Emerging Trends in the U.S. and Colorado Economies Sam Chapman Associate Economist Federal Reserve Bank of Kansas City Denver Branch The views expressed are those of the presenter and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
The Structure of the Federal Reserve System The Federal Reserve System was created by Congress in 1913. It is a public-private, decentralized institution consisting of the Board of Governors in Washington, D.C. and 12 regional Reserve Banks. Board of Governors Consists of seven members who are appointed by the President and confirmed by the Senate to serve 14-year terms. There are currently five members of the Board of Governors: Jerome Powell, Michelle Bowman, Richard Clarida, Lael Brainard and Randal Quarles. Regional Federal Reserve Banks There are 12 Regional Reserve Banks, each serving a unique district. These are semiindependent by design. The Reserve Banks are governed by their Board of Directors, and the Directors (excluding Banking Directors) select the President of the Bank. Federal Open Market Committee (FOMC) Comprised of the 7 members of the Board of Governors and the 12 Reserve Bank Presidents (only 5 presidents are voting members on a rotating basis). Charged with conducting monetary policy. 2
The Primary Functions of the Federal Reserve System Conduct the Nation s Monetary Policy The Federal Open Market Committee is the group charged with conducting monetary policy within the U.S. The Committee has a statutory mandate from Congress to promote maximum employment, stable prices and moderate long-term interest rates. Provide and Maintain an Effective and Efficient Payments System The Federal Reserve supplies payments services to the public through depository institutions including banks, credit unions and savings and loans. We also serve as a banking and fiscal agent for the United States government. Payment services includes cash processing, processing and clearing checks, transferring funds and issuing, transferring and redeeming U.S. government securities. Supervise and Regulate Banking Operations The Federal Reserve ensures the safety and soundness of banks and ensures that banks provide fair and equitable services to consumers. The Federal Reserve also monitors and promotes the stability of the financial system as a whole. 3
Regional Federal Reserve Banks and Branch Locations 4
U.S. economic growth accelerated in 2018. REAL U.S. GROSS DOMESTIC PRODUCT Percent Change from Previous Quarter at Seasonally Adjusted Annualized Rates 6% 4% High Low 2% 0% -2% -4% -6% Year-over-Year Percent Change -8% -10% '08Q3 '09Q3 '10Q3 '11Q3 '12Q3 '13Q3 '14Q3 '15Q3 '16Q3 '17Q3 '18Q3 19 20 21 Source: Bureau of Economic Analysis and Federal Open Market Committee (FOMC)/Haver Analytics *Projections as of December FOMC meeting FOMC Central Tendency Projections* 5
U.S. economic growth is expected to slow after robust growth in 2018. REAL U.S. GROSS DOMESTIC PRODUCT Percent Change Q4-over-Q4, Seasonally Adjusted Annualized Rates 4% Median FOMC projections 3% 2% 1% 0% Source: Bureau of Economic Analysis and Federal Open Market Committee (FOMC)/Haver Analytics *Projections as of December FOMC meeting 6
Consumer spending continues to expand at a solid pace. REAL CONSUMPTION SPENDING Seasonally Adjusted, Year-over-Year Percent Change 8% Real Retail Sales 4% 0% -4% Real Personal Consumption Expenditures -8% -12% Nov. '06 Nov. '08 Nov. '10 Nov. '12 Nov. '14 Nov. '16 Nov. '18 Sources: Bureau of Economic Analysis & Haver Analytics 7
Business and consumer confidence have increased in recent months. BUSINESS AND CONSUMER SENTIMENT 110 100 NFIB Small Business Optimism Index, Q1:1986 = 100 90 80 70 60 Univ. of Michigan Consumer Sentiment, Q1:1966 = 100 50 Dec. '06 Dec. '09 Dec. '12 Dec. '15 Dec. '18 Source: University of Michigan, National Federation of Independent Business, & Haver Analytics 8
Inflation is at the FOMC s two percent target. PERSONAL CONSUMPTION EXPENDITURE PRICE INDEX Percent Change Year-over-Year 4% Headline Inflation FOMC s Target Inflation Rate FOMC* Projections 2% 0% Core Inflation -2% Nov. '09 Nov. '12 Nov. '15 Nov. '18 Source: Bureau of Economic Analysis, Federal Open Market Committee, & Haver Analytics *Projections as of December FOMC meeting; median projections 9
