Is it Time to Adjust Budgets and Forecasts?

Mike Ginsberg

As we begin a new year, articles are emerging about how 2014 will be the year that the U.S. economy finally rebounds from the worst recession in nearly 100 years. And why not? Consumers are spending again. Credit is more available and affordable now than it has been over recent years. Add to this improvements in the real estate market, manufacturing, stronger U.S. exports and a robust stock market and the economy is in a lot better shape entering the new year than at any point since the financial crisis smacked us all in the face a few years back.

Economists predict that performance will be better this year than it has for the past several years. This bodes well for ARM companies and recovery managers looking for improvement wherever they could find it, however I suggest you don’t redo any 2014 budgets and projections just yet.

The unemployment rate, still the leading indicator for sustained improvements in collection results, is still on shaky ground. Overall, employers added significantly more jobs to end 2013 compared to levels reported earlier in the year, however the pace of job creation on an annual basis remained virtually unchanged last year compared to recent years. The overall pace of job restoration remains too low to restore us back to levels of unemployment seen before 2008.

Yes, the jobless rate fell to its lowest level in five years in November but there was no decline in the rate of the long-term unemployed (those out of work more than 6 months). Also concerning, the participation rate (the percentage of the population working or actively looking for work) continues to trend in the wrong direction.

Let’s keep in mind that the number of jobs created and the federal unemployment rate are not the only numbers worth tracking. The quality of the jobs also matters when it comes to restoring economic strength. Nearly 1/3 of recent job gains came from lower paying and less sustainable/seasonable jobs including retail, hotels, and restaurant positions.

Everyone in the ARM industry should be tracking the job market very closely. As the quality of the job market improves, consumers will have a higher repayment capacity which means a higher recovery rate for delinquent debts. An improved job market also means a greater confidence level when it comes to spending and borrowing, which drive growth in amount of new business available for collection agencies and debt buyers alike. Once sustainable results set in then budgets and forecasts can be adjusted.