CU Economists Cautious, But Seeing Improvements

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Last month's report of 7.2% growth in gross domestic product for the third quarter has credit union economists boosting their own estimates for economic growth.

"I'm increasingly optimistic, but somewhat guarded, yet," said David Colby, chief economist for CUNA Mutual Group and a member of the CU Economists Group. Colby has boosted his own forecast for GDP growth next year to 4% from 3.2%, based on the new data. While Colby noted accelerated spending, especially in the business sector, he remains cautious because of the continued lag in job creation. "There's not a lot happening on the employment front," he noted of the continuing decline in jobs.

Jeffrey Taylor, a NAFCU economist and also a member of the group, said the third-quarter figures-the highest growth rate in two decades-should provide "good momentum going into next year," even if consumer spending, slows down.

But group members suggested the end of the refinancing boom and the absence of any new personal tax cuts could slow consumer spending, the main engine of the economy the past two years. "It was certainly a major boost in 2003, but it's going to have much less of an effect in 2004," said Colby, of the refi boom.

Credit union executives are already projecting a higher-rate environment for next year, according to Scott Mainwaring, chief financial officer at VyStar CU, who noted widespread discussion of keeping short on the investment side while maintaining flexibility, such as more adjustable-rate lending, on the loan side. The consensus in the credit union movement, said Taylor, "is we're going to be operating in a little different environment next year."

The excess liquidity in the credit union movement, according to Mainwaring, will allow credit unions to hold back on raising their savings rates, as there is no burning need to attract new funds.

Meantime, monthly data compiled by CUNA indicates that lending is starting to heat up. Credit unions expanded their loan portfolios by a healthy 1% in September, bringing loan growth for the first three quarters to 7.2%. The September loan growth shows, "that consumers are getting into the economy," said Bill Hampel, chief economist for CUNA.

Mortgage lending continues to lead the way, with fixed-rate real estate loans growing 1.9% and ARMs by 1.8% during the month. Used and new car loans grew a strong 0.9% and 0.7%, respectively, for the month. The accelerated loan growth indicates a higher economic growth rate for next year, suggested Hampel.

Savings declined by 0.7% for September. As a result net capital grew from 10.5% to 10.7%; and the critical loan-to-share ratio rose from 69.4% to 70.5%, its highest since January.

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