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Utah and National CU Economic Update 2014 ULCU Annual Meeting and Convention March 14 th , 2014 • Salt Lake City, Uta PowerPoint Presentation
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Utah and National CU Economic Update 2014 ULCU Annual Meeting and Convention March 14 th , 2014 • Salt Lake City, Utah Mike Schenk Vice President, Economics & Statistics Credit Union National Association Telephone: 608-231-4228 Facsimile: 608-231-4924 E-Mail: mschenk@cuna.com.

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Utah and National CU Economic Update

  • 2014 ULCU Annual Meeting and Convention
  • March 14th, 2014 • Salt Lake City, Utah
  • Mike Schenk
  • Vice President, Economics & Statistics
  • Credit Union National Association
  • Telephone: 608-231-4228 Facsimile: 608-231-4924
  • E-Mail: mschenk@cuna.com
economic overview
Economic Overview
  • Inching toward key goals
  • Persistent & maddening weakness
  • But some good signs
  • With key implications for credit unions
slide4

Subpar Growth: U.S. Real GDP

Chained $2009, % Change Q/Q at SAAR. Source: BEA.

slide5

Economy Gaining Steam? U.S. Real GDP

Chained $2009, % Change Q/Q at SAAR. Source: BEA.

slide7

Utah Unemployment Rate

(By County. Source: BLS. December 2013.)

  • Statewide = 4.0% (Dec.)
  • Fourth-lowest rate in US
  • Year-ago= 4.9%
  • 22 of 29 Counties below 5%
  • High: 8.4% (Dec ‘09/Jan ‘10)
  • Lowest:
  • Cache 2.8%
  • Duchesne 2.8%
  • Summit 2.9%
  • Uintah 2.9%
  • Highest:
  • Grand 10.6%
  • Garfield 14.1%
  • Wayne 15.8%
broad based improvement
Broad-Based Improvement
  • YOY unemployment rate decreases in 39 states
  • YOY unemployment rate decreases in ~80% of the nation’s 372 MSAs
  • Nearly all key business sectors showing employment gains
slide13

Now Down 850,000 Jobs

  • Average monthly increase over past six months = 178,000.
  • Back to pre- recession levels by June 2014?
obvious pent up demand
Obvious Pent-up Demand
  • The average age of consumer durable goods -- long-lasting items such as furniture, appliances and computers -- is at a 49-year high according to data from the Bureau of Economic Analysis dating to 1925.
  • Among things Americans are keeping for the longest time: furniture and furnishings (including clocks, lamps, and floor/window coverings) and home and garden tools like lawnmowers and snow-blowers.
  • Cars and luggage were the only two of 17 categories the BEA tracks that saw a decrease in average age in 2012 – though age of cars remains near all-time high.

Replacement Cycle Boom Should Boost Economic Growth!

