Utah Credit Unions
Executive Summit
Courtyard Marriot, St. George Utah
9:00-12:00 pm, Monday, April 30, 2012
U.S. Economic Outlook
& Its Impact on
Financial Institutions
Index
Page
Balance Sheet & Income Statement………...……..2,3
Virtuous Cycle of Banking………………………….4
Capital-to-Asset Ratio Analysis…………………….5
U.S. CU ROE Decomposition……………….........6-10
Utah CU ROE Decomposition……………………11-13
Bank and CU Key Ratios………………….….......14-17
GDP and Components……………………………18-21
Manufacturing Activity…………………………..22-23
Labor Market ………………………………..…...24-27
Utah Labor Market & Home Prices………………28-29
Inflation…………………………………….……..30-31
Interest Rates………………………………..…….32-33
Federal Reserve & Monetary Policy………..…….34-37
Housing and Mortgage Market……………..……..38-41
Consumer Spending, Savings & Debt………..…...42-45
Black Swans………………………………………...46
Oil and Stock Markets……………………….……..47
Fiscal Policy………………………………….…….48-49
Economic Forecast………………………………….50-51
Steven W. Rick
Senior Economist
Credit Union National Association
PO Box 431
Madison, Wis. 53701, USA
Telephone: 608-231-4285 Facsimile: 608-231-4924
E-Mail: srick@cuna.com
1
Deposit Factors:
Investment Factors:
1.Economic uncertainty and members’ preference for
liquid funds will buoy deposits.
2.Large interest rate differentials between loans and
savings will encourage households to pay down debt
rather than save any surplus funds.
3.Households using existing savings balances to pay
down debt will reduce size of balance sheet.
4.Rising oil prices will reduce savings balances.
5.Inflation rates higher than deposit rates will produce
negative returns on savings deposits.
6.Large federal deficits may lead to expectations of
higher future taxes fostering additional savings growth
today.
7.The national savings rate is back to the level in the
late 1990s.
8.Falling home prices will encourage thrift.
1.Federal Reserve announced that economic
conditions “are likely to warrant exceptionally low
levels for the federal funds rate at least through late
2014 is forcing a reevaluation of the duration of
investments.
2.Rising loan growth will reduce investment portfolio
growth in 2012.
3.Financial institutions are sitting on record levels of
excess reserves ($1.6 trillion) earning 0.25%.
4.Excess liquidity is punishing earnings with shortterm investment yields lower than deposit interest
rates.
CU Balance Sheet
(% of 2010 Assets)
Assets
Liabilities + NW
Investments (34%)
Deposits (86%)
Annual Growth Rates
Annual Growth Rates
07
08
09
10
11
12
07
08
09
10
11
12
4.6
9.1
30.0
12.5
9.0
7.0
5.1
6.9
10.3
4.4
5.0
5.0
Loans (62%)
Net Worth (10%)
Annual Growth Rates
Annual Growth Rates
07
08
09
10
11
12
07
08
09
10
11
12
6.5
6.7
1.2
-1.2
1.0
3.0
7.1
3.2
-1.2
5.0
6.7
7.9
Loan Factors:
1.Economic recovery and accompanying job growth will
encourage borrowing in 2012.
2.Rising consumer confidence will encourage spending.
3.Rising stock prices will produce a “wealth effect”
fostering increased consumption.
4.Household s have accelerated loan payments and payoffs
which is outpacing originations and reducing loan balances.
But deleveraging should fade in 2012.
5.Low spending in 2009-2011 has created much pent-up
demand for durable goods. Auto loans, credit card loans
and purchase mortgage loans will be strong growth areas.
6.The recession has created a large pool of potential
borrowers with sub-prime credit scores.
7.Rising auto sales may reduce 0% financing offers.
8.Udall-Snow Small Business Lending Enhancement Act is
moving in Congress to raise the business loan lending cap
from 12.25% to 27.5% of assets for CUs.
Net Worth Factors:
1.Rising net income in 2012.
2.Capital contributions will outpace asset growth raising
net worth-to-asset ratios.
3.CUs are slowing deposit and asset growth to maintain or
boost capital-to-asset ratios.
4.BASEL III will be an impetus for Congress and NCUA
for capital reform.
5.Alternative capital (subordinated debt) is a top CU
legislative priority.
2
1.
Yield on Assets
2.
07
08
09
10
11
12
5.89
5.56
4.91
4.46
4.08
3.95
3.
4.
5.
- Cost of Funds
07
08
09
10
11
12
1.
2.
3.
2.78
2.42
1.73
1.21
0.90
0.85
4.
1.
2.
= NIM
07
08
09
10
11
12
3.10
3.14
3.18
3.25
3.18
3.10
3.
1.
+ Fee/Other Income
07
08
09
10
11
12
1.35
1.28
1.23
1.33
1.28
1.30
2.
3.
- Operating Expenses
1.
07
08
09
10
11
12
3.38
3.56
3.16
3.30
3.26
3.15
2.
3.
- Provision for loan
losses
07
08
09
10
11
12
0.43
0.88
1.11
0.78
0.50
0.40
4.
1.
2.
3.
4.
= Net Income
07
08
09
10
11
12
0.64
-0.02
0.18
0.39
0.70
0.85
1.
The Federal Reserve’s QE-2 program (print money to buy
bonds) and Operation Twist will keep long-term interest
rates low through 2013.
Banks/CUs are weighing the marginal risk (credit/interest
rate) versus marginal return (additional YOA) of alternative
assets to boost NIMs.
Repricing of maturing loans will lower YOAs
Rising loan growth will raise YOAs.
Rising short-term interest rates in 2014 will raise yields on
short-term investments.
Rising short-term interest rates in 2014 will increase COFs.
Continued repricing of maturing CDs is lowering COFs today.
Excess liquidity will allow Bank/CU deposit rates to lag
increases in market rates in 2014.
Ultra-low market interest rates are preventing the pricing of
deposits below market, reducing earnings opportunities .
NIM expected to rise in 2015 as YOA rise faster than COFs.
A flatter yield curve in 2012 will put downward pressure on
NIMs by making ST borrowing and LT lending less lucrative.
Banks/CUs are reevaluating their “GAP” strategy due to
changing interest rate forecasts.
The interchange fee cap rule was implemented on October 1, 2011.
This will cap the maximum fee charged per debit card transaction to
21 cents (plus an additional 2-3 cents for fraud prevention) for
institutions greater than $10 billion.
Concerns over the effectiveness of the less than $10 billion “carve
out” rule. Statutory exemption may not work as intended, but it will
take a few years for small institution interchange rates to converge
to large institution rates. Interchange income may decline in 2012.
Changes to overdraft rules will affect fee income depending on
member behavior. Recession induced financial stress has
incentivized consumers to alter behavior to minimize penalty fees.
Rising compliance costs for new Dodd-Frank Act regulations
and new Consumer Financial Protection Bureau rules
NCUSIF premiums expected to be zero in 2012 due to large
build up of reserves for insurance losses and fewer CU
failures.
Corporate stabilization assessments were 25 bps of insured
shares in 2011 and expected to be 9 bps in 2012.
Slowdown in branch expansion and continued cost
containment efforts will lower operating expense ratios.
Most banks/CUs have sufficiently funded allowance for loan
losses.
Job growth will improve credit quality and lower provisions.
Local foreclosures will have a lingering impact on PLLs. Today
11 million homeowners are underwater. Ten percent of mortgage
holders owe at least 125% of the property’s value.
Home prices fell 5% in 2011 and are expected to stabilize in 2012.
10% of all mortgages are at risk of foreclosure.
ROA remains below its long-run average and questions
remain whether this will be the “new normal”.
3
The Virtuous Cycle of Banking
Faster Asset Growth
Higher
Return on Equity
ROE
Economies of Scale
•Self-reinforcing spiral
•Feedback Loop
Higher
Return on Assets
ROA
Higher
Profit Margin
Capital-to-Assets Growth Rate Analysis
The growth rate of a ratio is the difference between
numerator and denominator growth rates, (for small
growth rates).
