WASHINGTON-Don't underestimate the strength of the ongoing recovery.
It's easy to do, noted CUNA Economist Mike Schenk, because of how tepid all the numbers are. "These slow steady improvements are a real departure from what we typically see during an economic recovery," he said. "We're estimating economic growth of about 3% by year end. That's below the long-run average of about 3.25% and well below the 5% to 7% you would normally expect-at least for several quarters-during a strong recovery."
But looks can be deceiving. "There's been a lot of volatility. There were four significant exogenous shocks last year, the oil price hike, the disaster in Japan, the crisis in Europe and the federal budget impasse here in the U.S.," Schenk related. But despite all of that, the economy has continued to improve. "It really speaks to the resilience of the economy."
So, while it's easy to bemoan the fact that we don't have a booming recovery, credit unions need to keep in mind that a slow, steady recovery has its own strength and may simply require a little more patience.
"There are no silver bullets. In some respects, the best advice to credit unions is to stay the course," Schenk suggested. "The longer this goes on, the more likely it is for you to be tempted to want to look for new homeruns, and that is not a good idea. That's not to say that credit unions shouldn't try new things, but do it slowly and cautiously, giving time to build up expertise instead of jumping in."
CUNA is predicting loan growth will come in at about 4% for the year and 6% for next year. While that's still not the double-digit growth that would be more typical of a recovery period, it's still a whole lot better than last year's 1% loan growth, Schenk observed.
Also Worth Noting
Other highlights from CUNA's forecast for credit unions for the rest of 2012 and into 2013 include:
• Savings balance growth is expected to remain at 5% for the next two years, below its five-year average of 6.4% as members begin to spend again.
• Credit quality will improve; overall loan delinquency and charge-off rates will fall as job growth accelerates.
• Provisions for loan losses as a percent of assets will fall to .40% in 2012, below the .43% recorded in 2007.
• CU ROA will rise to .90% in 2012 and 2013.
• CUNA expects NCUA assessments to come in at 9 BPs or insured shares in 2012.
• Capital-to-asset ratios will rise to 11% in 2013, nearing the record 11.% level set in 2006, just a year before the recession.
