NAHEFFA March 26, The views expressed are my own and do not necessarily reflect official positions of the Federal Reserve System.

Transcription

1 NAHEFFA March 26, 219 The views expressed are my own and do not necessarily reflect official positions of the Federal Reserve System.

2 National Economy Growing Strongly Jobs grew 1.8% in 218 the fastest pace since 215, while real GDP growth picked up from 2.5% in 217 to 3.1% Manufacturing, construction and mining jobs grew strongly Labor market below full employment at 3.8% unemployment rate in February Inflation is close to Fed target of 2% 219 jobs and GDP growth expected to slow but remain healthy Stock market volatility and yield spread narrowing at end of 218 signaled greater uncertainty about the outlook current yield spread flashing recession warning 2

3 Overall Job Growth Remains Strong Thousands, SA SOURCE: Bureau of Labor Statistics 3

4 Unemployment Rate Near Historical Lows Percent :Q3 Average Headline Unemployment Rate U6 Unemployment Rate Feb :Q3 Average NOTES: U6 Unemployment rate includes marginally attached and part-time for economic reasons workers. Gray shaded areas indicate NBER recessions. SOURCES: Bureau of Labor Statistics; NBER.

5 Percent, Y/Y 5 Core Inflation Near 2 Percent Goal 4 3 Headline PCE inflation 2 1 Fed 2 percent target Trimmed Mean PCE inflation SOURCES: Bureau of Economic Analysis; Federal Reserve Bank of Dallas. 5

6 Percent change, annualized U.S. Leading Index Suggests Continued (but Weaker) Growth in National Economy over next 3-6 Months month 12-month NOTE: Shaded areas represent U.S. recessions. SOURCES: Conference Board, Federal Reserve Bank of Dallas. 6

7 1-yr./1-yr. Yield Spread Shows Signs of Inversion Percentage points (Feb. 219) Only false signal 1YR-1YR (monthly) 1YR-1YR (Mar. 22) -4 '55 '57 '59 '61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 '19 SOURCE: Federal Reserve Board. 7

8 GDP Will Likely Slow to a More Moderate Pace in 219 Percent, SAAR % Q4/Q % Q4/Q % Q4/Q % Q4/Q SOURCES: Bureau of Economic Analysis; Blue Chip Economic Indicators. 8

9 Unemployment Rate Projected to Remain Low 3-month MA, percent Unemployment rate SEP projections - Mar '19 SEP projections - Mar. ' Mar '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 Longer run

10 Projected headline inflation near target 12-month % change Headline PCE SEP Projections - Mar. '19 SEP Projections - Mar. '18 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21

11 Percent/year 4.5 Policy path changed at recent meeting now no increases expected this year 4. Federal funds rate SEP projections - Mar. '19 SEP projections - Mar. ' '12 '13 '14 '15 '16 '17 '18 '19 '2 '21

12 Texas Economy Accelerated in 218 In 215 and 216, low oil prices and strong dollar reduced job growth but Texas did better than other energy states. In 217, energy and manufacturing sectors began to recover and overall job growth picked up from about 1.3 percent to 2.1 percent. Last year, goods-producing sectors accelerated strongly and job growth picked up further to 2.4 percent. This year, job growth likely to slow to about 1. to 2. percent as labor constraints limit growth along I-35 corridor and low oil prices slow growth in oil-producing regions 12

13 Texas Job Growth Usually Above the Nation s Percent, Y/Y 5 U.S. Texas NOTE: Shaded bars represent seasonally adjusted, annualized growth from Dec. 218 to Feb SOURCES: Bureau of Labor Statistics, Federal Reserve Bank of Dallas

14 Texas Unemployment Rate Near Lowest On Record Percent, SA US unemployment rate NOTE: Data through February 219. SOURCE: Bureau of Labor Statistics. Texas unemployment rate

15 I-35 Corridor Posts Strong Growth in 219 Percent, Dec./Dec Texas Houston (24.7%) Dallas (21.1%) San Antonio (8.4%) Austin (8.5%) -2.4 Fort Worth (8.4%) El Paso (2.5%) Corpus Christi (1.5%) NOTE: Shaded bars represent seasonally adjusted, annualized growth from Dec. 218 to Feb SOURCES: Bureau of Labor Statistics, Federal Reserve Bank of Dallas. 15

16 219 Job Growth Mixed Across Industries Percent, Dec./Dec. Job Growth Trade, Government Transp & Utilities (15.5%) (19.8%) Professional & Business Svcs (13.9%) Health & Private Education (13.6%) Leisure & Hospitality (1.8%) Manufacturing (7.1%) Financial Activities (6.2%) Construction (5.9%) Natural Resources & Mining (1.9%) -7.9 Information (1.6%) NOTE: Shaded bars represent seasonally adjusted, annualized growth from Dec. 218 to Feb SOURCES: Bureau of Labor Statistics, adjustments by Federal Reserve Bank of Dallas. 16