The unemployment rate has declined steadily over the past nine years and has fallen below most estimates of its longer-run level. U. S. UNEMPLOYMENT RATE Seasonally Adjusted 11% 10% 9% 8% 7% Median of FOMC longer-run projection 6% 5% FOMC Projections 4% 3% '00 '03 '06 '09 '12 '15 '18 Source: Bureau of Labor Statistics and Federal Open Market Committee (FOMC)/Haver Analytics *Projections as of March FOMC meeting; median unemployment rate 10
The unemployment rate has declined steadily over the past eight years and has fallen below most estimates of its longer-run level. U. S. UNEMPLOYMENT AND JOB OPENINGS Seasonally Adjusted, Thousands 16,000 14,000 12,000 10,000 Number of Unemployed 8,000 6,000 4,000 Job Openings 2,000 Nov. '00 Nov. '03 Nov. '06 Nov. '09 Nov. '12 Nov. '15 Nov. '18 Source: Bureau of Labor Statistics/Haver Analytics 11
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent. - December 2018 FOMC Statement 6% 5% 4% 3% 2% 1% EFFECTIVE FEDERAL FUNDS RATE FOMC MEDIAN PROJECTIONS: DECEMBER, 2018 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Federal Reserve Board 12
FEDERAL RESERVE BALANCE SHEET Trillions $5 $4 $3 Short term lending, targeted lending programs, and rescue operations MBS & agency debt Forecast $2 $1 Treasury securities and other assets $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Federal Reserve Board, Haver Analytics, and author s calculations. 13
Unemployment rates are below national rates across most of Colorado. UNEMPLOYMENT RATES October 2018, Seasonally Adjusted Unemployment Rate United States (Dec. 18) 3.9% Colorado (Nov. 18) 3.3% Denver (Nov. 18) 3.4% Less than 2% 2 to 3% 3 to 4% 4 to 5% Greater than 5% Source: Bureau of Labor Statistics and Haver Analytics 14
Employment has been increasing in Colorado and the nation over the past eight years, with Colorado gains outpacing the nation. PAYROLL EMPLOYMENT GROWTH Index 100 = December, 2008, Seasonally Adjusted Percent Change (April 18) Past 10 Years Past Year U.S. (Dec. 18) 11.4% 1.8% Colorado (Nov. 18) 17.9% 2.6% Denver (Nov. 18) 21.3% 2.2% 130 120 110 Denver Colorado United States 100 90 Apr. '08 Apr. '10 Apr. '12 Apr. '14 Apr. '16 Apr. '18 Source: Bureau of Labor Statistics 15
The majority of industries have added jobs over the past year. CHANGE IN PAYROLL EMPLOYMENT, NOVEMBER 2018 Seasonally Adjusted Share Location Quotient 1.1% 16.0% 2.7% 3.2% 4.7% 12.7% 10.1% 5.4% 10.9% 4.0% 9.6% 6.2% 4.0% 6.1% 1.9% 1.4% 2.25 1.13 1.49 0.80 1.39 1.16 0.95 0.63 0.81 0.99 0.99 1.26 1.01 1.06 1.02 0.56 Natural Resources & Mining Professional & Business Services Information Transportation & Utilities State Government Leisure & Hospitality Retail Trade Manufacturing Health Care & Social Assistance Wholesale Trade Local Government Construction Other Services Financial Activities Federal Government Private Educational Services Percent Change Year-over-Year -2.2% -2.5% 5.1% 4.0% 3.7% 3.5% 3.0% 2.5% 2.5% 2.0% 2.0% 1.4% 1.4% 0.6% 0.2% 14.3% Colorado United States Note: Construction and Mining are lumped together for Denver employment growth under the Construction sector in the chart above. 16
Wage growth in Colorado is similar to that of the U.S. as a whole and has been slower than in past expansionary periods. WAGE PER EMPLOYEE Year-over-Year Percent Change, Four-Quarter-Moving-Average 10% 8% Colorado 6% 4% 2% United States 0% Jan. '93 Jan. '98 Jan. '03 Jan. '08 Jan. '13 Jan. '18-2% Note: Gray bars indicate recession, and dotted lines indicate Colorado average growth for each expansionary period shown. Sources: BLS QCEW, NBER & Haver Analytics 17
Colorado continues to experience net in-migration, but the pace of growth has slowed over the past year. NET MIGRATION Total 2017 Net Migration as a Percentage of 2017 Population Annual Percent Change 2017 United States 0.3% Colorado 0.8% Denver County 0.7% More than 2% 1% to 2% 0% to 1% -1% to 0% -2% to -1% Less than -2% Source: Census Bureau 18
