Archives for August 17, 2012

Less than one third of bankers believe their local economy will improve in the next six months, according to Grant Thornton’s annual Bank Executive Survey, conducted in conjunction with Bank Director. The results reflect a steep drop from the 44 percent of bankers who expected improvement in 2011. Also worrisome is that the number of bankers expecting their local economies to get worse more than doubled from 6 percent last year to 13 percent today.

Bankers also exhibited less optimism regarding the national economic outlook. The percentage of bankers expecting the U.S. economy to improve dropped by two-thirds, from 39 percent in 2011 to just 13 percent this year, while the percentage expecting the economy to worsen more than doubled from 9 percent in 2011 to nearly 20 percent in 2012.

“As global economic recovery has slowed to the point of stagnation, bank directors have become more cautious about forecasting local or national growth,” said  Nichole Jordan, national banking and securities industry leader at Grant Thornton. “Recent numbers from indicators such as job growth and unemployment have been underwhelming, tempering last year’s expectations which formed during a period of more positive economic outlook.”

Bankers are also concerned that regulatory requirements have become overly burdensome. Regulatory compliance was the most cited (94 percent) ongoing issue bankers expect to face during the coming year, followed by downward pressure on margins due to low interest rates (88 percent), and weak loan demand (67 percent).

“The newly minted Consumer Financial Protection Bureau recently settled its first enforcement action for more than $200 million. For bankers, these new regulatory pressures, combined with fair lending issues and ongoing Department of Justice investigations, make a difficult economy that much more challenging,” said Molly Curl, bank regulatory national advisory partner at Grant Thornton.

Grant Thornton and Bank Director conducted this national online survey in June and July of bank CEOs, CFOs and audit committee members. Twenty-eight percent of the respondents were from small banks (those with less than $500 million in estimated assets at the end of 2011), while the remaining 72 percent were from large banks (those with more than $500 million in estimated assets at the end of 2009). Regarding ownership structure, 50 percent report that they are public institutions, 40 percent are private and 10 percent are mutuals.

Visit www.GrantThornton.com/banksurvey or www.bankdirector.com to read or download a copy of the survey report.

The Deloitte Consumer Spending Index decreased slightly in July marking the first decline since February 2012. The Index tracks consumer cash flow as an indicator of future consumer spending.

“The Index slipped primarily due to a drop in real new home prices and a slight rise in jobless claims that offset improvements in real wages,” said Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index.  “Consumers enjoyed lower energy costs during the first half of the summer, but a rapidly increasing savings rate suggests they have put some recouped funds away for a rainy day rather than spending it.  However, gas prices have started to tick back up.  If confidence remains under pressure due to stagnant job growth, a stumbling housing market and Europe’s financial crisis, consumer spending may begin to contract heading into autumn.”

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — fell to 3.25 from an upwardly revised reading of 3.27 the previous month.

“Consumers responded favorably to markdowns and promotions in July, and we anticipate retailers will finish the summer strong as families restock before sending their children off to school,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader.  “However, that momentum may be seasonal and temporary if the Index’s decline is more than a blip on the radar.  If concerned consumers decide to tighten their purse strings, retailers may not feel the impact until the beginning of the holiday season.  Since retailers placed their holiday orders early in the year, they should map out scenarios that will help them navigate shifts up or down in consumer demand, and quickly adjust pricing, inventory and promotional strategies accordingly this fall.”

Deloitte’s analysis of factors influencing consumer spending further indicate:

• Despite low interest rates, interest income is rising, possibly reflecting an allocation shift from stocks into bonds that has accelerated in recent months.
• In the past two months the savings rate has increased from 3.6 percent to 4.4 percent.  While a rising savings rate is a long-term positive, in the short run it takes away from consumer spending. This can also be interpreted as a sign of growing consumer caution.  Historically, a rise in savings has been more of a negative for auto sales than for store-based retailers.  Auto sales have been partly responsible the weakness in monthly retail sales numbers from the Commerce Department.
• The price of gasoline has plummeted since early April.  However, this may come to an end as gasoline prices have moved back up in recent weeks, which is unusual as prices historically fall slightly from the end of June to the beginning of August.