The Equifax Economic and Credit Markets Outlook

Transcription

1 The Equifax Economic and Credit Markets Outlook A CUNA Roundtable Amy Crews Cutts SVP- Chief Economist, Equifax May 15, 2014

2 Comments on the Economic Outlook General forecast is that economic growth accelerates in 2014 Real GDP growth of % is consensus, a hair lower than long-term average trend But, labor force participation is declining and while that bodes well for unemployment rate it is not good over the long haul given the speed and what it means for growth long term Demographic shift will lead to lower participation as baby boomers retire Proportion who leave long-term unemployment ranks for disability highest on record People live too long past retirement given current structure of Medicare and Social Security benefits Wages and employment growth may accelerate above 2013, but barely 2

3 The Great Recession Continues in the Labor Market Job Losses as Percent of Maximum Employment in Post WWII Recessions (Aligned at Maximum Loss) -0.31% as of March 2014 Source: Bureau of Labor Statistics, NBER, Equifax 3

4 Job Openings and Hiring Are Gaining Strength Hires and Separations per Month (SA, in 1000s, Data Through January 2014) Source: Bureau of Labor Statistics, Equifax 4

5 The Fed and the Economy Janet Yellen is now at the helm A big challenge lays ahead in navigating the uncharted territory of unwinding the unprecedented Monetary stimulus Likely to go slow in making any changes to policy based on data and current headwinds Tapering has had little effect on rates because of last summer s overreaction and market contraction in reaction QEIII purchases still big vs market System Open Market Account Holdings (Fed Portfolio) Source: Federal Reserve Bank of New York 5

6 Consumers Post-Great Recession The Great Recession has scarred consumers similar to what Great Depression did to our great grandparents Demand for goods and services down Demand for credit down, great deleveraging Consumers with prime credit rating can get credit, but they don t want it Those with low credit scores may want it but can t get it Bad weather in 1Q 2014 may be to blame for weak economic data, worry is that consumers are pulling back independently Early indications are that consumers are still on track 6

7 The Beveridge Curve Has Shifted Post Great Recession 2.2% Gap The Beveridge Curve shows the relationship between unemployment and the job vacancy rate (the number of unfilled jobs expressed as a proportion of the labor force) The shift out shows growing inefficiency in labor markets due to mismatches between available jobs and the skills of the unemployed or an immobile labor force Source: Equifax, US Bureau of Labor Statistics, San Francisco Federal Reserve Bank (Daly 2013) 7

8 Duration of Unemployment Unemployment Rate by Duration (% of Labor Force, SA) While short term unemployment is down to 2005 levels, long term unemployment remains highly elevated. Source: Bureau of Labor Statistics; Equifax 8

9 Economic Conditions and Job Mobility Has job mobility been affected by negative equity on home mortgages? Research says No the option to rent or default mitigates mobility constraints Equity constraints have been falling rapidly as home prices have risen with little change in employment trends Nonetheless, people are moving less post Great Recession Percent of Population That Moved In Past Year by Housing Tenure Source: Equifax, US Census Bureau Table A-4; 1-year migration data by tenure is interpolated for

10 Household Growth Remains Weak Number of people 16 years or older per household (NSA Series) Average There is significant pent-up demand for household formation. Based on the averages from the early 2000 s we have a deficit of nearly 3 million households. Source: U.S. Census Bureau; Bureau of Labor Statistics; Equifax 10

11 Salaried Jobs Are Driving Growth in Pay Average annual pay rose only 0.3% from 2012 to 2013 Hourly employee pay has been flat while salaried pay is 10.3% higher than in 2010 Average hourly wage rate has fallen slightly while average hours have been roughly flat Source: Equifax Workforce Insights 11

12 Student Loans & Auto Dominate Nonmortgage Consumer Debt Total student loan debt has grown steadily throughout Great Recession and recovery Auto continues to grow, now over $30B above peak. Non-Mortgage Consumer Debt (% of Pre-Recession Peak, NSA) Non-Mortgage Consumer Debt (% of Total Non-Mortgage Debt, NSA) Source: Equifax (Credit Trends 4.0; data through March 2014) Vertical Axis Scales Not Aligned 12

13 Annual New Car and Light Truck Sales Number of New Vehicles (Cars & Light Trucks) Sold (NSA, in 1000s) The Great Recession dramatically slowed new car and light truck sales. We estimate that there is pent-up demand of more than 26 million vehicles. Source: Equifax, U.S. Bureau of Economic Analysis 13

14 Fewer Vehicles Purchased per Driver New Auto Sales per 100K Licensed Drivers (NSA) Source: Equifax, U.S. Bureau of Economic Analysis 14

15 Households Require Fewer Cars Density Measured by Number of Vehicles per Household (NSA) Source: Equifax, U.S. Bureau of Economic Analysis 15

