NCUA Economic Update - January 2013


Uploaded by NCUAchannel on 22.01.2013

Transcript:
HELLO. I'M JOHN WORTH, CHIEF ECONOMIST OF THE NATIONAL
CREDIT UNION ADMINISTRATION. WELCOME TO OUR FIRST MONTHLY
VIDEO OF 2013, WHERE WE TAKE LOOK AT THE ECONOMY'S RECENT
TRENDS AND HOW THEY MIGHT AFFECT CREDIT UNIONS. OVER THE
PAST FEW WEEKS, ECONOMIC INDICATORS HAVE BEEN MODESTLY
POSITIVE. JOBS ARE UP, CONSUMER SPENDING APPEARS
SOLID, THE HOUSING SECTOR IS IMPROVING AND HOUSE PRICES ARE
RISING. WE HAD HOPED THAT AS WE TURNED THE PAGE INTO 2013,
WE WOULD BE ABLE TO SPEND LESS TIME FOCUSED ON RISKS
EMANATING FROM WASHINGTON AND MORE ON THE REAL ECONOMY, BUT
IT LOOKS LIKE WE HAVE AT LEAST A FEW MORE MONTHS OF POLICY
UNCERTAINTY COMING UP. THE GOOD NEWS IS THAT THE MOST
DIRE ECONOMIC CONSEQUENCES OF THE FISCAL CLIFF HAVE BEEN
AVERTED BY THE TAX AND BUDGET REACHED IN EARLY JANUARY
HOWEVER, THE AGREEMENT
ALSO SIMPLY POSTPONED SOME IMPORTANT
DECISIONS FOR A COUPLE OF MONTHS. THAT MEANS UNCERTAINTY
ABOUT GOVERNMENT SPENDING AND OTHER ASPECTS OF FEDERAL
BUDGET POLICY WILL CONTINUE TO IMPACT THE ECONOMY AND PRIVATE
DECISION-MAKING IN THE NEAR TERM. AS WE START UP THE NEW
YEAR, LET'S TAKE A QUICK LOOK BACK AT HOW SOME KEY
INDICATORS FARED IN 2012 AND THEN WE'LL WALK THROUGH THE
AGREEMENT AND LOOK AHEAD TO SOME THEMES FOR 2013. THE
UNEMPLOYMENT RATE TRENDED LOWER IN 2012. UNEMPLOYMENT
WAS 7.8% IN DECEMBER, THE SAME AS IN THE REVISED NOVEMBER
DATA. THAT'S DOWN FROM 8.5% IN DECEMBER 2011. PAYROLL JOBS
POSED SOLID, BUT NOT ESPECIALLY LARGE, GAINS IN
2012. PAYROLL JOBS WERE UP 1.8 MILLION IN YEAR ENDING IN
DECEMBER 2012. THAT'S THE SAME AS THE 2011 INCREASE. NEW CARS
SALES MOVED HIGHER, REFLECTING BETTER CONSUMER FUNDAMENTALS.
