Credit unions remain on track for record growth this year, despite the weak start for the U.S. economy in the first quarter, CUNA economist Mike Schenk said Monday.
While President Trump’s one-pager budget released April 26 contains ideas for tax cuts that might spur economic growth, the chances of any of them happening depends on Congress.
Nevertheless, CUNA has “baked” Trump’s preliminary plans for tax cuts into its forecast for economic growth, which remains as it was a month ago at 2.3% for 2017 and 2.5% for 2018.
“Without this proposal, CUNA economists would have likely begun talking about ratcheting back our expectations for 2018 economic growth,” Schenk said.
Last month’s CUNA Economic Update came out just before the U.S. Bureau of Economic Analysis reported first-quarter economic growth fell to annual rate of 0.7% as personal consumption plummeted, especially for durable goods.
“If sustained, that weak showing could spell trouble for the economy generally, and for credit union automobile lending in particular,” Schenk said.
“However, we feel it more likely that the first-quarter data will represent a pause when all is said and done,” he said. “There is pent-up demand in the consumer sector, and households have increasing capacity to borrow.”
While first-quarter growth tends to be slower than other quarters, the bipartisan Committee for a Responsible Federal Budget said last week that it now expects that its most optimistic projection for annual growth is just over 2%, and is more likely to fall short of that mark.
“To get to 2.1%, 2.2%, 2.3%—that would be a tremendous feat,” Marc Goldwein, senior policy director said during a press briefing reported by Inc. magazine last week.
Trump campaigned on creating 4% growth, and his full budget, expected to be released as early as Tuesday, is premised on 3% growth, which Goldwein called “unrealistic.”
But Schenk said job growth remains solid, including 211,000 jobs added in April as unemployment fell to 4.4%, its lowest level since May 2007. “These developments suggest we’ll be reporting even more strong wage gains over the coming months.”
CUNA still expects the Fed to make two 25-basis-point increases in the federal funds rate this year, ending the year at 1.40%. The 10-year Treasury bond rate is expected to reach 2.8% by year’s end.
CUNA’s estimates for first-quarter results from credit unions show savings grew a “brisk” 4.4% for the quarter, the biggest increase since first-quarter 2012 and representing an annual increase of nearly 18%. February and March are the highest months for savings gains because members are parking tax refunds, “but this month was especially impressive,” Schenk said.
Credit union loans grew 2.3% in the first quarter, which is Schenk said is consistent with the usual sluggish loan growth for that month as member pay off holiday debt and have lower cash needs because of tax refunds.
Automobile lending remained strong, growing 4% in the first quarter. “That was the fastest growth in credit union auto balances since the second quarter of 2015, and the strongest first-quarter increase we’ve recorded since we began tracking monthly loans back in 1990.”
Other first-quarter results included:
- First mortgage loans grew 1.8%, “which was impressive against the backdrop of modestly higher mortgage interest rates,” Schenk said.
- Fixed-rate mortgages grew 2.6%, while adjustable-rate mortgages grew only 0.1%. “Members are seeking to lock in low rates for the long haul.”
- Total loan balances at March 31 were 11% higher than a year earlier, and the fastest annual rate of growth since 2001’s 15% gain.
- Credit unions ended March with a delinquency rate of 0.74% of the value of loans, down from 0.83% at the end of December. The forecast is for 0.80% this year.
- Credit unions added 1.4 million members, including more than 600,000 members in March.
The quarter’s 1.4% membership growth was the biggest since the first quarter of 2003. Measured from a year earlier, membership has grown 4.5%
CUNA is projecting 3.5% membership growth for the year. If the current rate holds, it would be the fastest since membership grew 5.9%. By comparison, the average annual membership growth rate has been 2.5% since the late 1980s, and the U.S. population is currently growing at a rate of 0.8%.
Moreover, while indirect car loans have often fueled membership growth, only a third of the new members came from indirect loans in the first quarter, Schenk said.
