Economic Conditions and Outlook for the U.S., Kansas, and the Midwest Midwest Regional Public Finance Conference Wichita, KS April 25, 2014 Kelly D. Edmiston Federal Reserve Bank of Kansas City
Overview The U.S. economy continues to recover, but at a very modest pace But there remain considerable risks Employment growth is thin, in the U.S., in Kansas, and in the rest of the Heartland; and by some measures, its worse than we think it is The Midwest area has some economic advantages that had mitigated the national economic doldrums, but has concentrations of some industries that have not done well growth has not kept pace with the nation recently The residential real estate market, however, is doing better April 25, 2014 K. Edmiston, FRBKC 2
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Economic Conditions and Outlook for the U.S., Kansas, and the Midwest U.S. ECONOMIC OVERVIEW AND FORECAST April 25, 2014 K. Edmiston, FRBKC 4
Annual Growth in Real GDP 10 8 6 Annual Percentage Change 8 6 4-2 02-4 -6-8 1980-1985 4.5 7.2 4.1 1980 1981 1982 1983 1984 1985 8 6 4 2 0-2 -4-6 -8 10 8 6 4 4 1.9 2 2 0 0-2 -1.9-2 -4-4 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 Source: U.S. Bureau of Economic Analysis / Haver Analytics April 25, 2014 K. Edmiston, FRBKC 5-2.8
Quarterly Real GDP Growth (Annualized) 6.0 4.0 2.0 0.0 Annualized Percentage Change 3.1 2.7 2.0 1.5 0.3 1.3 3.9 1.6 3.9 2.8 2.8 3.2 1.4 4.9 3.7 1.2 2.8 0.1 1.1 2.5 4.1 2.6 6.0 4.0 2.0 0.0-2.0-4.0-2.7-2.0-0.4 Fiscal Stimulus -1.3-2.0-4.0-6.0-5.4-6.0-8.0-10.0-8.3 2007-I 2007-III 2008-I 2008-III 2009-I 2009-III 2010-I 2010-III 2011-I 2011-III 2012-I 2012-III 2013-I 2013-III Source: U.S. Bureau of Economic Analysis / Haver Analytics April 25, 2014 K. Edmiston, FRBKC -8.0-10.0 6
Contributions to Percentage Change in Real GDP 5.0 Percentage Points 5.0 4.0 2013-I 2013-II 2013-III 2013-IV 4.0 3.0 2.6 2.2 3.0 2.0 2.0 1.0 0.7 1.0 1.0 0.0-0.3 0.0 0.0-1.0-1.0-1.0-2.0 Total GDP Consumer Spending Residential Investment Business Investment Net Exports Government Spending Inventories -2.0 Source: Bureau of Economic Analysis; Haver Analytics April 25, 2014 K. Edmiston, FRBKC 7
4.0 FOMC Real GDP Growth Forecast (March, 2014) Percentage Change 4.0 3.0 3.0 3.2 3.0 3.0 2.3 2.0 2.0 1.0 2.8 3.0 2.5 2.2 1.0 0.0 0.0-1.0 FOMC Central Tendency -1.0-2.0-2.0-3.0-3.0-4.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 LR Sources: Bureau of Economic Analysis; FOMC; Haver Analytics April 25, 2014 K. Edmiston, FRBKC 8-4.0
25 20 $trillions (inflation-adjusted GDP and Potential GDP Potential GDP Actual Projected GDP 25 20 15 15 10 10 5 5 0 0 Source: Congressional Budget Office April 25, 2014 K. Edmiston, FRBKC 9
120.0 Personal Income Growth Index: 2007 Q1 = 100 (SAAR, Inflation-Adjusted) 120.0 110.0 100.0 102.9 110.0 100.0 90.0 90.0 80.0 80.0 70.0 70.0 60.0 60.0 Source: BEA; Haver Analytics April 25, 2014 K. Edmiston, FRBKC 10
Savings as a Share of Disposable Income 8.0% Percent 8.0% 7.0% Savings Rate Poly. (Savings Rate) 7.0% 6.0% 6.0% 5.0% 5.0% 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% Source: BEA; Haver Analytics April 25, 2014 K. Edmiston, FRBKC 11
$24,000 Average Debt per Consumer (4 th Quarter, 2013) Four-quarter moving average $24,000 $20,000 $20,000 $16,000 Total Consumer Debt (excludes first mortgage) U.S. District $16,000 Kansas $12,000 $12,000 $8,000 Revolving Debt U.S. District $8,000 $4,000 Kansas $4,000 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Bank of Kansas City; Federal Reserve Bank of New York Consumer Credit Panel/Equifax $0 April 25, 2014 K. Edmiston, FRBKC 12
Average Debt per Consumer $24,000 Four-quarter moving average $24,000 4th Quarter 2012 4th Quarter 2013 $20,000 $16,000 $17,311 $16,070 $19,088 $16,016 $15,162 $14,646 $14,641 $14,803 $17,362 $20,000 $16,000 $12,000 $12,000 $8,000 $8,000 $4,000 $4,000 $0 U.S. District States $0 CO KS MO NE NM OK WY Source: Federal Reserve Bank of Kansas City; Federal Reserve Bank of New York Consumer Credit Panel/Equifax April 25, 2014 K. Edmiston, FRBKC 13 $0
