Credit union executives’ outlook on their growth prospects over the next 12 months continued to darken in August, according to a NAFCU survey.
NAFCU members participating in the survey were also slightly less optimistic than July on lending and regulatory burdens, and slightly more optimistic on earnings prospects over the next 12 months.
As a result, NAFCU’s Credit Union Sentiment Index continued a decline that started in the spring, nearly reaching its lowest point since the index was started two years ago.
The index is a composite based on participants’ 12-month outlook in four areas: growth, earnings, lending conditions and regulatory burden. The composite weighs each component equally and member responses are not weighted by the credit union’s size. Responses are averaged over three months.
NAFCU won’t disclose how many credit unions participated or the amount of assets they held. As of March, there were 5,336 federally insured credit unions with $1.5 trillion in assets.
NAFCU conducted the latest survey in late July and early August — just before and after the Fed cut rates by 25 basis points July 31. The biggest change in credit union executives’ outlook was the drop in their expectations of future growth.
Curt Long, NAFCU’s chief economist, said Tuesday that slower loan growth, especially for autos was the main factor. The last trough in outlook was in late 2018 as the Fed was raising interest rates, and a partial federal government shutdown loomed that would last from Dec. 22 to Jan. 25.
The Fed is poised to make another rate cut in September “despite a solid July jobs report and strengthening inflation readings.”
Retail sales growth has also been robust, he said. “Consumer spending will need to hold up if the expansion is to continue, as the household sector is carrying an increasing share of the load economically.”
Meanwhile, the inverted yield has persisted more than three months. On Tuesday the yield on 10-year Treasury bond was 46 basis points below the yield on 3-month notes, the third consecutive trading day the gap was at least 45 basis points since it widened by 7 bps in the wake of Trump’s threats Friday to raise tariffs even higher on China and telling American companies to withdraw from that nation.
Every recession since 1955 has been preceded by about a year by such inverted yields.
Long said the trade war with China doesn’t seem to concern households, but it is creating more uncertainty among businesses, leading to longer delays in investments. If any of those business impacts lead to a rise in layoffs, consumer sentiment is likely to respond quickly.
“There seems to be a little bit of a disconnect between economic data and how the economy is performing at the household level,” Long said.