1 / 45

Utah Credit Union Association 2011 Volunteer Conference Friday, October 21, 2011

Utah Credit Union Association 2011 Volunteer Conference Friday, October 21, 2011 The Economy and Credit Union Operations Mike Schenk Vice President, Economics & Statistics Credit Union National Association Telephone: 608-231-4228 Facsimile: 608-231-4924 E-Mail: mschenk@cuna.com.

Download Presentation

Utah Credit Union Association 2011 Volunteer Conference Friday, October 21, 2011

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Utah Credit Union Association 2011 Volunteer Conference Friday, October 21, 2011 The Economy and Credit Union Operations Mike Schenk Vice President, Economics & Statistics Credit Union National Association Telephone: 608-231-4228 Facsimile: 608-231-4924 E-Mail: mschenk@cuna.com

  2. I was with Bank of America for 8 years. That's a quarter of my lifetime. Do you know how long 8 years is to a 32-year-old person? I was with Bank of America since April 2004. I've had 5 different boyfriends since then. I've lived in 4 different apartments in 3 different neighborhoods in 2 different boroughs. I've driven 3 different cars, had 3 different computers, and 2 different cell phone plans. I'm not proud to admit this but my relationship with Bank of America was one of the longest, most stable, and most satisfying relationships I've ever had.

  3. I was with Bank of America for 8 years. That's a quarter of my lifetime. Do you know how long 8 years is to a 32-year-old person? I was with Bank of America since April 2004. I've had 5 different boyfriends since then. I've lived in 4 different apartments in 3 different neighborhoods in 2 different boroughs. I've driven 3 different cars, had 3 different computers, and 2 different cell phone plans. I'm not proud to admit this but my relationship with Bank of America was one of the longest, most stable, and most satisfying relationships I've ever had. But I basically said to Bank of America, "I'm not paying $5 a month for debit card usage. So you have a choice. You can either not get my $5 a month and keep my money or not get my $5 a month and lose my money." And their choice was not to have me as a customer. Martha Flumenbaum Huffington Post October 12, 2011

  4. Where do we go from here? • “Normal” recovery? • Sustainable but very slow recovery? • Double-dip recession? • Depression?

  5. Where do we go from here? • “Normal” recovery? • Sustainable but very slow recovery? • Double-dip recession? • Depression? 48%

  6. Market Interest Rates 1960 to 2011 • Gobs of stimulus • Q: What causes recessions? A: Historically recessions have been caused by Fed action to slow a fast-growing economy. The resulting inverted yield curves foretell downturns with a high degree of accuracy. In modern times the US economy has not gone into recession with an accommodative Fed (i.e., a steeply-sloped yield curve.) • 4.6% drop in installment credit in August but prior to that ten consecutive months of increases. YOY growth in August was 2% & five consecutive months of YOY increases.

  7. Gross Domestic ProductPercent Changes - $2005. Source: BEA • LT average ~3%; Max. sustainable ~ 3.5%. Recession: two consecutive quarters of contraction. • Obvious 1st quarter soft patch related to Japan, Arab Spring, bad weather, but a marginal increase in 2nd quarter & clear indications of more growth in the 2nd half. • Index of Leading Economic Indicators increased 0.3% in September to 116.4 (2004=100) – pointing to an expanding economy in the coming months.

  8. Gross Domestic ProductPercent Changes - $2005. Source: BEA • LT average ~3%; Max. sustainable ~ 3.5%. Recession: two consecutive quarters of contraction. • Obvious 1st quarter soft patch related to Japan, Arab Spring, bad weather, but a marginal increase in 2nd quarter & clear indications of more growth in the 2nd half. • Index of Leading Economic Indicators increased 0.3% in September to 116.4 (2004=100) – pointing to an expanding economy in the coming months. Goal = 3.0% to 3.5%

  9. Monthly increases in 14 of past 15 months • Stock market = 3% weight • Stocks are a lousy predictor of economic activity

  10. US Employment ChangesThousands - Source: BLS • Non-farm jobs +107,000 in September. Private sector jobs +137,000 in the month (19th consecutive monthly increase). • New claims for unemployment insurance decreased to 403,000 in the week of Oct. 14th (below the April high of nearly 480,000 but claims above 400,000 are not consistent with labor market recovery) • Average hours worked up 0.3% compared to last year. Average hourly earnings (cash earnings excluding fringe benefits) were up 1.9% (annualized) in Sept. & are up 2.0% vs. year-ago.

  11. Retail Sales GrowthSource: BEA • Monthly gains in 19 of past 22 months. • YOY gains in 23 consecutive months. • Prospect of more growth as auto dealers build inventories – a “virtuous cycle” but confidence is key. • Although affordability is high, pending home sales fell in July & new home sales have declined for three consecutive months. Sales stimulate demand for other goods & services.

