CU Performance Kicks Off 2018 With Lingering Question

Image of man looking backward with telescope

Several local credit unions headquartered in 12 regions across California and the two main regions of Nevada launched into 2018 like they did this time last year: hitting new records in membership, loans and deposits—or at least making major inroads to where they stood 10 years ago as the “Great Recession” began.

How long can this trend last? And how will different credit unions perform given their size, geography and membership?

“The trends will last as long as the economy continues to perform well,” said Dwight Johnston, chief economist for the California and Nevada Credit Union Leagues. “The big regional areas of Southern California and the Bay Area will perform the best, and larger credit unions will outperform smaller credit unions. Percentage growth rates in loans should slow a bit, but only because the base number is bigger. Also, Nevada credit unions should enjoy another year of good growth. The state still has an ample pool of available workers, and reasonable home prices make it attractive for relocation."

The one area of concern is the tight labor market. Employers are having increasing difficulty finding workers, which will be a limiting factor for the economy “to some degree,” Johnston said.

Another limiting factor is in first-mortgages. The supply of homes in most markets are reaching historic lows and could tighten further as homeowners “stay put” due to the upcoming decrease in property tax deduction stemming from the new tax law, he said. Also, the refinance market will continue shrinking if interest rates keep rising.

But overall, “There is nothing that suggests an economic slowdown is imminent—making the overall picture for credit unions bright,” he said. “In fact, the business-skewed tax bill should accelerate growth through at least the third quarter of this year.”

Johnston does have concerns the economy may start running out of steam by late 2018. Consumer spending might be “good,” but the growth rate could still disappoint. If Wall Street reacts negatively to these growth numbers, businesses could somewhat pull back on spending and hiring plans.

“As long as inflation remains contained, I think the Federal Reserve might surprise us this year by raising short-term interest rates less than forecasted,” he added. “But that isn’t necessarily good news for longer-term rates. The supply-demand equation for bonds will shift dramatically next year as central banks reduce or eliminate their securities-buying programs. At the same time, the federal government’s deficit will mean a sharp rise in the issuance of bonds. I’m not looking for a bond market meltdown but a return to normal.”

Local CA and NV Trends
How 11.4 million credit union members in California and 354,000 in Nevada are making spending choices on automobiles, higher education, homes, remodeling projects, surviving life events and big-ticket items provides a gauge into what’s happening across both states’ local economies.

This is evident in the California Credit Union League’s 3rd Quarter Credit Union Trends Report for 318 locally-headquartered credit unions, as well as the Nevada Credit Union League’s 3rd Quarter Credit Union Trends Report for 16 locally-based credit unions.

Click each region in California to view localized year-over-year credit union trends (3Q 2017) according to National Credit Union Administration (NCUA) call-report data:

Click each region in Nevada to view localized year-over-year credit union trends (3Q 2017) according to National Credit Union Administration (NCUA) call-report data: