Despite economic uncertainty, global crises, falling consumer confidence, and other factors, CUNA Chief Economist Mike Schenk sees a “generally improving” outlook for the economy.

Following the “incredible” 5.2% growth rate during the third quarter of 2023, “the economy will continue to grow, but at a slower pace,” says Schenk, who addressed the 2023 Supervisory Committee & Internal Audit Conference Monday in Las Vegas.

He offers three economic takeaways:

1. A generally improving outlook. The labor market remains strong, with an unemployment rate of 3.9%.
2. Obvious signs that inflation is easing. The October 2023 year-over-year consumer price index (CPI) was 3.28%, still above the Federal Reserve’s 2% target but well below recent highs. “We’re in good shape considering the strong job market,” Schenk says. “This is very welcome news.”
3. Big risks to the baseline forecast, including tight liquidity, earnings pressures, global conflict, and more.

Plus, Schenk remains concerned about the high percentage of uninsured deposits at banks, which led to high-profile bank closures earlier in the year. More than 50% of bank deposits are uninsured, compared to 0.02% in credit unions.

“In the era of social media, all it takes is for someone to see something unusual at a bank to create a failure of confidence,” Schenk says. “[Legendary football coach] Vince Lombardi said ‘confidence is contagious.’ That worries me.”

CUNA’s economic forecast group, which includes seven current and former CUNA economists, pegs the odds of recession through year-end 2024 at 33%.

The group also forecasts:

• 2.5% economic growth in 2023 and 1.5% in 2024.
• A CPI of 3.4% at year-end 2023 and 3% in 2024.
• An increase in the unemployment rate from 3.9% in 2023 to 4.3% in 2024.
• 0% savings growth in 2023 and 3% in 2024.
• 8% loan growth in 2023 and 4% in 2024.
• 4% asset growth in both 2023 and 2024.
• 3% membership growth in 2023 and 1.5% in 2024.

Return on average assets is expected to drop from 88 basis points (bp) in 2022 to 70 bp in 2023, and 50 bp in 2024, Schenk says.

At the same time, he expects delinquency rates to rise from 0.75% in 2023 to 0.90% in 2024, and charge-offs to increase from 0.55% to 0.65% during this time.

Schenk’s top three credit union take aways:

1. A general return toward normal, with decelerating loan growth,
2. Significant shifts in risk profiles, including liquidity risk. He predicts a loan-to-share ratio of around 89% at year-end 2023, up from 88% at year-end 2022.
3. More obvious bottom-line pressures, with falling return on assets. 

He encourages supervisory committee members to focus on the adequacy of their credit unions’ risk management resources and allowance for loan and lease losses.

“Ask good questions, and include them in the meeting minutes,” Schenk says. “Let people see that you’re asking them.”