Garnet Capital Advisors Blog

Excerpt:

The Credit Union National Association (CUNA) recently raised its forecast for increases in credit union savings and loan balances and membership, although it slightly lowered its forecast for overall U.S. economic growth.


With a slowly but steadily improving labor market, a slow but steadily expanding economy, and a recent increase in U.S. interest rates, what do the nation's credit unions see on the horizon?


Credit union loans, savings balances, and memberships are projected to rise.

The Credit Union National Association (CUNA) recently released their outlook for credit unions overall and the national economy. Many key indicators for credit unions were raised from CUNA's prior projections. Overall, CUNA expects strong growth in credit union loans and stronger increases in savings and loan balances and membership than it previously forecasted.

The stronger growth, though, comes against a backdrop of slightly lowered U.S. economic growth prospects and an expectation for fewer 2017 rate hikes than CUNA previously projected.

Credit Unions: A Strong Picture

CUNA's forecast for credit union business is very positive. The recent Federal Reserve interest rate hike and several projected hikes in 2017 translate into higher interest rates on money market mutual funds. That means that consumers and small businesses will enter those vehicles for savings, especially in light of higher oil prices and although moderate, advancing inflation.

The net result? CUNA expects that savings balances in credit unions will rise by 7.0% for 2016 and continue to rise robustly, at 6.0%, in 2017. This is 0.5% above CUNA's previous 2016 forecast and a full 1% higher than its earlier 2017 forecast.

Credit union loan balances are especially expected to enjoy robust growth. CUNA projects that continued economic expansion will lead consumers to purchase vehicles, appliances, and furniture that they may have been putting off in prior years.

CUNA expects loan growth to rise 10.0% in 2016, just 0.5% lower than the extremely robust 10.5% level registered in 2015.

It forecasts a 9.0% rise in loan growth during 2017, which is unchanged from the previous projection.

Memberships are forecast to rise this year but drop slightly in 2017. More indirect car lending and increased consumer and small business recognition of the value of credit unions are expected to drive growth in both years. Overall membership is forecast to advance 3.8% this year, a drop of 0.30% from previous forecast levels. For 2017, CUNA cut the growth forecast 0.50%, to 3.3%, believing that the car lending boom will decline in intensity and indirect borrower memberships will drop.

A Moderated U.S. Economic Forecast

CUNA lowered its gross domestic product (GDP) expectation for both 2016 and 2017 slightly, although it still expects strong U.S. domestic demand in both consumer households and business to fuel growth. The GDP growth forecasts were trimmed 0.45% for 2016, to 1.80%, and 0.10% for 2017, to 2.40%.


Domestic demand will drive GDP growth.

CUNA expects the 10-year Treasury rate to stand at 1.90% at the end of 2016 and 2.25% at the end of the following year, both slightly lower than earlier forecasts.

The organization now expects the Fed to raise rates three times during 2017, rather than the four times it projected previously.

A Seasoned Loan Advisor Can Help Balance Portfolios

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