U.S. & District Economic Outlook Nebraska LEAD Program February 5, 2015 Jason Brown Senior Economist 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.
Overview of the Federal Reserve System The Fed consists of three main entities: Board of Governors: federal agency located in D.C., 7 governors appointed by U.S. President, confirmed by Senate Federal Reserve Banks: 12 total; semi-independent by design Federal Open Market Committee: 19 members Fed s primary responsibilities fall within four general areas: Lender of last resort provide liquidity in times of crisis Monetary policy promote full employment and low inflation Bank regulation help ensure safety and soundness of member banks Financial services bank for banks, bank for U.S. government 2
Federal Reserve Districts and Office Locations 3
U.S. Economic Update 4
The U.S. economy grew 2.4% in 2014 compared to 2.2% in 2013. REAL GROSS DOMESTIC PRODUCT (GDP) Annualized Percent Change from Previous Period 6% 5% 4.5% 4.6% 5.0% High Low 6% 5% 4% 3% 2.7% 3.5% 2.6% 3.0% 3.0% 2.5% 4% 3% 2% 1.8% 2.6% 2.5% 2.3% 2% 1% 0% -1% -2% -3% 0.1% -2.1% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 2017 2012 2013 2014 FOMC Central Tendency Projections 1% 0% -1% -2% -3% Source: Bureau of Economic Analysis & Federal Open Market Committee (FOMC)/Haver Analytics. *December 2013 Projections. 5
Consumer spending has been the primary driver of economic growth over the past year. CONTRIBUTIONS TO REAL GDP Percent Change at Seasonally Adjusted Annualized Rates 7% 5% Real GDP 2.6% 7% 5% 3% 3% 1% 1% -1% -1% -3% -5% Personal Consumption Expenditures Gross Private Domestic Investment Govt. Consumption & Investment Net Exports '09Q4 '10Q4 '11Q4 '12Q4 '13Q4 '14Q4-3% -5% Source: Bureau of Economic Analysis/Haver Analytics. 6
Consumers debt levels stabilized in some categories, while increasing in others. Revolving Debt Auto Debt Real Dollars, Seasonally Adjusted Real Dollars, Seasonally Adjusted $9,000 $9,000 $4,000 $4,500 $8,000 $7,000 United States $8,000 $7,000 $3,500 10J $4,000 $6,000 $5,000 10J $6,000 $5,000 $3,000 $3,500 $3,000 $4,000 $3,000 $4,000 $3,000 $2,500 United States $2,500 $2,000 Sep-00 Sep-04 Sep-08 Sep-12 $2,000 $2,000 Sep-00 Sep-04 Sep-08 Sep-12 $2,000 Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax 7
Unemployment rates gradually declined and are expected to moderate further in the coming years. UNEMPLOYMENT RATES Seasonally Adjusted 10% 9.6% 10% 9% 8% 8.0% United States 9% 8% 7% 7% 6% 5% 4% 3% 4.6% 4.1% 10J 5.6% 5.6% 5.3% 5.2% 5.3% 5.2% 5.0% 4.9% 6% 5% 4% 3% 2% 2007 2008 2009 2010 2011 2012 2013 Nov Dec 2015 2016 2017 FOMC Central 2014 Tendency Projections* 2% Source: Bureau of Labor Statistics & Federal Reserve Board/Haver Analytics. *December 2013 Projections. 8
Labor force participation rates have continued a steady decline. LABOR FORCE PARTICIPATION Percent 70 69 68 67 66 10J 70 69 68 67 66 65 64 63 United States 65 64 63 62 62 Dec '04 Dec '06 Dec '08 Dec '10 Dec '12 Dec '14 Source: Bureau of Labor Statistics /Haver Analytics. 9
Inflation remains below the FOMC s 2 percent target. PERSONAL CONSUMPTION EXPENDITURE PRICE INDEX (PCEPI) Percent Change Year-over-Year 6% 6% 4% Headline Inflation 4% 2% 2% 0% Core Inflation 0% -2% -2% Nov. '03 Nov. '05 Nov. '07 Nov. '09 Nov. '11 Nov. '13 Source: Bureau of Economic Analysis/Haver Analytics. 10
the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. 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. - January 2015 FOMC Statement 9% 8% 7% 6% 5% EFFECTIVE FEDERAL FUNDS RATE 4% 3% 2% 1% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Federal Reserve Board/Haver Analytics. 11
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. $5 $4 $3 $2 $1 -$1 -$2 -$3 FEDERAL RESERVE BALANCE SHEET Trillions Assets Traditional Portfolio Currency in Circulation Liabilities Foreign Currency Swaps Short-Term Lending - January 2015 FOMC Statement Federal Agency & Mortgage-Backed Securities Reserves Trillions -$4 -$4 Other -$5 -$5 2009 2010 2011 2012 2013 2014 2015 $5 $4 $3 $2 $1 -$1 -$2 -$3 Source: Federal Reserve Board/Haver Analytics. 12
Regional Economic Update 13
