MADISON, Wis. – Increases in housing construction and rising oil prices will drive higher economic growth higher next year, while auto sales should remain robust, according to CUNA Mutual’s chief economist.
Steven Rick said credit unions in 2017 can expect a “slight acceleration” in the economy with no signs of a recession until late 2018—good news for CUs looking to expand their reach and services, he said.
Rick is further predicting the Fed will boost rates once this year and three times in 2017.
“We’re forecasting a modest acceleration in economic growth to 2.4% in 2017 from this year’s very slow 1.6%,” Rick told attendees of CUNA Mutual Group’s seventh annual Discovery Conference.
“An inventory correction, reduced energy sector investment due to falling oil prices, and the negative impact of the rising dollar on our exports all contributed to the U.S. economy’s slower growth rate. These factors will start to fade in 2017, resulting in a growth rate slightly above the target 2% mark,” he said.
More Growth Factors
According to Rick, additional factors helping fuel economic growth include an acceleration in housing construction due to a shortage of available homes for sale; an increase of 3% in average hourly earnings in 2017; and an increase in oil prices. Those factors coupled with continued low interest rates will result in increased spending, he said. Savings and lending growth at credit unions will be a direct result of rising economic confidence, Rick added.
“After seven years of extremely low interest rates, we believe the Federal Reserve will begin to normalize rates starting in December,” said Rick. “We’re forecasting rates will rise by a quarter of a point yet this year, and then three more times before the end of 2017 – resulting in about a 1% hike in both short and long-term rates. This will give credit unions originating adjustable rate products a boost in yield on assets.”
With steady job growth of more than 180,000 jobs each month and an unemployment rate falling to 4.7%, the economy will approach full employment in 2017. According to Rick, this will benefit credit unions’ auto lending business.
“We’re seeing more Americans buying cars, so we expect to see another record year of vehicle sales in 2017 – with 17.75 million vehicles sold – due to pent-up dem
Steve Rick, CMG
and.”
In addition, the housing market is strong and healthy; it’s no longer the boom-and-bust market consumers experienced during the Great Recession, said Rick.
“Next year, home sales are forecast to increase to 5.5 million, which benefits credit union mortgage lending. Home prices will rise by 5%. These factors will help consumer confidence remain high, keep household balance sheets strong and consumer spending up in 2017,” he said.
Stronger Balance Sheets
Rick predicts that credit unions will see stronger balance sheets and slightly weaker income statements in 2017.
“Credit unions can expect another strong year of loan and deposit growth; however, they’ll likely see falling return on assets due to tighter margins, falling fees and rising expenses resulting in weaker income statements,” Rick said.
Credit union membership growth is expected to be 3.8% in 2016 – the fastest growth in more than 30 years – due to strong job and loan growth, Rick said.
“Next year, we might see a little bit of a slowdown to 3.3%, but still very strong,” said Rick. He also noted the U.S. population is only growing at 1% a year, which means credit unions’ memberships growing at 3.3% a year are picking up market share from banks and other lending institutions.
“Bottom line, the U.S. economy will not experience signs of a recession until the end of 2018,” said Rick. “The economy is growing, wages are rising, unemployment is down and savings growth is strong due to low energy prices. These are all indications the economy will remain strong throughout 2017 and into 2018.”
To learn more, watch Rick’s Discovery Conference breakout session, “U.S. Economic Outlook & Its Impact on Credit Unions,” on-demand.