Equifax Corporate PowerPoint template

Economic and Credit Markets
Outlook
RMA Canada 2013 Convention
Toronto
Dennis Carlson, Deputy Chief Economist
11/13/2013
© 2012 Equifax Inc.
Comments on the U.S. Economic Outlook
The drag from U.S. fiscal policy is having a significant effect,
keeping economic growth far below where it should be
 Sequestration 2013 – estimates range from a loss of 0.5 to 0.7
percentage points of growth lost in 2013
– Effects are far reaching, and in some cases surprising
– Mostly achieved through cuts in one-off expenses and furloughs
– Effect on employment estimated to be 750,000 jobs that did not get
created due to sequestration cuts
 Sequestration 2014 – will be much worse as it will mean deep and
permanent cuts to staff (not just furloughs)
– CBO estimates a loss in GDP growth of 0.7 percentage points in 2014
from what it would otherwise be
– Jobs not gained estimated to be 900,000
 These cuts are on top of the drag created by the non-renewal of
previous stimulus bills and draw down from Iraq and Afghanistan wars
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The Fed and the Economy
The Fed has extended it’s low rate outlook to 2015
 Interest rates will likely remain historically very low for at least another year
or more – new record lows are highly unlikely
The Fed’s and Bernanke’s announcements in June wreaked
havoc on markets
 Investors panicked on these comments and sold of long-term bonds, raising
10-year treasury and mortgage rates 75-100 basis points – this is permanent
as investors will not retake their previous positions
 The lack of a budget deal and raising of the debt ceiling created greater
uncertainty - The Fed is not tapering any time soon
President Obama’s announcement nominating Janet Yellen
to be the next Fed Chairman is welcome news
 Long viewed a leading candidate and highly qualified
 Lengthy and ugly decision process created unnecessary uncertainty
The Fed is powerless if the U.S. defaults
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The € Zone Crisis
The €-zone problem is also our problem
Germany and the ECB have pledged to do what it takes
 Recent German elections have changed the tone with which aid is given
 Austerity measures have to be carefully considered or they may destabilize
The Greeks, the Italians and the Cypriots
 The Greek elections narrowly gave approval to the bailout conditions by
affirming the country’s leadership
 The Italian elections are a VERY BIG DEAL = rejecting the ECB bailout for
austerity deal (populists Silvio Berlusconi and Beppe Grillo won significant
gains while the standing government was given lowest share of the vote)
 Cyprus is the mighty mouse that roared – Bank deposits exceed Cyprus’
GDP by 7 times (too big to save) and deal requires significant losses by
depositors (esp foreigners). Will this lead to more bank crises in future?
In recent months this story has quieted down, but the concerns
remain and new news could rock markets hard
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Comments on the Canadian Economy
While the impact was not as drastic, nevertheless, the U.S.
financial crisis & the Great Recession crossed the border
“In the year leading up to this past June, growth averaged
only 1.4%, compared to the 2.6% growth the previous year.”
 Bank of Canada’s strategy for monetary policy was to support domestic
demand while the recovery in exports took hold
 The strategy worked domestically but not without side effects:
– Rising household leverage
– Increase in highly indebted households
– Stretched valuations in certain housing markets
 In the past year, net exports and investment made little contribution
BoC recently revised its growth forecast downward and
dropped the tightening bias it held. Consensus is that rates
are unlikely to increase until late 2014 at the earliest
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Declining Exports Puts Pressure on the Consumer
Financial Crisis dramatically impacted
Canadian Exports:
2Q Canadian GDP
Gross domestic
product
 Decreased by nearly 17% over 3 quarters
 Number of exporters fell almost 20% peak to
trough
 This is partly a reflection of weak foreign, in
particular US demand
Household
Non-Profit
Government
Since 2000 Canadian share of world exports
has fallen from 4.5% to 2.5%
Capital Formation
Inventories
Exports
Imports
-0.2
0
Source: Statistics Canada
0.2
0.4
0.6
 Trade geography is limiting – lack of exposure
to emerging markets
 Loss of competitiveness and weak productivity
growth
 Oil is now Canada’s most important commodity
Much like in the U.S., the Canadian consumer is doing
most of the heavy lifting, but for how long?
