2018 Kansas City Economic Forecast. Greater Kansas City Chamber of Commerce October 26, 2017

Transcription

1 2018 Kansas City Economic Forecast Greater Kansas City Chamber of Commerce October 26, 2017

2 Status of the U.S. Economy

3 The economy is a beacon of stability in a sea of uncertainty Natural environment Hurricanes and wildfires and Fiscal policy environment Health care, debt ceiling, another shut down?, tax reform/cut Trade policy environment TPP and whither NAFTA? Foreign policy environment Nuclear brinkmanship w/north Korea, the Wall vs skills

4 Despite the first employment loss in nearly 7 years, the labor market is healthy and absorbing workers faster than new workers are entering U.S. Non-Farm Payroll Employment Change monthly change in thousands J M M J S N J M M J S N J M M J S N J M M J S Monthly change 12-month moving average

5 Both the official unemployment rate and the U-6 rate continue to decline, and more in the last year than the previous one. Official unemployment is at the lowest level in 16 years. Percent U.S. Unemployment Rates, monthly J M M J S N J M M J S N J M M J S N J M M J S Official unemployment rate Plus marginally attached workers and those working part-time for economic reasons

6 Openings exceed hires, and the gap is increasing. Quits are rising in line with hires as workers more easily find new jobs Thousands 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 U.S. Job Churn Openings, Hires, Layoffs and Quits J M M J S N J M M J S N J M M J S N J M M J Openings Hires Layoffs Quits

7 Wages are improving, but wage increases are not accelerating. 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -1.5% Real full-time median weekly wage Percent change since one year ago 2.7% 2.1% %

8 Neither are prices. Given the tightening labor market, why isn t the inflation rate increasing? U.S. Inflation Rate: Core PCE vs. FOMC Target Personal Consumption Expenditures Price Index, Less Food and Energy J M M J S N J M M J S N J M M J S N J M M J Core PCE FOMC Target

9 To head off underlying inflationary pressures, the FOMC is raising interest rates and normalizing its balance sheet Pecent Federal Funds Rate, monthly J M M J S N J M M J S N J M M J S N J M M J S N J M M J S

10 Rising wealth creates economic resilience: S&P up 15% Housing up 5% Net worth up 9% Percent Stock Market, Home Prices and Net Worth Percent change from one year ago, quarterly S&P 500 S&P/Case-Shiller 20-City Composite Home Price Index Households and Nonprofit Organizations; Net Worth,

11 Rising wealth leads to rising optimism which is now leading to rising investment in the real, as well as financial, economy. Percent Stock Market and Private Investment Percent change from one year ago, quarterly S&P 500 Real Gross Private Domestic Investment

12 GDP rebounded sharply in the second quarter, to 3.1 percent. Since a year ago, it is up 2.2 percent, the same as its postrecession average U.S. Real GDP Growth Seasonally adjusted at annual rates, quarterly

13 A Goldilocks economy Growing at its current potential Based on rate of growth of the labor force (0.8 %) plus rate of growth of productivity (1.3%) Unemployment rate at lowest level since 2001 Rising wages No sign of inflation

14 U.S. Economic Forecast

15 The median FOMC forecast for GDP calls for 2017 to be better than But growth is expected to slow in 2018 from 2.4 to 2.1 percent Percent U.S. Real GDP Projections, FOMC vs. RSQE Longer run Actual FOMC Median FOMC Range

16 The University of Michigan forecast used to drive the regional forecasting model is slightly more optimistic than the FOMC median. Percent U.S. Real GDP Projections, FOMC vs. RSQE Longer run Actual RSQE FOMC Range

17 Median FOMC projection is to raise Fed Funds once more in 2017, 3 times in 2018 and 2 more in 2019, each by. be 0.25%, ending between 2.5% and 2.75% Percent FOMC Participants' Assessment of Appropriate Monetary Policy Expected Federal Funds Rate at end of year Longer run Longer run

18 Status of the KC Economy

19 Lots of construction, especially industrial space. Also much redevelopment in and around Downtown. Biggest mixed use is Brookridge. Biggest retail is Metro North mall

20 More on the horizon Buck O Neil bridge KCI modernization Street car expansion

21 The region s job growth has ramped up in recent years, to about 22,000 per year. But the geographic composition of job growth has shifted. 30,000 25,000 20,000 15,000 10,000 5,000 0 Employment Change in the Kansas City Metro Kansas side vs. Missouri side Year-over-year change in 12-month moving average Mo Side KS Side MSA

22 Which is cause and which is effect is unclear, but there is a high degree of correlation between the fortunes of the states and the two halves of our region. 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - (10,000) Employment Change in Kansas and Missouri Year-over-year change in 12-month moving average KS MO

23 KC s employment growth appears to be matching that of the U.S., except for two sectors Information and Prof/Sci/Tech services 160, , , ,000 80,000 60,000 40,000 20,000 - KC Employment Change by Industry, Major traded sectors Construction Manufacturing Wholesale Trade Health Care and Social Assistance Information Finance and Insurance Transportation and Warehousing Professional, Scientific, and Technical Services

