The Economy in the Year Ahead: Implications for Credit Unions

The Economy in the Year Ahead: Implications for

Credit UnionsPresentation to theUtah Credit Union

AssociationMarch 8, 2013

John D. Worth, Chief EconomistNational Credit Union Administration

Slower Growth in 2012

2The Economy in the Year Ahead

3.32.8

2.4 2.2

-3.3

0.0

2.4 2.0 1.6

-5.3

-0.3

1.4

4.0

2.3 2.22.6 2.4

0.1

2.5

1.3

4.1

2.01.3

3.1

0.1

-8

-6

-4

-2

0

2

4

6

1995-04 05 06 07 08 09 10 11 12 2009 2010 2011 2012

------ Q4/Q4 Growth ------

Source: Bureau of Economic Analysis

Growth in Real GDP, %

average Q4/Q4 growth 1995-2004

-- Quarterly Growth, Annual Rate --

Moderate Employment Gains


1

2

3

4

5

6

7

8

9

10

11

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

2007 2008 2009 2010 2011 2012 2013

Unemployment Rate and Change in Nonfarm Payrollsthousands percent

Unemployment Rate: Red Line (right axis)Change in nonfarm payrolls: Blue Bar (left axis)

Jan. unemployment rate 7.9%

Jan. payroll job gain 157K

Geography of Unemployment


ME

RIMA

VTNH

AL GA

SC

TN

FL

MSLA

TX

OKNM

KS

MN

IA

MO

AR

WY

CO

ND

SD

NE

WA

ID

MT

OR

NVUT

AZ

CA

WI

IL IN

MI

OH

KY

WVVA

NC

MDDE

PA

NY

CT

NJ

AK

HI

Under 5.8% 5.8% to 7.8% 7.9% to 9.8% Over 9.8%

Unemployment Rates, December 2012

Beaver

Box ElderCache

Carbon

DaggettDavis

Duchesne

Emery

Garfield

Grand

Iron

Juab

Kane

Millard

Morgan

Piute

Rich

Salt Lake

San Juan

Sanpete

Sevier

Summit

Tooele

UintahUtahWasatch

Washington

Wayne

Weber

Under 3.2 3.2 to 5.2 5.2 to 7.2 Over 7.2

UT County Unemployment Rates, %, December 2012

Utah Unemployment Rates

The Economy in the Year Ahead

U.S. and Utah Unemployment Rate


CU Performance and Unemployment


-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0

2

4

6

8

10

12

14

16

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Return on Average Assets & Unemployment Rate (Q4): 1990-2012Unemployment Rate, % CU Return on Average Assets, %

ROAA -- Blue BarsUnemployment Rate -- Red Line

CU Return on Average Assets, 2012Q4, percent


Geography of CU ROAA



-4

-2

0

2

4

6

8

10

12

14

16

18

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Aggregate Credit Union Loan Growth & U.S. Unemployment Ratepercent,1990-2012

CU Loan Growth (Q4/Q4) -- Blue BarsUnemployment Rate in Q4 -- Red Line

CU Loan Growth by State, 2011Q4 to 2012Q4, percent


Geography of CU Loan Growth



0.0

0.4

0.8

1.2

1.6

2.0

2.4

0

2

4

6

8

10

12

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Aggregate Credit Union Delinquencies, Percent of Loans & U.S. Unemployment Rate in Q4

1990-2012, percent

CU Delinquency Rate -- Blue Bars (Right Axis)Unemployment Rate -- Red Line (Left Axis)

CU Delinquency Rate by State, 2012Q4, percent


Geography of CU Loan Delinquency

Consumer Confidence Edging Up

13

20

30

40

50

60

70

80

90

05 06 07 08 09 10 11 12 13

Confidence Index, Jan 2000 = 100

Summary Consumer Confidence Index


Homebuilding Activity Trending Up


0

10

20

30

40

50

60

200

400

600

800

1000

1200

1400

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Single Family Starts Housing Market Index, (Index, SA)