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Recent Employment Trends
Monthly Change In Payrolls
Unemployment Rate
(SA, in 1000s)
(SA, %)
100
10.5
50
Canada
USA
9.5
0
8.5
-50
7.5
-100
Source: Bureau of Labor Statistics, Federal Reserve Board, Statistics Canada, Equifax
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Jul 2013
Jan 2013
Jul 2012
Jan 2012
Jul 2011
Jan 2011
Jul 2010
Jan 2010
Jul 2009
Jul 2013
Jan 2013
Jul 2012
Jan 2012
Jul 2011
Jan 2011
Jul 2010
Jan 2010
Jan 2009
Jul 2009
6.5
-150
Jan 2009
3-yr Avg = 19k/month
Financial Market Performance Has Been Volatile
• Equity indexes have not yet recovered fully from the recession
• Bond markets are wary of changes in Fed bond-purchase activity that
impact the US Bond Market
16000
Canadian Bond Rates
S&P/TSX Capped Composite
Index (weekly average, NSA)
(%, monthly average, NSA)
7
15000
6
14000
13000
5
12000
4
11000
3
10000
9000
2
8000
1
Source: Bank of Canada, Yahoo! Finance, Equifax
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Jan-13
Jan-12
10-Yr
Jan-11
Jan-10
7-Yr
Jan-09
Jan-08
Jan-07
5-Yr
Jan-06
3-Yr
Jan-05
Jan-03
Jan-02
Jan-01
Jan-00
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
6000
2-Yr
0
Jan-04
7000
Consumer Spending Is Losing Steam
• Consumers seem to be listening to the news, and spending is slowing
down
• Assuming the trend continues, it should help stabilize and ultimately
decrease the Canadian household debt to income ratio over time
Personal Consumption Expenditures (%, SAAR)
10
5
0
-5
Canada
U.S.A.
Source: Statistics Canada U.S. Bureau of Economic Analysis, U.S. Census Bureau, Equifax
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2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-10
Canadian Consumer Debt Levels
• While U.S. Consumers deleveraged during and after the recession,
Canadian consumers did not
Household Credit Market Debt to Disposable Income
(%, NSA)
180
Canada
U.S.
160
140
Fed’s
Fed’s
UE Rate
UE Rate
Target
Target
120
100
80
60
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Statistics Canada, Federal Reserve Board, Bureau for Economic Analysis, Equifax
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2010
2012
Bank Loans Dominate Non-mortgage Consumer Debt
• Total non-mortgage debt has grown steadily throughout the recession and
recovery
• Bank Loans (both installment and revolving) have shown the most growth
Non-Mortgage Consumer Debt
Non-Mortgage Consumer Debt
(in $B, NSA)
$550
(in $B, NSA)
$600
$500
$500
Auto
$400
$450
Credit Card
$300
$200
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
2013
2012
2011
2011
2010
2010
2009
2009
2008
2008
2007
Other
2007
2013
2012
2011
2010
$0
2009
$300
2008
$100
2007
$350
Bank Loan
2012
$400
Vertical Axis Scales Not Aligned
Credit Card Market Remains Stable
• Originations have been largely flat for the past 2 years
• Credit Limits have been declining
National Credit Card Originations and Credit Limit by Vintage
(# in 1000s & $, NSA)
1600
$5,600
1400
$5,200
1200
$4,800
1000
$4,400
800
600
$4,000
2008
2009
2010
2011
Originations (L)
2012
Credit Limit (R)
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
National Credit Card Performance Is Improving
• Total balances have been largely flat since 2011
• Utilization rates have been falling slowly but consistently
Card Utilization Credit Available
National Credit Card Balances
(%, NSA)
($B, NSA)
($B, NSA)
25.0%
$85
$340
Card Act
Passed
$330
Effective
$80
24.5%
$75
24.0%
$320
$310
$300
$70
23.5%
$65
23.0%
$60
$290
$280
Utilization Rate (L)
Credit Available (R )
$270
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
2011
2010
2008
$260
2007
2013
2012
2011
2010
2009
2008
2007
22.5%
Bank Loan Origination Trends
• Revolving Loan originations, though up in Q3, have been decreasing
• Credit Limits have been increasing for Installment Loans
Installment Loan Originations
and Credit Limit by Vintage
Revolving Loan Originations
and Credit Limit by Vintage
(# in 1000s & $, NSA)
(# in 1000s & $, NSA)
450
$75,000
700
$24,000
400
$70,000
650
$22,000
$65,000
350
$60,000
300
600
$20,000
550
$18,000
500
$55,000
250
$50,000
$16,000
450
$14,000
400
200
$45,000
350
$12,000
150
$40,000
300
$10,000
2008 2009 2010 2011 2012 2013
Originations (L)
2008 2009 2010 2011 2012 2013
Credit Limit (R)
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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Bank Loan Balances
• Bank Installment balances have increased by 39% ($32 billion) since 2007
• Bank Revolving balances are at all-time highs, however the growth rate
has slowed significantly since 2010 and is being driven by secured loans
(defined as having a balance > $50,000).