%D (C/A) = DC/C – DA/A
5%
growth
0.10 = 10 ========> 10.5 = 0.102
100
103
3%
growth
2%
growth
2% = 5% - 3%
If (ROE) DC/C = DA/A
Then %D (C/A) = 0
If DC/C = DA/A (multiply both sides by C/A)
Then ROA = DA/A x C/A
Return on Equity Decomposition
ROE = Asset Growth Speed Limit
(given a constant Capital-to-Asset ratio)
Return on
Equity
Return on
Assets
Leverage
R
A
R
R
GR

A



  

E
E
A
GR
A

E


Profit
Margin
R
E
A
GR
Asset
Utilization
= Return (net income)
= Equity (reserves + undivided earnings) (beginning of period)
= Assets (beginning of period)
= Gross Revenues (interest revenue + noninterest revenue)
Credit Union
Return on Equity
(by Asset Size)
10
9.16
7.5
8
6
9.06
6.86
6.71
5.23
4.94
5.26
4.39
3.52
3.43
4
1.94
3.34
2.28
1.93
2
0.43
0.42
0
06
07
08
-2
10
11
-1.42
< $100 Million
-4
09
$100-$500 Million
> $500 Million
6
Credit Union
Equity Multiplier (Leverage)
(Assets to Equity)
(by Asset Size)
12
10.86
9.61
10
8.58
7.84
8
9.53
9.36
8.95
10.04
7.48
9.91
8.95
8.45
10.5
9.99
8.46
8.29
7.52
7.30
6
4
2
< $100 Million
$100-$500 Million
> $500 Million
0
06
07
08
09
10
11
Credit Union
Return on Assets (basis points)
(by Asset Size)
95
100
86
77
80
63
72
69
59 61
53
60
36
40
35
33
27 27
23
20
5
5
0
06
07
08
-20
< $100 Million
$100-$500 Million
09
10
11
-19Million
> $500
-40
7
Credit Union
Profit Margin
(Net Income to Gross Revenues)
(by Asset Size)
18
15.5
16
13.4
14
10
11.5
11.2
12
9.5
9.6
9.4
8.2 8.3
8
6
4.0 3.8
4
4.9
5.7
4.9
2
4.5
0.9
0.7
0
06
-2
07
< $100 Million
> $500 Million
-4
08
09
10
11
$100-$500 Million
-3.1
Credit Union
Asset Utilization
(Gross Revenues to Assets)
(by Asset Size)
8
7
6.6
6.86
7.12
7.2
7.38
7.61
7.16
7.4
7.09
6.79
6.7
6.1
5.85 5.99
6
5.53 5.57
5.5
5.1
5
4
3
< $100 Million
$100-$500 Million
> $500 Million
2
06
07
08
09
10
11
8
Provisions for loan Losses
Equilibrium Condition
Provisions = Net Charge-offs
Allowance for
Loan Losses
Net Charge-offs
$10
$9
$8
CU Provisions, Allowances &
Net Chargegoffs
($ Billions)
Provisions
Allowance for Loan Loss
Net Chargeoffs
$10
$9
$8
$7
$7
$6
$6
$5
$5
$4
$4
$3
$3
$2
$2
$1
$1
$0
$0
9
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Credit Union Credit Quality
(As a % of Loans)
2.2%
2.2%
Loan Loss Provisions
2.0%
Allowance for Loan Losses
2.0%
1.8%
Net Charge-offs
1.8%
1.6%
1.6%
1.4%
1.4%
1.2%
1.2%
1.0%
1.0%
0.8%
0.8%
0.6%
0.6%
0.4%
0.4%
0.2%
0.2%
0.0%
0.0%
04:1
05:1
06:1
07:1
08:1
09:1
10:1
11:1
12:1
Source: NCUA
CU Net Chargeoff Rates
(Loans Charged Off Net of Recoveries as a Percent of Average Loans)
1.40%
1.21%
1.14%
1.20%
1.00%
0.90%
0.84%
0.80%
0.70%
0.65%0.65%
0.60%
0.60%
0.59%0.59%
0.50%
0.49%
0.56%
0.53%0.54%
0.52%
0.49%
0.46%
0.45%
0.42%
0.50%
0.40%0.41%
0.40%
0.20%
0.00%
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
10
Return on Equity Decomposition
ROE = Asset Growth Speed Limit
(given a constant Capital-to-Asset ratio)
Return on
Equity
Return on
Assets
Leverage
R
A
R
R
GR

A



  

E
E
A
GR
A

E


Profit
Margin
R
E
A
GR
20
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
Asset
Utilization
= Return (net income)
= Equity (reserves + undivided earnings) (beginning of period)
= Assets (beginning of period)
= Gross Revenues (interest revenue + noninterest revenue)
Utah Credit Union
Return on Equity
(by Asset Size)
19.03
17.15
< $100 Million
9.93
6.68
$100-$500 Million
8.35 9.02
8.08 7.44
4.43
1.22
-0.20
06
> $500 Million
07
08
-2.23
2.18
0.71
09
10
3.39
11
-3.18
-8.09
-18.28
11
Utah Credit Union
Equity Multiplier (Leverage)
(Assets to Equity)
(by Asset Size)
16
15.1
14
14.59
12.57
11.32
12
9.66
10
10.24
10.71
9.93
9.25
9.13
8.44
8.29
8.23
10.18 9.8
9.81 10.11
12.48
8
6
4
2
< $100 Million
$100-$500 Million
> $500 Million
0
06
07
08
09
10
11
Utah Credit Union
Return on Assets (basis points)
(by Asset Size)
200
180
160
140
120
100
80
60
40
20
0
-20
-40
-60
-80
-100
-120
-140
-160
-180
186
170
< $100 Million
103
81
101
$100-$500 Million
> $500 Million
92
55 60
45
12
06
07
-2
7
08
-22
37
17
09
10
11
-35
-54
-161
12
Utah Credit Union
Profit Margin
(Net Income to Gross Revenues)
(by Asset Size)
22
20
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
-16
-18
-20
-22
17.84
16.96
15.72
13.1
12.8 12.69
10.5
1.38
06
2.35
0.76
-0.3 08
-3.21
07
09
< $100 Million
8.52
7.4
7.2
10
11
-5.7
$100-$500 Million
-11.88
> $500 Million
Utah Credit Union
Asset Utilization
(Gross Revenues to Assets)
(by Asset Size)
12
11
10.42
10.01
10
9.01
8.69
9
7.9
8
7
7.24
6.2
6.53
7.37
7.0 6.81
6.1 6.13
7
6.2
6
4.51
5
5.0
5.27
4
3
< $100 Million
$100-$500 Million
> $500 Million
2
06
07
08
09
10
11
13
YOA vs 10-year Treasury Rate
1988-2011
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
Percent
11
Yield on Assets %
11
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
1.1% Spread
Yield on Assets
10- Year Treasury
COF vs Fed Funds Rate
1988-2011
7
10
9
6
8
7
6
4
Percent
Cost of Funds %
5
5
3
4
3
2
2
1
1
0
0
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
Cost of Funds
Fed Funds
14
Net Interest Margin
1981-2011
540
The Credit Union Challenge:
Maintaining Net Interest Margins
520
500
Basis Points
480
460
440
420
400
380
360
Garn-St. Germain
1982
340
320
Interstate Banking
Act 1994
DIDEMCA
1980
300
Financial Modernization
Act 1999
81 82 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 10 11 12
Net Interest Margin vs Operating
Expense to Average Assets
425
425
408
398
400
392
397
394
389
391 393
386 385
377
371
375
Basis Points
400
381
358
375
361
350
338
356
350
325
321 338
318
333
316
331
330 315
314
310
325
331
339
325
332
329 331
323
319 319
307
325
319 320
317
314
300
335
306
301
316
315
300
305
275
275
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
NIM
Operating Expense 15
Commercial Bank
Yield on Assets & Cost of Funds
10%
10%
Yield on Assets
Cost of Funds
9%
9%
8%
8%
7%
7%
6%
5%
5.0%
4.7%4.7%
4.5%4.4%4.5%
5.1%
5.3%
5.5%
6.1%
5.9% 5.9%5.9%6.0%
5.9%
5.7%
6%
5.4%
4.9%
4.7%
4.4%
4.3%
4.1% 4.1%4.0%4.0%
4.1%4.0%
3.9%3.8%
3.8%3.7%
3.6%
4%
3%
4%
3%
2%
1%
5%
1.6%
3.0%2.9%3.0%3.1%3.0%
2.9%
2.7%
2.5%
2.4%
2.2%
2.0%
2.0%1.8%
1.8%
1.5%
1.2% 1.2% 1.3%
1.2% 1.1%
1.0%0.9%
0.8%0.8%
0.7%0.7%0.6%0.6%
0.6%0.5%
0%
04:1
2%
05:1
06:1
07:1
08:1
09:1
10:1
1%
0%
11:1
Source: FDIC
Abnormally high risk aversion was one factor reducing banks’ YOA to record low levels. New bank regulation will make
banks safer at the cost of decreased supply of credit at a higher interest rate.
Commercial Bank
Net Interest Margin vs Operating Expense
4.0%
4.0%
3.8%
3.8%
3.6%
3.6%
3.4%
3.4%
3.2%
3.2%
3.0%
3.0%
2.8%
2.8%
2.6%
2.6%
2.4%
2.4%
Net Interest Margin
Operating Expense
2.2%
2.2%
2.0%
2.0%
04:1
05:1
06:1
07:1
08:1
09:1
10:1
11:1
Source: FDIC
Banking woes include anemic economic growth, piles of new regulation, waves of housing related litigation and exposure
to European banks and the Euro-zone debt crisis.
16
Commercial Bank
Loan Net Chargeoffs
4.0%
4.0%
Overall Net Chargeoffs
1-4 Family 1st Mortgage
3.5%
3.5%
C&I
Commercial Real Estate
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
04:1
05:1
06:1
07:1
08:1
09:1
10:1
11:1
Source: FDIC
Credit quality had been improving but has now stabilized.
