3 Ways Marketing Needs to Pivot in a Recession

With a recession on the minds of consumers, executives at banks and credit unions might be tempted to cut back on marketing investments. But the opportunity for outsize gains is there for those who are willing to pivot instead. Rather than doing less marketing, try new marketing tactics that strengthen connections with consumers in these uncertain times. Lean into these three trends —unbundling, personalized experiences, and new technology — to get started.

Fears of a recession — which have loomed large in recent years — have now evolved into expectations of one. A July 2022 McKinsey Consumer Pulse survey indicated that 30% of consumers were bracing for not just a recession but “one of the worst recessions we have seen” — a significant increase in this grim expectation over 2021 (18%) and 2020 (14%).

For bank and credit union marketers, acknowledging the economic climate is key. The challenge is to adjust messaging to reassure and educate consumers, while still capitalizing on the positives. Brands that start their communications from a position of transparency and helpfulness and then bake this into every touchpoint across the user experience are the ones that consumers will see as appealing and trustworthy.

Credit Karma offers an example of tone and messaging that is well aligned to the moment. The personal finance fintech, which is owned by Intuit, speaks to consumers like they’re old friends. The messaging is conversational but honest — never condescending or sugarcoated — and it focuses on how consumers are personally affected by what’s happening in finance; for an example, look no further than Credit Karma’s customer-facing website, full of friendly guidance. This straightforward approach is a departure from financial marketing’s traditionally buttoned up and reserved approach and is especially appealing to younger audiences.

Others aiming to connect with consumers at a time when they may be feeling anxious about their finances would benefit from a similar approach.

Some banks and credit unions pull back or limit marketing campaigns when a recession looms, but those that instead make themselves a resource to guide consumers through tough times have a lot to gain.

Research shows that the return on investment can be even greater than during sunnier periods. In fact, “60% of brands that increased their media investment during the last recession saw ROI improvements” while “those who slashed spending risked losing 15% of their business to competitors who boosted theirs,” according to research from Analytics Partners.

The events of recent years have already brought disruption to financial marketers and changed consumer expectations. By leaning into emerging trends such as unbundling, personalized experiences, and technology, banks and credit unions can continue to foster new opportunities to connect with consumers despite the uncertainty of the times.

Unbundling: Why It’s a Strategic Imperative

Brand loyalty from consumers is challenging to earn, to put it mildly, and the competition for share of mind and wallet has only grown in recent years. One key to success for lenders is to make sure they offer a variety of products and services that are flexible, modern, and timely.

Flexibility is essential, because offerings that feel even remotely restrictive, or that require consumers to accept unwanted services, will have them looking for other options. People are more willing to work with multiple vendors to secure exactly the services they’re looking for than commit to unnecessary features. From a marketing perspective, this means meeting consumers where they are and featuring the services they’re looking for right in that moment.

Give 'Em Exactly What They Want:

Lenders who offer à la carte services — and invest to market them properly — will have a greater chance of attracting consumers.

Case in point: My Baby Boomer parents have used one and only one bank for all of their financial needs. It is simply “their bank.” I, however, bank with a local credit union; financed my house through U.S. Bank; keep my savings in a Capitol One high-yield account; and maintain my retirement account through the payroll services company ADP. I have tapped various brands to find the ones that offered the best rates and features for my needs.

There was a time when banks were themselves the resource to guide consumers through these choices. But consumers today can discover a wide range of options for themselves online. Because consumers in general choose to research and select the individual services that suit them best, financial marketers would do best to met them with unbundled services that cater to their varied needs.

While unbundling has been an emerging trend since the pandemic began, its popularity will continue to grow if a recession becomes a reality, for the same reasons that drove its popularity in the first place: Unbundling allows consumers the flexibility and freedom to get exactly the support they need, when they need it.

Lenders who offer à la carte services — and invest to market them properly — will have a greater chance of attracting consumers. And if you’re not sure where to start making these strategic decisions, the answer is likely in your marketing data.

Read more: Where Banks Get Customers Wrong: Branches and Unbundling

Personalized Experiences: the Opportunity to Offer Value

Personalizing consumer experiences is a natural follow-on to unbundling. It’s no secret that the lines between online and offline engagement are blending, and consumers are increasingly seeking an “embedded financial experience” that’s tailored to their preferences. The savviest financial marketers will pursue opportunities that bring personalization to the consumer experience at evey touchpoint.

As the clouds of recession gather, financial marketers should be asking themselves how they are driving a user-centric experience to connect with current and potential customers. How are they building on those connections to highlight additional areas of opportunity? The lenders who will fare best in these times will be the ones who work closely with their marketing teams to anticipate the real human needs that arise in a consumer’s journey to selecting a service — those that offer not just solutions but also value.

Redfin is doing a great job at this right now by empowering its realtors to serve as resources for people in the market for a house. I have loyally followed my Redfin realtor’s newsletter for ages, and I always benefit from his insightful, expert perspectives on the process of purchasing a new property. His content is relevant and incredibly useful for the full purchasing journey. He’s not making a sale off each newsletter he sends out, but he is demonstrating his expertise, building trust, and remaining top of mind for future buyers. When I’m ready for my next home purchase, this realtor will be my go-to.

