Rev-Up For 2017

What do jobs, houses, and autos say about the road ahead for credit unions?

Last quarter I covered three possible paths interest rates could take in 2017. Nothing is clearer on that front as of this writing.

The two big remaining risks for 2016 are the U.S. presidential election and the Italian referendum. The fallout from unfavorable outcomes in one or both situations will play out in the markets, although they should not have a significant impact on the economy. They will be disruptive initially but not necessarily destructive to the longer-term prospects for the U.S. economy.

Certainly there are risks, mostly from Europe, to the U.S. economy, but the dominant theme in bond circles has been one of a massive global slowdown. The bond market has fed off this fear for more than two years despite the lack of actual evidence. The global economy has slowed but not to the extent bond bulls predicted. Still, they keep saying wait ’til next year.

We only need stability in the global economy. Growth would be great, but we’ll do fine with maintaining the status quo. It’s worked well so far.

With that as a backdrop, let’s look at three things that matter to credit unions: jobs, houses, and autos.

Job Growth Takes The Driver’s Seat

The average monthly payroll gain in 2016 has been almost 200,000 per month, as of August. With the labor market tightening and many industries reporting difficulty in finding workers, I’m looking for monthly gains to average 150,000 to 175,000 well into 2017. That is roughly double the number of new hires needed to keep the job market even.

Just as important, wages are trending higher, especially when considering measures beyond the monthly hourly wage as reported by the Bureau of Labor Statistics.

With jobs ample and wages improving, members should have the confidence to spend.

Housing Hits Its Speed Limit

It’s been a good housing season. Existing home sales nationally are the highest they’ve been in several years, and new home sales are up, too.

But sales have declined in some of the most expensive markets in the country, and supply has risen. Expensive areas such as Los Angeles, San Francisco, and New York appear to have topped out.

I’m not worried about the upper sector of the housing market, but the middle sector might follow suit. Prices have flattened in many areas and affordability has reached levels that are flashing caution lights.

And this is with mortgage rates at historic lows. What will happen if rates rise by 1or 2 percentage points?

Don’t get me wrong I’m still long-term positive on the future of housing, not from the perspective of ever-rising prices but from the perspective that an escalation of housing formations since the recession has built a big base of demand. This base should provide demand anytime the housing market slips.

The road ahead will contain detours and a few sharp turns, but credit unions should be able to navigate those.

Auto Sales Roll On Cruise Control

In 2015, autos sales hit an all-time high of 17.6 million units. Sales for 2016, although good, are unlikely to set another high. Sales have likely plateaued, and that plateau should extend in 2017.

A plateau at this level still leaves auto sales in a good condition. Credit unions’ book of current auto loans, accumulated over the past few good years, will lead to loans from trade-ins. That alone should ensure a good year for this category. Gaining market share would be icing on the cake.

The Road Ahead

The road ahead will contain detours and a few sharp turns, but with any luck, the U.S. economy and credit unions should be able to navigate those and post another solid year. So, plan accordingly.

October 18, 2016

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