The U.S. economy continues to grow slowly but steadily, but according to a group of experts queried by WesCorp, credit unions should prepare for a drop in auto sales, home sales and mortgage refinancing.
Dwight Johnston, WesCorp's vice president of economic and market research, and Bob Burrell, executive vice president and chief investment officer, presented a combined forecast from several economists at the company's recent CU Outlook conference here.
The picture was fairly optimistic, but Johnston warned that enough uncertainty exists: "Any scenario is just as likely as any other at this time."
WesCorp's experts foresee steady growth in gross domestic product for the end of 2004 and into 2005 of 3% to 3.5%. Inflation is expected to be higher, but contained, at approximately 2.5% for 2005 into 06.
"Payrolls and job growth will remain consistent," said Johnston. "This is the first year businesses got their confidence back after two or three pretty miserable years." Interest rates will rise slowly, he added.
Burrell said WesCorp members reported second quarter growth in both shares and loans, with cash deposits down sharply. Fifty-five percent of loan growth was from first mortgages, 37% from auto loans. "With almost no growth in other areas," he noted.
"The big three balance sheet items were share growth, auto loan production and mortgage originations. Share growth was thanks to the stock market, but the equity markets are improving."
Auto loan originations could slow as interest rates go up, Burrell continued. The impact on sales could reach 1 million to 1.5 million units.
"Refinancing will continue to drop, and we see home sales-both new and existing-dropping," he said.
Johnston reiterated his warning regarding "wild cards" that could pull the recovery down. Possibilities include disappointing job growth, problems with the U.S. dollar, oil price shocks, terrorism or "What we don't know we don't know."
