Lacking Consumer Confidence and Lending
March 4, 2010
In spite of recent signs that the economy may be turning around—including a 0.3% increase in real consumer spending in January to the highest level since May 2008—consumers still don’t seem to be buying a strong recovery. February’s present situation index, which serves as an indication of how consumers are feeling with regard to the economy, hit a 27-year low (not since 1983) of 19.4 (Consumer Confidence Tumbles in February, CNNMoney.com, 2/23/10).
The lack of consumer faith in the economy can be seen across the lending landscape:
- Banks in the U. S. posted their sharpest decline in lending since 1942 as of year-end 2009, dropping about 7.4% (Lending Falls at Epic Pace, The Wall Street Journal, 2/24/10). Credit unions experienced only modest loan growth of about 1% according to the NCUA
- In the 4th quarter 2009, revolving consumer credit decreased at an annual rate of 13% (Federal Reserve Statistical Release G.19, 2/5/10). In January, the trend continued as consumer credit dropped for the 11th straight month
- With regard to mortgage lending, existing home sales dropped 17.7% in December 2009. Even with the extension of the government homebuyer tax credit, existing home sales dropped again in January another 7.2% to a 7-month low (Existing Home Sales Fall, Market Watch, 2/26/10)
It appears consumers are feeling even worse than when the economic collapse was in motion and that the “economic recovery” is still shaky. How soon can credit unions expect a sustainable increase in their members’ loan appetite? What can be done in the interim? It is essential for credit unions to continue to focus on what they can control and to perform in-depth evaluations of their business models—making appropriate changes, timely.
