Despite some positive signs, the economic outlook appears negative for the near term, and possibly beyond, according to analysis provided in the November 2007 Credit Union Trends Report  (297 KB/8 pages) newsletter.

The good news provided by GNP, export, and employment reports has been outweighed by bad news in the housing, credit, and energy sectors, according to the monthly newsletter, published by CUNA Mutual using data compiled through September 2007.

“The housing market correction and tightening credit markets will reduce growth potential and cause collateral damage for an extended period,” says CUNA Mutual Chief Economist Dave Colby. “Rapidly escalating energy costs will reduce consumer discretionary income, as will higher import prices.”

The current forecast indicates a recession will be narrowly avoided, says Colby, but risks remain weighted on the downside. “Credit unions are in solid financial shape and should safely manage through this slower growth period,” he says.

Other report highlights for credit unions:

• Annual loan growth slowed to 6.6% in September and likely will slide further by year-end and into 2008. “The economic downturn will cause consumer spending and borrowing retrenchment, and competition will intensify for the smaller pool of borrowers,” Colby predicts.
• In 2007, real estate-secured loans have supplied 77% of the portfolio gain (75% annualized), and vehicle loans accounted for just 6% of loan gains over the past year.
• Loan-to-share and capital-to-asset rations remained very strong at 83.5% and 11.5%, respectively. Loan delinquencies are inching up, but remain very manageable.
• There were 8,491 credit unions at the end of September, a net loss of 270. “Consolidation within the credit union system remains well below historical trends,” notes Colby.
• Total credit union membership stood at an estimated 90.2 million, and annual growth remained above trend.

Despite the credit union system’s solid foundation, Colby had words of warning. “The continued drama in the housing and housing-finance sectors has more downside room to run,” he says. “Credit unions will remain cautious and possibly sell more loans, thus dampening top-line loan growth.

“Credit unions can find opportunities to lend as the broader markets will likely overreact with credit-tightening,” he says. “Adhering to solid underwriting fundamentals is critical to protect both borrowing members and the credit union.”

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