Midwest Perspectives Community Banking Conference University of Wisconsin--Whitewater April 27, 2018 Bill Testa Vice President Federal Reserve Bank of Chicago
Topics Today U.S. Economy (doing well) Midwest Economy Near Term (doing well except ag) Long run challenges (slow growth of pop and workforce, especially small places and rural areas) April 27, 2018 Federal Reserve Bank of Chicago 2
Overview of U.S. 1. Upward revision to Q4 2017 GDP estimate together with strengthening business and consumer optimism has lead to higher economic expectations for 2018. 2. Consumer sentiment increased to 14 year high in April, aided by improving incomes and strength in the labor markets. 3. Business activity (Investment and Export Recovery) remains strong especially in manufacturing. 4. The prospect of high tariff environment has added to market volatility and business uncertainty. 5. Economy running close to potential as labor markets tighten. 6. Wage and price growth firming while inflation (and expectations) remains below the 2-percent objective. 7. Many forecasts revised higher for this year and next with fiscal stimulus of tax reform and higher federal spending
U.S. Real GDP Billions Chained $2009, % Change Q/Q at SAAR $ Billions 18,000 17,000 Q4 17 $17,287 Percent 20.0 15.0 16,000 10.0 15,000 14,000 2.9% 5.0 0.0 13,000-5.0 12,000 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-10.0 Source: U.S. Bureau of Economic Analysis
U.S. Real GDP CBO Projections Percent Change, Fourth Quarter to Fourth Quarter In Billions of Chained $2009 Percent 3.5 3.3 3.0 2.5 2.0 1.5 2.0 1.5 2.1 1.0 0.5 0.0 2018 2019-2020 Jun '17 Fcst Apr '18 Fcst Source: Congressional Budget Office.
Real Personal Consumption Real Personal Consumption Expenditures 1 and Retail Sales 2 Percent Change Year-over-year 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2016 2017 2018 PCE Retail Feb 18 2.7% 1.7% 1. Real Personal Consumption Expenditures - SAAR 2. Real Retail Sales and Food Services - SA Source: Author s calculation using U.S. Census Bureau of Economic Analysis data.
Consumer Sentiment University of Michigan Index 140 120 100 January 00 112.0 Mar 18 101.4 80 60 40 20 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Source: Thomson Reuters / University of Michigan
Income and Savings Rate Percent Change and Percent of DPI Percent 10.0 Real DPI - % Chg. Yr./Yr., $2009 Percent 12.0 Personal Saving Rate - % of DPI 8.0 Pre-recession 3.1% 10.0 6.0 Post recession Average 5.5% 4.0 2.0 Feb 18 2.2% 8.0 6.0 0.0-2.0-4.0 Post Recession 1.8% 4.0 2.0 Pre-recession average 4.0% Feb 18 3.4% -6.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 0.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: U.S. Bureau of Economic Analysis
ISM Purchasing Managers Index Manufacturing & Composite, SA - Greater than 50 = Expansion Index 65.0 60.0 Mar 18 59.3 58.9 55.0 50.0 45.0 40.0 35.0 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Mfg. PMI (LHA) Composite (LHA) Source: Institute for Supply Management, Haver Analytics and FRED
Industrial Production & New Orders Index, 2012 = 100 Index 115.0 Industrial Production Index 115.0 New Orders Feb 18 104.8 112.6 110.0 Feb 18 106.5 104.9 110.0 105.0 105.0 100.0 100.0 95.0 95.0 90.0 90.0 85.0 85.0 80.0 '17 '17 '17 '17 '17 '17 '17 '17 '17 '17 '17 '17 '18 '18 80.0 2017 A J O 2018 Total Manufacturing All Mfg. Mfg. Durable Goods Source: Board of Governors, Federal Reserve and U.S. Census Bureau
Unemployment Rate & Prices Percent Unemployed, PCE / CPI % Change Yr./Yr. Percent 11.0 Unemployment Percent 4.0 PCE Inflation All Items 10.0 3.5 9.0 3.0 8.0 7.0 2.5 2.0 1.5 Target 2.0% Feb 18 1.8% 1.6% 6.0 1.0 5.0 0.5 4.0 3.0 Mar 18 4.1% '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 0.0-0.5 '11 '12 '13 '14 '15 '16 '17 '18 Actual Target PCE - All Items PCE - Core Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve
We re likely at potential and headed above it April 27, 2018 Federal Reserve Bank of Chicago 12
