How lenders can brace for rough seas or smooth sailing

Whether you’re a captain of a ship or manning the helm of a lending organization, keeping an eye out for changing conditions is key. In lending, the most agile and durable institutions are those that have a pulse on the shifting macroeconomic trends.

Any lender will tell you it is no small feat to effectively track the ebbs and flows of key indicators, from fed rates to debt metrics. In just the last 5 years FIs have also had to brace for unprecedented headwinds like the COVID-19 pandemic, high-profile bank failures, and the more recent tariffs on US imported goods. Depending on the size of your FI, adjusting to these situations and factors takes significant time and resources you may not have. The best way to keep your head above water in an ocean of data is to keep a pulse on top indicators that will play a meaningful role in maintaining the financial health of your institution and the financial futures of your borrowers. Take a look at five of these key macroeconomic indicators we identified to see if you always have them in view. 

1. Unemployment Rate 

The unemployment rate signals the overall health of the economy and directly affects borrowers’ ability to repay loans and contribute to deposits, a leading predictor of loan portfolio performance.

Impact to your institution

Unemployment affects a lending operation in a few ways. More borrowers out of work may lead to a reduction in loan demand or the inability to keep up with payments. FI CFOs may also see fewer savings contributions as borrowers dip into their rainy day funds to cover essentials or avoid delinquency. Monitoring unemployment rates helps inform your long-term strategies for customer growth and mitigating losses. 

2. Interest Rates / Federal Funds Rate

The Federal Funds Rate influences your lending organization’s loan pricing and funding strategy.

Impact to your institution

Interest rates have a direct effect on booking rates—the share of approved loans that borrowers actually take. Lower rates boost take-up and refinancing, especially in mortgages, while higher rates suppress demand and increase deposit competition. As a key driver of both loan volume and margin, rates are one of the most immediate levers shaping your institution’s lending impact.

3. Inflation / Consumer Price Index (CPI)

Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) indicate and track inflation, which offers a window into the financial stress and purchasing power your borrowers may be experiencing.

Impact to your institution

Rising prices shrink household budgets, limit and erode savings, and increase reliance on credit. For lenders, rising inflation can also mean reduced returns on deposits and investments. It can also impact your institution’s operational costs and labor adjustments. Monitoring inflation and CPI helps you anticipate changes in borrower behavior and fine-tune your business and financing strategies accordingly. This may be an opportunity to start closely monitoring portfolio migration data to mitigate downward-trending performance.

4. Gross Domestic Product (GDP)

Gross Domestic Product trends signal the overall economic environment affecting borrowers’ financial health and the broader economic cycle.

Impact to your institution

During expansions, financing teams aim to increase lending as borrowers experience income growth. During contractions, they need to prepare for potential delinquencies by adjusting underwriting standards and loan loss reserves. Components in GDP (consumption, investment, government spending, and net exports) offer insights into specific lending opportunities that can inform strategic loan portfolio planning, investment outlook, asset allocation, and risk appetite. Monitoring GDP insights can help credit unions, in particular, maintain counter-cyclical lending so they can continue serving members during downturns.

5. Consumer Confidence Index

CCI correlates with borrowers’ willingness to take on loans for major purchases and reflects their general sentiment on financial behavior.

Impact to your institution

The way CCI trends present varies depending on borrower demographics, but typically, high consumer confidence drives loan demand, while declining confidence tends to signal a reduction in borrowing. CCI also influences saving behaviors—during low confidence periods, borrowers often increase precautionary savings, affecting deposit growth and loan forecasting. CCI’s forward-looking components help financing teams anticipate their borrowers’ financial behavior shifts before they materialize in performance metrics. This allows lenders to proactively plan product development and marketing strategy adjustments to meet changing borrower needs.

Staying ahead of what’s next

Staying up-to-date can mean hours spent poring over the news, industry reports, governmental regulations, and different dashboards to discover insights that keep you ahead. Without the right tools to surface timely, accurate insights, it’s a never-ending task that can leave most FI CFOs and business analysts feeling overwhelmed and reactionary instead of proactive.

Economic conditions can change rapidly—what’s working today might not work tomorrow. While it’s not a crystal ball, GenAI offers lenders a powerful tool for keeping a pulse on the larger macroeconomic factors that impact every institution. 

Get smarter, simpler, swifter insights

With Lulu as your lending intelligence companion, you’ll have instant access to an expanding number of data sets that tell the story behind shifts in macroeconomic conditions. Whether it’s surfacing changes in inflation or tracking market indices, LuLu will help you stay informed about the latest economic trends and continue to support your customers.

See for yourself when you sign up for a free 30-day trial of LuLu Pulse.