Director’s Report: Office of the Chief Economist
LOOKING AHEAD TO 2012 IN THE ECONOMY
2011 was generally a year of
modest improvement in
credit union performance,
reflecting a year of modest
economic growth. The
economy grew slowly in
2011, substantially slower
than analysts had predicted
and well below the long-term
average. When the final data
are tabulated, we are likely to
see about 1. 7 percent growth
in real GDP for the four
quarters of 2011. This is
down from 3. 1 percent growth during 2010 and below the
long-term average of about 3. 2 percent per year.
John D. Worth
Chief Economist
from 2011, but still weak. Forecasters also see labor markets
slowly improving with unemployment edging lower to
around 8.2 percent. Monthly job gains should rise to 150,000
by the end of 2012, compared to approximately 137,000
average monthly gain during 2011. At the same time,
consumer confidence and consumer spending growth is likely
to pick up (though neither is expected to be especially strong).
Inflation is likely to remain modest and consumer prices are
likely to be up only by 2 percent during 2012.
The health of the credit union sector is tied closely to how
well the overall economy is performing. The charts below
illustrate this point. The top chart shows the relationship
between credit union loan growth and the overall
unemployment rate.
In our view, the disappointing economic performance
reflected a series of external shocks and missed policy
opportunities. As we discussed in the October 2011 issue of
the NCUA Report (See Revising the Economic Outlook to
Account for Emerging Risks), consumer spending and
confidence were recovering coming into 2011, but they were
hurt early in the year by a combination of high energy prices
and sagging employment prospects that came on the heels of
a sharp rise in oil prices and the tragic earthquake and
tsunami in Japan. The debt ceiling crisis and budget debate
during July and August and growing concerns about
European financial risks through the Fall exacerbated this
weakness in consumer sentiment.
Despite the slower than hoped for growth, we did see some
modest improvements in 2011 including an increase in jobs of
1. 6 million while the unemployment rate edged down,
contained inflation, and a housing sector that stabilized—
although at depressed levels. Especially encouraging were
signs of a pickup late in the year. The economy grew faster as
the year progressed. Job gains picked up in December, the
unemployment rate dropped to 8.5 percent from 9. 4 percent
in December 2011, business and consumer confidence
improved, and business activity indicators edged higher.
Aggregate Credit Union Loan Growth & U.S. Unemployment Rate
1990 - 2011, percent
-4%
90 91 92 94 95 93 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2011 data for CUs is annualized growth for first three quarters of the year.
CU Loan Growth (Q4/Q4)
Unemployment Rate in Q4
Aggregate Credit Union Charge-Off Relative to Loan
& U.S. Unemployment Rate
1990 - 2011, percent
12
2. 4
10
2011 data for CUs in for Q3
CU Charge-Off in Q4 (Right Axis)
Unemployment Rate in Q4 (Left Axis)
2.0
8
1. 6
As we enter a new year, it is a good time to take a look at
forecasts for 2012 to size up likely economic performance
and potential risks, and how these will affect credit unions
in the year ahead. All numbers are best estimates with
implied fluctuations.
The consensus among forecasters is for faster, but still
moderate economic growth in 2012. Real GDP is likely to
grow 2. 5 percent for the four quarters of 2012. This is up
6
1. 2
4
0.8
2
0.4
0 0.0
90 91 92 94 95 93 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
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