Recession severity depends on credit markets, says Hampel

PLANO, Texas (10/31/08)--Like a Halloween horror story where tension mounts, the worst of an economic recession in the U.S. is still to come, Credit Union National Association Chief Economist Bill Hampel told the Southwest Corporate FCU's 31st annual Economic Forum this week in Dallas.

"If credit markets remain tight, we're likely to have a severe recession like the early 1980s. If credit markets ease within a month, the recession will be milder--like 1990 or 2001--but we'll have a slow recovery," Hampel said.

"However, this is not a depression like the 1930s," he continued. "Wall Street is in much worse condition than Main Street."

But the huge contraction in consumer wealth that has occurred over the past two years will take time to reverse, he said. The ratio of household debt outstanding to annual disposable income was 125% for the first quarter of 2008. Until households start saving again, the economy will remain weak, and a "significant increase" in credit union loan delinquencies and losses will offset improving interest-rate spreads.

Hampel urged credit unions not to panic. "Let your capital cushion do its work. Credit unions have high capital in the 11% range now. Avoid penalizing your members with higher fees and loan rates and lower dividend rates just to protect your return on assets. Even if net income drops to 9%, we're still a well-capitalized industry."

Hampel projected both loan and share growth at 8% for credit unions in 2009. Other forecasts included a consumer price index of 2.5 over the next 12 months and an unemployment rate of 8% by late next year.

Nearly 500 attended the two-day Economic Forum and pre-Forum Member Business Services and Financial Management Seminars, said Southwest Corporate.

courtesy of cuna.org