Economic Conditions and Outlook for the U.S., Kansas, and the Midwest EMPLOYMENT AND UNEMPLOYMENT April 25, 2014 K. Edmiston, FRBKC 14
1.0 % Change from Peak Employment Historical Recessions 1970 1974 1980 1981 1990 2001 2007 1.0 0.0 0.0-1.0-1.0-2.0-2.0-3.0-3.0-4.0-4.0-5.0-5.0-6.0-6.0-7.0-7.0 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 Months Source: U.S. Bureau of Labor Statistics; Haver Analytics April 25, 2014 K. Edmiston, FRBKC 15
Employment Growth in the U.S. and 10 th FR District 75 Thousands of Jobs (seasonally adjusted) 1,500 50 1,000 25 0 District (left axis) 1YR: 1.1% Dec 07: 0.2% 500 0-25 -50 U.S. (right axis) 1YR: 1.4% Dec 07: - 0.4% -500-1,000-75 -1,500 April 25, 2014 K. Edmiston, FRBKC Source: BLS; Haver Analytics 16
Employment Growth by Industry (last 12 months) Natural Resources and Mining Federal Government Information Other Private Services Transportation and Utilities State and Local Government Manufacturing Financial Activities Educational and Health Services Wholesale Trade Retail Trade Professional and Business Services Construction Leisure and Hospitality Services -2.1-1.0 0.8 0.2 0.6 0.5 1.3 1.7 1.5 2.1 2.7 3.0 3.0 4.2 Total Nonfarm 1.5-3.0-2.0-1.0 0.0 1.0 2.0 3.0 4.0 5.0 April 25, 2014 K. Edmiston, FRBKC Source: BEA; Haver Analytics 17
Unemployment and Labor Force Participation Rates 12.0 Percent of Labor Force Percent of Working Age Population 72.0 10.0 U.S. Unemployment Rate (left axis) 70.0 8.0 68.0 6.0 District Unemployment Rate (left axis) 6.7 5.7 66.0 4.0 64.0 2.0 U.S. Labor Force Participation Rate (right axis) 62.0 0.0 60.0 April 25, 2014 K. Edmiston, FRBKC Source: U.S. Bureau of Labor Statistics: Haver Analytics 18
Jobs Deficit 160,000 thousands 160,000 155,000 Employment Required to Keep Unemployment Rate at Dec 2007 Level 155,000 150,000 145,000 2.3 Million 0.5 Million 150,000 145,000 140,000 135,000 Employment 140,000 135,000 130,000 130,000 125,000 125,000 120,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Bank of Kansas City Updated through March, 2014 120,000 April 25, 2014 K. Edmiston, FRBKC 19
Expanded Unemployment Rate 20 Percent United States 20 16 U-6 16 12 8 U-3 12.7 12 8 20 Percent Kansas 20 4 6.7 4 16 16 0 0 12 U-6 11.0 12 8 U-3 4.9 8 4 4 Source: U.S. Bureau of Labor Statistics; Haver Analytics 0 0 April 25, 2014 K. Edmiston, FRBKC 20
Economic Conditions and Outlook for the U.S., Kansas, and the Midwest RESIDENTIAL REAL ESTATE April 25, 2014 K. Edmiston, FRBKC 21
140.0 Existing Home Sales (through Feb 2014) Index: Mar 2006 = 100 140.0 120.0 120.0 100.0 80.0 Jul/2013 100.0 80.0 60.0 40.0 20.0 0.0 District U.S. Wichita Omaha Kansas City 60.0 40.0 20.0 0.0 Source: Area Realtors Associations April 25, 2014 K. Edmiston, FRBKC 22
Existing Single-Family Home Activity Demand Headwinds Economy/Financial Security Uncertainty about Market Household Formation Credit Availability Homebuyer Traffic Proprietary Data Removed April 25, 2014 K. Edmiston, FRBKC 23
12 Months Supply of Homes 10 th FR District Months Supply 12 10 10 8 8 6 5.1 6 4 4 2 2 0 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 0 April 25, 2014 K. Edmiston, FRBKC Source: Area Realtors Associations 24
Housing Starts 120.0 100.0 80.0 60.0 Index: Oct 2006 = 100 District U.S. KS 140.0 120.0 100.0 80.0 60.0 40.0 40.0 20.0 20.0 0.0 0.0 Source: Bank of Tokyo-Mitsubishi UFJ; Haver Analytics April 25, 2014 K. Edmiston, FRBKC 25
140 Home Prices Index: 2004 Q1 = 100 Index: 2004 Q1 = 100 140 120 120 100 100 80 U.S. Kansas City 80 60 Wichita Des Moines Omaha 60 40 40 20 20 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: FHFA / Haver Analytics April 25, 2014 K. Edmiston, FRBKC 0 26
Economic Conditions and Outlook for the U.S., Kansas, and the Midwest STATE FINANCES April 25, 2014 K. Edmiston, FRBKC 27
State-by-State Revenue Situation Colorado FY 2014 revenues through February have exceeded FY 2013 revenues by 4.4 percent ($237 million) For entire FY 2014, general fund revenues expected to grow at slower pace than 2013 due to income being pulled forward in 2013 to avoid increase in Federal taxes FY 2014 revenues are modestly above projections of Legislative Council (5.3 percent) Legislative Council predicts 6.2 percent growth in general fund revenues for FY 2015 Recreational marijuana expected to yield $40M in FY2014 and $134M in FY 2015 Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 28
