CUNA economist Mike Schenk jokes that each time he addresses the CUNA Lending Council’s annual conference, he has better and better news.
It was no different Tuesday at the 19th annual event in Phoenix, although there’s still room for improvement.
He says most business leaders believe the economy is improving. But a recent Gallup survey found that only 33% of consumers believe that’s the case—and 62% believe the economy is worsening.
“That’s a shocking statistic 52 months into economic recovery,” says Schenk, CUNA’s vice president of economics and statistics.
This consumer pessimism and other indicators, namely slow economic growth and stubborn unemployment, point to a “slow and unsteady recovery,” Schenk says.
He cites three key issues affecting the economy:
1. Unmet economic goals
The economy is limping along at a 2.5% growth rate versus historical growth of 3.25%, and growth is likely to decline during the third quarter.
The unemployment rate remains at 7.2%, lagging the traditional long-term average of 6.5%. While there have been job gains, they’re relatively weak: 148,000 new jobs were created in September, which isn’t enough to lower the unemployment rate.
Schenk estimates there are two million fewer jobs today than in 2007. He says the labor market should be at normal employment by the third quarter of 2014.
2. Persistent weakness
Gross domestic product (GDP) growth normally would be 4.3% three years after a recession, but it lingers at 2.4%, Schenk says.
That’s largely because the economy is entering the third phase of deleveraging since the Great Recession. This first phase was businesses deleveraging, followed by consumer deleveraging. “Consumers represent 70% of our economic activity, which is a huge drag,” Schenk says.
The good news: Consumer deleveraging is ending. The bad news: Federal government deleveraging is just beginning—and will take 1.5% of the nation’s economic growth with it.
Other potential economic landmines include the possible scaling back of the Federal Reserve’s quantitative easing program, and the prospect of continued debt ceiling fights, Schenk says, which could have serious consequences.
“These multiple hits are having a dramatic effect on people's outlook and willingness to spend money,” he says.
3. Positive economic signs
The economy continues to grow, albeit slowly, and “there’s no inflation in sight,” Schenk says, which is good for short- and long-term interest rates.
Consumers are holding steady on employment and income, and there’s pent-up consumer demand, especially in auto sales. “That should be a sweet spot for credit unions,” says Schenk. “The average age of cars on the road is almost 11 years.”
Plus, housing prices are on the rebound, having risen 4.4% year-to-date, and many consumers have benefitted from large stock market gains. “This improves consumer spending,” says Schenk, as does consumer deleveraging.
There also are positives for credit union lenders, such as vastly improved asset quality, high earnings despite low net-interest margins, and strong membership growth (2.1%).
“It’s clear that consumers are discovering and appreciating the credit union difference,” Schenk says.
Despite tepid overall loan growth, Schenk believes there will be dramatic improvements in new- and used-auto lending.
But credit union lenders will feel the pressure to improve net-interest margins as noninterest income declines. “The pressures put on you will become more dramatic,” he says. “Going forward, the return on assets of 84 basis points in 2012 will be a high watermark.
“Overall, it’s good news,” Schenk continues. “We’re almost there. The future looks brighter now than it did a year ago.”
For credit unions, the Electronic Signatures in Global and National Commerce Act of 2000 means information required to be made available can be delivered electronically, as long as the credit union complies with its requirements.
While the DOD has affirmed the Military Lending Act’s effective date for credit card accounts of Oct. 3, CUNA is engaged with legislators to build support for efforts to exempt credit unions from the rule.