- Credit stability has returned for U.S. public finance and we expect it to continue for the remainder of the year.
- Strong economic growth has translated to positive revenue performance for most issuers and the economic outlook for the rest of the year is favorable.
- The unprecedented federal response to the pandemic with multiple rounds of stimulus has supported the economy and finances of issuers.
- Active management by issuers has supported credit quality across all sectors and will continue to be important as COVID-19 lingers and other ESG related risks present fiscal challenges.
To start 2021, the key question for U.S. public finance was: Will the pandemic be contained and the economy and credit conditions get back on track? The answer to that question at mid-year is "yes" due to rapid and widespread vaccination across the U.S. which eased COVID-19 caseloads and accelerated social and economic activity. The strong federal fiscal and monetary response to the pandemic was also a major contributor to the economy and improved fiscal prospects for most public finance issuers in the U.S.
We have seen a return to credit stability during the first two quarters and we expect that to continue for the remainder of the year (see rating and outlook distribution charts). The rating distribution remains strong and negative outlooks represent about 6% of total ratings compared to about 8% last year at this time. The 2020 default study for U.S. public finance, published July 9, also highlights this credit stability. All sector views are now stable except for higher education. This was a quick shift from a year ago when all sector views were negative. (A sector view is a macro, forward-looking assessment of where we see credit trends in the year ahead; it does not apply to specific issuer- or issue-level ratings.)
Despite these generally positive trends, challenges remain as the pace of vaccination has slowed and COVID variants have accelerated in the U.S. and globally. The recent rise of the delta variant again highlights the regional variations and uneven health outcomes we have observed throughout the pandemic. In addition to the lingering health and safety challenges of COVID, other issues--many of them also under the environmental, social, and governance label--are front and center for the remainder of 2021 and will test issuers and require active management.
The sectors that comprise the municipal market are diverse but there are some key macro issues that matter for all in terms of credit quality in 2021.
Economic Forecast Update
S&P Global Economics updated its forecast and now projects an acceleration of growth (see "Economic Outlook U.S. Q3 2021: Sun, Sun, Sun, Here It Comes," published June 24, 2021, on RatingsDirect). Highlights include:
- The forecast for GDP growth was slightly raised for 2021 and 2022 to 6.7% and 3.7%, respectively, from 6.5% and 3.1% in March.
- The labor market still has a long way to go before it recovers the 22.4 million jobs lost from COVID-19, which likely won't happen before fourth-quarter 2022. The unemployment rate is projected to reach its precrisis range of under 4% by first-quarter 2023.
- Although inflation has jumped on base effects and supply running behind reopening demand, we agree with the Federal Reserve that price gains should be "largely transitory."
- We assume the Fed's first rate hike will be in first-quarter 2023, followed by another in the third quarter, and two more in 2024.
- Recession risk is now 10%-15%, the lowest in six years.
Mid-Year Credit And Research Roundup By Sector
General public finance articles
- 2021 Credit Outlook For U.S. Public Finance: Back On Track?, Jan. 29
- 2021 Sustainable Finance Outlook: Large Growth In Green, Social, Sustainable Labels As Municipal Market Embraces ESG, Feb. 16
- Across U.S. Public Finance, All Sectors Stand To Benefit From The American Rescue Plan, March 18
- ESG Brief: Cyber Risk Management In U.S. Public Finance, June 28
- ESG Brief: Emerging Themes In U.S. Public Finance, June 3
- ESG Brief: Cyber Risk Management In U.S. Public Finance, June 28
- U.S. Charter Schools Fiscal 2020 Medians: Despite Pandemic, Financial Metrics Continue Positive Trend, July 12
- Charter Schools Mid-Year Sector View: State Stability Supports School Stability, July 15
- The Health Care Credit Beat: $1.9 Trillion Stimulus Package Provides Temporary Boost To The Sector, March 17
- U.S. Not-For-Profit Health Care Sector View Revised To Stable From Negative, June 23
- A Tumultuous Year Presents A Major Test For U.S. Privatized Student Housing, March 8
- A New Dawn For Shuttered U.S. Nonprofits In 2021, May 13
- 'Back To School' Will Take On New Meaning This Fall, May 27
- U.S. Not-For-Profit Public College And University Fiscal 2020 Median Ratios: The Pandemic Presents New Challenges In An Increasingly Competitive Landscape, June 23
- U.S. Not-For-Profit Private College And University Fiscal 2020 Median Ratios: Metrics Start To Demonstrate Effects Of The Pandemic, June 23
- A Year Of Upheaval For U.S. Rental Housing Transactions, May 27
- Missions Possible: How U.S. CDFIs Meet Financial And Social Missions, And The Rating Implications That Follow, June 10
- Credit FAQ: An Overview Of S&P Global Ratings' Approach To Static Pools Of Affordable Multifamily Housing Loans, May 17
- U.S. Big Box Retailers’ 'Dark Store' Practices Continue To Pressure Some Local Governments’ Finances, June 8
- State, Local Government, School District, And Charter School Sector Views Revised Back To Stable, March 24
- Credit Conditions: U.S. Regions' Economies Perk Up As The Pandemic's Impact Ebbs, April 16
- U.S. Electric Cooperative Utilities’ Decarbonization Initiatives Improve Some ESG Risk Attributes, Feb. 17
- Winter Storm In Texas Will Continue To Be Felt In Utilities' Credit Profiles, March 15
- Credit FAQ: How Are California's Wildfire Risks Affecting Utility Credit Quality?, June 3
- U.S. Not-For-Profit Transportation Infrastructure Sector View Is Now Stable For Airports, Mass Transit, And Toll Roads, March 24
- What Is The Next Stop For U.S. Mass Transit In A Post-COVID Era?, July 1
- Five U.S. State And Local Government Pension And OPEB Trends To Watch For In 2021 And Beyond, Jan. 25
- U.S. States' And Transit Debt Hit Emergency Brake During Pandemic As Infrastructure Needs Accelerated, June 9
- U.S. State Fiscal 2022 Budget Negotiations Are More Manageable Than Last Year Given The Stronger Economy, June 30
This report does not constitute a rating action.
|Primary Credit Analysts:||Robin L Prunty, New York + 1 (212) 438 2081;|
|Jane H Ridley, Centennial + 1 (303) 721 4487;|
|Secondary Contacts:||David N Bodek, New York + 1 (212) 438 7969;|
|Geoffrey E Buswick, Boston + 1 (617) 530 8311;|
|Theodore A Chapman, Farmers Branch + 1 (214) 871 1401;|
|Suzie R Desai, Chicago + 1 (312) 233 7046;|
|Kurt E Forsgren, Boston + 1 (617) 530 8308;|
|Jessica L Wood, Chicago + 1 (312) 233 7004;|
|Marian Zucker, New York + 1 (212) 438 2150;|
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