CUNA economist: Jobs impact loan growth, quality

MADISON, Wis. (8/4/08)--Payroll employment declined by 51,000 in July--the seventh consecutive decline, the Labor Department reported Friday (see chart). The economy has lost 463,000 jobs so far this year. And the decline will have adverse effects on credit unions, says a Credit Union National Association economist.

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The unemployment rate jumped to 5.7% last month, from 5.5% in June and the highest rate since March 2004, according to the Labor Department. The jobless rate rose by one percentage point over the past 12 months. The number of unemployed people increased by 1.6 million during the period, to 8.8 million in July.

"The softening labor market will have adverse effects on credit union loan growth and loan quality," said CUNA Senior Economist Steve Rick. "We typically see a reduction in loan demand of big ticket purchases like cars and homes due to members' worrying about their employment status as companies around the country downsize their payrolls," he told News Now.

"Credit unions are, however, picking up some loan market share as many banks tighten their lending underwriting standards in response to the credit crisis," he said.

"Credit union loan delinquency and chargeoff rates are expected to rise over the next 1 1/2 years as the employment situation worsens," he said, adding this would lead to lower incomes and additional household financial stress.

"Credit union net loan chargeoffs as a percent of all loans are expected to rise to 0.75% in 2009, up from 0.48% in 2007 and an expected 0.68% this year."

The 5.7% unemployment rate doesn't include those who have become discouraged from seeking work, or those who have accepted part-time jobs but wanted full-time work (CNNMoney.com Aug. 1). Counting those people, the jobless rate is 10.3%.

Employment continued to decline in construction, manufacturing, and several service-producing sectors in July, while health care and mining continued to add jobs. Average hourly earnings increased by six cents over the month, to $18.06.

Manufacturing employment dropped by 35,000 in July, bringing total losses in that sector to 383,000 over the past 12 months. Construction employment fell by 22,000 last month, and has declined by 557,000 since peaking in September 2006.

Employment in the health-care sector rose by 33,000 in July and has grown by 368,000 over the past year. Mining employment rose by 10,000 in July and has expanded by 220,000 since hitting a low in April 2003.

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