Transcript www.utahscreditunions.org

Utah Credit Union Association
Volunteers Conference
Friday, October 21, 2011
The Economy and Its
Impact on Credit Unions
Mike Schenk
Vice President, Economics & Statistics
Credit Union National Association
Telephone: 608-231-4228 Facsimile: 608-231-4924
E-Mail: [email protected]
Where do we go from here?
1. “Normal” recovery?
2. Sustainable but very slow recovery?
3. Double-dip recession?
4. Depression?
Market Interest Rates
1960 to 2011
20
19
18
•
Gobs of stimulus
•
Q: What causes recessions? A: Historically
recessions have been caused by Fed action
to slow a fast-growing economy. The
resulting inverted yield curves foretell
downturns with a high degree of accuracy.
In modern times the US economy has not
gone into recession with an accommodative
Fed (i.e., a steeply-sloped yield curve.)
•
4.6% drop in installment credit in August but
prior to that ten consecutive months of
increases. YOY growth in August was 2% &
five consecutive months of YOY increases.
17
16
15
14
13
(Percent)
12
11
10
9
8
7
6
5
4
3
2
1
0
66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Source: Federal Reserve & CUNA E&S.
Recession
Fed Funds
10-Yr. Tsy.
Gross Domestic Product
Percent Changes - $2005. Source: BEA
•
LT average ~3%; Max.
sustainable ~ 3.5%.
Recession: two consecutive
quarters of contraction.
•
Obvious 1st quarter soft
patch related to Japan, Arab
Spring, bad weather, but a
marginal increase in 2nd
quarter & clear indications
of more growth in the 2nd
half.
•
Index of Leading Economic
Indicators increased 0.3% in
August to 116.2 (2004=100)
– pointing to an expanding
economy in the coming
months.
Index of Leading Economic Indicators
10%
LEI Index
110
•
•
•
Monthly increases in 13 of past 14 months
Stock market = 3% weight
Stocks are a lousy predictor of economic activity
8%
100
6%
90
4%
80
2%
70
0%
60
-2%
50
-4%
Recession
-6%
40
6-Month Growth Rate
30
Leading Index
-8%
-10%
20
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Growth rate < -2% => Recession
3 months Index increase => Recovery
Percent
120
US Employment Changes
Thousands - Source: BLS
• Private sector jobs +17,000
in September (19th
consecutive monthly
increase).
• New claims for
unemployment insurance
decreased to 404,000 in the
week of Oct. 8th (below the
April high of nearly 480,000
but claims above 400,000 are
not consistent with labor
market recovery)
• Average hours worked up 2%
compared to last year.
Average hourly earnings
(cash earnings excluding
fringe benefits) were up 0.7%
in July & are up 2.3% vs.
year-ago.
Retail Sales Growth
Source: BEA
•
Monthly gains in 19 of
past 22 months.
•
YOY gains in 22
consecutive months.
•
Prospect of more growth
as auto dealers build
inventories – a “virtuous
cycle” but confidence is
key.
•
Although affordability is
high, pending home sales
fell in July & new home
sales have declined for
three consecutive months.
Sales stimulate demand
for other goods &
services.
US Unleaded Gasoline Prices
Source: Oil Price Information Service
• Gasoline + 28% in wake of
Arab Spring (Jan to May) but
down 13% (51 cents) from lateApril peak. Rule of thumb: each
1 cent decrease in price puts
$1 billion in consumer’s
pockets.
• WTI crude increased 27% from
year-end 2010 to 4/29/11 but
has declined by 25% since –
now at $86. Rule of thumb
(Energy Information Agency):
sustained 10% increase =
0.05% to 0.1% decline in GDP.
• Recent oil price declines,
conclusion of summer driving
season and generally soft
demand signal additional price
declines. Futures markets
confirm this view.
Growth in Corporate Profits
Percent Changes - Source: BEA
•
10 consecutive quarterly
increases; 8 consecutive
YOY increases.
•
Revenues up an average
of 9%. Revenues outpaced
nominal GDP growth in
each of the past 7 qtrs. All
ten S&P 500 sectors
recorded revenue growth.
•
Corporate balance sheets
are strong – big cash
reserves – poised to
respond to any obvious
uptick in consumer
demand.
