computed as the difference between the actual value in 2020 and the IMF forecast made before the pandemic in October 2019 relative to GDP. Revenue relative to GDP declined slightly in all regions, but mostly in middle-income countries, reaching more than 1 percentage point of GDP.

Expenditures relative to GDP, however, increased in middle- and high-income countries while remaining stable in low-income countries. These expenditures increased by nearly 7 percentage points of GDP in high-income countries. The more significant fiscal deficit relative to GDP implied a larger increase in net government borrowing, which reached 7 percentage points of GDP in the median high-income countries.

Finally, COVID-19 also had a clear impact on the evolution of monetary aggregates such as cash and deposits. In the table, to isolate the impact of COVID-19 from previous trends, I present the growth rate of M1 and M2 net of the yearly growth rates of these variables between 2017 and 2019. The pandemic implied an increase in the growth rate of monetary aggregates across countries in all income groups, but more significantly in wealthier countries.

For instance, the growth rate in M1 was over 10 percentage points larger than in the previous two years in the median high-income countries. Without a change in money demand, such an acceleration in the quantity of money would have implied increasing inflation.

However, the last row of the table shows that inflation remained stable in 2020. In fact, for middle- and high-income countries, inflation in 2020 was lower than the IMF forecast made in October 2019.

Conclusions

COVID-19 impacted health outcomes in all regions of the world. Wealthier countries responded with more testing and quicker vaccination rates. Comparing actual outcomes with pre-pandemic forecasts, I found a significant impact of the pandemic on GDP growth, which is more prominent in middle-income countries.

I conjecture that the impact on GDP growth was less significant in the poorest countries because of less restrictive lockdowns and in the wealthiest countries because of more aggressive economic policies.

Endnote

1. M1 generally includes physical currency, demand deposits, traveler’s checks and other checkable deposits. M2 generally includes M1 plus savings deposits, money market securities, mutual funds and other time deposits. Note that the above definitions can differ slightly by country.

Child poverty in the United States is pervasive, affecting nearly 1 in 7 children. Living in poverty is defined as having a family income below a certain threshold—adjusted for the number of adults and children in a household—and has been shown to have long-run impacts on health, education and the income children have as adults.

Changes to the federal CTC implemented in the American Rescue Plan Act of 2021 are meant to reduce childhood poverty and income instability. For this article, we looked at rates of child poverty and income volatility within the Eighth Federal Reserve District and throughout the U.S.

Child Tax Credit

The CTC, introduced in 1998, previously offered up to $2,000 per dependent younger than 16 and was refundable up to $1,400. The American Rescue Plan, which was signed into law in March, expanded the CTC for 2021 up to $3,000 per child between ages 6 and 17 and $3,600 per child younger than 6, with the entire credit being refundable.

If a refundable tax credit exceeds the amount of a family’s tax liability, the difference between the two up to the limit is given as a refund. In other words, a family with no federal income is still eligible to receive the entire tax credit. This year, all eligible families will automatically receive the full credit if they earn up to $150,000 per married couple or $112,500 for households headed by a single parent.

However, instead of a single lump-sum payment, half will be delivered in installments over the second half of the year, with the rest being claimed on tax returns. This change to the CTC is estimated to decrease by 40% the share of children living below the poverty threshold. The increased benefits, as well as the new distribution plan, could help families increase and smooth their income over the year.

A Look at the Data

The data for this article come from the Annual Social and Economic Supplement (ASEC) of the Current Population Survey (CPS). The ASEC is completed each March using the families currently in the CPS and contains detailed information on family income and earnings. Families appear in the ASEC for two consecutive years before exiting the sample.

The families can be consistently matched across years from 1978 onward. We limited our sample to households with children whose household head is between the ages of 18 and 64. The information on the poverty threshold comes from the Census Bureau and the Office of Management and Budget. They create a set of income thresholds that vary by family size and composition to determine who is living in poverty. For example, a family with two adults and two children making less than $26,246 in 2020 would be considered living in poverty.

Child Poverty in the Eighth District

The first figure shows the share of families with children under the poverty threshold for their family size over time, with periods of recession shaded in gray. Since 1980, the share of families with children who are below the poverty threshold has generally been higher in the Eighth District than in the country at large (excluding a brief period in the late 1990s). Further, child poverty rates are cyclical and child poverty in the Eighth District generally increases more during recessions.

Looking more recently, the second figure shows the average proportion of families with children in the Eighth District living below the poverty threshold over the past five years. The dark gray bar represents the average for the entire country, including the Eighth District, while the blue and green bars represent the states and the largest metropolitan statistical areas (MSAs) in the Eighth District, respectively. Illinois, Missouri, Little Rock and St. Louis all have child poverty rates below the national average. Mississippi has the highest rate of child poverty, followed by Louisville, Ky., and Memphis, Tenn.

Income Volatility in the Eighth District

While increasing the child tax credit will mainly help alleviate overall levels of poverty, another goal of the American Rescue Plan is to help reduce volatility for families with children. Income volatility for a family can come from many sources, such as inconsistent working hours, changing wages or changes in employment.

To measure income volatility, we calculated the probability of a 20% or greater drop in total family income over the course of a year. The third figure shows the three-year moving average of the probability of a large drop in total family income inside and outside the Eighth District. While the overall level of income in the Eighth District is lower than outside it, there are no significant differences between the level of income volatility between the two different areas. However, in periods of recession, the level of income volatility tends to increase more in the Eighth District.

Conclusion

The increased value of the CTC and the changes to its structure will raise children out of poverty and help lower- and middle-income families smooth their incomes during the year. The share of families with children living in poverty is higher in the Eighth District than in the rest of the country, suggesting that the increased CTC may have a larger impact in the District.

While income volatility is roughly the same in the two areas, in recessions like that caused by the COVID-19 pandemic, the Eighth District struggles more with volatility and poverty. Thus, the CTC changes will be helpful to District families, even as the economy recovers.

