MADISON, Wis.-The economic forecast for 2009 leaves a lot to be desired, but the new year could provide more opportunities to benefit from the banking crisis before a slow recovery begins, several economists say.
At the start of 2008, experts hotly debated whether the economy would enter a recession. Now the question is how long until the economy begins to recover.
"We're going to be bouncing along the bottom of the trough for quite awhile," said Dave Colby, chief economist for CUNA Mutual. "Our forecast model shows that mid-year we'll hit the trough but it gets real foggy as to when we'll get out of that. Consumer sentiment is not going to pick up significantly and consistently until people feel better about employment."
NAFCU economist Tun Wai also sees negative growth until at least Q2 or Q3, but the expansion that is to come likely won't be anything to write home about. GDP trend growth, which is about 3%, will not come back until the final quarter of the year or the start of 2010. Colby argued the overall economy is not overcorrecting, which usually spurs a strong recovery, and puts the odds at such a roaring return at about 5%.
Despite the bleak topline outlook, credit unions found ways to thrive in 2008 and they should have ample opportunity to strip more market share away from the banks this year.
"The credit unions that are sound and healthy, and have the good fortune of being in an area that didn't participate in the excesses, are in good shape," Colby noted. "Being able to lend because we don't depend on the capital markets and instead rely on our balance sheets keeps us in the market well."
Correction In Home Values
California/Nevada League economist Terrin Griffiths is hopeful that falling home prices will correct themselves by mid-2009. Sales volume in markets in those two hard-hit states, as well as markets such as sourthern Florida, are at 2005 levels as bargain hunters come in and scoop up distressed properties in bunches. Foreclosures and short sales have sent prices tumbling in those markets, and Griffiths believes those properties need to be taken off the market and regular home sale transactions must pick up before prices stop falling.
"We're no longer falling like we were, so we feel that with sales a floor has been hit but with price that has not been the case," she said. "We're still optimistic that will occur in the second quarter of 09."
Credit unions have become the big beneficiary of frozen credit lines at the major banks as market share in auto and real estate lending jumped significantly last year. Griffiths sees opportunities in small business lending as well as companies look for institutions willing to give them loans to make payroll.
"(CUs) have been very interested in member business lending and they've seen increased activity in that arena," she noted. "That has been a great opportunity for credit unions and they have realized it."
Uncertainty still reins as 2009 begins as the impact of the Troubled Assets Relief Program, interest rate cuts, mass Treasury sales and Federal Reserve liquidity pumping begins to take effect.
"We're in uncharted territory right now because of the extent of government action. We haven't seen this kind of quick movement and innovative movements ever," said Wai. "There is enough talk of a stimulus package for (this) year; I think we're going to see more government action trying to shore up both the homeowners as well as the employment situation."
The Real Advantage
Huge government capital injections into the banks could also finally have their desired affect and start the flow of credit again, he noted, so credit unions cannot be confident that they will remain the only game in town for much longer.
"Your advantage is not price, it's not even service, it's your long term relationships with your members. Look at your pricing, look at your loan mix and be aware of some of the pitfalls in terms of your members shifting to other institutions," Wai said.