housing s obvious rebound
Housing’s Obvious Rebound

YOY = +4.8%

4th Qtr. = +0.9%

strong housing metrics
Strong Housing Metrics
  • Relatively strong sales:
    • New Sales = 429,830 (strongest since 2008). Full-year 2013 sales = 16% increase over 2012.
    • Existing sales = 5.1 million (strongest since 2006). Full-year 2013 sales = 9% increase over 2012.
  • Lowish supplies (January 4.7 months supply vs. LR avg of 6.0) -> higher prices/more building
  • Solid price gains - consistent increases almost everywhere you look
  • Housing starts (Census) = 2013 total=931,000 – strongest year since 2007.
  • Builders Confidence (NAHB) = 47 in January ~ 50 for past nine months (and near 8-year high)
  • Foreclosure filings (RealtyTrac) = -18% YOY January (40 consecutive months of YOY declines)
taxation threat is real
Taxation Threat Is Real
  • Comprehensive Tax Reform Efforts Underway
    • Congress starting with a “clean slate”
    • Public strongly supports deficit reduction efforts
    • Many CU members unaware of tax status
    • An example…Family_Pays_More.wav
  • The more CU members know, the stronger their resistance to taxation. Winning message points:
    • Member-owned, member-directed
    • Locally controlled
    • Benefits returned to members
      • Lower fees/cheaper loans/higher savings yields/easier to get loans
      • Nationally $5.8 billion in 2012 - $120 per credit union household
      • Measure and tell the world about the financial and nonfinancial benefits you deliver
  • Need grassroots support
    • Engage your members – taxation is a tax on members – benefits at risk
    • Tell Congress: Don’t Tax My Credit Union!
    • www.donttaxmycreditunion.org/
recent cu results
Recent CU Results
  • Fast membership growth
  • Slow but increasing loan growth
  • Vastly improved asset quality
  • High earnings despite low interest margins
  • Tremendous variation
auto sales back
Auto Sales Back
  • Average age (Polk) = record 11.4 years in 2013
  • New outlook (Edmunds):
    • 16.4 million units in ‘14
    • Up from 15.5 million actual in 2013
    • Highest total since 2006
    • But # and % gains smallest since 2009
    • Big technology gains spurring interest
  • Used outlook (CNW Mkt. Res./RVI Grp.):
    • Supply beginning to increase late in ’13
    • Downward pressure on prices
    • Buyers market
    • Sales above 41 million units annually peaking at 43.5 in ’16
    • Private party sales climbing – hitting 31% in 2020
toy sales firming
“Toy” Sales Firming
  • US motorcycle sales up (non-scooter sales up 3% in 2013 according to Motorcycle Industry Council). Harley worldwide sales up 5.7% 4Q ‘13 & 4.4% full-year.
  • RV shipments finished 2013 at a four-year high of 321,127 -- 12.4% ahead of 2012 levels. Motorhome shipments rose 36% to 38,322 units. Airstream sales +59% in 2013. RVIA expects a 6.1% increase in sales this year (which would mark the fifth consecutive annual gain).
  • Off-roaders (ATV-type vehicles) continue to show accelerating growth, with annual sales up 13% in 2013 to about 250,000 units.
  • Recreational boating industry continues post-recession gains, projecting a 5% to 7% increase in new powerboat sales for 2014, on top of a 5% increase last year. Leading the industry's growth are small fiberglass and aluminum outboard boats 26 feet or less in size.
housing outlook mortgage bankers association
Housing Outlook(Mortgage Bankers Association)
  • Housing starts +13% in ‘14 and +10% in ‘15
  • Strong sales
    • Existing homes: +4% in ’14/+4% in ‘15
    • New homes +9% in ’14/+4% in ’15
  • Prices: +4.4% in ’14/+3.5% in ’15
  • Overall 1-4 Family Originations:
    • -36% in ’14/+10% in ‘15
    • Refinance share: 63% in ‘13/39% in ’14/35% in ‘15
non interest income issues
Non-Interest Income Issues
  • Decline in refinancing activity
  • Overdraft protection
    • CFPB report issued mid-June
      • Overdraft & NSF accounted for 61% of consumer deposit account charges in 2011
      • Overdraft median fee = $34 at large; $30 at small
      • Amount of annual fees fir accounts with at least one fee was $225
      • Growth of average monthly payments per household from 2000 – 2011 was 53%
    • Inadequacies in disclosures
    • Egregious practices that maximize fees
    • Fees imposed prior to offering solutions
    • Proposal out later this year or early next year (no plan to regulate fees)
  • Interchange litigation
    • Merchant/plaintiff sued to invalidate the Feds interchange rules
    • Fed filed appeal in August - status quo for now
      • Stay & current rules in place until decision Fed recently filed briefing
      • Oral arguments – Fed ignored Congressional intent: “..none of us is buying that….”
      • Decision May?
      • If upheld in entirety – new rule in 4th quarter
      • If only partially upheld – early 2015
capital reform
Capital Reform
  • Our view
    • Highest/most restrictive rules
    • CUs need more flexibility to serve members
    • Congress should modify the definition of credit union net worth to include supplemental forms of capital & give NCUA more flexibility.
  • NCUA
    • Bank vs. CU capital trends
    • Basel III changes
    • Sr. staff/Matzrumblings
      • CUs with assets over $50 million subject to “improved” risk-based requirements
      • Result will be higher capital levels for credit unions with high concentrations of risky assets
  • Comments: May 28th, 2014 (CUNA/NAFCU seeking extension)
  • CUNA evaluations
    • PCA (7% “leverage” and generally nonbinding risk components)
    • Basel III (5% leverage ratio and more strict risk components)
    • Mix (Basel leverage & PCA risk weights/PCA leverage & Basel risk weights)
housing finance reform
Housing Finance Reform
  • Inactivity & FHFA reporting large deposits into Treasury
  • House:
    • Financial Services Chair Hensarling: PATH Act
    • Winds down FNMA and FHLMC
    • Removes government guarantee
    • Incentivizes private capital to step in
    • Eliminates key financing option for CUs/members
  • Senate:
    • Ten members drafted Corker/Warner housing reform bill
    • Widely supported by housing/finance groups
    • Maintains the government guarantee
    • Replaces FHFA with FMIC (capitalized by premiums collected by issuers)
    • Establishes the Mutual Securitization Corporation
    • Requires private capital to take on at least 10% of the first-loss position when dealing with mortgage securitizations
    • Chair Johnson and Ranking Member Crapo also are drafting a bill
    • Hearings on the horizon