WASHINGTON-The Credit Union Economics Group’s most recent quarterly report predicts the economy will pick up slightly for the rest of 2003 and into 2004. “We are beginning to feel the impact of the federal tax cut and government spending programs,” CUNA Mutual Economist Dave Colby said. “While there is a good deal of stimulus in the system, we haven’t fully seen it work through the economy. Therefore we remain guarded in our forecast due in part to a weakness in the employment outlook.” CUEG is anticipating GDP growth of 2.4% and an uptick in interest rates with flatter vehicle sales. The group also lowered their expectations for credit union loan growth in 2003 from 7.0% to 6.6% due in large part to weakness in new car lending and consumer installment lending in general. Vystar Credit Union Executive Vice President and CFO Scott Mainwaring blamed the slow auto loan growth on the Fed’s rate cut, which has made it cheaper for manufacturers and dealers to provide incentive financing. “Those incentive programs will be pushed aggressively and will cut into credit union opportunities,” he said. For the month of June, CUNA data showed 1.0% growth in new vehicle lending. “We actually had some positive growth in new car loans in June, which is a very positive sign,” CUNA Economist bill Hampel, who is not a CUEG member, said. Used car loans grew 1.7% in June. In the same period, savings stood stagnant, according to CUNA data, which Hampel said was “the first time in a long time.” However, he pointed out that the month ended on a Monday, which may have affected the numbers given the typical Friday payday, and savings were still up 8% in the first half of the year. Hampel said there is a possibility for even stronger savings growth in the second half because many credit union share accounts are paying more right now than money market mutual funds. “While the CUEG group expects an improving economic environment over the next six months, credit unions are likely to continue to experience relatively strong share growth,” NAFCU Senior Economist Jeff Taylor agreed, “with loan demand concentrated in real estate and used-auto products.” CUEG’s July Consensus Forecast also made these predictions: * Unemployment-rate forecasts were revised up to average 6.3% for 2003, with a dip to 6.2% in 2004. * Because of strong share growth in the first half of the year, the 2003 share growth forecast was increased 2.5 percentage points to 11.3%. * Mortgage originations are expected to remain strong for the rest of 2003 despite the recent increase in mortgage rates. * Inflation is expected to remain below 2.2% for the next two years, but could reach 2.8% due to energy prices. * New, light vehicle sales are forecast at 16.2 million units in 2003 and 16.5 million in 2004. CUEG is a working group of credit union economists dedicated to credit unions’ current and future financial well-being. [email protected]

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