Sources: Commerce Department, NAHB

Recent Housing Starts and Homebuilder Optimism(SAAR, Thousands) Percent

Left axis Right axis

Home Sales Moving Higher


0123456789

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Home Sales from January 2000 to January 2013millions, seasonally adjusted annual rate

Home Prices Rising


100

125

150

175

200

225

2005 2006 2007 2008 2009 2010 2011 2012

Case-Shiller Index (Jan 2000=100)

FHFA National Purchase Only (Jan 2000=100)

Notes: S&P/Case-Shiller® Home Price Index: 20-city composite (NSA) and Federal Housing Finance Agency Purchase-Only Home Price Index (SA).

Home Prices from January 2005

17

Geography of Home Prices – 2012


U.S. and Utah House Prices


Delinquency Picture is Improving


0

2

4

6

8

10

12

14

16

2005 2006 2007 2008 2009 2010 2011 2012 2013

In Foreclosure

90 Days

60 Days

30 Days

Mortgage Delinquencies and Foreclosures percent of loans

3.7% inforeclosure

7.1% at least 30

days DQ

Source: Mortgage Bankers Association



0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010 2011 2012

Past Due (30-90 days delinquent)

Seriously Delinquent (90+ and inforeclosure)

Mortgage Delinquency - All Loans, through 2012Q4percent of loans

Geography of Mortgage Delinquency


ME

RIMA

VTNH

AL GA

SC

TN

FL

MSLA

TX

OKNM

KS

MN

IA

MO

AR

WY

CO

ND

SD

NE

WA

ID

MT

OR

NVUT

AZ

CA

WI

ILIN

MI

OH

KY

WVVA

NC

MDDE

PA

NY

CT

NJ

AK

HI

Less than 4% 4% to 6% 6% to 8%

8% to 10% Over 10%

Total Mortgage Delinquency Rate, All Institutions, 2012Q4Loans delinquent for at least 30 days, but not in foreclosure,%



0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012

MBA All Loans

MBA PrimeLoansCU Share of LoanAmountsShare of CU LoanCounts

Mortgage Delinquency Rates:60 or more days delinquent or in foreclosure

percent

Inflation is Contained


-3

-2

-1

0

1

2

3

4

5

6

06 07 08 09 10 11 12 13

Consumer Prices: Overall and CorePercent rise from previous year

Overall(line)

Core(bars)

Slow Growth + Low Inflation = Low Interest Rates


4.85

5.82

3.39

1.60

1.011.37

3.15

4.734.35

1.36

0.15 0.14 0.05 0.090

1

2

3

4

5

6

7

1990-99 2000 01 02 03 04 05 06 07 08 09 10 11 12

Three-month Treasury Bill Rateannual average rate, percent

End of February 3-month rate: 0.11%

(red line)



0

2

4

6

8

10

12

14

16

18

55 60 65 70 75 80 85 90 95 00 05 10

Monthly Average 10-Year Treasury Note Ratepercent

February 2013: 1.98%July 2012 : 1.53%

(record low)



6.66

6.03

5.024.61

4.024.27 4.29

4.79 4.63

3.673.26 3.21

2.79

1.81

0

1

2

3

4

5

6

7

1990-99 2000 01 02 03 04 05 06 07 08 09 10 11 12

Ten Year Treasury Note Rateannual average rate, percent

End of February 10-year rate: 1.89%

Yield Curve Twisting: Maturity Spread Narrowing


1.81

0.21

1.63

3.01 3.002.90

1.14

0.070.28

2.30

3.11 3.08

2.73

1.76

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1990-99 2000 01 02 03 04 05 06 07 08 09 10 11 12

End of Februaryspread: 1.78%

Ten Year - Three Month Interest Rate Spreadaverage annual spread, percent

Yield Curve Still Relatively Steep


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

3 MO 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr

Feb-2013Dec-2007

Treasury Yield Curves, Average Monthly Ratespercent

Though Low, Rates are Still Volatile


0.00.51.01.52.02.53.03.54.04.5

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Volatility in the 10-Year Treasury Rate Since 2009

