The forecast for credit union financial operations remains upbeat with continued loan growth in the latest CUNA Economic and Credit Union Forecast.
CUNA economists expect moderate economic growth to continue with further strengthening of labor markets and higher inflation, which could necessitate additional increases in the Fed’s interest rate target this year and next.
As the economy approaches full employment capacity, we expect economic growth to continue at a moderate pace this year and next. The overall effect on credit unions will remain positive,” said Perc Pineda, CUNA senior economist.
Credit unions are expected to experience double digit loan growth and healthy earnings, according to CUNA economists.
“While our forecast of another double-digit loan growth in 2017 is unchanged, we expect healthy loan growth to continue in 2018, but marginally lower than 2017 due primarily to changing interest rate environment,” Pineda said. We still expect three Fed funds rate hikes this year, and another three rate hikes next year--as the economy continues to expand.”
Credit union loan balances will increase by 10% in 2017 and 9% in 2018, CUNA economists predict. As the economy continues to expand, they expect higher household consumption in autos, furniture and appliances throughout 2017. New auto loans, credit card loans and purchase mortgage loans will remain strong growth areas. Technological enhancements in new vehicles will continue to generate healthy auto demand.
Credit quality will remain healthy in 2017 and 2018. The improving job market and fast loan growth (the denominator of the loan quality ratio) will nudge the delinquency ratio down to 0.80% in 2017 lower than 2016’s 0.83% reading.
Credit union savings balances will grow by 5.5% in 2017 and 5.0% in 2018, according to the CUNA forecast. As the Federal Reserve continues raising short-term interest rates this year, CUNA economists expect the anticipated transfer of funds to money market mutual funds will finally materialize.
Memberships will increase in 2017 by 3.5% due primarily to recognition of the positive credit union value proposition, CUNA economists said. Membership growth in 2018 is predicted to be 3%. “Lower membership growth forecast for 2018 is expected because of loan pay-offs in indirect lending,” Pineda said.
The U.S. economy will grow by 2.3% in 2017 and 2.5% in 2018, according to the CUNA forecast. Robust domestic demand in the household sector and a turnaround in business investment spending will continue to spur growth in 2017. Government spending on infrastructure, if it materializes, will contribute to economic growth.
The Federal Funds interest rate will increase to 1.4% by the end of 2017 and 2.5% by the end of 2018. Rising output, tighter labor markets, and higher inflation in 2017 will cause the Federal Open Market Committee to continue monetary policy normalization.