We only need a few things for recovery

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1 US U.S. and dcolorado Economic Conditions Mark C. Snead Vice President and Branch Executive Federal Reserve Bank of Kansas City Denver Branch 1 We only need a few things for recovery Moderate growth in GDP Steady private sector job gains Resumption of income growth Normal spending by consumers Reduction in household debt Increase in the savings rate An end to the real estate debacle right? 2

2 Colorado job gains now positive yr/yr, jobs lost; 1, recovered; 1 qtr lag behind U.S. Growth in Total Nonfarm Employment Year-over-year U.S CO Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 3 Goods sector remains the story of the recession Govt. modest drag in CO late in cycle Colorado Nonfarm Employment Gains/Losses 1 Thousands Thousands Government Total Services Goods Feb- Aug- Feb-7 Aug-7 Feb-8 Aug-8 Feb-9 Aug-9 Feb-1 Aug-1 Feb-11 4

3 CO in the middle of the pack among labor markets in the Tenth District Total Nonfarm Employment 112 : Feb-= Wyoming Nebraska Oklahoma Colorado Kansas 9 9 New Mexico Missouri Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 5 Agricultural and energy states continue to lead KS has recent data anomaly in construction Total Nonfarm Employment Year-over-year Feb Feb US DIST NE OK CO WY MO KS NM -5.

4 Divergence between U.S. and CO job gains in several key sectors Total Nonfarm Employment by Industry Feb-11 over Feb / Mining (.1) Prof. & Bus. (.) Other Serv. (.4) Educ. & Health (.12) Trans. & Util. (.3) Manuf. (.) Leisure & Hosp. (.12) Trade (.) -.5 Constr. (.5) Finance (.) Gov't. (.18) Information (.3) -8 7 Colorado jobless rate now above U.S. number unemployed remains persistently high Unemployment Rate US CO Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 8

5 CO/NM putting upward pressure on District jobless rate Unemployment Rate by State Feb-1 Feb US 1J NE WY OK KS NM CO MO 2. 9 Rising Tech activity has not turned into net hiring 23 Thousands Colorado Advanced Technology Employment Thousands Statewide 13 Denver MSA Feb-9 Feb-92 Feb-94 Feb-9 Feb-98 Feb- Feb-2 Feb-4 Feb- Feb-8 Feb

6 Survey data suggest surge in 1J mfg. activity CO receiving little mfg. boost Manufacturing Indices, Month-over-month 5 5 U.S J Mar- Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Source: ISM, FRBKC Manufacturing Survey Note: 1J index is computed on ISM basis (5 = zero change) 11 Gains in both capital spending and hiring in mfg. Tenth District Manufacturing Indices Year-over-year Expected in next t mo Capital Spending Employment Mar- Mar-7 Mar-8 Mar-9 Mar-1 Mar Source: FRBKC Manufacturing Survey

7 Survey data confirm rise in raw materials prices finished goods prices now rising, expected to rise further Tenth District Manufacturing Price Indices, Month-over-month over 9 75 Expected in next t mo Prices paid for raw materials Prices received for finished goods Mar- Mar-7 Mar-8 Mar-9 Mar-1 Mar Source: FRBKC Manufacturing Survey Q4 bounce in U.S. and CO existing home sales but weakness returns in latest monthly U.S. data Sales of Existing Homes 12 : 25:Q4= U.S CO :Q4 2:Q4 27:Q4 28:Q4 29:Q4 21:Q4 14 Source: National Association of Realtors

8 1J existing home sales trail U.S. through 4 th quarter NE and NM experience sharpest reversals Growth in Existing Home Sales Year-over-year 4 29:Q4 21:Q US 1J WY CO NM MO KS OK NE -2-4 Source: National Association of Realtors 1J homes price gains now range around U.S. gain CO has smallest gain in cycle among 1J states, but highest price FHFA Repeat Sales Home Price : 22:Q4=1 Median Home Price 22Q2 21Q2 %Chg CO $19,477 $217, KS 99, , MO 17, ,754.2 NE 1,99 12, NM 117,5 11, OK 85, , WY 1,21 183, US 149,971 18, U.S. WY NM OK KS MO :Q4 23:Q4 24:Q4 25:Q4 2:Q4 27:Q4 28:Q4 29:Q4 21:Q4 NE CO 11 1 Source: FHFA

9 Commercial and residential construction continue to bounce along bottom Value of Residential and Commercial Construction Contracts, 3-mo. moving average 175 : Feb-= CO (commercial) US (commercial) US (residential) CO (residential) Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb Source: F.W. Dodge Hoteliers in Mtn. states report mixed lodging results Hotel Occupancy Rates Denver 7 5 NM WY Colorado Resorts Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb Source: Rocky Mountain Lodging Report

10 Denver air traffic resumes long-run growth trend other 1J cities well below pre-recession levels Airport Passenger Traffic 12 : Jan-=1 12 Denver Kansas City U.S. 1 9 Other 1J Cities Jan- Jan-7 Jan-8 Jan-9 Jan-1 Jan Source: District Airports 1J population gains exceed U.S. in 2s high in-migration states of CO and NM decelerate sharply py Growth in Population Decade-over-decade US 1J CO NM WY OK MO NE KS 2 Source: U.S. Census Bureau

11 Crude futures suggest $1+/bbl through 212 West Texas Intermediate Oil Spot Price & NYMEX Futures 14 $/Barrel $/Barrel Oil Spot Prices 4 2 Oil Futures 2/7/211 2 Oil Futures 4/5/211 Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb Source: Bloomberg Energy Services Natural gas futures suggest ceiling around $5/mcf Henry Hub Natural Gas Spot Price & NYMEX Futures $/Million Btu $/Million Btu 12 Nat Gas Spot Prices Nat Gas Futures 2/7/ Nat Gas Futures 4/5/ Feb- Feb-7 Feb-8 Feb-9 Feb-1 Feb-11 Feb Source: Bloomberg Energy Services

12 Shift in exploration toward crude accelerates in U.S. and CO 1,8 Count of Active Drilling Rigs Number of Rigs Number of Rigs 3 1, 1 U.S. Natural Gas (left axis) 9 9 1, , U.S. Crude Oil (left axis) CO Crude Oil CO Natural Gas (right axis) 1 (right axis) 1 Jun-7 Mar-8 Dec-8 Sep-9 Jun-1 Mar-11 Jun-7 Mar-8 Dec-8 Sep-9 Jun-1 Mar Source: Baker-Hughes Risks to the recovery? Rising interest rates (mortgage rates) Rising energy/commodity prices International ti instability Federal/state/local budget overhang Another down-leg in real estate Household de-leveraging takes longer than expected Short expansion 24

13 What makes the recovery sustainable? Federal Reserve stimulus current (and future?) Fiscal stimulus tax package, ARRA wanes after 211 Strong financial i position of corporate sector Resumption in household debt growth Growing replacement needs households/firms Virtuous cycle capitalism, invisible hand 25 U.S. and Colorado Economic Conditions mark.snead@kc.frb.org Presentation ti will be available at: 2

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