Jesse Thompson Regional Business Economist The Federal Reserve Bank of Dallas, Houston Branch November 2011

Transcription

1 Jesse Thompson Regional Business Economist The Federal Reserve Bank of Dallas, Houston Branch November 2011

2 Drivers in the recovery How re We Doing? The Trails Ahead & Risks to the Outlook

3 Energy Upstream & Downstream Manufacturing and Technology Trade

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5 Dallas Fed research: Texas still benefits from higher oil and gas prices Effects of oil price shocks smaller than in the 70s and 80s 10% increase in oil prices leads to: 0.3 % rise in employment (one-third earlier effect) 0.5 % rise in GDP (one-fourth earlier effect) Energy industry has buffered Texas from many national downturns

6 Texas #1 producer of oil and gas in the nation Texas has 25% of U.S. refinery capacity 60% of U.S. petrochemical production Prominence of oil and gas extraction industry has diminished, but remains substantial

7 Percent Share of Total Texas Output WTI Spot Price 2010 $/barrel '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 0

8 160 Oil WTI Crude Oil and Natural Gas Prices NG WTI Natural Gas Feb 2007-Oct 2008-Jun 2009-Feb 2009-Oct 2010-Jun 2011-Feb 2011-Oct 0

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11 Energy sector s resurgence driven by natural gas Improvements in technology key: Horizontal drilling Hydraulic fracturing Share of gas rigs rose to nearly 90% of rig count in 2005 Texas produces 70% of U.S. shale output

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13 Horizontal drilling continues to displace other technologies 70.0% 60.0% 50.0% 40.0% Directional Horizontal Vertical 30.0% 20.0% 10.0% 0.0% 1/5/2007 1/5/2008 1/5/2009 1/5/2010 1/5/2011

14 Number 2,500 2,000 Gas-directed rigs Oil-directed rigs 1,500 1, Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 SOURCE: Baker Hughes

15 Gulf of Mexico U.S. Rig Count /5/07 1/5/08 1/5/09 1/5/10 1/5/11

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17 Texas #1 in downstream production High oil and gas prices hurt downstream industries Strong growth in foreign demand boosts downstream industry

18 Chemical exports growing because of weak domestic demand at home, strong growth in developing world But also driven by low natural gas prices North America makes many key chemicals and plastics with natural gas, while rest of world uses oil On an energy-equivalent basis, natural gas less than one-third the price of oil North American companies have huge cost advantage

19 Percent TX/LA Gulf Coast West Coast IN/IL/KY East Coast Other 5 0 Note: West Coast is DOE definition of PAD 5, IN/IL/KY is PAD2, and the East Coast is PAD 1; Inland Texas has another 4 percent of U.S. capacity; Operable distillation capacity per calendar day; January 1, 2010.

20 Location Houston/Texas City/Baytown New Orleans/Baton Rouge Beaumont/Port Arthur/Lake Charles Number of Refineries Capacity (000 b/d) 9 2, , ,836.9 Corpus Christi Source: Energy Information Administration

21 By destination country Mexico 16.2 Netherlands 9.7 By product shipped Distillate 33.1 Residual 23.4 Canada 9.0 Petroleum Coke 22.1 Singapore 5.8 Chile 4.4 Gasoline 11.0 Other 10.5

22 Values Gulf Coast Downstream Margins Ethylene Cash Margins* Pace Gulf Coast Refining Margins** Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 *Based on ethane feedstock (cents/lbs). **Based on West Texas Sour - RFG ($/barrel). SOURCE: Oil and Gas Journal.

