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Washington
NCUA's chief economist: IRR of a few should concern all
ALEXANDRIA, Va. (7/1/14)--National Credit Union Chief Economist John Worth discussed several economic factors in his monthly video address, including interest rate risk, employment statistics and automobile sales. Interest-rate risk (IRR) was identified as a potential emerging threat by the Financial Stability Oversight Council in its annual report in May.

Worth cautions that IRR should "be a concern for all credit unions that might, through potential Share Insurance Fund premiums, have to pay for the difficulties brought on by the decisions of a minority of institutions."

"In March 2005, there were 277 credit unions at which net long-term assets exceeded their combined net worth and core deposits," he said. "These 277 credit unions represented 9% of industry assets. In March 2014, that had risen to 350 credit unions, representing 27% of assets."

Worth also called the housing market indicators "mixed," since home sales are currently at 6.3% below where they were at this time last year. However, new homebuilding activities are up 4.2%.

"Some of the weakness reflects a poor start to the year due to weather, higher mortgage rates have played a role. Still, housing prices continues to rise, and nationwide we're up 6.4% according to the [Federal Housing Finance Agency's] purchase-only price index."

Unemployment numbers are more promising, with the 6.3% unemployment rate for April and May representing a 1.2% improvement over the numbers from the second quarter of 2013. The labor market has gained approximately 210,000 jobs per month in 2014 to date, an improvement from the 194,000 monthly average gains during 2013.

Auto sales, an important channel for credit union lending, have spiked, Worth said. In May, auto sales reached 16.8 million at an annual rate up more than 8% from a year earlier.

"Motor vehicle sales have jumped," Worth said, "and consumer income for the first four months of the year is up. Consumer balance sheets continued to improve in the first quarter."

Use the resource link below for the video of Worth's address.
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