Economic Conditions and Outlook for the U.S. and Greater Kansas City Area

Economic Conditions and Outlook for the U.S. and Greater Kansas City Area Mid-America Planned Giving Council Kansas City, MO January 9, 215 Kelly D. Edmiston Federal Reserve Bank of Kansas City

Economic Conditions and Outlook for the U.S. and Greater Kansas City Area STRUCTURE AND ROLES OF THE FEDERAL RESERVE SYSTEM January 9, 215 K. Edmiston, FRBKC 2

Federal Reserve System Structure January 9, 215 K. Edmiston, Source: FRBKC Board of Governors of the Federal Reserve System 3

12 Federal Reserve Districts January 9, 215 K. Edmiston, FRBKC 4

Tenth Federal Reserve District January 9, 215 K. Edmiston, FRBKC 5

Objectives of the Fed Monetary Policy (dual mandate) Facilitate the Payments System Cash Operations Check Clearing Electronic Payments Ensure the Safety and Soundness of the U.S. Banking System Bank Regulation Examination January 9, 215 K. Edmiston, FRBKC 6

Monetary Policy Federal Open Market Committee Governors (7) + 5 Bank Presidents (NY Fed and 4 others on rotating basis) meets 8 times per year Policy Levers set target federal funds rate set discount rate reserve requirements rarely, other extraordinary efforts January 9, 215 K. Edmiston, FRBKC 7

Economic Conditions and Outlook for the U.S. and Greater Kansas City Area ECONOMIC CONDITIONS January 9, 215 K. Edmiston, FRBKC 8

Economic Conditions and Outlook for the U.S. and Greater Kansas City Area U.S. ECONOMIC OVERVIEW AND FORECAST January 9, 215 K. Edmiston, FRBKC 9

Annual Growth in Real GDP 1 8 8 1 8 6 4-4 -8 198-1985 4.5 7.2 4.1 198 1981 1982 1983 1984 1985 4-4 -8 8 6 4 4 1.9 2 2-2 -1.9-2 -2.8-4 -4 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 23 28 213 January 9, 215 Source: U.S. Bureau of Economic Analysis / Haver Analytics

5.5 4.5 Contributions to Percentage Change in Real GDP Percentage Points 5. 213-IV 5.5 214-I 4.5 3.5 214-II 3.5 2.5 2.2 214-III 2.5 1.5 1.1.8.8 1.5.5.1.5 -.5. -.5-1.5-1.5-2.5 Total GDP Consumer Spending (68.5%) Residential Investment (3.1%) Business Investment (12.2%) Net Exports (-3.%) Government Spending (18.7%) Inventories (.4%) -2.5 January 9, 215 Source: Bureau of Economic Analysis; Haver Analytics

U.S. Historical GDP and Forecast 4 3 2 1 Percentage Change 2.7 1.8 2.5 1.8 2.8 1.9 GDP Inflation Forecast 2.3 2.3 1.3 3. 2.6 1.6 1.2 1. 2.5 2.5 2.3 1.6 2. 2.3 2.3 1.7 1.8 2.2 4 3 2 1-1 -.3-2.8 Historical FOMC Central Tendency -1-2 -2-3 -3-4 26 27 28 29 21 211 212 213 214 215 216 217 LR -4 January 9, 215 K. Edmiston, FRBKC 12

25 $trillions (inflation-adjusted GDP and Potential GDP 25 Potential GDP Actual Projected 2 2 15 15 1 1 5 5 Source: Congressional Budget Office January 9, 215 K. Edmiston, FRBKC 13

12. Personal Income Growth Index: 27 Q1 = 1 (SAAR, Inflation-Adjusted) 12. 11. 11. 1. 1. 9. 9. 8. 8. 7. Actual Growth Growth at Historical Average Rate 7. 6. Consumer Spending Q1/27 Q3/27 Q1/28 Q3/28 Q1/29 Q3/29 Q1/21 Q3/21 Q1/211 Q3/211 Q1/212 Q3/212 Q1/213 Q3/213 Q1/214 Q3/214 Source: BEA; Haver Analytics January 9, 215 K. Edmiston, FRBKC 14 6.