Endnotes

1. The Eighth District includes all of Arkansas, eastern Missouri, northern Mississippi, southern Illinois, southern Indiana, western Kentucky and western Tennessee.
2. Because of data limitations, we are reporting data for Eighth District states as a whole, with the understanding that parts of these states, such as in Illinois, are outside the District.
3. The measure displayed in the first figure is the three-year moving average of the share of families with children with a total income below the poverty threshold, as calculated by the Census Bureau. We took three-year moving averages because of limits in the sample size.

Although pandemic-related fiscal policies have generated much attention in the past several months, the federal government has spent large sums before in an effort to help boost the U.S. economy and reinforce the nation’s public infrastructure.

Notable examples include the American Recovery and Reinvestment Act of 2009, passed in response to the Great Recession, and the Federal-Aid Highway Act of 1956. But, accounting for changes in the U.S. economy over time, at least until recently the largest federal spending program was the New Deal—President Franklin D. Roosevelt’s response to the Great Depression. It consisted mainly of a series of public works programs that began in 1933.

This article compares the size of the New Deal to recently enacted and proposed fiscal actions in the U.S.

Actions by the Biden Administration

President Joe Biden signed the American Rescue Plan into law on March 11, 2021, at a total budget cost of $1.9 trillion. It continued a number of programs introduced by the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, such as extended and expanded unemployment insurance benefits and means-tested direct payments to individuals. It also established a fund to help state, local and tribal governments address revenue losses caused by the pandemic.

On March 31, Biden proposed the American Jobs Plan, initially set to cost $2.3 trillion. At the time of this writing, negotiations between political parties were whittling this amount. Major components that remained included funding for electrical power, water and broadband infrastructure and highway and public transit improvements. Other components originally proposed—including money to improve U.S. supply chains and to support older adults and people with disabilities—were likely to fall away by the time this article publishes.

Finally, on April 28, Biden proposed the $1.8 trillion American Families Plan. It would include funding for pre-K and community college; government subsidized, paid family and medical leave; and expanded health insurance coverage through the Affordable Care Act. At the time of this writing, negotiations on the American Families Plan had not yet begun.

To be as concrete as possible in my calculations, I included the initially proposed price tags of the last two plans, recognizing that the Jobs Plan and the Families Plan might end up having very different dollar figures or potentially not become law. That said, the sum cost of all three plans is $6 trillion.

Fiscal Relief Actions under the Trump Administration

In March and April 2020, at the beginning of the COVID-19 pandemic in the U.S., then-President Donald Trump signed into law four fiscal relief packages totaling $2.4 trillion. The largest of these was the CARES Act.

Several major components of the CARES Act included direct federal stimulus payments to households, the Paycheck Protection Program for small businesses, larger unemployment payments for individuals, funding to state and local governments to cover COVID-19-related expenses and financial assistance to states for Medicaid. An additional $900 billion was authorized by a December 2020 appropriation. Thus, COVID-19 relief authorized during 2020 totaled $3.3 trillion.

To limit the number of calculations below, I combined the Biden and Trump totals to get a grand sum of $9.3 trillion.

Cost Comparison to the New Deal

In 1933, FDR began providing economic relief through an “alphabet soup” of New Deal programs to combat the Great Depression. These included the Agricultural Adjustment Administration (AAA), which paid farmers to kill off some of their livestock and reduce farm production to help raise commodities prices, and the Works Progress Administration (WPA), which hired millions of unemployed workers to build infrastructure, including public buildings and roads.

Total New Deal federal spending was $41.7 billion in then-current dollars, according to a 2015 study by Price Fishback and Valentina Kachanovskaya. That translates to $793 billion today.

At first glance, the New Deal seems much smaller than more recent fiscal interventions; however, over the past 90 years, prices and the U.S. population have risen substantially. Because of that, I adjusted the raw dollar totals for these two changes. On a per capita basis, the combined cost of the Biden and Trump interventions would equal $28,184—much larger than the $6,280 per capita cost of the New Deal in today’s dollars.

Another way the U.S. has changed is that the economy has gotten much larger through advances in productivity and the accumulation of capital. This has driven up the output of the U.S. economy and households’ standard of living. We can account for this change by comparing the fiscal programs to the economy’s gross domestic product (GDP) during the relevant period.

Cost as a Share of National Output

GDP measures the total monetary value of finished goods and services made within a nation during a certain period. The cost of the New Deal was 40.1% of GDP in 1929. By comparison, the existing and proposed fiscal actions by both administrations are 43.2% of 2019 GDP.

The figure below depicts these two percentages as well as a few others:

• The 2009 Recovery and Reinvestment Act as a share of 2006 GDP
• Existing fiscal actions by both administrations as a share of 2019 GDP
• All three Biden plans as a share of 2021 GDP

Note that while total fiscal spending in both cases is spent over a number of years (i.e., the numerator), we use one year’s GDP in the denominator. For instance, the New Deal lasted roughly six years. While much of the recent federal spending will have taken place in 2020 and 2021, the latter two Biden plans (if passed) are likely to be spread out over about 10 years. It’s worth keeping that in mind when examining these numbers.

Although the New Deal and the existing and proposed fiscal actions are alike when measured as a fraction of output, the U.S. economy in the respective business cycles of the two periods was at very different points.

During the early 1930s, the general price level fell by 30% and the unemployment rate reached 25%. The COVID-19-induced recession, thus far, has seen relatively stable prices and—after a temporary unemployment spike of 14.8% by April 2020—a relatively fast labor market recovery. Time will tell how these differences in initial conditions impact the economy’s response to fiscal actions.

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Iris Arbogast, a research associate at the Bank, provided research assistance.

In the 1746 edition of Poor Richard’s Almanack, Benjamin Franklin quipped, “When the well’s dry, we know the worth of water.”
Two hundred seventy-five years later, the U.S. that Franklin helped found is now facing that proverbial dry well as regions of the country experience climate change-induced temperature extremes and changing precipitation patterns.

A record-breaking heat wave in the early summer of 2021 has already seared the western and southwestern U.S., exacerbating a deep long-term drought. Drought is also affecting the High Plains and upper Midwest. Meanwhile, demand for fresh water has risen because of population growth and increased usage from agricultural and industrial sectors that rely on consistent access to plentiful supplies.

