Despite some concerns about the economy in 2018—including rising market interest rates, worries over tax reform, and the heightened potential for trade war and geopolitical risks—credit union loan portfolios are on track to grow more than 10% for the fourth consecutive year.
More importantly, while there may be a bit of slowing in the overall rate of growth, continued healthy portfolio expansion seems a near certainty in 2018 as well.
1. Robust outlook for jobs, income
The U.S. unemployment rate finished August at 4.4%, down 0.5% compared to year-ago levels and well below the 10% cyclical peak in October 2009.
The U-6 unemployment rate—which accounts for those who have become discouraged, as well as those who are working part time but want full-time work—finished the month at 8.6%, which is more than one full percentage point lower than its year-ago reading.
Most economists believe labor markets are now near full employment. Bureau of Labor Statistics data shows the total number of job openings nationally is at an all-time high.
In addition, median household income hit $59,000 in 2016, a record high and a 3.2% jump compared to 2015.
2. Healthy consumer balance sheets
The value of household assets has been rising quickly. The stock market has hit all-time highs and current valuations are well above pre-recession levels.
Housing too, has been on a tear. According to the Federal Housing Finance Agency, U.S. home prices are up 4.7% in 2017, and rose 6.6% in the year ending June 2017.
At mid-year 2017, average home prices stood 14% above pre-recession levels. Importantly, nearly 70% of credit union households own a home.
There’s also good news on the liability side of the consumer balance sheet. Household debt as a percent of disposable income hit an all-time high of 130% during the housing boom, but has trended down to 100%, a level last seen in 2002.
3. Continued pent-up demand
While spending and borrowing have been on the rise, it’s abundantly clear that the choppy, uncertain nature of the recovery combined with an excruciatingly slow labor market recovery to keep many consumers on the sidelines.
Bureau of Economic Analysis statistics indicate the average age of consumer durable goods remains close to post-World War II highs.
The U.S. Department of Transportation reports the average age of passenger cars and light trucks has reached an all-time high of 11.6 years, up from 8.5 years in 1996 and 9.9 years in 2006.
4. Affordable credit
While the Federal Reserve has been raising its Federal Funds interest rate target, the increases have been modest and manageable.
We expect the Fed to remain engaged, increasing market interest rates through the end of 2018. But the increases should be relatively small and, therefore, unlikely to choke off demand in any significant way.
Combine that with rising incomes, and the result suggests strong borrowing in the future.
MIKE SCHENK is CUNA’s vice president of research and policy analysis.