Credit unions’ loans outstanding grew 10% in 2014 and they’re on track to post another double-digit surge in balances this year. More impressively, credit unions may deliver a similar gain in 2016.
Credit unions haven’t seen a trifecta of loan growth at that lofty level in nearly 30 years.
Not surprisingly, the foundation of our upbeat outlook rests on recent economic improvement. And expectations are for more of the same in the coming months.
We expect a continuation of healthy increases in credit union lending into 2016 for at least five good reasons:
1. Solid employment gains
The economy added nearly 250,000 jobs per month on average in the year ending August 2015. In all, 2.9 million new jobs were created during that period.
The unemployment rate declined a full percentage point in the past year and the current 5.1% reading is the lowest in roughly 7.5 years.
The U-6 unemployment rate—which accounts for those who have become discouraged and have dropped out of the labor force, as well as those who are working part time but desire full-time employment—fell even faster, declining from 12% one year ago to 10.3% in August.
Labor market improvements are broad-based both geographically and by industry sector.
For instance, compared with year-ago results in July, unemployment rates are lower or unchanged in 367 of 387 metropolitan areas. That’s 95% of the nation’s metro areas showing improvement.
Each of the sixteen broad industrial sectors tracked by the Bureau of Labor Statistics reflect increases in employment during the past year with one exception: mining and logging, where mining employment specifically fell in response to dramatic decreases in energy prices. Importantly, mining accounts for just 0.5% of total U.S. employment.
The unemployment rate is very close to levels deemed to be “full employment” by most economists. And that means income gains are more pronounced and are outpacing inflation by wider margins.
2. Improving consumer balance sheets
Consumers clearly have the ability to take on more debt. Household net worth stands at an all-time high, even after adjusting for inflation.
All key components of the household balance sheet are improving. According to the Federal Reserve, the value of household nonfinancial assets increased 6.5% in the year ending June 2015, largely due to rising home prices. Nonfinancial asset values are up by more than 7% compared with prerecession levels.
Financial assets, likewise, increased in value by 2% in the 12-month period. And they’re up by more than 30% compared with prerecession levels.
On the other side of the balance sheet, household debt increased by a modest 1.1% during the year ending June 2015, but it’s down by nearly 4% compared with prerecession levels.
The improvement relative to income is even more impressive. Household debt as a percent of disposable income hit an all-time high of nearly 125% in 2007, but has trended down since that time, falling to 96% at midyear 2015, a level last seen in 2002.
In a related development, Fed data also shows that debt payment burdens are at all-time lows.
NEXT: Low interest rates