ABA Banking Journal - February 2012 - (Page 10)

the economy | by rob strand Slow gains, but steady “Despite severe shocks in recent years, the economy is resilient and continues a gradual march forward. We’re moving from a difficult enviReal GDP growth ronment to one that is slowly starting to improve. The recovery is addReal consumer spending growth ing jobs, which will spur consumer spending, increase housing demand, Business investment growth and help the economic expansion become self-sustaining.” New private industry jobs According to George Mokrzan, chief economist for Huntington Unemployment rate (Dec.) Bank, this is how the ABA Economic Advisory Committee sees 10-year T-Bond rate (Dec.) the U.S. economy. The committee, which he chairs, met in mid-JanuConsumer credit growth ary to present its economic outlook and policy recommendations. Business credit growth It forecast that the moderate economic growth that began last fall will continue through 2012, and the national economy will grow 2.4% (inflation-adjusted). Growth will be driven by business investment, particularly in capital equipment, and sustained by consumer spending growing near the same pace as the overall economy. The consumer sector is critical because it represents about 70% of the economy. The bank economists note consumer confidence remains weak, reflecting continued unemployment problems, high gas prices, and disturbing European news. However, they feel pent-up demand and very low interest rates will push households to spend more, a trend that has already begun. Nonetheless, job recovery is seen as a long-term issue. The economists predict economic growth will add 1.6 million jobs this year—enough to keep up with labor-force growth, so unemployment will remain near 8.5%. With households and the economy on the mend, most banks should see a better year for both consumer and business credit, according to the committee. Credit growth will be up and delinquencies down. In 2012, consumer loans are forecasted to grow 4.1% and business loans, 7.8%. With inflation holding under 2%—as long as energy prices do not spike up—the bank economists see the Federal Reserve holding short-term interest rates down into next year. The forecast for 3-month Treasury bills is to hold near 0% this year, with the 10-year Treasury note and 30-year mortgage rates rising to 2.5% and 4.3%, respectively, by year-end. Housing problems will only begin to ease, according to the bank economists. With record-low mortgage rates and lower home prices, homes have become very affordable. On the other hand, fear of underwater mortgag10  |  ABA BANKING JOURNAL  |  february 2012 ABA Economic Advisory Committee forecast for 2012 2.4% 2.4% 6.2% 1.6 million 8.5% 2.5% 4.3% 7.8% es and overpaying for housing is making homebuyers extremely cautious. On net, the committee notes that home sales and starts climbed throughout 2011 and believes that there will be a gradual recovery this year. The forecast is for home-price declines to ease nationwide—but not in all areas—even as foreclosures pick up. The group sees the European debt crisis as a risk to the United States. According to Committee Chair Mokrzan, “Europe will likely experience a mild recession this year, which will not dramatically affect our economy unless Europe’s financial challenges become much more severe.” n Rob Strand is senior economist in ABA’s Office of the Chief Economist. rstrand@aba.com

Table of Contents for the Digital Edition of ABA Banking Journal - February 2012

ABA Banking Journal - February 2012
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
ABA Community Banking
Pass the Aspirin
Tech Topics
Stop Drowning Us
10 Tech Trends to Follow in 2012
Compliance Clinic
Compliance Inbox
Aba Resources
Legal Issues
First Person

ABA Banking Journal - February 2012

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