We’ve entered a ‘new normal’ in productivity
LEXINGTON, Ky. (Dec. 21, 2016) — The Federal Reserve Bank of Cleveland, which includes parts of Kentucky, such as the Lexington area and Eastern Kentucky, has released a pair reports, one on productivity numbers for businesses, the other on auto loans, which is important in Kentucky considering the state ranks third nationally in vehicle manufacturing.
When it comes to productivity numbers researchers note that “the real gross domestic product produced per hour of work indicate that we have entered a “new normal” characterized by low economic growth.
Researchers wrote: “The historical record warrants some caution in concluding with certainty that the average rate of productivity growth—based on roughly the past six years of data—has permanently fallen. One reason is that there have been times in the past, such as in the early 1980s, when the six-year average productivity growth has fallen to levels like those seen today, but then it has recovered substantially. The second reason is that the history of revisions to data on productivity growth suggests it is likely that the average growth rate of the past six years will be revised up in the future.”
The other report found that “auto lending by banking institutions, automobile financing companies, and auto dealers has climbed since 2011, but bank examiners at the Federal Reserve Bank of Cleveland say that bank holding companies (BHCs) in their region have not grown their subprime auto lending portfolios as much as others, particularly nonbanks.”
“The share of total auto loan originations that is subprime has exceeded 20 percent since the third quarter of 2011,” says the report.
Cleveland Fed examiner Michael R. Metalonis notes that a lot of the subprime originations are occurring outside of banks, in auto finance companies. He said examiners are seeing increasing risk in auto lending because of layering in risk: a combination of lower FICO scores, longer terms, and higher advance rates. He said, “The combination of these tends to lead to higher default rates and higher losses over time.”
Driven by demand for new and used vehicles, total auto loans and leases have topped $1 trillion. Cleveland Fed examiners see signs that the multi-year acceleration in auto lending will abate in coming years.