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WEST PALM BEACH, Fla. – While economists predicted the terrorist attacks would help drag an already wallowing U.S. economy to even lower depths, consumers and the financial system showed incredible resiliency. “The effect of 9/11 on the economy and credit unions was much less than most of us economists originally expected. I remember a conference call with Mike Schenck and Steve Rick (fellow CUNA economists) where we were revising our forecasts, expecting this to bring us into a really deep downturn,” said CUNA Chief Economist Bill Hampel. But that deep downturn never really happened. Of course consumer confidence did plummet in the weeks following the attack, along with the stock market, but the country very quickly turned resilient, said Hampel, noting improving consumer confidence figures starting in November 2001. Hampel also emphasized that the stock market may grab all the headlines but it’s by no means a good indicator of the economy or even consumers given that the stock market is still concentrated in a fairly small number of hands. “It wasn’t nearly as severe as I personally thought it would have been. That’s not to say there was no effect. The economy took a blow, but there were a lot of other things going on in the economy that made it weak before 9/11,” he said. Hampel said since the 9/11 event was like no other there wasn’t any historical economic data to look back on. “In the first few weeks following there was such paranoia. There was such suggested power on the part of the terrorists to be able to do something like that, people were expecting the other shoe to fall. They didn’t think it was a one-time event,” said Hampel. Though numerous anthrax attacks followed, it was nothing of the magnitude of 9/11 and no one was sure who was behind them. Many suspected a domestic terrorist similar to what happened in the Oklahoma City Bombing. “I think everybody was surprised, given the fallout and the shock at first, that people started resuming more or less their normal consumption pattern and life in general, except for the airline industry and tourism industry. But if you look at retail sales, mortgages, and autos, people continue to go on,” said NAFCU economist Jeff Taylor. As consumers go, so goes the economy said Taylor. An unconfident consumer quickly turns into a saver. For credit unions this means an influx of deposits, and a slow down in loan demand. The stats back this up. Savings growth in credit union land have been at record highs. But that trend was happening prior to 9/11, so it’s tough to gauge 9/11′s effect said Taylor. In fact savings growth is less since 9/11 than it was in the first half of 2001. From June 1, 2001 to June 30, 2001 savings for federally insured CUs increased 9.71%. It slowed in the second half of the year (which included 9/11 of course) to about 5%. The year topped out at about 15% savings growth. (It’s worth noting that historically savings growth is always stronger in the first half of the year than the second.) Now compare 2001 with this year and you find savings is still strong but declining. From the beginning of 2002 up until the end of July shares at CUs increased 7%. A high number, but down from the 9.7% during the first half of last year. As expected when savings are up, loans are down. From July 2001 to July 2002 loans are up just 7.2%, compared to savings of 12.4% for the same time period. But things may be changing. Loan growth from the start of the year until July is now over 4%, above the 3.86% at the same time last year. CUNA’s monthly estimates even show loan growth outpacing savings growth in July. With more funds flowing in over the last year, investments at CUs are up sharply. Federal agency securities, the largest category of CU investments, grew 17% during the first half of the year, followed by bank and S&L certificates at 15.7%, up from $18.5 to $21.5 billion. So how have CUs fared in this climate? Hampel says remarkably well, mainly due to strong mortgage lending. As of June 30, 2002 first mortgages jumped 7.5% to $95.8 billion by mid-year 2002. Other real estate loans also increased, up 6.6% to $45.4 billion. Taylor said he’s not sure how long real estate lending can boost CUs. “I think the big hit would be if mortgage lending really fell off. I’m just amazed at how many houses and cars can be bought,” said Taylor. During the first half of 2002 used auto loans grew 4.8% to $69.5 billion while new auto loans grew just 1.3% $61.0 billion, obviously hurt by 0% financing offers from auto manufacturers. Taylor said 9/11 was one thing, but the last year also put credit unions through one of the wildest rate environments ever. The fed funds rate dropped from 6.5% at the beginning of 2001 to 1.75% by year-end. Boards quickly had to learn that savings rates in particular had to be adjusted faster than normal to keep their cost of funds down, said Taylor. “I think this has been a good story for the U.S. financial system. Why our economy won’t fall back as much in this recession is banks are strong and credit unions are strong,” said Taylor. Part of being strong is capital, and CUs have it. As of July, capital stood at about 10.8%. Return on assets have also managed to stay at about 1.0%. [email protected]

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