MADISON, Wis. – Credit unions can expect U.S. economic growth to remain above historical averages through the end of 2019, said CUNA Mutual Group’s director and chief economist Steven Rick.
While the economy’s growth will likely retreat from its 3% pace in 2018, to 2.3% in 2019, the current economic expansion will become the longest in American history if it lasts through the end of 2019, he told attendees at CUNA Mutual Group’s ninth annual Discovery Conference Thursday.
“We continue to enjoy one of the most prosperous stretches of economic expansion in our country’s history, and this positive economic climate has greatly benefitted credit unions,” said Rick. “Today, there are more job openings than unemployed people in this country, marking the first time that’s ever happened. Unemployment sits at about 4% now, and should fall as low as 3.4% in coming years – far below the expected long-term unemployment rate of 4.7%.”
A Recession?
Rick continued to explain that long and short-term interest rates will continue to rise as the Federal Open Market Committee seeks to approach a “neutral Fed funds rate” of 3% to counter inflationary headwinds brought by higher oil and import prices, as well as the aforementioned outperforming labor market, which will force wages upward. Each of these factors is typically seen as a sign of an overheating economy, which could lead to a mild recession in 2019.
“Whenever savings rates drop to 3% or 4%, expect a recession the next year,” said Rick. “Given how consumer confidence is at its highest level in 18 years – prior to the dotcom crash – it’s no surprise that people are buying instead of saving. We are now down to 3%, so a recession by 2020 seems likely, but we should not be worried about it resembling what we experienced a decade ago in 2008.”
Rick stated that when a recession eventually does occur, that dampened confidence will spur Americans to save more, and that when more people are saving, credit union deposits will increase greatly. As a result, forecasts call for a 9% increase in credit union deposits in 2020.
‘Brimming With Confidence’
On credit union growth, Rick noted that “The growth of credit unions in 2017 was incredible – 4.4% with a population that was growing at 0.8%. That means credit unions were stealing market share from banks.”
Rick suggested indirect auto lending serves one of many driving factors in this member growth, as financial institutions tighten up their auto lending requirements, causing a shift toward credit unions, but Rick expects to see a slight slowdown to 3.5% in 2019, and 2.5% in 2020.
Rick also discussed how these economic trends, interest rates and consumer spending will affect credit unions over the next few years.
“What’s most important to take away is that consumers are brimming with confidence as the economy continues to create more jobs than can be filled, and all nearly all indicators of economic health continue to show very positive signs,” said Rick. “They’re purchasing automobiles and homes, and they see every reason to be optimistic. At the same time, this has resulted in consumers being overly optimistic and not saving at sufficient levels. Typically, this is the point in the cycle where the economy soon corrects itself with a recession, which will make consumers start saving again, and that will continue to help credit unions grow and prosper.”
To learn more, watch Rick’s Discovery Conference breakout session, “The Economy and
Its Impact on Your 2019 Strategic Plan,” on-demand.