17 Index Texas Service Sector Rebounded After Weakening at End of Year Feb. ' TSSOS Revenue TROS Revenue NOTE: Seasonally adjusted. SOURCE: Federal Reserve Bank of Dallas Texas Service Sector and Retail Outlook Surveys. 17

18 Index 6 Manufacturing Activity Slowing From Strong Pace 4 Mar. ' Production Volume of New Orders -6 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 NOTE: Data are seasonally adjusted. SOURCE: Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey. 18

19 Survey Outlooks Weakened Sharply in December, But Have Improved Since Then Index, 3MMA, SA TMOS company outlook TSSOS company outlook NOTES: TSSOS data through Feb. 219; TMOS data through Mar Dashed lines are post recession averages. SOURCES: Federal Reserve Bank of Dallas Outlook Surveys: Manufacturing (TMOS); Service Sector (TSSOS). 19

20 State Exports Show Signs of Slowing with Dollar Strength Index, SA, Real Jan. 2= Texas Trade Weighted Value of the Dollar Index Jan. 1988= U.S. minus Texas ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 Texas SOURCES: U.S. Census; Bureau of Labor Statistics; WISERtrade; Federal Reserve Bank of Dallas. 2

21 Residential Housing Leading Indicators Weakening Index, Jan. '8=1, 5MMA, SA Single-family permits SF Starts Multifamily permits NOTE: Data for single-family permits and multifamily permits through Dec Data for single-family starts through Jan SOURCES: Bank of Tokyo-Mitsubishi UFJ; U.S. Census Bureau; seasonal and other adjustments by Federal Reserve Bank of Dallas. 21

22 Oil Price Decline Suggests Flatness in Rig Count Number of rigs 1 Rig Count $/bb Oil price (Shifted 3 months forward) Mar $ Natural Gas Price (x1) NOTES: Data are weekly, last data point is the week of Mar. 22, 219. Oil prices are spot prices from WTI-Cushing and natural gas prices are from Henry Hub. SOURCES: Oil and Gas Journal, Baker Hughes. $

23 Breakeven for New Drilling in Permian Ranges from $2 to $75 $/bb Permian (Midland) Permian (Delaware) Bakken $47 $49 $5 Permian (Other) SCOOP/ STACK Other U.S. (Shale) Other U.S. (Non-shale) $52 $53 $54 $ Number of responses NOTES: Lines show the mean, and bars show the range of responses. Executives from 65 exploration and production firms answered this question during the survey collection period, March 14 22, 218. SOURCE: Federal Reserve Bank of Dallas. 23

24 If Oil Prices Persist Near $5 per barrel, Texas Job Growth Likely to Feel Impacts in Q2 219 Percent, Year/Year Real price, $/bb monthly average Texas job growth Oil price (shifted forward 6 months) '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 SOURCES: Wall Street Journal; Bureau of Labor Statistics. 24

25 Energy Survey Suggests Weaker Growth, More Uncertainty Index Q1 218 Q2 218 Q3 218 Q4 218 Price per barrel $63 $65 $68 $6 (219) -2 Business Activity Capital Expenditures Employment Company Outlook Uncertainty End of Year Price Forecast SOURCE: Federal Reserve Bank of Dallas. 25

26 TX Leading Index Components Mixed Net contributions to change in Texas Leading Index.8 Net change in Texas Leading Index.33 Help-wanted index.16 Texas Stock Index.8 Average weekly hours*.3.3 Well permits U.S. leading index -.4 New unemployment claims** -.16 Real oil price -.36 Texas value of the dollar* ** *This component have been estimated by the Dallas Fed for the latest month. **These components are inverted in the Texas Leading Index. NOTE: Three-month percent change through February, seasonally adjusted. SOURCE: Federal Reserve Bank of Dallas. 26

27 Texas Jobs Forecast to Grow about 1.% 2.% in 219 Millions* 13.5 Index, 1987 = Texas Leading Index Texas nonfarm employment and forecast (with 8% confidence band) ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 *Seasonally adjusted. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; Federal Reserve Bank of Dallas. 8 27

28 Summary U.S. Economy decelerating this year with GDP growth likely near 2. percent probability of recession has recently increased Texas economy accelerated last year growth was broad-based across industries and regions Toward end of the year growth began to slow and business outlooks weakened sharply outlooks have improved since then Texas grew 2.3 percent in 218 and will likely slow to about percent in 219 Texas UR likely to remain low Biggest risk to the Texas forecast is sharp decline in oil prices or trade war 28

29 Dallas Fed Publications Public Resources from the Dallas Fed: Southwest Economy Regional Economic Updates San Antonio and Austin Economic Indicators Texas Business Outlook Surveys Energy Survey National Economic Updates International Economic Updates Additional Research Publications and Data Heart of Texas Dallas Fed Blog 29