In the past month, the economy has taken more hits. Food and energy prices continue to rise. Job losses are growing. And the equity markets have begun to head south.

The good news, according to CUNA Mutual Chief Economist Dave Colby, is that growth in the first half of 2008 was better than forecast. The bad news is that it appears the downturn has been deferred, not avoided.

“The Federal Reserve Board policymakers have some very difficult decisions to make in the coming months,” Colby notes in the July 2008 Credit Union Trends Report  (415 KB/ 8 pages).  “Should they fight inflation with higher interest rates and risk a deeper and protracted economic downturn or ignore inflation and focus on economic growth, risking a high payback later?” In any case, he says, “Orchestrating a smooth landing will be no easy task.”

The monthly report, published by CUNA Mutual using data compiled through May 2008, notes that credit union loan growth results are remarkable, given economic, credit market, and collateral valuation challenges. “Credit unions will need to sustain solid loan growth to protect their bottom lines as loan yields are roughly 260 basis points above investment yields,” advises Colby.

Other report highlights for credit unions:

• Real estate-secured loans showed an annual growth rate of 14.5% in May, nearly double the rate of loans overall. Fixed-rate first mortgage loans climbed at a 19.0% annual rate in May. At nearly $298 billion, real estate-secured loans in May comprised 36.0% of total credit union assets and 53.2% of all loans.
• Vehicle loans shrank by 0.2% since May 2007. 
• Due mainly to a deposit surge, the loan-to-share ratio declined to 80.4%, and the capital-to-asset ratio dropped to 10.9% with capital growth slowing to 4.8%.
• The delinquency rate held fractionally above 1%, but “remains manageable at most credit unions,” says Colby.
• Total assets are up 9.2% over the past year, totaling $827 billion.
• There were 8,284 credit unions at the end of May 2008, a net loss of 112 for the year and 279 over the past year. Total credit union membership was estimated at 90.6 million in May, but gains will likely slow in the second half of the year, says Colby.

 “We continue to stress that most credit unions are in better financial shape than many of their members, so now is the time to demonstrate the credit union difference,” Colby says.

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