In my experience, the most powerful wins for lenders result from a channel- and solutions-agnostic mindset focused on finding and amplifying the greatest areas of marketing opportunity. Again, follow the data to reveal the opportunities for optimal marketing outreach.

Tech Advances Fuel New Lending Opportunities

Traditional mortgage lending is a process that involves heavy interaction between consumers and lenders, but the pandemic catalyzed changes in this process. Limits to in-person interaction and the hyper-fast-paced mortgage market of 2020-2021 completely reset consumer expectations about what this process should look like.

Many of the solutions that emerged during the pandemic, such as digital lending, web-based customer service, and faster turnaround times continue to be popular with consumers. They are also an ongoing bane for loan brokers.

To keep up, lenders will need to meet consumers halfway by tapping into technology that offers more flexible and meaningful customer touchpoints. This approach is fueled by targeted and clear digital-marketing outreach.

As people try to “recession proof” their budgets, effective emerging trends include “buy now, pay later” options and payment installments upfront. Not only do these alternatives provide consumers with immediate choices and solutions; they also give lenders the means to track emerging trends in spending behavior, which can and should inform marketing tactics.

Read More: How Inflation Is Reshaping Bank Marketing Strategies

A Recession Favors Agile Lenders that Adapt

Looming threats of a recession may have the financial industry on edge, but as McKinsey & Co. put it, “companies that make bold moves during uncertain times generate greater returns in future business cycles.”

The present-day is no exception. While reducing the marketing budget is an understandable instinct, the much more effective alternative for financial marketers is to pivot to creative solutions that meet consumers where their needs are.

The entire financial services industry has already experienced a significant change in the wake of the pandemic, and as we look ahead, the innovative marketing tactics of those times now offer options and opportunities for lenders that are willing to adapt the way they reach consumers.

About the author:
Devon Craig, Quad’s head of product marketing, works with banking clients on advertising, digital innovation and brand engagement. She has more than a decade of experience cultivating impact for brands as diverse as lululemon, Spotify and Ford.

NCUA Joins With Other Agencies in Statement on LIBOR

WASHINGTON– NCUA has joined with four other federal financial regulatory agencies and state credit union regulators in issuing a statement that the use of United States Dollar LIBOR (USD LIBOR) panels will end on June 30, 2023. 

“The statement reiterates the agencies’ expectations that financial institutions with USD LIBOR exposure should complete their transition of remaining LIBOR contracts as soon as practicable. Accordingly, the (agencies are) urging banks and nonbanks alike to continue their efforts to adequately prepare for the sunset of USD LIBOR,” the agencies said in releasing the statement.

The statement notes that the financial services industry uses USD LIBOR as a reference interest rate for many consumer financial products, including adjustable rate mortgage loans, reverse mortgages, home equity lines of credit, credit cards, and student loans. 

“The approaching discontinuation of USD LIBOR in June 2023 presents numerous consumer protection, financial, litigation, and operational risks,” the statement notes. “For instance, if financial institutions do not issue required disclosures, consumers may not know when the transition from USD LIBOR will occur or how the interest rates they pay will be calculated.”
The agencies, which include the CFPB, said they are committed to helping both banks and nonbanks transition affected consumers from USD LIBOR in a transparent and orderly manner.

NCUA Publishes Letter

NCUA noted additional guidance on LIBOR Transition Plans can be found in the May 2021 Letter to Credit Unions 21-CU-03, LIBOR Transition.

For its part, the CFPB noted that in October 2019 and December 2021, the CFPB published blog posts discussing the transition away from USD LIBOR to help consumers understand this market-wide change. In June 2020, the CFPB released an updated Consumer Handbook on Adjustable-Rate Mortgages to help consumers better understand these products and how their payments can change over time.

Additional Reminders

In addition, on Dec. 7, 2021, the CFPB reminded it finalized a rule revising Regulation Z (Truth in Lending Act) to facilitate the transition away from the USD LIBOR interest rate index for consumer loans. The rule establishes requirements for how creditors must select replacement indices for existing USD LIBOR-linked consumer loans after April 1, 2022. 

The CFPB also said it is currently assessing any further steps it needs to take as a result of the subsequent Adjustable Interest Rate Act and the Federal Reserve Board’s implementing regulation identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) to replace USD LIBOR in certain consumer contracts.

Omaha Firefighters CU Selects Dolphin Debit

OMAHA, Neb.– Saying it was facing higher costs for aging ATM replacement, Omaha Firefighters Credit Union said it has selected Dolphin Debit to manage its ATM operations.

According to the company, the credit union, which serves firefighters throughout the state of Nebraska and neighboring Council Bluffs, Iowa, says it is already seeing benefits from the relationship with Dolphin Debit, which provides full-service ATM management services.

“We have a small staff, and it took time and effort to deal with the ATM,” said Scott Winkelmann, president of Omaha Firefighters Credit Union. “Dolphin has taken the burden off us, and now it is a pretty easy system.”