  12. US Unleaded Gasoline PricesSource: Oil Price Information Service • Gasoline + 28% in wake of Arab Spring (Jan to May) but down 13% (51 cents) from late-April peak. Rule of thumb: each 1 cent decrease in price puts $1 billion in consumer’s pockets. • WTI crude increased 27% from year-end 2010 to 4/29/11 but has declined by 25% since – now at $86. Rule of thumb (Energy Information Agency): sustained 10% increase = 0.05% to 0.1% decline in GDP. • Recent oil price declines, conclusion of summer driving season and generally soft demand signal additional price declines. Futures markets confirm this view.

  13. US Unleaded Gasoline PricesSource: Oil Price Information Service • Gasoline + 28% in wake of Arab Spring (Jan to May) but down 13% (51 cents) from late-April peak. Rule of thumb: each 1 cent decrease in price puts $1 billion in consumer’s pockets. • WTI crude increased 27% from year-end 2010 to 4/29/11 but has declined by 25% since – now at $86. Rule of thumb (Energy Information Agency): sustained 10% increase = 0.05% to 0.1% decline in GDP. • Recent oil price declines, conclusion of summer driving season and generally soft demand signal additional price declines. Futures markets confirm this view. 50 cent decrease= $50 billion

  14. US Unleaded Gasoline PricesSource: Oil Price Information Service • Gasoline + 28% in wake of Arab Spring (Jan to May) but down 13% (51 cents) from late-April peak. Rule of thumb: each 1 cent decrease in price puts $1 billion in consumer’s pockets. • WTI crude increased 27% from year-end 2010 to 4/29/11 but has declined by 25% since – now at $86. Rule of thumb (Energy Information Agency): sustained 10% increase = 0.05% to 0.1% decline in GDP. • Recent oil price declines, conclusion of summer driving season and generally soft demand signal additional price declines. Futures markets confirm this view. 50 cent decrease= $50 billion 113 million households

  15. US Unleaded Gasoline PricesSource: Oil Price Information Service • Gasoline + 28% in wake of Arab Spring (Jan to May) but down 13% (51 cents) from late-April peak. Rule of thumb: each 1 cent decrease in price puts $1 billion in consumer’s pockets. • WTI crude increased 27% from year-end 2010 to 4/29/11 but has declined by 25% since – now at $86. Rule of thumb (Energy Information Agency): sustained 10% increase = 0.05% to 0.1% decline in GDP. • Recent oil price declines, conclusion of summer driving season and generally soft demand signal additional price declines. Futures markets confirm this view. 50 cent decrease= $50 billion 113 million households $50 billion/113 million = $442

  16. US Unleaded Gasoline PricesSource: Oil Price Information Service • Gasoline + 28% in wake of Arab Spring (Jan to May) but down 13% (51 cents) from late-April peak. Rule of thumb: each 1 cent decrease in price puts $1 billion in consumer’s pockets. • WTI crude increased 27% from year-end 2010 to 4/29/11 but has declined by 25% since – now at $86. Rule of thumb (Energy Information Agency): sustained 10% increase = 0.05% to 0.1% decline in GDP. • Recent oil price declines, conclusion of summer driving season and generally soft demand signal additional price declines. Futures markets confirm this view. 25% decline if sustained should add 0.125% to .250% to GDP

  17. Growth in Corporate ProfitsPercent Changes - Source: BEA • 10 consecutive quarterly increases; 8 consecutive YOY increases. • Revenues up an average of 9%. Revenues outpaced nominal GDP growth in each of the past 7 qtrs. All ten S&P 500 sectors recorded revenue growth. • Corporate balance sheets are strong – big cash reserves – poised to respond to any obvious uptick in consumer demand.

  18. Business Investment in Equipment & SoftwarePercent Changes - Source: BEA • 8 consecutive quarterly increases; 6 consecutive YOY increases. • Accounted for 40% of GDP growth in past year – 32% in Q2. • Good near-term indicator of productivity growth trends. Remember: GDP growth = labor force growth + productivity growth.) • Fairly good longer-term indicator of labor force growth.

  19. ISM Purchasing Managers IndexSource: ISM • Readings above 50 represent expansion in manufacturing - 26 consecutive months of expansion • The current reading (51.6) is consistent with an economy that is expanding at a 3.2% pace according to the ISM. • 12 of 18 manufacturing sectors report growth with consistent reports of high demand for export goods.

  20. US ExportsPercent Changes - Source: BEA • 8 consecutive quarterly increases; 6 consecutive YOY increases. • Accounted for nearly two-thirds of GDP growth in past year & in Q2. • Dollar has fallen • Strong exports fueling strong manufacturing sector.

  21. Big Positives The sky IS NOT falling Policy is extremely accommodative Marginally higher incomes & spending Few inflation pressures Strong investment & business spending Strong exports

  22. Big Negatives Housing Labor markets Austerity Uncertainty

  23. Overall, 2.9 million US homes received foreclosure filings in 2010 – up 2% compared to 2009. This translates to a record 2.3% of US homes receiving foreclosure filings in 2010 & that level is expected to be little-changed in 2011. • Elevated vacant homes on market & prospect of additional foreclosure activity virtually guarantees continued price pressure. An additional 2-2.5 million homes are in “shadow inventory” – owned by banks & CUs but held off market.

