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Economic Update MONDAK Conference February 13, 2019. Las Vegas, Nevada

Get the latest insights on the U.S. economy and credit union outlook at the MONDAK Conference. Discover key operational challenges and potential solutions in a changing economic landscape.

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Economic Update MONDAK Conference February 13, 2019. Las Vegas, Nevada

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  1. Economic UpdateMONDAK ConferenceFebruary 13, 2019. Las Vegas, Nevada Mike Schenk, Deputy Chief Advocacy Officer and Chief Economist Credit Union National Association mschenk@cuna.coop

  2. Economic UpdateMONDAK ConferenceFebruary 13, 2019. Las Vegas, Nevada Mike Schenk, Deputy Chief Advocacy Officer and Chief Economist Credit Union National Association mschenk@cuna.coop

  3. Stoughton Road Branch…

  4. 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

  5. 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!

  6. Significant Benefits over Many Years

  7. Consumers Value the CU Difference!12-Month Growth in CU Memberships(Source: NCUA and CUNA)

  8. Not Simply Joining! 12-Month Growth in CU Loans(Source: NCUA and CUNA)

  9. Unemployment rate = 4.0% + CPI headline inflation rate = 1.5% Misery Index (Jan) = 5.5%

  10. 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

  11. 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

  12. Unemployment Generally Down Across All Racial and Ethnic Groups (Source: BLS & CUNA)

  13. Jobs, jobs, and more jobs Source: BLS via FRED

  14. 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

  15. 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

  16. Small Businesses Confidence: A Two-Year Low National Federation of Independent Businesses Small Business Optimism Index

  17. 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

  18. 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!

  19. More spending and lower taxes will present more obvious challenges

  20. 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

  21. Need = 13% Total Non-Discretionary = 72%

  22. Yikes! • Education/retraining • Infrastructure/transportation • Veterans benefits • Income security • Medical research/health • International affairs • Agriculture • Science/space/technology • Community/regional development

  23. 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?

  24. 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

  25. 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

  26. Liquidity pressures may cause CUs to increase deposit rates…putting the squeeze on interest margins

  27. Higher interest rates & recent press clippings may put the squeeze on non-interest margins

  28. Salary & benefit expenses generally equal about half of all credit union operating expenses!

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