DALLAS—A new report on recent economic data suggests that strengthening liquidity profiles should be a primary strategic objective now for credit unions in this rising-rate environment—and that auto lending could be slowing.
“The industry should continue to retain a very strong liquidity profile as the economy staggers through in its recovery mode and markets still anticipate an upward trend in short-term interest rates,” explained Brian Turner, executive director with Meridian Alliance. “Credit unions should anticipate generating positive operating cash flow during the first quarter as share growth exceeds loan growth—a function of year-end payroll bonuses, incentive pay and tax refunds are received by members.”
Over the past three years, peak demand for auto financing has shifted from the spring and fall periods to the first quarter, noted Turner. However, after reaching a high of an 18.6-million-units pace in mid-2015, sales have once again started to tail off, falling to a 17.7-million-units pace in December.
“This should suggest that demand for auto financing could be softer during the first quarter of 2016 than in the first three months over the past three years,” said Turner. “This will help to build liquidity profiles for most credit unions—a very important need for institutions to successfully navigate into a higher rate environment—something that is expected but not necessarily guaranteed for the remainder of 2016.”
Turner added that consumer inflation declined 0.1% in December, but overall prices are 0.7% higher, year-over-year.
“The FOMC is scheduled to meet next month but indicative metrics show a slowing economy and potential problems on the horizon for banks due to energy loans,” said Turner. “This could defer the next rate hike until later in the year.”