U.S. and Regional Economic Outlook Chad Wilkerson Vice President, Economist, and Oklahoma City Branch Executive Federal Reserve Bank of Kansas City www.kansascityfed.org/oklahomacity
Overview of the Federal Reserve System The Fed consists of three main entities: Board of Governors: 7 members appointed by U.S. President Federal Reserve Banks: 12 total; semi-independent by design Federal Open Market Committee: 19 members; 12 voting As with most central banks, the 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 ensure safety and soundness of banks Financial services bank for banks, bank for federal govt.
Federal Reserve Districts and Office Locations
The U.S. Economy
Real GDP growth picked up somewhat in Q3, but still remains moderate U.S. Real Gross Domestic Product 6 Percent change from the previous period, SAAR 4 2-2 -4-6 -8-1 26 Q3 27 Q3 28 Q3 29 Q3 21 Q3 211 Q3 Source: U.S. Bureau of Economic Analysis, FOMC
Business investment was strong, exports grew further, and consumers spent more Growth in Components of Real GDP 16 Percent change from the previous period, SAAR 14.8 14 12 1 8 211 Q2 211 Q3 1.3 6 4 2 1.3 2..7 2.3 4.2 1.6 3.6 4.3-2 Total GDP Consumer spending Residential investment Business investment Exports -.9 -.1 Government spending Source: U.S. Bureau of Economic Analysis
Monthly indicators through November suggest continued moderate growth U.S. Private Payroll Employment and Business Indexes 6 Change from previous month, thousands Index 65 4 6 2 55 5-2 45-4 4-6 35 Private Employment (left axis) -8 ISM Manufacturing Index (right axis) 3 ISM Non-Manufacturing Index (right axis) -1 25 Nov-6 Nov-7 Nov-8 Nov-9 Nov-1 Nov-11 Source: Institute for Supply Management, Bureau of Labor Statistics
Financial stress in Europe remains the biggest risk to U.S. and world growth 3-month EURIBOR & LIBOR Spreads (to OIS) 4. Percentage points 4. 3.5 3.5 3. 2.5 LIBOR 3. 2.5 2. 2. 1.5 1.5 1. 1..5 EURIBOR.5. Jan-7 Aug-7 Mar-8 Oct-8 May-9 Dec-9 Jul-1 Feb-11 Sep-11. Source: Bloomberg
At its November meeting, the FOMC expected fairly solid U.S. GDP recovery 8 6 Percent change, year-over-year Real Gross Domestic Product Nov. FOMC Forecast Ranges in Yellow 8 6 4 4 2 2-2 Long Term -2-4 1981 1984 1987 199 1993 1996 1999 22 25 28 211 214-4 Source: U.S. Bureau of Economic Analysis, FOMC
But for unemployment to only come down slowly the next few years 12 1 8 Percent Unemployment Rate Seasonally Adjusted Nov. FOMC Forecast Ranges in Yellow Long Term 12 1 8 6 6 4 4 2 2 1981 1984 1987 199 1993 1996 1999 22 25 28 211 214 Source: U.S. Bureau of Labor Statistics, FOMC
And for inflation pressures to ease slightly after rising with oil and food prices in 211 PCE Inflation Index 1 9 8 7 6 Percent change, year-over-year 1 9 8 7 6 5 4 3 Nov. FOMC Forecast Ranges in Yellow Long Term 5 4 3 2 2 1 1 1981 1984 1987 199 1993 1996 1999 22 25 28 211 214 Source: U.S. Bureau of Economic Analysis, FOMC
Regional and Industry Outlook
There is considerable variation in economic growth across the nation and region Employment Growth, Year-over-Year (percent) October 211 1.8 1.4 2..3..6 2.2 3. -.1 U.S.= 1.1 District = 1.2 Source: U.S. Bureau of Labor Statistics
States with high concentrations of energy activity tend to be doing the best right now Location of U.S. Drilling Rigs October 211 Oil Gas Thermal Source: U.S. Bureau of Labor Statistics
Unemployment rates throughout our region remain lower than in the nation Unemployment Rate (percent) October 211 5.7 8.1 4.2 6.7 8.5 6.6 8.4 6.1 8.2 U.S.= 9. District = 7.2 Source: U.S. Bureau of Labor Statistics
However, labor markets may not be overly tight due to labor force dropouts Unemployment Rate by State Seasonally Adjusted 16 Percent 15.1 Sep-11 16 14 Sep-11 @ 27 LFPR* 14 12 11.8 11.1 11.7 11.7 12 1 8 6 9.1 7.2 8.7 8.3 8. 6.7 6.6 9.9 9.1 5.9 5.8 6. 1 8 6 4 4.2 4 2 2 US DIST MO CO KS NM OK WY NE *LFPR= Labor Force Participation Rate Source: Bureau of Labor Statistics
And while some District states are nearing pre-recession job levels, others are not Change in Employment Since January 28 Seasonally Adjusted 1. Percent. -.4-1. -1.1-2. -1.9-3. -4. -3.7-5. -4.7-4.8-4.5-4.3-6. -5.4 U.S. 1J MO NM KS CO WY OK NE Source: U.S. Bureau of Labor Statistics
Residential construction activity in both the nation and region remains sluggish Value of Residential Construction Contracts Seasonally Adjusted 12 Index: Oct-6=1 12 1 1 8 Tenth District 8 6 6 U.S. 4 4 2 2 Oct-6 Oct-7 Oct-8 Oct-9 Oct-1 Oct-11 Source: F,W.Dodge, Inc.
But home prices in most of our region, including Oklahoma, have held up much better Five-Year Change in Home Prices Purchase-Only, 211 Q3 (percent) 4. -5.5-2.6-2.9-11. -12.3 3.9 3.3-7.7 U.S.= -18.6 Source: U.S. Bureau of Labor Statistics
Fewer real estate problems also means banks in the region remain in better condition Percent of Banks Experiencing a Loss June 3, 211 21 29 up to 5% 5% to 1% 1% to 2% 2% to 4% 4% + 28 * Percentage of banks with negative net income (YTD) Source: Reports of Condition and Income
Manufacturing growth remains moderate in both the nation and our region Manufacturing Composite Indexes 65 Index Index 65 6 ISM 6 55 55 5 45 KC Fed 5 45 4 4 35 35 3 3 Nov-6 Nov-7 Nov-8 Nov-9 Nov-1 Nov-11 Note Tenth District calculated on an ISM basis; Above 5 indicates expansion Source: KCFRB Manufacturing Survey
And factory expectations for this area are fairly positive heading forward Tenth District Manufacturing Expectations Six-Months Ahead 6 Index Index 6 5 5 4 Production 4 3 3 2 2 1 1-1 Capital Spending -1-2 -2-3 Employment -3-4 -4 Nov-6 Nov-7 Nov-8 Nov-9 Nov-1 Nov-11 Source: KCFRB Manufacturing Survey
Surging farmland prices likely pose a risk in some parts of our region Tenth District Non-Irrigated Cropland Values Percent Change, Year-over-year 4 Percent 4 35 Q1 211 Q2 211 35 3 Q3 211 3 25 25 2 2 15 15 1 1 5 5 District NE KS MO Mtn States (CO, NM, WY) OK Source: FRBKC Agricultural Credit Survey
Summary The U.S. economy is growing moderately but is facing headwinds from Europe Fed forecasts call for modestly improving unemployment and falling inflation in 212 Economic activity in the Tenth Federal Reserve District is somewhat stronger The outlook for the region remains relatively good, though land prices appear to be a risk