Transcript CUNA Economic and CU Forecast

CUNA Economic and CU Forecast
March 2015
For Additional Information Contact:
Perc Pineda
Senior Economist, Economics & Statistics
Credit Union National Association
Telephone: 608-231-4285 Facsimile: 608-231-4924
E-Mail: [email protected]
CUNA Economic Forecast
•
The U.S. economy is expected to grow 3.0% in 2015 and 3.25% in 2016. The momentum reflected in 2014 results will
continue through 2016 as higher employment, higher confidence of household and business sectors boost demand and
output. Lingering weaknesses in some countries in the Euro area and other external factors, such as slower growth in China
and Japan, will keep the U.S. dollar strong slowing exports and increasing demand for imports.
•
Inflation will remain at or below the Federal Reserve’s target of 2.0% through 2016. Headline and core inflation
(excluding food and energy prices) will stay near 1.25% and 1.75%, respectively in 2015, as the economy continues to
expand against the backdrop of low oil prices. An uptick in inflation is in the offing for 2016 as the economy inches toward
full employment fuelling both overall spending and wage pressures.
•
The unemployment rate will finish 2015 at 5.0% (averaging 5.25%) and should settle at 4.8% by year-end 2016. Monthly
job gains will continue to move the unemployment rate lower and concerns of labor underutilization will dissipate in
months ahead. Importantly, the quality of jobs being created continues to shift from low-paying entry-level to high-paying
professional, manufacturing and construction jobs. Re-entry of discouraged workers into the job market will mean
unemployment rate declines won’t be as dramatic as those in the recent past, though overall job growth should be strong.
•
The Federal Funds interest rate is likely to increase at the June FOMC meeting and finish 2015 at 1.0%. Another one
percentage point increase is likely in 2016 as the economy moves toward full-employment and inflation expectations
mount. The Federal Reserve will act in a gradual and measured pace, avoiding jolt in markets that have already strategized
responses to an interest rate hike.
•
The 10-year Treasury interest rate will continue to increase modestly in 2015 and into 2016. The Federal Reserve’s QE
program has ended putting upward pressure on long rates. However, geopolitical uncertainty will continue to
counterbalance some of this effect.
•
The Treasury yield curve will flatten in both 2015 and 2016 as short-term interest rates rise faster than long-term interest
rates. This will begin to squeeze credit union net interest margins as borrowing short term and lending long term becomes
less lucrative. Still, credit union yields on assets will rise in 2015 due to rising interest rates and faster loan growth.
CUNA Economic Forecast
March 2015
Actual Results
5Yr Avg
2014
2015:1
Quarterly Results/Forecasts
2015:2
2015:3
2015:4
Annual Forecasts
2015
2016
Growth rates:
5.10%
3.00%
1.25%
1.75%
5.25%
3.25%
2.00%
2.00%
4.90%
0.75%
2.75%
2.00%
0.32%
2.50%
2.18%
1.50%
3.25%
Economic Growth (% chg GDP)*
Inflation (% chg CPI)
Core Inflation (ex. food & energy)
Unemployment Rate
2.20%
1.99%
1.65%
8.04%
2.40%
1.61%
1.75%
6.20%
2.00%
4.00%
3.00%
3.00%
5.40%
5.30%
5.20%
Federal Funds Rate
10-Year Treasury Rate
10-Year-Fed Funds Spread
0.12%
2.54%
2.42%
0.09%
2.54%
2.45%
0.10%
2.25%
2.15%
0.13%
2.50%
2.37%
0.30%
2.50%
2.20%
.
* Percent change, annual rate. All other numbers are averages for the period.
1.75%
CUNA Credit Union Forecast
•
Credit union savings balances are expected to grow 4.0% in 2015 and 3.0% in 2016. Saving growth will slow to 4.0% in
2015 as the Federal Reserve begins raising short-term interest rates. Those increases will cause some members to transfer
funds to MMMFs. Membership will continue to grow quickly. Overall memberships should increase by 3.0% in both 2015
and 2016 which will help buoy savings growth all else equal.
•
Credit union loan balances are expected to rise 11.0% in 2015 and by 10.0% in 2016. Loan growth will be 11.0%,
surpassing the impressive loan growth in 2014. Expect households to continue to release pent up demand for autos,
furniture and appliances over the next two years. New auto loans, credit card loans and purchase mortgage loans will be
strong growth areas.
•
Credit quality will improve modestly in 2015 and 2016. An improving job market and fast loan growth (the denominator of
the loan quality ratios) will push delinquencies down from 0.85% at the start of 2015 to an average of 0.75% in 2016. Net
charge-offs will likewise decline from 0.49% in 2014 to an average of 0.45% in 2015 and 2016.
•
Credit union return on assets will stay at 0.80% in 2015 and 2016. Net interest margins will stabilize as the benefits of
faster loan growth is offset by higher funding costs due to higher market interest rates. Interest margin pressures will
become more obvious in 2016. Lower loss provisions and (initially) lower operating expenses (due to lower expenses in
mortgage operations) are both likely to help boost results. Loan origination fees should stay at healthy levels, but lower
unemployment will put downward pressure on some sources of fee income (e.g., late fees and NSF fees). Also, the CFPB’s
expected focus on checking/ODP in 2015 puts a big income stream at risk, and issues with overdraft revenue could prove
challenging.
•
Capital-to-asset ratios will rise to 11.0% in 2015. Strong earnings will mean that capital growth will outpace asset growth
over the next two years, increasing the capital-to-asset ratio. Credit union capital ratios will reach a record high of 11.2% in
2016, surpassing the previous record high last seen in 2005.
CUNA Credit Union Forecast
March 2015
Actual Results
5Yr Avg
2014
Growth rates:
Savings growth
Loan growth
Asset growth
Membership growth
Quarterly Results/Forecasts
2015:1
2015:2
2015:3
2015:4
Annual Forecasts
2015
2016
4.8%
4.5%
4.8%
2.0%
4.5%
10.4%
5.7%
3.1%
1.2%
1.8%
1.5%
0.7%
1.2%
3.0%
1.3%
0.7%
0.8%
3.3%
1.2%
0.8%
0.8%
3.0%
1.0%
0.8%
4.0%
11.0%
5.0%
3.0%
3.0%
10.0%
4.0%
3.0%
Liquidity:
Loan-to-share ratio**
71.3%
75.1%
75.5%
76.9%
78.7%
80.4%
80.4%
85.9%
Asset quality:
Delinquency rate
Net charge-off rate*
1.27%
0.77%
0.85%
0.49%
0.83%
0.48%
0.80%
0.45%
0.78%
0.44%
0.78%
0.44%
0.80%
0.45%
0.75%
0.45%
Earnings
Return on average assets (ROA)*
0.72%
0.80%
0.80%
0.80%
0.80%
0.80%
0.80%
0.80%
Capital adequacy:
Net worth ratio**
10.5%
11.0%
10.6%
10.7%
10.8%
10.9%
10.9%
11.2%
* Annualized Quarterly Data. ** End of period ratio. Additional information and updates available on our MCUE website.