Transcript CUNA Credit Union Forecast

CUNA Economic and CU Forecast
Mid-year 2014 through 2015 • October 2014
For Additional Information Contact:
Mike Schenk
Vice President, Economics & Statistics
Credit Union National Association
Telephone: 608-231-4228 Facsimile: 608-231-4924
E-Mail: [email protected]
CUNA Economic Forecast
•
The U.S. economy is expected to grow 2.3% in 2014 and 3.3% in 2015. The economic headwinds experienced over the last
five years have shifted to tailwinds which will keep the economy’s growth over 3.0% in the second half of 2014 and into
2015. More fully-engaged consumers, higher housing construction, rising home prices, robust auto sales, stronger business
investment spending and a booming energy sector will combine to drive growth. A weak Eurozone, economic challenges in
China and conflicts in the Middle East and Ukraine will present obvious challenges.
•
Inflation will remain near the Federal Reserve’s target of 2.0% for the remainder of 2014 and into 2015. Core inflation
(excluding food and energy prices) should stay near 2.0% in 2014 as the output gap closes and capacity utilization rates rise.
Low core inflation will keep inflation expectations low and therefore also keep long-term interest rates low.
•
The unemployment rate will finish 2014 below 6.0%. Monthly job gains have averaged 227,000 through September 2014
and will remain at healthy levels in the coming months. The quality of the jobs being created is shifting from low-pay entrylevel to higher-pay professional, manufacturing and construction jobs. Continued momentum in 2015 should push
unemployment below 5.5% by year-end.
•
The Federal Funds interest rate will stay in the 0.00%-0.25% range through 2014 with the economy operating below
potential. The U.S. economy is currently producing a level of output of goods and services 5% below its potential level of
output. The Federal Reserve will wait until the economy closes that gap before any big shift in monetary policy.
•
The 10-year Treasury interest rate will stay below 3% in 2014. The Federal Reserve’s QE program (monthly purchases of
Treasury bonds and MBSs) recently ended. All else equal, this will cause bond investors’ demand for longer-term bonds to
decline, resulting in upward pressure on long rates – but geopolitical uncertainty will counterbalance some of this effect.
•
The Treasury yield curve will steepen in 2014 as long-term interest rates rise faster than short-term interest rates. This
will increase credit union’s net interest margins as borrowing short term and lending long term becomes more lucrative.
Credit union yields on assets will rise in 2014 (reversing a 6 year decline) due to rising interest rates and faster loan growth.
CUNA Economic Forecast
September, 2014
Actual Results
5Yr Avg
2013
Quarterly Results/Forecasts
2014:1 A
2014:2 A
2014:3
2014:4
Annual Forecasts
2014
2015
Growth rates:
6.00%
2.31%
2.00%
2.00%
6.24%
3.25%
2.00%
2.00%
5.70%
0.10%
2.75%
2.65%
0.09%
2.66%
2.57%
0.75%
3.40%
Economic Growth (% chg GDP)*
Inflation (% chg CPI)
Core Inflation (ex. food & energy)
Unemployment Rate
1.24%
1.60%
1.64%
8.65%
1.90%
1.46%
1.76%
7.35%
-2.10%
4.60%
3.50%
3.25%
6.67%
6.23%
6.07%
Federal Funds Rate
10-Year Treasury Rate
10-Year-Fed Funds Spread
0.14%
2.68%
2.54%
0.11%
2.35%
2.24%
0.07%
2.76%
2.69%
0.09%
2.62%
2.53%
0.09%
2.50%
2.41%
.
* Percent change, annual rate. All other numbers are averages for the period.
2.65%
CUNA Credit Union Forecast
•
Credit union savings balances are expected to grow 3.5% in 2014 and 3.0% in 2015. Saving growth will slow to 3.0% in
2015 as the Federal Reserve begins raising short-term interest rates. Those increases will cause some members to transfer
funds to MMMFs. Nevertheless, memberships will continue to grow quickly. Overall expect a 2.25% increase (more than
twice as fast as the 1% growth in population ) which will help buoy savings growth all else equal.
•
Credit union loan balances are expected to rise 10.6% in 2014 and 11.0% in 2015. Loan growth of 10.6% will be the fastest
since the 11.0% increase in 2005. 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 in 2014 and 2015. The overall loan delinquency rate will fall below 0.70% in 2015, below the
long-run average of 0.75%, as job growth continues. Fast loan growth also will put downward pressure on both
delinquencies and losses. Provisions for loan losses as a percent of assets will fall to 0.22% in 2014 and will change little in
2015.
•
Credit union return on assets will rise to 0.85% in 2014 and to 0.95% in 2015. Rising asset yields – due to faster loan
growth and modestly higher market interest rates - will increase net interest margins. Lower loss provisions and (initially)
lower operating expenses (due to lower expenses in mortgage operations) also will help. The CFPB’s expected focus on
checking/ODP in 2015 puts a big income stream at risk, and continuing issues with overdraft revenue could prove
challenging.
•
Capital-to-asset ratios will rise to 11.0% in 2014. Stronger 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
11.5% in 2015, equaling the previous record high last seen in 2006.
CUNA Credit Union Forecast
September, 2014
Actual Results
5Yr Avg
2013
Growth rates:
Savings growth
Loan growth
Asset growth
Membership growth
Quarterly Results/Forecasts
2014:1 A
2014:2 A
2014:3
2014:4
Annual Forecasts
2014
2015
5.9%
2.7%
5.4%
1.6%
3.6%
7.3%
3.9%
2.5%
3.8%
1.3%
3.4%
0.9%
-0.2%
3.3%
0.5%
0.9%
-0.4%
3.3%
-0.2%
0.4%
0.3%
2.8%
0.7%
0.2%
3.5%
10.6%
4.4%
2.4%
3.0%
11.0%
3.5%
2.3%
Liquidity:
Loan-to-share ratio**
71.5%
71.0%
69.3%
71.7%
74.3%
76.2%
76.2%
82.1%
Asset quality:
Delinquency rate
Net chargeoff rate*
1.47%
0.91%
1.10%
0.57%
0.81%
0.50%
0.80%
0.44%
0.80%
0.44%
0.75%
0.46%
0.79%
0.46%
0.70%
0.45%
Earnings
Return on average assets (ROA)*
0.52%
0.77%
0.77%
0.83%
0.88%
0.90%
0.85%
0.95%
Capital adequacy:
Net worth ratio**
10.3%
10.8%
10.4%
10.6%
10.8%
11.0%
11.0%
11.5%
* Annualized Quarterly Data. ** End of period ratio. Additional information and updates available on our MCUE website.