The National Credit Union Administration offered signs for tempered optimism in the latest video in the agency’s economic update series,
Despite a weak start to the year, forecasters expect the U.S. economy will grow moderately, with job gains of about 200,000 a month, and a decline to the unemployment rate to about 4.5% by year’s end, said NCUA Chief Economist Ralph Monaco.
“For credit unions, the outlook is good news,” Monaco said. “It suggests continued solid loan growth and relatively low credit risk. It points to rising deposits and continued membership gains.”
Monaco cautioned, though, that some regions and sectors in the nation will likely face challenges for the remainder of the year. He noted that employment was down from a year earlier in the states with considerable ties to the oil industry or to industries that support its production.
“Credit unions in those areas are more likely to see weakening loan demand, increases in delinquency and slower deposit and membership growth,” Monaco added.
The video, released March 25, also reviews the Federal Reserve’s increase in short-term interest rates in December, the first since 2006, and its holding off earlier this month on raising those rates in the immediate future, indicating the potential impact of these moves on credit unions this year.
“A solid economy means rising rates, with short rates likely rising more than long,” Monaco said. “For credit unions, that’s a recipe for compression in net interest margins, and that’s likely to compress credit union net income. But the improving economy is also likely to generate some offsetting effects, supporting net income through higher loan demand, low credit risk and solid deposit membership growth.”
