The Return of the Borrower
by Steve Rick
Credit union loan balances rose 4.4% in 2012, fueled by 9% growth in new-auto loans. Also on the rise were used-auto loans (8.2%), fixed-rate first mortgages (5.9%), and credit cards (4.5%).
This should continue as the economy improves and consumer deleveraging ends—welcome news as credit unions try to grow their return-on-asset ratios to the 20-year average of 1%.
Economic factors portend even faster growth during the next few years, including:
* An improving labor market, which has increased many households’ ability and willingness to finance their consumption. In 2012, the U.S. economy created 2.2 million net jobs, up slightly from 2.1 million in 2011.
For the three months ended in February 2013, job creation averaged 191,000 per month. At this pace, the U.S. economy will add another 2.3 million jobs in 2013.
Having more households willing to borrow to fund consumption leads to faster economic growth and more jobs, creating what economists call a feedback loop. This self-reinforcing spiral was a contributing factor to the robust economic growth from 2004 to 2006.
* Deleveraging. Americans have been working off a mountain of debt and have improved their balance sheets. The average household debt-to-income ratio fell to 1.05% in the fourth quarter of 2012, down from its peak of 1.29% during the third quarter of 2007—the start of the Great Recession. Economists believe a debt-to-income ratio of 100% is sustainable in the long run.
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