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CUs response to the economy should be modest
NEW YORK (7/2/08)—Credit unions’ response to the economy should be modest, attendees at America’s Credit Union Conference & Expo in New York City were told Tuesday in a session with the Credit Union National Association’s (CUNA) economists. Bill Hampel, chief economist, and Mike Schenk, senior economist, provided an economic outlook for credit unions.
Because other lenders are tightening their lending standards, making up for loan losses, people with good credit can’t get loans. That means credit unions can increase their loan volume, said Bill Hampel, Credit Union National Association chief economist, at America’s CU Conference & Expo Tuesday.
“With very few exceptions, credit unions are collateral damage to the subprime crisis and recession. If you’re a credit union in what used to be the hottest real estate market, and you have negative effects, it's not what you did--it’s where you are,” Hampel said. “Negative effects are not caused by the credit union, nor are they long-lasting. The economy won’t boom out of crisis. It will level off and gradually recover,” he said. Hampel advised:
* “Let your capital cushion do its work. You’ve saved it for a rainy day. It’s started raining and it’s pouring. The capital is an umbrella you’ve kept dry. Now is the time to open it and get it wet.” * Avoid penalizing members with higher fees and loan rates, and lower dividend rates just to protect income. * Rising delinquencies and loan losses do not require modifying lending policies. “If you’ve been stable for the past decade and loan losses have doubled, it’s OK.” * Adjust the net income budget and monitor it closely. * Tell members about share insurance. A lot of members don’t understand that credit unions are insured.
“The economy is still in the throes of correction,” Mike Schenk, senior economist at the Credit Union National Association (CUNA), told America’s Credit Union Conference & Expo Tuesday in New York. (Photos provided by CUNA)
Schenk compared the current cycle with historical cycles of inflation. “We are in a recession that started late last year. Although the economy didn’t slow down as much as expected, it will be fourth quarter or into next year before it picks up again. This recession cycle is more gradual, with slower recovery expected.” The outlook for economic growth has been 2%--below the long run average of 3%. CUNA economists expect growth to be 1% for next quarter and a little over 1% for the full year. “There’s not a lot of good news for next year. We probably will see a trend increase as the year continues, but it’s nothing to write home about.” Schenk noted that housing prices are a cyclical market, but the current cycle is different. Historically, prices go up for four to five years, then down four to five years, and up again. The housing boom, however, went up for nine years. “That suggests to us that the pain and suffering are not over,” he said. “You have a very stressed consumer. Consumers face job market weakness and slow income growth, low savings rate, a high debt, falling wealth in the housing and home equity markets, high energy prices," Schenk said. Consumer confidence is at its lowest, he added. And “the real wild card is how credit union members respond through these tough economic times.” The conference, which ends today, is presented by CUNA. To view CUNA economists’ latest economic overview, use the resource link. For more information from the conference, use the link to Credit Union Magazine's ACUC Daily.
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