Savings as a Share of Disposable Income 1% Percent 1% 9% Savings Rate Poly. (Savings Rate) 9% 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% % Q1-27 Q3-27 Q1-28 Q3-28 Q1-29 Q3-29 Q1-21 Q3-21 Q1-211 Q3-211 Q1-212 Q3-212 Q1-213 Q3-213 Q1-214 Q3-214 % Source: BEA; Haver Analytics January 9, 215 K. Edmiston, FRBKC 15

Average Debt per Consumer (3 rd Quarter, 214) $2, Four-quarter moving average $2, $16, Total Consumer Debt (excludes first mortgage) KS U.S. $16, MO $12, $12, $8, Revolving Debt U.S. $8, MO $4, KS $4, $ 22 23 24 25 26 27 28 29 21 211 212 213 214 $ Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax Notes: Excludes first mortgage. A first mortgage represents the primary note on the home and typically is not used to purchase consumer goods. January 9, 215 16

Economic Conditions and Outlook for the U.S. and Greater Kansas City Area EMPLOYMENT AND UNEMPLOYMENT January 9, 215 K. Edmiston, FRBKC 17

Historical Recessions 1.. 197 1974 198 1981 199 21 27 % Change from Peak Employment 74 1.. -1. -1. -2. -2. -3. -3. -4. -4. -5. -5. -6. -6. -7. 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 Months -7. Source: U.S. Bureau of Labor Statistics; Haver Analytics January 9, 215 K. Edmiston, FRBKC 18

Employment Growth in the U.S. and Metro Kansas City 6 Percentage Change, Month-over-Month 3 4 2 Kansas City 1YR: 1.% Dec 7: 2.3% United States 1YR: 2.% Dec 7: 1.2% 2 1-2 -1-4 -2-6 -3-8 -4-1, -5 Feb-8 May-8 Aug-8 Nov-8 Feb-9 May-9 Aug-9 Nov-9 Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 January 9, 215 K. Edmiston, FRBKC Source: BLS; Haver Analytics 19

Unemployment and Labor Force Participation Rates 12. Percent of Labor Force Percent of Working Age Population 72. Civilian Unemployment Rate: 16 yr + (SA, %) 1. Unemployment Rate, Kansas City (SA, %) Civilian Participation Rate: 16 yr + (SA, %) 7. 8. 68. 6. 5.8 66. 5.5 4. 64. 2. U.S. Labor Force Participation Rate (right axis) 62.. Dec/27 Jun/28 Dec/28 Jun/29 Dec/29 Jun/21 Dec/21 Jun/211 Dec/211 Jun/212 Dec/212 Jun/213 Dec/213 Jun/214 January 9, 215 K. Edmiston, FRBKC Source: U.S. Bureau of Labor Statistics: Haver Analytics 2 6.

Jobs Deficit 16, thousands 16, 155, Employment Required to Keep Unemployment Rate at Dec 27 Level 155, 15, 145, 2.3 Million.5 Million 15, 145, 14, 135, Employment 14, 135, 13, 13, 125, 125, 12, 21 22 23 24 25 26 27 28 29 21 211 212 213 Source: Federal Reserve Bank of Kansas City Updated through March, 214 12, January 9, 215 K. Edmiston, FRBKC 21

Alternative Unemployment Rate United States 2 16 Percent U-6 2 16 KS Unemployment U-3: 4.8% U-6: 9.4% 12 12 Kansas 8 4 U-3 8 4 2 16 Percent 2. 16. 12 U-6 12. U.S. Unemployment U-3: 5.8% U-6: 11.4% 8 4 U-3 8. 4.. Source: U.S. Bureau of Labor Statistics; Haver Analytics January 9, 215 K. Edmiston, FRBKC 22

LMI Job Availability 14. Index (Neutral = 1) Index (Neutral = 1) 14. 12. 1. Next Quarter Projection 12. 1. 8. 8. 6. 4. Relative to Previous Quarter Relative to Previous Year 6. 4. 2. 2.. q1 29 q2 q3 q4 q1 21 q2 q3 q4 q1* 211 q2 q3 q4 q1 212 q2 q3 q4 q1 213 q2 q3 q4 q2 214. Source: Federal Reserve Bank of Kansas City, LMI Survey Report January 9, 215 K. Edmiston, FRBKC 23