Months supply of homes remains very low in Denver compared to the United States as a whole. MONTHS SUPPLY OFHOMES Seasonally Adjusted 12 10 United States 8 16 year averages 6 4 2 Denver 0 Nov. '03 Nov. '06 Nov. '09 Nov. '12 Nov. '15 Nov. '18 Note: Dotted lines are historical averages from November 2002 to November 2018. Sources: Coldwell Banker, Denver Metro Association of Realtors, Census Bureau and Haver Analytics 19
Residential construction activity has been increasing for eight years, led by strong gains in multifamily building. RESIDENTIAL PERMITS Year-to-Date Through November, Seasonally Adjusted 60,000 50,000 40,000 Colorado Multifamily Single Family 36,000 30,000 24,000 Denver Multifamily Single Family 30,000 18,000 20,000 12,000 10,000 6,000 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Census Bureau/Haver Analytics 20
Low inventories have led to strong home price appreciation in recent years in Colorado and Denver. HOME PRICES Seasonally Adjusted, Index 100 = Q1:2007 225 200 175 150 125 100 Denver Colorado United States 75 Note: United States and Colorado price indices are for purchase-only transactions, whereas Fort Collins includes re-financing and purchase transactions. Source: Federal Housing Finance Agency 21
Tourism activity has been strong in Colorado over the past few years. HOTEL OCCUPANCY RATES Colorado HOTEL ROOM RATES Colorado, 1999 Dollars 90% $180 80% $170 70% 60% 50% 40% 30% 10-Year Avg. 2018 2017 10-Year Average Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec 71.1% 70.7% 65.5% YTD Averages $160 $150 $140 $130 $120 $110 $100 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec $156.4 $154.4 $133.6 YTD Averages Source: Colorado Hotel and Lodging Association 22
Manufacturing activity improved throughout 2017 and 2018, although is showing recent weakness. MANUFACTURING ACTIVITY Diffusion Index, Seasonally Adjusted, Month-over-Month 65 60 55 50 45 40 35 Expanding Contracting Kansas City 51.7 District Dec. 2018 U.S. 54.1 Dec. 2018 30 Dec. '08 Dec. '10 Dec. '12 Dec. '14 Dec. '16 Dec. '18 Source: Kansas City Federal Reserve Bank, ISM, & Haver Analytics 23
Colorado exporting activity rebounded modestly in 2017, and is up so far through 2018. $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 COLORADO EXPORTS BY TRADING PARTNER Billions '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 Source: WISERTrade and Census Bureau YEAR-TO-DATE OCTOBER 2018 Year-over-Year Percent Change Total Trade 5.4% SHARE All Other 10.4 30.2% Japan -1.1 5.5 Mexico -0.5 16.3 Canada 3.4 17.3 China 3.9 12.8 Eurozone 7.6 17.9 '17 '18 Year-to-Date October 24
Oil prices remain low. OIL PRICES (WEST TEXAS INTERMEDIATE) $/ Barrel $140 $120 $100 $80 Futures $60 $40 $20 $0 May. '08 May. '10 May. '12 May. '14 May. '16 May. '18 May. '20 Source: Bloomberg Energy Services 25
120 100 Oil prices are expected to remain above $55 over the next two years which is above profitable prices for most District firms. ENERGY SURVEY SPECIAL QUESTION Q3:2018 $80 $60 $40 $20 $0 $55 $71 Profitable Price Price expected in 6 months Oil (WTI) $72 Price expected in 1 year $73 Price expected in 2 years $8 $79 $3.23 $7 Price expected in 5 years $6 $5 $4 $3 $2 $1 $0 Profitable Price Natural Gas (Henry Hub) $2.89 $2.92 Price expected in 6 months Price expected in 1 year $3.10 Price expected in 2 years $3.42 Price expected in 5 years Note: Blue bars represent range for survey respondents. Numbers above bars indicate average of the range (the black line in the middle of the blue bars). Source: Kansas City Federal Reserve Bank Energy Survey 26
Oil production has reached record levels in Colorado despite a low-price environment. CRUDE OIL PRODUCTION Millions of Barrels, Monthly, Seasonally Adjusted U.S 420. 350 280 210 United States CO 18 15 12 9 140 70 Colorado 6 3 0 0 Oct. '08 Oct. '10 Oct. '12 Oct. '14 Oct. '16 Oct. '18 Source: Energy Information Administration and Haver Analytics 27
Farm income is projected to decline in 2018, as commodity prices remain low. U.S. REAL NET FARM INCOME Billion Dollars (Constant 2016 Dollars) $140 $120 $100 $80 $60 $40 $20 $0 1980 1985 1990 1995 2000 2005 2010 2015 2018* *Projection for 2018 Sources: USDA 28
For additional information on the regional economy: http://www.kansascityfed.org/denver