Most states experienced positive job growth over the past year. DECEMBER 2014 NONFARM EMPLOYMENT Year-over-Year Percent Change, Seasonally Adjusted 1.4% 2.6% 1.6% 0.8% 0.9% 2.2% 1.6% Over 3% 2 to 3 1 to 2 0 to 1 Below 0 United States 2.1% 14
Job gains continue nationally, but at a slightly slower pace in the District. NONFARM EMPLOYMENT Index 100 = December 2004, Seasonally Adjusted 110 Percent Change Past 10 Years Past Year Peak to Current U.S. 5.8% 2.1% 101.4% 10J 7.4% 1.8% 101.5% 105 10J 100 United States 95 Dec '04 Dec '06 Dec '08 Dec '10 Dec '12 Dec '14 Source: Bureau of Labor Statistics/Haver Analytics. 15
Job gains have varied considerably across metropolitan areas. NONFARM EMPLOYMENT Index 100 = December 2004, Seasonally Adjusted 120 115 110 Denver Percent Change Past 10 Years Past Year Peak to Current KC 5.5% 2.2% 100.4% Denver 14.9% 3.3% 107.4% OKC 14.7% 3.0% 108.1% Omaha 8.6% 0.9% 102.2% OKC 105 100 Omaha Kansas City 95 Dec '04 Dec '06 Dec '08 Dec '10 Dec '12 Dec '14 Source: Bureau of Economic Analysis/Haver Analytics. 16
Employment growth has been broad based in the U.S. and 10 th District. DECEMBER 2014 PAYROLL EMPLOYMENT Seasonally Adjusted Percent Change Year-over-Year Construction Leisure and Hospitality Educational and Health Services Natural Resources and Mining Manufacturing Professional and Business Services Financial Activities Local Government Other Services Federal Government State Government Information Wholesale Trade Transportation and Utilities Retail Trade 10J United States 1.9% 1.8% 1.5% 1.0% 0.9% 0.6% 0.6% 0.6% 0.2% 0.1% 0.0% 3.3% 3.2% 3.2% 5.2% Share of 10J Jobs 4.4% 10.5% 14.2% 2.0% 8.0% 12.8% 5.7% 11.6% 3.9% 2.2% 4.5% 2.0% 4.0% 3.6% 10.6% Source: Bureau of Labor Statistics/Haver Analytics. 17
Manufacturing activity has recently slowed in the U.S. and the 10 th District. MANUFACTURING ACTIVITY Diffusion Index, Seasonally Adjusted, Month-over-Month 65 60 55 50 45 40 35 Expanding Contracting ISM 53.5 January 2015 Kansas City District 51.5 January 2015 30 Jan. '05 Jan. '07 Jan. '09 Jan. '11 Jan. '13 Jan. '15 Source: Institute for Supply Management & Federal Reserve Bank of Kansas City/Haver Analytics. 18
Crude oil prices have dropped to 5 year lows, while natural gas prices remain low. Price per Barrel $150 SPOT PRICES Price per Thousand Cubic Feet $16 $125 $100 $75 Crude Oil (Left Axis) $14 $12 $10 $8 $50 $6 $4 $25 $2 Natural Gas (Right Axis) $0 $0 Jan. '05 Jan. '07 Jan. '09 Jan. '11 Jan. '13 Jan. '15 Source: Bloomberg. 19
Drilling of new oil wells has decreased sharply. ACTIVE DRILLING RIG COUNTS 2,000 UNITED STATES TENTH DISTRICT 500 1,600 Crude Oil 400 1,200 300 800 200 400 100 Natural Gas 0 '10 '11 '12 '13 '14 '15 '10 '11 '12 '13 '14 '15 0 Source: Baker Hughes. 20
Crop prices have turned lower, with mostly flat futures prices. 18 16 14 CROP PRICES $/Bushel Soybeans Futures Prices 12 10 Wheat 8 6 4 Corn 2 0 Mar-09 Mar-11 Mar-13 Mar-15 Source: Commodity Research Bureau. Futures prices as of 2/4/2015 21
Farmland appreciation has slowed due to lower farm income. TENTH DISTRICT FARMLAND VALUES Percent change from previous year 40 40 35 30 25 20 15 Nonirrigated Irrigated 35 30 25 20 15 10 5 0-5 Ranchland 10 5 0-5 -10-10 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Source: FRBKC Ag Credit Survey. 22
Cattle breakeven price has recently fallen below market price, while margins remain wider for hog producers. LIVESTOCK PRICES AND BREAKEVEN COSTS Dollars per hundredweight 180 160 140 120 100 80 60 40 20 Hog Breakeven Hog Price Cattle Breakeven Cattle Price 180 160 140 120 100 80 60 40 20 0 0 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Source: USDA and Iowa State University 23
Summary U.S. economic growth remains moderate. The District economy is experiencing broad based growth across sectors and metro areas. Oil prices have fallen to 5 year lows, which may boost consumer spending. Slower growth is expected in oil producing states. Crop producers are seeing lower profit levels, while some livestock producers are seeing increases. 24
Questions? For more information about the 10 th District economy, subscribe to: Midwest, Nebraska, Oklahoma, and Rocky Mountain Economist Regional Databoooks http://www.kc.frb.org/research/regionaleconomy/ 25