Growing freshwater scarcity risk in the U.S. and the world is revealing the need for more optimal mechanisms for allocating water. Fresh surface water from rivers, lakes and reservoirs, as well as fresh groundwater in aquifers, has long been seen as limitless, and as a result, has been far undervalued. This undervaluation has led to misallocation and overuse.

For example, the combination of diminishing precipitation and rising demand has caused U.S. aquifer levels to decline more quickly than can be naturally replenished. Misallocation of water also has led to inadequate investments in U.S. water infrastructure, which is crumbling. Leaks alone cause 2.1 trillion gallons of water to be lost each year (PDF), according to the U.S. Water Alliance. Misallocation has also hindered the development of new water technologies and led to an increasing number of water-rights lawsuits before the U.S. Supreme Court.

Water Futures

One recent harbinger of the need to better determine water’s value was the launch of the first water futures contract by the CME Group and the Nasdaq stock exchange on Dec. 7, 2020. The contract represents the first regulated, exchanged-traded risk management tool for water. It allows participants from the agricultural, commercial, municipal water and insurance industries to hedge their future price risk by buying or selling water contracts based on the Nasdaq Veles California Water Index (NQH20).

The index and corresponding futures contract have surged since late March, when it first became evident that winter snows and rain were not falling in enough quantity to recharge mountain snow packs and replenish freshwater supplies typically found in rivers, reservoirs, lakes and streams in the western U.S.

While California market participants can use the futures contract to hedge their specific risks, an increasing number of financial institutions, real estate investors and others are adding water scarcity risk to their portfolio assessments. For example, the BlackRock Investment Institute found that close to 60% of the global real estate investment trust (REIT) properties it was able to examine will experience high water stress by 2030. That’s more than double today’s number.

Freshwater Basics

In 2015, the U.S. used an average 281 billion gallons of freshwater a day (Bgal/day), sourced from surface water and groundwater, according to the U.S. Geological Survey’s (USGS) Estimated Use of Water in the United States in 2015.

Fresh surface water withdrawals averaged 198 Bgal/d in 2015, down 14% from 2010. Fresh groundwater withdrawals were 82.3 Bgal/day, up 8% from 2010.

Agricultural irrigation constituted 37% of total freshwater withdrawals, while thermoelectric usage accounted for 41%. Domestic and private usage comprised 14%; commercial and industrial usage, 6%; and livestock and aquaculture usage, 3%.

Stressed Out

The World Resource Institute’s Aqueduct Water Risk Atlas uses hydrological models and more than 50 years of data to estimate the typical water supply compared with demand. The water stress scale shows regions that are coming close to draining their annual water stores in a typical year. As shown below, water stress reaches into many regions of the U.S., including portions of states in the Eighth Federal Reserve District.

Arkansas, which is in the Eighth District, is the fourth-largest user of fresh water overall and the second-largest user of groundwater after California. Arkansas uses groundwater for most of its agricultural needs, including the controlled flooding of its rice crops. Arkansas is the country’s top rice-producing state, with 40% of the U.S. crop. It also irrigates its cotton crops; in 2020, Arkansas was the third-largest cotton-producing state.

Crop production is concentrated in the eastern half of Arkansas, which is where the state’s aquifers are under the most strain, according to the Arkansas Department of Agriculture’s Natural Resources Division. In its latest Arkansas Groundwater Protection and Management report, the division notes that withdrawals of groundwater are happening at an unsustainable rate. The report focuses on two critical but stressed aquifers that support eastern Arkansas as well as portions of Missouri, Tennessee and Mississippi: the Mississippi River Valley Alluvial Aquifer and the Sparta-Memphis Sand Aquifer (also known as the Middle Claiborne Aquifer).

Battles Erupt over Scarce-Resource Allocation

The Sparta-Memphis Sand Aquifer is also the focus of a potentially precedent-setting case before the U.S. Supreme Court. In its case against Tennessee, Mississippi claims that the city of Memphis has been pumping water from the aquifer so extensively that a depression has formed in the water table beneath the city’s wells.

The Memphis area is one of the largest metropolitan areas in the world that relies exclusively on groundwater for municipal use. Mississippi is seeking $615 million in compensation from Tennessee. While the Supreme Court has heard interstate surface water cases in the past, this is its first interstate groundwater case. In November 2020, a U.S. Supreme Court special judge concluded that water in the aquifer can’t be confined within one state’s borders and must be shared. The high court is expected to rule on the judge’s recommendation by mid-2021 and its decision may influence groundwater management for decades.

The number of interstate legal battles involving water usage is expected to grow as water scarcity issues rise. In April 2021, a 20-year battle was settled when the Supreme Court ruled that Florida did not prove Georgia’s use of the Chattahoochee River caused Florida’s oyster fisheries to collapse.

Conclusion

The availability of, and access to, fresh water is at risk as demand begins to threaten supply in many regions of the country and the world. Temperatures are rising, reservoirs are receding and aquifers are shrinking. Infrastructure is crumbling, while crops are withering in the western and north-central U.S. Interstate battles over fresh water are on the rise and the financial sector, along with central banks and other regulators, is paying increased attention to water—either as part of deliberations about climate change and environmental, social and corporate governance issues—or as a major risk in its own right.

In the meantime, there is a growing focus on conservation and water recycling methods, including some efforts to recharge aquifers. Scientists and ag-tech startups are developing crops that are less water-dependent, and farmers are using methods to help soil retain more moisture and nutrients. Desalination companies are developing better technologies to generate sources of fresh water from salt water, while others are generating fresh water from the air.

On the water infrastructure front, in late April 2021, the U.S. Senate passed a bipartisan bill authorizing more than $35 billion to upgrade states’ water infrastructure. If approved by the House and signed into law, the Drinking Water and Wastewater Infrastructure Act will give the Environmental Protection Agency funding for grant programs and revolving loan funds to help upgrade aging infrastructure, invest in new technologies and support disadvantaged communities.