160 bps in 6

months

134 bps in 4

months

196 bps in 7 months

85 bps in 4

months

150 bps in 3

months

Credit Union Deposits Trending Toward More Interest Sensitivity


0

100

200

300

400

500

600

700

800

900

1000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Other Deposits(Money mkt, Share Certs, IRA/Keogh)

RegularShares

Share Drafts

Credit Union Deposits by Broad TypeBillions of $, Q4

Growth in Interest-Sensitive Deposits

31

Share drafts,15%

Regular shares, 34%

Money market shares, 37%

Share Certificates, 3% IRA-Keogh,

10%

All Other, 1%Composition of Deposit Growth Since 2006

Deposits up $277 billion

since 2006Q4 (46%)


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51

53

55

57

59

61

63

65

20

22

24

26

28

30

32

34

36

38

40 2

005q

120

05q2

2005

q320

05q4

2006

q120

06q2

2006

q320

06q4

2007

q120

07q2

2007

q320

07q4

2008

q120

08q2

2008

q320

08q4

2009

q120

09q2

2009

q320

09q4

2010

q120

10q2

2010

q320

10q4

2011

q120

11q2

2011

q320

11q4

Share of Deposits

Shar

e of

Loa

ns/A

sset

s

Credit Union Assets Increasingly Long and Fixed andDeposits Increasing Interest Sensitive

Fixed rate RE Share ofLoansLong Term Asset Share

Interest Sensitive Deposits(Right Axis)

Source: NCUA Call Reports.

Rate Environment


Outlook


Summary of Outlook


34

Consensus 2013 Outlook: More improvement, but still far from “normal.”

– Unemployment down.– Moderate consumer spending growth.– Home prices and sales up.– Inflation modest.– Interest rates up slightly.– Fed tapers off large scale asset purchases.

Rough Consensus Outlook


35

Rate in Q4 or Q4/Q4 GrowthRough

Consensus Percent 2012Q4 2013Q4Real GDP Growth 1.6 2.2Unemployment Rate 7.8 7.5House Price Growth 4.8 2.5Home Sales Growth 9.1 9.0CPI Inflation 1.9 2.23-month Treasury Bill Rate 0.1 0.210-year Treasury Note Rate 1.9 2.3

Credit Union Implications of Consensus

Slowly improving economy means environment facing credit unions will be modestly supportive.

Environment will be consistent with:

•Moderate growth in deposits and loans.

•Falling delinquency rates.

•Little change in net interest margins.

•Modest improvements in ROA and net worth ratios.


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0

10

20

30

40

50

60

70

80

90

100

Less than$10M

$10M to$50M

$50M to$100M

$100M to$250M

$250M + All AssetSizes

Share of Institutions with Emergency Liquidity: Post US Central Bridge Wind Down

Emergency LiquidityWITHOUT


Summary


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• Credit union performance in 2013 depends on general economic environment and credit union sector developments.

• Range of potential macro outcomes suggests noticeable impacts on credit unions.

• Only looked at general economic environment developments here.

• Ultimate 2013 outcomes may depend more on credit union sector developments.

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Some OCE information is available to the public and can be accessed through Credit Union Resources and Information section on the NCUA website: •State and City Economic Data – Historical house price growth and unemployment rates for the states and metro areas.

•NCUA Quarterly U.S. Map Review – Maps and analysis of credit union performance by state, with tables.

•YouTube Economic Updates – Monthly summary of relevant economic and credit union conditions.

Economic Information for the Public


http://www.ncua.gov/Resources/CUs/Pages/default.aspx

http://www.youtube.com/ncuachannel

Contact Us

40

John D. Worth, Chief [email protected]@NCUA.Gov


mailto:[email protected]

mailto:[email protected]

The Economy in the Year Ahead: Implications for Credit Unions

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