FDIC Quarterly Banking Profile / Delta Downshifted Growth / The End of Wallets? / The GME Takeover / The NFL and 9/11

FDIC Quarterly Banking Profile

The FDIC released its Quarterly Banking Profile this week. The Quarterly Banking Profile is the most comprehensive report on the entirety of the US banking system, as it includes data from all banks, both public and private. Additionally, the FDIC does a report on community banks as well, which is helpful in analyzing banks with simpler business models. A few highlights:

·         Net income in the 2nd quarter was up by $51.9 billion, but a $73 billion decline in provision expenses was the driver. Since early last year, banks have built up reserves due to expected issues with COVID-19, but the strong economy has allowed them to release those reserves.    

·         As of the end of the second quarter, reserve for losses totaled $195 billion.   As of the ‘Q4 2019, reserve for losses were $124 billion before peaking at $244 billion in ‘Q3 last year.   So, while there is still room for banks to continue to release reserves, the ability to continue to boost profits this way will run off soon.

·         Nevertheless, bank provisions are still higher than pre-pandemic levels. ALLL as a percentage of total loans and leases is at 1.80% versus 1.18% in ‘Q4 2019.  

·         The 2nd quarter was another quarter of record-low net interest margins, ending the quarter at 2.5%. We think NIMs cannot get any worse than this and can only improve from these levels.   

·         Banks are doing a good job at boosting noninterest income (up 7.1% from 2nd quarter 2020) and reducing noninterest expense, which stood at a record low as a percentage of average assets.

·         Better news than expected on loan growth. It appears the smaller and mid-size banks are doing a better job at loan growth than the largest institutions. While Wells Fargo called loan growth “tepid,” the entire industry saw a 0.3% increase from the previous quarter – the first increase since the second quarter of 2020.

Overall, it was an OK quarter for the banks. The squeezing on margins has been painful, but it can only get better from today. While we do expect credit problems to increase as stimulus wears off, we also expect to see meaningful loan growth in the second half of 2021.

Delta Downshifted Growth

Growth in July and August slowed slightly due to the onset of the Delta variant, according to the Federal Reserve Beige book.

Economic growth downshifted slightly to a moderate pace in early July through August. The stronger sectors of the economy of late included manufacturing, transportation, nonfinancial services, and residential real estate.  The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions. The other sectors of the economy where growth slowed or activity declined were those constrained by supply disruptions and labor shortages, as opposed to softening demand. In particular, weakness in auto sales was widely ascribed to low inventories amidst the ongoing microchip shortage, and restrained home sales activity was attributed to low supply. Growth in non-auto retail sales slowed a bit in some Districts, rising at a modest pace, on balance, across the nation. Residential construction was up slightly, on balance, and nonresidential construction picked up modestly. Trends in loan volumes varied widely across Districts, ranging from down modestly to up strongly. Reports on the agriculture and energy sectors were mixed across Districts but, on balance, positive. Looking ahead, businesses in most Districts remained optimistic about near-term prospects, though there continued to be widespread concern about ongoing supply disruptions and resource shortages.

Delta is disrupting some of the back-to-normal activities. For example, office building occupancies declined from the prior month.

Offices in 10 major U.S. cities were just 33.1% occupied in the week ending Aug. 25, according to Kastle Systems, an access-control company that tracks how many people swipe into buildings. That figure is a slight increase over the prior week but down from a 34.8% peak in late July.

And the airlines are seeing a downturn again in demand. Southwest disclosed an increase in cancellations and a decrease in bookings.

The airline Thursday said the softness in leisure bookings has continued for September and October, though managed business bookings are estimated to remain relatively stable compared with August. It said it saw higher-than-anticipated cancellations for Labor Day travel, partly due to the effect of Hurricane Ida.

Southwest said it expects to cancel nearly 2,700 flights in the third quarter because of to Hurricane Ida. It said it is currently adjusting its published flight schedules and capacity for the remainder of the year.

"The company continues to believe the recent negative effects of the pandemic on August and September revenue trends will make it difficult for the company to be profitable in third quarter 2021, without taking into account the benefit of temporary salaries and wages cost relief provided by payroll support program proceeds," Southwest said.

The economy is still growing at a high rate, but the Roaring 20s narrative is losing some momentum due to the Delta variant.

 

The End of Wallets?

The smart phone is gradually taking over more and more of the responsibility of your wallet. The days of George Costanza’s exploding wallet may be a thing of the past and we are not far away from not needing a wallet anymore to leave your home.