Dolphin Debit said the main factors in the decision to selects its solutions were the ATM replacement cost – a significant financial consideration for a smaller credit union – and the advantages offered by Dolphin’s fee-free ATM network.

“The network allows our members access to ATMs in many locations throughout the nation without a fee,” Winkelmann said. “We have many retired members living in other states, and this makes it easier for them to maintain their accounts with us.”

A ‘Key Aspect’

Winkelmann emphasized that remote banking services are important to Omaha Firefighters CU, and ATM access is a “key aspect” of that service.

Dolphin Debit noted the credit union was already familiar with the company since Winkelmann is a member of the Services Committee of the Nebraska Credit Union League, which has endorsed Dolphin.

In ‘Stark Contrast,’ Home Sales Fall, Ending a Long String of Increases

ARLINGTON, Va.—Existing home sales fell 2.4% in March to a seasonally adjusted annual rate of 4.44 million units, a “stark contrast” to the 14.5% rise in February, NAFCU noted.

“Most buyers lock in rates a month prior to the purchase date, therefore, rising rates in February likely impacted March sales totals,” said NAFCU Chief Economist and Vice President of Research Curt Long. “A lack of inventory buoys prices in places that continue to see job growth, however, prices are moderating in the most expensive locales around the U.S.”

Existing home sales in March fell across three of the four regions, with the Midwest falling 5.5%, followed by the West (-3.5%), and South (-1%). Sales in the Northeast were flat. Based on current sales, there were 2.6 months of supply at the end of the month; analysts consider six months of inventory a rough balance between supply and demand, the data show.

In addition, the median existing-home price – not seasonally adjusted – rose 3.3% in March to 375,000, representing a decline of 0.9 compared to a year ago.

Streak is Over

“The median sales price on a year-over-year basis continued to decline for a second month in March, after ending the longest streak of increases on record in February,” noted Long. “While overall demand has been sensitive to rate changes, demand for starter homes remains extremely high, having a negative effect on median home price.”

Long added that housing sales should “recover gradually and unevenly” once the Federal Reserve stops raising rates and even begins to lower them. 

Why Credit Unions Should Think Beyond the Branch

CUs should make smooth and comprehensive digital transformations a central priority in the coming years.

By Omar Jordan 

The digital banking experience. (Source: Shutterstock)

Credit unions are in the middle of a sweeping digital transformation that is fundamentally changing how they provide services and interact with members. The future will be built around automation, accessibility and the digital tools necessary to facilitate this shift.

What if credit unions shifted the resources currently allocated to maintaining their physical branches toward digital services? This change in emphasis will no longer be optional in the coming years. Consumer expectations are rapidly moving away from brick-and-mortar banking experiences and toward a much more streamlined, on-demand approach to managing money.

Although credit unions will always be people-focused businesses, there’s no contradiction between this fact and the digital transformation that’s taking place in their industry. In fact, failing to provide the digital resources that consumers are demanding is the surest way to disappoint members. While in-person banking isn’t going to disappear overnight, credit unions should make smooth and comprehensive digital transformations a central priority in the coming years.

Meeting Evolving Member Needs

The way people bank will never be the same: 78% of banked Americans prefer to do their banking digitally, while the proportion of consumers who have “no interest in branches at all” increased from 26% in 2020 to almost one-third the following year, according to PwC’s 2021 Digital Banking Consumer Survey. This shift is especially pronounced among young consumers, many of whom are digital natives who are accustomed to doing their business online.

To meet members’ shifting needs and priorities, credit unions have to digitize processes like account opening and loan applications, as well as providing digital features such as peer-to-peer payments, mobile check deposits, automated bill pay, and budgeting tools. Credit unions will also need to offer engaging and user-friendly digital experiences, the frictionless integration of physical and online banking, and flexible services built around each member’s unique needs and financial goals.

As their digital transformations accelerate, the most successful credit unions will conduct these transitions on the basis of the same principles that have earned their members’ loyalty over the decades: Transparency, convenience and a commitment to each member’s financial health.

Securing a Competitive Advantage

Digital transformation won’t just benefit existing members – it will also help credit unions identify and enter new markets, which is critical for sustainable growth in the coming years. An overreliance on physical banking is a severe inhibition for credit unions, as it limits member access and prevents institutions from casting a wider net for new members. There’s no reason for credit unions to have dozens of branches – all of which cost huge sums of money to run – when many of their core functions can be handled online.

None of this is to say the banking experience should be any less human: According to Capco, the majority of customers still prefer one-on-one conversations with bank representatives, for instance. The best way for credit unions to set themselves apart from their competitors is to provide all the accessibility and functionality of digital banking with the personal touch that has always been at the heart of their business model. And as long as branches remain part of their banking ecosystem, credit unions should blend physical and digital experiences (with features such as branch locators and appointment scheduling).

In the banking industry, credit unions have always offered a unique value proposition: Community-focused financial services that address each member’s individual needs more effectively than other institutions. Credit unions are especially attuned to the expectations and concerns of their members, which is why they have to provide the digital infrastructure that will help members manage their financial lives more efficiently and conveniently.

