Economist predicts weak credit union loan growth in 2020

Drastic downward projections for UC loan programs. (Source: Shutterstock).

Credit unions will see their slowest loan growth since the Great Recession this year as the pandemic-induced recession hits car sales and prevents many members who have lost income from sheltering in their current homes in venture out to buy new ones, according to a CUNA Mutual Group report released Thursday.

The Madison Group, Wisconsin Credit Union Monthly Trends Report covers January data, which looks oddly rosy. However, comments from the group’s chief economist, Steven Rick, painted a grimmer picture of the impact of the recession on members and their credit unions.

Rick predicted credit union lending would rise 3% this year as the economy goes from a 5% annualized drop in real gross domestic product in the first quarter to a 20% drop in the current second quarter. , followed by a 10% gain for the second half.

Mortgage lending will remain strong, primarily due to historically low rates keeping the refinance push alive and more homeowners tapping into their equity to meet their cash flow needs. However, home prices and purchases will plummet when they meet the reality of unemployment rates which Rick predicts will hit 6.5% this year and drop to 5% in 2021.

The projection came ahead of the U.S. Commerce Department’s Thursday morning report that Americans filed 6.6 million unemployment claims for the first time last week, up from a record 3.3 million filed the previous week.

CUNA economist Jordan van Rijn said Thursday the new claims imply the rate will peak somewhere in the 8% to 12% range this year, meaning it could top the peak unemployment rate. 10% in October 2009, four months after the official end of the Great Recession.

Curt Long, NAFCU’s chief economist, said the combined 10 million claims equate to more than 6% of the nation’s labor force.

“Providing assistance not only to these workers but also to their employers will be critical to ensure strong labor demand once the worst of the health crisis passes,” Long said.

Even before the 6.6 million additional claims were reported, Rick said the unemployment rate would weigh heavily on members and choke off borrowing for cars and, eventually, homes.

While the federal government will provide $500 billion in economic stimulus through $1,200 per adult relief checks, credit unions will see their savings increase by 14% this year “because some credit union members won’t spend not immediately the relief money”.

Fewer will buy new cars. Last year, dealers sold 17 million new cars and light trucks; this year Rick predicted they would sell 10 million. “The current economic crisis will ensure that this summer will be the weakest in history for new auto loans for credit unions,” he said.

“Expect house prices to fall in 2020 as the unemployment rate climbs to over 6% this summer, from 3.6% in February,” he said. “Housing demand will dry up due to the uncertainty hanging over the country. Foreclosures will also increase as many Americans who will lose their jobs in the coming weeks will not find jobs in the future.

Rick said his forecast for GDP growth of 10% in the third and fourth quarters assumed the virus would peak in July.

“As economic activity picks up in the second half of 2020, we expect unemployment to decline slightly but remain elevated at 6% before falling to 5% in 2021 as the recovery broadens across the board. economy.”

It projected credit union loan balances to grow 5% in 2021, 7% in 2022 and 8% in 2023.

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