By Ray Birch
IRVINE, Calif.—While headwinds will persist, credit unions should expect a good year for the economy in 2022—and for one of their biggest pandemic-driven problems to fade.
Elliot Eisenberg, chief economist for economic consultancy GraphsandLaughs, shared that favorable news with credit unions during Origence’s latest Economic & Lending Trends webinar. He underscored that CUs’ bulging deposit base should begin to lighten as many finally see loan-to-share ratios improve, with mortgages playing a big role.
But Eisenberg also delivered words of caution to attendees as the country moves into a new year.
He warned that lenders should be wary of elevated used car prices—which are expected to remain high for quite some time—expect inflation to stabilize but hang around, and not to think the supply chain won’t need some time to work out its problems.
Eisenberg said the pandemic, even with the threat from the omicron variant, will continue to move into the rearview mirror.
“The pandemic phase of COVID is virtually over and we’re moving into an ‘end-demic phase,’” he said. “We're moving into a phase where people are less likely to change their behavior due to COVID.”
Fewer Fears
Eisenberg explained U.S. COVID death rates have fallen to a point where consumers are not fearing for their lives.
“If you think you will get COVID and end up with what is similar to the flu, you won’t change your behavior,” Eisenberg told attendees. “Now, if you are afraid you might die from COVID, you will change how you behave. But that is not where we are at.”
Eisenberg emphasized that while the next few weeks will tell the story of the true impact of the omicron variant, he said he's not concerned this new version of COVID will markedly affect the economy.
“With each new variant of COVID, we have seen less and less impact on the economy,” Eisenberg said.
The economist pointed out the U.S. vaccination rate is rising and will soon reach the point where the country has herd immunity, the point at which an infectious disease becomes less of a threat to spread. While that is good news for the country, America doesn’t exist in a vacuum, Eisenberg noted, and he said the recovery from COVID will continue to vary by country, with China likely suffering longer than others due to weaker vaccines.
Good News 1.0
However, what is great for the U.S. now, emphasized Eisenberg, is consumers are “spending, spending, spending.”
“GDP is doing great. We are buying our brains out,” said Eisenberg, who forecast GDP will close out 2021 at 5.7%, decline to 4%, and fall to 2.4% in 2023, about where GDP was before the health crisis. “Consumer demand…it’s just barn-burners now. And that’s part of the problem. The factories went from off to an economy in which consumers became super on...The recovery is real.”
He reminded the consumer demand is being tempered by manufacturers facing labor shortages and their own COVID-related slowdowns. With issues persisting in the supply chain, that problem is improving but won’t be solved until well into next year.
Good News 2.0
In addition to the factors listed above related to loan-to-share ratios, Eisenberg expects the numbers will also continue to improve for credit unions as deposits flow out due to the end of stimulus payments and consumers spending down some of their savings.
What isn’t on the horizon, according to Eisenberg, is a rash of delinquencies. “Household balance sheets have never been in better shape,” he said.
“My big message is that right now everything might look really dark, but it's not that dark,” concluded Eisenberg. “Hey, I’m not an apologetic dude. I’m an economist, and there's always a cloud around everything. But supply chain issues and inflation should begin to subside. Consumer demand will go down and supply will go up a little bit, and we'll begin to turn the corner.”
Strong Indirect Volume
Separately, As far as credit union auto lending this year, CU Direct credit unions have been in the fast lane, shared David Adams, VP of lender client experience at Origence, during the webinar.
“In August we were number two as an aggregate lender for auto finance, and here in September the most recent numbers show we have moved back to number one (950,823),” said Adams about CU Direct credit unions collectively being the largest lender in number of loans through September. In second is Capital One Auto Finance (947,664).