Other LF Issues Highlighted by the LMI Survey Lower-skilled jobs filled by higher-skilled workers out of work Credit histories Criminal histories (especially drug charges) Transportation and childcare needs Change in residency Job readiness Significant turnover noted January 9, 215 K. Edmiston, FRBKC 24

Economic Conditions and Outlook for the U.S., Kansas, and the Midwest RESIDENTIAL REAL ESTATE January 9, 215 K. Edmiston, FRBKC 25

14 Index: Mar 26 = 1 Existing Home Sales (through Nov 214) 14 12 12 1 1 8 8 6 6 4 4 2 Kansas City (82.6) U.S. (75.3) 2 Source: Area Realtors Associations January 9, 215 K. Edmiston, FRBKC 26

Existing Single-Family Home Activity Demand Headwinds Economy/Financial Security Uncertainty about Market Household Formation Credit Availability Homebuyer Traffic PROPRIETARY DATA REMOVED January 9, 215 K. Edmiston, FRBKC 27

14 Months Supply of Homes, Metro Kansas City Months Supply 14 12 12 1 1 8 8 6 6 4 4 2 2 Jan-6 Ap Jul-6 Oct Jan-7 Ap Jul-7 Oct Jan-8 Ap Jul-8 Oct Jan-9 Ap Jul-9 Oct Jan-1 Ap Jul-1 Oct Jan-11 Ap Jul-11 Oct Jan-12 Ap Jul-12 Oct Jan-13 Ap Jul-13 Oct Jan-14 Ap Jul-14 Oct January 9, 215 K. Edmiston, FRBKC Source: Area Realtors Associations 28

14 Home Prices Index: 24 Q1 = 1 Index: 24 Q1 = 1 14 12 12 1 1 8 U.S. Kansas City 8 6 Wichita Des Moines Omaha 6 4 4 2 2 24 25 26 27 28 29 21 211 212 213 214 January 9, 215 K. Edmiston, FRBKC Source: FHFA / Haver Analytics 29

Economic Conditions and Outlook for the U.S. and Greater Kansas City Area LOW- AND MODERATE-INCOME HOUSEHOLDS January 9, 215 K. Edmiston, FRBKC 3

14. LMI Survey: Demand for Services Index (Neutral = 1) Index (Neutral = 1) 14. 12. 12. 1. 1. 8. 6. 4. Next Quarter Projection Relative to Previous Quarter 8. 6. 4. 2. Relative to Previous Year 2.. q1 29 q2 q3 q4 q1 21 q2 q3 q4 q1* 211 q2 q3 q4 q1 212 q2 q3 q4 q1 213 q2 q3. Source: Federal Reserve Bank of Kansas City, LMI Survey Report January 9, 215 K. Edmiston, FRBKC 31

Participation in the SNAP (formerly food stamps) Program 5, 45, Thousands Recession Thousands 5, 45, 4, 4, 35, 35, 3, 3, 25, 25, 2, 2, 15, 15, 1, 1, 5, 5, 21 22 23 24 25 26 27 28 29 21 211 Source: United States Department of Agriculture, Food and Nutrition Service January 9, 215 K. Edmiston, FRBKC 32

Lowest Quintile Nominal Income Growth and Growth in Consumer Prices 14. Index 21=1 Index 21=1 14. 12. 12. 1. 1. 8. 8. 6. Lowest Quintile Nominal Income CPI Poverty CPI (IBEX) 6. 4. 4. 2. 2.. 21 22 23 24 25 26 27 28 29 21 211. January 9, 215 K. Edmiston, FRBKC 33

Contact Information: Kelly D. Edmiston Senior Economist Community Development 1 Memorial Drive Kansas City, MO 64198 (816) 881-24 Kelly.edmiston@kc.frb.org January 9, 215 K. Edmiston, FRBKC 34