As an economist, Steve Rick is often asked, “How’s the economy doing?”
Lately, he jokes, he gives people a three-word answer: “Fan-tas-tic.”
“This is basically a perfectly operating economy,” Rick, CUNA Mutual Group's chief economist, told a general session audience at the CUNA CFO Council Conference in Austin, Texas.
Of course, the next question people ask him is, "When is the next recession coming?"
His answer: 2020.
Rick says one of the best indicators of a recession can be found in credit union data. Specifically, what he calls the growth rate gap: loan growth less deposit growth.
Right now, that gap is at about 4%, with loan growth at roughly 10%, and savings growth at about 6%. He expects that gap to narrow to zero during the next couple years, followed by a short recession.
Rick expects credit union loan growth of 9% in 2018, 8% in 2019, and 5% in 2020. Savings growth is expected to increase from 6% in 2018 to 9% in 2020.
Credit unions currently have a loan-to-share ratio of 86.8.%, the highest point since 1980, Rick says. “We are getting loaned out,” he says. “Members don’t want to save right now.”
Indeed, the national savings rate is 2.8%, but eventually the buying demand will be satiated, Rick says. “When people go out and buy cars and appliances, you’re going to spend a lot less the next year."
Credit union membership growth will also slow to 2.5% in 2019 and 2020 from 3.5% in 2018, but that rate is still impressive compared with the overall population growth of 0.8%, Rick says.
He also notes that credit unions have an “unbelievably low” return on assets of about 3.5%.
“As interest rates have fallen our yields have fallen,” Rick says.
And why are interest rates so low? There is low inflation and an increasingly globalized financial marketplace.
“Money from around the world is flowing through Wall Street,” Rick says. “Other countries buy our treasury bonds to keep interest rates artificially low.”
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