The 2012 Economy: ‘Good, Not Great’
CUs should prepare for 'painfully slow' loan growth.
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:
- Europe’s financial crisis could harm economies worldwide;
- Spiking oil prices could dampen consumer confidence and spending; and
- 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.”