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Trends Report Reveals Recovering Economy and Potential Rise Interest Rate Due to Five Factors
Thursday, November 12, 2015 6:25 AM

CUNA Mutual Group’s latest Credit Union Trends Report says that during August, the economy added 136,000 jobs, the unemployment rate remained at 5.1 percent, personal income rose 0.3 percent, consumer prices declined 0.1 percent, consumer confidence rose, new home sales surged 5.7 percent, existing home sales fell 4.8 percent, auto sales rose 1.7 percent, home prices rose 1.2 percent, and the 10-year Treasury interest rate decreased 15 basis points to average 2.17 percent.

It is expected that the Federal Reserve will raise its target for the Fed funds interest rate in December because of the following five factors:

  1. The economy will reach full employment by next summer leading to faster wage growth and inflationary pressures;
  2. The GDP output gap, which is now slightly negative, will be eliminated in 2016, as aggregate demand grows faster than aggregate supply;
  3. Members of the FOMC committee (Janet Yellen, Stanley Fisher, and William Dudley) continue to speak publicly indicating they still prefer to raise rates in 2015;
  4. The equity market volatility experienced in August and September has subsided and the S&P 500 stock index is now only 5 percent below its record high set early this year;
  5. Household formation will increase 1.5 million in 2016, increasing the demand for housing, durable goods and credit.

Other Highlights of the Trends Report:

  • During August, credit unions picked up 573,000 in new memberships, loan balances grew at a 9.9 percent annualized pace, savings balances fell 0.5 percent, firms hired 136,000 workers, nominal consumer spending increased 0.4 percent, and long-term interest rates fell 15 basis points. Second quarter economic growth was revised up to 3.9 percent, better than the 0.6 percent in Q1.
  • At the end of August, CUNA’s monthly estimates reported 6,329 CUs in operation, down one credit union from one month earlier. Year-over-year, the number of credit unions declined by 326, more than the 226 lost in the 12 months ending in August 2014.
  • Total credit union assets fell 0.2 percent in August as July’s 6.3 percent surge in share draft deposits, due to July ending on a payroll Friday, were spent by members. Assets rose 5.4 percent during the past year due to a 4.7 percent increase in deposits, a 19 percent increase in borrowings, and a 6.6 percent increase in capital.
  • The nation’s credit unions increased their loan portfolios by 1.2 percent in August, slightly more than the 1.1 percent pace reported in August 2014. Loan balances rose 10.5 percent during the last 12 months. August is historically the second fastest loan growth month due to seasonal factors: car purchases and vacation spending.
  • Credit union memberships rose a robust 0.55 percent in August, up from a 0.32 percent gain reported in August 2014. This is the fastest growth rate since March 2005, the last credit boom. Memberships are up 3.7 percent during the past year due to robust demand for credit, solid job growth and comparatively lower fees and loan rates.
  • Credit union capital-to-asset ratios rose to 10.8 percent in August, up from 10.7 percent reported one year ago. Credit union loan delinquency rates fell to 0.74 percent in August, down from 0.84 percent one year earlier due to a stronger economy and double digit loan growth. Expect both credit unions and bank to loosen credit standards in 2016.

Download your copy of the Credit Union Trends Report.

CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. CUNA Mutual Group is an approved provider for Credit Union Resources, a subsidiary of Cornerstone Credit Union League.