How Local Economies Affect The Bottom Line

Credit unions receive a boost from improvements in states’ economies, but they can also drive that growth.

Credit unions can anticipate improvements to their financial performance, namely asset size, as their local economies strengthen.

In addition to measuring gross domestic product (GDP) for the entire United States, the Bureau of Economic Analysis also measures GDP for each state. Some states’ GDPs are similar to the GDPs of large nations, according to The Economist. For example, California’s GDP is on par with Italy’s, Texas’s GDP is similar to Russia’s, and Washington state’s GDP is about equal to Greece’s.

The growth in a state’s economic activity is represented through GDP growth. Credit unions’ assets grow along with the growth of their local economy as members can deposit more money. Credit unions can also drive GDP growth, especially through lending to local small businesses, which then use the money to grow the businesses.

Credit union asset growth by state from 2006 to 2011 is similar to state GDP growth over the same time, according to Callahan & Associates Peer-to-Peer data. The states with the strongest GDP growth saw some of the strongest credit union asset growth, with similar trends for states with weak GDP growth. North Dakota, which had the highest five-year compound annual growth rate (CAGR) of GDP, also had one of the strongest credit union asset growth CAGRs at 10.5%. Among the more weakly growing economies, Nevada, which was hard-hit by the housing bubble, only had a compound annual GDP growth of 98 basis points and credit unions’ assets there declined 2.5% on a compound annual basis over five years.

GDP Growth Vs. Asset Growth
Data as of March 31, 2012
Callahan & Associates' GDP Growth Vs. Asset Growth
Source: Callahan & Associates’ Peer-to-Peer Software.

However, there were some exceptions to the general trend. Despite sluggish GDP growth of 48 basis points, Michigan credit unions increased assets 8.2% over the past five years. This shows that credit unions there are increasing their market share of deposits and working hard to develop deeper member relationships. Michigan credit unions held 18.4% of all deposits in Michigan as of June 2011, up 3.5 percentage points from the 14.9% of deposits they held in June 2006. The average member relationship at Michigan credit unions increased nearly $2,400 over the past five years, rising 21.9% to $13,070.

Despite the recent recession, credit unions have continued to increase their assets, topping $1 trillion at the end of the first quarter. They are poised to overtake thrifts as the second-largest group of financial institutions in the country.

While GDP growth nationwide slowed in the first quarter of 2012, 43 states and the District of Columbia had positive annual GDP growth in 2011. Credit unions should be able to weather any slowdown. Case in point: credit unions weathered the recession by continuing to be an attractive option for deposits and lending money to members and local small businesses that had no other options.

May 27, 2014

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