Banks Should Worry About Inflation as Much as Jobs
Rising living costs and changing dynamics in the labor market are troubling signs for lenders
Welcome aboard... to a labor market sending mixed signals
Photographer: Gabby Jones/Bloomberg
Labor markets might not be nearly as tight as they seem from employment data. That’s a headache for banks trying to judge the risks of an uptick in borrowers’ repayment problems.
Traditionally, what matters most for banks lending to consumers is unemployment because it can lead to disastrous drops in income for debtors. That’s why it’s one of the first inputs in central bank stress tests: It has big knock-on effects for everything from house prices to commercial property demand. Initial jobless claims in the US fell again in last week’s data, and Bloomberg Economics forecasts strong growth in US payrolls for August, continuing a run that has lasted more than 18 months and returning employment to pre-pandemic levels. This should be great news for lenders.