Transcript CUNA Economic and CU Forecast

CUNA Economic and CU Forecast
January 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 2.55% in 2014 and 3.25% in 2015. The economic headwinds experienced over the
last five years that have shifted to tailwinds will keep the economy’s growth over 3.0% into 2015. More fully-engaged
consumers due to improved labor market and lower oil prices, stronger business investment spending, and rising home
prices will fuel growth. Deflation in Europe, recession in Japan, lower growth in China, economic challenges in Brazil and
Russia, and continued conflicts in the Middle East will continue to present obvious challenges.
•
Inflation will remain below the Federal Reserve’s target of 2.0% through 2015. Both headline and core inflation (excluding
food and energy prices) should stay near 1.5% in 2015 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 finished 2014 at 5.6%. Monthly job gains averaged 240,167 in the year and will remain at healthy
levels in the coming months. Full-year 2014 employment increased by over 2.9 million – the best showing since 1999. The
quality of the jobs being created is shifting from low-pay entry-level to higher-pay professional, manufacturing and
construction jobs. Continued momentum in 2015 should push unemployment below 5.0% by year-end.
•
The Federal Funds interest rate stayed 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. Net positive effect of falling oil prices, despite concerns of lower investment in oil exploration, will keep the
economy on track to close the output gap. 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 increase modestly in 2015. 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 flatten in 2015 as short-term interest rates rise faster than long-term interest rates. This will
begin to squeeze credit union’s 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
January 2015
Actual Results
5Yr Avg
2013
Quarterly Results/Forecasts
2014:1 A
2014:2 A
2014:3 A
2014:4
Annual Forecasts
2014
2015
Growth rates:
5.73%
2.55%
2.00%
2.00%
6.18%
3.25%
1.50%
1.50%
5.25%
0.10%
2.28%
2.18%
0.09%
2.54%
2.45%
0.25%
2.50%
Economic Growth (% chg GDP)*
Inflation (% chg CPI)
Core Inflation (ex. food & energy)
Unemployment Rate
1.18%
1.60%
1.64%
8.65%
2.22%
1.46%
1.76%
7.35%
-2.11%
4.59%
4.97%
2.75%
6.67%
6.23%
6.07%
Federal Funds Rate
10-Year Treasury Rate
10-Year-Fed Funds Spread
0.14%
2.54%
2.40%
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.
2.25%
CUNA Credit Union Forecast
•
Credit union savings balances are expected to grow 4.0% 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 3.0% 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 0.84% in 2014 but inch down to 0.80% in 2015. Rising asset yields – due to faster
loan growth and modestly higher market interest rates, may be overwhelmed by higher funding costs, squeezing 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
January 2015
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 A
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%
1.0%
-0.2%
3.3%
0.5%
1.0%
0.1%
3.4%
0.4%
1.1%
0.3%
2.8%
0.7%
0.4%
4.0%
10.7%
5.0%
3.5%
3.0%
11.0%
3.5%
3.0%
Liquidity:
Loan-to-share ratio**
71.5%
71.0%
69.3%
71.7%
74.1%
75.9%
75.9%
81.8%
Asset quality:
Delinquency rate
Net chargeoff rate*
1.47%
0.91%
1.10%
0.57%
0.81%
0.50%
0.85%
0.44%
0.85%
0.44%
0.75%
0.46%
0.82%
0.46%
0.70%
0.45%
Earnings
Return on average assets (ROA)*
0.52%
0.77%
0.78%
0.83%
0.85%
0.90%
0.84%
0.80%
Capital adequacy:
Net worth ratio**
10.3%
10.8%
10.4%
10.6%
10.8%
10.9%
10.9%
11.3%
* Annualized Quarterly Data. ** End of period ratio. Additional information and updates available on our MCUE website.