CUNA Lowers Growth Forecast Again

CUNA on Friday said that it has again cut its forecast for 2019 credit union loan growth as it expects U.S. economic growth to diminish in the coming year.

In the CUNA Economic Outlook video recorded last week, CUNA Senior Policy Analyst Samira Salem credit union loan portfolios are expected to rise 7.5% this year, down from its previous forecasts of 7.75% in April and 8% last fall. April forecast of 7% growth for 2020 remains.

CUNA economists decided in June to stick with their estimate of 2.1% GDP growth this year, but reduced their forecast for 2020 to 1.8%, down from a 1.9% forecast in April.

Salem said the estimates are more in line with Congressional Budget Office forecasts of long-term U.S. economic growth at just under 2%.

“In this environment, we forecast economic growth will revert to a lower, longer-term sustainable rate,” Salem said. “This is still a healthy rate of growth, and assuming nothing goes off the rails, this lower pace doesn’t mean we’re forecasting a recession.”

Membership growth will slow to 3.2% this year, down the 3.5% forecast in April. Growth for 2020 remains at 3%.

“As the economy slows, we’ll see fewer consumers taking out new loans,” she said.

Unemployment remains at record lows and job creation is strong, but Salem said the labor market is a lagging indicator of the economy’s direction.

She then identified drags on the economy:

• The fading effects of President Trump’s tax cuts.
• Tariff increases, and the uncertainty around additional tariffs.
• Constraints on productivity and labor force growth.
• Economic slowdowns in other parts of the world.
• Another warning sign is the inverted yield curve.

And then there’s the inverted yield. Usually short-term yields are lower than those on long-term bonds. But the yields on 3-month Treasury bonds have been higher than the yields on 10-year Treasury bonds since May 23.

While inverted yield curves don’t cause recessions, they have been a reliable indicator, having preceded every recession since 1955.

But Salem held out hope that the Federal Reserve will intervene forcefully enough to keep the nation’s record 10-year growth streak continuing.

“We expect the Federal Reserve will lower short-term rates soon, thereby stimulating the economy. While there’s reason for concern, CUNA economists are not predicting a recession anytime soon,” she said.

CUNA Mutual Group released a survey last week showing consumers are increasingly worried a recession will arrive in the next year. Its chief economist Steve Rick said credit union members would be prudent to begin taking steps to ensure they have enough savings to withstand a downturn.