Business Investment in Equipment
& Software
Percent Changes - Source: BEA
• 8 consecutive quarterly
increases; 6 consecutive
YOY increases.
• Accounted for 40% of
GDP growth in past year
– 32% in Q2.
• Good near-term indicator
of productivity growth
trends. Remember: GDP
growth = labor force
growth + productivity
growth.)
• Fairly good longer-term
indicator of labor force
growth.
ISM Purchasing Managers Index
Source: ISM
•
Readings above 50
represent expansion in
manufacturing - 26
consecutive months of
expansion
•
The current reading
(51.6) is consistent with
an economy that is
expanding at a 3.2%
pace according to the
ISM.
•
12 of 18 manufacturing
sectors report growth
with consistent reports of
high demand for export
goods.
US Exports
Percent Changes - Source: BEA
• 8 consecutive quarterly
increases; 6 consecutive
YOY increases.
• Accounted for nearly
two-thirds of GDP growth
in past year & in Q2.
• Dollar has fallen
• Strong exports fueling
strong manufacturing
sector.
• Elevated vacant homes
on market & prospect of
additional foreclosure
activity virtually
guarantees continued
price pressure. An
additional 2-2.5 million
homes are in “shadow
inventory” – owned by
banks & CUs but held off
market.
1,945
1,990
Total Vacant Housing Units For Sale
(Thousands)
• Overall, 2.9 million US
homes received
foreclosure filings in
2010 – up 2% compared
to 2009. This translates
to a record 2.3% of US
homes receiving
foreclosure filings in
2010 & that level is
expected to be littlechanged in 2011.
00
01
02
03
04
05
06
07
08
09
10
11
Consumer Confidence
150
12
125
10
100
8
75
6
50
•
25
•
The current 9.1% unemployment rate masks substantial underlying problems. While 14
million are now unemployed there are an additional 9 million underemployed (those
wanting but failing to find full-time employment) and roughly 1 million who have dropped
out of the labor force. The U-6 unemployment rate – adjusting the data for these
underemployed and drop-outs - is approximately 16% today.
4
2
Duration of unemployment is elevated and near modern-day highs. Over six million
have been unemployed for one-half year or more.
0
0
80 83 86 89 92 95 98 01 04 07 10
Source: Conf erence Board.
Household Debt
(As a Percent of Disposable Household Income)
140%
Recessions
120%
Mortgage Debt
Non-mortgage Debt
100%
80%
•
60%
•
40%
Household debt has declined markedly, in part due to
deleveraging (pay-downs) and in part due to defaults.
However, debt-to-income ratios remain elevated by
historical standards.
Near-record low interest rates and massive refinancings
have translated to lower debt payment burdens. This
means that even though debt-to-income ratios are
elevated, debt payment burdens are now very close to
all-time lows.
20%
0%
79Q1
88Q1
Source: FRB Flow of Funds -Consumer & Mortgage Debt.
97Q1
06Q1
Depository Institution Reserves
(Billions – Federal Reserve)
$1,800
$1.6 Trillion
$1,600
$1,400
$1,200
•
The Fed is “pushing on a string” and the economy is
in a classic liquidity trap. The banking system is
flooded with excess reserves. But consumers,
though more able to borrow today compared to the
recent past, reflect a strong unwillingness to do so.
•
Household net worth remains about $8 billion lower
than at the start of the downturn – indicating that
deleveraging and increases in savings will continue
to outpace growth in borrowing activity.