Thanks to a global pandemic and our new collective fear of touching, well, anything, we’ve embraced contactless payments as an alternative to handing over plastic rectangles. In 2020, in-store mobile payments grew in the U.S. by 29%, according to research firm eMarketer, which predicts more than half of smartphone users will pay with their phones by 2025.

It isn’t just credit cards that smartphones have gobbled up like Pac-Man dots. Loyalty cards? Walgreens, Rite Aid and plenty of chains have digital cards you can load into Android or iPhone wallet apps. Membership cards? I bet your gym has transitioned from a key fob to a phone tap. Insurance cards? Aetna, Cigna and others now offer digital, printable cards. Transit cards? You can now tap and pay at all New York City subway stations and buses. San Francisco’s BART just added more mobile options, too. Vaccine cards?

You’ve got options.

But the real story is in the progress of the holdouts: the driver’s licenses, work IDs and other keys that have struggled to make the leap to the screen. Those cards, the remaining ones in the small stick-on wallet on the back of my phone, are getting ready for their digital debut, too.

Delaware has a mobile driver’s license and 8 more states have signed on to Apple’s new mobile driver’s license feature. Companies are already experimenting with digital work IDs as well. It seems like we are not far away from only needing a wallet to carry cash and a survival kit if you lose your phone. 

The GME Takeover

The Wall Street Journal had an excellent story on how Ryan Cohen used a mere 12% stake in GameStop to effectuate a total and complete takeover of the company in a matter of months.

Mr. Cohen’s swift accumulation of power at GameStop, orchestrated from his Florida beachfront apartment located halfway across the country from company headquarters, was the result of a series of previously unreported moves, people familiar with the matter said. Fueled in part by his popularity on social media, Mr. Cohen injected himself into company decision making, all but supplanting the CEO. Board members and executives who were deemed too slow to transform the company didn’t last long.

Mr. Cohen’s takeover of GameStop is “the most audacious thing I’ve ever seen,” said Wedbush Securities analyst Michael Pachter. “How does a 12% shareholder take control of a company?”

Mr. Cohen and GameStop represent perhaps the highest-profile test of the meme-stock movement. Small-stakes traders congregating on websites such as Reddit and Twitter have invested money and urgency into an unlikely collection of public companies, such as movie-theater chain AMC Entertainment Holdings Inc. and telecommunications firm Nokia Inc.

The skyrocketing stock prices are already a jackpot for the companies’ executives and investors, including Mr. Cohen. The GameStop chairman’s 12% stake in the company is valued at around $1.4 billion, a more-than billion dollar gain on paper, according to filings. Mr. Cohen sold Chewy in 2017 to a larger competitor in a $3.35 billion deal.

By becoming the white knight to a legion of retail investors, Mr. Cohen was able to take over the company, replace the top executives, and control the board of directors.   

The NFL and 9/11

Saturday is the 20th Anniversary of the 9/11 attacks, [Ultimately,%20the%20NFL%20delayed%20the%20games%20a%20week,%20which%20required%20moving%20the%20Super%20Bowl%20back%20a%20week%20later%20and%20paying%20a%20king’s%20ransom%20to%20move%20a%20convention%20booked%20for%20the%20new%20date.]and the NFL had a difficult decision to make on whether they should cancel the games. The NFL received criticism for not cancelling games after the assassination of JFK, but there were some strong voices who thought cancelling games would yield to the terrorists.   

On that first night, as the nation absorbed the staggering losses, attention in the NFL turned to an awkward question: Would games be played the following weekend, just five days away? Should they? Tagliabue's predecessor, Pete Rozelle, famously had the league play 48 hours after President John F. Kennedy was assassinated in 1963, at the encouragement of the president's press secretary, Pierre Salinger. On Tuesday evening, Tagliabue went to Mass at St. Patrick's Cathedral with one of the league staff members whose spouse was missing.

With Tagliabue just beginning to consider the NFL's options for the next weekend's games, which was to be Week 2 of the season, teams were told to bring their players in for practice on Wednesday as if they were going to play. Testaverde, who grew up on Long Island, stood Wednesday morning with a small group of reporters in a silent locker room at the team's old training facility at Hofstra University and asked quietly, "What are we even doing here?"

Ultimately, the NFL delayed the games a week, which required moving the Super Bowl back a week later and paying a king’s ransom to move a convention booked for the new date.

