AnyBank, USA
Quarterly Economic Environment
3rd Quarter 2012
Economic Statistics
Jun May Apr Mar Feb Jan Dec Nov Oct Sept Aug Jul
2012 2012 2012 2012 2012 2012 2011 2011 2011 2011 2011 2011
The Economy
1.9
GDP
Unemployment Rate
Non-Farm Payrolls (000’s)
3.0
1.8
8.2
8.1
8.2
8.3
8.5
8.5
8.7
8.9
9.0
9.1
9.1
69
77
143
259
275
223
157
112
202
85
96
(0.09)
1.0
(0.5)
0.4
0.6
0.9
0.0
0.5
0.1
0.3
1.1
79.0
79.2
78.5
79.0
78.7
78.3
77.7
77.6
77.2
77.1
77.0
49.7
53.5
54.8
53.4
52.4
54.1
53.1
52.2
51.8
52.5
52.5
51.4
37.0
47.5
61.0
61.0
61.5
55.5
47.5
45.0
41.0
56.0
55.5
59.0
73.2
79.3
76.4
76.2
75.3
75.0
69.9
64.1
60.9
59.4
55.7
63.7
(0.2)
(0.2)
0.4
1.0
0.6
0.0
0.5
0.9
1.2
0.2
0.4
1.1
(0.2)
(3.7)
2.0
(4.9)
5.1
3.4
(0.4)
0.1
(3.3)
7.1
0.2
0.2
0.4
0.4
0.4
0.3
(0.1)
0.1
0.3
0.1
0.5
0.0
0.1
0.1
1.0
0.4
0.2
0.0
0.2
0.7
0.1
0.8
0.71
0.74
0.71
0.72
0.72
0.70
0.71
0.63
0.65
0.58
0.61
4.55
4.62
4.47
4.60
4.63
4.38
4.40
4.32
4.28
4.41
4.05
369
343
347
366
339
339
327
314
306
292
297
Manufacturing
Industrial Production
Capacity Utilization
ISM
ISM Prices
The Consumer
Consumer Confidence
Retail Sales
Durable Goods
Personal Income
Personal Spending
Housing
Housing Starts (Mill)
Existing Home Sales (Mill)
New Home Sales (Thou)
S&P/CS Home Price (YoY)
(1.90) (2.59) (3.55) (3.93) (4.05) (3.88) (3.57) (3.60) (3.72) (4.02)
Inflation
Consumer Price Index*
(CPI)*
CPI Core (Ex Fd & Engy)*
Producer Price Index (PPI)*
PPI Core (Ex Fd & Engy)*
PCE Core (Ex Fd & Engy)*
Employment Cost Index
GDP Price Deflator
1.7
2.3
2.3
2.3
2.7
2.3
2.9
2.2
2.9
2.3
3.0
2.2
3.4
2.2
3.5
2.1
3.9
2.0
3.8
2.0
3.6
1.8
0.7
1.9
2.8
3.3
4.1
4.7
5.6
5.8
7.0
6.6
7.1
2.7
2.7
2.9
3.0
3.1
3.0
3.0
2.9
2.8
2.7
2.7
1.8
2.0
2.0
0.6
2.0
2.0
1.2
1.9
0.3
2.2
1.8
1.7
1.6
0.3
2.4
1.7
1.6
* Year-Over-Year % Change
2
Fed Watch
Recent & Upcoming FOMC Meetings
Date
Fed Funds
Change
Bias
Date
Fed Funds
Change
Bias
Apr 28, 2010
0 - 0.25
--
Risk to Growth
Sep 29, 2011
0 - 0.25
--
Risk to Growth
Jun 23, 2010
0 - 0.25
--
Risk to Growth
Nov 2, 2011
0 - 0.25
--
Risk to Growth
Aug 10, 2010
0 - 0.25
--
Risk to Growth
Dec 13, 2011
0 - 0.25
--
Risk to Growth
Sep 21, 2010
0 - 0.25
--
Risk to Growth
Jan 25, 2012
0 - 0.25
--
Risk to Growth
Nov 3, 2010
0 - 0.25
--
Risk to Growth
Mar 13, 2012
0 - 0.25
--
Risk to Growth
Dec 14, 2010
0 - 0.25
--
Risk to Growth
Apr 25, 2012
0 - 0.25
--
Risk to Growth
Jan 26, 2011
0 - 0.25
--
Risk to Growth
Jun 20, 2012
0 - 0.25
--
Risk to Growth
Mar 15, 2011
0 - 0.25
--
Risk to Growth
Jul 31, 2012
Apr 27, 2011
0 - 0.25
--
Risk to Growth
Sep 12, 2012
Jun 27, 2011
0 - 0.25
--
Risk to Growth
Oct 24, 2012
Aug 9, 2011
0 - 0.25
--
Risk to Growth
Dec 11, 2012
Current Interest Rates:
3.5%
3.0%
2.5%
2.0%
9/30/2011
1.5%
12/31/2011
1.0%
3/31/2012
0.5%
6/30/2012
0.0%
The intermediate to long-end of the Treasury yield curve saw rates plunge lower over the 2nd quarter as
investor worries peaked with the European debt crisis. Still embattled with a proper crisis exitstrategy, the uncertainty in the PIIGS countries and still looming possibility of contagion will likely
keep the flight-to-quality trade in play for the near-term. Moreover, the unrelentingly high
unemployment and sluggish capacity utilization here in the U.S. has not helped with the efforts to
stimulate the economy here. The yield on the 10Yr Note plummeted to a record low close of 1.45% on
June 1, helped largely in part by May’s lackluster payroll release falling well short of expectations.