While the American Society of Civil Engineers and the Value of Water Campaign estimate that it will take more than $3 trillion to fully fund U.S. water infrastructure needs over the next 20 years, the bill is a first step forward. From conservation, to innovative technology, to fixing leaky pipes, all are growing more essential to ensuring a robust water supply for generations to come.

The economic shocks that hit the global economy in the spring of 2020 sparked a renewed focus on the extent to which the nation’s banks can provide economic assistance to affected people and businesses. Amid the uncertainty, banks were left to juggle liquidity risk, customer expectations and regulatory guidelines.

Data from this period show that commercial lending increased significantly during the first several months of the pandemic, while consumer loans declined moderately. Studying these shifts gives valuable insight into how sectors handled the crisis and how the economy responded, while providing important lessons for the future.

A growing body of Federal Reserve research is shedding light on financial trends during COVID-19. A couple of examples include a look at the impact of the pandemic on Black-owned businesses and an analysis of small-business lending. This article seeks to provide an overview of lending trends at the national and regional levels and to offer insights on the long-term outlook of the banking industry.

Bank Lending during the Peak of the Pandemic

As COVID-19 cases continued to surge and more restrictions were put in place during the spring of 2020, many business owners had to take out new loans to sustain their businesses. This caused commercial and industrial (C&I) loan growth to spike in May, growing by more than 29%, as shown in the first figure. Small-business participation in the Paycheck Protection Program (PPP) was a major contributor to this elevated growth. As businesses continued to seek relief funds, many banks reported being overwhelmed by the volume of applications after the program’s launch in early April.

In contrast, in May 2020, consumer loans at all commercial banks dropped below their year-ago levels for the first time since December 2011. This 1% fall in consumer loans, and a year-over-year decline of 6% in credit card lending, signified changes in consumer spending behavior induced by the pandemic. Throughout most of the global financial crisis from 2007-09, consumer lending continued to increase as incomes declined and households borrowed to maintain their normal spending levels.

As households became less confident about the future of the economy in 2020, many began to save more and borrow less. This behavior, combined with the first round of federal aid checks, led deposits at all commercial banks to increase more than 15% year over year in April 2020, the fastest increase recorded in the past 45 years. The personal saving rate also surged to a record 34% in April 2020, up from 8% in February 2020.

While real estate lending experienced little to no change at the beginning of the pandemic, its growth began to slow in late 2020, as depicted in the second figure. Residential real estate (RRE) loans on the books at commercial banks experienced a decline, with growth turning negative in November 2020. Commercial real estate (CRE) loan volumes, although facing a less steep decline, grew by less than 2% in May.

However, government-sponsored enterprise (GSE) loans originated by banks and nonbanks increased significantly, indicating a sustained demand for mortgages. In addition, many mortgage lenders reported a spike in refinancing applications during the beginning of the pandemic; the MBA Refinance Index was up more than 130% year over year in May 2020. This boom in refinancing activity was likely a result of homeowners trying to lock in historically low mortgage rates.

Tighter Standards

Besides changes in demand, these lending trends might allude to some changes on the supply side as well. The pandemic caused many lenders to make significant changes to their credit policies to offset risk; these modifications included tightening lending standards and terms and increasing loan-loss reserves. Throughout 2020, banks reported continuously tightening standards on C&I and CRE loans, citing a “less favorable economic outlook” and “worsening of industry-specific problems” as primary reasons.

On the consumer side, banks also tightened standards on consumer and RRE loans during the first three quarters of 2020. Standards on consumer loans were eased during the fourth quarter, while those on RRE loans remained unchanged. Tighter lending standards and terms reduced the supply of credit, leading to decreases in loan volumes.

Banking conditions in the Federal Reserve’s Eighth District mirrored those of the nation, with some small variations. As shown in the table, C&I loans in the Eighth District faced larger increases compared with the national average, growing more than 30% year over year from early June to early December 2020.

On the other hand, banks in the Eighth District reported less severe declines in consumer loan growth relative to national trends. Growth in real estate loans, partially driven by strong demand for RRE loans, increased slightly in the District in June 2020 before trending downward.

Long-Term Outlook

The economic outlook has improved significantly since the beginning of the year. In the January 2021 Senior Loan Officer Opinion Survey, banks reported anticipating stronger demand for consumer loans and all categories of business loans over the next 12 months, but weaker or unchanged demand for RRE loans. Loan performance was expected to deteriorate somewhat for most categories of consumer and business loans. The lone exception was for C&I loans to large- and middle-market firms, for which banks expect credit quality to improve.

To offset the risk associated with deteriorating loan performance, banks that participated in January’s survey expected to tighten lending standards across most business loan categories. These expectations, however, differed by bank size; on net, large banks expected to ease lending standards, while small banks expected to tighten them. In contrast, banks expected lending standards to be eased on loans to households. Credit conditions have improved over the past few months and by the April survey, banks indicated that, on balance, they eased standards on most categories of business and consumer loans.

While demand for C&I loans to large- and middle-market firms decreased over the first quarter, banks observed stronger demand for some categories of consumer loans, particularly for residential mortgage and auto loans. In addition, banking contacts for the Federal Reserve Bank of St. Louis’ Beige Book highlighted high asset quality, ample liquidity and record earnings in the first quarter of 2021. They also anticipated mortgage business and PPP loan income to further enhance their earnings.

Overall, participating banks were able to help absorb the initial economic shock caused by the pandemic in 2020 and are now cautiously optimistic about 2021.

When was the last time you updated your estate plan? Whether you’re nearing retirement or just starting out in your career, it’s always a good time to get your financial affairs in order. In this comprehensive guide, we’ll break down everything you need to know about personal trusts, an important part of many estate plans. Learn how to protect your assets and save your beneficiaries from undue stress.

What is a personal trust?

A personal trust is a legal entity created by an individual in which that individual and/or their family members are also named as beneficiaries. The purpose of a personal trust is to manage property and/or other assets for the benefit of the trustor/beneficiary. Personal trusts also offer enhanced privacy and quick distribution of assets to beneficiaries.

