Economic and Banking Outlook. Major issues

Transcription

1 /1/9 Economic and Banking Outlook May 9 Major issues Consumer spending recovering? Investment t spending lagging? Housing inventories will take years to clear Bank credit losses will remain high through 11 1

2 /1/9 Real GDP growth sagging on all sides Private Fixed Investment % Change - Year to Year SAAR, Bil.$ 3 Personal Consumption Expenditures % Change - Year to Year SAAR, Bil. $ Source: Bureau of Economic Analysis /Haver Analytics Consumption spending showing signs of life Real Personal Consumption Expenditures: Durable Goods % Change - Year to Year SAAR, Bil.Chn.$ 15 Real Personal Consumption Expenditures % Change - Year to Year SAAR, Bil.Chn.$ Source: Bureau of Economic Analysis /Haver Analytics

3 /1/9 Consumption supported by increase in personal income - fall in taxes Personal Current Taxes Difference - Period to Period SAAR, Mil.$ Disposable Personal Income Difference - Period to Period SAAR, Mil.$ Source: Bureau of Economic Analysis /Haver Analytics Consumers increase savings rate temporary or longer-term? 3

4 /1/9 Consumption [savings] tracks changes in wealth in this recession Households, Nonprofit Organizations: Change in Net Worth NSA, Bil.$ Real Personal Consumption Expenditures % Change - Year to Year SAAR, Bil.Chn.$ Sources: FRB, BEA /Haver Sustained gains in stock market may recoup some wealth loss Households: Holding Gains on Corporate Equities [Mkt Value] NSA, Bil.$ Households/Nonprofit: Holding Gains on Real Estate [Mkt Value] NSA, Bil $ Source: Federal Reserve Board /Haver Analytics

5 /1/9 Unemployment will remain a major concern through 1 Civilian Unemployment Rate: 1 yr + SA, % Source: Bureau of Labor Statistics /Haver Analytics And average unemployment duration is high Average {Mean} Duration of Unemployment SA, Weeks Source: Bureau of Labor Statistics /Haver Analytics 5

6 /1/9 Job market showing some improvement Unemployment Insurance: Monthly Total Initial Claims Applications NSA, Number Source: Department of Labor /Haver Analytics Manufacturing hit by many stresses Unemployment Rate: Wholesale and Retail Trade NSA, % 1.5 Unemployment Rate: Manufacturing NSA, % Source: Bureau of Labor Statistics /Haver Analytics 7 8.5

7 /1/9 Structural changes will dampen job market improvements for some Minimum Hourly Wage Rate: Nonfarm D ollars Source: Department of Labor /Haver Analytics US household debt levels declining but still relatively high Ratio: Consumer Installment Credit to Personal Income SA, % Source: Federal Reserve Board/BEA/Haver Analytics

8 /1/9 Investment spending remains drag Real Private Residential Investment % Change - Year to Year SAAR, Bil.Chn.$ 15. Real Private Nonresidential Fixed Investment % Change - Year to Year SAAR, Bil.Chn.$ Source: Bureau of Economic Analysis /Haver Analytics Inventory levels in durables need high spending to run off Inventories/Sales Ratio: Mfg: Durable Goods Industries SA, Chained $ 1.9 Real Manufacturing & Trade: Inventories/Sales Ratio All Industries SA Chn$ Source: Bureau of Economic Analysis /Haver Analytics 8

9 /1/9 Source: Economy.com 9

10 /1/9 Some boost from construction spending Housing continues to plague NAR Median Sales Price: Existing 1-Family Homes, United States % Change - Year to Year $ Existing 1-Family Home Sales: United States SAAR, Thous Source: National Association of Realtors /Haver Analytics 5 1 1

11 /1/9 Mortgage rates key ingredient to housing market recovery Contract Rates on Commitments: Conventional 3-Yr Mortgages, FHLMC % Source: Federal Reserve Board /Haver Analytics Affordability at all time high Composite Housing Affordability Index % Change - Year to Year Median Inc=Qualifying Inc=1 Existing 1-Family Home Sales: United States SAAR, Thous Source: National Association of Realtors /Haver Analytics 11

12 /1/9 Some signs of life in housing sales New 1-Family Houses Sold: West % Change - Year to Year SAAR, Thous New 1-Family Houses Sold: United States % Change - Year to Year SAAR, Thous Source: Census Bureau /Haver Analytics Loan demand up 1

13 /1/9 Low Rates, GSE Streamline Refis Result in Origination Rebound in 9 Total Single-Family Mortgage Originations (Billions of Dollars), 3,75 Refinance Originations 3,5 Home Purchase Originations 35 3,5 3,,75,5,5, 1,75 1,5 1,5 1 1, '98 '99 ' '1 ' '3 ' '5 ' '7 '8 '9 Sources: Freddie Mac FHA Lending Is Up Sharply: Largest Share Since 19 Share of Single-Family Originations 5% Annual Quarterly 19: % FHA=9% 8Q: FHA=9% 3% % FHA & VA 1% FHA-Insured % Sources: HUD ( ), Freddie Mac & Inside Mortgage Finance (1998 Present) Q5 1Q 1Q7 1Q8 13

