CUNA

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• CUNAs Economic and Credit Union
• 2009-10 Forecast
• As of March 2009
• ECONOMIC FORECAST
• The U.S. economy will remain in the Great
  Recession for the remainder of 2009. Negative
  economic growth began in the third quarter of
  2008 as consumer spending declined for the first
  time in 17 years. Credit dependent sectors will
  see the largest declines as both the demand for
  and supply of funds dry up. The duration of this
  recession will be longer than the last two, due
  to greater economic imbalances in both the
  housing and debt sectors. Expect a third
  economic stimulus package in the third quarter of
  2009.
• Core inflation will decline to 0.5 in 2009.
  Falling energy prices and a slowing economy will
  reduce headline inflation to 0.5 in 2009. Core
  inflation (excluding food and energy prices) will
  also fall to 0.5 as below potential economic
  growth reduce wage and price pressures.
• The unemployment rate could climb to 9.5 by
  year-end 2009. The consumer induced recession
  will lead to the weakest labor market since 1982.
  We expect payroll employment to decline by over
  300,000 jobs per month in 2009. Falling
  employment will reduce wage and inflation
  pressures.
• The fed funds interest rate will average 0.13
  for 2009. The Federal Reserve will coordinate
  their actions with other central banks around the
  world to inject liquidity into the banking system
  in an effort to thaw the frozen credit markets.
  Any interest rate increases will come late in
  2010 and will be gradual as this economic
  recovery will be slower than usual.
• The 10-year Treasury interest rate will increase
  modestly in 2009. The recent flight to quality
  pushed the 10-year Treasury interest rate close
  to 2. As confidence returns to the credit
  markets, capital will flow back into the
  corporate and banking credit sectors, pushing up
  the 10-year rate.
• The Treasury yield curve should remain fairly
  steep through 2009. Money market interest rates
  should hover below 0.5 in 2009, while
  longer-term capital market interest rates should
  rise to around 3.5. This should boost the
  profitability of borrowing short term and lending
  long term.
• CREDIT UNION FORECAST
• Credit union saving growth will rise to 12 in
  2009. The recession, volatile equity prices and
  falling home prices will encourage households to
  boost savings balances at insured depository
  institutions.
• Credit union loan growth will fall to 6 in 2009.
  Tighter bank mortgage underwriting standards
  will create an opportunity for greater real
  estate lending at credit unions. This will
  offset weak new auto lending. Credit card
  lending will slow from its recent double digit
  growth rate as consumers hunker down and reign in
  discretionary spending.
• Credit quality will deteriorate in 2009. Falling
  home prices and the continuing mortgage credit
  crisis will spillover into the auto, credit card,
  student and business lending sectors. Overall
  loan delinquency rates will rise to 1.78 in
  2009, up from 1.37 in 2008. The largest
  increase will be concentrated in areas with the
  biggest housing price corrections. Moreover,
  loan seasoning and a weaker economy will increase
  net loan charge-offs and provisions for loan
  loss.
• Credit union return on assets will increase
  marginally to 0.40 in 2009. Deteriorating
  credit quality will put downward pressure on
  earnings in 2009. This will be offset, however,
  by the steeper yield curve causing net interest
  margins to widen.
• Capital-to-asset ratios will decline to 9.9 in
  2009. Capital contributions will not keep pace
  with asset growth, lowering net worth ratios.