DALLAS—A new report on fourth quarter economic data suggests that with possible economic trouble on the horizon, CUs should not relax lending standards.
“The news on fourth quarter growth surely has left the Federal Reserve shaking in their boots,” said Brian Turner, executive director with Meridian Alliance. “The notion that they can raise short-term benchmark interest rates during a period when the world’s largest economy is showing signs of another slowdown could become a nightmare.”
Strength in consumer spending remains the key variable to future growth, noted Turner. If the economy remains strong enough to increase demand, then business can increase production, build inventory, hire workers and the economy expands, he explained.
“But the Fed cannot do much to offset any pending economic shocks with rates so low. So, if the economy encounters a shock early in this tightening process after it has burdened it with higher rates, the Fed may not be able to do anything to prevent recession,” said Turner. “And what a recession it could be—potentially deeper than the 2008 collapse.”
Turner emphasized that credit unions should not be liberal in their current lending practices for the next couple of quarters, and should strengthen liquidity profiles and “hold on tight.”
Key fourth quarter data:
- Fourth quarter GDP expanded at a dismal 0.7%, down from 2.0%.
- Year-over-year economic growth was 1.8% in 2015, down from 2.4% in 2014 and 2.5% in 2013. “This is well below historical average of 6% growth that followed past economic recoveries,” Turner said.
- Consumer spending fell to 2.2%, down from 3% last quarter.
- The Treasury yield curve continues to flatten, narrowing the spread between benchmark rates for loans and shares.