Bank Revolving Balances
Bank Installment Balances
$120
($B, NSA)
($B, NSA)
$280
$240
$110
$200
$160
$100
$120
$80
$90
$40
Secured
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
2012
2011
2010
2009
2008
2007
2013
2012
2011
2010
2009
2008
$0
2007
$80
Unsecured
Auto Loan Originations
• Originations are recovering, but remain below pre-recession highs
• Credit Limits have been steadily increasing as cars continue to rise in price
Auto Loan Originations and Credit Limit by Vintage
(# in 1000s & $, NSA)
350
$28,000
300
$27,000
$26,000
250
$25,000
200
$24,000
150
$23,000
100
$22,000
50
$21,000
0
$20,000
2008
2009
2010
2011
Originations (L)
2012
Credit Limit (R)
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
Housing Remains Affordable
• Both the U.S. and Canada have seen all time highs with respect to the
affordability of housing.
U.S. Housing Affordability
Index (NSA)
Canadian Housing Affordability
Index (NSA)
250
0
0.1
200
0.2
150
0.3
0.4
100
0.5
50
0.6
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2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1990
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
Source: Bank of Canada; National Association of Realtors; Equifax
1992
0
0.7
The Housing Market is Volatile
12-Month Percent Change in Housing Starts and Teranet Home
Price Index (NSA Series)
15%
60%
10%
40%
5%
20%
0%
0%
-5%
-20%
-10%
-40%
Home Prices (L)
Housing Starts (R)
-15%
-60%
2005
2006
2007
2008
2009
2010
2011
2012
• Home starts and prices have been moving in lock-step since the recession.
Source: Equifax, U.S. Census Bureau, National Association of Realtors, Teranet
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2013
Canadian Consumer: Mortgage
• Home mortgage outstanding balances have increased $51B, or 6.4% in the
past 12 months.
Home Mortgage Debt
Outstanding Mortgage Debt
(in $B, NSA includes non-profits)
(in $B, NSA)
1200
875
1000
850
800
825
800
600
775
400
750
200
Source: Statistics Canada, Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013 Q3
2013 Q2
2013 Q1
2012 Q4
2010
2006
2002
1998
1994
1990
0
2012 Q3
2012 Q2
725
Credit Delinquencies Are Recovering
• National Credit Card, Auto Finance and Bank Loans (both installment and
revolving) are still above pre-recession levels
• Mortgage delinquencies remain very low
90 DPD+ Delinquency Rate (%, NSA)
8
Bank Installment Loan
Auto Finance
7
Bank Revolving Loan
Mortgage
National Credit Card
6
4.9
5
4
3.6
3
2
1.3
1
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
2012
2011
2010
2009
2008
0
0.9
0.5
0.3
Credit Balances by Age
• Increases in balances have been trending down
• The 66 and older population has been seeing the largest increases, yet still
maintain relatively low levels of debt overall
12 Month % change in Balance by Age (NSA)
20%
18-25
26-35
36-45
46-55
56-65
66+
15%
10%
5%
0%
-5%
Source: Equifax Canadian Consumer Credit Trends (Quarter 3/2013)
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2013
2012
2011
2010
2009
2008
-10%
Bankruptcy by Age
• Bankruptcy rates remain highest in the 26-55 age range
• Despite rising balances, the bankruptcy rate among the 66 and older
population remains stable and is very low
Bankruptcy Rate by Age (NSA)
0.3%
18-25
26-35
36-45
46-55
56-65
66+
0.2%
0.1%
Source: Statistics Canada, Equifax Canadian Consumer Credit Trends (Quarter 2/2013)
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2013
2012
2011
2010
2009
2008
2007
0.0%
New To Credit:
A Portrait of the Applicant
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New to Credit: Demographics
• The typical new to credit applicant is young and located in Ontario.
