MADISON, Wis.-The U.S. economy improved somewhat in 2011, but according to Dave Colby the global economy is a "little bit more risky" as the calendar turns to a new year.
Colby, chief economist for CUNA Mutual Group, said his outlook for 2012 is remarkably similar to the one he issued 12 months ago for 2011. "The one thing that is different from last year is the possibility of a double-dip recession spilling over from Europe," he warned.
The baseline forecast from CUNA Mutual economists has a 50% probability, Colby said. However, the alternative, a double-dip recession, has a 35% to 40% probability, which he noted is "very high for an alternative."
"The baseline calls for very slow to moderate employment growth," he said. "The job numbers will look better, but not necessarily the quality of the jobs. If an unemployed construction worker gets a job at Home Depot it is not the same thing."
Due to the quality of jobs issue, Colby predicted there will be "weak or no" disposable income growth. "Consumers remain leery of the future, so I don't foresee strong, sustained spending. Spending will go up and down with the price of gasoline."
Gloomy Mood
Colby, a frequent speaker on the CU conference circuit, told Credit Union Journal every time he appears he asks the CU leaders present if, in their members' eyes, the recession ever ended.
"Here we are almost two years after the recession officially ended, and no one has been raising their hands for the last nine months," he said. "This tells me any spending consumers do will be modest at best. Cars and trucks purchased will be replacements only. There won't be spending on snowmobiles or boats."
Colby's other forecasts include:
• A recovery in the housing market remains a way off and will "vary signficiantly" by market. " I don't see much of a surge in sales all through 2012. In 2013 people will realize they missed the bottom of prices and the bottom of interest rates and there will be some buying."
• Reluctant to forecast interest rates, Colby did note that many homeowners still have ARMs, meaning if there were to be a significant reset up it would tip thousands of people into delinquency and default-which puts pressure on the Federal Reserve Board to maintain a low rate. Similarly, deposit rates will not increase due to deficit pressures.
• 2012 will be another year of "treading water," with CUs having little choice but to keep deposit rates low.
• The critical need to manage costs of funds will "curtail asset growth in the next couple years. Consumer demand for short-term loans just isn't there."
• The CU capital ratio will remain near 10%, barring a big influx of deposits.