24 Prof/Sci/Tech includes Life Sciences, Engineering and Architecture, and IT (Cerner, cybersecurity). The region is growth twice as fast as the U.S in these innovative sectors. 30% 20% 10% 0% -10% -20% -30% -40% U.S. and KC Employment Percent Change, Major traded sectors 17% 15% 7% 7% 7% 3% Construction Manufacturing Wholesale Trade 15% 14% Health Care and Social Assistance KC Rate -38% 3% Information US Rate 6% 6% Finance and Insurance 29% 17% 15% 16% Transportation and Warehousing Professional, Scientific, and Technical Services

25 Doing as well as the U.S. used to be good enough. No more. Compared to our peer metros, the region is slipping on several key indicators.

26 Metropolitan Kansas City currently ranks 17th in GDP, 12th in quality jobs, and 14th in real median household income. But its rank on how fast these are growing is 19 th, 20 th, and 24 th, respectively.

27 KC s growth is sufficient to lower its unemployment rate, though it appears to be leveling out. It is still slightly lower than the U.S rate. Unemployment Rate U.S. and KC Unemployment Rate Comparison Not Seasonally Adjusted KC US

28 KC wages have tended to grow slightly slower than the U.S., and their average just slightly above 2% is modest. But their 5.3% growth rate over the past year suggests wage growth is beginning to improve. 8% 6% 4% 2% 0% -2% -4% U.S and KC Average Weekly Wage Percent change from one year ago US KC KC Trend

29 KC Economic Forecast

30 KC and U.S. GDP grew an identical 2.2 percent over the last year. KC is shown rebounding less strongly from temporary slowdowns. This is probably a modelling anomaly 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% U.S. and KC GDP Growth Percent change from one year ago, quarterly 1.7% 2.1% 2.3% KC US 2.3%

31 The KC economy will catch up to U.S. growth and stabilize at 2.3 percent per year. U.S. growth rates are expected to gradually decline. at % 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% U.S. and KC GDP Growth Percent change from one year ago, quarterly 1.7% 2.1% 2.3% KC US 2.3%

32 The story is similar for employment, though both KC and U.S. employment growth rates are gradually declining. 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% U.S. and KC Total Employment Growth Rate Percent change from one year ago, quarterly 1.5% 1.3% 1.4% KC US 1.3%

33 As a result, KC is will add an average of 20,000 jobs over the last 2 years, and will add an average of 19,000 jobs over the next two. 25,000 20,000 15,000 10,000 5,000 - KC Total Employment Growth Fourth quarter to fourth quarter 20,782 18,729 19,694 18,

34 KC Employment by Industry Second quarter, 2017 Health Care, Government, Retail, Prof/ Sci/Tech and Accommodation and Food Service are the region s largest industries in terms of jobs. Health Care and Social Assistance Government Retail Trade Professional, Scientific, and Technical Accommodation and Food Services Administrative and Waste Finance and Insurance Other Services, except Public Admin Construction Manufacturing Wholesale Trade Real Estate and Rental and Leasing Transportation and Warehousing Management of Companies Arts, Entertainment, and Recreation Educational services; private Information Farm Mining Utilities Forestry, Fishing, and Related 163, , , , ,233 94,801 91,626 75,862 71,469 69,441 59,836 59,511 53,821 31,912 31,698 27,282 21,355 11,893 5,469 3,083 2,611-50, , , ,000

35 KC Employment Growth by Industry Fourth quarter to fourth quarter change Prof/Sci/Tech, Professional, Scientific, and Technical Construction Construction, and Health Care and Social Assistance Finance and Insurance Health Care are Administrative and Waste expected to grow Government Retail Trade the fastest, Real Estate and Rental and Leasing Wholesale Trade followed by Management of Companies Finance, Educational services; private Mining Administrative Arts, Entertainment, and Recreation Forestry, Fishing, and Related support, and Local Transportation and Warehousing government Information Manufacturing (which includes Other Services, except Public Admin Utilities schools) (387) Accommodation and Food Services (99) (180) (229) (240) (263) ,167 2,729 3,833 3,776 4,643 (2,000) (1,000) - 1,000 2,000 3,000 4,000 5,

36 Risks to the forecast Upside risks include: Construction of New KCI terminal Buck O Neil bridge replacement Street car expansion Amazon HQ2 Downside risks include: Sprint merger with T-Mobile Decline of in-store retail Swirling uncertainty

37 Conclusion Despite being the third longest expansion in U.S. history, nothing foreseeable appears likely to knock it off course Low unemployment, rising wages, low inflation suggest we are in a rare Goldilocks moment KC is matching the U.S. stride for stride But it is falling behind peer metros on several key metrics To increase economic resilience in the face of uncertainty, civic leaders must continue to focus on improving the drivers of regional prosperity trade, talented people, and innovation and entrepreneurship.