Energy Costs Exact Toll on Consumers, ‘CU Trends Report’ Says

While consumers have held up well so far amid inflation concerns and less-than-rosy economic growth prospects, rising energy costs will eventually take a toll, according to analysis provided in the May 2007 Credit Union Trends Report newsletter.

Consumers dealing with rising prices at the pump likely will trim spending and curtail debt servicing obligations, predicts the monthly newsletter, using data through March 2007.

For the past few economic cycles, credit unions have been a good predictor of economic downturns and recoveries, notes CUNA Mutual Chief Economist Dave Colby. “If this relationship continues to hold true, don’t expect a consumer-led economic turnaround until at least 2008,” Colby says.

Other report highlights:

Savings and assets surged again in March due mainly to seasonal factors and payroll timing. Credit union assets stood at $758 billion, up 5.5% from a year earlier.
Annual loan growth slipped to 7.2% with fixed-rate first- and second-mortgages supplying all of the year-to-date gains.
Both the loan-to-share and capital-to-asset ratios have fallen sharply over the past two months due to the savings and asset surge. The loan-to-share ratio (79.4%) and capital-to-asset ratio (11.2%) are above prior-year levels.
The credit union marketplace saw a loss of 70 institutions in the first quarter of 2007. The total at the end of March was 8,592, down 346 from a year ago.
Credit union membership of 88.7 million includes a year-to-date net gain of 512,000. Total membership is up 1.1 million over the past year.

Loan growth is perhaps most alarming, even though problems in the broader subprime lending arena are not having a significant impact on credit union results. Still, on a year-to-date basis, total loans are up jus 0.3%, well below results in 2005 and 2006.

Colby’s current forecast calls for 2007 total loan growth of just 5.4%, down from 7.8% in 2006. While vehicle lending results should improve by year-end, Colby predicts first-mortgage portfolio growth falling below 9% for the year. “To achieve lending success in 2007, credit unions will have to reach out to members and clearly demonstrate their credit union’s advantage,” says Colby.

View the three most recent monthly Credit Union Trends Report newsletters.