The latest Credit Union Trends Report from CUNA Mutual Group predicts that a “double-dip recession” could become a reality this winter as daily COVID diagnoses continue to rise and government lockdown orders result in job losses in early 2021.
The report covers data through September, and the firm noted that economic output at the close of the third quarter was 3% below its previous peak at the end of 2019 and 5% below potential output. CUNA Mutual predicted a 4% annualized economic expansion during the fourth quarter and 3% economic expansion in 2021.
From a credit union perspective, the industry saw 4.4% loan growth in the year ending Sept. 30, while savings balances rose at 29% annualized rate. Industry contraction also sped up in September, with 168 CUs closing their doors in the 12-month period ending Sept. 30, compared to 156 one year prior.
Loan balances at credit unions were up 0.5% in September, 10 basis points below the pace reported one year prior. Unsecured personal loans saw the strongest growth (2%), while fixed-rate first mortgages were up 1.5% and used car loans rose by 0.5%. The industry’s average loan-to-savings ratio dropped to 76.2% during the month, down from 84.6% recorded one year prior.
“This decline is like the drop experienced during 2008-2009,” the report said. “Loan-to-savings ratios peak right before recessions and may contribute to the economic slowdown that follows due to tight liquidity from credit unions reducing their pace of lending and high levels of members’ debt reducing their demand for loans.”
CUNA Mutual forecasted a 6.5% lift in credit union lending next year, with savings balances rising by 8%. That combination would drop the average LTS ratio to 75% by year-end, in line with long-term averages.
Other highlights from the report:
- Balances for new auto loans were unchanged during September but growth fell below the 0.3% increased reported one year prior. Balances for new cars fell 4.3% in the year ending Sept. 30, and credit unions have lost about 2 percentage points of the new car loan origination market to the banking sector in recent months.
- Fixed-rate first mortgage balances at credit unions were up 1.5% in September, above the 1% pace seen one year prior, thanks to a 9.4% lift in existing-home sales during August.
- Balances on adjustable-rate mortgages were down 0.7% during September, while home equity loan balances fell 1.5%, compared with having seen a 10 basis-point gain one year before.
- Savings balances at credit unions rose 0.7% in September, compared with a 0.3% drop in September 2019. CUNA Mutual noted September is typically a weak month for savings, and overall balances rose 18.3% in the year ending Sept. 30, due in part to stimulus checks form the government, falling gas prices, recession fears and other factors.