Are Trusts and Estate Planning the Same as Wills?

Estate planning is the process of organizing your assets and family matters in advance and making a plan for what you want to happen after your death. Both trusts and wills can be one piece of the estate planning process.

Both trusts and wills are legal documents. A will states your wishes for the distribution of property and assets, as well as who will care for any minor children you may have. Everyone should have a will, regardless of the size of your estate.

In addition to a will, a personal trust can provide more certainty about how your wishes will be carried out. The other main difference between the two is the probate process.

Probate is a legal process for administering an individual’s estate after death. Even though you created a will, the court still needs to prove that your will is legally valid. However, dying without a will is even harder on your heirs, as state law will determine how your assets and property are distributed. You can learn more about Vermont’s intestate succession statute here and New Hampshire’s here.

To make the process as easy and fast as possible on your already-grieving loved ones,

utilizing a personal trust can allow you to avoid spending months working through the probate process.

A personal trust will carry out your wishes right away, without undue burden on your heirs. Trusts can also be used to reduce your estate tax burden.

Finally, it’s important to also name or update beneficiaries for your financial accounts such as investment, savings, and retirement accounts as well as life insurance policies. Transfer of these assets is dictated by whomever is named as your beneficiary.

5 Types of Personal Trusts to Know About

Learn about the different types of personal trusts and their benefits that we offer at Union Bank:

• Living Trust: Lets you control and access your assets during your lifetime, then have them distributed after your death according to your wishes and without going through the probate process.
• Marital Trust: Useful for couples with children from previous marriage(s) who want to pass assets to their surviving spouse while also providing for their individual children as well as any children they have together.
• Testamentary Trust: Also known as a “will trust” because it’s written in conjunction with your last will and testament. A good option for providing for a minor child beneficiary and/or a disabled beneficiary. Can also reduce estate taxes.
• Charitable Trust: If you want to pass on money or property to your favorite charity, this type of trust can be set up to benefit a charity as well as individual beneficiaries if you wish. It can also provide you with income during a period of your life if desired.
• Supplemental-needs Trust: Specifically designed to provide for a relative or child with special needs who will need care throughout their lifetime. Gives you peace of mind that your loved one will be cared for after you’re gone.

What is a Revocable Trust Versus an Irrevocable Trust?

Some trusts are either revocable or irrevocable in nature. Other times, you can choose if you want a revocable or irrevocable trust. Not sure what the right option is for you? Our Wealth Management Team can help! Here’s the difference:

• Revocable Trust: Can be changed or terminated by the grantor during their lifetime and will convert to an irrevocable trust upon your death. Most trusts can be set up as revocable. Revocable trusts avoid probate and enable you to make changes due to a change in your family or financial situation.
• Irrevocable Trust: Once created, this type of trust can’t be changed or ended. Most trusts can be set up as irrevocable. The main benefit is that assets in an irrevocable trust aren’t considered personal property, so they don’t count toward any estate taxes owed and are also excluded from bankruptcy and claims by creditors upon your death.

What is the Estate Tax in VT & NH?

Depending on where you live, your estate could be subject to both federal and state tax. Here’s what to know:

• Currently, the federal estate tax threshold is $11.7 million. So, if your estate’s total value is less than that, it won’t have to pay the federal estate tax.
• In Vermont, the threshold is currently $5 million for your gross estate value plus adjusted taxable gifts made within two years of your death. So, it’s possible you could be subject to state estate tax but not federal if your estate is worth more than $5 million but less than $11.7 million. Estates worth less than $5 million won’t be subject to an estate tax at all.
• New Hampshire doesn’t have a state estate tax.

The Importance of a Spendthrift Clause

With a spendthrift trust or clause, you give the trustee power over how or when inherited funds are used. This may especially be useful with a trust for a minor child or anyone you think might spend through the trust quickly. With advance planning, you can help your trust beneficiaries by making sure the funds last as long as needed.

Let us help with Your Trust and Estate Planning Needs

Union Bank is your local wealth management resource in Northern Vermont and Northern New Hampshire. We approach personal trust management with the same core values we bring to all of our services: personalized and attentive customer care to help us get to know you and your financial goals. When it comes to planning for your family’s future, trust Union Bank to help you make the best decisions for your own interests and those of your beneficiaries. Contact our Wealth Management team today or visit your nearest office.

During the COVID-19 pandemic, the share of residential mortgage loans with on-time payments dropped drastically in 2020, according to loan-level data. This was by far the most significant decline in the share of current accounts since the global financial crisis, as shown in the first figure.

Historically, these noncurrent loans progress from 30 days late to 60, and from 60 days late to 90, and eventually many end up in foreclosure. However, during the COVID-19 pandemic, nearly all noncurrent loans avoided being foreclosed.

This article discusses how this pattern changed during the pandemic and presents potential reasons for it.

Breakdown of Noncurrent Loans

To obtain information on approximately two-thirds of the U.S. mortgage market, we used a loan-level data set from Black Knight (McDash). The second figure shows the December breakdown of noncurrent loans by status for three different periods: 2009, which represents the peak of nonpayment during the Great Recession; 2019, which represents the pre-pandemic situation; and finally 2020 to capture the COVID-19 pandemic. Note that noncurrent loans can result in one of these four situations:

• Thirty to 59 days late
• Ninety days late or longer
• Foreclosure
• Other [includes 60 to 89 days late, paid off, real-estate owned (REO) and involuntary liquidation and servicing transfers, meaning a change in loan servicer]

There are two key messages from the second figure. First, the severe delinquency rate (90 days late or longer) in December 2020 was much higher than in the previous year—4.7% of all loans—and only about half a percentage point lower than in 2009. Second, mildly late (30 to 59 days with no payment) and foreclosures were much lower in December 2020 than in December 2009.

Note that the mildly late status is lower in 2020 than in 2019; this is because the surge in this nonpayment status occurred earlier in the year for 2020. To understand these differences, we focused on what happened to loans that didn’t receive payments for three months during the pandemic and compared them to how things evolved during the financial crisis.

