LAKE FOREST, Ill.—Expect a good year for the economy and an even stronger year for checking accounts in 2019—especially at credit unions—says one economist.
Michael Moebs, economist and CEO at Moebs $ervices, is basing his outlook on two factors: checking account balances continue to fall and the company’s tracking of checking account totals that indicate tailwinds are ahead. He noted that when checking balances fell at the close of the second quarter last year, it marked the first time balances declined in 10 years.
Now, the most recent data show the average checking balance for consumers has decreased for the second straight quarter, pointed out Moebs, citing data through September.
“This signals consumers are giving up some of the dollars they have steadfastly held for the past eight to 10 years,” said Moebs. “This tells us the consumer is finally reengaged in the economy for the first time since 2008—2019 will be a standout year.”
Moebs forecast that with checking balances falling, the consumer is confident of good times ahead and will be spending money.
“The U.S. economy is driven by the consumer. So, the economy will grow,” he said. “Since the consumer is reducing their balances in checking, this will produce a very positive economy. Simultaneously financial institutions should see growth in the number of checking accounts.”
‘Finding Stashed Nuts’
And credit unions should continue to see their share grow faster than banks’ share, said Moebs, noting the total number of consumer checking accounts in the U.S. currently stands at approximately 359 million.
“One out of six of these accounts is a credit union consumer checking account (16%),” said Moebs. “Credit unions’ consumer checking is growing faster (4.3%) than (1.7%) banks’. The appeal for credit unions is many consumers, especially Millennials, just want a checking account and nothing else, and CUs’ friendly approach appeals to these consumers.”
Moebs noted that through the first quarter of 2018, consumers had warehoused more money in checking than at any other time in U.S. history.
“The average consumer checking balance measures the U.S. economy better than any other key statistic or indicator,” said Moebs. “When the economy does poorly consumers store away cash in checking like a squirrel stashing away nuts for a harsh winter. When the economy does well, the consumer spends their cash stored up in checking like squirrels finding their stashed nuts.”
The ’Bright Spot’
Moebs pointed out that all of this is happening with the stock market remaining volatile, interest rates rising, oil prices at record lows, and with trade wars underway and political conflicts surrounding the building of a wall between the U.S. and Mexico.
“The consumer is the one bright spot in the current economy,” he said. “The 359 million checking accounts at banks, thrifts and credit unions tell the economic story better than any macro or micro economic performance measure, because the number deals with what is important to the average American and their household. The checking account—measured by balances, transactions and total number—is the one true insight into the consumer’s sentiment on economic conditions, reflected by spending and saving patterns.”
Examining historical checking balances by quarter (see graph) explains why the average American has struggled financially since the Great Recession, even as the stock market reached new highs, explained Moebs.
A Pattern Change
This pattern changed in 2018, as the average consumer checking balance declined 6.5% to approximately $3,500 from its peak in 2017. In 2018 the consumer was fully engaged in the market and started to spend cash, said Moebs.
“Looking at the latest numbers for checking for yearend 2018, checking balances will continue their declining trend this year,” forecast Moebs. “This would make three quarters of reduced average consumer checking balances…This is reinforced by preliminary yearend retail sales showing a 5.1% increase over 2017. All indications are the consumer is back as the hard driver of the U.S. economy, and once again rules the economic hill. And, in 2019, depositories, led by the credit unions, will benefit by expanding consumer checking accounts.”