AFP of Central Oklahoma. April 21, Megan Williams

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1 AFP of Central Oklahoma April 21, 216 Megan Williams Associate Economist and Manager, Oklahoma City Branch Federal Reserve Bank of Kansas City

2 Structure and Functions of the Federal Reserve System The Fed consists of three main entities: Board of Governors: 7 members appointed by U.S. President Federal Reserve Banks: 12 total; semi-independent by design Federal Open Market Committee: 19 members; 12 voting As with most central banks, the Fed s primary responsibilities fall within four general areas: Lender of last resort provide liquidity in times of crisis Monetary policy promote full employment and low inflation Bank regulation ensure safety and soundness of banks Financial services bank for banks, bank for federal govt.

3 Federal Reserve Districts and Office Locations

4 The Oklahoma City Branch of the Federal Reserve Bank of Kansas City Functions approximately 4 staff Research on U.S. and Oklahoma economies Economic, community, and financial education outreach Examinations of Oklahoma financial institutions 216 Branch Board of Directors Pete Delaney (chair), Chairman (retired), OGE Energy Corp., OKC Clint Abernathy, Owner, Abernathy Farms, Inc., Altus Michael Coffman, CEO, Panhandle Oil & Gas, Inc., Oklahoma City Chuck Hall, Chairman & CEO, Exchange Bank & Trust, Perry Jane Haskin, President & CEO, First Bethany Bank & Trust, Bethany Tina Patel, Co-Owner & CFO, Promise Hotels, Tulsa Doug Stussi, EVP & CFO, Love s Travel Stops & Country Stores, OKC

5 The U.S. Economy and Monetary Policy

6 U.S. business activity has slowed slightly, but job growth remains solid U.S. Private Payroll Employment and Business Indexes 6 Change from previous month, thousands Index Private Employment (left axis) 35-8 ISM Manufacturing Index (right axis) ISM Non-Manufacturing Index (right axis) Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Source: Institute for Supply Management, Bureau of Labor Statistics

7 U.S. unemployment is at long-term levels after falling considerably in recent years Unemployment Rate Seasonally Adjusted 12 Percent Current (Mar. 216): 5.% Mar. FOMC Forecast-- Ranges in Yellow Long Term Sources: U.S. Bureau of Labor Statistics, FOMC

8 U.S. inflation is low but expected to return to close to target in 216 PCE Inflation Index 6 Percent change, year-over-year Current (Q4 215):.5% Current Core (Q4 215): 1.4% Mar. FOMC Forecast Ranges in Yellow Long Term Sources: U.S. Bureau of Labor Statistics, FOMC

9 FOMC participants expect moderate increases in rates heading forward Sources: Federal Reserve Board, FOMC 12 Percent Federal Funds Rate Year-end target Current (Mar. 216):.5% Mar. FOMC Forecast Ranges in Yellow Long Term

10 Trends in the Oklahoma Economy

11 Job trends have varied somewhat across Oklahoma the past couple of years Source: U.S. Bureau of Labor Statistics Level of Payroll Employment Through March Index: Jan-14=1 U.S OKC Tulsa OKLAHOMA Rest of OK 98 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 98

12 Energy jobs have plummeted, but spillover to other industries has been relatively limited Source: Bureau of Labor Statistics Job Growth by Industry Mar Percent change, year-over-year 1 U.S. OK OKC Tulsa Non-Metro Total Leis. & Hosp. Constr. Edc. & Health Fed Govt. State & Local Govt. Trade & Transp. Fin. Act. Prof. & Bus. Services Mfg Mining

13 With many workers finding jobs in other industries, unemployment still remains low Source: U.S. Bureau of Labor Statistics 12 Percent Unemployment Rate Seasonally Adjusted U.S. OK OKC Tulsa Non-Metro Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

14 In related news, banking conditions in the state have remained good Share of Banks Not Making a Profit Commercial Banks 35 Percent 35 3 U.S OK 1 5 Q4 25 Q4 26 Q4 27 Q4 28 Q4 29 Q4 21 Q4 211 Q4 212 Q4 213 Q4 214 Q4 215 Source: FDIC