Commercial Bank
Loan Loss Provision & ROA
2.6%
2.6%
Return on As s ets
2.4%
2.2%
2.4%
2.2%
Loan Los s Provis ions
2.0%
2.0%
1.8%
1.8%
1.6%
1.4%
1.6%
1.4%
1.2%
1.2%
1.0%
0.8%
1.0%
0.8%
0.6%
0.6%
0.4%
0.4%
0.2%
0.0%
0.2%
0.0%
-0.2%
04:1
05:1
06:1
07:1
08:1
09:1
10:1
11:1
-0.2%
-0.4%
-0.4%
-0.6%
-0.8%
-0.6%
-0.8%
-1.0%
-1.0%
Source: FDIC
During the boom many banks boosted earnings simply by levering up, masking poor returns on assets with the magic of
debt.
New banking rules (BASEL 3) require banks to hold more capital (against potential losses) and bigger pools of liquid assets
and more long-term debt (if funding markets dry up) which will depress returns on equity.
Dodd Frank Act compliance costs will increase operating expenses.
17
Stagnation:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Rising income inequality will concentrate income and wealth at the upper
income range, reducing middle class spending power.
Falling home prices and rising commodity prices are squeezing the middle class.
Congress will fail to address the deficit and entitlements problems, creating a
bond market capitulation.
State pensions are underfunded by $3 trillion creating the possibility of a bond
or pension promise default.
The labor force is declining as middle age men retire early, file for disability or
return to school.
Pay is stagnating for the middle and lower classes.
The number of workers to pensioners will fall from 4.6 today to 2.6 in 40 years,
crippling the living standards of younger workers.
25% of mortgage holders are underwater, leading to massive foreclosures.
The large number of long-term structurally unemployed will weigh down
economic growth.
The U.S. infrastructure (roads, railways, bridges, ports, airports) is deficient or
functionally obsolete, putting the U.S. at a competitive disadvantage relative to
the rest of the world.
Expansion:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Productivity growth is strong signaling a dynamic, growing economy.
Strong economic growth in the emerging market economies will boost exports
and help rebalance the economy away from consumption spending.
Financial institutions are returning to health which will foster additional lending
in the near future.
Job growth is rising as the labor market builds momentum which will lead to a
self-sustaining economic expansion.
Rising stock prices will produce a wealth effect which will foster faster
consumption spending.
Aggressive monetary and fiscal policy will ensure robust economic growth.
Consumer confidence should return to normal levels in the near future, restoring
consumption expenditures to reduce pent-up demand for durable goods.
The housing market is near bottom and will soon experience a turnaround in
housing construction .
Manufacturing activity and employment is rising rapidly, after years of steadily
declining employment.
A decrease in the overall level of uncertainly is creating a more favorable
business environment which will lead to greater business investment spending.
18
Quarterly % Change in U.S. Economic Output
(Real GDP - Chainweighted 2005$)
Below trend growth
•Falling stimulus spending
•Less inventory rebuilding
•Slowing Euro-Zone
•Financial crisis
•Deleveraging households
•Rising savings rates
10%
9%
Maximum Sustainable
Growth Rate = 3%
8%
7%
6%
5.1%
5%
4%
3%
4.2%
3.3%
3.0%
2.7%2.6%
3.2%
2.7%
1.8%
2%
3.9%3.8%
3.8%
3.6%
3.0%
2.1%
2.5%2.3%
1.7%
1.6%
1.7%
1.3%
0.5%
1%
3.5%3.5%3.5%3.5%
2.8%
2.5%2.5%2.5%2.5%
1.8%
1.3%
0.4%
0.1%
0%
-1% 04:1
05:1
06:1
07:1
-2%
08:1
09:1
-0.7%
-1.8%
-5%
Falling Potential Growth Rate
•3.5% to 2.5%
-6% •Less investment spending
-7% •Lower leverage in post-credit era
-8% •Suppressed demand
•Negative demographic trends
-9% •Lower total factory productivity growth
-10%
11:01
12:01
13:01
Recession Factors:
-3%
-4%
10:1
-3.7%
-6.7%
-8.9%
•Loose monetary policy
•Poor regulation
•Lax bank supervision
•Opaque derivatives
•Shadow banking system
•Lax investor diligence
•Poor governance
•Misaligned incentives
•fraud
Source: Department of Commerce.
The economic recovery continues, but is disappointing and is vulnerable to external shocks. GDP is back to its pre-recession
2007 peak. Final sales of domestic product – GDP minus change in inventories – grew 3.6% annualized. Inventories
subtracted 1.1% from growth as firms reduced stocks in response to weak first half demand. Stronger aggregate demand will
lead to job growth, rising confidence and further spending (a self-sustaining expansion).
The expiry of the pay-roll tax cut and extended jobless benefits in December could shave 2% off 2012 GDP growth.
Actual GDP is 5% below potential GDP.
A “balance sheet recession” is the process whereby households and companies pay down debts rather than embark on new
spending. The lack of demand for loans is due to the debt-strapped private sector.
4th Quarter 2011 GDP
Spending = C + I + G + X – M
% of total = (70.7) (13.5) (18.8) (13.3) (-16.4)
Growth rate = (2.0) (20.0) (-4.6)
(4.7)
(4.4)
Contribution = (1.5) + (2.4) + (-0.9) + (0.6) + (-0.8) = 3.0%
(1+0.028)1/4 -1 = 0.007 = 0.7%
19
Business Fixed Investment
(Nonresidential Structures)
40
40
28
24
30
22
19
18
16
20
0
11
10
8
7
2
0 0 Q1
-10
0 2 Q1
0 3 Q 1 - 1-024 Q 1
-2
-4
-6
0 5Q
-1
2
1
0 6 Q1
1
0 7Q 1
0 8 Q1 0 9 Q1
-4
-8
10 Q 1
11Q 1
-12
1 Q1
- 14
- 17
- 2-02 0
-20
-20
-25
-30
- 3-23 3
-33
0
-10
- 10
- 11
-20
10
7
4
2
0
11
9
8
5 4
1 2
0 1Q 1
20
14
13
10
30
23
-30
-31
-40
-40
-50
-50
Annualized Quarter Growth Rate
% Change From Quarter One Year Ago
Business investment spending has been strong and firms still have lots of cash to invest and hire.
Business Fixed Investment
(Equipment and Software)
30
30
23
22
20
18
18
11
2
1 2
0 0 Q1
12
9
8
4
-10
14
1314
12
13
11
10
0
3
2 2 2
5 4
8 9
6
6
4
8
10
3
0
0 1Q
-11
0 2 Q- 1
1
-3
-5
0 3 Q1
-7
- 10
- 14
0 4 Q1
-3
0 5Q 1
0 6 Q1
0 7Q 1
0 8 Q1
-2
0 9 Q1
10 Q 1
11Q 1
12 Q 1
0
-4
-10
-8
- 13
-20
-30
20
16
15
-20
-29
-31
-40
-30
-40
Annualized Quarter Growth Rate
% Change From Quarter One Year Ago
Business spending on equipment and software have been very strong, leading to strong labor productivity growth over the
last few years.
20
Real Personal Consumption Expenditures
(Durable Goods)
50
50
Annualized Quarter Growth Rate
3 8 .1
40
% Change From Quarter One Year Ago
30
40
30
2 4 .5
2 0 .2
20
1717
. 6. 9
10
1. 2
- 0 .2
0 0 Q1
0 1Q 1
0 2 Q1
- 4 .5
-10
16 . 1
20
11. 8
9 .9
7 .8
8. 8
8 .7
1. 3
5. 7
5. 8
4 .3
3 .8
2 .6
4 .2
3 .0
0
12 . 1
7. 1 7. 0
4 .9
17 . 2
16 . 5
12 . 3
6 .5
1. 6
5 .5
1. 7
5. 2
5. 7
10
2 .4
2 .3
0 .3
0 3 Q1
0 4 Q1
0 5Q 1
0 6 Q1
0 7Q 1
0 8 Q1
- 2 .9
0 9 Q1
10 Q 1
11Q 1
- 4 . 0- 4 . 7
- 5. 2
12 Q 1
- 5. 3
- 7. 0
-10
- 9 .6
- 12 . 3
- 9 .8
0
-20
-20
- 2 5. 4
-30
-30
Weak fundamentals are restricting sales:
Few new jobs, low income growth, high unemployment, low and volatile wealth, limited access to credit, deleveraging and
low confidence consistent with a deep recession.
Factors supporting consumer spending:
Private sector job growth, consumer are fixing their budgets, falling debt payments through debt reduction and refinancing,
consumers who have stopped making mortgage payments but not yet defaulted have extra cash.
Residential Investment
40
40
30
30
2 2 .8
2 2 .0
20
11.
