A Yo-Yo Economy Needs to be Challenged
Former Senior Economist of the Atlanta Federal Reserve Tom Cunningham shares his insights with Valuant regarding current economic conditions and how they may impact banks in the coming quarters.
“While we are not out of the woods, last week was a clear turning point for the US economy. Employment by sector was uneven. Government employment generally fell while the private sector (except for some retail and health care) generally rose. The broadest measure of labor underutilization, U6, fell from 22.8% to 21.2%. The labor force participation rate increased by 0.6%. And the previous two months were revised down (more job losses).”
“This is genuinely surprising,” remarks Cunningham. “The market had anticipated another dismal month for May, and that is not what the BLS report showed. While there are many nuances in the report, that is somewhat overwhelmed by the fact that the markets missed the outcome by over 10 million jobs.”
While we saw very encouraging numbers, it is unlikely that a V-shape recovery will happen. A theory Tom shares is that employers overshot the initial layoffs, and what we experienced with last week’s unemployment figures is simply a rebound effect. It can be further theorized that it would not be sustainable in the more immediate future for reports to continue such dramatic declines in unemployment, at least not until further along in the recovery.
With so much uncertainty, it is incredibly helpful to have a CECL sandbox environment where your institution can play out multiple scenarios without the possibility of compromising the current methodologies and the overall integrity of your champion model.
Valuant client Colin Campbell (Allowance & Stress Test Manager) of Atlantic Union Bank, a $17.8 billion bank headquartered in Richmond Virginia, shares that "Challenger models for CECL are a big deal and will be very helpful to preparers and reviewers of CECL estimates - particularly in these highly uncertain times.”
Contact Us to learn more about Challenger Modeling for CECL with ValuCast.
Tom Cunningham, Ph.D. is the Chief Economist and Senior Vice President at the Metro Atlanta Chamber. Tom joined the MAC after he retired as Vice President, Senior Economist and Regional Executive from the Federal Reserve Bank of Atlanta. Through his Fed career, Tom served at various times as Associate Director of research, interim Director of Research, Vice President for the Regional group where he was also responsible for the Latin American group, and acting head of the Finance group. He served on the Bank's Personnel, Information Technology, and Risk Management Committees and as a member of the Federal Reserve System's Information Security Group and Technology Services Council. He also was the acting director of, and helped establish, the Bank's Center for Real Estate Analytics.