New Mexico Economic Update Alison Felix Economist & Branch Executive Federal Reserve Bank of Kansas City Denver Branch
New Mexico employment growth slowed sharply over the past few months. PAYROLL EMPLOYMENT GROWTH BY STATE Index, 100 = September 2002, Seasonally Adjusted 110 September 2012 Year-over-Year Growth 105 New Mexico 100-1.3% United States 1.4% 95 Sep '02 Sep '04 Sep '06 Sep '08 Sep '10 Sep '12 Source: Bureau of Labor Statistics 2
Employment has declined in New Mexico over the past year even as most states have experienced positive job growth. SEPTEMBER 2012 NONFARM EMPLOYMENT Year-over-Year Percent Change, Seasonally Adjusted 2 to 5.6% 1 to 2 0 to 1-1.3% -1 to 0 49th -1.3 to -1 United States 1.4% Source: Bureau of Labor Statistics 3
After adjusting for inflation, personal incomes are now above pre-recession levels in both New Mexico and the nation. REAL PERSONALINCOME Index, 100 = 2002Q2, Seasonally Adjusted Annualized Rates 130 2012Q2 Year-over-Year Growth 125 New Mexico 115 0.4% 120 United States 110 1.6% 105 100 95 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Source: Bureau of Economic Analysis 4
However, personal income growth in New Mexico has lagged behind national gains. 2012Q2 REAL PERSONAL INCOME Year-over-Year Percent Change, Seasonally Adjusted Annualized Rates 3 to 7.9% 2.5 to 3 1.5 to 2.5 0.4% 05to 0.5 15 1.5 48th -0.1 to 0.5 United States 1.6% Source: Bureau of Economic Analysis 5
Declines in New Mexico employment over the past year have been driven primarily by weakness in the construction and government sectors. CHANGE IN NONFARM EMPLOYMENT, SEPTEMBER 2012 Seasonally Adjusted Over Past Year Natural Resources & Mining Manufacturing Leisure & Hospitality Wholesale Trade Transportation & Utilities Education & Health Services Local Government Retail iltrade Financial Activities Federal Government Professional & Business Services Other Services State Government Information Construction ti -10% -5% 0% 5% Top Performing Industries New Mexico United States Worst Performing Industries Source: Bureau of Labor Statistics 6
New Mexico is heavily reliant on federal government spending and employment. FEDERAL EXPENDITURES PER CAPITA, FY 2006 GOVERNMENT SHARE OF TOTAL NONFARM EMPLOYMENT $12,000 30% $10,000 $8,000 $6,000 $4,000 $2,000 $0 United States Salaries & Wages Procurement Contracts Grants Other Direct Payments Retirement & Disability New Mexico Local State Federal 10.6% 3.8% 2.1% United States 13.2% 6.9% 4.0% New Mexico 25% 20% 15% 10% 5% 0% Source: Census Bureau & Bureau of Labor Statistics 7
Job losses in the government sector lagged private sector job declines by more than one year. GOVERNMENT CONTRIBUTION TO NEW MEXICOTOTAL JOB GROWTH Contribution to Percent Change, Seasonally Adjusted 1.0% Federal 05% 0.5% Statet 0.0% -0.5% Local -1.0% 2008 2009 2010 2011 2012 Source: Bureau of Labor Statistics 8
Residential construction activity is picking up but remains well below prerecession levels. VALUE OF RESIDENTIAL CONSTRUCTION Percent Change, Cumulative Year-to-Date January through September 2012 32.1% 40+% 20 to 40 0 to 20-20 to 0-20+ United States 26.4% Source: McGraw Hill/F.W. Dodge 9
Residential construction activity was slow to recover in New Mexico but is now increasing at a faster pace than the nation. VALUE OF RESIDENTIAL CONSTRUCTION Index 100 = September 2002, Seasonally Adjusted 250 200 150 100 September 2012 Cumulative Year-to-Date New Mexico 32.1% United States 26.4% 50 0 Sep '02 Sep '04 Sep '06 Sep '08 Sep '10 Sep '12 Source: McGraw Hill/F.W. Dodge 10
Home prices have stabilized over the past year across most of the nation. CHANGE IN HOME PRICES Year-over-Year, 2012Q2 FHFA Purchase-Only Index, Seasonally Adjusted 6 to 12.9% 4 to 6 2 to 4 29% 2.9% 0 to 2-2 to 0-4.7 to -2 United States 3.0% Source: Federal Housing Finance Agency 11