$1,000
$800
$600
Total
Required
Excess
$400
$41 Billion
$200
$0
Jan-90
Jan-93
Jan-96
Jan-99
Jan-02
Jan-05
Jan-08
Jan-11
Economic Outlook
Soft patch - very slow growth to follow
Inflation worries take a back seat
Unemployment will decline – but very slowly
Fed funds flat
Very little change in long rates
Economic Forecast
September, 2011
Actual Results
Quarterly Results/Forecasts
5Yr Avg 2010 2011:1 2011:2
2011:3
2011:4
Growth rates:
*Economic Growth (% chg GDP)
Inflation (% chg CPI)
Core Inflation (ex. food & energy)
Unemployment Rate
Fed Funds Rate
10-Year Treasury Rate
0.96%
2.10%
2.00%
6.80%
2.50%
3.91%
* Percent change, annual rate
All other numbers are averages for the period
2.80%
1.40%
0.60%
9.70%
0.18%
3.21%
0.40%
1.00%
1.50%
2.00%
2.00%
8.90%
0.18%
3.46%
1.70%
9.10%
0.10%
3.16%
1.50%
9.00%
0.10%
2.40%
1.25%
9.00%
0.10%
1.75%
Annual Forecasts
2011
2012
1.23%
2.50%
1.61%
9.00%
0.12%
2.69%
2.25%
1.50%
1.50%
8.75%
0.15%
2.00%
Net Worth Ratio Profile (%)
99.0
12.0
98.6
98.0
98.0
11.5
97.0
11.0
96.0
94.7
95.0
10.5
95.0
94.6
10.0
94.0
9.5
93.0
11.4
10.9
9.9
10.1
10.1
92.0
9.0
2007
2008
NW Ratio (right)
2009
2010
Jun 11
Percent of CUs > 7% (left)
CU Financial Results
Mid-Year 2011
Interest Income
- Interest Expense
= Net Interest Income
414
96
318
+ Fee/Other Income
- Operating Expense
- Loss Provisions
= Net Income
126
316
51
77
CUNA Updated Projections of FDIC and NCUA Assessments
For the Ten Years from 2012 to 2021, in basis points of insured shares
FDIC
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
TOTAL
AVERAGE
FDIC*
6.6
6.6
6.6
6.6
6.6
6.6
6.6
4.4
4.4
4.4
59.4
5.9
FICO**
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.0
0.0
6.4
0.6
NCUA
TOTAL
7.6
7.5
7.5
7.4
7.4
7.3
7.3
5.0
4.4
4.4
65.8
6.6
Corp
Stab.
8.5
9.8
9.4
8.9
8.5
0.0
0.0
0.0
0.0
0.0
45.2
4.5
NCUSIF
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Total
8.5
9.8
9.4
8.9
8.5
0.0
0.0
0.0
0.0
0.0
45.2
4.5
NCUAFDIC
0.9
2.3
1.9
1.5
1.1
-7.3
-7.3
-5.0
-4.4
-4.4
-20.6
-2.1
* These FDIC assessment rates are for banks in the lowest risk category, essentially those with a CAMELS rating of 1 or 2. A bank with a CAMELS rating of 3 would pay more than
double these rates.
** The FICO assessment is a temporary requirement to cover interest on the bonds issued to fund the FSLIC bailout in the early 1990s. The FICO rate is assumed to decay at the same
rate is has since 2006 until 2019 when the last of the FICO bonds will mature.
Credit Union Forecast
September, 2011
Actual Results
5Yr Avg 2010
Growth rates:
Savings growth
Loan growth
Asset growth
Membership growth
Quarterly Results/Forecasts
2011:1
2011:2
2011:3
2011:4
Annual Forecasts
2011
2012
6.3%
4.3%
5.9%
1.3%
4.5%
-1.5%
3.3%
0.7%
2.7%
-1.2%
2.7%
0.4%
0.7%
0.8%
0.7%
0.2%
0.5%
1.0%
0.5%
0.2%
0.6%
0.9%
0.6%
0.2%
5%
1%
5%
1.0%
5%
3%
5%
1.0%
Liquidity:
Loan-to-share ratio**
79.5%
72.2%
69.5%
69.5%
69.9%
70.0%
70.0%
68.7%
Asset quality:
Delinquency rate
Net chargeoff rate*
1.31%
0.83%
1.75%
1.14%
1.70%
1.00%
1.60%
0.90%
1.40%
0.90%
1.30%
0.80%
1.50%
0.90%
1.20%
0.80%
Earnings
Return on average assets (ROA)*
0.40%
0.39%
0.73%
0.79%
0.70%
0.70%
0.73%
0.75%
Capital adequacy:
Net worth ratio**
10.7%
10.1%
9.9%
10.1%
10.2%
10.3%
10.3%
10.5%
* Annualized Quarterly Data
**End of period ratio
See also our MCUE website
If you have any questions or comments send an email to [email protected]