Labor Conditions Job Openings and Quit & Layoff Rates Ratio 6.0 Unemployed / Job Adds Percent 2.50 5.0 2.00 4.0 Quits and Layoffs & Discharges Divided by Nonfarm Payroll Jan 18 2.21% 3.0 1.50 2.0 Mar 18 1.37 1.00 1.19% 1.0 0.0 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 0.50 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Quit Rate Layoffs & Discharge Rate Sources: U.S. Department of Labor Job Openings and Labor Turnover Survey (JOLTS) and Conference Board Help Wanted Online Data (HWOL)
Topics Today U.S. Economy Midwest Economy Near Term Long run challenges April 27, 2018 Federal Reserve Bank of Chicago 14
Our District s labor market is in good shape too April 27, 2018 Federal Reserve Bank of Chicago 15
Things are going well in our District April 27, 2018 Federal Reserve Bank of Chicago 16
Things are going particularly well for manufacturers April 27, 2018 Federal Reserve Bank of Chicago 17
Things are going well in the rest of the world too IMF real GDP growth forecast for 2018 April 27, 2018 Federal Reserve Bank of Chicago 18
Agricultural economy April 27, 2018 Federal Reserve Bank of Chicago 19
7th District Agriculture Products (as % of U.S. total, 2017) 50% 40% 30% 20% 10% 0% Grain Corn Soybeans Hogs Eggs Milk Production Cattle Source: Calculations based on data from USDA, National Agricultural Statistics Service April 27, 2018 Federal Reserve Bank of Chicago 20
Real Cash Crop Prices 40 ($/bushel for Central IL, adjusted by CPI-U for January 2010) 30 20 10 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Corn Soybeans Sources: The Wall Street Journal and U.S. Bureau of Labor Statistics April 27, 2018 Federal Reserve Bank of Chicago 21
Real USDA Livestock Prices 250 ($/hundredweight, adjusted by CPI-U for January 2010) 200 150 100 50 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Hogs Cattle Sources: USDA, National Agricultural Statistics Service and U.S. Bureau of Labor Statistics April 27, 2018 Federal Reserve Bank of Chicago 22
Price per cwt. Billion dollars Dairy exports and milk prices $26 $22 $18 $14 8 6 4 2 $10 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 0 Exports Price 2018 USDA forecast Source: USDA, World Agricultural Outlook Board April 27, 2018 Federal Reserve Bank of Chicago 23
billion 2018$ Real net farm income and direct government payments to farmers 150 125 100 75 50 25 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2018* government payments *USDA forecast Source: USDA, Economic Research Service April 27, 2018 Federal Reserve Bank of Chicago 24
Percent Annual change in farmland values in 7th Federal Reserve District 30 20 10 0-10 -20-30 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Bank of Chicago April 27, 2018 Federal Reserve Bank of Chicago 25
percent Farm loan volume with major or severe repayment problems in 7th Federal Reserve District 10 8 6 4 2 0 1998 2001 2004 2007 2010 2013 2016 Source: Federal Reserve Bank of Chicago April 27, 2018 Federal Reserve Bank of Chicago 26
Topics Today U.S. Economy Midwest Economy Near Term Long run challenges April 27, 2018 Federal Reserve Bank of Chicago 27
A rich, prosperous region with world class assets, but challenged We are a goods-producing region with technology displacing labor, especially manual labor Many large cities are an asset during an era of globalization/urbanization but older industrial/ag cities struggling to become service-oriented small cities and rural areas struggling We are a populous and diverse region (but Sunbelt migration challenging) World-class skilled workforce (but aging and becoming closed to immigration on U.S. side) April 27, 2018 Federal Reserve Bank of Chicago 28
Manufacturing as share of total jobs percent Midwest U.S. April 27, 2018 Federal Reserve Bank of Chicago 29
Changing technology/globalization not kind to small places April 27, 2018 Federal Reserve Bank of Chicago 30
Population change region and county April 27, 2018 Federal Reserve Bank of Chicago 31
Demographics: Sunbelt trends return April 27, 2018 Federal Reserve Bank of Chicago 32
Aging adding to workforce dearth April 27, 2018 Federal Reserve Bank of Chicago 33
Loss of political representation Congressional Delegates 1950 2010 Loss Change (%) U.S. 437 435-2 0% WI 10 8-2 -20% MN 9 8-1 -11% IL 25 18-7 -28% IN 11 9-2 -18% MI 18 14-4 -22% OH 23 16-7 -30% PA 30 18-12 -40% NY 43 27-16 -37% GLS 169 118-51 -30% 34
QUESTIONS? April 27, 2018 Federal Reserve Bank of Chicago 35