Deploying Technology Effectively

The digital transformation requires credit unions to thoroughly reevaluate their internal and member-facing tech stacks, which will likely necessitate significant investments of time and resources. This is where fintech can play a critical role. According to a 2021 Cornerstone Advisors survey of bank and credit union executives, the proportion who regard fintech partnerships as important for their institutions shot up from 49% in 2019 to 89% in 2021. These partnerships provide a level of digital functionality that allows smaller operations to compete with big banks and major financial institutions.

The more quickly credit unions can get through the growing pains of digitization, the more quickly they will be able to take advantage of the full range of benefits offered by the most innovative technologies in the sector.

The digital transformation will permanently change how credit unions engage with existing members and find new ones, but their essential ethos should remain the same: Meeting all their members’ financial needs with the highest level of service in the sector. Instead of demanding that members come to them, credit unions must go where members are – in the digital world rather than a branch down the street.

Omar Jordan

Omar Jordan is the Founder and CEO of the fintech Coviance (formerly LenderClose) in West Des Moines, Iowa.

Electric Vehicles Sales to Outpace Market ‘for the Foreseeable Future’: Cox Projects. Some credit unions try to plug into the trend with special offers.

By Jim DuPlessis | April 21, 2023 

Source: AdobeStock.

Electric vehicles sales are growing far faster than those for cars with internal combustion engines, and some credit unions are giving members breaks to finance them.

Last year, Americans bought 762,883 electric vehicles, 65% more than in 2021 and three times more than the 230,761 sold in 2019, according to the CleanTechnica website.

This year, Cox Automotive forecast new car sales will rise 2.9% to 14.2 million, while electric vehicle sales will surpass one million, which would represent a 35% gain. In the first quarter, electric vehicle sales were 258,882, up 42% from a year earlier.

Electric vehicles accounted for 7.2% of sales of new cars and light trucks in the first quarter, up from 5% a year earlier and 0.7% five years earlier.

In an April 12 news release, Cox Automotive said its analysts believe EV sales growth rates will exceed the market “for the foreseeable future.”

“Many analysts talk about tipping points in the industry when volume quickly accelerates. Considering automaker investments and future product plans on the table, that tipping point may well be fast approaching, if not already here,” Cox Automotive said.

Interest in electric vehicles has been spurred this year by up to $7,500 in federal tax credits available starting this year under a provision of President Biden’s Inflation Reduction Act. The credits apply to vehicles assembled in North America and are subject to other limits.

Another factor helping electric vehicles is price. They peaked in mid-2022, and have been falling since then.

In the first quarter of 2018, a new electric vehicle cost $66,369 — 83% more than the $36,314 for all new vehicles. That price premium fell to 31% by last year’s first quarter. The average transaction price for a new electric vehicle in this year’s first quarter was $59,688, 23% higher than the $48,640 for all new vehicles.

There’s even a tiny used EV market developing. In the first quarter, 42,753 used EVs were sold by dealers, representing 1% of the market. Used EV sales have risen from 19,407 in 2021’s first quarter (0.4%) to 32,292 (0.7%) in 2022’s first quarter.

While some credit unions see no difference between electric and non-electric vehicles, some are telling members about special lending offers on their websites.

For example, South Carolina State Credit Union (SCU) of Columbia ($1.3 billion in assets, 85,358 members) will include up to $1,500 for a home charging station in a loan for a plug-in hybrid or an electric vehicle.

Many credit unions offer discounts of 25 to 50 basis points on electric vehicle loans. They include:

• Shrewsbury Federal Credit Union, Shrewsbury, Mass. ($204.3 million in assets, 9,213 members)
• Express Credit Union, Seattle ($19.6 million in assets, 3,256 members)
• Philadelphia Federal Credit Union, Philadelphia ($1.6 billion in assets, 121,791 members)
• Parsons Federal Credit Union, Pasadena, Calif. ($284.4 million in assets, 10,246 members)
• Wescom Central Credit Union, Pasadena, Calif. ($5.6 billion in assets, 218,218 members)

When Wescom Credit Union announced its 25-basis-point Green Vehicle Loan discount in January, Jeff Smrcka, vice president of consumer lending, said it allowed the credit union to both promote sustainability and save members money.

“We know that many of our members – particularly our millennial and Gen Z members – are concerned about the environment, so offering this corresponding loan discount is an additional way we can assist them in living their values every day,” Smrcka said.

Logix Federal Credit Union of Burbank, Calif. ($9.6 billion in assets, 237,710 members) calls itself “Southern California’s EV Loan Expert” on its website. It said EVs account for more than 10% of vehicles financed at Logix. It said Experian found it financed one in 200 loans for new electric vehicles in the first half of 2022, making Logix one of the top 20 new EV lenders in the nation in that period.

Apple Jumps into Deposit Market With High-Yielding Savings Account

CUPERTINO, Calif.–Consumers can now turn to their iPhones for a high-yield savings account. Apple has announced that holders of its Apple Card can open an account with a 4.15% APY as the company jumps into the increasing competition around high-yielding savings products.