1. 2
10
10
5. 7
3 .2
0
-10
1. 8 2 . 2
0 .3
9 .4
6 .3
3 .9
2 .3
11. 3
20
17 . 7
15 . 9
11. 6
9 .6
7. 5
1. 2
3 . 7 4 .3
4 .1
2 .5
0 .1
0 0 Q1
0 1Q 1
0 2 Q1
- 2 .7
- 3 .4
0 3 Q1
0 4 Q1
0 5Q 1
0 6 Q1
0 7Q 1
0 8 Q1
0 9 Q1
10 Q 1
- 3 .8
- 4 .2
11Q 1
- 2 .5
- 6 .9
10
4 .2
1. 3
12 Q 1
0
-10
- 12 . 0
-20
- 17 . 0 - 16 . 4
- 19 . 6
- 2 1. 2
- 2 4 .1
-30
-40
- 14 . 5
- 19 . 9
- 15 . 3
8 .5
- 2 -92. 3
Annualized Quarter Growth Rate
-20
- 2 1. 3
- 3 3 .2
- 3 5. 4
- 2 7. 7
-30
-40
% Change From Quarter One Year Ago
-50
Housing Market Strengths:
30-year mortgage interest rate = 4.0% (thanks to Federal Reserve)
Falling/low home prices => record levels of affordability
Private sector job growth
Public and private foreclosure mitigation efforts.
Housing Market Risks:
•Expiration of tax credits in April 2010 (pulled forward demand)
•  foreclosure sales (2.5 million in 2010) =>  PH
•Buyers expectations of future lower home prices => lower demand
•Double dip recession => housing crash
-50
21
ISM Purchasing Managers Index
(SA)
70
70
65
65
60
60
55
55
50
50
45
45
40
40
Recession
35
35
Manufacturing Activity
No Change in Manufacturing Activity
30
30
80 81 82 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 10 11 12 13
PMI = 52.4 (Expansion territory)
PMI is signaling the recovery remains intact but slowing.
•Production for inventory restocking will fade, Production for satisfying pent-up demand fade, Strong foreign demand.
•New Orders are expanding (54.9), Inventories are falling (49.5), Production was up (55.3), Employment was up (53.2)
•Price paid were up (61.5)
Leading indicators: (Two “gaps” are proxies of future production)
1. New Orders - Inventories = 5.4 (gap is a good omen for future production)
2. Production – New Orders = 0.4 (foreshadows weaker output)
Businesses have strong balance sheets and high profits.
Record high “quick ratio” = liquid assets (mostly cash) to short-term liabilities.
Factory Orders & Shipments
(Dollar Value of Orders and Shipments)
$500,000
Re ce s s ion
$480,000
Shipm e nts
$480,000
$460,000
Ne w Or de r s
$460,000
$440,000
$440,000
$420,000
$420,000
$400,000
$400,000
$380,000
$380,000
$360,000
$360,000
$340,000
$340,000
$320,000
$320,000
$300,000
$300,000
$280,000
$280,000
$260,000
$260,000
$240,000
$240,000
$220,000
$220,000
$200,000
$ Mil. (SA)
$ Mi.l (SA)
$500,000
$200,000
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
Factory new orders fell -1.0% in January.
•
Nondurable good orders rose 1.3%, Durable good orders fell -3.7%
Core capital goods new orders fell -3.9%
•
Nondefense capital goods, excluding aircraft
•
a proxy for business investment spending
•
Core capital goods new orders are a leading indicator of future hiring.
Business investment spending is slowing.
07
08
09
10
11
12
13
22
ISM Chicago
(Diffusion Index, SA)
75
75
70
70
65
65
60
60
55
55
50
50
45
45
40
40
Recession
Chicago Index
35
35
No Change in Manufacturing Activity
30
30
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Business Barometer Index = 64 (Expansion territory)
Strong and broadening Midwest manufacturing due to rising business investment and auto sales.
Sub indexes:
New orders
= 69.2 (leading indicator)
Production
= 67.8 (firms are keeping production in line with new orders)
Order backlog = 53.6 (strong production levels in future)
Employment = 64.2 (firms are hiring to ramp up production to meet demand)
Inventories
= 49.6 (slowing after the 4 th quarter inventory build up)
Prices paid
= 65.6 (building input price pressures with little “pricing power” => falling profits)
Leading indicators: (Two “gaps” are proxies of future production)
1. New Orders - Inventories = 19.4 (Positive gap is omen for stronger production)
2. Production – New Orders = -1.4 (Negative gap foreshadows stronger production)
Philadelphia Fed Survey
Current and Future General Activity Indexes
(Business Outlook Survey, SA)
100
100
80
80
Diffusion Index*
60
60
40
40
20
20
0
00
02
04
06
08
10
12
0
-20
-20
-40
-60
-80
Re ce s s ion
6-M onth Fore cas t
Curre nt Activity
Current Activity = 3.6
•
Factory output should remain solid through 2011 and into 2012
•
Inventory replenishment will keep buoy production
•
Leading Indicators: (future production proxy = New orders – Inventories)
- New Orders Index = 1.3
- Inventories Index = 6.6
•
Rising Prices Paid Index (inputs) = 22.8
•
Rising Prices Received Index (output pricing power) =2.6
6-Month Forecast Activity (September) = 41.9
•
Firms expect higher new orders and are becoming more optimistic. Capital expenditure plans are rising
-40
-60
23
US Payroll Employment
Thousands
Monthly Changes SA
600
600
500
500
400
400
300
300
200
200
100
100
0
0
-100 99
00
01
02
03
04
05
06
07
08
09
10
11
12
-100
-200
-200
-300
-300
-400
-400
-500
-500
-600
Recession
-600
-700
Payroll
-700
-800
150,000 Target
-800
-900
-900
Payrolls increased 120,000 in March, with broad-based gains across many industries. This is below the 200,000 needed to
meaningfully lower the unemployment rate. Average workweek remained at 34.5. A greater workweek plus more payrolls
lead to 0.5% rise in total hours worked.
Average hourly earnings ($23.31) rose by 0.1% m/m and 1.9% y/y, indicating little evidence of wage pressures and below 3.0%
inflation.
Forward looking indicators (temp hiring and average weekly hours) suggests additional hiring in coming months.
Unemployment Rate
18
17
16
15
(Percent)
14
18
17
Unemployed
Involuntarily working part-time
Marginally attached (want jobs but haven’t searched in a month)
16
15
14
13
13
12
12
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
3
2
1
Recession
Unemployment
Underemployment (U-6)
Full Employment (NAIRU)
0
4
3
2
1
0
80 81 82 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 10 11 12 13
Source: Department of Labor.
Structural Unemployment Disease: Joblessness is becoming chronic with the average unemployment at 40 weeks. Longterm unemployment is harder to cure because workers’ skills atrophy (human capital degradation) and they become detached
24
from the work force. High long-term unemployment decreases future economic growth, raises future deficits and decreases
social order.
Unemployment Rate Vs
CU Delinquency Rate
12
2
11
1.75
10
9
1.5
8
(Percent)
1.25
7
6
1
5
0.75
4
3
0.5
2
0.25
1
0
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
Recession
Delinquency (RHS)
06
07
08
09
10
11
12
Unemployment (LHS)
Every 1 percentage point change in U.R => 0.19 change in delinquency rate
Credit Risk (2 types)
1. Default Risk – borrowers’ willingness and ability to repay debt
(unemployment rate)
2. Collateral Risk – market value decline of the asset securing the loan.
(home price changes)
Unemployment Rate
Versus
CU Net Chargeoff Rate
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Unemployment Rate (LHS)
10.1%
9.6%
9.7%
9.3%
Net Chargeoff Rate (RHS)
9.6%
9.5%
9.6%
8.9%
8.3%
6.9%
6.0%
5.3%
4.5%
07:1
4.5%
4.6%
4.8%
4.9%
08:1
09:1
10:1
9.0%
9.1%
8.7%
1.4%
1.3%
1.2%
1.1%
1.0%
0.9%
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
11:01
Source: Department of Labor, NCUA,CUNA
25
Every 1 percentage point change in U.R => 0.12 change in NCO
Labor Productivity and Costs
(Nonfarm Business)
(% chg from year ago)
9%
9%
8%
8%
7%
7%
6.2%
6.1%
6%
5.3%
5.0%
4.7%
4.6%
4.4%
5% 4.5%
4.3%
4.2%
3.6%
3.7%
3.5%
4%
3.3%
3.1%3.2%
3.0%
2.9%3.1%
2.9%
2.6%
2.5%
2.5%
2.5%
3% 2.3%
2.2%
1.9%
1.9%
1.7%
1.6%
1.6%1.5%
1.5%
2%
1.3%1.1% 1.1%
1.2%
1.2%
0.9%
0.9%
0.8%
0.8%
0.5%
1%
0.3%
0.1%0.2%
6%
0%
0%
-1%
00
01
02
03
04
05
06
07
08
-0.2%
09
10
11
12
-1.1%
-2%
-3%
Unit Labor Costs
•
•
•
•
2%
1%
-1%
-2%
-4%
Source: Bureau of Labor Statistics
•
3%
Wages
-4%
•
4%
-3%
Productivity
•
5%
Productivity rose 0.7% in Quarter 4, as output growth (3.6%)
exceeded hours worked growth (2.9%)
It is becoming difficult to get additional output from current
workers.