16 Vehicle Scrappage Rate Age Distribution of Vehicles Scrapped, 2012 (% of Total, NSA) Age of Vehicle (Years) Nearly 75% of all vehicles that were scrapped in 2012 were between 11 and 19 years old Many of the cars bought during the boom are entering this window Source: Equifax, IHS Polk 16

17 Consumers are Driving Less Annual Miles Driven per Licensed Driver (NSA) Source: Equifax, Ward s Auto, Federal Highways Administration 17

18 And Vehicles are of Higher Quality Average Vehicle Age in Years (NSA) Source: Equifax, IHS Polk The average age of a vehicle on the road continues to rise, increasing by nearly 50% over the last 20 years. 18

19 Auto Financing Continues to Grow Annual Vehicle Sales (left, Millions, NSA) and % Financed (right, % of Total, NSA) Source: Equifax, IHS Polk, U.S. Bureau of Economic Analysis 19

20 Auto Loan Originations Are Rising Auto Bank & CU Originations & Share Subprime by Vintage (# millions & % NSA) Auto Finance Originations & Share Subprime by Vintage (# millions & % NSA) Source: Equifax (Credit Trends 4.0); data as of March 2014; ERS = Equifax Risk Score) 20

21 Mortgage Rates in Context Defining Historically Low Monthly Average 30-Year Fixed Mortgage Rates (%, NSA) Weekly Average 30-Year Fixed Mortgage Rates (%, NSA) 24 New Record Lows Set Since August 2011 Notes: Through 1961, rates are based on 25-year mortgages. FHA was created in 1934 and the original term of FHA insured fixed-rate loans was 20 years. Gradually terms extended to 30-years. Source: Equifax, Freddie Mac, National Bureau of Economic Research; 04/18/

22 Excess Housing Inventory is Now Below Trend Total Vacant Housing Units (in Thousands; NSA) Source: U.S. Census Bureau, (Through 3 rd Quarter 2013) 22

23 The Housing Market Has Finally Hit Bottom 12-Month Percent Change in Total Home Sales, Housing Starts and CoreLogic Home Price Index (NSA Series) Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of April 18, 2014) 23

24 But Housing Market Is Far From Bubbly Home Sales, Home prices and Housing Starts Levels Relative to Pre-Recession Peaks (NSA Series;100% = Pre-recession peak) Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of April 18, 2014) 24

25 Housing Starts Are Rising Single Family Housing Starts (1000s, SAAR) Source: Equifax, U.S. Census Bureau 25

26 Lending Standards Remain Tight % of Banks Tightening Lending Standards (NSA Series) Index of Current Conditions for Buying a House (NSA Series) Source: Federal Reserve Board; University of Michigan; Equifax. Index score is % favorable less % unfavorable plus

27 U.S. Consumer Deleveraging: Mortgage Home mortgage outstanding balances, including 1st liens and home equity lines and loans, have risen by $297 billion since October 2013, or 3.6%. 22% of March 2014 Balances were originated in Home Mortgage Debt (% of pre-recession peak, NSA) Origination Year of Outstanding Mortgage Debt (%, NSA) As of March 2014 Source: Equifax (Credit Trends 4.0; data through March 2014) 27

28 The Mortgage Originations Refi Boom Is Over Total Single Family Mortgage Originations ($Bil) Source: Equifax, Mortgage Banker s Association ( ), Federal Financial Institutions Examinations Council; updated 04/22/2014. Forecast average from Mortgage Bankers Association, Moody s Analytics, Freddie Mac, and Fannie Mae. 28

29 HELOC Resets Are on the Horizon Outstanding HELOCs by Vintage Year Average Balance (NSA, $) Balances Outstanding (NSA) Dollars, in Billions Percent Subprime Source: Equifax; Data through March 2014 Nonperforming Performing % < 620 at Origination % < 620 Currently 29

30 HELOC Resets Are on the Horizon Average Payment Increase at Reset (NSA, $) Cumulative National Home Price Change by Vintage (NSA, %) Vintage years are at very high risk for bad performance at reset Source: Equifax, Equifax Property Data and Analytics, FHFA; Data through March

31 At the 10-Year Mark, Delinquencies on HELOCs Almost Double Share of Nonperforming Outstanding Balances of HELOCs by Vintage Year (NSA) Source: Equifax; Data through March

32 Estimated HELOC Payment Shock Impact The change in payment amount proved to be significant when predicting the default rate. A payment increase of $100 increased the relative risk of default by 10% Predicted Default Rate by Change in Payment Amount (NSA) Predicted Default Rate Payment change: $133 Default Rate: 2.8% Payment change: $620 Default Rate: 4.5% Source: Equifax Change in Payment Amount 32

33 Questions? For further information please contact: Amy Crews Cutts SVP, Chief Economist - Equifax amy.cutts@equifax.com The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published by Equifax s' Economic Insights group represent the views of that group as of the date indicated and do not necessarily represent the views of Equifax or its management.