What Happened to Noncurrent Loans?

To answer this question, we selected a subset of mortgages. In particular, we looked at loans that were current in February 2020 and became 90 or more days delinquent in June, and analyzed what happened to these loans in the following months. (See the third figure.)

February 2020 was chosen because it was the month before the COVID-19 pandemic shutdowns and the economic downturn began in the U.S. June was selected because it was the first month in which a large share of the loans that were current in February reached at least 90 days late—2.8% of the current loans in February 2020 were 90 or more days late by June 2020. To compare with the financial crisis, we did the same for 2009. In this case, approximately 0.7% of the current loans in February 2009 were 90 days late or longer in June 2009.

First, consider the gray lines, which start at 100% in June. They show the share of sampled loans that remained 90 days late or longer in the month of reference. The dashed line, which represents 2009, shows that approximately 48% of mortgage loans remained at least 90 days late by the end of 2009.

In contrast, the solid gray line* shows that about 55% of these loans remained 90 days late or longer at the end of 2020. Thus, there is not such a large difference between the COVID-19 pandemic and the financial crisis in terms of loans leaving the status of being at least 90 days late.

But, what happened to the loans that exited the status of being 90 days late or longer? These loans could have gone to:

• Current status
• Foreclosure
• Other (which includes going back to being more than 30 or 60 days late; REO; involuntary liquidation; or servicing transferred or repaid, which includes loans fully repaid either because the house was sold or the loan was refinanced)

The answer is very different for 2009 and 2020, and the main differences are in the current and foreclosure statuses. The first difference can be seen in the loans that transition to the current status (orange lines).

In 2020, about 40% of the loans 90 days late or longer in June ended the year being current, around four times the 2009 level. The second difference is in the incidence of foreclosure. The blue lines show the loans 90 days late or longer in June that transitioned to foreclosure. For 2009, the dashed line shows that this share increased and reached 34% in December.

In contrast, the solid blue line stays very close to zero, indicating that few loans transitioned to foreclosure in 2020. Thus, the main difference is that in 2009, a significant share of loans leaving the 90-days-late-or-longer status transitioned to foreclosure, while in 2020, as the economy recovered, these loans transitioned back to current status.

How the CARES Act Helped Borrowers

On March 27, 2020, Section 4022 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced provisions to suspend foreclosures and offered options for forbearance on federally backed mortgages. (Note that some private lenders also have forbearance programs.) These mortgage loans comprise a sizeable market share and include loans from or through the following:

• Federal Housing Administration (FHA)
• National Housing Act (NHA) Mortgage-Backed Securities Program
• Veterans Administration (VA)
• Department of Agriculture (USDA)
• Fannie Mae
• Freddie Mac

The suspension of foreclosures does not apply to vacant or abandoned properties and, although it initially lasted 60 days, the suspension was extended and is now set to expire June 30, 2021. The section also mandates that borrowers of any delinquency status have the right to forbearance if the COVID-19 pandemic has directly or indirectly caused financial hardship.

Once forbearance ends, borrowers can make a lump-sum payment for the amount of principal and interest missed during forbearance. They also can:

• Extend the length of the mortgage to continue making the same monthly payment amounts
• Agree to pay the lump sum of missed payments at the end of the mortgage term or at the time of sale or refinance
• Spread out the sum of missed payments over time, on top of the regular monthly payment
• Pursue loan modification, such as reducing the interest rate, changing the length of the loan or modifying the monthly payment amount

These forbearance possibilities were not as easily available during the financial crisis and contributed to the rise in foreclosures between 2007 and 2009. At that time, Congress encouraged lenders to use HOPE for Homeowners, a loan modification program passed as part of the Housing and Economic Recovery Act in 2008. However, the requirements for homeowners seeking assistance through this program were more stringent than those for the recent CARES Act assistance. Additionally, the loan modification agreement required that homeowners share with the FHA any equity made from selling or refinancing their homes.

A Stronger Housing Market Today

A strong housing market—a key factor that was not present during the 2007-08 financial crisis—allows troubled borrowers to sell their homes upon exiting forbearance and pay in full rather than foreclose. A January 2021 report from Black Knight Inc. found that about nine in 10 loans in forbearance have at least 10% equity, the amount generally needed to sell at the end of forbearance rather than foreclose.

In 2009, typical home values decreased about 2% from June to December. In contrast, typical home values increased approximately 5% from June 2020 to December 2020. The need to spend more time at home during the pandemic created a surge in housing demand and pushed home prices to rise. Higher home values mean more equity and therefore lower risk of foreclosure.

In addition to higher home values, the pools of borrowers and loans were also lower risk when the COVID-19 pandemic hit the U.S. In 2009, approximately 7% of the loans in our data were made to subprime borrowers (those considered a higher credit risk) compared to about 3.5% in 2020. And the share of adjustable rate mortgages has fallen about 10 percentage points since the financial crisis. Adjustable rate mortgages generally have low introductory interest rates that increase after a certain period. When the interest rate increases, the monthly payment also increases, leading to higher risk of nonpayment.

Another difference between the two periods is that the U.S. economy was still in decline in the second half of 2009. In contrast, the 2020 U.S. economy was beginning to recover by June. The unemployment rate increased from 9.5% to 9.9% between June and December 2009 but decreased from 11.1% to 6.7% between June and December 2020.

Interaction between the CARES Act and the Housing Market

Note, finally, that house prices are probably also related to the actions to facilitate forbearance in the CARES Act. Early and thorough government action has given borrowers the chance to become current on mortgage loans rather than foreclosing.

Economists Elliot Anenberg and Tess Scharlemann at the Federal Reserve Board of Governors explained in a March 2021 article that allowing people to stay in their homes, rather than selling, avoids a price spiral by stabilizing the supply of houses on the market. This kind of forbearance correlates positively with unemployment and negatively with new home listings.

