By Frank J. Diekmann
While getting ready to throw away a well-traveled piece of luggage, found these notes from recent credit union events on what might lie ahead for the economy in the near future, including estimates based on some unusual indicators.
There Once Was An Econ From…
Steve Rick, chief economist and poet in residence at CUNA Mutual Group, said he recently composed this limerick with assistance from his young son to explain when the U.S. will enter a recession.
Credit unions have always depended,
On a rate of borrowing that is splendid,
By consumers for whom
this means to consume,
May soon find them overextended
Rick said the U.S. is now in the ninth year of economic expansion, the second-longest period in U.S. history. Not surprisingly, Rick said he is always being asked when the next recession might take place.
“The one economic variable that is the best predictor of recessions is credit union data, in this case, the ‘Growth Rate Gap.’ That’s loan growth less deposit growth,” said Rick, who is also chairman of University of Wisconsin Credit Union. “It’ 10% loan growth vs. 6% savings growth right now. That means loans are growing faster than deposits. Whenever we go from a positive number to a negative, we get a recession. I believe by 2020 this will hit zero, and we will have a recession as people start saving and not spending, and that’s the definition of a recession.”
What always happens to the savings rate right before a recession? They head south. “Everybody is spending, nobody is saving. Where are we today? If you spent your money this year, what are you spending next year?”
He added no one should be surprised by the correction, observing, “The boom is always followed by kaboom.
The Mother of All Indicators
While economists such as Rick continue to debate various indicators and what they mean for future economic performance, one analyst is suggesting the markets look to another sign: the number of mothers to be. “Their numbers foretell the strength of the economy,” according to Matt Lampert, director of research at the Socionomics Institute.
“You would think that people would begin to put off having kids after a recession has already begun,” said Lampert. “But the data show that people in the aggregate actually tend to start conceiving fewer children before the onset of recessions.”
While that may sound counterintuitive, Lampert pointed to a National Bureau of Economic Research working paper that showed declines in conceptions preceded the three most recent U.S. recessions.
When the economy lags the ‘conception indicator,’ people generally can “express their friskiness in their trading accounts and in bed sooner than they can expand or contract business, trends in stocks and conception tend to lead trends in the economy,” said Lampert.
If the moms-to-be indicator isn’t sufficiently offbeat for you, here’s another. The Fed said among the new topics covered in its economic report this year is the relationship between the opioid epidemic and local economic conditions.
“One-in-five adults personally knows someone who has been addicted to opioids, and those who do have somewhat less favorable assessments of economic conditions,” the Fed said. “Still, over half of adults exposed to opioid addiction say that their local economy is good or excellent, suggesting a role for factors beyond economic conditions in understanding the crisis.”
This Employee Seems So Robotic
One big concern over the future of the economy, especially long-term, is the replacement of workers by robots and AI. Financial institutions certainly aren’t immune.
In Beijing, China, one bank may offer a preview of how robots and artificial intelligence will affect credit unions in the future, including jobs that may evolve or be eliminated.
The future of technology inside credit unions has been a frequent discussion at credit union meetings this year.
China Construction Bank has opened a fully automated, human-free branch that features “employees” such as Xiao Long, who never leaves work.
“Welcome to China Construction Bank,” she chirps to customers arriving at the Shanghai branch, flashing her white teeth, according to The Guardian. “What can I help you with today?”
Xiao Long, or “Little Dragon,” is a robot who talks to customers, takes bank cards and checks accounts (she comes complete with a PIN pad) and can answer basic questions, the Guardian reported.
“After a quick initial chat with Xiao Long, customers pass through electronic gates where their faces and ID cards are scanned,” the Guardian said. “On future visits, facial recognition alone is enough to open the gates and call up customer information. Inside, automated teller machines help with services such as account opening, money transfer and foreign exchange. A second robot waits inside the barriers, and there is a (virtual reality) room and video-link should customers want to talk to a mortal.”
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.infoor @FrankCUToday.