Quarterly Economic Update Key Trends Linda Haran Senior Director June 2011 Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian.
Key indicators driving current market behaviors Consumer and economic trends Consumer debt trends are normalizing, increases in revolving debt in March 2011, slowed run-off Consumer bankruptcy filings slowing in 2011, down 5% from 1Q New originations increase in late, driven by automotive and bankcard lending Increased lending is expected to continue through 2011 as consumer confidence improves Consumer spend increasing, confidence remains fragile Job losses stabilizing, unemployment will remain relatively high through 2011 as new hiring remains weak, public sector shrinks GDP growth remains positive, will be modest through 2011 Home prices continue to see declines across all major markets, trend will not slow until 2012 Foreclosures see a slow down in 1Q, expected to rise beyond the record 1 million recorded in 160 140 120 100 80 60 40 20 0 3Q 77 4Q 78 1Q 80 2Q 81 3Q 82 4Q 83 1Q 85 2Q 86 3Q 87 4Q 88 1Q 90 2Q 91 3Q 92 4Q 93 1Q 95 2Q 96 3Q 97 4Q 98 1Q 00 2Q 01 3Q 02 4Q 03 1Q 05 2Q 06 3Q 07 4Q 08 1Q 10 US Consumer Confidence Index, SA Average 2
Increases in debt by super prime consumers, as much of new lending remains focused in this sector Total consumer debt by VantageScore (in $Bs) $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 VantageScore A grade consumers hold a large portion of the total consumer debt outstanding, at over 30% as of 1Q 2011 Declines in total debt continues for high risk tiers, although at a slower pace than seen in $0 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 A B C D F Source: Experian / Oliver Wyman Market Intelligence Reports 3
Consumer bankruptcy filings decline from the peak, while foreclosures will increase in 2011 Consumer bankruptcy filings Mortgage foreclosure rates March 2011 0.8% 3.5% 3.0% 2.86% 0.6% 2.5% 2.0% 0.4% 1.5% Artificially low 1.0% 0.2% 0.52% 0.5% 0.0% 0.0% 1Q-05 2Q-05 3Q-05 4Q-05 1Q-06 2Q-06 3Q-06 4Q-06 1Q-07 2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08 1Q-09 2Q-09 3Q-09 4Q-09 1Q-10 2Q-10 3Q-10 4Q-10 1Q-11 Nevada Arizona California Utah Idaho Georgia Michigan Florida Colorado Illinois Hawaii Ohio Wisconsin Washington Oregon Arkansas South Carolina Texas Tennessee New Hampshire U.S. AZ CA FL IL MA MI NV NY NJ TX US Source: Experian File One SM Source: RealtyTrac 4
As foreclosures increase and inventories climb, home prices will continue to decline through late 2011 20% 15% -3.3% Year-over-year change at February 2011 20-MSA Composite Change 10% 5% 0% -5% -10% -15% -20% -25% Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Percent Change, a year ago 5
While still cautious, consumers begin to show signs of increased confidence $400 $390 $380 Retail sales, $Bs US retail sales increased for the tenth straight month in April 2011 $370 $360 $350 Retail sales increased by 7.9 percent from the previous year $340 $330 $320 $310 $300 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 Strong growth seen in clothing and restaurant spending from a year ago High gas prices will likely impact the rate of growth, but spend will continue through 2011 Source: Census 6
National unemployment rate Quarterly trends 11% US unemployment rate 20% Quarter over quarter percent change 18.1% 10% 9% 8.5% 9.8% 9.5% 10.0% 9.7% 9.6% 9.5% 9.4% 8.8% 15% 10% 9.8% 10.7% 16.1% 11.8% 8% 7% 6% 5% 5.1% 5.6% 4.9% 4.6% 4.5%4.4% 4.4% 4.6%4.7% 6.2% 7.2% 5% 0% -5% 0.0% -2.2%-2.2% 4.6% 2.2% 4.3%4.1% 3.2% 2.0% -3.0% -2.1% 1.1% -2.1% -6.4% 4% -10% 2011 2007 2007 2006 2011 1Q 4Q 3Q 2Q 1Q 2007 2007 2007 2007 2006 2006 2006 The national unemployment rate sees declines as private sector hiring continues Residual long-term high unemployment will continue to be impact cash flows for many 7
New hiring remains weak 6,000 5,500 5,000 4,500 4,000 3,500 Number of monthly hires, in thousands, SA Recession begins Recession ends While lay-offs have ebbed, While lay-offs the slow rate have of ebbed, new hiring the will slow keep rate of new unemployment hiring will keep relatively high through unemployment 2011 high into 2011 Steady growth in GDP will support increases in private sector hiring Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 Source: Bureau of Labor Statistics 8
Home sales slow in and into 2011 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Despite the growth in March 2011, homes sales are still down year-overyear, by -21.9% and -6.3% for new and existing homes, respectively Existing New Seasonal Seasonal Seasonal 9 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Month-over-Month growth rate Source: U.S. Census Bureau, HUD, NAR
Credit market trends
New lending sees some momentum in late Secured and unsecured new lending by quarter, all risk grades (in $BNs) Mortgage $s $150 $600 $125 $500 $100 $400 $75 $300 While still at relatively low levels, new originations increased through, led by strong volumes in Automotive and Bankcard lending $50 $25 $0 2007 2007 2007 $200 $100 $0 Much of volume in mortgage originations can be tied to refinancing activity HomeEquity Bankcard Auto Mortgage Retail Source: Experian / Oliver Wyman Market Intelligence Reports 11
New originations seeing some growth in late focused largely in super prime risk classes for most products New account originations by quarter, all risk grades (in MNs) 25 20 15 10 Auto lending in was up across all consumer risk segments, with total growth over at 25% 5 0 2007 2007 Bankcard Auto Mortgage 12
Early stage delinquency growth trends slow into 30+ delinquency rates as a percentage of balances, all risk grades 10% 9% 8% 7% 6% Foreclosures and charge-offs Slowed delinquency growth trends are partly a result of tighter lending criteria and improved performance on new vintages 5% 4% 3% 2% 2007 2011 While much of the declines can be attributed to high writeoff dollars across most product groups First mortgage HeLoan HELOC Auto Card Retail Source: Experian / Oliver Wyman Market Intelligence Reports 13
Growth in bankcard charge-offs slowing while still at a record high, a sign of improved conditions Delinquency rates as a percentage of balances outstanding 12% 30+ dpd 60+ dpd 90+ dpd Charge-off 10% 8% 6% 4% 2% Total outstanding balances as of 1Q 11 stood at $565B 0% 2007 2011 Source: Experian / Oliver Wyman Market Intelligence Reports 14
Final considerations
Turning the corner on a slow, but steady, recovery The housing market will continue to be weak through 2011 Continued downward pressure on home prices will prolong the housing recovery into late 2012, maybe longer Foreclosure backlog will increase current housing supplies, contributing to the long-term recovery outlook Increased consumer spending will continue, but cautiously Consumers beginning to take on new debt, with new bankcard and automotive lending steadily increasing Spend is seen across all retail, most notably in non-durable goods and services Interest rates remain low, for now Increases in late 2011 will reduce mortgage refinancing activity, impact cash flows, slow new borrowing 16