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Hampel: No Recession on the Horizon
Wednesday, October 25, 2017 6:35 AM

From Catalyst Corporate Federal Credit Union

Without fear of a near-term recession, credit unions can continue to count on strong loan growth. So said former CUNA chief economist Bill Hampel earlier this month at Catalyst Corporate’s 40th annual Economic Forum.

Speaking in front of some 250 credit union leaders, Hampel noted that the economy is well into its ninth year of recovery—a fact that often sparks warnings that the recovery has nearly run its course and that a recession may be just around the corner.

Not so, Hampel suggested. Triggers of a recession typically involve a hot economy reaching full employment and stirring inflationary pressures. In its efforts to fight the effects of inflation, the Federal Reserve usually raises interest rates to cool the economy, which can lead to a recession.

Hampel said, while the economy is presently hovering near full employment, inflationary pressures are only light to moderate. With no signs of alarming inflation, the Fed does not have to hurriedly raise interest rates as a countermeasure. Instead, the Fed has some space to raise interest rates cautiously to a higher point, so that it can lower them again if necessary to fight recessionary effects sometime in the future.

To predict recessions, Hampel said economists look to the yield curve as a solid indicator. “You can’t have a recession without a preceding inverted yield curve,” he said. Usually three to six months after the the Fed Funds rate tops the 10-Year Treasury Yield—creating the inverted yield curve—a recession occurs. Like clockwork, it happened in 1991, 2002, and 2007. 

However, when looking at a freshly produced economic analysis, Hampel said the the Fed Funds rate remains well below the 10-Year Treasuries, “and if our forecast is correct, we still won’t have an inverted yield curve. And so we are good for a couple years.”

In the meantime, strong lending will continue for credit unions, Hampel predicts.

Though some economists think car sales will decline, Hampel believes there is still some built-up demand resulting from a long, slow recovery that will lead to “strong car sales,” which in turn will continue to stoke loan growth.

Loan growth has averaged more than 9 percent over the past five years, touching 10.6 percent in 2016. Hampel expects above 10 percent loan growth this year, though possibly slipping to 9.5 percent in 2018. “Still strong,” he said.

Consumer confidence is quite high right now. He said, “People aren’t worried about finding jobs." 

The household debt/payment ratio—the proportion of household income that is spoken for at the beginning of the month—is the lowest in 30 years, Hampel said. “And when your members come to you with these historic low debt ratios, you are more likely to make the loans."

Toward the end of his Economic Forum presentation, Hampel took a moment to reflect on his recent retirement after 39 years at CUNA, many as the association's chief economist. Hampel referred to the “misery index,” which measures the impact of unemployment and inflation, and then wryly noted how misery levels declined substantially in America during his tenure with CUNA.

“Coincidence?” he asked, as the crowd laughed. “I think not.”

To view photos of Hampel making Economic Forum presentations over the years, visit Catalyst’s Facebook photo album at facebook.com/catalystcorpfcu.

To review Hampel’s Economic Forum presentation slideshow, visit catalystcorp.org and the Learning Center tab.

Mark your calendar for the 41st annual Economic Forum, Oct. 1-4, 2018, at the Omni Frisco Hotel.

Catalyst Corporate Federal Credit Union is a wholesale cooperative financial institution serving more than 1,400 member and client credit unions in all 50 states. Since 1975, Catalyst Corporate has been providing credit unions efficient and competitively priced core financial services, including payments and technology services, liquidity and member credit services and balance sheet management and investment services, as well as industry-leading back-office support.

Catalyst Corporate Federal Credit Union is a five-star endorsed business partner of Credit Union Resources, Inc., a wholly owned subsidiary of the Cornerstone Credit Union League.