State-by-State Revenue Situation Kansas FY 2014 general fund tax revenues through February down 8.1 percent from FY 2013, but 3.7 percent higher than projected; expected to end FY 2014 down 7.6 percent ($484.6M) Individual income expected to be down 14.7 percent, due largely to tax law changes General fund revenues expected to increase 1.0 percent in FY 2015 Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 29
State-by-State Revenue Situation Missouri General fund revenues expected to increase 2.8 percent in FY 2014 Additional funds (proposed by Governor Nixon) to go to K-12 education (bulk), job creation programs, health and mental health, public safety programs, and government programs (salary increase) FY 2015 general fund revenues expected to increase by 5.2 percent Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 30
State-by-State Revenue Situation Nebraska General fund revenues for FY 2014 up 4.3 percent through February; projection is 1.4 percent for entire fiscal year FY 2015 revenues expected to increase 2.8 percent New Mexico FY 2014 general fund revenues expected to increase 2.7 percent (revised upward in December) FY 2015 general fund revenues expected to increase 5.5 percent Governor Martinez proposes additional fund to be allocated to education, workforce development, water infrastructure, and promoting technological research Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 31
State-by-State Revenue Situation Oklahoma General fund revenues expected to rise 1.9 percent in FY 2014 General fund tax collections through February up 0.2 percent, 4.8 percent lower than initial estimates Governor Fallin has proposed a 5 percent cut for most agencies in FY 2015 and a 0.25 percent reduction in personal income tax rates goal is to reduce the size of government Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 32
State-by-State Revenue Situation Wyoming FY 2014 general fund revenues projected to increase 4.2 percent (upwardly revised in January) Governor Mead has proposed for the FY 2015-2016 budget increased spending on technological infrastructure, healthcare (including Medicaid expansion), state employee compensation, business development, capital construction for community colleges, addressing orphan drilling wells, Wildlife and Natural Resources Trust, and tourism. General fund tax revenues expected to grow 3.1 percent in FY 2015 Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 33
Summary of State Revenue Situation Preliminary FY 2014 Forecast FY 2015 State FYTD End of FY Forecast FYTD Change from FY 2014 Most recent Forecast Colorado 4.42% 2.3%*, 5.3%** 0.3%* 7.3%*, 6.2%** Dec. 2013 Kansas -8.10% -7.60% 3.65% 1.0% Nov. 2013 Missouri 2.00% 2.80% N/A 5.20% Jan. 2014 Nebraska 4.30% 1.38% 3.38% 2.80% Jan. 2014 New Mexico N/A 2.70% N/A 5.50% Dec. 2013 Oklahoma 0.20% 1.92% -4.80% 2.54% Feb. 2014 Wyoming N/A 4.70% N/A 3.10% Jan. 2014 * Governor s office ** State Legislators office Source: State revenue departments; Federal Reserve Bank of Kansas City April 25, 2014 K. Edmiston, FRBKC 34
State Budget Proposals FY 2015 30 $billions 25 20 15 15.1 18.6 Other General Fund 10 8.4 5 0 5.0 9.0 9.1 1.8 6.2 6.1 7.0 4.0 3.4 Colorado Kansas Missouri Nebraska New Mexico Oklahoma Wyoming Source: National Association of State Budget Officers (NASBO); state budget documents April 25, 2014 K. Edmiston, FRBKC 35
State Budget Proposals FY 2015 12% 10% Percentage Change, FY 2014 to FY 2015 9.8% 8% 7.5% 6% 4% 4.7% 4.3% 2% 1.9% 0% -2% -1.3% -4% -6% -8% -6.7% Colorado Kansas Missouri Nebraska New Mexico Oklahoma Wyoming Source: National Association of State Budget Officers (NASBO); state budget documents April 25, 2014 K. Edmiston, FRBKC 36
Contact Information: Kelly D. Edmiston Senior Economist Community Development 1 Memorial Drive Kansas City, MO 64198 (816) 881-2004 Kelly.edmiston@kc.frb.org April 25, 2014 K. Edmiston, FRBKC 37