CUNA Chief Economist Mike Schenk gives a 2022 Economic Update during a CUNA Councils session in February.

Schenk: Expect healthy economic growth

CUNA chief economist identifies five big downside risks and ‘five ugly underlying trends.’

March 7, 2022

CUNA economists say tomorrow should be much like today, but a little bit better. 

That’s what CUNA Chief Economist Mike Schenk told attendees of a recent CUNA Councils session, 2022 Economic Update.

According to Schenk, CUNA’s forecast generally reflects the consensus among economists outside the credit union movement.

“Whenever we’re in an environment where there’s a lot of uncertainty, economists generally go to the easy forecast,” Schenk says. “That’s basically what we’ve done with this forecast because we recognize a substantial amount of uncertainty in the marketplace, not only at the moment but through this forecast horizon. ‘Easy’ is shorthand for a forecast that basically says tomorrow will be a lot like today but a little bit better. Despite today’s big challenges and rising uncertainty, we expect pandemic-related disruptions to ease. This should mean continued improvement labor markets and fewer supply chain problems. Consumers account for nearly 70% of economic activity—so, if we’re right, the economy should continue to grow at a healthy rate.”

Credit unions have been dealing with economic uncertainty since the pandemic began in 2020. During that time, Schenk says credit unions have behaved how they historically have in crisis situations, “basically viewing capital as a war chest to be used to help people get through crisis faster and with less disruption than would otherwise be the case.” 

Schenk says credit unions have made $15.5 billion in Paycheck Protection Program loans during the pandemic. They’ve originated roughly one-half trillion in first mortgages, with the majority refinances that lower overall debt payments and put more money in people’s pockets for everyday expenses. Overall, credit unions delivered roughly $35 billion in direct financial benefits to members (in the form of lower loan interest rates, higher savings yields, and fewer and lower fees than they would be paying at banks).

CUNA’s economists expect the pandemic’s impact to continue, although Schenk note there is lower but sticky savings growth, as well as improving loan growth.  

Schenk says longstanding economic assumptions, relationships, and metrics seem less relevant today. The economic and political landscape shifts quickly, with the Federal Reserve’s influence changing, the political climate’s importance increasing, demographic shifts accelerating, and financial well-being disparities widening. 

The quarterly forecast identifies five big downside risks and “five ugly underlying trends.” 

The five big downside risks are:

1. Pandemic trends.

2. Inflation expectations.

3. Federal Reserve miscalibration.

4. Geopolitics—Especially the Russian invasion of Ukraine and the possibility of more persistent inflation.

5. Labor market scarring and the resulting long tail on recovery.  

Five ugly underlying trends:

1. Demographics—GDP is constrained by the aging population, low household formation low birth rates, and low immigration.

2. Persistently low productivity gains.

3. Labor force disconnects around mismatches between labor supply and demand within job-type.

4. Rising tide of isolationism/nationalism reduces efficiency and fuels inflation pressures.

5. Growing economic inequality.

Economists believe the stock market is overvalued and there’s a bubble in the housing market, Schenk says, but both issues are relatively manageable for the economy’s total health.

“Stock market performance has a lot less to do with the real economy than a lot of people expect,” he says. Historically, a 10% decline in the stock market results in a 0.3% decline in GDP. “We do think there’s a bubble in the housing market, just like with equities. If history is a good guide, home prices will be coming down. The question is how quickly they’ll fall. This time really is different—there’s a lot less speculation, consumers have low debt burdens, unemployment rates are very low, and the economy is growing. Generally speaking, the household sector is in way better shape today than it was in 2007.”