1. Economic Update & Small CU Profile CUNA Midwest Small Credit Union Conference August 5, Madison, WI
Mike Schenk, Deputy Chief Advocacy Officer and Chief Economist
Credit Union National Association

2. Unemployment rate = 3.7% + CPI headline inflation rate = 1.6%
Misery Index (June) = 5.3%
CA inflation YOY 2.0%
Unemployment rate

4. 10-Yr. Tsy = 2.01% - 10-Yr. TIPS = 0.26% Implied Inflation = 1.85%
CA inflation YOY 2.0%
Unemployment rate

5. Whoa Horse! Slow economic growth Well below the 2.8% norm
US economic growth – annualized percent changes in GDP // Source: BEA, CUNA
Slow economic growth
Well below the 2.8% norm
Partially due to tariffs, little chance of infrastructure spending etc.
Demographics dominate
U.S. economy grew a strong 2.9%, fastest since 2015.
Why do we care?
Well, when economic growth is high, wages and income typically increase, people take out more loans, and credit unions tend to do well: strong loan growth, healthy portfolios.
This strong growth is driven by:
Strong labor markets / Low unemployment.
Tax cuts and jobs act.
However, we expect this to slow:
Tax cuts will wear off and growth will revert to longer-term sustainable level.
Already see a downward trend since the second quarter.
Expect growth to slow to about 2.3% next year.
Why? (Next slide)

6. HELP!!! Source: BLS.

7. - Savings rate at 2.4%, lowest level since 2005 (before the recession).
- “Personal savings as a percentage of disposable income”
- Could be an indication that people are overleveraged, or don’t have enough buffer against emergencies.
- However, this may pick up again as people receive their tax refunds and benefit from the tax cuts.

9. Voting with their feet! Percent change in CU memberships (%) // Source: NCUA and CUNA

10. Obvious meaningful interactions
Obvious meaningful interactions! Credit union 12-Month loan growth (%) // Source: NCUA and CUNA

12. Membership growth challenges…
Growth by asset size category – YOY March 2019 // Source: NCUA and CUNA

13. …And weaker loan growth…
By asset size category – YOY March 2019 // Source: NCUA and CUNA

14. …Translating into lower LTS ratios LTS ratios by asset category // Source: NCUA and CUNA

15. Credit Union Delinquency Rates: All Loans
Percent of Period-End Loans // Source: NCUA & CUNA

16. Credit Union Net Chargeoff Rates
1st Qtr annualized. Percent of average loans. Source: NCUA & CUNA

17. Strong asset quality By asset category // Source: NCUA and CUNA

19. Earnings challenges…
By asset size category. In basis points of average assets. 1st Qtr annualized // Source: NCUA and CUNA

20. Solid capital positions…
Net worth as a percent of 1st Qtr. Assets. By asset size category. // Source: NCUA and CUNA

21. Three key operational wildcards
1. More obvious margin pressures
Higher deposit rates
Tight liquidity
New Fed rules
2. More obvious pressure on non-interest margins
Lower demand for fixed-rate mortgages?
New York Times article
3. Talent management
Attracting & retaining
Differentiation
Operating expense pressures