23 Location Number of Crackers Capacity (000 ton/yr) Houston/Texas City 16 13,890 New Orleans/Baton Rouge Beaumont/Lake Charles 7 5, ,288 Corpus Christi Source: Oil and Gas Journal

24 Gas Feedstock Oil product feedstock -40 Jan-1997 Jan-1999 Jan-2001 Jan-2003 Jan-2005 Jan-2007 Jan-2009 Jan-2011

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27 B/D, thousands With capacity growth, weak consumption at home, & strong global demand J a n J a n J a n J a n J a n J a n

28 2000 $, millions Plastics Chemicals '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

29 Index, Jan = Texas U.S. 100 California 50 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

30 Texas/Louisiana Gulf Coast region is a major producer of oil, oil products, petrochemicals and plastics. Exports have grown rapidly, Recently setting record highs in Refined petroleum products! Texas-Mexico border trade was reshaped by China s 2001 entry into WTO. Exports have come back strongly after the recession, led by autos.

31 Metro Area Peak Trough Decline (%) Texas July 2008 November 2009 El Paso Brownsville February 2008 February 2008 September 2009 Bottom to Today (%) August Laredo August 2007 October McAllen February 2008 March

32 400 Non US Mexico's exports in the lead (Index, January 2000=100, real s.a.) 350 Exports U.S. 20% ROW Exports_US Exports Exports_ROW %

33 Maquiladoras are Rebounding Index July 2007=100, SA Matamoros Nuevo Laredo Reynosa Juarez Nogales Mexicali Tecate Tijuana Source: INEGI

34 10 percent increase in maquiladora output in Ciudad Juarez leads to an increase in El Paso employment as follows: 3.0 percent increase in total employment 5.4 percent in transportation employment 1.4 percent in retail trade employment 2.2 percent in finance, insurance and real estate (FIRE) employment 2.0 percent in services employment (-) 1.2 percent in manufacturing employment

35 Over the years, the bulk of the impact has switch from the manufacturing sector to the services sector. El Paso continues to be a supplier to the maquiladoras in Juarez, but we now supply business services. This is good news to us because these type of jobs pay higher wages than the traditional manufacturing jobs

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37 High-tech manufacturing and services an important economic driver in the 90s High-tech manufacturing output grew 10X as fast as Texas GDP Austin silicon prairie Dallas telecom corridor Tech bust caused industry downsizing Growth strongest in high-tech manufacturing and computer systems design since bust

38 Percent CA TX OR CA NY TX Manufacturing Services

39 Index, '90=100 Computer Systems Design Telecom Computer & Electronics Mfg. Data Processing

40 Index, '97=

41 The State of the Economy Employment/Unemployment Housing Trade & Autos

42 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct Houston El Paso San Antonio Texas Fort Worth Austin Dallas McAllen 90

43 Metro Area Peak BCI Trough BCI Peak To Trough Trough to Dec Texas July 2008 November Houston August 2008 December Ft Worth May 2008 November Dallas February 2008 December San Antonio April 2008 September Austin February 2008 December

44 Jan-2007 Apr-2007 Jul-2007 Oct-2007 Jan-2008 Apr-2008 Jul-2008 Oct-2008 Jan-2009 Apr-2009 Jul-2009 Oct-2009 Jan-2010 Apr-2010 Jul-2010 Oct-2010 Jan-2011 Apr-2011 Jul-2011 Oct Nonfarm Payroll Employment Austin Houston San Antonio Ft. Worth Dallas 92

45 Unemployment rates still elevated U.S. 8.5 Texas 8.4 Austin Jan-2007 Oct-2007 Jul-2008 Apr-2009 Jan-2010 Oct-2010 Jul-2011 SOURCE: Bureau of Labor Statistics.

