Community Bankers’ Economic Outlook Sinks Amid Stressors

While a survey released this week shows how community bankers’ concerns about regulatory burden, monetary policy, future business conditions and future profitability have plummeted, it also revealed that 95 percent of those same respondents believe the U.S. economy is currently in a recession.

The community bank survey results are notable as California and Nevada credit unions of all sizes try to strategically plan for 2024 when it comes to an unpredictable economy, potential liquidity challenges, the inflation outlook, and so much more (register for this year’s two-hour online/virtual Your Economy—Your Credit Union conference).

The ongoing survey — the Community Bank Sentiment Index, started in 2019 — was published by the Conference of State Bank Supervisors, a national association for state-chartered regulators. Highlights of the survey reveal that:

• Community banker sentiment has been pessimistic for six straight quarters due to stressed liquidity, lending growth, fixed-rate securities portfolios, and potential future regulatory overreach.
• All seven components that comprise the index decreased from the previous quarterly survey. The “profitability” component experienced the greatest quarterly decline. The “regulatory burden” component remains the lowest on record.
• Expectations that the Federal Reserve’s monetary policy decisions will negatively impact market conditions continue to push the overall index down. The outlook for future business conditions has steadily declined as well.
• Community bankers rated the following as their top concerns for the rest of 2023 (from most concerning to less concerning): government regulation, cyberattacks, inflation, federal debt/deficit and the cost/availability of labor. These concerns have been rated among the highest five concerns since the beginning of 2021.
• Community bankers’ outlook on economic conditions has dropped to a new low, as 95 percent of survey respondents believe the U.S. economy is currently in a recession.

The Community Bank Sentiment Index is derived from quarterly polling of community bankers across the nation. As community bankers answer questions about their outlook on the economy, their answers are analyzed and compiled into a single number. Quarterly results are included in the Federal Reserve Economic Data (FRED), the online database maintained by the Federal Reserve Bank of St. Louis.