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Tepid Spending Behavior Could Impact Borrowing, Turner Says
Monday, March 17, 2014 7:00 AM

The Labor Department reports wholesale inflation decreased -0.1 percent in February, despite a +0.5 percent increase in food and energy prices. Excluding food and energy, wholesale core prices increased +0.2 percent. Over the past 12 months, wholesale prices have increased +0.9 percent while core prices have risen +1.2 percent. Food prices are +0.6 percent higher than a year ago, while energy prices are -1.3 percent lower.

The Commerce Department reports retail sales increased +0.3 percent in February, following a downwardly revised -0.6 percent decline in January, and motor vehicle sales increased +0.3 percent after falling -2.2 percent in January. Excluding auto and gasoline sales, retail sales still increased +0.3 percent.

According to Brian Turner, director and chief strategist with Catalyst Strategic Services, credit unions fared better with a +0.8 percent increase in January. Total market share improved to 8.6 percent, compared with 8.3 percent at the end of 2012. At the end of January, credit union market share in revolving and non-revolving credit was 5.1 percent and 9.9 percent, respectively.

The inflation report acknowledges the economy is struggling. While producers aren’t dealing with price volatility, Turner points out that the combination of weak consumer demand and stagnant prices challenge their profitability and growth profiles. Reports on consumer inflation will be tomorrow. They are expected to show a +1.6 percent year-over-year increase in prices, far from the 2.5 percent cap the Federal Reserve has placed for permissible inflation.

Whereas the lack of inflation helps to stabilize members’ disposable income, and hopefully spending behavior, it also weakens long-term growth by not enhancing the value of goods and services produced by the economy” notes Turner. “To promote long-term sustainable growth, a certain level of price inflation needs to be present in the economy.”

In our current economic climate, Turner says weak demand is causing spending behavior to soften although prices have not materially increased over the past year.

“The lack of demand causes inventories to build and production levels are reduced,” suggests Turner. “Lower production needs result in fewer required manufacturing man-hours which has an adverse impact on employment and the creation of jobs.”

For credit unions, Turner says the tepid spending behavior softens the demand for automobiles, houses and appliances – all general elements which credit unions extend financing. Therefore, the pace of economic growth (and credit union loan demand) continues to center around employment and how consumer sentiment about job security and household wealth affects their spending behavior and ultimately loan demand in 2014.