DANA POINT, Calif. — In a nutshell, Bill Conerly's perspectiveon the state of the national economy is not all doom and gloom. Therenowned economist and senior fellow at the National Center forPolicy Analysis shared his thoughts on some of the changes creditunions can expect to see the economy go through and how they willimpact CUs and their members. Overall, Conerly says the economy in2007 still shows a positive picture. He expects the growth rate totaper down to just below 3%, and the economy will be “a littleweaker” than in previous years. “But that won't be discernable tothe average consumer in the street,” he says, noting he estimatesthere's a “one in four chance of there being a recession in thenext year and a half.” He also forecasts that the Fed is doneraising interest rates. There's about a 12 month lag time when theFed raises rates to when the impact starts to show up in theeconomy, so “there a lot of slowing pressure in the pipeline rightnow.” The one area of the economy Conerly expects to see take themost noticeable downturn is the housing industry. He estimated aquarter to one-third of home sales over the past few years were toinvestors who counted on being able to easily flip homes. He's alsotroubled by the fact that ARMs will begin to readjust soon and willput a lot of homeowners in jeopardy, especially those who have been“borrowing from the future” by using the previous low interestrates to buy homes sooner than they would have been able tootherwise.

As for the growing loan-to-share ratio facing credit unions,Conerly says that's a situation all financial institutions aredealing with now, and the situation will continue for the nextone-to-two years. He advises credit unions to keep their depositsand make only profitable loans.

He also strongly recommends credit unions sketch out contingencyplans and do vulnerability analyses. Credit unions should also haveearly warning systems in place and develop plans that will allowthem flexibility to supplement their contingency plans.