ABOUT 14.5 MILLION NEW CARS WERE SOLD IN 2012, UP FROM
12.8 MILLION IN 2011, AND THE BEST YEAR FOR SALES SINCE
2007. HOME PRICES TURNED UP. HOME PRICES ROSE 4.3% IN THE
YEAR ENDING IN OCTOBER, AFTER DECLINING 3.6% IN THE PREVIOUS
YEAR ACCORDING TO THE S&P/CASE-SHILLER 20 CITY
INDEX. HOUSE PRICES ARE STILL DOWN 29% FROM THEIR PEAK, BUT
RECOVERY SEEMS WIDESPREAD AND PRICES WERE UP IN 18 OF 20
CITIES OVER THE PAST YEAR. FALLING MORTGAGE RATES HELPED
HOME AFFORDABILITY. THE CONVENTIONAL 30-YEAR MORTGAGE
RATE AVERAGED 3.35% IN DECEMBER 2012, DOWN FROM 3.96%
IN DECEMBER 2011. CONSUMERS HAVE STARTED TO RESPOND TO THE
BASIC ARITHMETIC WHICH NOW OFTEN FAVORS OWNING OVER
RENTING. NEW AND EXISTING HOME SALES BOTH ROSE IN 2012 AND IN
NOVEMBER EXISTING SALES CRACKED THE 5 MILLION ANNUAL
SALES PACE THRESHOLD. CONSUMER CONFIDENCE MEASURES GENERALLY
IMPROVED, THOUGH THEY WERE VOLATILE IN 2012. IN Q4 2012,
CONSUMER CONFIDENCE AVERAGED 59.6% OF ITS JANUARY 2000
LEVEL IN 2012 Q4. THAT'S LOW, BUT STILL WELL ABOVE THE 47.5%
AVERAGE DURING 2011 Q4. GASOLINE PRICES AVERAGED $3.61
PER GALLON (REGULAR) DURING 2012, UP FROM $3.52 DURING
2011. THAT HURT CONSUMER PURCHASING POWER IN THE YEAR.
STOCK PRICES ROSE DURING 2012, REFLECTING BETTER ECONOMIC
PROSPECTS. THE S&P 500 WAS UP 13.4% DURING 2012, AFTER
POSTING NO GAIN DURING 2011. THAT HELPED TO STRENGTHEN
CONSUMER BALANCE SHEETS, INCLUDING THEIR PENSION
HOLDINGS. TOGETHER, THESE INDICATORS SHOW THAT THE
ECONOMY IMPROVED NOTICEABLY IN 2012, AS HEADWINDS FACING
CONSUMERS EASED SOMEWHAT DURING THE YEAR. FOR CREDIT
UNIONS, ECONOMIC CONDITIONS HELPED TO SUPPORT SOLID GROWTH
IN DEPOSITS, LIFTED LENDING VOLUME, AND HELPED TO PRODUCE
SIGNIFICANT INCREASES IN MEMBERSHIP IN 2012. LET'S TAKE
A FEW MINUTES TO TALK ABOUT POLICY RISKS IN 2013. KEY
INDICATORS TABLE IN THE PAST FEW VIDEOS, WE'VE TALKED ABOUT
THE POTENTIAL FOR THE ECONOMY TO MOVE BACK INTO RECESSION IN
2013 IF THE ECONOMY FELL OVER THE FISCAL CLIFF -- WHERE
INCOME TAX RATES WOULD HAVE RISEN SHARPLY ON ALL
HOUSEHOLDS, AND AUTOMATIC SPENDING CUTS WOULD HAVE TAKEN
EFFECT. THE TAX AND BUDGET DEAL HELPED TO AVERT THE MOST
DIRE CONSEQUENCES. THE ACT MADE SEVERAL IMPORTANT POLICY
CHANGES. FOR MOST TAXPAYERS, THE ACT MADE PERMANENT THE
2001/2003 TAX CUTS. UP TO THIS POINT, THESE TAX CUTS WERE
TEMPORARY, THOUGH THEY HAD BEEN IN PLACE FOR A DECADE.