With aggregate demand still rising, firms will have to increase
hiring in 2012.
Hourly compensation rose 1.9%, real hourly compensation fell
1.2%.
(3.1% inflation)
Growth in Unit labor costs remain weak, giving firms incentive to
hire.
So labor is relatively inexpensive leading to higher profits.
This allows for additional capital for expansion plans to offset
tighter credit conditions.
Employment Cost Index
(% change from quarter one year ago)
Civilian Workers
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
Recession
Total Compensation
Wages & Salaries
Benefit Costs
0
1
0
83Q1 85Q1 87Q1 89Q1 91Q1 93Q1 95Q1 97Q1 99Q1 01Q1 03Q1 05Q1 07Q1 09Q1 11Q1 13Q1
Source: http://w w w .bls.gov/new s.release/eci.nr0.htm
•
•
•
Wage/salary costs (70%) rose 1.5%, y-o-y
Benefits costs (30%) rose 3.2%, y-o-y
Total compensation costs rose 2.0% = 0.7 x 1.5% + 0.3 x 3.2%
•
1.
2.
This will:
Contain broader inflationary pressure
Allow Federal Reserve to maintain low interest rate policy
•
•
Rising retirement and health benefits.
Firms are focusing on containing wage growth in an attempt to save costs and
remain profitable.
Firms’ health insurance costs are slowing as they pass along benefits costs to
employees.
Slow wage expansion will keep consumers’ spending under pressure
Labor market slack and extended period of weak job growth will limit wage
gains going forward.
Government payroll cuts will push wages & salaries lower and slow benefit
growth.
•
•
•
•
(Percent)
Unemployment Rate
14
14
13
13
12
12
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
1
2
Recession
U.S.
Colorado
Utah
California
1
0
0
80 81 82 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 10 11 12 13
Source: Department of Labor.
(Percent)
Unemployment Rate
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
Recession
St. George
Salt Lake City
U.S.
Logan
0
80 81 82 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 10 11 12 13
Source: Department of Labor.
1
0
28
OFHEO House Price Index
(4-Qtr Percent Change)
30
30
Single-family detached housing
Conventional conforming repeat mortgage transactions
Fannie Mae/Freddie Mac data
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
-10
-10
-15
-15
-20
-20
-25
Re ce ssion
California
Colorado
Utah
-25
-30
-30
OFHEO House Price Index
(4-Qtr Percent Change)
35
35
Single-family detached housing
Conventional conforming repeat mortgage transactions
Fannie Mae/Freddie Mac data
30
30
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
-10
-10
-15
-15
-20
-25
Re ce ssion
St. Ge orge
Logan
Salt Lake C ity
-20
29
-25
Consumer Price Index
1970 to Present
14Annual
Percentage Change
13.3
13
12.5
12.3
12
11
10
9.0
8.7
9
8
6.9
7
8.9
6.7
6.1
2.5% Target
5.6
6
4.9
5
4
4.7
4.44.4
3.83.84.0
3.8
3.33.4
3
4.1
3.33.5
2.5
2.4
1.9
1.6
3.4
2.6
3.3
3.12.9
2.72.72.5
1.71.6
2
2.8
3.0
2.7
1.4
1.1
1
0
70
-1
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
-0.1
08
10
12
March Data:
Inflation = 0.3% m/m, 2.8% y/y, (due to rising energy prices: gas; natural gas)
Core inflation = 0.2% m/m, 2.3% y/y, (close to Federal Reserve’s target)
Expect lower inflation in 2012 as retail energy prices decline.
Lower inflation will boost real disposable income.
If inflation deceleration is too great expect the Federal Reserve to implement another round of quantitative easing
“QE-3” (print money to buy assets)
Businesses are unlikely to slash prices (deflation) because inventories are lean.
Inflation (CPI)
(year over year % growth)
6%
5%
4%
3%
2%
1%
0%
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
-1%
-2%
-3%
Headline
Core (excludes food and energy)
Monetary policy options to prevent deflation and increase inflation expectations
1.
Quantitative easing: print money to buy long-term government debt
2.
Buy private-sector debt
3.
Change expectations by announcing it will keep short-term rates low for a long time
4.
Raise its long-run inflation target (encourage borrowing, discourage cash hoarding)
5.
Reduce the interest rate paid on excess reserves.
6.
Move from inflation targeting (rate of change) to price level targeting
30
Inflation Expectations
6
6
Inflation Expectations
10-yr Treas
TIPS (10-Yr)
5
5
4
4
3
3
2
2
1
1
0
0
03
04
05
06
07
08
09
10
11
12
13
-1
-1
Source: Federal Reserve
The Big Question.
Will rapid CU mortgage portfolio growth set up CUs for
falling earnings in the future if inflation and interest
rates head back up?
Probably not. We expect controlled reflation of the economy because:
1.
2.
3.
4.
5.
6.
7.
8.
9.
The slack (output gap) in the U.S. economy is the largest its been since the early
1970s.
Significant slowdown in worldwide economic activity.
Continued worldwide wage differentials and a huge savings glut will keep
disinflation in effect.
The bursting of an asset bubble has historically been deflationary.
No possibility of a wage-price spiral with unemployment rate headed into
double-digit territory.
Global decline in market based inflation expectations.
World wide economic growth will remain below potential for the next few
years.
The Federal Reserve will counteract inflationary pressures caused by rising
private sector demand by withdrawing bank liquidity and raising short-term
rates.
New financial regulations will lower the velocity of money (rate of money
turnover). Hence, today’s large increase in the supply of money is offset by31
lower velocity of money and the “money multiplier”
Interest Rates and Recessions
1988-2012
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
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 13
Recession
Baa
Fed Funds
10-yr Treas
Asset-Shortage Theory: U.S. Government bond yields are low because of a worldwide shortage of safe assets (MBSs and
PIIGS sovereign debt are no longer considered safe assets) and a glut of global savings (business parking surplus cash and
consumers savings more). Is the savings glut temporary? We could go from fretting about scarce assets to about scarce
capital and the accompanying rising interest rates.
Bond yields today are not a true “market price” since central banks are such big players in the market.
Asian central banks are helping to keep interest rates low as they recycle their foreign exchange reserves into government
bonds.
Federal Funds Futures
30 Day Fed Funds
(January, 2012)
January
February
March
April
May
June
July
August
September
0.08
0.09
0.09
0.09
0.09
0.08
0.08
0.09
0.10
32
Treasury Yield Curves
6
6
Yield to Maturity
June 07
August 2011
Apr-12
5
5
4
4
3
3
2
2
1
1
0
0
1 2 3
5
10
15
Years to Maturity
20
25
30
Operation Twist
Despite political resistance to additional monetary policy, the Federal Reserve chose to go bold with a
$400 billion “operation twist” whereby they will sell $400 billion of short-term Treasury notes (less
than 3 year maturity) and buy $400 billion of 6-30 year notes and bonds through June 2012. This is an
attempt to “twist” the yield curve by lowering long-term market interest rates. This will extend the
average maturity of the Fed’s security holdings and expose them to greater interest rate risk. The Fed
hopes the lower interest will increase investment and consumer spending to jump start a stagnant
recovery.
The Fed also decided to reinvest their maturing agency debt to reduce mortgage interest rates further
in an attempt to stimulate a weakening housing sector. Over the past couple of months mortgages
rates have not come down as fast as the 10-year Treasury interest rate. But the housing market faces
significant headwinds however in the form of falling home price expectations among households,
weak job growth and falling consumer confidence.
33
$ Billion
Monetary Base and Excess Reserves
2,800
2,800
2,600
2,600
2,400
2,400
2,200
2,200
2,000
2,000
1,800
1,800
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800
800
600
600
400
400
200
200
0
0
05
06
07
08
09
10
Monetary Base
11
12
13
Excess Reserves
Why QE-3 policy was not implemented:
•The risk of deflation is now minimal with core inflation running close to the Fed’s target
•There was little evidence QE-2 affected the real economy in any significant way.
•Banks are holding $1.6 trillion of excess reserves, up from $2 billion 3 years ago. So liquidity in the banking sector is not
a problem.
•We are in a “liquidity trap” with money being held by banks and corporations in record amounts, but little being spent due
to great economic uncertainty. Additional monetary policy can do little to affect uncertainty.
•Any additional monetary stimulus would be as effective as “pushing on a string” when attempting to get banks to lend out
their excess reserves.
•The European sovereign debt crisis and weak economic data have done more to reduce the key 10-year Treasury interest
rate (around 2.1% today from 3.1% one month ago) than any QE-3 program could.
