CUNA chief economist shares insights and forecasts

Credit Union National Association Chief Economist Mike Schenk recently shared some insights and musings on how credit unions have supported members amid the pandemic and some forecasts on the economy.

“Credit unions have outshone other players in the marketplace in a crisis,” Schenk said. “It’s the credit union difference—the way we behave and the structure, serving our member-owners. That structure propels us to view capital as a war chest to be built during good times and used during tough times.”

During the coronavirus pandemic, collectively 95% of credit unions have offered loan modifications; 90% waived fees; and nearly 90% created new loan products to meet members’ pressing needs, according to survey data.

Data from the Small Business Administration shows that collectively credit unions originated about 200,000 Paycheck Protection Program loans, totaling $10 billion. Overall, the average-size loan among credit unions was less than $50,000, roughly half of what was seen in the for-profit sector.

“Results indicate that credit unions were firmly focused on mom and pop, Main Street businesses, and independent entities that were quite small in the scheme of things,” Schenk said. “Data from Cornerstone Advisors found that credit unions really had the biggest jobs impact.”

Schenk went on to say that policymakers are aware that credit unions remain connected to members and show care and concern from an underwriting perspective, as seen in consumer lending figures.

In terms of the economy, Schenk shared two observations:

1. Surprise by the rebound from economic activity.
2. The rebound came earlier than expected and had a more dramatic increase in activity than expected.

“When we gathered for the GAC [CUNA Governmental Affairs Conference], we had a sense that the economy was slowing down,” he said. “In the second quarter, it contracted by an annualized rate of more than 31%, which was the worst economic collapse in modern U.S. history. The third-quarter expansion of over 33% on an annualized basis was the largest economic rebound in modern U.S. economic history.”

He noted that the economy is not back to normal. “Just think about the way percentages work. If we had a $100 economy and lost 50% of our economic activity, we would be a $50 economy. Subsequently, if we got 50 percentage points back, we would then have about a $75 economy.”

At the moment, our economy is down about 3.5% relative to where we were at the beginning of the year, in the total dollar value of goods and services produced. To put that in perspective, during the Great Depression, the economy declined by 4% from peak to trough. The good news is that the economy will most likely see 5% growth in the fourth quarter and be back on track by the middle of next year.

In terms of jobs, in February, the unemployment rate was at 3.5%. During the pandemic, the economy lost almost 15% of jobs nationally. Schenk forecasts that unemployment will be at 7% to 7.5% by the end of the year and 6% by the end of next year.

“The unemployment rate improved faster than expected,” he said. “We initially thought it would be at 8% by the end of the year. We lost 20 million jobs, and now that is down to about 10 million, which is a huge improvement.”

Schenk also noted that what we’ve seen in this downturn that we haven’t seen before is that of the affected workers—those who are required to work with customers face to face—almost half of their jobs have gone away, positions in industries such as restaurants, hotels, cruise ships. About one in five people in that segment are still unemployed.

He added, “Most of our credit union members are made up of the lowest rung of the economic ladder and are disproportionally being affected.”