Despite recent gains, home prices remain below peak levels in most states. CHANGE IN HOME PRICES Peak to Current (2007Q1 to 2012Q2) FHFA Purchase-Only Index, Seasonally Adjusted 10 to 19.2% 5 to 10 0 to 5-12.9% -5 to 0-10 to -5-20 to -10-56 to -20 United States -17.6% Source: Federal Housing Finance Agency 12
Improvements in infrastructure and non-residential construction activity have varied across the country. VALUE OF NON-RESIDENTIAL & NON-BUILDING CONSTRUCTION Percent Change, Cumulative Year-to-Date January through September 2012 1.1% 40+% 20 to 40 0 to 20-20 to 0-40 to -20-40+ United States -3.8% Source: McGraw Hill/F.W. Dodge 13
Despite the worst drought in three decades, U.S. net farm incomes are projected to reach record highs in 2012. U.S. REAL NET FARM INCOME Constant 2005 Dollars (Billions) $120 $120 $100 $80 February Forecast $100 $80 $60 $60 $40 $40 $20 $20 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F $0 Source: U.S. Department of Agriculture Note: F denotes August 2012 forecast. 14
Oil drilling has increased sharply over the past two years, but natural gas drilling has declined. ACTIVE DRILLING RIG COUNTS 2,000 United States New Mexico 200 1,600 Natural Gas Crude Oil 160 1,200 120 800 80 400 40 0 '08 '09 '10 '11 '12 '08 '09 '10 '11 '12 0 Source: Baker Hughes 15
After expanding for three years in the Tenth District, the manufacturing sector slowed somewhat in October. MANUFACTURING ACTIVITY Diffusion Index, Seasonally Adjusted, Month-over-Month 65 60 Kansas City District 48.2 October 2012 United States (ISM) 51.7 October 2012 55 50 45 Expanding Contracting 50 40 35 30 Oct '02 Oct '04 Oct '06 Oct '08 Oct '10 Oct '12 Note: Federal Reserve Surveys are computed on an ISM Basis (50 = no change) Source: Institute for Supply Management & Federal Reserve Bank of Kansas City 16
Manufacturers in the Tenth District still expect higher levels of activity over the next six months but have become less optimistic. TENTH DISTRICTMANUFACTURING EXPECTATIONS Diffusion Index, Seasonally Adjusted, Six Months Ahead 35 30 25 2012Q1 2012Q2 2012Q3 Oct-12 20 15 10 5 0-5 Production Volume of new Number of Capital New orders for orders employees expenditures exports Source: Federal Reserve Bank of Kansas City 17
Despite a decrease in exports to Europe, total New Mexico exports have increased sharply in 2012. NEW MEXICO EXPORTS BY TRADING PARTNER Billions AUGUST 2012 YEAR-TO-DATE Percent Change Total Trade 56.6% SHARE* $3.5 All Other -15.0 19.5% Japan 6.3 2.8 $3.0 Israel 354.2 21.1 Mexico 46.6 22.2 $2.5 $2.0 $1.5 $1.0 $0.5 Canada -8.5 16.8 China -21.8 21.1 Eurozone -14.4 13.2 $0.00 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '11 '12 YTD through August Source: WISERTrade Note: Eurozone includes the 27 EU member countries. *2011 Share 18
Conclusions The New Mexico economy has underperformed the nation over the past year due primarily to weakness in the government and construction sectors. The government sector may continue to challenge the New Mexico economy over the next few years as a result of Federal government austerity measures. However, recent improvements in the housing sector suggest that the construction sector may improve and add jobs over the next year. The energy, manufacturing and leisure industries have been the primary drivers of growth in New Mexico. Despite slightly slower growth in recent months in the energy and manufacturing sectors, these industries look poised to continue to be important sectors for growth hin the New Mexico economy. 19
New Mexico Economic Update This presentation will be available at http://www.kansascityfed.org/denver/ Alison Felix Alison.Felix@kc.frb.org