The mood here in the nation's capital is one of defensiveness and opportunity. But that's the way it always is here between the party in power, this time the Republicans, who are defending everything they do against the barbs of the opposition.
At this stage, they're defending their reasons for going to war with Iraq, for plunging the government into a new round of budget deficits with their tax cuts, and for the continued sluggishness of the economy. That's how it is when you have control over all the levers of decision-making. You can't make excuses for enacting unpopular policies out of compromise with the opposition.
The Democrats see opportunity in all this. In a perverse way, they hope the war in Iraq drags on, that the economy continues to stagnate, and that the budget deficits grow. That's because it will give them some leverage in next year's elections. Otherwise, they know the odds are against them recapturing either chamber in Congress, let alone the White House. The key, as usual, is the economy. The outcome of the next elections will ride on how well the economy performs from now until then.
Just ask President George H.W. Bush, U.S. President 43, who like his son, was riding high in 1991 at the same stage of his presidency.
But the glory of the victory over Iraq and Saddam Hussein faded to disenchantment over the economy, costing the first President Bush a second term.
From a credit union perspective, the economy will pick up in the second half of the year, boosting growth in Gross Domestic Product for all of 2003 to 2.4%, according to a new group of credit union economists. Higher interest rates will negatively impact credit union lending, especially car loans, the CU Economics Group says. As a result, the group lowered its forecast for loan growth from 7% to 6.6% for the year. But the group predicted that mortgage lending will remain strong for the rest of the year, despite the higher rates of late.
Long-term mortgage rates rose the first week in August, for the sixth week in a row, to their highest level since mid-December, according to Freddie Mac. The average for the benchmark 30-year, fixed-rate loan climbed from 5.94% last week to 6.14%, while the average for the 15-year, fixed-rate mortgage rose from 5.27% to 5.44%. The average for the one-year ARM held steady, rising slightly from 3.67% last week to 3.68%.
The rising rates have apparently dampened mortgage lending over the past few weeks, with total applications falling 24% and refinancings falling by 33% last week over the previous week, according to the Mortgage Bankers Association. Share growth, which continued to speed ahead in the first half of the year, is expected to continue at a high rate. The credit union economists predict loan growth for the year of 11.3%.
While the group does not include CUNA, Bill Hampel, CUNA's chief economist and dean of the credit union economists, also sees high share growth in the second half, mainly because savers' alternatives to boost returns remain few. Hampel pointed to the fact that average rates paid by money market funds, a favorite alternative to savings accounts, continue to dwindle behind the average rate for share accounts. CUNA figures more than $40 billion of new shares have flowed into credit unions in the first half of this year. Since the end of 2000 more than $150-billion in new deposits has flooded into credit unions, growing credit unions by almost 40% during that time.
But, with the falling credit union rates, it's hard to imagine the funds still pouring in. Average rates paid by credit unions continued to fall to all-time lows last week. Regular share account rates dropped to just 0.90%, share draft accounts to 0.53%, and money market accounts to just 1.06%, according to DataTrac Corp., which follows rates for more than 8,000 depositories, including 1,000 credit unions.
By the way, I'm not sure why CUNA isn't part of this new economists group. CUNA, father to some dozen or so trade groups (if you don't count the leagues), says they don't see the need for yet another credit union trade group. My own suspicions are they don't want to join the group because it was developed by NAFCU. Still, all of the economists participating in the group use the authoritative monthly credit union estimates produced by CUNA's economics staff, the most definitive credit union data.