15 But state tax receipts continue to fall, creating difficulties for the state budget State Tax Receipts Through Q Percent Percent 2 1 Sales Total Q3-6 Q1-8 Q3-9 Q1-11 Q3-12 Q1-14 Q Source: OK Tax Commission

16 New home construction plans have leveled off as the economy has slowed 16 Index: Jan-13=1 Single-Family Housing Permits 3-month moving average, through Feb U.S OKC Tulsa OK Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 8 Source: U.S. Census Bureau

17 Office vacancies in Oklahoma s 2 big metros are beginning to rise but remain modest Source: TWR Office Vacancy Rates 2 Percent 2 15 U.S. Tulsa 15 OKC :Q1 27:Q1 28:Q1 29:Q1 21:Q1 211:Q1 212:Q1 213:Q1 214:Q1 215:Q1 216:Q1

18 And the two most unique industries in Oklahoma remain energy and agriculture Oklahoma Personal Income Share by Industry State - 214, Metro/Non-Metro Industry OK Location Quotient OK % of Total Income OKC Location Quotient OKC % of Total Income Tulsa Location Quotient Tulsa % of Total Income Non-Metro Location Quotient Non-Metro % of Total Income Mining Farming Federal Government Construction Trade, Transp. & Utilities State & Local Government Manufacturing Education & Health Leisure & Hospitality Prof. & Business Services Financial Activities Information Note - Location quotient is the division of local share by national share Source: U.S. Bureau of Economic Analysis

19 The Outlook for Oklahoma Energy and Agriculture

20 World oil supply and demand are expected to remain out of balance for some time Global Oil Supply and Demand Million barrels per day $/ barrel April Demand Forecast (L) April Supply Forecast (L) WTI Spot (R) WTI Futures (R) Source: EIA, Chicago Mercantile Exchange

21 Increasing declines in U.S. production help, but uncertainty in OPEC-Russia does not Change in World Oil Supply Since U.S. Peak and Forecast Million barrels per day Q1-16 to Q4-16 (March Forecast) Q1-16 to Q4-16 (April Forecast) Million barrels per day Q2-15 to Q World U.S. OPEC Other -1. Source: EIA

22 Firms average prices needed are still above current prices, but may come in line in 217? Firms Average Profitable Price and Future Price Expectations including Q1 results 1 $/Barrel $/Barrel 1 9 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q $ $62 $6 $51 $7 $58 $5 $45 $6 $ Profitable Price for Oil 216 Year-End Expected WTI Price 217 Year-End Expected WTI Price Source: FRBKC Energy Survey

23 Natural gas prices have fallen more, and remain well below reported breakeven prices Henry Hub Spot and Futures Prices $/million BTU $/million BTU Henry Hub Natural Gas Natural Gas Profitable Price $ Source: EIA, Chicago Mercantile Exchange, FRBKC Energy Survey

24 The KC Fed s Q1 energy survey showed further declines, with more expected Year-Over-Year Energy Survey Indexes 8 Diffusion Index Diffusion Index Number of Employees Access to Credit Expectations Capital Expenditures Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16-1 Source: FRBKC Energy Survey

25 Oklahoma farm income, investment, and rural household spending are falling Oklahoma Farm Income Diffusion Index Diffusion Index Farm Income Expected in three months 5 4 Capital Spending 4 3 Household Spending Source: Federal Reserve Bank of Kansas City, Survey of Ag Credit Conditions

26 Still, farmland values have held up in Oklahoma, unlike in the rest of our region Tenth District Farmland Values Percent Change, Year-over-year 1 Percent 1 8 Q2 215 Q3 215 Q Tenth District OK NE MO KS Mtn States (CO, NM, WY) -8 Source: FRBKC Agricultural Credit Survey

27 Summary The U.S. economy continues to grow, and the Fed has begun to raise interest rates Oklahoma employment and tax revenues continue to suffer from the oil downturn But unemployment remains low, and there has been fairly limited spillover so far The latest KC Fed energy and agriculture surveys suggest more difficulties ahead

U.S. and Oklahoma Economic Outlook

FEDERAL RESERVE BANK OF FEDERAL KANSAS RESERVE CITY OKLAHOMA BANK OF CITY KANSAS BRANCH CITY U.S. and Oklahoma Economic Outlook Oklahoma Banking Association Emerging Leaders August 17, 1 Chad Wilkerson