46 Educational & Health Services Three-Period-Average Annualized Monthly Employment Growth Rate* Government Other Services Leisure & Hospitality Professional & Business Svc Financial Activities Information Trade, Transp & Utilities Manufacturing Construction & Mining Total Nonfarm, Austin *Seasonally adjusted. -2% -1% 0% 1% 2% 3% 4% 5% 6% 7%

47 Last three months average annualized monthly Employment Growth Rate* Government Other Services Leisure & Hospitality Educational & Health Services Professional & Business Svc Financial Activities Information Trade, Transp & Utilities Manufacturing Construction & Mining Total Nonfarm, Austin *Seasonally adjusted. -20% -10% 0% 10%

48 Index U.S. Texas Initial claims remain in downward trend Jan-2007 Aug-2007 Mar-2008 Oct-2008 May-2009 Dec-2009 Jul-2010 Feb-2011

49 SARR, Mil. Units Light-vehicle sales August = Change from August 2010 to August2011 GM Ford Toyota Hyundai Chrysler Nissan 9% -1% 11% -13% 16% 28% 27% 11% 24%

50 Index 150 Production levels at pre-recession peak Texas - Total Texas - Manufacturing 120 Q Q Q Q Q Q Q Q3-2010

51 Chemicals Plastics and Resins Manufacturing 55 Computers, Computer 50 Eq, Semiconductors Jan-2007 Sep-2007 May-2008 Jan-2009 Sep-2009 May-2010 Jan-2011 Sep-2011

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54 FOMC Statement: the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

55 FOMC Statement: Still Twisting The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions-- including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of

56 FOMC Statement: Still Twisting Holding on To MBS portfolio and of rolling over maturing Treasury securities at auction. The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

57 The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability. FOMC Statement: Still Twisting Holding on To MBS portfolio Maintaining the size of the balance sheet

58 FOMC Statement: Still Twisting Holding on To MBS portfolio Maintaining the size of the balance sheet Zero interest rates for foreseeable future The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

59 FOMC Statement: Still Twisting Holding on To MBS portfolio Maintaining the size of the balance sheet Zero interest rates for foreseeable future We still have tools to use, and of course

60 FOMC Statement: Still Twisting Holding on To MBS portfolio Maintaining the size of the balance sheet Zero interest rates for foreseeable future We still have tools to use, and of course all of the above is subject to CHANGE

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62 GDP (2005$) CPI Total IP PCE (2005$) Corp. Profit USA Mexico Japan Russia Brazil India China GDP growth forecast trending up since November No acceleration before 2H 2011 Eurozone

63 Euro zone Crisis Federal Regulatory Uncertainty Slowdown or Correction in Emergent Economies Federal Fiscal Uncertainty

64 France $28b Germany $39b U.K. $69b Chart 22: An interconnected Europe Foreign Bank Exposures: Ireland $473b $2b $13b Portugal $213b $3b $5b $4b $13b $4b TOTAL foreign claims on Italy: $912b $15b $10b Belgium $516b $5b Spain $726b $1b Greece $138b

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66 Health Care Reform Act 1000 pages long Texas Medical Center expects as many as 250,000 pages once all implementation rules are completed. Dodd-Frank Act over 2,000 pages long, contains 16 titles, 38 subtitles and a total of 541 sections Davis Polk & Wardwell: of the 541 rule makings mandated, 31% have not yet been proposed. Environmental and Tax Policies remain volatile

67 Slow growth turned to recession and financial crisis in the US economy; a slowdown in the developing world turned to global recession A sharp reverse in the commodity boom, especially in oil markets caused a setback in We have gotten help from commodity markets to move growth back in front of the US growth rate. Many uncertainties persist space, fracking regulation, cap and trade, healthcare reform, etc Texas Employment Growth forecast for 2012: 2.0%

68 Jesse Thompson Regional Business Economist The Federal Reserve Bank of Dallas, Houston Branch November 2011

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72 Plasticsnews.com

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74 2000-Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 50% Non-OECD driving demand growth 40% 30% 20% 10% 0% Non-OECD OECD -10%

75 70% Chinese oil demand growth outpaces U.S. by a wide margin 60% 50% 40% 30% 20% China U.S. 10% 0% -10%

76 Millions of Dollars 80,000 Change in Treasury Holdings by Maturity (12 September- 2 January 60,000 40,000 20, ,000-40,000-60,000-80,000 Within 15 Days Days 91 days to 1 year 1 year to 5 years 5 to 10 years Over 10 Years