CUNA Economic and Credit Union Forecast by benbenzhou

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									 Economic Forecast
 April 2006


                                          Actual Results   Quarterly Results/Forecasts          Annual Forecasts
                                         5Yr Avg 2005 2006:1 2006:2       2006:3    2006:4       2006     2007

 Growth rates:
 *Economic Growth (% chg GDP)              2.5%     3.5%    5.0%    3.2%      2.8%       2.5%      3.4%      2.5%
 Inflation (% chg CPI)                     2.5%     3.4%                                           2.2%      1.8%
 Core Inflation (ex. food & energy)        2.0%     2.2%                                           2.5%      2.0%
 Unemployment Rate                         5.4%     5.1%    4.8%    4.8%      4.8%       4.9%      4.8%      5.2%
 Fed Funds Rate                           2.24%    3.21%   4.41%   4.88%     5.00%      5.00%     4.82%     5.00%
 10-Year Treasury Rate                    4.79%    4.27%   4.56%   4.70%     4.90%      5.00%     4.79%     4.80%
 * Percent change, annual rate. .
 All other numbers are averages for the period




Credit Union Forecast
April 2006


                                          Actual Results        Quarterly Results/Forecasts        Annual Forecasts
                                         5Yr Avg 2005      2006:1   2006:2     2006:3    2006:4     2006     2007

Growth rates:
Savings growth                              8.6%    3.8%    2.6%      1.1%       0.9%      1.4%      6.0%       9.0%
Loan growth                                 9.3%   11.3%    0.5%      3.1%       2.6%      1.8%      8.0%       6.0%
Asset growth                                8.7%    5.1%    2.6%      1.2%       1.0%      1.4%      6.2%       9.5%
Membership growth                           2.4%    1.7%    0.9%      0.1%       0.5%      0.3%      1.8%       1.8%

Liquidity:
Loan-to-share ratio**                     74.4%    80.0%   78.4%     79.9%     81.3%      81.6%     81.6%      79.3%

Asset quality:
Delinquency rate**                        0.76%    0.72%   0.77%     0.83%     0.88%      0.90%     0.85%      0.95%
Net chargeoff rate*                       0.49%    0.55%   0.50%     0.50%     0.60%      0.65%     0.56%      0.60%

Earnings
Return on average assets (ROA)**0.98%              0.85%   0.60%     0.70%     0.80%      0.80%     0.73%      0.80%

Capital adequacy:
Net worth ratio**                         11.0%    11.2%   11.2%     11.1%     11.2%      11.3%     11.3%      11.2%

* End of period annualized rate
**End of period ratio

See also our MCUE website
If you have any questions or comments send an email to srick@cuna.coop
                   CUNA’s Economic and Credit Union
                        2006 & 2007 Forecast
ECONOMIC FORECAST
•   Economic growth will fall in 2006 to 3.4%, slightly below the long-term sustainable trend rate
    of 3.5%. Rising interest rates, high oil prices, low household savings levels, and record debt levels
    will slow consumer and business investment spending in 2006. This trend will continue into 2007
    further depressing economic growth.
•   Inflation will moderate over the next 2 years. In 2006, consumer prices will have fully
    incorporated the effects of higher oil prices. This will lead to slower price increases moving forward.
    Other forces restraining prices are efficient big box retailers, intense global competition, labor
    productivity gains and tepid wage growth.
•   The unemployment rate should remain around the full employment level of 4.7-5.0% in 2006.
    Expect modest wage pressure if the unemployment rate heads lower.
•   The fed funds rate will rise to 5.0% by May of 2006. In 2006, the Federal Reserve will have
    changed their monetary policy from monetary stimulus to monetary neutrality. Barring any major
    economic disruption, the fed funds rate will remain close to 5.0% through 2007.
•   The 10-year treasury interest rate is expected to increase modestly in 2006 and 2007. Asian
    currency intervention and bond investors’ expectations for moderate inflation will keep long-term
    rates from rising dramatically in 2006. However, the federal government’s need to borrow funds to
    finance their deficit spending will increase the supply of bonds in the bond market. This will push
    down the price of bonds and increase their rates. Also, watch for higher overseas investment
    spending to reduce the exchange rate of the dollar and increase U.S. interest rates. Slower economic
    growth in 2007 will reduce inflation expectations and interest rates.
•   The Treasury yield curve will remain flat in 2006 and 2007. A flat yield curve will encourage
    borrowers to borrow long-term and lenders to lend short-term. For those credit unions who have
    more variable-rate liabilities than variable-rate assets, a flat yield curve will put downward pressure
    on their net interest margins.

CREDIT UNION FORECAST
•   Credit Union saving growth will increase in 2006 to 6% due mainly to rising real and nominal
    interest rates and slowing home price appreciation. In other words, households will have to increase
    their net worth not by capital gains on their assets but by savings flows. This trend will accelerate in
    2007 with savings growth reaching 9%.
•   Credit union loan growth will taper off somewhat in 2006 to around 8%, as rising interest rates
    and low pent-up consumer demand reduce members’ demand for loans.
•   Expect a lower trend level of bankruptcies and charge-offs in 2006, but higher delinquency rates
    due to the newly enacted bankruptcy law. In 2007, slower loan growth, loan seasoning and a slower
    economy will increase both credit quality measures.
•   Credit union return on assets will fall to around 0.73 in 2006. Absent significant increases in non-
    interest income or additional interest rate risk, a flat yield curve will reduce net interest margins and
    therefore net income. The flat yield curve in 2007 will keep credit union ROA numbers in the
    0.80% range.
•    Capital-to-asset ratios will remain stable in 2006 and 2007, as capital contributions keep pace
    with asset growth.

								
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