2012 Governmental Affairs Conference

The 2012 Economy: ‘Good, Not Great’

CUs should prepare for 'painfully slow' loan growth.

March 21, 2012

Barring any major shocks, the U.S. economy should experience gross domestic product growth of 2.5% in 2012, which is “good, but not great,” NCUA Chief Economist John Worth said Tuesday afternoon.

He and CUNA economists Bill Hampel and Mike Schenk participated in a panel discussion examining the 2012 economic outlook.

Boding well for the economy is an improving jobs picture. The nation’s unemployment rate fell from 8.9% in October to 8.3% today, and should reach 8.1% by year’s end.

Plus, household finances are improving, Hampel said, with higher savings levels, a lower debt burden, an improving stock market, and a “long, slow improvement” in home prices.

Three potential “shocks,” however, could negate these positive economic trends:

  1. Europe’s financial crisis could harm economies worldwide;
  2. Spiking oil prices could dampen consumer confidence and spending; and
  3. Another debt ceiling crisis could damage consumer confidence as it did in 2011.

 Potential disasters aside, credit union balance sheets have experienced “an amazing turnaround,” albeit a slow one, Schenk says.

 This year he says credit unions can expect:

  • “Painfully slow” loan growth (4%);
  • Savings growth of 5%;
  • “Eye popping” improvements in asset quality;
  • A huge inflow of new members, creating excess liquidity issues;
  • A big earnings rebound despite corporate credit union assessments; and
  • A modest increase in interest-rate risk due to large amounts of long-term, fixed-rate loans held in portfolio.

 Large credit unions are in better financial shape than their smaller brethren, Schenk added, with higher loan growth and better asset quality.

 “The bottom line: We’re in a much better place today than one year ago,” Schenk said, “but significant challenges remain.”