By W.B. King
Citing weak deposit growth on the supply side and higher borrowing costs on the demand side, TruStage’s Credit Union Trends Report finds credit union consumer installment credit loan balances (auto, credit card and other unsecured loans) are at a three-year low.
The report, which was released in September 2023, aggregated data from CUNA E&S’s Monthly Credit Union Estimates, the Federal Reserve Board and TruStage – Economics (from January to July).
Formerly the CUNA Mutual Group, the Madison, Wis.-based TruStage is a mutual insurance company providing financial services to cooperatives, credit unions, their members, and other customers.
“For the first time since 1948, the U.S. money supply is declining. In fact, it’s down more than $1 trillion since its high-water mark of 21.906 trillion set back in April 2022,” noted TruStage’s Chief Economist Steven Rick, who authored the report. “Economists define money as the sum of currency, checking accounts, savings accounts, money market deposit accounts, certificates of deposits and money market mutual funds. So, a drop in ‘money’ is really a contraction in bank and credit union deposits.”
Credit union consumer installment credit, the report offered, increased 10.7% during the 12 months ending in July, above “the 6.9% pace reported by all other lenders.” Bank credit has been declining for the last few months as liquidity is becoming in short supply, Rick noted.
“Credit card balances grew at a 15.1% seasonally-adjusted annualized growth rate in July, slightly below the 16.4% pace reported in July 2022. July’s credit card seasonal factors usually add 0.62 percentage points to the underlying trend growth rate as people venture out on vacations,” the report stated. “Rising gas prices and consumers increasing their spending on services will keep credit card loan growth in double digit territory for the remainder of the year.”
Below Average Auto Loans
The news wasn’t great for vehicle loans, which only rose 0.2% in June 2023 opposed to 4.7% reported in July 2022. Higher interests rates and competition from “captive finance companies” have reduced new auto lending at credit unions, Rick said.
“The month of July is historically in the middle of the May through October new-auto lending season,” the report stated. “New-auto loan balances rose 1.5% year to date, significantly below the 15.4% jump reported during the first 7 months of 2022 and below the 8% long-run average expected during a heathy labor market.”
In July 2023, the seasonally-adjusted annualized sales rate for vehicle sales were 15.8 million, which marks a 0.6% increase from June and 18.3% (above the 13.3 million sales pace set in July 2022). The report contends, however, that higher interest rates will result in new vehicle sales remaining under a 16.5 million long-term equilibrium benchmark until 2025.
“We expect U.S. new vehicle production to return to 2019 levels by the end of the year. This follows on the heels of three years of COVID-19 related health restrictions and supply chain disruptions that reduced auto production and inventories,” the report noted. “The increased supply of vehicles has reduced new car prices 3.2% below their recent peak. New vehicle prices, however, are still 30% above their 2019 average.”
Credit Union Numbers Dropping
Correlating credit union merger activity with the fastest increase in interest rates in more than 40 years, the report offered that as of July 2023, CUNA estimates 4,858 credit unions are in operation, which was down two from the previous month. Year-to-date, the industry reported 105 less credit unions, which is not counting 101 that were reported in the first seven months of 2022.
“The recent rapid increase in interest rates has put downward pressure on many credit union net interest margins, and reduced deposit and loan growth. These factors will increase credit union merger activity for the next couple of years,” Rick noted.
As of mid-year 2023, the report noted that there were 426 credit unions with assets over $1 billion and 293 credit unions with assets between $500 million and $1 billion.
“The greater than $1 billion asset category represents 8.9% of all credit unions, but more than 75.2% of the credit union system’s assets and 77.1% of the loans,” the report stated. The median asset size of a U.S. credit union rose to $55.4 million in mid-year, up 4.3% from the $53.1 million reported at mid-year 2022.”
The average asset sized credit union, the report continued, rose to $469 million from $436 million compared to July 2022. “The average sized credit union is almost 10 times greater than the median asset size credit union due to a few very large credit unions.”