  24. Overall, 2.9 million US homes received foreclosure filings in 2010 – up 2% compared to 2009. This translates to a record 2.3% of US homes receiving foreclosure filings in 2010 & that level is expected to be little-changed in 2011. • Elevated vacant homes on market & prospect of additional foreclosure activity virtually guarantees continued price pressure. An additional 2-2.5 million homes are in “shadow inventory” – owned by banks & CUs but held off market. Peak-to-Current Home Price Declines:

  25. Overall, 2.9 million US homes received foreclosure filings in 2010 – up 2% compared to 2009. This translates to a record 2.3% of US homes receiving foreclosure filings in 2010 & that level is expected to be little-changed in 2011. • Elevated vacant homes on market & prospect of additional foreclosure activity virtually guarantees continued price pressure. An additional 2-2.5 million homes are in “shadow inventory” – owned by banks & CUs but held off market. Peak-to-Current Home Price Declines: United States: -17%

  26. Overall, 2.9 million US homes received foreclosure filings in 2010 – up 2% compared to 2009. This translates to a record 2.3% of US homes receiving foreclosure filings in 2010 & that level is expected to be little-changed in 2011. • Elevated vacant homes on market & prospect of additional foreclosure activity virtually guarantees continued price pressure. An additional 2-2.5 million homes are in “shadow inventory” – owned by banks & CUs but held off market. Peak-to-Current Home Price Declines: United States: -17% Utah: -26%

  27. The current 9.1% unemployment rate masks substantial underlying problems. While 14 million are now unemployed there are an additional 9 million underemployed (those wanting but failing to find full-time employment) and roughly 1 million who have dropped out of the labor force. The U-6 unemployment rate – adjusting the data for these underemployed and drop-outs - is approximately 16% today. • Duration of unemployment is elevated and near modern-day highs. Over six million have been unemployed for one-half year or more.

  28. Goal = 5.0% to 6.0% Sept: 9.1 • The current 9.1% unemployment rate masks substantial underlying problems. While 14 million are now unemployed there are an additional 9 million underemployed (those wanting but failing to find full-time employment) and roughly 1 million who have dropped out of the labor force. The U-6 unemployment rate – adjusting the data for these underemployed and drop-outs - is approximately 16% today. • Duration of unemployment is elevated and near modern-day highs. Over six million have been unemployed for one-half year or more.

  29. Goal = 5.0% to 6.0% Sept: 9.1 • The current 9.1% unemployment rate masks substantial underlying problems. While 14 million are now unemployed there are an additional 9 million underemployed (those wanting but failing to find full-time employment) and roughly 1 million who have dropped out of the labor force. The U-6 unemployment rate – adjusting the data for these underemployed and drop-outs - is approximately 16% today. • Duration of unemployment is elevated and near modern-day highs. Over six million have been unemployed for one-half year or more. Sept: 45.4

  30. Goal = 5.0% to 6.0% Sept: 9.1% Utah Sept 10: 7.6%/Sep 11: 7.4% • The current 9.1% unemployment rate masks substantial underlying problems. While 14 million are now unemployed there are an additional 9 million underemployed (those wanting but failing to find full-time employment) and roughly 1 million who have dropped out of the labor force. The U-6 unemployment rate – adjusting the data for these underemployed and drop-outs - is approximately 16% today. • Duration of unemployment is elevated and near modern-day highs. Over six million have been unemployed for one-half year or more. Sept: 45.4

  31. Household debt has declined markedly, in part due to deleveraging (pay-downs) and in part due to defaults. However, debt-to-income ratios remain elevated by historical standards. • Near-record low interest rates and massive refinancings have translated to lower debt payment burdens. This means that even though debt-to-income ratios are elevated, debt payment burdens are now very close to all-time lows.

  32. 2nd Qtr: 106.5% • Household debt has declined markedly, in part due to deleveraging (pay-downs) and in part due to defaults. However, debt-to-income ratios remain elevated by historical standards. • Near-record low interest rates and massive refinancings have translated to lower debt payment burdens. This means that even though debt-to-income ratios are elevated, debt payment burdens are now very close to all-time lows.

  33. The Fed is “pushing on a string” and the economy is in a classic liquidity trap. The banking system is flooded with excess reserves. But consumers, though more able to borrow today compared to the recent past, reflect a strong unwillingness to do so. • Household net worth remains about $8 billion lower than at the start of the downturn – indicating that deleveraging and increases in savings will continue to outpace growth in borrowing activity. $41 Billion

  34. Economic Outlook Soft patch - very slow growth to follow Inflation worries take a back seat Unemployment will decline – but very slowly Fed funds flat Very little change in long rates

  35. Pre-stabilization. After stabilization: 2010 = 50bp 2011 ~ 70bp

  36. Credit Union Outlook Steep yield curve helping bottom lines but continued low demand for loans hurts Modest noninterest income pressures Credit quality improvements will mirror labor market improvements Lower than normal earnings as stabilization costs are paid

More Related