The NAFCU Journal January - February 2018 - 32

Long agrees. He expects only a marginal
impact from the Fed reducing its holding of long-term securities, resulting
in rates that leave the long end of the
curve fairly stable.
Inman and Walby are in a similar camp,
seeing a flattening yield curve as the Fed
puts pressure on short-term rates. Eisel,
meanwhile, projects the yield curve to
exhibit a normal slope by the end of
2018, with overall yields higher.
"I believe the two-year Treasury will
move closer to 2.2 percent and the
10-year Treasury to be around the 2.9
percent mark," Eisel proffered. "Today,
the difference between the 10-year and
the two-year is around 70 basis points,
and with my forecast, I believe that difference will be around the same level at
the end of 2018."
THE ECONOMY: GDP AND JOBS
Since the last recession officially ended,
talk has focused on a sluggish recovery
in which real GDP growth has been
small and full employment elusive for
many credit union members who lost
their jobs due to downsizing or market
shifts in the past decade. CUEG members predicted collectively between 2
and 2.5 percent domestic growth in the
coming year. Several also believed at the
time of the interviews that the country
was close to or at full employment.
"The main areas where employment data
has failed to revert to pre-crisis levels -
labor force participation and wage
growth - can be mostly explained by
demographic considerations," Long said.
"On wage growth, I expect to see those
measures begin to solidify in 2018 as the
high levels of intergenerational turnover
begin to moderate. Job growth will likely
slow somewhat but will still be strong
enough to keep the unemployment rate
well below 5 percent."
Knapp also sees evidence real wages will
soon be higher, though he cautions: "It
is useful to remember that labor force
participation rates started the recovery process at very low levels. As such,
expectations for a worker shortage and
32

spiraling wage inflation seem overblown.
Likewise, fears of rising consumer price
inflation in response to tightening labor
markets seem overdone. The Phillips
Curve [showing that tight labor markets
tend to stoke inflation] isn't what it used
to be."
That also means if growth through
lending and other services is difficult to
come by, credit unions must lower operating expenses and be even more wise
in investing their members' money. "We
need to make sure these investments
are generating a positive return for the
overall organization," Inman warns. "We
can't project interest rates will rise or
that we'll have a strong return because
of rising rates. So, we need to be very,
very efficient."
ADVICE FOR CREDIT UNIONS IN
THE COMING YEAR
More than one CUEG member
mentioned the biggest risks to credit
unions in 2018: recession or unanticipated rises in interest rates. Credit
unions must prepare and price their
share accounts accordingly.
"It's been a long time since rates have
moved, and credit unions may no longer
be able to sit on the sidelines and not
have to move their share account rates,"
Eisel commented. "Consumers could
begin to shop rates and move to higher
offerings elsewhere, especially the older
member who is living off a fixed income
and has been waiting for higher rates for
many years.
"Also, as rates move higher, this may
slow down prepayments on loans and
amortizing investments," he said. "This
will impact the credit union's cash flows
and liquidity. If the credit union begins
looking at other avenues to obtain funding, this will be costlier as rates move
higher as well. It will come down to
proper pricing of shares and loans while
keeping an eye on liquidity in 2018."
Though the chance of recession or a
spike in interest rates currently appears
remote, credit unions would be wise to
have a plan for both scenarios. "With

financial markets at record highs,
and after nine years of uninterrupted
economic growth, it is reasonable to
expect a meaningful change in operating
conditions if probabilities materially shift
in either direction," Knapp said.
Inman, Long and Walby warn credit
unions not to rely heavily on auto loans
in the coming year.
"Many credit unions have lived off auto
loans in recent years. But with that
market cooling, and with the housing
purchase market still muddling along,
credit unions may have to look elsewhere to sustain loan growth," Long
said. "With housing prices on the rise
and household balance sheets in decent
shape, it could be advantageous to focus
on credit card loans and home equity
lines of credit. This is especially true
given that short-term rates are expected
to continue climbing."
Added Walby: "Considering the size
of the auto loan portfolios at credit
unions, I think the higher number of
vehicles coming off of lease in the next
few years is important. It will tend to
suppress used-car values. This may
be mitigated to a certain extent as
the result of the destruction of vehicles from Hurricane Harvey boosting
demand currently."
Inman warns credit unions should be
mindful that loan forbearances for
natural disaster victims could lead to an
increase in mortgage delinquencies.
That said, he believes there are opportunities to assist members and show the
value of a credit union in 2018.
"The overall economy remains very
strong, which is great," Inman said. "And
there are still many opportunities for
credit unions to help their members,
whether it's through mortgage loans or
auto loans or maybe even unsecured
credit cards as well."
Anne Saita is a San Diego-based writer
focused on the financial and information
technology industries.