As CUToday.info just reported here, many smaller institutions—a relative term when CUs and banks are compared—are being forced to raise interest rates in order to stem the outflows, according to one new analysis. The offering comes in the wake of the introduction by Apple of its Apple Pay Later offering, a buy now, pay later solution.

Apple has partnered with Goldman Sachs on both of its newest offerings as it seeks to transform its iPhone into a digital wallet that can help keep consumers linked to the software ecosystem behind its devices, according to analysts.

The savings account requires no minimum deposit and carries FDIC deposit insurance.

How it Works

“Money can’t be spent directly from the Apple savings account, but would first need to be transferred to a checking account or Apple Cash,” the Wall Street Journal reported, before adding, “Though the 4.15% rate is higher than that of the standard savings account, a handful of online banks offer rates as high as 5% APY, according to Bankrate. But popular high-yield savings products from Ally Bank or Goldman’s own Marcus offer lower rates than Apple’s: 3.75% and 3.9%, respectively.”

The favorable rate, combined with Apple’s existing brand recognition, could be especially attractive to new customers and given concerns about the stability of the banking industry after the collapse of Silicon Valley Bank, Yiming Ma, assistant professor of finance at Columbia University, told the Wall Street Journal. “I think what is special in this case is Apple is Apple. Everyone knows what Apple is, and many people already have an Apple Card.”

The iLicense

The report further noted Apple has also worked with certain states in the U.S. to create legal digital versions of driver’s licenses.

Steve Rick CUNA Mutual’s chief economist.- Fed Likely to Push Rates Up at Next Meeting

MADISON, Wis.–The Fed is likely to push the Fed funds rate above 5% at its next meeting, according to CUNA Mutual’s chief economist.

Writing in the company’s newest Trends Report, Steve Rick noted that at its March meeting the Federal Open Market Committee increased the federal funds effective interest rate to 4.87%, up from 4.58%. The fed funds rate has increased 4.75 percentage points in the last year, the fastest increase in rates in over 40 years.

The FOMC will next meet later this month.

“We expect the Federal Reserve to push the fed funds rate over 5% this spring to bring inflation down to their 2% inflation target sometime in the next two years,” stated Rick.

What effect will a rising fed funds interest rate have on credit union lending and the economy in general?

According to Rick, “historically, a rising fed funds interest rate slows credit union loan growth, holding all other factors constant (see figure below). There have been three Fed hiking cycles since 1999. Every time, credit union lending fell from around an 11% seasonally-adjusted annualized growth rate at the start of the hiking cycle to around 7% at the end of the hiking cycle, with about an 18-month lag from the beginning of the hiking cycle until credit union lending began to slow.”

With Apologies to Mr. Clemens

Noting that Mark Twain once famously observed that “History doesn’t repeat itself, but it does rhyme,” Rick pointed out that January, credit union lending grew at a 17% seasonally-adjusted annualized growth rate, down from 19.5% in July 2022.

“So, it appears history does repeat itself with credit union lending slowing albeit at a very high growth rate,” Rick stated. “We expect credit union lending to continue to slow throughout 2023 with loan growth coming down to 9%.”

Newly Released Fed Minutes Show Policymakers Seeking to be Flexible on Rates

04/13/2023 

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WASHINGTON — Newly released minutes from the Federal Reserve’s March meeting show officials are seeking to remain flexible when it comes to future rate decisions. The paradox for the Fed remains that the labor market remains strong, even as inflation continues to be high, although it cooled in March, according to new data from the Bureau of Labor Statistics.

“Central bankers have spent more than a year waging a battle against the most painful burst of price increases in decades, raising interest rates to slow the economy and to wrestle price increases under control,” noted the Wall Street Journal. “After lifting their main rate to nearly 5% over the past 12 months, policymakers are contemplating when to stop those moves. But that choice has been complicated by recent high-profile bank blowups.”

The latter is a reference to the failure of Silicon Valley Bank and Signature Bank.

The Fed raised rates by 25 basis points at its March meeting, when analysts had been divided on whether the Fed would raise rates at all or push rates up 50 basis points.

“Some” had even thought a large half-point rate move might be appropriate at the March 21-22 gathering, the minutes from the meeting showed.

‘Shock to the System’

“But officials adjusted their views after the shock to the banking system, the minutes…made clear,” the Journal added.

As CUToday.info reported earlier, following the most recent Fed meeting Chairman Jerome H. Powell said during a news conference that policy going forward would hinge on what happened both to credit conditions and to incoming economic data.

At the meeting, “several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook,” the minutes showed, according to the report.

‘Inflation Too High, But…’

The report added that officials on the policy-setting Federal Open Market Committee thought that “inflation remained much too high and that the labor market remained tight,” on one hand, but that they would also need to watch for signs that the bank issues had curbed bank lending and business and consumer confidence enough to meaningfully slow the economy.

The minutes show members of the FOMC thought it would be “particularly important” to watch data on credit and financial conditions, which signal how difficult and expensive it is to borrow or raise money, the minutes showed.

Conditions Favoring New Car Sales, Cox Report Finds

Used car prices are likely to remain high and sales low in 2023.

