Michigan credit unions continued to weather the storm in 2005 — an economic tempest of lost jobs and stagnant income growth, of embattled industries and tight budgets. As 2004 drew to a close, the hope was that Michigan’s economy had bottomed out and that a light was clearly visible at the end of the proverbial tunnel. Unfortunately, however, the Great Lakes State did not turn the corner in 2005.
The year saw Michigan’s dominant industry for nearly a century — auto manufacturing — rocked by sharply rising energy costs, formidable foreign competition and declining market shares. The industry bled both jobs and money at an alarming rate, and bankruptcy rumors swirled around General Motors and Ford, two long-standing pillars of Michigan’s economy and icons of American capitalism. State and local governments struggled with budget crises as tax revenues declined or remained stagnant.
Ironically, all this turmoil took place amidst growing prosperity in most other parts of the country and in the non-manufacturing sectors of the economy. Michiganians who witnessed national media reports about strong economic growth could be excused for feeling like they were living on another planet.
Michigan ended 2005 with a jobless rate of 6.7 percent — better than the year-end 2004 figure and certainly not a catastrophic number compared with the recessions of the early 1980s and 1990s — but distressing when compared with the job picture in the rest of the country. The average U.S. unemployment rate at year-end 2005 stood at 4.9 percent, with 30 states posting jobless rates under 5 percent and 13 states actually under 4 percent. Only three states — Alaska, Mississippi and South Carolina — were faring poorer than Michigan.
Given the condition of the local economy, Michiganians may well have found it puzzling that Federal Reserve policymakers were more concerned about inflation than joblessness. Addressing concerns that the economy may be in danger of overheating, the Fed continued its policy of slowly ratcheting up interest rates by increments of 25 basis points. By year-end 2005, the Federal Funds Rate had climbed to 4 percent, its highest level in four years.
Despite spiking energy costs caused by strong global demand and continued political uncertainty in many oil-exporting areas of the globe, the U.S. inflation rate did remain reasonably tame in 2005. The Consumer Price Index was up 3.4 percent for the year — the highest rate since 2000 but manageable compared to the torrid 13.3 percent and 12.5 percent of 1979 and ’80, respectively.
Michigan’s uninspiring economy did have a sobering effect on credit union bottom lines. Some credit unions experienced compressed margins and saw their return on assets slump. Loan, asset and savings growth did not match the national pace and membership growth was flat — unsurprising, given the state’s unemployment problem.
Nevertheless, Michigan credit unions remained as safe and sound as any in the country. Subject to the ebb and flow of the volatile motor vehicle market, Michigan’s economy has always been susceptible to extreme peaks and valleys. The state’s financial institution managers and executives have learned this lesson well and typically practice caution and prudence in their decisions — an example of fiscal wisdom that could well benefit some executives in other parts of the country.
The Year in Review MCUL 2005
MCUL/CUcorp Consolidated Statements of Financial Position
MCUL/CUcorp 2005: Financial Report and Statistics
Consolidated Statements of Activities and Changes in Members' Net Assets
The Operating Environment
The Year in Review CUcorp 2005