CUNA Chief Economist Mike Schenk is often asked “When will the recession start?” he wrote in Credit Union Journal Tuesday. And while Schenk notes that the current U.S. economic expansion is approaching its record-breaking 10th year, credit unions should plan accordingly to economic shifts.
Schenk says he expects Federal Reserve policymakers to remain “very cautious” going forward, increasing the benchmark Federal Funds rate only twice over the next year.
“Rather than killing the recovery, I believe Fed restraint should lead to decent overall economic growth going forward, continued labor market health, and solid household earnings gains,” Schenk wrote. “Consumer balance sheets are (and should remain) in good shape, with debt-to-income ratios near 25-year lows.”
Credit unions delivered $12 billion in direct financial benefits to their member-owners in 2018 alone, which led to fast membership growth. Schenk said he expects a continuation of this growth and healthy, but slower, loan portfolio growth.
“Loan quality isn’t likely to deteriorate significantly, and earnings should remain strong overall,” he wrote. “Still, from an operational perspective a few things of concern stand out, and credit unions should take notice and plan accordingly.”
First, Schenck says there is the danger of interest margin pressures going forward, due to a combination of rising interest rates and tight liquidity.
Second, there will likely be more pressure on non-interest margins, as “higher market interest rates are giving consumers pause when shopping for mortgage financing, pushing many into lower-rate, adjustable financing.
Third, with steadily increasing turnover at credit unions, talent management and related costs will likely be another more obvious issue in the coming months.
“In all, I don’t see a recession in sight over the next eighteen months, but more obvious operational challenges are looming,” Schenk wrote. “Continuing to grow fast and deliver big benefits will be a bit more difficult in the months ahead, and credit unions should be prepared to meet these challenges head on.”