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CUNA Economists Make ‘More Moderate’ Forecast
Monday, April 11, 2016 6:40 AM

Economists from the Credit Union National Association updated their forecast for 2016, noting that April’s report reflects a “more moderate” outlook compared with previous views.

Only slight changes are expected in credit union financial operations in 2016, wrote CUNA Senior Economist Perc Pineda in this month’s Economic Forecast. “And our initial forecast for 2017 reflects a pickup in economic growth, more Fed funds interest rate increases, and marginally lower credit union earnings in the year.”

CUNA’s economists lowered their forecast for GDP growth this year to 2.5 percent from 2.75 percent, and revised the inflation outlook upward to 2.25 percent from 1.75 percent, “equal to the year’s core inflation rate—reflecting rising energy prices increasing a bit faster than previous expectations,” Pineda said.

The group’s unemployment rate outlook improved, reflected in a lowering of the expected year-end 2016 unemployment rate to 4.7 percent from the current forecast from 5 percent.

“From the recently released minutes of the Federal Open Market Committee (FOMC) meeting in March, it was noted that the housing market continues to improve,” Pineda said. “Moderate economic expansion and further improvement in the labor market are expected by the FOMC members with the gradual adjustments in monetary policy stance."

With two, instead of four, rate hikes expected this year, the Fed funds interest rate should reach 0.9 percent by year-end, he noted. Federal Reserve actions will remain data-driven, and, despite modest economic growth, the combination of tight labor markets and higher inflation will keep the Fed engaged on monetary policy normalization.

What will this mean for credit unions? “Our forecast for loan growth in 2016 is revised up to 10 percent from 9 percent, and our forecast for savings is revised down to 5 percent from 6 percent for 2016,” Pineda wrote. “We also lowered our 2016 delinquency rate forecast modestly from 0.8 percent to 0.75 percent."

Call report data recently released by the National Credit Union Administration show “by nearly every measure, full-year 2015 financial and operating results at credit unions were impressive.”

Pineda concluded, “Our forecast suggests that the operating environment in both 2016 and 2017 should remain favorable and that credit unions will continue to operate at a high level, with strong loan and membership growth, high asset quality, and an aggregate capital position approaching record highs.”