THE NAFCU JOURNAL  JANUARY-FEBRUARY 2018



Table of Contents for the Digital Edition of The NAFCU Journal January - February 2018

Conferences
From the Chair
Advocacy Snapshot
Washington and Industry Briefs
Growth Strategies
Stepping Into the Future
A Clear Path Forward
Economic Outlook: It’s Complicated
NAFCU 2018 Vendor Directory
Executive Spotlight
Management Insight
Compliance Central
Inside NAFCU Services
From the President’s Desk
The NAFCU Journal January - February 2018 - Cover1
The NAFCU Journal January - February 2018 - Cover2
The NAFCU Journal January - February 2018 - 1
The NAFCU Journal January - February 2018 - 2
The NAFCU Journal January - February 2018 - Conferences
The NAFCU Journal January - February 2018 - From the Chair
The NAFCU Journal January - February 2018 - 5
The NAFCU Journal January - February 2018 - Advocacy Snapshot
The NAFCU Journal January - February 2018 - 7
The NAFCU Journal January - February 2018 - Washington and Industry Briefs
The NAFCU Journal January - February 2018 - 9
The NAFCU Journal January - February 2018 - 10
The NAFCU Journal January - February 2018 - 11
The NAFCU Journal January - February 2018 - 12
The NAFCU Journal January - February 2018 - 13
The NAFCU Journal January - February 2018 - 14
The NAFCU Journal January - February 2018 - 15
The NAFCU Journal January - February 2018 - Growth Strategies
The NAFCU Journal January - February 2018 - 17
The NAFCU Journal January - February 2018 - Stepping Into the Future
The NAFCU Journal January - February 2018 - 19
The NAFCU Journal January - February 2018 - 20
The NAFCU Journal January - February 2018 - 21
The NAFCU Journal January - February 2018 - A Clear Path Forward
The NAFCU Journal January - February 2018 - 23
The NAFCU Journal January - February 2018 - 24
The NAFCU Journal January - February 2018 - 25
The NAFCU Journal January - February 2018 - Economic Outlook: It’s Complicated
The NAFCU Journal January - February 2018 - 27
The NAFCU Journal January - February 2018 - 28
The NAFCU Journal January - February 2018 - 29
The NAFCU Journal January - February 2018 - 30
The NAFCU Journal January - February 2018 - 31
The NAFCU Journal January - February 2018 - 32
The NAFCU Journal January - February 2018 - 33
The NAFCU Journal January - February 2018 - 34
The NAFCU Journal January - February 2018 - NAFCU 2018 Vendor Directory
The NAFCU Journal January - February 2018 - 36
The NAFCU Journal January - February 2018 - 37
The NAFCU Journal January - February 2018 - 38
The NAFCU Journal January - February 2018 - 39
The NAFCU Journal January - February 2018 - 40
The NAFCU Journal January - February 2018 - 41
The NAFCU Journal January - February 2018 - 42
The NAFCU Journal January - February 2018 - 43
The NAFCU Journal January - February 2018 - 44
The NAFCU Journal January - February 2018 - 45
The NAFCU Journal January - February 2018 - 46
The NAFCU Journal January - February 2018 - 47
The NAFCU Journal January - February 2018 - 48
The NAFCU Journal January - February 2018 - 49
The NAFCU Journal January - February 2018 - 50
The NAFCU Journal January - February 2018 - 51
The NAFCU Journal January - February 2018 - Executive Spotlight
The NAFCU Journal January - February 2018 - 53
The NAFCU Journal January - February 2018 - Management Insight
The NAFCU Journal January - February 2018 - 55
The NAFCU Journal January - February 2018 - Compliance Central
The NAFCU Journal January - February 2018 - 57
The NAFCU Journal January - February 2018 - Inside NAFCU Services
The NAFCU Journal January - February 2018 - 59
The NAFCU Journal January - February 2018 - From the President’s Desk
The NAFCU Journal January - February 2018 - Cover3
The NAFCU Journal January - February 2018 - Cover4
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