New to Credit Geographic
Profile (%, NSA)
New to Credit Age Profile
(%, NSA)
50%
45+
17%
40%
35-44
14%
30%
< 25
47%
20%
10%
25-34
22%
Source: Equifax
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Other
QC
ON
BC
AB
0%
New to Credit: What happens to an applicant?
• For every 100 new-to-credit applicants, 28 remain customers 3 years after
acquisition
• These retained customers open an average of 1.2 accounts
New to Credit Applicant Waterfall (NSA)
100
100
62
80
60
7
40
3
20
28
0
Applicants
Not
Converted
Customers
Source: Equifax
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Inactive
Attrited
Retained
Customers
New to Credit: 3 Year Performance
• Credit card is the first product opened more than 90% of the time.
• Delinquency rates are highest on credit cards and installment loans.
First Product Opened
Delinquency 60-day Rates by
Product (%, NSA)
(%, NSA)
Revolving
Loan
4%
Installment
Loan
2%
Other
0%
Mortgage
2%
6%
5%
4%
3%
2%
1%
Credit
Card
92%
0%
Mortgage Credit Card Revolving Installment
Loan
Loan
Source: Equifax
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Payday Loans:
On the Rise?
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Payday Loan: Inquiries
• Payday loan inquiries have been increasing since 2012.
12 Month % Change in Payday Loan Inquiries (NSA)
100%
80%
60%
40%
20%
0%
-20%
-40%
2011
2012
2012
Source: Equifax
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2013
2013
Payday Loan: Demographics
• Over 80% of inquiries come from consumers less than 45 years old;
additionally, nearly 90% of inquiries come from consumers with a risk score
less than 620.
Payday Loan Inquiries by Age
Payday Loan Inquiries by
ERS Risk Score (NSA)
(NSA)
46-55
14%
56-65
4%
66+
0%
18-25
17%
0%
< 520
520-579
580-619
620-679
36-45
26%
680-749
26-35
39%
> 750
Source: Equifax
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20%
40%
60%
Payment Shock:
When Bad Things Happen to Good People
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Payment Shock: Sudden Increase
Share of Nonperforming Outstanding Balances of HELOCs by
Vintage Year (NSA)
7%
6%
Origination Year
2000
2001
2002
2003
5%
4%
3%
2%
Dec-08
Dec-09
Dec-10
Source: Equifax; Data through September 2013
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Dec-11
Dec-12
Sep-13
Payment Shock: Sudden Increase
• The change in payment amount proved to be significant when predicting the
default rate.
• A payment increase of $100 increased the relative risk of default by 10%
Predicted Default Rate
6%
Predicted Default Rate by Change in Payment Amount (NSA)
5%
Payment change: $133
Default Rate: 2.8%
4%
Payment change: $620
Default Rate: 4.5%
3%
2%
$0
Source: Equifax
$100
$200
$300
$400
$500
Change in Payment Amount
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$600
$700
$800
Payment Shock: Job Loss
•
While overall delinquency rates are considerably greater among high risk
consumers, the relative risk is greater to those who are low risk.
% Change in 60+ DPD Rate
% Increase in Delinquency Post Job Loss by Risk Score
100%
(%, NSA)
< 620
620-699
> 700
80%
60%
40%
20%
0%
Credit Card
Auto Loan
Source: Equifax (The Work Number)
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Mortgage
Payment Shock: Job Loss
•
While overall delinquency rates are considerably greater among lower
income consumers, the relative risk is greater to those who have the highest
incomes.
% Change in 60+ DPD Rate
% Increase in Delinquency Post Job Loss by Salary
(%, NSA)
120%
<$50,000
$50,000 - $100,000
$100,000+
100%
80%
60%
40%
20%
0%
Credit Card
Auto Loan
Source: Equifax (The Work Number)
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Mortgage
Questions?
For further information please contact:
Dennis Carlson
Deputy Chief Economist - Equifax
706.304.0100
Email: [email protected]
The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon
information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should
consider distribution of this material as making any representation or warranty with respect to such material and should not
rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon
any such information or opinions. Such information and opinions are subject to change without notice. The opinions,
estimates, forecasts, and other views published by Equifax’s' Economic Insights group represent the views of that group as
of the date indicated and do not necessarily represent the views of Equifax or its management.
© 2013 Equifax