Five Questions with Georgia United’s Chief Financial Officer
Are we in a recession? If not, are we headed toward one – or away from it? And how long will it last?
It depends on who you ask.
Who better to query about the state of the U.S. economy and the implications for the financial industry and consumers’ wallets than Georgia United Credit Union’s main money man, Chief Financial Officer Bob Bogart, who oversees the credit union’s finance, accounting and risk management functions?
Q: What is the GDP and why does it matter to credit union members?
A: Well, the Gross Domestic Product (GDP) is the simplest way of understanding what the output of the American system of business is. It’s a measurement of both the goods and services that are produced by the American economy. It has an impact on the general consumer; consumers are a big part of the GDP. Generally speaking, the GDP is a good assessment of where the overall economy is going. When you have a positive GDP, that means that you’re expanding. When you have negative GDP that means the economy is contracting.
Q: What exactly is a recession and how do you define it?
A: The consensus has always been that two quarters of negative GDP means that we’re going into a recession. However, the National Bureau of Economic Research (NBER) usually gives the official ruling, and they normally make it well after the recession is over. Also, recessions usually include a rise in unemployment and generally isn’t accompanied by inflation, as we are currently seeing. This is what is causing all the current controversy. From a global economic perspective, all the indications suggest that we are already in a recession or that we will see one in the next few months as the result of the Federal Reserve fighting inflation. A short recession can sometimes be a nice reset and the economy needs to do it periodically so that things do not get too out of control. I am hoping that this recession is more a short-term reset that allows the Federal Reserve to get inflation and unemployment under control. We just went through one of the worst crises we’ve ever had in the United States, or at least in modern history with the COVID-19 pandemic it was bound to have huge economic impact on us, and I think it still playing out.
Q: When the Federal Reserve raises interest rates, how does that combat inflation?
A: The Federal Reserve has the ability to adjust short-term rates to financial institutions which makes it more expensive for banks and credit unions to lend money. It makes the general cost of spending higher. For example, if real estate prices are out of control, by raising rates it makes it more expensive to finance that house - and by making it more expensive, fewer people qualify for the type of house they want, which drives prices down. The same thing with products and services. When rates go up, the cost for businesses to produce goes up, so do consumer prices on products and services which generally will drive down demand. When demand goes down, prices will generally then go down – or at least stabilize. However, as bad as some think rates are now, they are really only coming back to historical norms. I remember back in the late 1980s, when I bought my first house, mortgage rates were almost 13%.
Q: Speaking of housing, residential real estate values are expected to decline 10% nationally, do you think that will happen in metro Atlanta, switching from a seller’s market to a buyer’s market?
A: I don’t think you’re going to see the huge drops in values in Atlanta that you’re going to see in the rest of the country just because so many businesses have moved here in the last 8-10 years that there’s still a lot of people coming to the Atlanta market for jobs. If you combine that with lack of housing inventory I don’t think you’re going to see any deterioration in values. I also don’t think you’re going to see the appreciation we’ve seen in the last couple of years, but I don’t think you’ll see a significant deterioration.
Q: With recession fears rising, what can Georgia United members do to prepare for it?
A: It’s easy to say pay off debt, but that’s not always the easiest thing to do. I’m a huge proponent of paying off your credit card every month, but I know not everyone in our membership can afford to do that. Try to focus more on your core expenses and maybe not take the extravagant vacation this year, maybe take the smaller, more localized vacation instead. Put away the money that you can. Those are all easy things to say, but it is not necessarily easy to do, especially on limited incomes. Our most vulnerable members are those who are living paycheck to paycheck, which is, by chance about half the population in this country. Another tip is to start focusing on reevaluating your budget, what you can cut and what you can’t cut.