THE ACT ALSO PERMANENTLY SET THE
ALTERNATIVE MINIMUM TAX AND ESTATE TAX SCHEDULES. THE NEW
PROVISIONS ON THE ALTERNATIVE MINIMUM TAX AVOID THE NEED FOR
ANNUAL FIXES AND DEBATE, WHICH HAD THREATENED LARGE TAX
INCREASES ON UPPER-MIDDLE CLASS HOUSEHOLDS. THESE TOO,
ADD MORE CERTAINTY TO TAX POLICY. THE ACT RAISES REVENUE
TO HELP BRING DOWN THE DEFICIT. IT INCREASES INCOME
TAX RATES AND LONG-TERM CAPITAL GAINS RATES ON HIGHER
EARNING TAXPAYERS AND SETS LIMITS ON DEDUCTIONS FOR
HIGHER EARNING TAXPAYERS. THE PROVISION MOST CREDIT UNION
MEMBER WILL FEEL IS THE IMMEDIATE EXPIRATION OF THE
TEMPORARY 2 PERCENTAGE POINT REDUCTION IN THE PAYROLL TAX
RATE. FOR A HOUSEHOLD EARNING $50,000 A YEAR, THAT AMOUNTS
TO A TAX INCREASE OF ABOUT $83 PER MONTH. TO PROVIDE SUPPORT
FOR THE LONG-TERM UNEMPLOYED, IT EXTENDS UNEMPLOYMENT
INSURANCE BENEFITS FOR ANOTHER YEAR. THE ACT DOES NOT,
HOWEVER, DEAL WITH THE SPENDING SIDE OF THE FISCAL
CLIFF, NOR DOES IT AUTHORIZE AN INCREASE IN THE FEDERAL
DEBT LIMIT. FOR EXAMPLE, THE AGREEMENT DELAYS THE AUTOMATIC
SPENDING CUTS UNTIL MARCH. THAT IS ROUGHLY THE SAME TIME
THE GOVERNMENT COULD YET AGAIN BE FACING A SHUTDOWN BECAUSE
IT IS NOT AUTHORIZED TO BORROW ADDITIONAL FUNDS. THE US HAS
ALREADY REACHED THE DEBT CEILING AND TREASURY IS USING
WHAT USED TO BE CALLED EXTRAORDINARY MEASURES TO
CARRY OVER UNTIL THE CEILING IS RAISED. THIS ESSENTIALLY
MEANS THAT THE U.S. COULD BE FACING YET ANOTHER FISCAL
DEADLOCK IN LATE FEBRUARY AND MARCH. BETWEEN NOW AND THEN,
LAWMAKERS AND THE PRESIDENT WILL TRY TO REACH BROADER
AGREEMENT ON THESE ISSUES. ECONOMISTS SURVEYED AFTER THE
ACT PASSED GENERALLY BELIEVE IT SIGNIFICANTLY LOWERED THE
PROBABILITY THAT THE ECONOMY WOULD BE PUSHED INTO RECESSION
IN 2013, BECAUSE IT AVERTED MOST OF THE TAX INCREASES. A
MAJORITY THOUGHT THAT IT SUCCESSFULLY REDUCED FISCAL
POLICY UNCERTAINTY. JUST OVER 40% THOUGHT IT WAS GOOD FOR
THE ECONOMY WHILE ALMOST 35% THOUGHT IT WAS BAD FOR THE
ECONOMY. MOST SEE A DRAG FROM THE TAX INCREASES OF ABOUT 3/4
PERCENTAGE POINT OF GDP GROWTH, WHICH IS ONLY ABOUT A
THIRD OF WHAT WAS EXPECTED IF NOTHING HAD BEEN DONE TO AVERT
THE CLIFF. SO, GIVEN THE ACT, WHAT DO ANALYSTS SEE FOR THE
2013 ECONOMIC ENVIRONMENT? IT LOOKS LIKE YET ANOTHER YEAR OF
"MORE OF THE SAME." IN A FORECASTING SURVEY CONDUCTED
BY THE WALL STREET JOURNAL, ANALYSTS ARE PROJECTING GDP
GROWTH OF ABOUT 2.3% DURING 2013. THAT'S ABOUT WHAT GROWTH
WAS IN 2012. AND THE CONSENSUS IS FOR THE UNEMPLOYMENT RATE
TO BE JUST UNDER 7.5% AT THE END OF 2013, DOWN FROM THE
CURRENT 7.8%. AS THE GRAPH SHOWS, THE UNEMPLOYMENT RATE
IS PROJECTED TO DECLINE FOR THE FIFTH STRAIGHT YEAR,
THOUGH IT IS EXPECTED TO REMAIN WELL ABOVE THE
PRE-RECESSION LEVEL. ANALYSTS SEE LONGER-TERM INTEREST RATES
RISING THIS YEAR; THEY ARE EXPECTING THE RATE ON 10-YEAR
TREASURY NOTES TO RISE TO 2.3% AT THE END OF 2013, UP ABOUT
40 BASIS POINTS FROM WHERE IT IS NOW. FOR CREDIT UNIONS, THE
ENVIRONMENT IN 2013 APPEARS TO BE MODESTLY SUPPORTIVE. RIGHT
NOW THE LIKELY 2013 ENVIRONMENT POINTS TO MODERATE
GAINS IN DEPOSITS AND LENDING, AND CONTINUED REDUCTIONS IN
DELINQUENCY. SO IN THE NEXT FEW WEEKS, DEPSITE
THE RECENTLY SIGNED AGREEMENT, THE MAJOR RISK TO
2013 ECONOMIC GROWTH REVOLVE AROUND THE UNRESOLVED ISSUES
ABOUT FEDERAL SPENDING AND THE DEBT CEILING. ON THE PLUS
SIDE, AN EARLY AGREEMENT THAT REDUCES SPENDING BUT DOES NOT
NOT CREATE A SHARP SHORT-TERM DOWNDRAFT WOULD PROVIDE A
BOOST TO CONSUMER AND BUSINESS CONFIDENCE AND BUOY FINANCIAL
MARKETS. THAT WOULD LIFT GROWTH PROSPECTS FOR THE YEAR.
