The Economy and Credit Unions LSCU Leadership Development Conference November 9, 2012 Bill Hampel, Chief Economist Credit Union National Association
bhampel@cuna.coop
Economic Summary • We’ve survived the Great Recession – Worst since the Great Depression, but not nearly as severe.
• Tremendous regional variation. • A “growth” recovery began in mid-2009. • Prospects improving for a sustained but still modest recovery. But, • Major external and political risks.
1
Gross Domestic Product Quarterly Changes at Annual Rates, Real 10 8
2012, 2013 Forecasts
6 4 2 0 -2
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
-4 -6 -8 -10
2001 Recession
Great Recession Of 2008 - 2009
Gross Domestic Product Quarterly Changes at Annual Rates, Real 10 8
2012, 2013 Forecasts
6 4 2 0 -2
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
-4 -6 -8 -10
2001 Recession
Great Recession Of 2008 - 2009
2
Real GDP Since 1978
Real GDP Since 1995
3
Household Finances • Recovering: – Saving positive again – Debt burden falling – Stock market largely recovered
• But still room for further improvement: – Debt burden still high – Home prices bottomed, but still low • Improving ability to spend, but not yet willingness • Some demand backlogs building
Household Saving Rate Three Month Moving Average 14.0 12.0 10.0 8.0 6.0 4.0
0.0
1980 1981 1982 1984 1985 1986 1988 1989 1990 1992 1993 1994 1996 1997 1998 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012
2.0
4
Household Debt Outstanding To Annual Disposable Income
140%
123%
120% 100%
103%
80% 60%
Mortgage
40% 20%
Consumer
0%
US Home Prices S&P/Case-Schiller National Index 250
Index
191
200
150
100
Trend 1987 to 2000
133
137
131
101
50
0 00:1 01:1 02:1 03:1 04:1 05:1 06:1 07:1 08:1 9:01 10:01 11:01 12:01
5
20
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
1980 1981 1982 1984 1985 1986 1988 1989 1990 1992 1993 1994 1996 1997 1998 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012
S&P 500
Monthly Averages
1600
1400
1200
1000
800
600
400
200
0
Annual Light Vehicle Sales
Millions
20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
6
Annual Light Vehicle Sales Millions
Annual Light Vehicle Sales Millions
7
Non-Farm Payrolls Monthly Changes SA 600 400 200 0 -200 -400 -600 -800 -1000
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Non-Farm Payrolls Monthly Changes SA 600 400
8.8 million jobs lost
200 0 -200 -400
4.4 million recovered
-600 -800 -1000
06
07
08
09
10
11
12
8
Unemployment Rates and Recessions Percent of the Labor Force 20
Broadest Measure 14.6% Down from 17.4%, Oct 2009
18 16 14 12 10 8 6 4
Narrow Measure 7.9% Down from 10.1%
2 0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Consumer Price Inflation 1970 to Present, Annual Rates 14
13.3 12.5
12.3
12 10
9
8.7
8
6.9
8.9
12 Mths to Sep (Core Rate = 2%)
6.7 6.1
6 4 2 0
5.6 4.9 3.3 3.4
4.4 4.4
3.8 3.8 4 3.8
4.7 4.1 3.4 3.5
3.4
3.3 3.1 2.9 2.7 2.7 2.5
2.6 1.7 1.6
1.6
3
2.8
2.5
2.4
2
1.9 1.4
1.1
‐0.1
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 00 Sep ‐2
9
Consumer Confidence Conference Board 120 100 80 60 40 20 0 05
06
07
08
09
10
11
12
Consumer Confidence Conference Board 150 130 110 90 70 50 30 10 -10 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2
10
Interest Rates 12
1988 to Present
10
8
Latest: October
6
4
2
0 88
90
92
94
96
98
00
Fed Funds
02
04
06
08
10
12
10-yr Treas
Treasury Yield Curves 6 5 4 3 2 1 0 3 mth 1 Yr
3 Yrs Nov 06
5 Yrs April 10
7 Yrs
9 Yrs
10 Yrs
Sep 12
11
Queen Elizabeth the Third • Open ended MBS purchases of $40 bil/mth • Until unemployment improves “substantially” • Near zero Fed Funds rate “likely to be warranted at least through mid-2015” • Liquidity trap: you can’t push on a string • Possible wealth effects • Announcement of resolve to react to shocks
Positives for Growth: • • • • • •
Housing finally recovering Consumer financial condition improving Pent-up demand for consumer durables Businesses flush with cash Business investment backlogs Low interest rates, and ample credit supply
12
Negatives for Growth: • Households not fully recovered • Fiscal stimulus turning to contraction • Slower export growth: – Continuing and deepening recession in Europe – Slowing emerging economies – Rising value of the dollar
• Consumer and business nervousness about risks
Major Risks to the Economic Outlook MATTERS OF DEGREE: • European recession deeper than expected. • Emerging markets slow more than expected. MAJOR EVENTS: • Financial crisis in the Eurozone, breakup of the Euro currency. • Going off the Fiscal Cliff: tax increases and spending cuts totaling 4% of GDP.
