WASHINGTON (7/9/12)--Credit Union National Association (CUNA) economists have revised their economic forecast, and while they expect the economic recovery to remain on track, they now have a slightly less optimistic view of the near-term economic future.
The new CUNA outlook--developed during a quarterly economic forecast meeting held last week--reflects a marginal downward adjustment to overall economic growth, CUNA Senior Economist Mike Schenk said.
CUNA economists lowered their U.S. gross domestic product (GDP) growth estimates to 2% for 2012, and 2.5% for 2013. They had previously estimated GDP growth rates of 2.6% for 2012 and 3% for 2013. These changes reflect consumer caution arising from a softer-than-anticipated labor market recovery and from uncertainty surrounding the Eurozone crisis and U.S. budget issues, Schenk noted.
The CUNA economists continue to expect the unemployment rate to remain elevated and to improve only marginally over the next year-and-a-half. The new economic forecast calls for an average 7.75% unemployment rate in 2013, slightly higher than the group's previous estimate of 7.5%.
Slower labor market improvement and nagging uncertainty mean that changes in headline inflation--as measured by the Consumer Price Index (CPI)--will likely be less pronounced than previously thought, Schenk said. The economists now expect CPI to increase by 1.75% in both 2012 and 2013. They previously predicted CPI increases of 2% for 2012 and 2013.
"This all continues to signal a somewhat wider spread between long-term and short-term interest rates over the forecast horizon. The Federal Reserve is expected to keep its overnight interest rate target close to 0%, at least through year-end 2013. On the other hand, longer-term rates are likely to increase – just not as quickly as previously believed," Schenk said.
The group's forecast now calls for the 10-year Treasury interest rate to average 1.7% in 2012 and 2.25% in 2013. This is down from the 2.15% and 2.75% expected averages in the previous predictions.
Credit union operating results will continue to improve, but at a somewhat slower pace than previously thought, Schenk said. The new baseline forecast suggests credit unions will experience slightly faster savings growth in the near-term and slightly slower loan growth. "Credit union savings balances are now expected to increase by 6% in 2012--up from the previously anticipated 5% increase--as more cautious consumers forego some spending and borrowing," Schenk noted.
Credit union loan balances are expected to increase by 3% in 2012 and 5% in 2013--down from the previous projections of 4% in 2012 and 6% in 2013.
Earnings, while continuing to improve, are expected to show a less pronounced increase than reflected in the previously released forecast. Credit union return on assets (ROA) averaged 0.68% in 2011 and was expected to increase to 0.9% in both 2012 and 2013. The revised outlook calls for ROA of 0.8% in 2012 and 0.9% in 2013.
For the full revised forecast, use the resource link.