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If Fed Continues Having Difficulty Creating Steady Upward Growth Trend, Stabilizing Loan Growth will be Problematic for CUs, Turner Says
Monday, September 16, 2013 7:00 AM

The Labor Department reports wholesale inflation increased 0.3 percent in August while core prices (excluding commodity-driven food and energy prices) were unchanged. Over the past 12 months, overall inflation at the wholesale level has increased +1.4 percent, from +2.1 percent in July. When excluding the +11 percent increase in energy prices, core prices have increased only +1.2 percent, the smallest gain in over three years.

The report on consumer inflation will be released next week.

The Commerce Department reports retail sales increased a modest +0.2 percent in August, the smallest monthly gain since April. Sales excluding automobiles increased only +0.1 percent compared to the previous month’s +0.5 percent gain.

With the exception of energy prices, Brian Turner, chief strategist with Catalyst Corporate FCU, says the economy most likely will not see a significant increase in inflation at the wholesale level over the next few quarters, This could empower the Federal Reserve to pursue a reduction (often referred to as “tapering”) in their monthly purchase of $85 billion in marketable securities – an effort it has been pursuing to keep long-term rates lower.

“This change could create more volatility in long-term rates which would threaten consumer spending and future economic growth,” suspects Turner. “If the Fed continues to have difficulty in creating a steady upward growth trend, it will become even more problematic for credit unions to stabilize loan growth.”

As to retail sales, according to Turner, the data shows that the strength in August’s sales came from motor vehicles – certainly a positive for the nation’s credit unions.

“Through the first half of 2013, vehicle sales have increased to the annualized 16 million unit level, a pace that it hasn't experienced since November 2007,” notes Turner. “As a result, credit union vehicle loans have increased this year at an annualized rate of +10.0 percent with new vehicle loans up +10.0 percent and used vehicle loans up +11.0 percent. Total loans have increased at a 5.4 percent annualized pace.”

This has also helped to increase the average allocation of credit union vehicle loans to 30.6 percent of total loans, contributing to the industry’s increase in non-revolving consumer loan market share to 10.7 percent.

“Still, the industry continues to experience a wide differential in loan growth between its larger credit unions (greater than $500 million in total assets) and the remainder of the industry,” adds Turner. “Annualized loan growth in 2013 at the larger institutions (only 7.0 percent of the total number of credit unions) was +9.2 percent while the remaining 93 percent of institutions collectively experienced a minus 2.4 percent decrease.