Retail Sales Rebound / Soaring Shipping Costs / Housing Shortage / Direct SBA 7(A) Loans? / Mega-IRAs

Retail Sales Rebound

Despite surging COVID cases, the US economy showed strong resiliency in August as retail sales rose from the prior month.

The U.S. economic recovery remains intact despite the latest wave of virus infections, with Americans boosting shopping and employers resisting layoffs.

Sales at the nation’s retailers rose 0.7% in August, the Commerce Department said Thursday, despite a big decline in car sales related to product shortages and shipping problems. Excluding cars, sales rose a robust 1.8%.

“Delta? What Delta?” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients. “This report suggests Delta fears aren’t stopping people spending some of their abundant cash resources on goods, even as they retreat from services.”

Delta appeared to weigh on certain industries. Sales at restaurants were flat last month after rising briskly for most of this year. Despite the August pause, restaurant sales have climbed nearly 32% over the past year.

Sales also rose only modestly at gasoline stations, a sign some households scaled back summer travel plans in response to the Delta-related wave of infections.

A sign urging mask-wearing at a hotel struck a nerve with me recently, as it said, “Together, we will defeat COVID.” We can manage it, contain it, etc., but the goal of eliminating COVID completely seems herculean and impractical. Both consumers and businesses have adapted, and they are figuring out how to thrive in this environment.

The slow-down in auto sales is a good thing, as it shows that consumers are not so impatient that they will pay top dollar when they know shortages are temporary. It’s better for demand to lessen, so that supply can catch up then for consumers to chase prices to unsustainable levels.

As the weather does get colder, restaurants may see continued strain as the outdoor dining options become less attractive. 

      

Soaring Shipping Costs

Transportation costs are surging across the board, as virtually all components of transportation in all forms are seeing pricing experiences.

The cost of transporting goods is a component in every step in a company’s supply chain. Everything from iron ore, steel, parts and finished products has to move as raw materials are processed in global manufacturing. The cost of shipping containers across the ocean is higher, truck drivers are in short supply, and gasoline is more expensive than many expected earlier this year.

“We are not counting on material improvements in 2022, especially in the first portion of the year,” Michael Witynski, CEO of the discount retailer Dollar Tree Inc. said last month. He noted that experts expect ocean-shipping capacity to normalize no later than in 2023.

Spot container shipping rates from Asia to the U.S. West Coast were five times higher last week compared with the same time last year, according to the Freightos Baltic Index. Those rates are more than 14 times higher than during the same time in 2019.

“It has just gone up so rapidly that it is now becoming part of the narrative here of this supply-chain-driven price shock that is proving to be a lot more intense and a lot more durable than we initially thought back in the spring,” said Brian Coulton, chief economist at Fitch Ratings.

Mondelez International Inc. said last week that global inflation was higher than expected, citing commodity and transportation costs. Molson Coors Beverage Co. said most of its cost inflation came from transportation increases. On Monday, 3M Co. said it is seeing “a lot of pressure” on logistics costs.

Housing Shortage

For over a decade, the US is simply not building enough homes to support the demand. According to research from Realtor.com, the US is short a whopping 5.2 million homes.

The U.S. Census found that 12.3 million American households were formed from January 2012 to June 2021, but just 7 million new single-family homes were built during that time.

Single-family home construction has suffered from a severe labor shortage that began well before the pandemic but was then exacerbated by it. Supply chain disruptions in the past year have pushed prices for building materials higher, and as pandemic-induced demand soared, prices for land increased as well.

While new household formation is actually slower than it was before the pandemic, homebuilders would have to double their recent new home production pace to close the gap in five to six years. A new household can be either owner-occupied or rented.

“The pandemic has certainly exacerbated the U.S. housing shortage, but data shows household formations outpaced new construction long before Covid. Put simply, new construction supply hasn’t been meeting demand over the last five years,” said Realtor.com chief economist Danielle Hale. “Millennials, many of whom are now in their 30s and even 40s, have debunked the industry’s ‘renter generation’ expectations.”

Household formation is when an individual moves out of a shared living situation.

Single-family home construction has been rising steadily since it bottomed in 2009 during the Great Recession. It is still not as high as it was just before the housing boom and is actually running at the slowest pace since 1995, according to the U.S. Census. The slower pace comes as the largest generation enters its typical homebuying years.

We believe the housing shortage is a direct result of the Great Recession. Banks have permanently reduced their interest in financing new homes, despite the obvious need for new homes. Small and medium-size local homebuilders can only get a small number of spec homes built, which makes it difficult to build large subdivisions efficiently. Why isn’t anyone in Washington addressing this problem?  Its holding back economic growth and family formation.  

