Economic Conditions and Outlook and Consumer Credit Conditions NACM-CFDD Kansas City Kansas City, MO Kelly D. Edmiston Senior Economist
Disclaimer This presentation reflects the views of the speaker and not necessarily the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. 2
Outline U.S. Economic Conditions Monetary Policy Environment Low- and Moderate-Income Economic Conditions Consumer Credit Conditions 3
U.S. Economic Conditions and Outlook Economic Conditions and Outlook and Consumer Credit Conditions
Historical Real GDP Growth and FOMC Projections Source: U.S. Bureau of Economic Analysis /HAVER Analytics; Federal Reserve Board of Governors, Summary of Economic Projections, December 2018 4% 3% 2% 1% 0% -1% -2% -3% 1.9% -0.1% -2.5% 2.6% 1.6% 2.2% 1.8% 2.5% 2.9% 1.6% 2.2% 3.1% 3.0% 2.5% 2.3% 2.0% 2.0% 2.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 LR Median 1.8% 1.5% FOMC Projections (central tendency) 1.8% 4% 3% 2% 1% 0% -1% -2% -3%
Consensus Forecasts for 2018 and 2019 Real GDP Growth 3.0% 3.0% Source: Consensus Forecasts (Jan 2017 Dec 2018) 6 2.8% 2.6% 2.4% 2.2% 2.0% 2018 projections for 2018 2018 projections for 2019 2017 projections for 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2.8% 2.6% 2.4% 2.2% 2.0%
Slower Average Growth Over Time Source: U.S. Bureau of Economic Analysis /HAVER Analytics 7 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 4.5% 3.2% 3.1% 3.2% 2.2% 1.9% 1960s 1970s 1980s 1990s 2000s 2010s 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
Contributions to Real GDP Growth (Average Q4 2017 Q3 2018) Source: U.S. Bureau of Economic Analysis /HAVER Analytics 8 5 4 3 2 1 0-1 -2-3 Contributions to Real GDP Growth (percentage points) 3.0 GDP 2.0 Consumer Spending 0.9 Business Investment 0.0 Residential Investment 0.1-0.4 0.2 0.2 Inventories Net Exports Federal Spending State & Local Spending 5 4 3 2 1 0-1 -2-3
Unemployment Rate with FOMC Projections FEDERAL RESERVE BANK OF KANSAS CITY Source: U.S. Bureau of Labor Statistics /HAVER Analytics; Federal Reserve Board of Governors, Summary of Economic Projections, December 2018 9 12% 11% 10% 9% 8% 6.0% Lower Central Tendency Upper Central Tendency Median 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 2019 2020 2021 Long Run 7% 6% 5% 4% 3% 2% 1% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Measures of Inflation (personal consumption expenditure) Source: U.S. Bureau of Economic Analysis /HAVER Analytics 10 5% PCE Inflation Core PCE Inflation 4% 3% 2% 1% 0% -1% Core PCE excludes volatile food and energy components. -2% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 5% 4% 3% 2% 1% 0% -1% -2%
Monetary Policy Environment Economic Conditions and Outlook and Consumer Credit Conditions
Federal Funds Rate Target (Upper Limit) Source: Board of Governors of the Federal Reserve System / HAVER Analytics 12 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
SEP Dot Plot (mid-range) Source: Federal Reserve Board of Governors, Summary of Economic Projections, December 2018 13 Former Fed BOG Vice Chair Donald Kohn suggests downplaying policymakers' quarterly estimates of the future Federal Funds Rate and deemphasizing the median of those estimates as holding any particular meaning : Public understanding of the policy process would be helped by concentration on the story behind the [FOMC s] policy choices and expectations rather than on, for example, the precise number of rate increases an individual policymaker expects next year. As quoted in the New York Times, 1/4/2019 (Howard Schneider)
Fed Balance Sheet Source: Federal Reserve Board of Governors /HAVER Analytics 14 5.0 Trillions Trillions Treasuries Federal Agency Mortgage-Backed Other 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
FOMC Statement, December 19 2018 In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. 15
Low- and Moderate-Income Economic Conditions FEDERAL RESERVE BANK OF KANSAS CITY Economic Conditions and Outlook and Consumer Credit Conditions
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LMI Financial Condition Index 200 Index: 100 = Neutral Index: 100 = Neutral 200 Source: Federal Reserve Bank of Kansas City LMI Survey; Federal Reserve Bank of Kansas City LMI Economic Conditions, September 2018 180 160 140 120 100 80 60 40 20 0 Quarter-over-Quarter Year-over-Year Expectations 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 180 160 140 120 100 80 60 40 20 0 18 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
LMI Job Availability Index 200 Index: 100 = Neutral Index: 100 = Neutral 200 Source: Federal Reserve Bank of Kansas City LMI Survey; Federal Reserve Bank of Kansas City LMI Economic Conditions, September 2018 19 180 160 140 120 100 80 60 40 20 0 Quarter-over-Quarter Year-over-Year Expectations 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 180 160 140 120 100 80 60 40 20 0
Special Question Responses Labor market circumstances Stagnant wages in tandem with higher prices Political uncertainties/policies Affordable housing Location-specific issues 20