By Jim DuPlessis | April 10, 2023

Source: Adobe Stock.

The year is shaping up to be better than expected for new car sales as supplies have become more abundant and manufacturers are starting to amp up incentives as the threat of a recession looms, according to Cox Automotive analysts.

Chief Economist Jonathan Smoke said March numbers showed a clear shift in momentum toward new cars as the supply issues that drove new car buyers into the used car lots during the pandemic are now reversed.

“Now those people are going back to buying new vehicles,” Smoke said during a webinar Friday. Those remaining are traditional used car buyers, “who are the most challenged with affordability and credit conditions.”

Cox Automotive estimated that used retail sales in March were 6% lower than a year earlier, while new car sales rose 9% with a stronger benefit from fleet sales than retail.

The supply of cars and trucks among retailers was about 38 days at the end of March, down from 43 days at the end of February and down from 47 days at the end of March 2022. The supply of new vehicles in March was 21 days more than a year ago and unchanged from February.

Credit tightened and rates went up much more dramatically on used loans in March, compared to new, Smoke said. New vehicle incentives, which disappeared with the pandemic-era supply shortages, are starting to return and they tend to include interest rate breaks.

“And tax refunds are also a contributor now to fading demand in used,” where refunds are a bigger factor in sales, Smoke said.

Jonathan Smoke

The refund season started faster than last year, but average refunds are down substantially, Smoke said.

Through the week ending March 24, the IRS has paid out more than $172 billion in refunds. While the number of refunds are up 3% from a year ago, the IRS has dispersed 9% less money. The average refund so far was $2,903, down 11% from a year ago.

“Credit conditions and used prices make a new purchase more attractive to a buyer on the fence,” Smoke said.

The calculations would change if a recession starts this year.

Cox Automotive’s baseline forecasts, which were revised March 27, are based on no recession this year. Smoke said if a recession starts later this year, it would be a mild one lasting into 2024. It would dampen vehicle sales, especially for new ones.

The baseline forecast is for 14.2 million in new car sales this year, up 3% from 2022. If things are better than expected, Smoke said new car sales might rise to 14.6 million. If there’s a recession, sales might fall 3% to 13.4 million in 2023, and fall 7% to 12.4 million in 2024.

Cox forecast used retail sales to rise 0.5% to 19.2 million this year. Sales could rise up to 4% under better conditions. A recession would cause sales to fall 5% this year, but sales would start recovering in 2024.

New Jobs Report Released; Here's What CU Economists Say

WASHINGTON–The newest jobs report data indicate the labor market is moving away from a state of “imbalance,” but there remains “work to be done,” according to credit union economists.

Data released today by the Labor Department show U.S. employers added 236,000 workers in March, with the unemployment rate falling to 3.5%.

The data indicate the labor market remains solid even after a year of aggressive rate increases by the Federal Reserve as it has sought to tamp down inflation. Employers added jobs last month in leisure and hospitality, government, professional and business services and healthcare. Fewer jobs were seen construction, manufacturing and retail, the Labor Department said.

Dawit Kebede

“Employers added 236,000 jobs in March, which is a slower hiring rate compared to the past two months. Labor force participation increased by one-tenth of a percentage point with 480,000 people joining the job market,” said CUNA Senior Economist Dawit Kebede. “Additionally, the hourly wage growth continued to moderate. Despite the slowdown in hiring, the labor market remains robust, with a low unemployment rate of 3.5%. 

"The latest labor department report, along with other indicators released this week, suggests that the labor market is gradually moving away from a state of high demand-supply imbalance,” Kebede continued. “According to the Job Openings and Labor Turnover Survey (JOLTS), vacancies declined by 632,000 in February, leading to a decrease in the number of job openings available per unemployed person from 1.9 to 1.7. The rise in participation and fall in vacancies indicate less tight conditions compared to the previous months. 

"The slower hiring rate, moderate wage growth, reduced vacancies, and increased participation are steps in the right direction for the Federal Reserve's objective of bringing inflation down to target." 

NAFCU: Work to Be Done

Curt Long

Meanwhile, NAFCU Chief Economist and Vice President of Research Curt Long, stated, “The March jobs report confirms that while progress continues on the inflation front, there is more work to be done. Job growth decelerated and labor force participation ticked up, both of which point to easing labor market tensions. However, hiring continues at a solid pace and there is no sign of the labor market slack that the Federal Reserve believes is needed to dent inflation. While more rate hikes may be in store, the good news is that there are no signs in the labor market yet that a recession is imminent."

The Labor Department data show the labor force grew in March, helping take pressure off wage growth. Average hourly earnings rose 4.2% last month from a year earlier, an easing from recent months.

“The great labor market machine is finally slowing down some, but it’s still got a lot of strength left,” Robert Frick, corporate economist at Navy Federal Credit Union, told the Wall Street Journal.

Federal Reserve’s Mester says rate target will need to go over 5%

Federal Reserve Bank of Cleveland President Loretta Mester said on Tuesday that the U.S. central bank likely has more interest rate rises ahead amid signs the recent banking sector troubles have been contained.

