This year is off to a strong start. Despite the ups and downs that ended 2018, jobs are continuing to grow strong, lower unemployment rates and high consumer confidence. As Credit union lenders and financial institutions monitor how the economy performs in 2019 and into 2020, it is important to remain watchful on a few indicators that provide insight for the industry.
According to Steven Rick, chief economist for CUNA Mutual Group, these are five economic indicators all credit union leaders should track and monitor:
The unemployment rate is a good gauge for economic developments nationally and locally. A lower unemployment rate correlates with faster credit union loan growth and lower loan delinquency rates. There is a clear cyclical pattern in unemployment. As demand increases, companies take on more workers and unemployment decreases. Credit unions can find the unemployment rate in their state and city by going to the U.S. Bureau of Labor Statistics website at www.bls.gov.
Vehicle sales are another important leading indicator of economic activity, manufacturing production and demand for durable goods, which are vulnerable to the economic cycle. Credit union new auto lending volumes correlate to vehicle sales numbers. Credit union new auto balances have increased by more than 10 percent annually for each of the past five years. With vehicle sales numbers expected to revert to the long run average of 16.5 million units during the next two years, Rick expects credit union new auto lending growth numbers to fall below 8 percent annually.
Consumer confidence measures the degree of optimism that consumers feel about their personal financial condition and the overall state of the economy. When consumers feel optimistic about their jobs and job security and the future of the state economy, they are more likely to tap into the stream of future paychecks by taking out a loan. Rick noted that despite the recent surge in consumer confidence over the past few years, he is forecasting a slowdown in credit union lending, from 10 percent in 2018 to 8 percent this year.
Stock prices have traditionally been viewed as a forward-looking indicator of the state of the economy. Large decreases in stock prices may predict recessions whereas large increases in stock prices may point to future economic growth. Recent volatility and declines in stock prices may reduce the growth rate in credit union loan balances outstanding in 2019.
Existing home sales are considered a leading economic indicator and tallies the number of sales of existing homes that closed along with the median sales price. Existing home sales are a good indication of consumer aggregate demand and their willingness to borrow. During the last five years, Rick noted that existing home sales exceeded the five million mark considered by economists to be associated with a healthy housing market. Credit union mortgage lending growth rates have exceeded the long run average during the same time period. Rising mortgage interest rates and rising economic and policy uncertainty could reduce existing home sales and credit union mortgage lending in 2019. Rick suggests that credit unions reevaluate their mortgage staffing needs and projections for mortgage originations.
“The past four years have provided an economic backdrop that has led to a relatively prosperous and calm business environment for credit unions to operate,” said Rick. “Those days may be coming to an end as rising interest rate and a slowing global economic growth may lead to a possible recession in 2020. It will become imperative for credit unions to watch these economic turning points and how they will impact long term strategic planning.”
Steve Rick is chief economist for CUNA Mutual Group, the leading provider of insurance and financial services to credit unions and their members. He can be contacted at firstname.lastname@example.org.