Real Fed Funds
(fed funds - core CPI)
12
10
4% = Recession causing level
8
6
4
2
0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
-2
-4
0.10% - 1.95% = -1.85%
-6
-8
34
Federal Reserve's Balance of Risks
GDP and Core PCE Price Index
(Percent Change From Quarter One Year Ago)
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
04:1
05:1
06:1
07:1
08:1
09:1
10:1
11:1
12:1
-1%
-1%
-2%
-2%
-3%
-3%
-4%
-4%
-5%
-5%
-6%
-6%
Source: Bureau of Economic Analysis
PCE
GDP
The New Monetary Policy Tools
Conventional monetary policy has reached its limit - (0-0.25 federal funds rate)
Broader use of Fed’s balance sheet to achieve objectives
New policies are intended to influence financial conditions
Purchase longer-term Treasuries (lower long-term interest rates, term spreads).
Purchase private assets (agency MBS, consumer ABS): offset credit shock, lower credit spreads,
increase credit availability
Working in conjunction with expansionary fiscal policy.
Monitor credit conditions to gauge success
But no explicit targets
Quantitative easing of a different sort
Policies will inject large amounts of reserves
But goal is not the level of reserves
No single measure to summarize Fed actions
Watch the H.4.1
Makes communications challenging
Policy commitment language
Governance issues
All decisions made by FOMC
Even though 13(3) programs under authority of Board
35
Monetary policy options to prevent deflation and increase inflation expectations
1.
Quantitative easing: print money to buy long-term government debt
2.
Buy private-sector debt
3.
Change expectations by announcing it will keep short-term rates low
for a long time
4. Raise its long-run inflation target
(encourage borrowing, discourage cash hoarding)
Fed’s Exit Strategy From Accommodative Policies
Inflationary Scenario:
Economic recovery => banks find profitable lending opportunities =>  reserves =>  credit => 
money supply =>  aggregate demand => inflation
Countervailing Policy Measures/Tools That Tighten Monetary Policy
1.
Improving private credit conditions => decrease use of Fed’s short-term lending facilities.
2.
Maturing Fed-held securities will reduce reserves.
3.
Raise interest rate paid on bank reserves – currently 0.25% - held at Fed to reduce incentive
of banks to lend out reserves. This reserve/deposit interest rate effectively places a floor
under short-term market interest rates.
Four options to reduce bank reserves, raise short-term interest rates and limit credit/money
growth:
1.
Arrange large-scale reverse repurchase agreements, RRPs, with financial market participants.
RRPs involve the sale by the Fed of securities from its portfolio with an agreement to buy the
securities back at a slightly higher price at a later date.
2.
Treasury could sell bills and deposit the proceeds with the Federal Reserve (Supplementary
Financing Program).
3.
Offer term deposits (CDs) to banks so reserves would not be available for federal funds
market.
4.
Sell long-term securities into the open market.
36
Money Supply Growth, M1&M2
(% change year ago)
22%
22%
20%
20%
18%
18%
Currency
Checking
Savings
MMA
MMMF
CD
16%
14%
12%
10%
8%
6%
16%
14%
12%
10%
8%
6%
4%
4%
2%
2%
0%
-2%
0%
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
9
10
11
-4%
12
-2%
-4%
-6%
Reces s ion
M2
-6%
M1
-8%
-8%
Central bank activism may be creating moral hazard by encouraging/enabling the government to sit back and let others do
the fiscal work that they find to difficult. By supporting the bond market, the Fed is letting policymakers off the hook.
U.S. Dollar Exchange Rate Vs Gold Prices
Major Currency Index vs London AM Fix ($ per troy oz.)
125
$2,000
120
$1,800
115
$1,600
110
105
$1,400
100
$1,200
95
$1,000
90
85
$800
80
Nominal Exchange Rate (LHS )
$600
Gold Price (RHS )
75
$400
70
65
$200
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
The value of the dollar is at the lowest level since the post-Bretton Woods era of floating exchange rates.
Foreign exchange markets are worried that “beggar thy neighbor” currency devaluation policies (to gain a bigger share of
world trade) could lead to trade wars. Exchange rates are a function of: 1) yield differentials; 2) relative inflation rates; 3)
trade flows and 4) growth prospects.
Dollars and gold are currency substitutes. Both serve as a store of value. A fall or expected fall in the value of the dollar
create incentives to shift towards gold. A stronger dollar makes dollar-denominated gold appear more expensive for buyers
using other currencies.
Price of Gold is rising because:
1.Low interest rates (opportunity cost) of holding gold
2.Expected depreciation of the dollar
37
3.Unusual levels of uncertainty
4.Fears that central banks may inflate their way out of the debt crisis.
Existing Home Sales (annual rate)
& Inventories
8000
5000
4750
7500
4500
4250
6500
4000
6000
3750
3500
5500
3250
5000
3000
4500
2750
Thousands
Thousands
7000
2500
4000
2250
3500
2000
3000
1750
95
96
97
98
99
00
01
02
03
04
Recession
05
06
07
08
Sales (LHS)
09
10
11
12
13
Inventories (RHS)
The Housing Market in November
•
4.42 million annualized units sold, up 4.0% m/m, up 12% y/y. Sales are moving in the right direction.
•
Median home price was $164,200, up 2.1% m/m, down -3.5% y/y.
•
Months supply of homes = 7
Demand side factors:
1.
Low mortgage interest rates, but tight credit
2.
Rising consumer confidence, but weak job and income growth.
3.
Expect home prices to fall further into 2012, as foreclosed property eventually enters the market.
Supply-side factors:
1.
Large inventory of discounted foreclosed homes (shadow inventory) adds to supply overhang.
2.
Falling inventory of homes
3.
Falling distressed home sales.
Median Existing Home Price
& Months Supply at Current Sales Rate
14
13
12
11
10
9
8
7
6
5
4
3
2
$250
$240
$230
$220
$210
$200
$190
$180
$170
$160
$150
03
04
05
06
07
08
09
Home Prices (LHS)
10
11
12
13
38
Months Supply (RHS)
Single Family Hous ing Starts & B uilding Pe rmits
2000
1800
1800
1600
1600
1400
1400
1200
1200
1000
1000
800
800
600
600
400
400
200
Thousands
Thousands
(s e as onally adjus te d annual rate )
2000
200
95
96
97
98
99
00
01
02
03
04
05
S tarts
06
07
08
09
10
Re ce s s i on
11
12
13
B u i l di n g Pe rm i ts
Single family housing starts = 508,000 (-1.0% m/m, 16% y/y) Single family permits = 445,000 (0.9% m/m, 6% y/y)
Upward momentum is building for residential construction
Residential Construction Factors:
•
Large inventory of foreclosed homes
•
Economic uncertainty is restraining homebuyers and homebuilders
•
Rising number of distressed homes for sale as servicers increase pace of foreclosure processing
•
Dearth of new home inventory
•
Rising jobs, income and confidence.
Growth in construction < growth in households (proxy for new housing demand)
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
600
500
400
300
Thousands
Thousands
New Single Family Home Sales (annual rate)
& Inventories
200
100
0
95
96
97
98
99
00
01
02
03
Sales (LHS)
04
05
06
07
Recession
08
09
10
11
12
13
Inventories (RHS)
January new home sales pace 321,000 SAAR (-0.9% m/m, 3.5% y/y) Economist expect a 2012 housing recovery
Demand side drivers:
Rising job growth, tight credit, rising confidence, underwater potential trade-up buyers, affordable homes.
Supply side drivers: Low-priced foreclosed home sales are substituting for new home sales, low inventory.
Inventory of new homes = 151,000, record low and below long-run average
Housing backlog is falling fast as builders slow housing starts
5.6 months supply at current sales rate (relative inventory levels)
39
5.6 = 151/(321/12) (6 months = 45 year average natural rate)
Median new home sales price is $221,200 (7.0% m/m, -9% y/y)
The Housing Bubble Has Popped
(Nominal Annual Home Price Increases)
20%
14.0%
13.5%
15%
13.0%
11.1%
10.0%
10%
8.4%
7.9%
7.4%
6.7%
6.4%
5.8% 6.2%
7.2%
5.0%
5%
4.7%
4.3%
4.1%
3.1%
2.4%
2.3%
1.8%
1.0%
1.5%
7.9%
7.6% 8.0%
6.6%
6.0%
5.1%
4.9%
3.2%
1.5%
0%
-1.0%
-2.0%
-5%
-5.0%
First time since Great Depression
-6.7%
-10%
-13.2%
-15%
75 76 77 78 79 80 81 82 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 10 11
Source: National Association of Realators.
Home price depreciation will continue through early 2012. In 2011, loan processing problems (robo-signing) led to banks
and states imposing foreclosure moratoriums which led to an artificial deflation in the number of distressed home sales. In
2012, banks will increase pace of foreclosure processing, increasing supply of homes faster than a reviving economy will
increase demand for homes.
The Housing Cycle
(Inflation-Adjusted Annual Home Price Increases)
15%
9.5%
10%
6.5%
5%
5.5%
4.7%
3.1%
2.6%
1.4%
0.9%
0.1%
2.0%
2 .0%
1.7%
2.0%
0.1%
6.5%
5.7% 6.1%
4.3% 4.2%
3.5%
2.9% 3 .3%
-0.1%
0%
-0.4%
75767778798081828384858687888990919293949596979899000102030405060708091011
-0.8%
-0.8%
-0.9%
-1.3%
-1.4%
-5%
-2.8%
-4.2%
-4.8%
-4.5%
-5.0%
-8.0%
-10%
-10.8%
Real Home Prices
Inflation
-15%
-14.2%
Source: National Association of Realators.
