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Economic UpdateMONDAK ConferenceFebruary 13, 2019. Las Vegas, Nevada Mike Schenk, Deputy Chief Advocacy Officer and Chief Economist Credit Union National Association mschenk@cuna.coop
Economic UpdateMONDAK ConferenceFebruary 13, 2019. Las Vegas, Nevada Mike Schenk, Deputy Chief Advocacy Officer and Chief Economist Credit Union National Association mschenk@cuna.coop
Laura and Meg… Laura – You basically saved me from homelessness and several other awful life alternatives I tell people about you all the time! I really thought I wasn’t going to make it. But I did! I know you think its just part of your job, but it changed my life. -Meg
Year Ending 9/18 MT = $16 mil/ $22 mil w/non-members ND = $16 mil/ $22 mil SD = $25 mil/ $35 mil MonDak = $57 mil/$79 mil $11.6 Billion!
Consumers Value the CU Difference!12-Month Growth in CU Memberships(Source: NCUA and CUNA)
Not Simply Joining! 12-Month Growth in CU Loans(Source: NCUA and CUNA)
Unemployment rate = 4.0% + CPI headline inflation rate = 1.5% Misery Index (Jan) = 5.5%
State of the U.S. Economy • U.S. economy growing at a healthy rate & more growth to come • Labor markets will remain near full employment • Inflation rising modestly and energy price changes suggest no big jumps • Consumer finances in great shape overall • A cautious but engaged Federal Reserve • Obvious market volatility • Biggest near-term concern: trade disputes • Biggest longer-term concern: U.S. government spending/debt • An obvious disconnect between “average” and “typical” consumer profiles
Economic Growth • Economic growth accelerating • Expect slower growth in Q3 and over remainder of horizon • Modest growth – well below the 2.8% norm • “trade war” matters & little chance of infrastructure spending
Unemployment Generally Down Across All Racial and Ethnic Groups (Source: BLS & CUNA)
Jobs, jobs, and more jobs Source: BLS via FRED
Nominal Changes: Up 9% over past year Up 18% vs pre-recession levels • Real Changes: • Up 7% over past year • Down 4% vs pre-recession levels
27% finding it “difficult to get by” or “just getting by” - 90 million people! 40% could not cover a $400 emergency expense 25% of non-retired have no retirement or pension
Small Businesses Confidence: A Two-Year Low National Federation of Independent Businesses Small Business Optimism Index
Trade Wars: “Good and Easy to Win”? • Economic growth reduced by 0.6% • Decline in wages of 0.39% • Loss of 467,373 U.S. jobs • Tax Foundation • Bloomberg Tariff Tracker: • 89% of largest companies report negative impact
National debt tops $22 trillion for the first time as experts warn of ripple effects Michael Collins, USA TODAY Published 4:40 p.m. ET Feb. 12, 2019 Up $1 trillion in past year alone!
More spending and lower taxes will present more obvious challenges
The Long-Term Deficit Problem • Annual Deficit Consistent with Stable or Falling Debt to GDP Ratio: ~2% of GDP • Next Decade’s Deficits: • Rising from 4% to 5% of GDP • Revenues: 19% of GDP • Spending: 24% of GDP • Must reduce future deficits by ~3% of GDP • Increase taxes? Decrease spending? • 3% of GDP is about 13% of federal outlays
Need = 13% Total Non-Discretionary = 72%
Yikes! • Education/retraining • Infrastructure/transportation • Veterans benefits • Income security • Medical research/health • International affairs • Agriculture • Science/space/technology • Community/regional development
Summary • Current fiscal policy is: • Fueling economic activity at a time the Fed is trying to slow. • Limiting options for fiscal intervention in a down economy. • Contributing to a massive debt build-up. • Increasing the government’s interest costs and limiting future funding for infrastructure spending, education spending. • Reducing national saving and income in the long term. • What’s Congress’s record on solving really big problems that won’t be obvious in the near-term?
U.S. Credit Union Outlook • Fast (but slowing) membership growth • Healthy (but slowing) loan growth • Tight liquidity/lower exposure to IRR/high asset quality • Healthy and fairly stable earnings • Capital positions nearing pre-recession peak • Concerns include significant variation in results by size and substantial consolidation
Three Key Operational Wildcards • More obvious margin pressures • Rising rates • Tight liquidity • More obvious pressure on non-interest margins • New York Times article • Lower demand for fixed-rate mortgages • Talent management • Attracting & retaining • How do you differentiate? • Operating expense pressures
Liquidity pressures may cause CUs to increase deposit rates…putting the squeeze on interest margins
Higher interest rates & recent press clippings may put the squeeze on non-interest margins
Salary & benefit expenses generally equal about half of all credit union operating expenses!