Bill Handel

The economic impact of COVID-19 becomes increasingly significant as the lockdown extends. In the past five weeks, 26.5 million people filed initial claims for unemployment. To put this into perspective, that is almost as many people as those filing for unemployment in all of 2018, 2019 and the first 11 weeks of 2020 combined – a total of 115 weeks.

2019 turned out to be a year of solid if not spectacular economic growth coupled with continuing challenges for our industry.  Earnings were stronger for many financial institutions even in the face of flat or even declining margins.  Loan loss experience was at historically low levels for many institutions, while others were beginning to see slight upticks in this area.  Challenges to non-interest income continue to be apparent as the younger generations find less value in historically strong contributors such as overdraft protection programs. 

One thing is certain: uncertainty

For credit unions, a major theme in 2020 will be how well they contend with uncertainty.

Ambiguity and insecurity will come from an evolving economic environment, emerging demographic concerns and nontraditional providers' entry into key product areas, including checking accounts by Google and credit cards from Apple. Contending effectively with uncertainty will become the hallmark of well-managed credit unions.

Here are three trends we're watching for credit unions:

2018 was a good year for the economy generally and for the financial services industry.  We experienced reasonably good GDP growth, especially in the second and third quarters, and we spent the entire year at an unemployment rate of 4% or lower.  In the financial services sector, loan growth continued at a strong pace, to the point that many financial institutions are facing liquidity concerns and for the first time in over a decade are engaged in deposit wars.  Earnings also improved for the majority of financial institutions, a result of improving net interest margins helped by four rate

In a not unexpected development, the Federal Reserve raised short term interest rates again at its Wednesday meeting this week.  This is the ninth rate hike since December 2015, and the fourth in 2018.  At the meeting, the Federal Reserve also indicated that the pace of rate increases is likely to slow in 2019.  What this means exactly is not certain, but the likelihood of four or even three rate increases in 2019 is not high.  In fact, 11 of 17 officials expect no more than two rate increases next year.