-20%
Why are home prices falling?
Demand-Side Effects
Supply-Side Effects
•Low pent up demand
Foreclosed houses
•Fewer investors
Expected lower future home prices
•Tighter underwriting
Rising unemployment
•Expected lower future home prices
•Falling incomes
Home Price Bottom Brings Clarity to:
•Home Equity, MBS Collateral, Bank/CU Asset Values, Bank/CU Capital Levels
40
Vicious Cycles of the Mortgage Crisis
Falling
Home Prices
Negative Equity
(Home worth less
than mortgage)
Increased
Supply of Homes
Homeowners “Walk Away” or
Involuntary Foreclosures
Increase
Economic Activity
Slows
& Unemployment
Increases
Mortgage Payments
Decline
•Self-reinforcing spiral
•Feedback Loop
•Multiplier Effect
•Sum of an
Infinite Geometric Series
Banks Restrict
Lending
Bank Capital
(Loanable Funds)
Declines
Value of MBS
Declines
Banks Incur
Losses
Personal Income & Consumption Expenditures
[Year Over Year % Change]
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
10
9
8
7
6
5
4
3
2
1
0
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
13
-1
-2
-3
-4
Reces s ion
Cons umption
-5
Income
-6
•Personal income rose 3.8% y/y, up 0.1% m/m in November
Wage income rose -0.1% m/m
Unemployment rate = 8.5% => employers with labor market power
Lower interest rates => lower interest income
High profits => higher dividend and proprietors’ income
•Nominal spending rose 4.3% y/y, rose 0.1% m/m
Real spending rose 0.2% m/m (adjusted for inflation. PCE deflator = 2.5% y/y, PCE core = 1.7% y/y)
Consumers resumed durable goods spending to release pent up demand. Lower debt burdens & payments freed up income for spending.
More borrowing => raising cash flows
•Saving rate (savings / disposable personal income) = 3.5%
Consumers increased their spending despite falling incomes, lowering the savings rate.
Household Budget Constraint
Income + Chg Debt = Taxes + Debt Interest + Spending + Savings
Consumer Credit Outstanding
16
40
14
35
12
30
10
25
8
20
6
15
4
10
2
5
0
0
-2 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -5
-4
-10
1.
2.
-6
-8
Re ce s s i on
Pay off (deleveraging) = 1/3
Charge-off = 2/3
C on s u m e r C re di t Mon th l y C h an ge (RHS )
-15
-20
Ye ar-ove r-Ye ar Growth (LHS )
Surging credit due to:
•Rising non-revolving credit (financing for big ticket items)
•Rising auto loan and government-backed student loans.
• debt =>  spending =>  DY/Y
Supply Side of Credit
•Better access to credit to release pent-up demand.
Demand Side of Credit
42
•Better labor market => improving financial positions (ability) => rising consumer confidence (willingness) => credit
financed consumption
$ bil (SA)
Percent
(monthly change & annual growth rate)
National Savings Rate
[3-month moving average (Personal Savings/DPI)]
10
10
9
Greater economic stability
8
9
Equity capital gains
8
Foreign savings/capital inflow
7
7
New Mortgage Products
6
6
5
5
Low interest rates
4
3
2
1
4
3
Paradox of Thrift
Everyone increasing their
savings leads to a recession
2
1
0
0
-1
-1
Financial Stress
-2
-2
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 13
The “De” Era
Debt => Deleveraging => Deflation => Defaults => Depression
Some CU members may be experiencing rising real debt burden (Debt/Income)
 wages, hours, prices, profits =>  income =>  real debt burden
Household Debt
(As a Percent of Disposable Household Income)
140%
130%
120%
110%
100%
90%
80%
Rising real debt burden (Debt/Income)
=>  spending to service debts => slower economy
Or
=>  defaults => weaker financial system => slower economy
70%
60%
50%
40%
79
82
85
88
91
94
97
00
03
06
09
Source: BEA & Federal Reserve.
Consumers are deleveraging to work off a mountain of debt. The Great Recession has led to a
fundamental attitude shift towards debt.
The benign macroeconomic environment of the past two decades masked a buildup of financial
43
instability; it may also have been storing up the elements of prolonged social discontent.
12
Retail Sales (excluding autos)
(year over year % change)
12
12
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-11996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
-8
-8
-9
-9
-10
-10
•December total retail sales rose 6.5% y/y, 0.1% m/m.
•Consumers are moderating their spending. Electronics, gas, and general merchandise were weak. Auto, furniture, building
supply were strong.
•Modest holiday shopping season. Debt payments are down and the pace of deleveraging is gradually slowing, increasing
available cash.
Factors Reducing Consumer Demand:
1.
Few new jobs
2.
Low income/wage growth 3.5% y/y (employers have market power and workers leaving labor force)
3.
High unemployment
4.
Low confidence (budget debate and Euro-zone concerns)
5.
Falling home and stock prices (wealth effect)
Factors Supporting Consumer Demand:
1.
Reduced social security withholdings
2.
Private sector job growth
3.
Pent-up demand
4.
Falling debt payments through debt reduction and refinancing
5.
Increased credit availability
Thousands
Vehicle Sales (auto & light trucks)
Monthly Data, SAAR
23,000
23,000
21,000
21,000
19,000
19,000
17,000
17,000
15,000
15,000
13,000
13,000
11,000
11,000
Recession
Vehicle Sales
9,000
89
9,000
90
91
92
93
94
95
96
97
98
99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
10
11
12
13
•January auto sales reached 14.1 million units (seasonally adjusted annual rate) up 12% y/y. Business purchased light trucks to
release pent up demand. Sales rose due to an improving economy, falling job uncertainty, better access to credit, better
44
inventory and rising incentive spending. Average age of vehicle is now 11 years leading to a need to replace aging vehicles.
Auto sales expected to hit 14.2 million in 2012, and 16 million in 2013, up from 12.8 in 2011.
150
Consumer Confidence &
Sentiment Index
150
140
140
130
130
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
Recession
Confidence
10
Sentiment
0
95 96
97 98
99 00
01 02
Source: Conference Board & University of Michigan
0
03
04
05
06
07
08
09
10
11
12
13
Consumer Confidence Index (reflects mainly labor market) rose to 70.2 in March,
lessening the threat of low confidence on spending.
Consumers fears remain intense and could threaten spending growth. Consumers are
concerned about the state of the economy, job growth, low wage growth, volatile stock
prices, falling home prices, Washington policies, high unemployment, limited credit
availability and higher gas prices than one year ago.
Consumer Sentiment Index (sensitive to household finances, gas and stock prices)
rose to 75.7
(5-year inflation expectations = 3.0%, 1-year inflation expectations = 3.4%)
Uncertainty has fed and fed on a weak economic recovery, creating a negative
feedback loop that results in a downward economic spiral. The current level of risk
45
aversion is unsustainable.
Black Swans– low probability, but high impact events
•
•
•
•
•
•
•
•
•
Currency War => Trade War (protectionism)
Deflation
Financial regulatory reform
Massive fiscal consolidation
Double dip recession
Dollar collapse
Rapid inflation
Euro-zone sovereign debt default
Federal bailout of state budgets
What will be the “new normal”?
•
•
•
•
•
•
•
•
•
•
Subdued economic growth
Weak demand will weigh on supply
New era of thrift
High unemployment
Smaller securitization markets
Tighter underwriting standards
Less investment
Public debt will rise so that private debt can fall
Stagnant household income
Higher tax levels
46
Oil Price per Barrel
(West Texas Intermediate Crude)
150
140
130
120
Price per barrel
110
100
90
80
70
60
50
40
30
20
10
0
70 71 72 73 74 75 76 77 78 79 80 81 82 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 10 11 12 13
Recession
Nominal
Real
Oil Economics
Poil = 10 => PGas = 0.25 =>  growth 0.3-0.5%
S&P 500 Stock Index
(monthly average)
1900
1900
1800
1800
1700
1700
1600
1600
1500
1500
1400
1400
1300
1300
1200
1200
1100
1100
1000
1000
900
900
800
800
700
700
600
600
500
500
400
400
300
300
200
Nominal
Recession
200
Real
100
100
0
0
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
6 Positive Stock Factors:
1.
Low cash/money market rates => stock rally (putting money back to work)
2.
Rising economic growth and profit expectations
3.
Low inflation expectations and interest rates will keep borrowing costs low
4.
Fed “Quantitative Easing” => lowering L.T. interest rates => stock rally
5.
Liquidity – rather than fundamentals – may be driving the market
6.
Market could be exposed to a violent reversal (without warning)
07
08
09
10
11
12
13
47
Policy Prescriptions
1. Productivity enhancing structural reforms
•
•
•
•
Overhaul training schemes to decrease long-term structural
unemployment and improve a sclerotic labor market.
