Upstate New York Regional Advisory Board Federal Reserve Bank of New York Thursday, November 15, Tony Davis, Officer & Director

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1 AGENDA 1:3am-1:35am 1:35am-11:5am 11:5am-11:35am 11:35am-1:pm 1:pm 1:15pm 1:15pm-1:55pm Upstate New York Regional Advisory Board Federal Reserve Bank of New York Thursday, November 15, 18 Welcome Tony Davis, Officer & Director The National Economy Richard Peach, Senior Vice President International Update Matthew Higgins, Vice President Regional Update Jaison Abel, Assistant Vice President Adjourn to NWC Room-1F Lunch Round Table Discussion with John Williams, President and Michael Strine, First Vice President Introductory Remarks and Welcome from President Williams Group Discussion (15- minutes per section) Your experiences provide insight into current economic conditions. In considering each question, please reflect on the experiences of your firm, firms of similar size, and firms in your industry. Please provide a rationale for each answer. Business Activity Have sales volumes increased, decreased, or stayed the same since the first half of 18? What are your expectations for the first quarter of 19? Prices Have prices of products/services sold increased, decreased, or stayed the same in 18? What are your expectations for 19? Employment and Wages What are your employment expectations moving into 19? How have you partnered with other organizations (ex. educational institutions) to address labor demands? Has your organization created workforce development programs?

2 : pm Adjourn Upstate New York Regional Advisory Board Federal Reserve Bank of New York Thursday, November 15, 18 How would you characterize wage growth in your company in 18? What are your expectations for 19? Current Issues Please briefly discuss the impact of the following recent and prospective policy changes on your business: Changes to tariffs & trade policy Changes to federal tax law Increases to minimum wage Outlook for 19 What is the most significant business opportunity you see in 19? In what area of your company do you expect to see the most significant growth? What is the chief growth barrier or concern facing your firm in 19? Concluding Remarks from President Williams

3 Upstate New York Regional Advisory Board Meeting Federal Reserve Bank of New York 33 Liberty Street Thursday, November 15, 18 ATTENDEE LIST Board Members Aminy Audi President & CEO L. & J.G. Stickley Scott Bieler President West Herr Automotive Group Lynne Marie Finn President & CEO Broadleaf Results, Inc. Kenneth M. Franasiak Chairman Calamar Linda MacFarlane President & CEO Community Loan Fund of the Capital Region Carlos Unanue President Goya de Puerto Rico, Inc. Federal Reserve Bank of New York John Williams Michael Strine Jack Gutt Gerard Dages Richard Peach Matthew Higgins Anand Marri Shawei Wang Jaison Abel Jason Bram Julia Gouny Tony Davis Chelsea Cruz President First Vice President EVP, Communications & Outreach SVP & Senior Advisor, Executive Office SVP, Research & Statistics VP, Research & Statistics VP & Head of Outreach & Education AVP, Legal AVP & Head of Regional Analysis, Research & Statistics Officer, Research & Statistics Officer & Deputy Chief of Staff, Executive Office Officer & Director, Outreach & Education Associate, Outreach & Education

4 US Macro Overview November 15, 18

5 Overview Growth in the US has firmed since 16 with real GDP up 3% over the four-quarters ending in 18Q3. Fiscal stimulus is contributing to this pick up in growth. Several indicators suggest that the economy is at or near full employment, with clearer evidence that the rate of increase of wages/compensation has moved higher. Underlying inflation has moved up to the FOMC s objective of %. But at this time we do not see evidence of building inflation pressures. 1

6 Growth of Real GDP Four Quarter Percent Change Source: Bureau of Economic Analysis Four Quarter Percent Change Note: Shading shows NBER recessions.

7 Industrial Production: Total and Manufacturing % Change, Year to Year % Change, Year to Year Industrial Production: Total Industrial Production: Manufacturing Source: Federal Reserve Board - 3 Note: Shading shows NBER recessions.

8 Real PCE and the Personal Saving Rate 1 Month % Change % Personal Saving Rate Real Personal Consumption Expenditures Source: Bureau of Economic Analysis, Federal Reserve Board via Haver Analytics -6 Note: Shading shows NBER recessions.

9 Personal Saving Rate and Household Net Worth Personal Saving Rate (Percent) Personal Saving Rate (Percent) Q (691.87, 6.8) Q1 to 5Q 6Q1 to 11Q 8 6 1Q1 to present 1983Q1-18Q Source: Bureau of Economic Analysis and Federal Reserve Board Households Net Worth as a Percent of Disposable Income 5 6 Note: Fitted line is from 1983Q1 to 5Q.

10 Household Liabilities over Disposable Income Ratio Ratio Source: Federal Reserve Board and Bureau of Economic Analysis via Haver Analytics. 6 Note: Shading shows NBER recessions.

