DALLAS - With few exceptions, credit unions should be comfortable letting net income decline in the current market, according to Bill Hampel, who is urging CUs to be level headed-headed in responding to economic pressures.
The chief economist for CUNA believes the recession that currently is dragging down the U.S. economy is not likely to be long-lasting, and therefore responses to it by credit unions should be "modest."
"If a credit union's local economy is the worst as it has been for decades, then just ride it out," he advised. "I believe most credit unions are overcapitalized. The reason for 11% capital is a rainy day - and it certainly is raining now. That means let the capital ratio fall and avoid hurting members with higher fees just to protect net income. Let net income fall."
Hampel spoke at Southwest Corporate's recent Economic Forum here along with Salt Lake City-based economist Jeff Thredgold. Thredgold said the typical consumer is able to follow the ups and downs of the Dow, but cannot understand what is happening in the credit markets, "which are the big threat," he warned. "There are expected to be $1.5 trillion in losses in the credit markets when all is said and done."
Thredgold predicted negative GDP growth will extend into the first quarter of 2009 before recovery begins. However, he said there is no reason to get too discouraged, as what eventually may become known as the "Panic of 2008" is just the latest in a series of economic crises that occur every 10 years or so.
"There is a deleveraging of a financial house of cards that built up over the last five or six years," he assessed.
The most recent unemployment figure was a five-year high at 6.1%, which Thredgold expects to increase to 7% or even 8% before the worst is over. He said there is some good news in inflation, despite consumer prices being up 5% over the most recent 12 months.
"With the price of oil and other commodities dropping, inflation pressures are moving lower. Expect 3% inflation in 2008 and 2% in 2009," he said.
Other factors keeping inflation in check are competition and technology. Thredgold said the Internet will save businesses $1.25 trillion this year.
As for short-term interest rates, "The Fed doesn't want to cut beyond that, to as low as 0.5% by the end of the year, but pressures may make it necessary," he said.
As for long-term rates, Thredgold expects them to be lower by the end of the year.
Thredgold spent 23 years with $92-billion banking giant KeyCorp, where he served as senior vice president and chief economist. He is a former member of both the Economic Advisory Committee of the American Bankers Association and the Economic Policy Committee of the U.S. Chamber of Commerce.
