KSGFOA 2017 Fall Conference

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2 An Economic Outlook: Changing Times and What It Means for Your Organization PRESENTATION TO KSGFOA 2017 Fall Conference October 13, 2017 PRESENTER: Sheryl D. Bailey, Ph.D. Senior Vice President

3 Roadmap for Our Journey Together Moderate recovery proceeding Recovery is not the same for everyone Driving with our brakes on Manufacturing interlude Spotlight on Kansas Bumpy, uphill ride for households and markets Monetary and fiscal policy are always big deals Forecast Looking forward 2

4 Moderate Recovery Proceeding 3

5 GDP Increased in Second Quarter 2017 Real GDP: Percent change from preceding quarter U.S. Bureau of Economic Analysis Seasonally adjusted annual rates 4

6 Continued Growth in Overall Employment Civilian employment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Aug

7 Steady Decline in Overall Unemployment Civilian unemployment rate Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Aug

8 Hurricanes Impacted Unemployment Claims Unemployment insurance claims U.S. Department of Labor 7

9 Recovery is Not the Same for Everyone 8

10 To what extent do you think the recovery has been uneven in the U.S.? A. Fairly even recovery B. Somewhat uneven recovery C. Very uneven recovery 9

11 Employment Growth Varies Widely Across States Percentage change in nonfarm employment by state U.S. Bureau of Labor Statistics Seasonally adjusted, Aug Aug

12 Unemployment Rates Also Vary Widely Unemployment rates by state (U.S. = 4.4 percent) U.S. Bureau of Labor Statistics Seasonally adjusted, Aug

Unemployment Still High for Some Workers Unemployment rates for persons 25 years and older by educational attainment Note: Shaded areas represent

13 Unemployment Still High for Some Workers Unemployment rates for persons 25 years and older by educational attainment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

14 Economic Displacement Driving Unemployment Reasons for unemployment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

15 Unemployment Rate Not as Low as it Seems Alternative measures of labor underutilization Measure Not seasonally adjusted Seasonally adjusted Sept. Aug. Sept. Sept. May June July Aug. Sept U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate) U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data. U.S. Bureau of Labor Statistics 14

16 Slack Remains in Labor Market BLS Alternative measures of labor underutilization Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

Slack Remains in Labor Market Fed Non-Employment Index Hornstein-Kudlyak-Lange non-employment index and civilian unemployment Note: Shaded areas represent recessions

17 Slack Remains in Labor Market Fed Non-Employment Index Hornstein-Kudlyak-Lange non-employment index and civilian unemployment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics, Richmond Federal Reserve Seasonally adjusted, Jan Aug

18 Many People Still on Sidelines Wanting to Get in the Game Persons not in the labor force who want a job now Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

19 Driving with Our Brakes On 18

20 Do you think most of the workers still outside the labor force are older workers (e.g., aging baby boomers, etc.)? A. Yes B. No 19

21 Declining Labor Force Participation Impacts GDP Labor force participation rate, 16 years and older Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

Declining Labor Force Participation Among Young Workers Impacts Growth Labor force participation rates of selected age groups Note: Shaded areas

22 Declining Labor Force Participation Among Young Workers Impacts Growth Labor force participation rates of selected age groups Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

23 Labor Force Participation Stable or Increased for Workers 25 and Older Labor force participation rates of selected age groups Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan Sept

Weak Productivity Growth Impacts GDP Average annual percent change in labor productivity in nonfarm business sector during business cycles Note: Each

24 Weak Productivity Growth Impacts GDP Average annual percent change in labor productivity in nonfarm business sector during business cycles Note: Each business cycle begins at the start of a recession, as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics 23

Output Growth Below Historical Trend Output series of the current business cycle compared with past trends Note: Shaded area represents a recession

25 Output Growth Below Historical Trend Output series of the current business cycle compared with past trends Note: Shaded area represents a recession as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Nonfarm business sector output, 2007Q4 to 2016Q3 24

26 Sluggish Productivity Growth Limits Gains in Living Standards Wage gap, labor productivity, and real hourly compensation U.S. Bureau of Labor Statistics Average annual growth rates during business cycles, nonfarm business sector,

27 Manufacturing Interlude 26

28 How do you think the manufacturing unemployment rate compares to the overall civilian unemployment rate? A. Less than the overall civilian unemployment rate B. Same as the overall civilian unemployment rate C. Greater than the overall civilian unemployment rate 27

Manufacturing Unemployment Rate Below Overall Civilian Unemployment Rate Manufacturing and civilian unemployment rates Note: Shaded areas represent

29 Manufacturing Unemployment Rate Below Overall Civilian Unemployment Rate Manufacturing and civilian unemployment rates Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Retrieved from FRED, Federal Reserve of St. Louis, Oct. 11, 2017 Jan Sept