14 /1/9 But housing inventories are enormous New 1-Family Houses For Sale: Months Supply SA, Ratio New 1-Family Houses: Median No of Months for Sale Since Completion NSA, Months Source: Census Bureau /Haver Analytics 95 5 Housing starts will remain sluggish through 1 Housing Starts % Change - Year to Year SAAR, Thous.Units Source: Census Bureau /Haver Analytics

15 /1/9 Job Loss Main Hardship Reason Among Delinquent Prime Borrowers Hardship Reason 7 Unemployment or curtailment of income 3.% Illness or Death in the Family 5.5% Excessive obligation 1.% Marital difficulties.% Property problem or casualty loss.% Extreme hardship.% Inability to sell or rent property 1.7% Employment transfer or military service.9% All other reasons 3.7% Source: Freddie Mac; data exclude delinquent loans in Louisiana and Mississippi due to hurricane effects. Data cover only prime conventional conforming loans. GSE & GNMA Market Share Fell When Subprime Boomed; Today Main Source of Mortgage Funds MBS Share Issuance (Percent of MBS Issuance) Annual (1985 7) Quarterly (8) 9% 8% 7% % 5% % 3% % 1% % Conventional, Prime, Fixed-Rate Lending Is Mainstay of Market (1985-3) Subprime, th quarter 8: Non-Traditional Lending Boom (-7H1) FRE & FNM % Subprime Crisis, Private-label MBS Collapse (7H-8) Ginnie Mae 37% Q1 8 Q 8 Q3 8 Q Ginnie Mae Private-Label Freddie Mac and Fannie Mae Source: Inside MBS & ABS (The 8 Mortgage Market Statistical Annual - Volume II), Inside MBS & ABS (April 5, 5, July 11, 8 issues, and January 9, 9). Private-Label 1% 15

16 /1/9 National bank profitability near its 1987 low point National banking company ROE Total Assets less than $1B Percent * Recessions *Excludes effects of purchase accounting at Wachovia and National City Source: Integrated Banking Information System (OCC) Data for all bank and thrift charters in companies where national bank assets represent at least 5% of total assets. Data are merger-adjusted and held constant on a 1-year rolling basis. Data include Citibank Q:8 goodwill restatement. 31 Reserves continue to decline as a share of noncurrents National banking companies Reserves / noncurrent loans percent Source: Integrated Banking Information System (OCC) Data for all bank and thrift charters in companies where national bank assets represent at least 5% of total assets. 3 1

17 /1/9 Loans declined and core deposit growth accelerated in 8 National banking companies Q:7 Q:8 Year-year percent change Total Assets Loans Securities Domestic deposits Source: Integrated Banking Information System (OCC) Core deposits Data for all bank and thrift charters in companies where national bank assets represent at least 5% of total assets. Data are merger-adjusted and held constant on a 1-year rolling basis. Data include purchase accounting effects Record consumer charge-offs drive total charge-off rate to new highs National banks* Q:91 Previous post-199 cycle peak 3Q:9 3Q:1 Q:93 Q: Q:7 Q:8 3Q:9 Q:1 Q: Net charge-offs percent 1 1Q: Total Construction 1- family HELOC Nonres C & I Installment Credit mortg card Source: Integrated Banking Information System (OCC) *WAMU not included prior to 3Q:8. Rates skewed by purchase accounting issues, however total charge-off rate not materially affected (data do not allow restatement of detailed charge-off rates). Net charge-offs as a percent of loans in respective category. Charge-off rates are annualized. 3 17

18 /1/9 Recession everywhere but in Caribouland District charge-offs rising sharply, especially in the West National non-specialty community banks Q: Q:7 Q:8 Net charge-off rate percent Construction Residential mortgage Consumer C&I Other Q:8 net charge-off rate percent NE CE SO WE Source: Integrated Banking Information System (OCC) NE CE SO WE National non-specialty community banks have assets less than $1 billion and exclude credit card and trust banks. Data are merger-adjusted and held constant for banks in constant operation from 1Q:5 to Q:

19 /1/9 5 Increasing Delinquencies, Especially Subprime Loans 9 Days or More Delinquent or in Foreclosure (percent of number) All Loans Prime Loans Subprime Loans Source: Mortgage Bankers Association; Prime Loans includes Alt-A (Quarterly data not seasonally adjusted;1998q1-8q). Stress testing loss rates 19

20 /1/9 Comparison to 3s Asset growth fell off more sharply outside the banking system last year U.S. credit market assets held, year-year change $ billions 3,,5, Non-banks and foreign banks operating in U.S. Domestic banks & thrifts 1,5 1, (5) Source: Federal Reserve Calculations exclude Federal Reserve assets.