Furthermore, the economists found that the average share of mortgages in forbearance increased by 4.7 percentage points between May and July 2020, relative to just before the COVID-19 pandemic—indicating that homeowners were using these forbearance programs.

Conclusion

Although the evolution of the share of current mortgages during the COVID-19 pandemic resembles what happened around the time of the financial crisis, there are important differences between these two episodes. The clearest fact that distinguishes the two is the lack of a spike in foreclosures during the COVID-19 pandemic that was likely helped by the CARES Act and a stronger housing market.

* This article has been updated to correct the description of the line’s color and pattern.

Endnotes

1. The global financial crisis lasted from 2007 to 2008. The resulting Great Recession officially lasted until mid-2009.
2. Real-estate owned, or REO, describes a class of property owned by a lender—typically a bank, government agency or government loan insurer—after an unsuccessful sale at a foreclosure auction.
3. For robustness, we also checked this for 2008 and found similar numbers.
4. See Section 4022(a)(2) of the CARES Act.
5. Borrowers could enter forbearance for 180 days with an option to shorten the term or extend up to an additional 180 days. Note: This applies only to mortgages for one- to four-unit properties. Larger multifamily properties have different rules dictated under Section 4023.
6. Homeowners had to meet the following requirements: (1) The home was their primary residence and they had no ownership interest in any other residential property such as a second home; (2) their existing mortgage was originated on or before Jan. 1, 2008, and they made at least six payments; (3) they were not able to pay their existing mortgage without help; (4) their total monthly mortgage payments due were more than 31% of their gross monthly income; (5) and they certified that they had not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain the existing mortgage(s). See Hope for Homeowners for more details.

The economic shock caused by the COVID-19 pandemic and the public health measures needed to contain it had an unprecedented impact on the U.S. labor market. The unemployment rate jumped during the early months of the pandemic, and other measures of labor input—such as payroll employment and hours worked—declined dramatically. From February to April 2020, the unemployment rate increased from 3.5% to 14.8%. Over that same period, payroll employment declined by 22.4 million jobs, and total hours worked declined by 17%.

While the shock was immediate and large, the economy is recovering at a swift pace, as vaccines bring the public health crisis under control. The speed of today’s recovery is much faster than with many past economic shocks, which were caused by underlying weaknesses in the economy, as in the financial crisis of 2007-09. How far along we are with the U.S. labor market recovery can be difficult to determine, however, especially since some of the economic data have not aligned with anecdotal information from businesses.

So, how do we assess the state of the U.S. labor market?

Output vs. Labor Market

In the second quarter, real gross domestic product (GDP) is likely to surpass its previous peak level reached in the fourth quarter of 2019. This suggests the recession and the recovery period are behind us, and that the U.S. economy is moving into the expansion phase of the business cycle during the current quarter.

While real GDP is poised to return to and surpass its previous peak, many measures of the labor market remain below their previous peaks, as discussed below. How could that be? One reason is likely due to the composition of the pool of workers. Many of the workers most disrupted by the pandemic were in “high physical contact” jobs, which tend to be lower-wage jobs. In contrast, high-wage workers have been more likely to be able to continue working—and possibly with higher productivity. This could explain how the economy is able to produce as much output as before the economic downturn with fewer total employed.

Common Measures of Labor Market Performance

A common way to gauge how the labor market is doing is to count the number of people employed. Payroll employment for April 2021 remained 8.2 million below its February 2020 level, suggesting that the labor market recovery is far from complete. Another way is to count hours worked. As of April 2021, total hours worked remained about 4% below their pre-pandemic level.

Another consideration when looking at the number of jobs is that labor force participation has been trending downward since 2000. Relative to a simple trend line drawn from 2000 to the present, the labor force participation rate was above trend toward the end of the pre-pandemic expansion but is now back on trend, as shown in this FRED graph. During the pandemic, people who dropped out of the labor force include some workers close to retirement who may have decided to go ahead and retire. These workers—especially ones who benefited from increases in the stock market and housing wealth—may be less likely to come back into the labor market once the pandemic ends.

Given the longer-run downward trend in labor force participation combined with retirees who have left the labor force and are unlikely to rejoin it, it is not clear that we should expect labor force participation—and therefore employment—to return to pre-pandemic levels.

Alternative Measures of Labor Market Performance

While labor input remains lower than before the pandemic by some measures, anecdotal reports from businesses suggest that hiring workers is difficult in the current environment. How can we reconcile these two observations? Additional measures of labor market performance can help provide a more comprehensive reading of the state of the labor market than simply looking at the number of jobs or hours worked.

One measure of labor market tightness used in the academic literature is the ratio of officially unemployed workers to job openings. This ratio is approaching an all-time low. In March, it was 1.2, which is lower than during the expansion before the 2007-09 recession but not as low as during the later years of the pre-pandemic expansion, when it was below 1. Nevertheless, the latest ratio suggests a very tight labor market, which would be consistent with anecdotal reports that it is hard to hire workers.

Broader measures of labor market performance—such as indicators that take multiple aspects into account—are also useful to examine. The level of activity indicator from the Federal Reserve Bank of Kansas City, for instance, suggests current labor market conditions are markedly better than those following the 2007-09 recession.

Conclusion

Alternative measures of labor market performance help reconcile the anecdotal reports we are hearing from businesses with what we are seeing from more traditional labor market indicators.

As the pandemic wanes, as more schools reopen to in-person instruction and as disrupted workers’ pandemic-related assistance comes to a close, more people will want and be in a position to accept jobs. The number of unemployed workers per job opening suggests that many of these workers should be able to find a job, which is what I expect to happen in the coming quarters.

Have you forgotten about cybersecurity in the midst of the pandemic? Unfortunately, digital scammers and thieves never take time off. So now that it’s springtime, and tax season, it’s a great time to give your “cyber footprint” a spring cleaning. In this article we’ll show you how to declutter physical and digital data and accounts, strengthen your passwords, and more.

 

Review your passwords

Your cybersecurity approach is nothing without a strong password. If your password(s) are easy to guess or have already been exposed in a data breach, you’re essentially leaving the front door open for thieves to walk right in and gain access to your accounts and sensitive personal information. So, what makes for a strong password?