To keep inflation on a sustained downward path to 2% and keep inflation expectations anchored, Mester said she sees monetary policy moving “somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time.”

“Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on how much inflation and inflation expectations are moving down, and that will depend on how much demand is slowing, supply challenges are being resolved, and price pressures are easing,” Mester said in a speech before a group of economists in New York.

The Fed in late March raised rates by a quarter percentage point, to between 4.75% and 5%. The decision was haunted by banking sector troubles that led policymakers to say that a tightening in financial conditions would likely weigh on economic activity.

“I was very comfortable with moving ahead” with the rate rise, given that authorities had taken steps to manage risks coming from banking sector troubles, Mester said in remarks following her speech.

At the policy meeting, officials also penciled in a single additional rate rise for this year, as the Fed continues to boost the cost of short-term borrowing in a bid to lower inflation.

In her remarks, Mester, who does not have a vote on the policy-setting Federal Open Market Committee this year, said, “My forecast is similar to the modal forecasts of FOMC participants released two weeks ago, although I see somewhat more persistent inflation pressures than the median forecast among participants.”

She also pushed back on market views that the Fed will need to cut rates much sooner than central bankers currently expect. “Can I come up with scenarios that would have the Fed cutting rates? Yes. Is it my modal forecast? No.”

Mester expressed confidence that banking sector woes should ultimately prove contained.

“The U.S. banking system is sound and resilient,” she said. “The stresses experienced in the banking system in March have eased, but the Fed continues to carefully monitor conditions and is prepared to take further steps as necessary to ensure financial stability.”

In her remarks, Mester said she expects growth and hiring to slow and inflation pressures to ease.

There should be a “meaningful improvement” in inflation with price pressures easing from their current 5% year-over-year increase to 3.75% this year and 2% by 2025, Mester said.

She said growth should slow to below-trend levels this year before ticking up next year. Unemployment, now at 3.6%, should rise to between 4.5% and 4.75% by the close of 2023, she said.

The importance of life insurance for first responders!

Hi,

I would like to emphasize the importance of life insurance for first responders, and how American Income Life (AIL) can provide valuable coverage for them. As you know, first responders put their lives on the line every day to protect our communities. It's important that they have access to quality life insurance that can provide financial security for their families in the event of a tragedy.

According to the National Fire Protection Association (NFPA), an average of 58,150 firefighter injuries occur annually in the United States. In addition, the National Institute for Occupational Safety and Health (NIOSH) reported that 475 firefighters died while on duty between 2006 and 2015. These statistics demonstrate the significant risks and hazards that first responders face while performing their duties.

AIL has been a trusted provider of life insurance for first responders for nearly 70 years. They understand the unique risks and challenges that first responders face, and they are committed to providing comprehensive coverage that meets their specific needs. By partnering with AIL, your credit union can offer your members access to this valuable coverage, which can provide peace of mind and financial security.

Furthermore, credit unions earning non-interest income is crucial for their growth and sustainability. Non-interest income can be generated through various means such as fees, commissions, and partnerships. A partnership with AIL, for example, can provide credit unions with a value-added benefit for their members while also generating additional income for the credit union.

I urge you to consider the benefits of offering AIL's life insurance program to your members, and to speak with Travis Daniels, the Public Relations/Marketing Representative from AIL, to learn more about how this program can benefit your credit union and its members. Thank you for your dedication to serving your members and for your support of NCOFCU's mission.

Grant Sheehan CEO
NCOFCU

Travis Daniels Public Relations
814.319.2535 – Cell
tgdaniels@ailife.com
https://www.linkedin.com/in/travis-daniels-abbb2824 

Strategy Matters More Than Ever In A Post-SVB World

The fear that drove the run on SVB is a powerful emotion, but at its core, it’s the absence of a feeling of safety and belonging.

Last week’s scheduled third piece about spring strategy work was supposed to set up the board and leadership team for success as they collaborate on strategy management and making strategy operational, but it was overtaken by bankers behaving badly.

When a $200 billion bank with no appreciable credit risk on its balance sheet can fail almost overnight, does it even make sense for a $2 billion credit union to be thinking and planning a decade down the road? And the even more daunting question: When the near universal response from “experts” is that bigger is safer, better, and more rational, do relatively small financial institutions have much of a future at all?

The answer to both questions is yes!

The closer we look at what happened at Silicon Valley Bank (SVB), the better the future looks for purpose-led credit unions. SVB’s failure means it is more important than ever for credit unions to have long-term, big picture strategy grounded in clear purpose, directly connected to the needs and interests of members, and with objectives that involve observable, trackable metrics.

Neither the fear that drove the run on SVB nor the instinct to flee to megabanks are rational. Fear is a powerful emotion, but at its core, it’s a response — it’s the absence of a feeling of safety and belonging.

In a March 21 op-ed for the Washington Post, Theodore R. Johnson, a retired naval officer who works on the psychology of national feeling, argued that “belonging occurs when people feel agency and are socially connected.” He cites a deep vein of psychology research that belonging is “a fundamental human motivation.” No one belongs to a bank … unless, of course, they’re delinquent on a loan.

