PLANO, Texas—A group of economists meeting here as part of Catalyst Corporate FCU’s Economic Forum here said they see no indications the U.S. economy is in danger of returning to recessionary conditions. Addressing more than 300 credit union executives, the economists further forecast an ongoing, gradual, upward climb. Among those economists was Steven Rick, chief economist with CUNA Mutual Group, noted the latest unemployment figure of 5.9% means the U.S. is getting close to the long-run target of 5%. “Anything below that will create pressure on wage,” he said, adding that the U.S. continues to see more more high quality jobs. In 2014, 75 percent of jobs added were considered “high quality,” versus just 50% in 2013.
Among Rick’s other observations and forecasts at the Catalyst Corporate event:
* Credit unions’ net charge-off rates have declined back to a pre-recession level of around 0.5% after climbing to 1.20% at the height of the downturn. “Financial institutions now can loosen their lending standards a bit, allowing consumers to finance new purchases.”
* Nevertheless, Rick stated that inflation is not on the horizon, which means the Fed likely will raise interest rates slowly – at approximately 1.25% per year for the next three years – a departure from previous post-recession hikes when rates were increased by 2% or 3% in a one- or two-year period. “This is good for credit unions, because rates rising too fast would have a negative impact on the cost of funds relative to earnings on assets,” said Rick.
* In general, interest rates will remain low due to simple supply and demand, he forecast. Slow overall growth and a post-debt crisis borrowing aversion are among the variables contributing to low demand, while the money supply is boosted by factors such as increased trade dollars, the “safe harbor” influx of investments from less stable countries, and rising income equality (as wealthier individuals have more excess income that they have no need to spend).
* Credit unions also are benefiting from an unlikely source – the Dodd-Frank Act’s Durbin Amendment, which limited interchange income for larger financial institutions. “Banks making less interchange income increased their fees, sending consumers to credit unions,” said Rick. “Remember Bank Transfer Day?” Membership and the pace of growth are at an all-time high.
* Volume of nearly every type of loan that credit unions make is on the rise, with secondary mortgages the only exception, according to Rick. Credit unions are well on their way to returning to 1% ROA – the gold standard that has not been achieved since 2003. And even though much of the growth is concentrated among the largest credit unions, the smaller ones are beginning to see meaningful improvements as well, he said.
“Next year will be very good for credit unions,” said Rick, as he forecast loan growth of nearly 10% for 2014 – the fastest pace since 2007. Credit unions will reap the benefit of pent-up member demand for cars, furniture and appliances over the next two years, while credit quality continues to improve and membership grows. “Ultimately, capital ratios will approach the record level of 11.5 percent set in 2006.”