Economic slowdown Photo: Shutterstock.

After “extremely strong” membership and loan growth in 2018, credit unions need to pare their expectations over the next two years, a CUNA economist said Wednesday.

In CUNA’s Economic Update report released Wednesday, senior economist Samira Salem said CUNA is downgrading its expectations for this year from its previous forecast released early this year, and announced forecasts for 2020 that reflect further slowdowns in loan growth and returns, along with small increases in delinquency and charge-off rates.

While loan growth will fall and membership growth won’t match last year’s, or the halcyon days of 1986, when the The Bangles were touring concert halls, Salem said credit unions will still be enjoying healthy growth and good rates of return.

The small yield curve inversion in March was too short to count as a harbinger of economic doom, and CUNA is still not putting a sell-by date on the nation’s record-long economic expansion.

“The economy is more fragile than it has been for a while, and the probability of a recession is increasing,” Salem said. “That said, CUNA economists do not predict a recession anytime soon.”

Slowing loan growth is already a reality for lenders, including credit unions. Gross Domestic Product growth is also slumping.

Salem presented updated forecasts for 2019 and first-time forecasts for 2020 that showed she and other CUNA and CUNA Mutual economists expect growth to be even slower.

In its last forecast, CUNA expected U.S. GDP to grow 2.25% this year. Now it expects 2.1% growth this year, and 1.9% in 2020.

“Despite what we see as sound fundamentals, we expect a slowdown in growth due to several factors, including slower global growth, continued trade tensions and rising corporate debt.”

While unemployment, job growth and wages are performing near record levels, economists typically consider these to be rear-view mirrors.

“The labor market is a lagging indicator, so a slowdown in economic growth won’t immediately show up in labor market outcomes,” she said.

Credit unions should savor their memories of 2018.

Credit union membership met or exceeded CUNA’s forecasted 4.4% growth last year. “Credit unions haven’t seen this rate of growth since ‘Walk Like an Egyptian’ topped the music charts in 1986,” she said.

CUNA is maintaining its 3.5% membership growth forecast for 2019, but expects membership to grow 3% in 2020.

Here are some of CUNA’s other key forecasts:

  • Assets. Last year they grew 6.2% to $1.47 trillion, and CUNA expects them to grow 6.2% this year, down from its previous 7.75% forecast. Assets are forecast to grow 6.7% in 2020.
  • Savings. Last year savings grew 5.2%. CUNA expects 6% growth this year (down from its earlier 7% forecast), and 6.5% growth in 2020. “An increasingly competitive environment, tightened spreads between deposit rates and loan yields, make it challenging to increase rates sufficiently to attract more deposits,” Salem said.
  • Loans. Last year loans grew 9.9% to $1.06 trillion. CUNA is paring back its 2019 loan growth forecast to 7.75%, down from its previous 8% forecast, reflecting the slowing economy, especially in automobile sales. In 2020, CUNA expects loans to grow 7%. “This is still a healthy rate, and higher than the average loan growth rate of 7.5% since 1990,” she said.
  • Loan performance. Delinquency rates are expected to rise from 0.71% at the end of 2018 to 0.80% by the end of this year (up from a previous forecast of 0.75%). Next year delinquencies are expected to 0.85%. The net charge-off rate is expected to rise from 0.57% last year to 0.60% this year (down from a previous 6.5% forecast), and to 6.5% in 2020.
  • ROA. Return on average assets is expected to fall from 0.92% in 2018 to 0.80% this year. The 2019 forecast was reduced 5 basis points because of slower loan growth. Both forecasts reflect the absence of 2018’s one-time gain from NCUA insurance fund rebates that added about 5 basis points to ROA.

“In a low inflation world, 80 basis points is a healthy level,” Salem said.