11 Single Family Housing Market Index Level Single Family House Price Index (Left Axis) Source: CoreLogic, National Association of Realtors, via Haver Analytics Months Supply (Right Axis) Months Note: Shading shows NBER recessions

12 Housing Starts Thousands, 3 MMA Total Multifamily (Left Axis) Thousands, 3 MMA Single Family (Right Axis) Source: Census Bureau via Haver Analytics 8 Note: Shading shows NBER recessions.

13 Business Fixed Investment Firming Four Quarter Percent Change Four Quarter Percent Change Source: Bureau of Economic Analysis - 9 Note: Shading shows NBER recessions.

14 Real Government Consumption and Gross Investment Quarter % Change Quarter % Change Federal State and Local Source: Bureau of Economic Analysis via Haver Analytics Note: Shading shows NBER recessions.

15 Federal Deficit % of GDP % of GDP CBO Projection- Actual April Average % CBO Projection- June Source: Congressional Budget Office, FRBNY staff calculations -1 11

16 Gross Federal Debt as a Percentage of GDP Percent Gross Federal Debt (Left Axis) Aug 18 Aug 18 June 17 June 17 Percent Gross Federal Debt Held by the Public (Right Axis) Projection Source: CBO; Haver. Note: Shading shows NBER recessions.

17 Real Net Exports as a % of GDP Percent - Percent Source: BEA; Haver Analytics. Note: Shading shows NBER recessions.

18 Labor Market Indicators Percent 1 Percent Labor Force Participation Rate (Right Axis) Unemployment Rate (Left Axis) Employment to Population Ratio (Right Axis) Source: Bureau of Labor Statistics via Haver Analytics 56 1 Note: Shading shows NBER recessions.

19 Growth of Average Hourly Earnings and ECI Annual % change Annual % change 3 Average Hourly Earnings 3 Employment 1 Cost Index: Private Sector Wages & Salaries Source: Bureau of Labor Statistics via Haver Analytics 15 Note: Shading shows NBER recessions. 1

20 Employment Cost Index and the Unemployment Rate % Change, Year to Year % Change, Year to Year ECI: Wages & Salaries for Private Industry Workers (SA) Civilian Unemployment Rate: 16 yr + (SA, %) 16 Note: Data reported quarterly Source: Bureau of Labor Statistics from Q1-9 to Q

21 Unemployment Rate and Labor Share of National Income SA, % Labor Share Ratio Unemployment Rate (Left Axis) Labor Share (Right Axis) Source: Bureau of Labor Statistics via Haver Analytics Note: Shading shows NBER recessions.

22 Measure of Underlying PCE Price Inflation 1 Month % Change 1 Month % Change FOMC Objective for Headline PCE Inflation Core PCE Deflator Source: Bureau of Economic Analysis via Haver Analytics - 18 Note: Shading shows NBER recessions.

23 Core PCE 6-Mo % Change, Annualized 3 Services excl. Energy 6-Mo % Change, Annualized Core Goods excl. Food & Energy Source: BEA; Haver Analytics Note: Shading shows NBER recessions.

24 Global Economic Outlook Upstate New York Regional Advisory Board Matthew Higgins, 15 November 18 The views expressed here are those of the author, and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System Roadmap Update on the global economic and industrial cycle China s economic slowdown Advanced economy health spending and outcomes Italy s fiscal and economic struggles 1

25 Global GDP Growth 9 Percent SAAR China Other EMEs 6. 3 rd quarter Advanced Economies excluding U.S Sources: national sources, staff calculations. Q3 growth rates for some foreign economies reflect staff estimates. Global GDP Growth and Composite PMI 8 Percent SAAR Diffusion Index 65 6 Correlation =.83 6 Oct GDP Growth Composite PMI Sources: national sources, Markit Economics

26 6 Citigroup Economic Surprise Indexes Percent positive or negative* Emerging Economies Advanced Economies *Weighted by series historical FX impact 3.5 Evolution of Global Market Growth Forecasts Percent, CY/CY EMEs ex. China Advanced Economies Sources: Blue Chip Economics, Consensus Economics. Figures are GDP-weighted averages for five AEs (counting the euro area as one economy) and EMEs. The latest vintage surveys are from early to mid October. 3

27 1 13 U.S. and EME equity performance Indexes, January 16 = 1 FTSE EME equity index S&P Note: Index values are in dollar terms Manufacturing New Orders 57.5 Diffusion Index New Orders Source: Markit Economics, JPMorgan. New Export Orders Oct. 9.9

28 .5. G-3: Core Consumer Price Inflation Percent change from year ago United States Euro Area Japan Sources: BEA, Eurostat, BoJ. U.S. inflation measured using the PCE index. G-3 Unemployment Rates Percent change from year ago 1 Official NAIRU estimates 1 8 Euro Area United States 6 Japan Sources: BLS, CBO, Eurostat, BoJ. 5

