CFO Focus: An Economic Foundation for Strategic Planning

Business man decision to choosing the wood block on blurred office background
By Catherine Putney

4 minutes

Current trends call for credit unions to focus on leadership optimism, employee retention and achieving key objectives.

One absolute in life is that downturns in the economy are inevitable.

Currently, the global economy is moving lower into an economic valley that could negatively impact your members—and, therefore, your credit union. If your members have no debt, plenty of equity and decades of working (in the right industry) still ahead of them, they may not feel a recession. But other people—and the organizations that serve them—will face financial challenges.

W. Edwards Deming, a world-renowned consultant, said it best… “It is not enough to do your best; you must know what to do, and then do your best.” This is perhaps the biggest takeaway when approaching your strategic planning in the coming year. Understanding where your credit union is positioned, as well as the direction of the economy and its impact on your members, will give your credit union the upper hand against its competition.

ITR provides forecasts and outlooks for various areas of the economy to help businesses like credit unions best position themselves for success in the marketplace. Below are three things your members could experience that should be thinking about in the current environment. After you read each one, ask yourself, “How does this affect how you will serve your members?”

1. Lower income stream

An automobile salesperson offers a prime example of how a recession can reduce income. But salespeople who work on commission are not the only ones who can be impacted. An HVAC installer, for example, may find that while the 40-hour workweek is consistent, last year’s overtime pay is long gone. That can negatively impact family spending plans for vacations, college or simple daily living.

(“How does this affect how you will serve your members?”)

2. Dropping home valuations

These can go down when the economy slows significantly or goes into a recession, as during the Great Recession of 2008-09. A decline in what is often a family’s main asset reduces members’ wealth for the present and could reduce their wealth in the future. Much like with the stock market, any decline in home value must be recouped before more equity can be added. The situation is even more critical for people who are looking to sell their homes because of a change in employment or retirement. The downturn in the economy can take away equity that they had been counting on for the years to come.

(“How does this affect how you will serve your members?”)

3. Drop in stock market equity

A recession or even a noticeable slowdown in the economy can cause the stock market to dip or at least noticeably slow its rate of rise. Such instances remove or slow the creation of wealth. Slowing the creation of wealth through equity rise has a long-term impact on members’ retirement planning and long-term finances.

(“How does this affect how you will serve your members?”)

The good news is that there is opportunity in any phase of the business cycle. One of the most productive, but difficult, things an executive can do right now is lead with optimism.

This is not an easy ask. As far as the economy is concerned, the current tone is decidedly more negative compared to this time last year. Virtually all of the economic measures we use—except the stock market—are in a worse place today than in January 2019. This is compounded by the noise surrounding the upcoming Presidential election, a hotly simmering trade war between the world’s two largest economies and an abundance of geopolitical uncertainty around the world.

Another good thing to do right now is to keep your “A” and “B” players around. This will be more cost-effective than trying to find new talent in the current labor market, which will remain tight during the next three years. Now that millennials comprise such a large percentage of the available workers, credit unions need to ensure they are deploying non-monetary tactics—what this group values—to keep retention high.

A third tactic leaders can use as the economy ramps down is transparent messaging. A confident, rational plan will instill confidence and drive employees to join in management’s optimism and attack the challenges ahead.

Also, we encourage you to take lay down these key objectives:

  1. Assess and project cash needs based on increased levels of activity.
  2. Appropriately relax credit requirements as the economy improves in 2021.
  3. Drive fulfillment time efficiencies of both products and services to avoid customer frustration and potential loss of market share.
  4. Sell products/services that sell best when the economy accelerates .
  5. Craft marketing messages commensurate with economic growth later this year.
  6. Budget for increased costs.

Catherine Putney is an economist at ITR Economics who specializes in applied research for business cycle trend analysis, growth-cycle trend analysis, and implementing cyclical analysis at the practical, company level. She provides economic consulting services for small businesses, trade associations, and Fortune 500 companies across a spectrum of industries.

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