CUNA Chief Economist Mike Schenk is “pretty upbeat” about the lending outlook through the second half of 2022.
“Because of the combination of pent-up demand and a pretty strong labor market, we think loan growth will continue to grow at a rate that’s a little above the long-run average,” he says.
CUNA’s most recent quarterly forecast predicts loan growth of 8% in 2022 and 7% in 2023, compared to 7.5% in 2021.
Some of Schenk’s optimism is due to the expectation that the unemployment rate, currently 3.6%, will remain low through 2023. Wages and salaries are also growing relatively quickly.
While wages aren’t keeping up with inflation, Schenk says higher wages and solid employment prospects create consumer optimism, which typically leads to loans.
“The good news is not only that relatively healthy level of growth will continue, but that we expect those increases in loan portfolios to be broader based as we look forward,” he says.
Credit union loan growth will shift from first mortgages, business lending, and used-auto lending to home equity and new-auto loans, as well as credit cards and unsecured personal loans, Schenk says.
While supply chain issues have led to substantial price increases, the CUNA forecast suggests continued demand for automobiles and houses. New-vehicle loans declined in 2021, but Schenk expects an increase of 5% to 5.5% in 2022.
Conversely, first mortgages grew roughly 9.5% in 2021. But Schenk expects far fewer mortgage refinancings in 2022, with first mortgages growing about 5%.
“There was a tremendous amount of mortgage refinancing activity that propelled loan growth forward in 2021,” Schenk says. “That’s a double-edged sword typically because, on the one hand, it reflects demand in the marketplace.
“On the other hand, unsecured loans growing at a high rate tends to be correlated with situations where vulnerable people are inching closer to potential problems,” he continues. “We’re watching that closely and we’re not seeing big increases in delinquencies or net charge-offs.”
Continued high inflation, however, could affect the lending outlook. Plus, inflation hits people on fixed incomes especially hard, Schenk says.
Still, he believes the U.S. economy will likely sidestep a recession.
“We’re probably a hair below 50% in terms of probability of recession,” Schenk says. “We think the economy will continue to grow, albeit at substantially slower rates than we were forecasting at the beginning of the year in large part because we didn’t anticipate the war in Ukraine. The longer it goes on the greater our level of concern will grow.
“Our baseline says the economy will continue to grow and labor markets will continue to reflect a strong showing overall. That should be especially helpful for credit union operations generally and credit union lending in particular.”