29 Credit to Private Nonfinancial Sector 11 Percent of GDP China 1 Advanced Economies Other EMEs Sources: OECD, BLS China: Credit growth Percent change from a year earlier Bank lending Total social financing 8 Shadow credit + corporate bonds Sources: CEIC, PBoC, Moody s. 6

30 35 China: Fixed Asset Investment Percent change from a year earlier Real Nominal Source: Monthly index computed from official year-year year-to-date changes. Real series deflated by linearly interpolated quarterly FAI price series. 7

31 Health expenditure as a share of GDP Percent, 16 or latest Source: OECD Health Database. 86 Life expectancy at birth Percent, 16 or latest Source: OECD Health Database. 8

32 Hip replacement: total costs Thousands of U.S. dollars 57.3 Average 95 th percentile 5 th percentile US AUS SWT UK NZL SAF ESP Source: International Federal of Health Plans, Comparative Price Report 15. Euro area: major economy real GDP Indexes, 8:Q1 = 1 Germany France Spain Italy Source: Eurostat 9

33 Italy: Fiscal performance 15 Percent of GDP Percent of GDP. 1 Gross Debt Primary Balance Source: IMF World Economic Outlook, October 18 edition. Figures refer to general government. Italy: Government debt projections Percent of GDP 1 Higher interest rate (+1.% ppt.) Percent of GDP 1 13 Baseline Higher GDP growth (+.5 ppt.) Source: OECD, Economic Survey 17. Baseline scenario assumes 1% real GDP growth, 1.5% of GDP primary surplus, effective interest rate of 3.%, and inflation in GDP deflator of 1.5%. 1

34 Regional Economic Conditions Jaison R. Abel Upstate New York Regional Advisory Board Meeting November 15, 18 The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

35 Overview of Regional Conditions Growth in the region s manufacturing sector has remained fairly brisk, while growth has slowed to a modest pace in the broader services sector. Labor markets have tightened throughout the region, even in parts of upstate New York with little or no job growth through the expansion. Businesses report increasingly widespread escalation in input prices and, to a lesser extent, selling prices, in part due to recent changes in U.S. trade policy. FEDERAL RESERVE BANK OF NEW YORK 1

36 Diffusion Index 3 Current Economic Conditions FRBNY Regional Business Surveys Empire State Manufacturing Survey Oct 1-1 Business Leaders Survey (Service Sector) - Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 Jan18 Jul18 Source: Federal Reserve Bank of New York.

37 Regional Consumer Confidence Overall Consumer Confidence 15 Index Value Sep 9 New York City Metro United States 75 6 Upstate NY Shading indicates NBER recession Source: Sienna Research Institute, University of Michigan. 3

38 Regional Employment Trends Indexes of Total Employment, Seasonally Adjusted 11 Index (Dec7 = 1) New York City United States Upstate NY +.3% Annual Rate +1.7% +.% Puerto Rico -.% Shading indicates NBER recession Source: U.S. Bureau of Labor Statistics and Moody s Economy.com; regional data are early benchmarked by FRBNY staff.

39 Job Growth in Upstate NY Metros Indexes of Total Employment, Seasonally Adjusted 18 Index (Dec7 = 1) 1 Albany Sep 1 Buffalo Rochester Syracuse 96 Utica 9 Binghamton Shading indicates NBER recession Source: U.S. Bureau of Labor Statistics and Moody s Economy.com; data are early benchmarked by FRBNY staff. 5

40 Unemployment in the Region Long-Run and Current Rates, Seasonally Adjusted 1% 8% Long-Run Average September 18 New York City 7.8 Watertown 8.3 6% % United States Ithaca Albany Buffalo 6.1 Rochester Syracuse Glens Falls 6.. Utica Elmira Binghamton % % Source: U.S. Bureau of Labor Statistics and Moody s Economy.com. 6

41 Regional Labor Force Trends Indexes of Total Labor Force, Seasonally Adjusted 11 Index (Dec7 = 1) 18 New York City Sep 1 United States 1 96 Upstate NY Shading indicates NBER recession Source: U.S. Bureau of Labor Statistics, Current Population Survey and Moody s Economy.com. 7

42 Input and Selling Prices FRBNY Regional Business Surveys 8 Diffusion Index 6 Oct ESMS Prices Paid BLS Prices Paid ESMS Prices Received BLS Prices Received - Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 Jan18 Jul18 Source: Federal Reserve Bank of New York. 8

43 U.S. Trade Policy and Prices in the Region FRBNY Supplemental Survey Report, August 18 Expected Effect of Changes in U.S. Trade Policy on Prices Input Prices Empire State Manufacturing Survey 5% % 75% Business Leaders Survey 7% % 9% Downward Effect No Effect Upward Effect Empire State Manufacturing Survey Selling Prices 6% 5% 8% Business Leaders Survey 5% 63% 3% Downward Effect No Effect Upward Effect Source: Federal Reserve Bank of New York. 9