Labor Market Metrics Official Unemployment Rate (U-3) Alternative Unemployment Rate Long-Term Unemployed (Share of all Unemployed)* Labor Force Participation Rate Dec. 2018 Nov. 2018 Nov. 2017 Nov. 2018 Nov. 2017 Nov. 2018 Nov. 2017 Nov. 2018 Nov. 2017 U.S. (All) 3.9 3.7 4.2 7.6 8.0 20.7 23.7 62.9 62.8 LMI 8.2 8.4 14.2 14.8 17.9 19.8 44.5 45.3 Sources: U.S. Bureau of Labor Statistics; Federal Reserve Bank of Kansas City calculations using data from the Current Population Survey; Federal Reserve Bank of Kansas City, LMI Economic Conditions, September 2018 Note: * U.S. numbers and LMI numbers are not directly comparable. The LMI figure does not include marginally attached workers who are not discouraged workers, while the U.S. number does. 21
Why Aren t Low-Income People Working? FEDERAL RESERVE BANK OF KANSAS CITY Source: Federal Reserve Bank of Kansas City LMI Survey; Federal Reserve Bank of Kansas City LMI Economic Conditions, March 2018 22
Selected Price Indexes Source: U.S. Bureau of Labor Statistics /HAVER Analytics; Federal Reserve Bank of Kansas City, LMI Economic Conditions, September 2018 23 160 Index: June 2008 = 100 Index: June 2008 = 100 160 150 140 Consumer Price Index (CPI) Price Index: Food at Home Price Index: Medical Care Services Price Index: Multifamily Rent Price Index: Rent of Primary Residence 150 140 130 130 120 120 110 110 100 100 90 90 80 80 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
Consumer Credit Conditions Economic Conditions and Outlook and Consumer Credit Conditions
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Aggregate Consumer Debt Sources: Federal Reserve Bank of Kansas City, Tenth District Consumer Credit Report, December 21 2019; Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, November, 2018 [data file]; U.S. Bureau of Labor Statistics /HAVER Analytics (for inflation adjustment) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 $trillions $3.208 $2.679 Consumer Debt w/o Student Loans ($) Consumer Debt w/o Student Loans ($2007) Consumer Debt w/ Student Loans ($) Consumer Debt w/ Student Loans ($2007) $trillions $4.372 $3.594 $2.930 $2.409 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 26 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.0
Outstanding Debt per Consumer (Inflation-Adjusted) Sources: Federal Reserve Bank of Kansas City, Tenth District Consumer Credit Report, December 21 2019; Federal Reserve Bank of New York, Consumer Credit Panel /Equifax [data file]; U.S. Bureau of Labor Statistics /HAVER Analytics (for inflation adjustment) 27 Inflation-Adjusted Four-quarter moving average $24,000 $20,000 All Consumer Debt $16,000 $12,000 $8,000 Revolving Debt $4,000 Note: Consumer debt is all outstanding debt other than first mortgages. $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $24,000 $20,000 $16,000 $12,000 $8,000 $4,000 $0
Consumer (& Nonprofit) Debt as a Percentage of GDP Sources: Federal Reserve Bank of Kansas City, Tenth District Consumer Credit Report, December 21 2019; Federal Reserve Board of Governors, Series Z1, Financial Accounts of the United States; U.S. Bureau of Economic Analysis; HAVER Analytics 28 120% 110% 100% 90% 80% 75.4% 70% 60% 50% 40% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 120% 110% 100% 90% 80% 70% 60% 50% 40%
Debt Service Obligation Ratios Sources: Federal Reserve Bank of Kansas City, Tenth District Consumer Credit Report, December 21 2019; Federal Reserve Board of Governors, Household Debt Service Ratios; HAVER Analytics 29 Household Debt Service Ratio (SA, %) Consumer Debt Service Ratio (SA, %) Debt Service as Share of Disposable Income Debt Service as Share of Disposable Income 14% 12% 10% 8% 6% 4% 2% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 14% 12% 10% 8% 6% 4% 2% 0%
Consumer Delinquency Rates and Bankruptcy Filings Sources: Federal Reserve Bank of Kansas City, Tenth District Consumer Credit Report, December 21 2019; Federal Reserve Bank of New York Consumer Credit Panel /Equifax; the Administrative Office of the U.S. Courts; Lender Processing Services, Inc. (McDash Analytics) 30 20% 16% 12% 8% 4% 0% Four-quarter moving average 14.2% 8.4% 8.0% 2.5% Any Account* Consumer Finance Bank Card HELOC Auto Student Loan Mortgage Bankruptcy Filings per 10,000 Households (annual rate) 7.4% 15.7% 5.5% 55.4 150 125 100 75 50 25 0 Notes: At least 90 days past due. These figures represent the share of consumers with at least one past due account in the category. *"Any Account" includes accounts not otherwise reported in the chart. Student loan delinquency includes all student loan debt, including those in deferment and forbearance. Student loan data reported here were calculated using a different CCP/Equifax sample than other data in this report. Mortgage delinquency is the current rate and not a moving average and includes both first and secondary liens.
Trends in Mortgage Delinquencies Sources: Federal Reserve Bank of Kansas City, Tenth District Consumer Credit Report, December 21 2019; Lender Processing Services, Inc. (McDash Analytics) 31 16% United States District 14% 12% 10% 8% 6% 4% 2% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 16% 14% 12% 10% 8% 6% 4% 2% 0%
Contact Information Kelly D. Edmiston Senior Economist Federal Reserve Bank of Kansas City 1 Memorial Drive Kansas City, MO 64198 kelly.edmiston@kc.frb.org 32