Federal Reserve Board Chair Jerome Powell said Wednesday that the median forecast of Fed members was real GDP growth of 3.1% this year and 2.5% next year, which is close to CUNA’s forecast.
The Fed raised its federal funds rate 25 basis points on Wednesday, and Powell indicated another rate increase is likely in December. The Fed might raise rates three more times in 2019.
In September’s CUNA Economic Update, Chief Economist Mike Schenk said mid-year call reports from NCUA “reflect solid overall results, with acceleration in membership growth, solid loan growth, high asset quality, and strong earnings.”
“With strategic planning season starting, we again find ourselves wondering if this incredible run of favorable operating results can continue,” Schenk said.
Schenk’s answer: Yes, but…
Yes, Schenk said, the good times can continue to roll because the economy is in good shape and should be able to withstand the anticipated interest rate hikes by the Fed. Household net worth as a percent of disposable income is at a historic high.
“And consumers, including credit union members, are supremely confident,” he said. “Consumers are willing and able to borrow in the current environment, and the Fed isn’t likely to ruin the party.”
But, he warned, the economy could be dragged down by tariffs and resulting higher prices and market disruptions.
The effects of tariffs and tariff retaliations have been isolated so far, he said. “However, if the Trump administration implements the tariffs on autos and auto parts that have been threatened, then the impact on credit unions could be significant.”
For example, Edmunds estimates automotive tariffs would cut new car originations by 2 million loans, including about 600,000 loans lost to credit unions. CUNA’s own study found that credit unions might lose as many as 1.1 million new car loans.
CUNA Mutual Group shows credit unions held $144.9 billion in new car loans in July. Without auto tariffs, CUNA forecasts that new car loans would rise by $18.4 billion to reach $163.3 billion by next July.
With the tariffs, new car portfolios would drop by 16% to 23% to reach $111 billion to $122 billion. The absolute difference to credit unions could be as much as $53 billion in lost loans.
In keeping with previous forecasts, Schenk said total loan growth for credit unions is likely to be 9% to 9.5% this year, and 7% to 7.5% next year. CUNA Mutual Group’s monthly Credit Union Trends Report showed credit unions held just over $1 trillion in loans on July 31, up 10.2% from July 2017.
New car and truck sales are expected to fall to 17.2 million units in 2018, down 1.3% from last year, and sales are expected to decline further in 2019 and 2020. And the Mortgage Bankers Association is projecting the value of first mortgage originations will fall 6.1% this year, decline 0.9% in 2019 and then rise 2.4% in 2020.