Members who feel like they belong to their credit union — that they are more than just customers by a different name — are engaged both rationally and emotionally. They use more products and services, they use fewer outside providers, and they stick around longer. They are easier to please and more satisfied, they don’t shop rates and fees, and they’re proud to be members and talk about it. And yes, because healthy human beings can’t develop that level of trust and closeness until they feel cared about and safe, they are far less likely to suffer from the irrational fear that drives bank runs and chases consumers to megabanks.

Spring strategy sessions are all about relevance and impact. Learn how to make your session the best yet in “4 Fundamental Elements Every Spring Strategy Session Needs” and “Governance, Leadership, Responsibility … Strategy!“

Of course, if you’re reading this, you already care about your members, but do your members feel that? Caring is helpful but not sufficient. It’s the perception that matters. Gallup research — validated by results from the consortium of 13 credit unions that Callahan leads in collaboration with Gallup — shows strongly agreeing that “my credit union cares about my financial wellbeing” is the single biggest predictor of a deep, durable emotional connection between members and their credit union.

At the risk of being overly simplistic, this is why the credit unions thriving today are not the ones trying to catch up to banks. They are the ones consciously addressing the needs and preferences of their members.

This is the product of purpose-led strategy. Being a fast follower of banks is not a strategy. It’s a perfectly reasonable approach to pricing, technology, and local market dynamics, but it can’t get you from where you are to what you aspire to accomplish for the people you serve. That’s the essence of a purpose-led strategy, and it’s why SVB puts credit union strategy on the front burner like nothing else.

SVB is being described as a local bank, but it was 30% larger than Navy Federal ($157.0B, Vienna, VA) and nearly four times the size of State Employees’ ($51.0, Raleigh, NC). The lesson here is that every credit union is too small to flourish as a commodity provider. To thrive, credit unions must be different, and that’s a function of strategy, of understanding why they exist in terms that empower them to deliver meaningful, measurable value to the people they serve and in turn create a zone of safety and belonging that keeps those people connected and participating, emotionally and rationally.

In a world where things can change in an instant, where banks with no significant credit risk can go under in a matter of hours, and where money flees to size unless its owners feel safe where they are, sound strategy is a credit union’s best defense.

Now Is the Time for CUs to Start Offering Commercial Credit Cards

Owning your own credit card program gives you the freedom to serve the needs of each member while deepening relationships.

By Anil Goyal | March 31, 2023

Source: Shutterstock.

Offering credit cards to commercial members has not been something that credit unions have prioritized in the past, but as the opportunity for commercial lending increases, credit unions are in a unique position to support their small business and commercial members.

As credit unions continue to pursue innovative ways to compete with larger financial institutions, providing their members with services that support their professional interests is a fantastic way to add value to member relationships and retain members. Offering credit cards to commercial members not only brings value to those relationships, it also brings monetary value to the credit union.

Provide Solutions to Unique Problems

Local financial institutions are known for their personalized service and close relationships with their members. As a result, small businesses prefer to work with their local financial institution. These businesses are important to their local economies and often have unique financial needs that require different solutions. Issuing credit cards allows credit unions to provide those solutions.

Credit unions can improve credit access and help their small business and commercial members with an additional source of funding to allow them to grow. A small business or commercial credit card can give businesses the ability to make larger purchases on demand, which can help manage cash flow. Small business and commercial cards often have detailed reporting features that make it easy for owners to track and manage their expenses. The increased control also gives owners a choice between central billing and individualized billing, as well as the opportunity to keep business expenses separate from personal expenses.

Deepen Your Relationships With Your Members

It is important to be able to provide unique and valuable services not just to consumers, but to small businesses and commercial members. Advanced services like virtual cards and expense reporting can be very valuable for business members to streamline their spending. It is crucial for credit unions to understand the new digital payment capabilities that are needed by small business and commercial members in today’s environment. Investing in programs that are going to meet their needs and add value to their banking experience will continue to build the trust and loyalty credit unions should be aiming for.

Credit unions already have a leg up on megabanks when it comes to relationship banking and serving as the primary provider of financial services, including credit cards, in their respective markets. Building a sustainable program requires tapping into relationship banking to build continued loyalty. Owning your own credit card program as a credit union gives you the freedom to make decisions and serve the needs of each member while deepening relationships, which leads to a well-rounded and profitable credit card program.

Many credit unions offering credit cards either launch their program with a limited product set and limited digital technology, or they outsource their credit card program to an agent bank. With advanced, fully digital capabilities that are now available at a low or no implementation cost, credit unions are in a great position to upgrade their credit card program. With more personalized service and local convenience, credit cards offer a differentiated opportunity for credit unions to deepen their community relationships. It is proven that members who have more financial products with a financial institution show improved retention and more activity across their products, leading to higher profitability. And small businesses benefit from relationship lending, which is core to community banking. What’s more, many credit unions that use relationship data in underwriting for credit cards have higher approvals and lower loss rates.

Anil Goyal

Anil Goyal is CEO at Corserv, an Atlanta-based payment card issuing company.