LAS VEGAS–Thanks to issues near (America’s “fiscal cliff”) and far (Europe’s debt bubble), the economy will go through three to five more years of “modest ups and downs.”


That’s the forecast from Dwight Johnston, chief economist for the California and Nevada Credit Union Leagues, who believes the primary concern for credit unions should be that hiring will be “pretty slim” over the next few months as people worry about the potential fiscal cliff.


“Payroll growth has been consistent, but not fast enough,” he assessed, adding the average monthly gain in 2011 was 153,000, while in 2012 it has been 156,000. “This is good in a strong economy, but insufficient to lift a weak economy.”


In addition to tepid jobs growth, consumer incomes are stagnant, Johnston continued. He said housing finally appears to have a “foundation in place for a stable market,” but warned risks remain.


Auto sales numbers reflect some pent up demand after three or four slow years, but in Johnston’s estimation the surge likely is over.


“No big changes are likely in retail sales, but there should be a steady pace,” he said. “A sluggish job market and stagnant wages argue consumers will only splurge from time to time. The fact consumers have paid down their debt in recent years might help.”


Factors doing “better” include the job market in California and housing nationally, he said. Factors that are “about the same” are the job market nationally, consumer spending and the European debt crisis.


Doing worse: interest rates and margins, the global economy, Washington, D.C., California’s state budget, and deteriorating municipal finance.


“Consumers are hanging in, but the pattern has been three or four good months followed by three or four bad months. This is due to general lack of business confidence and fear of new regulations.


“Businesses are more worried about the European debt crisis than the fiscal cliff,” he added.


Portfolio Yields Falling


In the housing market the foundation is “almost complete,” said Johnston. Housing starts are gaining some strength, though probably will not get back to 2005-2006 peak levels.


Johnston foresees a “bitter fight” on the fiscal cliff, but said resolution is likely, along with a “big battle” over the long-term budget. He said Republicans and Democrats were close to a budget deal two years ago, but separated in the election season.


With the Fed stating the Fed Funds rate will remain in a range of 0% to 0.25% until mid-2015, Johnston reminded CUs rates do not necessarily have to go up, as evidenced by Japan, which has seen low rates since 1999.


“Portfolio yields will fall further as assets mature,” he said. “For credit unions with low loan-to-share ratios extended low rates could mean cutting share rates even more.”

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