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News Now

CU System
CUNA Economic Forecast puts economy in CU perspective
MADISON, Wis. (9/29/11)--The Credit Union National Association’s (CUNA) Economic and Credit Union 2011-2012 Forecast is less optimistic than previous ones because of weakening manufacturing numbers, a frail labor market, falling equity prices and the turmoil related to the Euro-zone crisis. Also the possibility of a double dip recession has increased.
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CUNA’s forecast also includes a midyear summary of credit union operating results--a U.S. Credit Union Profile. (Use the link to access the report.) How does the forecast impact credit unions? “Credit unions have been making progress, but it has been slow progress,” Paul Ledin, CUNA senior data analyst, told News Now. “As uncertainty in the market remains, loan growth will remain weak and the uncertainty will act a headwind against credit unions’ loan growth. “A recession is not likely to happen, but the fear in the market is what causes problems--all driven by the manufacturing and other economic numbers being down,” he added. “There now is a one-in-three chance of recession, which has gone upward from a one-in-four chance. The fact that the chance increased is causing concern.” A key factor in CUNA’s economic forecast is a higher than normal unemployment rate, which leads to higher delinquency and charge-off rates. That in turn feeds into lower loan demand because more people are unemployed. “People will pull back on spending, which will depress loan growth,” Ledin said. Another factor in the economic forecast is the flattening of the Treasury yield curve in 2012 due to the Federal Reserve’s “operation twist.” As long-term interest rates fall, the cost of funds will remain steady, but the interest income derived from them will decline, Ledin said. “It’s clear the Fed can push down interest rates, but how that translates into loan demand is not as clear at credit unions,” he added. As for the credit union forecast, members are in synchronization with credit unions, Ledin said. “People are behaving like credit unions are,” he explained. “During the past few years, they have built up their rainy-day funds. People are probably going to become more sensitive to short-term interest rates--balancing savings versus consumption. But the uncertainty issue still is there, and it will affect long-term spending for bigger-ticket items. “That’s what credit unions would like to see--growth in long-term spending because that drives loan growth,” he continued. “People don’t borrow for lunch or day trips, but they do borrow for computers and cars.” Is there anything credit unions should do--given CUNA’s Economic and Credit Union Forecast? “As the interest margins come down, for credit unions to thrive they will need to drive volume to maintain their current level of income. They’ll want to grow loans,” Ledin concluded.


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