• Length: Use at least 8 characters, though more is even better!
• Complexity: Do not use common passwords like Password123 or system default passwords. Use a variety of upper and lowercase letters, numbers, and special characters.
• Passphrases: Avoid dictionary words and common phrases. Don’t incorporate information that can be easily obtained on social media such as your birthday, pet’s name, etc. Complex passwords can be hard to remember but using a passphrase can give you the best of both worlds by being difficult to crack but easy to remember. To create your passphrase, think of a phrase you can remember but that isn’t very common. As you type it out, make it complex by changing the capitalization of some letters, turning a letter into a number, using “@” in place of an a, and so on. For example, “A beautiful day in the neighborhood” could become “@[email protected]
• Uniqueness: Use different passwords for different accounts instead of reusing passwords. That way, even if one of your passwords is compromised a hacker wouldn’t be able to reuse this password to get into other accounts with the same login credentials.
• Multi-Factor Authentication: Whenever possible, sign up for MFA, which requires a password plus another identifying factor such as a fingerprint or one-time access code. One-time access codes can be easily set up using security apps such as Google Authenticator or Duo.
• Password Managers: Never write passwords down or store them electronically in a document file or email account. If anyone were to gain access to that information, they would have the “keys to the kingdom”! Instead, consider a password manager, which can store passwords secure as well as help you create strong unique passwords.

 

Declutter your inbox

Email is an everyday part of our work and personal lives, but it can also be a huge source of stress. If your inbox is overflowing, you’re not alone. However, a messy inbox can be a security risk. Declutter and protect your email account(s) by following these tips:

How many email accounts do you have for work and/or personal use? Make a list and close any that you no longer use.

• Create folders within your inbox for messages you want to keep, to-do items, and other categories that make sense to you, like family or travel. File messages accordingly and delete emails you no longer need.
• Don’t use email to store personally identifiable information, sensitive banking details, or login credentials. If you find this type of information in your email, send it to the trash folder and then empty the trash.
• Review your list of saved contacts and delete any you no longer need.
• Unsubscribe from any email lists you don’t want to read or create a rule to automatically send the emails to trash. Beyond the unnecessary stress, having too many emails might cause you to rush through them and inadvertently click on a malicious email.
• Don’t open email attachments you weren’t expecting to receive or that are from unknown senders. Calling the sender to verify the email is the best way to determine legitimacy.  Don’t reply back to the email! If the email is hacked or from a nefarious sender, you will just be conversing with the hacker!
• If a link or the message it’s contained in seem suspicious, hover your mouse over the link until the full address appears. This will show you the URL, and you can verify that the address looks legitimate. Be aware – some addresses purposely look VERY CLOSE to a legitimate address, but are slightly different. i.e. www.fedexservices.com instead of www.fedex.com
• Secure your devices with a password, PIN, biometric, or pattern. Wherever you check your email (on a computer, tablet, smartphone, watch, etc.), make sure the device is password protected so that a thief can’t access your email after stealing your device.

 

Scan your social media accounts

As you should with email, take stock of your social media accounts.

• Delete any pages or accounts you no longer use.
• Check the privacy settings for each of your accounts and make applicable changes to better protect what you share.
• Review the photos and videos you’ve shared and remove or delete anything you no longer want to share.
• When you encounter suspicious accounts, block and report them to the platform.
• Even if your accounts and posts are set to private or “friends only,” remember that what you share could still end up having a wider audience than you intended. So, don’t post anything you wouldn’t want to share in public.
• Social media direct messages can be a fun way to communicate but beware of messages from people or accounts you don’t already know. Social media is a popular venue for phishing, even within other features outside of just direct messages. So, don’t click on unsolicited links!

 

Delete unused apps

How many apps have you downloaded on your smartphone or tablet? Take a minute to delete any you no longer want or use. Deleting apps reduces clutter, frees-up storage capacity, and also removes any stored personal data on them, further protecting your information from ending up in the wrong hands.

P.S. If you delete an app it does not mean you have closed the account. Make sure you delete your account from the app before deleting the app itself. In some cases, you may have to log on to a website to close an account. Otherwise, the company you have an account with will still have your personal (and possibly payment) information.

 

Keep your desk clean

A tidy desk doesn’t just promote focus, it also offers security. For example, do you have account statements with personally identifiable information or sensitive account information laying out where it is visible or easily stolen? Burn or shred papers you no longer need and keep everything else organized in a file cabinet with a lock. If you don’t have a personal shredder at home, look for local “Shred Days” in your community or pay a small fee to have your sensitive documents shredded at an office supply or shipping store.

 

Back up important data

Backing up your data offers protection from loss, a broken device, theft, malware, ransomware, and other losses of data. With a separate backup copy, you may be able to get your data back quickly, easily, and without assistance. Prepare for any data loss situation by taking the following steps:

• Prioritize your most important files for backup.
• Keep your backup file, device, or account password protected and encrypted when possible. Backups come in many forms, including hardware, software, and cloud-based backups.
• Do not back up data to the same device.  If that device is destroyed or compromised, your backup will be as well.
• Make sure local files are backed up (and securely cleansed) from any device before discarding or reusing. This includes files across phones, tablets, laptops, desktop computers, and even other smart devices around the home. For example, modern at-home printers may also have data that is worth cleansing before throwing them away or giving them to someone else.
• Check with your employer if there is already a backup policy in place for your work data.

 

Keep your devices updated

• Don’t ignore prompts to update operating systems or apps. The latest update comes with the latest security measures to keep your device and data protected.
• Install anti-virus software and keep it updated and running regular scans.

Don’t use systems or software that hasn’t been updated.

 

Learn more about cybersecurity awareness at Union Bank!

As your longtime community bank in Vermont and New Hampshire, we are here to support the security of our customers and community. Read more about our Cybersecurity Awareness and contact us if you have any questions about your Union Bank accounts! You can reach us by phone (800.753.4343), by emailing [email protected], or by visiting any branch location.