13
The Fiscal Cliff: 4% of GDP • Expiring Bush era tax cuts • Expiring payroll tax cuts • Sequestration from last year’s debt ceiling impasse. • AMT • Extended unemployment benefits • “Doc fix” and ACA tax increases • DEBT CELING AGAIN EARLY IN 2013
Fiscal Cliff • Two Possible Paths: – Orderly extension in lame duck session of Congress or – Gridlock until financial markets force action
• Two Possible Outcomes: – Delay most of the changes, enact medium and longterm entitlement and tax changes or – Simply delay most of the changes, postponing the fiscal cliff and the solutions
14
Credit Union Loan Growth 30
Annual Percent Change
25 20 15 10 4
5
5
0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 13F -5 -10
Credit Union Delinquency Dollars Delinquent as Percent of Total Portfolio 3
2.5
2
1.5
1
0.5
12F 13F
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 12
0
15
Various Loan Delinquency Rates
5.0% 4.5% 4.0%
2006 2.8% 2007 2008 2009 2010 2011 2012 II
3.5% 3.0% 2.5% 2.0% 1.2% 1.0%
1.5% 1.0%
0.9% 1.0%
0.7% 0.5%
0.7%
0.5% 0.0% Overall
3.5%
Credit Cards
Indirect Auto
MBLs
Mortgage Delinquency Rates
3.0% 2.5%
2.2%
2.0% 1.5%
1.5%
1.5%
1.3%
1.0%
1.0% 0.3%
0.3%
0.5% 0.3%
0.4%
0.3%
0.0% Total Mtg 2006
FR Firsts 2007
2008
ARM Firsts 2009
2010
Fixed Secs 2011
Home Equtiy
2012 II
16
Net Loan Charge-0ffs Total Portfolio
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2
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 12 12F 13F
0
Net Charge-Offs by Loan Type 5.0% 4.5% 4.0% 3.5% 3.0% 2.4%
2.5% 1.7%
2.0% 1.5%
1.0%
1.0% 0.5%
0.8% 0.5%
0.4% 0.2%
0.0%
0.0% Overall 2007
Credit Card
Firsts
2008
2010
2009
0.2%
Seconds 2011
0.8%
MBLs
2012 II
17
Credit Union Savings Growth 25
Annualized Percent Change
20
15 10
10
6 5
5
0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 13F
Credit Union Net Income 160
To Average Assets
140 120 100 80 60 40 20 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 13F -20
18
What’s Driving Earnings? POSITIVES: • Lower provision expenses • Gains on sales on mortgages • Lower stabilization assessments NEGATIVE: • Net Interest Income
14
Net Capital to Assets
12 10 8 6 4 2
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 00 11 12 12F 13F
0
U.S.
SE Cus
PCA Well Cap'd
PCA Adequate
19
Corporate Stabilization Update • • • •
Total Projected Losses: $11.6 to $14.5 bil Depleted corp capital: $5.6 billion Assessments so far: $4.1 billion Remaining Projected Assessments: $1.9 to $4.8 billion
• Midpoint:
$3.4 billion
Corporate Stabilization Assessments Basis Points of Insured Shares 30 25.1
25
20
ACTUALS
15
13.4
CUNA PROJECTIONS Based on: • $3.4 billion midpoint (could be higher or lower!) • NCUA desire to finish the job sooner rather than later • Straight-line assessments in bp of insured shares
9.5
10
5
7.0
7.0
7.0
7.0
7.0
2013
2014
2015
2106
2017
4.0
0 2009
2010
2011
2012
20