The economic outlook in a nutshell: No recession is immediately forthcoming and the economy should continue to hum along, although at a slower pace.

“We were on the summit, we’re coming down, and we’d better be careful,” says Mike Schenk, CUNA’s deputy chief advocacy officer for policy analysis/chief economist, using a mountain climbing analogy.

He and Samira Salem, CUNA’s senior policy analyst, addressed the 2019 America’s Credit Union Conference at the Walt Disney World® Resort in Florida on Thursday.

They offer this economic forecast:

► U.S. economic growth is strong but slowing. We can expect 2.1% growth in 2019 and 1.9% growth in 2020, Salem says. That’s down from 2.9% growth in 2018, but not as substantial a decline as expected in the wake of the government shutdown and stock market volatility.

This is still a healthy rate of growth,” she says. “As long as things don’t go off the rails, we think this outlook will hold.”

► The labor market remains remarkably strong. Unemployment rates are at near 50-year lows (3.6%) and may fall further.

Plus, the U-6 unemployment rate (which includes people who’ve stopped looking for work those who are underemployed) has fallen to 7.1%.

This bodes well for credit unions because there’s a strong correlation between low unemployment and high loan growth, and vice versa, Salem says.

► Wages are picking up after years of stagnation. “This is due to increased competition for workers,” she says. “Employees are starting to benefit from the strong economic performance.”

► Continued low inflation. During its June meeting, the Federal Reserve Board said it wouldn’t raise interest rates anytime soon due to uncertainties in the economy. It may even reduce rates.

► Strong consumer balance sheets. U.S. household net worth is increasing and household debt as a percentage of gross domestic product is declining.  

In addition, the quality of consumers’ mortgage debt has improved.

Potential headwinds do exist, however, such as the inverted yield curve. The last seven recessions were preceded by an inverted yield curve, Schenk says.

“But we feel it’s different this time,” he says. “This happened not because the Fed raised rates but because long-term rates decreased due to uncertainty.”

Other concerns include:

• The effect of current tariffs and the prospect of new, more draconian tariffs.
• The global economic slowdown.
• Political influences, such as trade disputes and immigration, which raise uncertainty. 
• Record-high corporate debt.
• Liquidity pressures.

Credit unions can expect continued strong loan growth, accelerated savings growth, healthy loan quality, solid membership growth, decent earnings, and low charge-offs.

“We don’t see a downturn,” Schenk reiterates, “just a slowing in growth.”

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