The 2’s/10’s spread narrowed over the second quarter, about 54bps, as the Fed maintains their
commitment for low rates until “least through late 2014”, coupled with waning levels of sub-optimal
inflation.
3
Quarterly Treasury Note & Bond Comparison
3-Month
Yield Change
In Basis Points
1
Holding Period
Total Return
0.01
Annual-Total
Return
0.04
6-Month
2
0.04
0.14
2-Year
(2)
0.17
0.71
5-Year
(32)
0.69
8.04
10-Year
(56)
6.05
25.23
30-Year
(58)
12.92
55.70
Note: Total Return is calculated using the current On-The-Run Treasury as of the
beginning of the quarter and a reinvestment rate equal to the yield of the 3-Month TBill at the beginning of the quarter
Federal Reserve District Profile Summary – June 2012:
For additional District profiles, please visit the Fed’s web site: http://www.federalreserve.gov/Fomc/BeigeBook/2012/
Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period
from early April to late May. Activity in the New York, Cleveland, Atlanta, Chicago, Kansas City, Dallas, and San Francisco Districts was
characterized as growing at a moderate pace, while the Richmond, St. Louis, and Minneapolis Districts noted modest growth. Boston reported
steady growth, and the Philadelphia District indicated that the pace of expansion had slowed slightly since the previous Beige Book.
Manufacturing continued to expand in most Districts. Consumer spending was unchanged or up modestly. New vehicle sales remained strong
and inventories of some popular models were tight. Sales of used automobiles held steady. Travel and tourism expanded, boosted by both the
business and leisure segments. Demand for nonfinancial services was generally stable to slightly higher since the last report, and several
Districts noted strong growth in information technology services. Conditions in residential and commercial real estate improved. Construction
picked up in many areas of the country. Lenders in most Districts noted an improvement in loan demand and credit conditions. Agricultural
conditions generally improved, and spring planting was well ahead of its normal pace in most reporting Districts. Energy production and
exploration continued to expand, except for coal producers who noted a slight slowing in activity.
Wage pressures overall were modest. Hiring was steady or increased slightly, and contacts in a number of Districts reported difficulties in
finding qualified workers, particularly those with specialized skills. Price inflation remained modest across Districts, and overall cost pressures
eased as the price of energy inputs declined. Economic outlooks remain positive, but contacts were slightly more guarded in their optimism.
Banking and Finance
Most Districts that commented on lending noted steady or slightly stronger loan demand. Small and medium-sized banks in the New
York District reported the most broad-based increase in loan demand since the mid-1990s. Several bankers in the Richmond District
said the volume of small business loan applications was markedly higher. Drivers of business loan demand included energy, healthcare,
and commercial real estate. Several Districts noted increased demand for capital spending loans.
Reports on mortgage lending generally indicated slow improvement. The New York District noted stronger mortgage lending, although
growth in refinancing eased. The Cleveland District indicated strong mortgage demand and a shift from home refinancing to new
purchases. The Richmond District cited continued improvement in mortgage demand, although refinancing still dominated much of the
mortgage lending. The Atlanta District said that more applicants had ample cash for down payments or enough equity in their homes to
meet refinancing requirements. Demand for commercial real estate loans was generally reported to be stronger.
A number of Districts, including Cleveland, Atlanta, Chicago, Dallas, and San Francisco, said loan pricing remained quite competitive.
New York District respondents noted a decrease in spreads of loan rates over the cost of funds, particularly for commercial mortgages.
Lending standards were relatively unchanged to slightly easier across Districts and loan types. Bankers reporting on deposit growth
indicated that deposits were steady or continued to increase. Credit quality remained solid, and there were several reports of improved
loan quality. Most District banks said loan delinquencies continued to decline.
4
Economic Outlook (Bloomberg Economic Survey):
Quarter End/Latest
3Q 2012
2Q 2013
0 – 0.25%
0.25%
0.25%
10 Year T-Note
1.65%
1.90%
2.50%
GDP
1.9%
2.3%
2.4%
Jobless Rate
8.2%
8.1%
7.8%
CPI (YoY)
1.7%
1.9%
1.9%
Fed Funds
The table above is taken from a survey of economists conducted monthly by Bloomberg Financial
Markets. The forecasts shown are from a third party and do not reflect the ideas of The Baker Group.
Asset/Liability Position, Balance Sheet Structure, and Liquidity:
The Loan/Deposit ratio is:
The current Fed Funds position is:
Liability accounts in greatest demand are:
The Overall Bank liquidity position is:
The Bank's Effective GAP ratio (RSA/RSL) in the 1-year time frame is approximately _____%,
(compared to our policy limits of 70% to 120%.)
The projected change in net interest income over the next 12 months is:
Rate Environment:
Net Interest Change:
+200 BP
Unchanged
-200 BP
5