MADISON, Wis. (4/11/16)--Economists from the Credit Union National Association (CUNA) updated their forecast for 2016, noting that April’s report reflects a “more moderate” outlook compared with their previous view.
“We expect only slight changes in credit union financial operations in 2016,” wrote CUNA Senior Economist Perc Pineda in this month’s Economic Forecast. “And our initial forecast for 2017 reflects a pickup in economic growth, more Fed funds interest rate increases, and healthy but marginally lower credit union earnings in the year.”
CUNA’s economists lowered their forecast for GDP growth this year to 2.5% from 2.75%, and revised the inflation outlook upward to 2.25% from 1.75%, “equal to the year’s core inflation rate--reflecting rising energy prices increasing a bit faster than previous expectations,” Pineda said.
The group’s unemployment rate outlook improved, reflected in a lowering of the expected year-end 2016 unemployment rate to 4.7% in the current forecast from 5%.
“Recently released Federal Open Market Committee (FOMC) minutes reveal that the housing market continues to improve,” Pineda said. “Moderate economic expansion and further improvement in the labor market are expected by FOMC members with the gradual adjustments in monetary policy stance.
“Hence, modest interest rate increases against a backdrop of continued economic growth will sustain healthy credit union loan growth this year.”
With two, instead of four, rate hikes expected this year, the Fed funds interest rate should reach 0.9% by year-end, he noted. Federal Reserve actions will remain data-driven, and despite modest economic growth the combination of tight labor markets and higher inflation will keep the Fed engaged on monetary policy normalization.
What will this mean for credit unions? “Our forecast for loan growth in 2016 is revised up to 10% from 9%, and our forecast for savings is revised down to 5% from 6% for 2016,” Pineda wrote. “We also lowered our 2016 delinquency rate forecast modestly from 0.8% to 0.75%.
Call report data recently released by the National Credit Union Administration show “by nearly every measure, full-year 2015 financial and operating results at credit unions were impressive.”
Pineda concluded: “Our forecast suggests that the operating environment in both 2016 and 2017 should remain favorable and that credit unions will continue to operate at a high level, with strong loan and membership growth, high asset quality and an aggregate capital position approaching record highs.”