Direct SBA 7(A) Loans?

Aside from disaster loans, the SBA generally makes loans through its partnerships with lenders and CDCs. Now, there is a proposal to allow the SBA to make small 7(a) loans.

The Biden administration’s $3.5 trillion spending package would give the SBA nearly $4.5 billion to make 7(a) loans of $150,000 or less directly to borrowers. The cap for direct loans to manufacturers would be $1 million.

Legislation approved by the House Small Business Committee last week included an option for the SBA to originate small 7(a) loans “through partnerships with third parties” — which presumably could include some banks and credit unions. At the same time, the bill would authorize SBA “to originate and disburse direct loans.”

With details still in short supply, Ian McKendry, a spokesman for the American Bankers Association, said in a statement that his group “want[s] to better understand why it makes sense to create a direct lending program to compete with banks that are already meeting demand for 7(a) loans.”

SBA’s role in 7(a), its largest loan program, has been to guarantee loans made by banks, credit unions and other private-sector entities. Through the first 11 months of fiscal 2021, which ends Sept. 30, SBA guaranteed a record $30.1 billion of loans.

On a conference call with reporters Tuesday, Sen. Ben Cardin, D-Md., chairman of the Senate Small Business Committee, and Rep. Nydia Velazquez, D-N.Y., chairwoman of the House Small Business Committee, said not enough of that record 7(a) funding is reaching the smallest small businesses.

Banks have certainly struggle to make small SBA 7(a) loans, and the SBA has tried to address this in the past. For example, certain CDCs have made small 7(a) loans. But these loans are generally severely undercollateralized and finding good loans under $150K has not been easy. If the SBA decides to make these loans directly, it wouldn’t surprise us to see very high losses.   

Mega-IRAs

Large retirement accounts are getting the attention of Washington, as many wealthy Americans have used these tools to legally reduce their tax obligations.

More than $279 billion sits in mega-IRAs, individual retirement accounts with at least $5 million each, according to Congress’s nonpartisan Joint Committee on Taxation. Despite rules designed to limit IRA contributions by the wealthy, almost 29,000 Americans hold these giant accounts, and nearly 500 of them somehow managed to get $25 million or more into their IRAs.

Democrats in Washington are trying to thwart the trend of ever-larger IRAs. A tax plan approved by the House Ways and Means Committee on Wednesday includes limits on their use by the wealthy, including a provision that would impose restrictions on retirement accounts whose value exceeds $10 million.

Before Congress floated these new rules, the once-humble IRA was getting a lot of attention from the wealthy, their advisers say, thanks to Democrats’ and President Joe Biden’s other proposals to hike taxes on the rich, and especially on their investment gains. That’s because an IRA, particularly the coveted Roth IRA, creates a pool of assets that can be bought, sold and spent with zero tax consequences.

“You get tax-free growth and tax-free distributions for the rest of your years,” Nicole Gopoian Wirick, a financial planner who is president of Prosperity Wealth Strategies, said of Roth IRAs. Converting assets into the accounts “has become a really hot topic these days.”

PayPal founder Peter Thiel, for one, has an IRA of over $5 billion as of 2019. By converting traditional IRAs to Roth IRAs, you do have to pay the taxes, but then the distributions later-on are tax-free.   

Evergrande on the Brink / The Foreign Bank Retreat / Banks Fight IRS Plan / The End of 3% Rates / Car Rental Prices Fall

Evergrande on the Brink

The largest indebted company in the US is AT&T, which has nearly $150 billion in total liabilities. The China Evergrande Group, is on the brink of collapse, weighed down by over $300 billion in debt. And, China (for now) is determined not to bail them out and urging local governments to step in and prepare for their demise.

Chinese authorities are asking local governments to prepare for the potential downfall of China Evergrande Group, according to officials familiar with the discussions, signaling a reluctance to bail out the debt-saddled property developer while bracing for any economic and social fallout from the company’s travails.

The officials characterized the actions being ordered as “getting ready for the possible storm,” saying that local-level government agencies and state-owned enterprises have been instructed to step in to handle the aftermath only at the last minute should Evergrande fail to manage its affairs in an orderly fashion.

Evergrande faces a series of bond payments in the coming weeks, including one closely watched deadline Thursday for an interest payment on an offshore bond.

Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions, talk to local state-owned and private property developers to prepare to take over local real-estate projects and set up law-enforcement teams to monitor public anger and so-called “mass incidents,” a euphemism for protests, according to the people.

While a bailout appears to be unlikely, it is likely that China will try to manage an orderly liquidation and avoid a Lehman Brothers like contagion. Hedge fund manager Jim Chanos warned that the collapse could be worse than Lehman Brothers.  

The collapse of embattled Chinese property developer Evergrande Group could prove to be “far worse” for investors in China than a “Lehman-type situation,” according to Jim Chanos, the veteran short seller who predicted Enron’s collapse two decades ago.

The collapse of Evergrande — which has amassed more debt than any other real estate developer in the world — could halt the real estate boom that’s driven economic growth in China for much of the past decade, Chanos told the Financial Times.

“There’s lots of Evergrandes out there in China — Evergrande just happens to be one of the biggest,” the founder of New York-based hedge fund Kynikos Associates said “But all the developers look like this. The whole Chinese property market is on stilts.”

We are not sure that the ripple effect of Evergrande will be so severe. After all, if it were a bank, it would be the size of a State Street, and the US financial system could certainly absorb a failure of a bank that size. But, the collapse of Evergrande could reveal how the Chinese banks have overextended credit to real estate developers and a crash in Chinese property prices could ensue. What does that mean for the US? Hard to say, but markets are certainly worried.

The Foreign Bank Retreat

With the sale of MUFG Union Bank to US Bancorp, another foreign bank has divested its US holdings, continuing a trend that started after the Great Recession. Except for the Canadian banks, which continue to grow in the US, the other foreign banks are shrinking.

Foreign-owned banks have retreated from the U.S. before — Royal Bank of Canada sold off its American retail operations in 2011, though it returned to the states four years later by purchasing City National Bank in California. But the current pressure to reevaluate U.S. operations comes at a time when growth prospects across the industry are increasingly tied to the ability to achieve scale.

If the competition is too stiff and technology investments are too expensive, foreign-owned banks may look for ways to exit certain businesses," said Scott Siefers, an analyst at Piper Sandler.

“The cost of investment pressure is real,” he said. “To invest in and achieve scale is very difficult, so for some of these foreign-domiciled banks, it can be very pricey to try to generate the types of returns they want to get.

“So they either get significantly larger,” Siefers added, “ or they try to bring some of the capital home.”

BBVA, HSBC and now MUFG have all chosen the latter route. The Spanish bank sold most of its U.S.-based businesses to PNC Financial Services Group in an $11.6 billion deal that closed in June.

HSBC is selling branches to both Providence, Rhode Island-based Citizens Financial Group and Los Angeles-based Cathay Bank, and turning another 20 to 25 branches into international wealth centers as part of a strategy to boost returns.

On Tuesday, MUFG said that the decision to sell its U.S. retail bank came amid an increasing need to spend money on technology upgrades in order to achieve the scale that is necessary “to maintain and strengthen competitiveness.”

The two companies said they expect the deal to close during the first half of 2022.

Other foreign banks may follow suit. Indeed, early Thursday, Valley National Bancorp announced it is buying the U.S. unit of Israel's Bank Leumi for $1.15 billion in cash and stock. New York-based Bank Leumi USA, with $7 billion of assets, has had a retail presence in the U.S. since 1962.

Much of this is a result of the Great Recession. The US regulators did a far better job at strengthening the US banks than their foreign counterparts. And many foreign banks like the Irish banks, for example, made terrible investments in the US and have needed to shrink their ambitions and focus on their own markets.   

Banks Fight IRS Plan

The Biden Administration is proposing that banks report transaction data to the IRS for any account with at least $600 of inflows and outflows annually. Banks are fighting this proposal aggressively.

On Tuesday morning, the Independent Community Bankers of America released the results of a survey conducted with Morning Consult that found that 67% of respondents were opposed to “a proposal that would allow the IRS to collect bank account deposit and withdrawal information from American consumers,” according to a press release from the trade group.

“A bipartisan supermajority of Americans clearly opposes Washington’s plan for the IRS to monitor their bank account information, which Congress is now quickly advancing through a budget reconciliation package that requires only a simple majority to pass,” ICBA President and CEO Rebeca Romero Rainey said in a statement accompanying the survey results.

Later that same day, ABA President and CEO Rob Nichols sent a letter addressed to leadership on the House Ways and Means Committee and Senate Finance Committee “to reiterate our strong opposition to a proposal requiring banks to report to the IRS new information on their customers’ accounts.”

