CU Experts Sound Off on Industry and Insights Before 2020

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Credit unions in California, Nevada and across the nation are anticipating slower loan and membership growth in 2020 compared to the past few years — and they’re also preparing for various interest rate scenarios.

Meanwhile, there’s nothing directly standing in the way of economic growth, according to several experts in the industry. Political, labor market, foreign trade, and a lower short term interest-rate world are issues to keep an eye on for the time being.

Here’s a roundup of just some of the latest discussions within the credit union system:

  • “We’re seeing a slowdown in credit union lending, especially over the past three to four quarters,” said Sam Taft, assistant vice president of analytics and business development for Callahan and Associates. “Much of this is auto lending — and even more specifically, indirect auto lending. It’s mortgages that have fueled lending activity in the third-quarter of this year. And while liquidity issues have persisted for many credit unions in recent years, it seems that issue is starting to ease a bit in the third quarter because we are seeing deposit growth faster than loan growth more recently — particularly because of certificates of deposits. CDs are really driving deposit growth.” (“Economic and Investment Insights that Could Impact Your Cooperative in 2020” — presented on Dec. 11 by Callahan & Associates, TRUST Mutual Funds for Credit Unions, and ALM First Financial Advisors)

  • “The Federal Reserve is effectively putting interest rate policy on hold for now,” said Jason Haley, managing director for ALM First’s investment management group. “There could be another cut from mid to late 2020. The biggest theme overall for financial markets and the greatest source of volatility has been the U.S.-China trade negotiations. As we approach 2020, nothing has really changed there. And when you consider all that’s happened this year and the impact of trade tension on business sentiment, the fact GDP is still able to hold at about 2 percent is the good-news story here — despite all of the economic uncertainty and financial market uncertainty. You didn’t get this at the expense of consumer savings; we actually saw the savings rate go higher. And consumption is still strong without eating into savings.” (“Economic and Investment Insights that Could Impact Your Cooperative in 2020” — presented on Dec. 11 by Callahan & Associates, TRUST Mutual Funds for Credit Unions, and ALM First Financial Advisors)

  • “Households will not cause the next recession — they are in too good financial shape — and the chances of a recession over the next 12 months are virtually nil,” said Elliot Eisenberg, president of Graphs and Laughs LLC. “However, at the same time, GDP can’t grow faster than it is because we have very weak population growth and labor productivity growth — the two drivers of economic growth.” Additionally, he said there is no mortgage bubble. “But the student loan story is serious, because it delays household formation behavior. Credit card delinquencies are up a little, but not much. However, 90-plus-day delinquent auto loans are almost back to where they were eight or nine years ago — something that’s serious that we should continue watching. The entire auto loan situation can start deteriorating depending on how fast lower credit-tier and subprime auto loans start going bad (at the same time that new car sales continue slowly dropping, average owner-auto equity falls, and residual lease values are possibly impacted). We’ll have to wait and see.” He said credit unions should think about what they would do in a scenario like this. “Putting autos aside — going forward, net interest margin for credit unions and banks isn’t going to be so great, which may cause them to be a little more reluctant to lend. Financial services will continue getting squeezed by lower short-term interest rates.” (“The Economy in 2019 and 2020: Growing but Slowing” — presented on Dec. 12 by CU Direct and Elliot Eisenberg, president of Graphs and Laughs LLC)

  • “As we move to the beginning of 2020, the economy is expected to report below-trend growth of 1 – 1.5 percent for the year — slower than the 2.3 percent pace reported in 2019,” states Steve Rick, chief economist for CUNA Mutual Group. “The economic slowdown is due to three factors: the boost provided by last year’s deficit-financed tax cuts has largely played out; there is a lagged negative impact of tighter monetary policy due to the Federal Reserve raising interest rates nine times over the last three years; and the uncertainty created by the trade war has put business investment plans on hold and pulled back on hiring. This will slow job creation to the point that the unemployment rate begins to increase. The Fed is working to forestall an economic downturn by cutting interest rates three times in four months. Expect a couple of additional interest rate cuts in 2020.” (“Credit Union Trends Report” — released on Dec. 12 by CUNA Mutual Group and Chief Economist Steve Rick)

  • If the trade war negotiations remain in question, I’ll be looking for any signal that this would influence the Fed to drop rates in 2020,” said Robert Frick, corporate economist for Navy FCU. “Such a signal would be highly unlikely. Given the economy has changed only incrementally since the Fed’s last meeting, it should continue its wait-and-watch-the-data posture. The economy is slowing, but companies' hunger for workers is still strong as shown by the latest jobs report.” (“Bankrate’s December 2019 Federal Reserve Forecast Survey" and a routine economic statement by Robert Frick — separately released on Dec. 6 and Dec. 7 by Navy FCU and Bankrate)

  • A “mild” recession may hit the economy sometime in 2021 or 2022, according to Dr. Robert Eyler, economist at Sonoma State University and board member for Redwood CU. It might be so mild that annual U.S. Gross Domestic Product (GDP), the traditional measurement of growth, could still squeeze out somewhere between a zero-to-1 percent growth rate for the 12-month period surrounding the beginning and end of that contraction. Leading economic indicators in California and Nevada show the states’ economies are slowing down in tandem with the entire nation right now. Yet neither are signaling an imminent recession within the next 12 months. Next year, 2020, could impact 2021 if potential impeachment by both branches of Congress ever led to removal of President Donald Trump from office. It would cause upheaval in the U.S. and global financial markets. However, such a scenario most likely won’t play out. In fact, it’s highly likely Trump could be reelected given historical, economic and political context. (“2020’s Big Questions: Economy, Rates, and President Trump” — released on Dec. 9 by the California and Nevada Credit Union Leagues)

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