Bankruptcy reform to allow judges to decrease mortgage debt and
increase worker mobility.
Hiring subsidies for hard-to-employ.
Deregulate professional services to increase competition and
innovation.
2. Global rebalancing
•
•
Decrease U.S. consumption, increase U.S. exports
Encourage market determined exchange rates
3. Deficit Reduction & Tax Reforms
•
•
•
•
•
•
•
•
•
Medium-term spending cuts and tax increases around a 3 to 1 ratio
Lower public sector wages and welfare payments.
Develop credible fiscal consolidation plan.
Tax reforms to increase the efficiency of the tax code: tax consumption
and property, not income or savings. Eliminate deductions to increase
tax base and lower marginal tax rates.
Equalize the top tax rates on wages and capital.
Eliminate corporate taxes to avoid taxing investment twice.
Slow down pension and health care spending.
Increase retirement age.
Increase immigration and tempt more people into labor force.
The art of progress is to preserve order amid change
and to preserve change amid order.
Alfred North Whitehead
48
Federal Government Surplus/Deficit
(Billions of Dollars)
$500
236
$250
126
CBO's Baseline
Budget Projection
128
69
$0
80
82
-74-79
-128
84
86
88
90
92
96-22 98
94
00
-107
-150
-153
- 155
-164
-185
-203
-208
-212
-221
-221
-255
-269
-290
-$250
02
04
06
-158
-$500
-$750
10
12
16
-322
-380 -402
-459
•Bank stock purchases (TARP)
•Stimulus plan
•Mortgage bailout plan
•Income-support programs
•Recession-induced falling revenues
-$1,000
14
-161
-248
-318
-378
-413
$53 Trillion
unfunded liabilities
08
-623
-1,100
-$1,250
-1,284
-1,294
Source: Congressional Budget Of f ice.
-1,400
-$1,500
The budget deficit will narrow in fiscal 2012 to $1 trillion as spending falls and the recovery boosts payroll, personal income
tax, and corporate income tax revenues. Large personal income tax cuts enacted under President Bush are scheduled to
expire at the end of 2012.
U.S. Federal Budget
Surplus or Deficit
(as a % of GDP)
4
4
2.4
2
2
1.4 1.3
0.8
0.3
0.1
0
-2
0
-0.2
-0.6-0.8 -0.5
-0.9 -1.1
-1.3
-0.3
-0.3
-0.4
-1.1
-1.4
-1.6
-2
-2.1
-2.9
-4
-2.2
-2.6
-2.7
-2.7-2.7
-3.4-3.2
-4.2
-2.8
-3.1
-3.2
-4
-4.8 -5
-5.1
-2.9
-3.9 -3.9
-4.5
-4.7
-1.1
-2
-1.6
-1.2
-1.5
-1.9
-2.6
-3.5
-3.6
-3.2
-3.2
-6
-4
-6
-6
-7
-8
-8
Deficit-to-GDP
-5% Macroeconomic Danger Zone
-8.5
-8.9
-10
-10
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Fiscal Stimulus
The risk of inaction may be
greater than the risk of action
Debt-to-GDP < 75% U.S. Today
Debt-to-GDP = 130% post WII
Debt-to-GDP = 180% Japan Today
Ricardian Equivalence Proposition
G=>bonds=>expectations of higher taxes=>
savings rate=>consumption=>no chg AD
Foreign Lenders will finance the large
deficit due to their large demand for
“safe harbor” Treasury bills
The government could implement negative real interest rates
(nominal rates < inflation) to reduce their debt burden.
CUNA’s Economic and Credit Union
2012-2013 Forecast
As of March 2012
ECONOMIC FORECAST
•
•
•
•
•
•
The U.S. economy is expected to grow 2.5% in 2012 and 3.0 in 2013. Rising job creation will
facilitate a self-sustaining economic expansion over the next two years. Deleveraging by households
will prevent faster growth. Government fiscal austerity scheduled for 2013 could slow the economy
if current policy in not changed.
Inflation will remain at the Federal Reserve’s inflation target of 2% in 2012 and 2013. Core
inflation (excluding food and energy prices) will also stay at 2% for the next two years due to weak
wage pressure and low factory utilization. Low core inflation will keep inflation expectations low
and therefore also keep long-term interest rates low.
The unemployment rate will slowly decline over the next two years. The unemployment rate will
decline as employers increase hiring faster than new entrants coming into the labor force. The higher
than normal unemployment rate will keep credit union delinquency rates above historical averages.
The fed funds interest rate may increase in 2013 if economic growth surprises on the upside.
Labor and credit market conditions will be the major factors influencing the Federal Reserve’s
decision to raise interest rates. The Federal Reserve will wait until loan demand picks up and the
unemployment rate falls before beginning its exit strategy from its extraordinarily easy monetary
policy.
The 10-year Treasury interest rate will average 2.15% in 2012 and 2.75% in 2013. Ben
Bernanke will keep his foot on the monetary accelerator to keep downward pressure on long term
interest rates through 2012. Long-term interest rates are likely to climb over 3% by the end of 2013.
The Treasury yield curve will steepen in 2012 and 2013 as long-term interest rates rise faster
than short-term interest rates. This will increase credit union’s net interest margins as borrowing
short term and lending long term becomes more lucrative.
CREDIT UNION FORECAST
•
•
•
•
•
Credit union savings balance growth is expected to remain at 5% for the next two years. Despite
rising disposable incomes, savings balance growth will remain below its 5-year average of 6.4%, as
members begin to spend again to relieve some pent up demand and deleveraging continues.
Currently, members are paying off debt rather than save any additional surplus funds due to the large
interest rate differential between loan and deposit interest rates.
After 3 years of basically no loan growth, we expect credit union loan balances to rise 4% in 2012
and 6% in 2013. A stronger job market will increase consumer confidence in 2012. This will cause
households to release some pent up demand for autos, furniture and appliances with an increase in
spending. Auto loans, credit card loans and purchase mortgage loans will be strong growth areas.
Credit quality will improve in 2012 and 2013. Overall loan delinquency and charge-off rates will
fall as job growth accelerates. Provisions for loan losses as a percent of assets will fall to 0.40
percent in 2012, below the 0.43% recorded in 2007.
Credit union return on assets will rise to 0.90% in 2012 and 2013. Lower loan loss provisions will
boost net income in 2012 as CUs allow their allowance for loan loss accounts to decline. We expect
NCUA assessments to come in at 9 basis points of insured shares in 2012.
Capital-to-asset ratios will rise to 11% in 2013. Credit union capital ratios will approach the
record level of 11.5% set in 2006, the year before the beginning of the great recession.
50
Economic Forecast
March, 2012
Actual Results
5Yr Avg 2011
Growth rates:
*Economic Growth (% chg GDP)
Inflation (% chg CPI)
Core Inflation (ex. food & energy)
Unemployment Rate
Fed Funds Rate
10-Year Treasury Rate
0.56%
2.24%
2.00%
7.66%
1.48%
3.91%
Quarterly Results/Forecasts
2012:1
2012:2
2012:3
2012:4
1.70%
3.00%
0.60%
8.93%
0.10%
3.21%
2.00%
2.50%
2.75%
3.00%
8.30%
0.10%
2.00%
8.15%
0.10%
2.10%
8.00%
0.10%
2.20%
7.85%
0.10%
2.30%
Annual Forecasts
2012
2013
2.56%
2.00%
2.00%
8.08%
0.10%
2.15%
3.00%
2.00%
2.00%
7.50%
0.25%
2.75%
* Percent change, annual rate
All other numbers are averages for the period
Credit Union Forecast
March, 2012
Actual Results
5Yr Avg 2011
Growth rates:
Savings growth
Loan growth
Asset growth
Membership growth
Quarterly Results/Forecasts
Annual Forecasts
2012:1
2012:2 2012:3
2012:4 2012
2013
6.4%
3.0%
6.0%
1.3%
5.2%
1.1%
5.1%
1.4%
3.3%
-0.5%
3.3%
0.8%
0.9%
2.1%
0.8%
0.7%
0.1%
1.6%
0.1%
0.6%
Liquidity:
Loan-to-share ratio**
79.5%
72.2%
69.5%
70.3%
Asset quality:
Delinquency rate
Net chargeoff rate*
1.50%
0.92%
1.60%
0.91%
1.50%
0.90%
Earnings
Return on average assets (ROA)* 0.46%
0.68%
Capital adequacy:
Net worth ratio**
10.2%
10.5%
0.7%
0.8%
0.6%
0.2%
5.0%
4.0%
4.8%
2.3%
5.0%
6.0%
4.8%
2.0%
71.4%
71.5% 71.5%
72.2%
1.40%
0.85%
1.30%
0.80%
1.20% 1.35%
0.70% 0.81%
1.00%
0.65%
0.90%
0.90%
0.90%
0.90% 0.90%
0.90%
9.9%
10.3%
10.5%
10.6% 10.6%
11.0%
* Annualized Quarterly Data
**End of period ratio
See also our MCUE website
If you have any questions or comments send an email to srick@cuna.coop
51