“ABA and its members firmly believe that Americans should honor their tax obligations, but it is far from clear that requiring banks to report on every single customer financial account with gross inflows and outflows above $600 — creating a mountain of new data — will lead to better tax compliance,” Nichols wrote in the letter, dated Sept. 7.

Nichols even suggested that the requirement could undercut banks’ recent efforts to expand financial access for underserved populations across the U.S.

The proposal would help the IRS crack down on tax avoidance. But, it would create a compliance nightmare for banks, since this would apply to the vast majority of all bank accounts.

The End of 3% Rates

With the Fed announcing that tapering of bond purchases could begin later this year, it appears the era of sub-3% mortgage interest rates will likely come to a close this year.    

The Federal Reserve warned on Wednesday that it’s close to being ready to taper the bond-buying program that’s been in place throughout the COVID-19 pandemic to boost the nation’s economy. In a speech following the central bank’s meeting, Fed Chairman Jerome Powell indicated that the bank could “easily move” to scale back those purchases when it meets again in November.

Additionally, the Fed signaled that an interest-rate hike could come sooner than expected in 2022.

“The forward guidance was pretty close to the most explicit that could realistically be expected,” Stephen Stanley, chief economist at Amherst Pierpont, wrote in a research note analyzing the Fed’s statement.

As part of the stimulus program, the Fed has purchased $40 billion worth of mortgage-backed securities each month. These purchases have pumped tons of liquidity into the mortgage industry, allowing lenders to drop interest rates to historic lows.

“The Fed’s aim was to maintain liquidity in the housing finance environment,” said George Ratiu, manager of economic research at Realtor.com. “I think it has absolutely achieved that goal.”

But reducing that bond-buying activity could have major repercussions for the mortgage industry — and the housing market.

But when the Fed does take action, how high could rates go? “Rates are not likely to shoot up toward 5% anytime soon,” Ratiu said, because investor demand for mortgage-backed securities remains strong, which puts a ceiling on rates. He projects that mortgage rates will approach 3.5% by early 2022 and could be approaching 4% by the end of next year.

“The era of sub 3% mortgage rates may be behind us already by the end of this year,” Ratiu said.

Higher mortgage rates are inevitable and we expect strong mortgage origination volume in the latter part of this year, as those who have not yet refinanced realize the opportunity is waning.   

Car Rental Prices Fall

The fall, rise, and fall again of car rental prices over the past year are a great microcosm for how COVID-19 has impacted the US economy. After peaking this summer, car rental prices have fallen by 40%.

With demand surging and the supply of cars still depressed, rental car companies hiked prices. At the peak on June 19 this year, the average price of a rental car excluding taxes and fees was $123 a day, according to the transportation app Hopper, up from less than $50 at the start of the year.

But high prices have a funny way of fixing themselves, at least to some degree. Those considering renting will toy around with different modes of transport if rental cars become very expensive. Some may decide to optimize their itinerary by using a mix of Uber or public transit to get around. Others may turn toward alternatives like Turo or even U-Haul for a car.

That is all the more true for leisure travelers, who tend to be more price-sensitive than business travelers.

“If people can’t afford it, they will adapt,” said Ani Malkani, head of ground transport at Hopper. “Money is not infinite; you have to make decisions based on the money you have.

The calculation that consumers make for their vacations might be the release valve for pent-up price pressures.

Meanwhile, the arrival of the Delta variant might have curtailed some planned travel, especially business travel, reducing demand. And the end of the busy summer travel season, and the gradual rebuilding of rental car fleets, has brought the market back into something closer to its normal equilibrium — though only somewhat closer.

“We’re coming down from an altitude of 13,000 feet to 10,000 feet — it’s still a supremely expensive time to rent a car,” said Mr. Malkani of Hopper.

The decline in prices varies significantly across the country. Cities that tend to get lots of summer travel — like San Diego, Miami and Tampa, Fla. — have seen the most significant drops. In late June, an average rental in those cities cost more than $100 a day. Now they can be had for as little as $50. Cities like New York, Los Angeles and San Francisco have seen prices decline by about a third.

We believe that there was a “Roaring 20s” like demand for travel and car rentals this summer, as consumers paid up for long overdue vacations. But, now that that initial boom has faded, the travel industry is approaching a new normal. The rental car companies dumped inventory last year, and then scrambled this year to re-build their fleets, which is one reason the used-car market was so frothy.