President Trump’s expected surge in government spending and tax cuts will help credit unions maintain high earnings in 2017 as interest rates and loans rise, two credit union groups reported.
CUNA Mutual Group on Wednesday predicted the U.S. economic growth will rise from its 1.8% rate in 2016 to 2.5% in 2017 and 3% in 2018, if Trump follows through on his promises.
CUNA released a revised 2017 forecast on Tuesday that also shows 2017 economic growth at 2.5%, up from its previous forecast of 2.4%.
“A booming stock market buoyed by expectations of a substantial fiscal stimulus later this year has the Conference Board’s Consumer Confidence Index bumping along at a near 15-year high,” said Mike Schenk, vice president of economics and statistics for CUNA.
But Schenk said the rosy economic outlook also depends on Trump not starting a trade war.
“Our baseline forecast reflects the expectation that election-year rhetoric will be softened by more careful consideration of this big downside risk,” he said.
In this hot economy, both CUNA and CUNA Mutual Group predict credit unions’ return on assets to remain high, falling only slightly from 0.77% in 2016 to 0.75% in 2017. ROA fell to a low of 0.18% in the depth of the recession in 2009, and rose to a 10-year high of 0.84% in 2012.
CUNA had previously forecast a 0.65% ROA in 2017 but revised it upwards because it now expects higher net interest margins.
CUNA now expects the Federal Funds interest rate to rise 75 basis points in three quarterly increments, up from 50 basis points in its previous forecast. It expects the 10-year Treasury bond rate to reach 3% by year’s end.
CUNA Mutual reported credit union loan portfolios grew 10.8% to reach $883.1 billion on Nov. 30. CUNA expects total loan growth to remain at 10% for 2016 and 2017. Both had previously forecast a 9% gain in 2017.
“As the economy continues to expand, we expect households to continue to release pent-up demand for autos, furniture and appliances,” Schenk said.
CUNA Mutual reported auto loans reached $301.3 billion on Nov. 30, up 14.3% from a year earlier. It expects U.S. consumers to buy 17.75 million cars and light trucks in 2017, up from a record 17.5 million in 2016. “This should keep credit union new-auto lending growing at a double-digit pace,” the report stated.
Real estate loans reached $435.7 billion on Nov. 30, up 8.3% from a year earlier, CUNA Mutual reported. Fixed-rate first mortgages were 8.5% higher than a year earlier, compared with a 10.5% increase in adjustable-rate mortgages, and 9.2% growth in home equity loans.
CUNA Mutual reported that credit unions had 109.1 million members in November, up 4.2% during the past year “due to robust demand for credit, solid job growth and comparatively lower fees and loan interest rates.” It expects membership to rise 3.5% this year.
