SAN DIMAS, Calif. — Things are going to get worse before they get better, but that's not a tough prediction for anybody these days, said Western Corporate Federal Credit Union economist Dwight Johnston during WesCorp's Dec. 8 "Beyond the Balance Sheet" Webcast.Few economists are confident about forecasting 2009 economic predictors, and even the normally confident and bold Johnston admitted he's still sorting out his thoughts with only a few weeks left in the year. However, the WesCorp economist made some specific predictions during his Webcast, and later to Credit Union Times, that jibe with other industry economists, and some that don't."I always try to look for something different than the consensus because the consensus opinion is usually horrible," he said. "Anytime I've made a particular call on the market, I usually tend to be out on a limb, and once that limb gets crowded, I start looking for somewhere else to go because that usually means something's about to change."However, he didn't diverge from the forecasts of NAFCU Chief Economist Tun Wai or the California/ Nevada Credit Union League's Terrin Griffiths when he predicted that 2009 will be as bad as, or worse, than 2008. However, he did make a more pessimistic comparison than the others, saying the coming recession will be as bad as the early 1980s, or worse. Specifically, Johnston said the first six months of 2009 will be the toughest, with most economic indicators sinking and investors unlikely to return to securities markets until mid to late first quarter.The Credit Union Economics Group, founded by Wai, forecast that 2009 unemployment rates would end the year at 6.63%; however, that was before the Dec. 5 report that unemployment had increased to 6.7% in November.Johnston had the advantage over the rest, making his forecast after the report, but called the adjusted Wall Street consensus that unemployment will reach 7.7% by the end of 2009 "optimistic." He instead predicted a jobless rate as high as 9%. Number of hours worked and temporary employment figures took a nosedive last month, and Johnston said historically, unemployment rates rise and peak about six months after significant drops in those categories.Griffiths said she expects California's unemployment rate to inch up even higher than its 8.2% October mark. The Golden State's economy is heavily impacted by national and international trends, she said, thanks to business investments from both sources, and import/export trade through Long Beach shipping ports, which support more than 300,000 regional jobs. As the economic retraction ripples through the rest of the country and the world, California's economy will be adversely affected.Johnston did applaud President-elect Barack Obama's plans to introduce infrastructure rebuilding programs. However, even though many jobs have been lost in the construction sector, far more have been lost in banking, and Johnston mused that digging ditches isn't a viable career replacement for out-of-work bankers.Many recovery programs in Washington are waiting for Obama to take office before finalizing the details; Johnston pointed out that the worst months on Wall Street during the Great Depression were the final months of 1932 and first three months of 1933, between the time President-elect Roosevelt was elected and inaugurated."Back then, we didn't inaugurate until March, so it was a longer time period, but perhaps we'll see history repeat and go through the worst of it now," he said.The first positive sign that the economy might be on the rebound will be an increase in short-term rates like Treasury bills, he said."We just saw a big Treasury auction the other day in which they sold $30 billion in bills at a 0% return," Johnston said. "I've even seen Treasury bills at negative rates because they're so much in demand. When those rates move higher, that will be the first positive thing."Rates could remain low for a long time, he warned, and the U.S. economy could very well take on the characteristics of Japan's sluggish economy after its early 1990s market bust."The flip side of that news is that I don't think we're going to have a depression at all, but I do think there's a chance we could go into a Japanese-style economy that could last a decade or more," he said, adding, "as long as you see Treasury rates where they are, that tells me nothing good is happening yet."CUEG is calling for only 0.85% GDP growth in 2009, and a low 1.7% Fed Funds rate by year-end, though CUEG is forecasting that two-year Treasury rates will rise to 2.49% by 2009 year-end.Wai said he worries some credit unions haven't sufficiently adjusted to the low-rate environment and are pricing their deposit products too high. They should make those adjustments, he said, because rates aren't likely to recover much next year."In a low interest rate environment, you don't earn as much on investments or loans, so you're hoping the cost of funds will drop sufficiently enough to produce revenue, but I'm finding a lot of credit unions aren't adjusting their savings rates," Wai said.Part of the reason is institutional, he said, because the board has to meet and approve the rate change. And, because dividends are so important to retired credit union members living on fixed incomes, board members might feel guilty about reducing rates or facing angry members."That's where the problem is in terms of making sure an institution doesn't suffer the consequences of a low interest rate environment," he said. "For the most part, credit unions have been adjusting, most managers have the authority to change CD rates, but regular share accounts are going to have some sensitivity in this kind of environment."Wai said he expects lending to slow down next year, due to the continued deterioration of consumer creditworthiness. Installment loans like auto lending and home equity aren't expected to return next year. Unsecured products like credit cards and personal loans will see an uptick, but Wai cautioned credit unions from using debt to solve a member's cash-flow problems.The bottom line is that consumers still lack confidence about their jobs and the economy, he said, and until they do, they're not going to be spending, which means less borrowing. However, since deposit growth has slowed, it might not have much of an effect on loan-to-share ratios.Griffiths said California credit unions have experienced an increase in lending, but have seen an even greater increase in loan applications. Unfortunately, like Wai and Johnston's reports, Griffiths said West Coast members are having problems qualifying, and will continue to do so."If anything, our credit unions are working with current borrowers, either deferring payments or implementing skip-pay programs, things that have traditionally been around in CUs. But, they're definitely doing more of it, both in number of requests and dollars," she said.Home prices aren't going to climb again anytime soon in California or Nevada, Griffiths said. In fact, they'll continue to fall into mid-2009 and remain near bottom until late 2010 and 2011.Johnston said he agrees with Wall Street estimates that four to five million mortgages will go into foreclosure over the next two years."That's probably a little extreme, but not totally unreasonable if you look at historical homeownership numbers, which have typically been around 60% to 62%," Johnston said. "That's the basic percentage of the population that can deal with the responsibility of homeownership. It jumped by 5% over a short period of time, which represents about five million units that probably shouldn't have been purchased."The government can implement all the restructure programs it wants, Johnston said, and even though those programs will help some people, the market still has to deal with a current oversupply of about 1.5 million vacant units.–[email protected]