HOWEVER, AS WE HAVE BEEN SAYING FOR SOME TIME, THE LACK
OF AN AGREEMENT ON SPENDING, AND CONTINUED WRANGLING THAT
RESULTS IN A GOVERNMENT SHUTDOWN WOULD HURT BOTH
CONSUMER AND BUSINESS CONFIDENCE, DRAG DOWN
FINANCIAL MARKETS AND SUBSTANTIALLY DARKEN THE
OUTLOOK FOR BOTH THE GENERAL ECONOMY AND FOR CREDIT UNIONS.
ANOTHER IMPORTANT THEME FOR THIS YEAR IS GOING TO BE
CONTINUED TRANSITION IN MORTGAGE MARKETS. WE EXPECT TO
SEE CONTINUED RECOVERY IN HOUSING MARKET, BUT AT THE
SAME TIME IT MAY BE A PERIOD OF DRAMATIC CHANGE: JUST
RECENTLY THE CFPB FINALIZED PARTS OF THE QUALIFIED
MORTGAGE RULE. THIS RULE ESTABLISHED NEW STANDARDS FOR
MORTGAGE UNDERWRITING AND ORIGINATION. WHILE A PROPOSED
RULE ISSUED SIMULTANEOUSLY MAY EXEMPT MANY CREDIT UNIONS FROM
SOME KEY PROVISIONS, THESE RULES WILL CHANGE THE NATURE
OF LOAN UNDERWRITING ACROSS ALL ORIGINATORS. IN ADDITION
WE MAY SEE MORE ACTIVITY ON OTHER COMPONENTS OF DODD-FRANK
IMPLEMENTATION RELATED TO MORTGAGES AND WE ALSO EXPECT
MORE DISCUSSION AROUND LONG-TERMS REFORMS FOR HOUSING
FINANCE, INCLUDING REFORMING THE HOUSING GSES. THAT'S OUR
VIDEO FOR THIS MONTH. THE ECONOMY IS GROWING MODERATELY
AND WE SAW IMPROVEMENT IN KEY CONSUMER SECTOR INDICATORS
LAST YEAR THAT SUGGEST FURTHER IMPROVEMENT IN 2013. THE TAX
AND BUDGET DEAL TOOK THE WORST ECONOMIC EFFECTS OF THE FISCAL
CLIFF OFF THE TABLE, BUT MUCH WORK REMAINS TO BE DONE IN
THAT AREA. AS A RESULT, THE POSSIBILITY FOR DIMINISHING
GROWTH PROSPECTS REMAINS UNCOMFORTABLY HIGH. IN TURN,
THAT MEANS THERE ARE STILL CONSIDERABLE ENVIRONMENTAL
RISKS FACING CREDIT UNIONS. AS ALWAYS, WE'LL BE MONITORING
INDICATORS AND POLICY DEVELOPMENTS THIS YEAR AND TRY
TO KEEP YOU UP-TO-DATE WITH THESE VIDEOS. THANKS AND SEE
YOU NEXT MONTH.