SAN DIEGO-Regardless of who is elected president of the United States this fall, Richard Gose said credit union CEOs will remain primarily concerned about loan growth.
At the same time, ongoing polling of attendees at America's Credit Union Conference here found tepid faith in a growing economy and little support for President Obama and Congress.
Gose, CUNA's SVP of political affairs, was part of a panel at the trade group's recent America's Credit Union Conference here that discussed the implications of the upcoming general election for CUs. The conclusion? The economy will have a large effect on the presidential election, but neither the election of Mitt Romney nor the re-election of Barack Obama will have much of an effect on the economy.
Bill Hampel, CUNA's chief economist and SVP of research and policy analysis, said CUNA is projecting credit unions will see improving loan growth in the next three years, along with stable savings growth.
"There will be improving net income due to lower allowance for loan losses, some net interest income and lower corporate assessments," Hampel said. "We also expect to see rising net worth ratios."
In an electronic poll, the majority of breakout session attendees said they expect "OK" economic growth over next three years (54%), while only 7% were very pessimistic and 39% said they expect "great" growth. As for loan growth: 42% said the "good days are over" and the "new normal" is modest loan increases.
Mike Schenk, CUNA's VP of economics and statistics, told the audience loan growth is improving, but at much slower pace than previous recoveries.
"The extension in the labor market and focus on paying down debt will result in lower numbers," he said. "Expect 4% loan growth this year and 5% next year."
According to the audience, 51% said they "really weren't hurt at all" by the economic turmoil of the last four years. Hampel said this finding was not surprising, because the recession was concentrated in certain parts of the country.
"Another important factor is credit unions were not as exposed in their balance sheets as other financial institutions," Hampel said. "Credit union loan losses peaked in 2009 but have fallen each year since."
One "shattering notion" did come out of the recession, Hampel added, pointing to the long-held notion that residential real estate presents almost no risk.
Elected Leaders Panned
The audience held a dim view of the incumbents in Washington. For President Obama: 39% strongly disapprove, 29% disapprove, 10% strongly approve, 11% approve, 11% neither approve nor disapprove. For Congress: 58% strongly disapprove, 33% disapprove, only 1% strongly approve and 1% approve.
What is sparking this ire? To borrow a phrase from the 1992 election, "It's the economy, stupid." Of the attendees, 73% said their local economy is "just plodding along, not robust," some 17% said they were still mired in recession, and only 10% said things are "booming" where they live.
Hampel said there are five million fewer jobs than before recession, despite recent job creation numbers, "Which is why people don't feel good."
The Flock Keeps Growing
Thanks to Bank Transfer Day and numerous follow-up activities, overall net credit union membership is up. According to Schenk, in the period of September 2011 to March 2012 CUs added 1.1 million net new members.
"This is above the long-term average for the last 10 years," said Schenk. "It is not just that non-members are discovering credit unions, the good thing is credit unions still behave as they have historically behaved. They have been making loans as the for-profit sector turned people away. They are safe havens for savings. Credit unions treat people right during downturns."
Schenk warned not all news is good. He said there still is a great deal of volatility and uncertainty in the economy, which causes people to put off big purchases. However, he predicted, there is a lot of pent-up demand that will cause 2.6% growth in 2012 and 3% growth in 2013. Unemployment will decline slowly: 8% in 2012 and 7.5% in 2013.
"This is nothing like typical recovery from a recession," Scheck said.
The audience had a tepid outlook for the state of the national economy three years from now: 53% said it would be "pretty much like today," 36% thought it would be "much stronger," and 11% are concerned it will be weaker than today.
The panelists agreed CUs should expect "very little change" in long-term interest rates. Hampel said the Fed will do what it promised to do: keep the Fed Funds rate low through promised period next three years.
"The yield curve is steeply sloped today, which helps bottom lines," Hampel observed. After a flash poll found the majority of the audience (56%) expects the Fed Funds rate to hold near zero until 2014, while 38% expect the rate to go up some time in 2013, Hampel reminded the audience that the Fed said it expects economic conditions to stay so weak it will have to leave the Fed Funds rate low until 2014-it was not necessarily a "promise" to hold short-term rates down.
Rising inflation could force the Fed's hand on rates, but Schenk said most economists agree inflation will remain tame: about 2% over next three years. The audience concurred: 57% foresee moderate inflation (2% to 4%), while 31% say it will be 0% to 2%. Only 10% predict inflation over 4%.
The specter of a second recession within the next year has been raised recently, but the CU audience seemed unconcerned: 44% said such a scenario was "unlikely," with only 20% saying a double dip was "highly probable." Schenk said the numbers suggest recession is unlikely. Specifically, the fact the Fed Funds rate is so much lower than the 10-year Treasury yield.
"There are threats to the economy, including the budget deficit and the financial crisis in the Euro zone," Schenk said. He warned of the possibility of $560 billion in tax increases and spending cuts, which would be a negative 3.6% effect on the U.S. economy.
"Exports to Europe are 3.8% of U.S. GDP, so a 20% decline in trade would be 0.6% GDP hit," he said. "Other effects of a crisis in Europe are unknown. European banks finance a lot of trade in developing nations. There could be supply chain disruptions. The total exposure of the world economy to the European economy is unknown."