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Consumers Loosen Grip on Their Wallets; CUs Could See Increase in Loan Demand
Monday, March 31, 2014 6:55 AM

The Commerce Department released its final measure of Q4 economic growth last week, and for the final three months, the economy grew at an annualized pace of +2.6 percent, slightly higher than its previous +2.4 percent estimate. However, it’s still significantly below its initial +3.6 percent projection.

For 2013, economic growth advanced +1.9 percent, well below the +2.8 percent increase in 2012, and consumer spending increased +3.3 percent during Q4, compared with +2.0 percent in Q3. The Commerce Department also reported that its core PCE index for consumer expenditures increased a modest +1.2 percent in 2013. The pace in government spending and business capital investment both declined.

While the GDP results clearly demonstrate the fragility of the economy, Brian Turner, director and chief strategist with Catalyst Strategic Services, says the increase shown by the consumer spending component is very encouraging.

“Whereas much of the growth in GDP over the past couple of years has come from government spending and business investment, stability stemming from the consumer sector will provide a stronger, upward trend for economic recovery,” says Turner. “It would also enhance consumer loan demand and stimulate loan growth for a greater portion of the credit union industry.”

According to Turner, in 2013, the industry’s largest peer group (greater than $500 million in total assets), which account for 6 percent of the total number of credit unions, experienced a +11.2 percent increase in loans. The remaining 94 percent of the industry collectively experienced a +1.2 percent increase.

“With mortgage loan applications already on the decline, and expected to decline as much as 33 percent in 2014, consumer loan origination will be an important factor in whether or not credit unions will experience loan growth this year,” adds Turner.

Turner says the latest report from S&P shows we are starting to see the pace in higher home prices decline. After reaching a year-over-year increase of +13.6 percent through last November, the annualized change has fallen for each of the past two months. As of January, average home prices are back to their mid-2004 levels, but down from their June/July 2006 peak by 20 percent.

Other Key Indicators this Week: 

  • S&P Case-Shiller HPI – Average home prices increased +13.3 percent over the past twelve months ended in January, slightly lower than the +13.4 percent 12-month pace in December.
  • Consumer Confidence – The Conference Board’s index increased to 82.3 in March versus a revised 78.3 level in February. Higher expectations for future business conditions and future employment led the increase.
  • New and Pending Home Sales – February new home sales couldn’t match January’s performance, falling to an annualized rate of 440,000 units, 33 percent lower than last month. Existing home sales fell -0.8 percent in February, the ninth consecutive monthly decline.