Economic update
Mike Schenk, CUNA chief economist and deputy chief advocacy officer

No imminent threat of recession

Economists examine 7 indicators of a slowdown.

February 24, 2020

While the U.S. economy faces no imminent threat of recession, economic growth will slow. Labor markets will remain near full employment, consumer finances are in relatively good shape, and inflation will remain below 2%.

These are the top takeaways from Monday’s Economic Update, presented by Mike Schenk, CUNA chief economist and deputy chief advocacy officer, and Jordan van Rijn, CUNA senior economist.

Most economists are less concerned about an imminent recession now than in the past, van Rijn says. He examines seven recession indicators:

1. Yield curve. Typically, an inverted yield indicates a recession will occur within three to six months. But that’s not necessarily the case anymore, he says.

While the U.S. economy had a yield curve inversion for a few months, it no longer does.

2. Unemployment rate changes. Whenever the unemployment gap rises sharply, a recession typically follows. “There’s no indication of that,” van Rijn says.

3. Consumer sentiment. Consumers, whose spending accounts for 70% of economic activity, remain confident. “There are no negative signs here,” he says.

4. Manufacturing index. While this has been an area of concern, this index has improved in recent months. Plus, manufacturing activity comprises a smaller percentage of economic activity now than in the past.

5. Auto sales, which have dropped 4.3% over the past year. This is concerning because auto loans make up one-third of credit union loan portfolios, van Rijn says.

6. New housing starts. This leading economic indicator grew substantially in 2019 and remains strong.

7. Stock market. Despite Monday’s substantial drop due to the coronavirus, the stock market remains strong.

The verdict? “Add up all of these indicators and they point to no imminent recession,” van Rijn says.

Expect economic growth of 1.8% in 2020, down from 2.3% in 2019 and 2.9% in 2018, he adds.

Continued economic strength is good news for credit unions and members, Schenk says, although he foresees slowdowns in membership and loan growth, higher savings growth and funding costs, and easing liquidity pressures.

He predicts membership growth will be 2.5% in 2020, down from 3.3% in 2019. “These still are impressive numbers,” Schenk says. “They’re much higher than population growth.”

Loan growth should slow to 5.5% this year from 6.6% last year, and savings growth will increase from 8.2% to 9%.

Expect continued “high and steady” asset quality, and climbing net interest margins, he says.

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