Neighborhood Credit Union Shares Insights on Being Financially Prepared for the Looming Recession
Published February 14, 2023
Originally Published on CardRates.com on January 9, 2023
Written by: Sean Roderick
Edited by: Lillian Guevara-Castro
The public is usually the last to know — and the ones with the most to lose — as economists and financial researchers point out growing trends of a potential recession. But there are ways for consumers to be better prepared or at least feel less pain when a recession does occur.
We spoke with the CFO of Neighborhood Credit Union, James Frankeberger, to provide readers with some insight on what to expect.
Neighborhood CU has a long history of serving its members, as do many credit unions. Neighborhood CU is the oldest credit union in the Dallas-Fort Worth metroplex. It was started in 1930 and was formerly known as the Dallas Postal Employees Credit Union. Since then, the credit union has expanded to manage over $1.1 billion in member assets and operates 14 branches.
It’s that kind of long-lasting reliability that has made Neighborhood CU a trustworthy advisor to its members and the communities it serves.
Getting back to the economy, there’s no question we are in strange territory. Rates are rising, and the prospect of a recession is looming. Many people are still wary of addressing this likelihood, just as they avoided talking about the current inflation until it was too obvious to ignore.
While fear is swirling in the market, it’s good to think about the possibilities and to be prepared in case things go south.
It has been a crazy year for sure: Fed rates went from almost zero to 25 basis points. And just recently, the Fed raised rates another 50 basis points. As of now, the Fed rate is around 4.5, which is a massive increase in a short period of time.
The inflation we are now experiencing is the highest it’s been in 40 years, and even though recent trends showed that inflation saw a decline in November, it was still above 7%, which is incredibly high.
“We see real wages increasing, but the real amount of hard dollars that members have is really diminishing,” said Frankeberger. “So we’re seeing economic trends of, I believe, 40% of a member’s household income going to regular goods and services. And that’s a lot higher of a percentage than when it was pre-pandemic, which is usually in the 30s to low 30s.”
Frankeberger said that credit unions were going through a unique time during the stimulus packages where the deposit base had grown so much because members were getting loaded with cash.
What we’re seeing now, he said, is that a lot of that liquidity is running up. As a result, people are spending more and not saving, and they’re even borrowing more than usual.
“We’re seeing high increases in installment loans and credit card loans. And I believe that, in the credit union industry, 17% growth is in installment loans right now,” said Frankeberger.
Indicators of the Next Recession
Numerous indicators appear to signal that we are headed toward a sluggish economy. And there’s much to look out for in terms of mortgages.
Although mortgages have just recently started coming down in value, consumers can expect to see a lot of property tax increases in the future. “We’re seeing escrow balance going up,” said Frankeberger. “So insurance is going up and property taxes are going up, and people need to be wary of that.”
Frankeberger said that now would not be a good time to refinance a mortgage loan because the rates are getting too high. So postponing the purchase of a new home would be a good idea because even though mortgage rates recently dropped from over 7% to about 6.3%, it is still a really high rate when compared to rates from a year ago.
Months ago, people were hopeful for a soft landing leading into a recession, but top indicators are pointing out that it is a mathematical certainty and that recession is coming hard.
Frankeberger noted that, even though employment numbers are looking very strong right now, it’s not fully reassuring because he said many big companies are planning to lay off 10% of their workforce.
“They see something looming and that’s why they are being proactive in managing their balance sheets and income statements by conducting these layoffs,” said Frankeberger.
Another bad sign of things to come is that, despite the Fed rate hikes that were meant to stop people from spending, that doesn’t seem to be happening yet.
“The whole point of raising the rates is supply and demand,” said Frankeberger. “They want to make it harder for you to have access to cash borrowing, because it’s going to be a lot more expensive, and therefore, you’ll be purchasing less.”
“Borrowing, credit cards and unsecured loans have really grown astronomically. And so that tells me that people are using up their liquid funds, and now are having to dip into borrowing and using credit,” he said.
To read the rest of the article, visit CardRates.com.
Editorial Note: Our site content is not provided or commissioned by any credit card issuer(s). Opinions expressed on CardRates.com are the author's alone, not those of any credit card issuer, and have not been reviewed, approved, or otherwise endorsed by credit card issuers. Every reasonable effort has been made to maintain accurate information; however, all credit card offer details, including information about rewards, signup bonuses, introductory offers, and other terms and conditions, is presented without warranty. Clicking on any offer on CardRates.com will direct you to the issuer's website, where you can review the current terms and conditions of the offer.
As a full-time Staff Writer for CardRates.com, Sean Roderick brings years of experience copyediting and providing constructive feedback on complex corporate financial documents. His primary areas of expertise include eCommerce, corporate investment, and consumer financial literacy. Helping others gain relevant advice to improve their personal finances is his passion, and Sean adamantly believes everyone, regardless of current credit status, can benefit from expanding their financial knowledge.