Manufacturing Long-Term Trends: Increasing Output and Declining Employment Manufacturing output, productivity and employment Note: Shaded areas represent recessions as

30 Manufacturing Long-Term Trends: Increasing Output and Declining Employment Manufacturing output, productivity and employment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Retrieved from FRED, Federal Reserve of St. Louis, Oct. 11, 2017 Seasonally adjusted, Jan Apr

31 Worldwide R&D Investments Driving Technological Change Research and development expenditure (% of GDP) World Bank, Retrieved October 11,

32 Spotlight on Kansas 31

33 How do you think the Kansas state economy compares to the U.S. economy? A. Kansas state economy performing behind the U.S. economy B. Kansas state economy performing about the same as the U.S. economy C. Kansas state economy performing stronger than the U.S. economy 32

34 Kansas GDP Upward Trend Slowed in 2016 Real total GDP for Kansas U.S. Bureau of Economic Analysis Millions of chained 2009 dollars, annual, not seasonally adjusted 33

35 Kansas Employment Trending Down Since 2016 Total nonfarm employment in Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jul Aug

36 Kansas Unemployment Below U.S. Rate Civilian unemployment rate, U.S. and Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jul Aug

37 Kansas Median Household Income Below, More Variable Than U.S. Levels Real median household income, U.S. and Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U. S. Census Bureau Annual 2016 CPI-U-RS adjusted dollars, not seasonally adjusted, Jan Jan

38 Kansas Per Capita Income Trending Tight to U.S. Levels Since 2008 Personal income per capita, U.S. and Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U. S. Census Bureau Annual, not seasonally adjusted, Jan Jan

39 Bumpy, Uphill Ride for Households and Markets 38

40 Rebounding Home Sales Still Below Pre-Recession Levels New Residential Home Sales Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U. S. Census Bureau Seasonally adjusted annual rate, Jan Aug

41 Consumer Spending Bumpy in 2017 Real Disposable Personal Income and Real Consumer Spending U. S. Bureau of Economic Analysis May 2017 Aug

42 Retail Sales Trending Up, Bumpy Since Jan Total retail trade and food services U. S. Census Bureau Jan Aug

43 Inflation is Trending Lower CPI for All Urban Consumers, 12-month percent change U.S. Bureau of Labor Statistics Not seasonally adjusted, Aug Aug.,

44 Long-Term Bull Market Trend 43

45 Stock Market Upward, Bumpy Since July

46 Long-Term Downward Trend in Treasury Yields, Choppy Waters 45

47 Long-Term Downward Trend in Muni Bond Yields, Choppy Waters 46

48 Muni Market Volatility Tracks with Long-Term Yields 47

49 Muni Bond Market Responds to Credit Quality 48

50 Tax-Exempt Muni Bonds Save Real Money for Public Projects 49

51 Current MMD Yields Still in Lower Historic Range 50

52 Monetary and Fiscal Policy are Always Big Deals 51

53 Fed Left Federal Funds Rate Unchanged September 2017 Effective federal funds rate Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Federal Reserve of St. Louis Jul. 1, 2007 Sept. 1,

54 Fed Began Gradually Drawing Down Its Balance Sheet in October 2017 Federal Reserve total assets Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Federal Reserve of St. Louis Jul. 1, 2007 Oct. 11,

55 New Administration s Broad Economic Policies Widespread impacts on economy affecting all major components of GDP Personal consumption, business investment, government spending and imports and exports Policy Proposals Tax reform -- Infrastructure package Healthcare reform -- Trade policy revisions Less regulation -- Immigration reform 54

56 Overall Impact of Administration s Key Economic Policies? Still being sorted out Uncertainties regarding long-term economic effects It depends Situational Leadership, Ken Blanchard Uncertainties surround implementation particulars, funding sources and offsets, timing, midterm election impacts, and net effects Additional considerations Debt ceiling and government funding Changes at Fed 55

57 Forecast 56

58 Global GDP Growth Picking Up GDP at constant prices, % change (projections) Total, Annual growth rate (%) OECD (2017), Real GDP forecast (indicator), Accessed on Oct. 11,

59 Looking Ahead 58

60 Expect Unexpected Change Economy s structural issues will impact path forward Market volatility expected to continue Carefully monitor national policy proposals and impacts Update long-term financial plan, including capital and debt Reassess risks and update contingency plans Refine early detection and response systems Innovate, redesign and transform 59

61 Questions? 60

Economic Outlook and Forecast

Economic Outlook and Forecast Stefano Eusepi Research & Statistics Group January 2017 All views expressed are those of the author only and not necessarily those of the Federal Reserve Bank of New York