PONTE VERDRA BEACH, Fla. -- If you think the Federal Reserve should raise interest rates in the next six months to a year, rattle this copy of Credit Union Times you're holding.
If you're typical of the audience at an Education Credit Union Council session on the economic outlook, you didn't move. Nobody in the audience liked the idea.
Perhaps 30% or 40% of attendees indicated they would prefer rates to stay the same, about 5.25%. Some 20% to 30% raised their hands when asked if they thought the Fed has over-reacted and should lower rates.
The speaker for the session was Steven Rick, CUNA senior economist. Overall, Rick indicated he sees an economic slowdown, but not a recession. There will be a switch from a consumer-driven economy to one propelled by business, with strong capital investment.
Your lending department might want to take note of Rick's outlook for the housing market. He sees spent-up demand that reduced home sales in 2006 continuing into 2008.
"We'll see a little creep up in delinquency in 2007 and 2008," he indicated. "The housing market is slowing rapidly. Falling home prices will restrain consumer spending."
He noted that for the past couple years households have had a negative savings rate, "the first time this has happened since the Great Depression." However, "The trend looks like Americans will start saving soon."
Rick expects debt-laden consumers to curb spending as they increase savings.
Another piece of good news offered by Rick--credit unions are very well capitalized. Assets grew 8% last year while liabilities rose 4.5%.
Here's a quick rundown of CUNA's 2007-2008 credit union forecast:
o Credit union savings growth will rise in 2007 to 7% due mainly to a slowing economy and falling home prices. The national saving rate will become positive in the spring of 2007.
o Credit union loan growth will slow in 2007 to around 5%, the slowest since 1998.
o Credit quality will deteriorate in 2007 with higher delinquency and charge-off rates.
o Return on assets will fall to 0.65% for 2007.
o Capital-to-asset ratios will decline slightly. --firstname.lastname@example.org