MADISON, Wis.—What should credit unions expect for their business over the next five years?
According to CUNA Mutual Group’s chief economist Steven Rick, much slower loan growth, markedly higher deposit growth, and mortgage business remaining fairly steady.
And while the mortgage business won’t drop off too much, due largely to younger homeowners picking up their first houses, auto lending will take a hit.
Rick, speaking to attendees at CUNA Mutual Group’s 2019 online Discovery Conference, said in the middle of all this will be a recession, likely arriving in 2020.
Two Key Indicators of Recession
Addressing the recession, Rick pointed to two key indicators he has always followed that accurately predict a recession. The first is the yield curve inverting—an issue on which CUToday.info has previously reported—where the long-term Treasury rates fall below short-term rates.
“When the inverted yield curve happens, it is one of the most accurate predictors of a recession,” said Rick, noting the yield curve inverted before the last two economic downturns.
But Rick said another indicator he looks for, which accurately predicts a recession, is when the gap between credit union loan and deposit growth is zero.
“I take the loan growth today and subtract deposit growth,” he explained. “This is how I predict the next recession. But what are we seeing? Loan growth is slowing and deposit growth is picking up, and that gap is getting closer to zero. I think by 2020 that gap could hit zero.”
Rick said CU deposit growth, around 6% today, will reach 9% in the next few years, and will begin to slow a year or two following the 2020 recession. Recent strong annual CU loan growth, will fall to 8% this year, 6% in 2020 and 3% by 2021. By 2023, loan growth will be faster than deposit growth at CUs, he said.
‘Natural Credit Cycle’
Rick attributed much of the change in consumers’ borrowing and saving habits to the “natural credit cycle.”
“We have gone through six years of rapid debt accumulation, it’s time we are moving into the paying down cycle. The day of reckoning is coming,” he said.
And credit unions will have to get used to slower auto loan business, added Rick. He said that the 17 million to 18 million annual new cars sold each year will drop to 16.8 this year and 16 million by 2023.
“So expect some auto lending headwinds,” said Rick. “Our auto loan growth is already slowing to 8%-9% this year.