An Economic Outlook: Changing Times and What It Means for Your Organization PRESENTATION TO KSGFOA 2017 Fall Conference October 13, 2017 PRESENTER: Sheryl D. Bailey, Ph.D. Senior Vice President
Roadmap for Our Journey Together Moderate recovery proceeding Recovery is not the same for everyone Driving with our brakes on Manufacturing interlude Spotlight on Kansas Bumpy, uphill ride for households and markets Monetary and fiscal policy are always big deals Forecast Looking forward 2
Moderate Recovery Proceeding 3
GDP Increased in Second Quarter 2017 Real GDP: Percent change from preceding quarter U.S. Bureau of Economic Analysis Seasonally adjusted annual rates 4
Continued Growth in Overall Employment Civilian employment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1990 - Aug. 2017 5
Steady Decline in Overall Unemployment Civilian unemployment rate Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1990 - Aug. 2017 6
Hurricanes Impacted Unemployment Claims Unemployment insurance claims U.S. Department of Labor 7
Recovery is Not the Same for Everyone 8
To what extent do you think the recovery has been uneven in the U.S.? A. Fairly even recovery B. Somewhat uneven recovery C. Very uneven recovery 9
Employment Growth Varies Widely Across States Percentage change in nonfarm employment by state U.S. Bureau of Labor Statistics Seasonally adjusted, Aug. 2016 - Aug. 2017 10
Unemployment Rates Also Vary Widely Unemployment rates by state (U.S. = 4.4 percent) U.S. Bureau of Labor Statistics Seasonally adjusted, Aug. 2017 11
Unemployment Still High for Some Workers Unemployment rates for persons 25 years and older by educational attainment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1992 Sept. 2017 12
Economic Displacement Driving Unemployment Reasons for unemployment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1990 Sept. 2017 13
Unemployment Rate Not as Low as it Seems Alternative measures of labor underutilization Measure Not seasonally adjusted Seasonally adjusted Sept. Aug. Sept. Sept. May June July Aug. Sept. 2016 2017 2017 2016 2017 2017 2017 2017 2017 U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force 1.9 1.7 1.6 2 1.8 1.6 1.7 1.7 1.7 U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force 2.2 2.2 1.9 2.5 2.1 2.2 2.1 2.2 2.1 U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate) 4.8 4.5 4.1 4.9 4.3 4.4 4.3 4.4 4.2 U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers 5.1 4.8 4.3 5.3 4.5 4.7 4.7 4.7 4.5 U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force 5.9 5.4 5 6 5.2 5.3 5.3 5.4 5.1 U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force 9.3 8.6 8 9.7 8.4 8.6 8.6 8.6 8.3 NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data. U.S. Bureau of Labor Statistics 14
Slack Remains in Labor Market BLS Alternative measures of labor underutilization Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1994 Sept. 2017 15
Slack Remains in Labor Market Fed Non-Employment Index Hornstein-Kudlyak-Lange non-employment index and civilian unemployment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics, Richmond Federal Reserve Seasonally adjusted, Jan. 1994 Aug. 2017 16
Many People Still on Sidelines Wanting to Get in the Game Persons not in the labor force who want a job now Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1994 Sept. 2017 17
Driving with Our Brakes On 18
Do you think most of the workers still outside the labor force are older workers (e.g., aging baby boomers, etc.)? A. Yes B. No 19
Declining Labor Force Participation Impacts GDP Labor force participation rate, 16 years and older Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1990 Sept. 2017 20
Declining Labor Force Participation Among Young Workers Impacts Growth Labor force participation rates of selected age groups Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1990 Sept. 2017 21
Labor Force Participation Stable or Increased for Workers 25 and Older Labor force participation rates of selected age groups Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jan. 1990 Sept. 2017 22
Weak Productivity Growth Impacts GDP Average annual percent change in labor productivity in nonfarm business sector during business cycles Note: Each business cycle begins at the start of a recession, as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics 23
Output Growth Below Historical Trend Output series of the current business cycle compared with past trends Note: Shaded area represents a recession as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Nonfarm business sector output, 2007Q4 to 2016Q3 24
Sluggish Productivity Growth Limits Gains in Living Standards Wage gap, labor productivity, and real hourly compensation U.S. Bureau of Labor Statistics Average annual growth rates during business cycles, nonfarm business sector, 1948-2016 25
Manufacturing Interlude 26
How do you think the manufacturing unemployment rate compares to the overall civilian unemployment rate? A. Less than the overall civilian unemployment rate B. Same as the overall civilian unemployment rate C. Greater than the overall civilian unemployment rate 27
Manufacturing Unemployment Rate Below Overall Civilian Unemployment Rate Manufacturing and civilian unemployment rates Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Retrieved from FRED, Federal Reserve of St. Louis, Oct. 11, 2017 Jan. 2000 Sept. 2017 28
Manufacturing Long-Term Trends: Increasing Output and Declining Employment Manufacturing output, productivity and employment Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Retrieved from FRED, Federal Reserve of St. Louis, Oct. 11, 2017 Seasonally adjusted, Jan. 1987 Apr. 2017 29
Worldwide R&D Investments Driving Technological Change Research and development expenditure (% of GDP) World Bank, Retrieved October 11, 2017 1996-2015 30
Spotlight on Kansas 31
How do you think the Kansas state economy compares to the U.S. economy? A. Kansas state economy performing behind the U.S. economy B. Kansas state economy performing about the same as the U.S. economy C. Kansas state economy performing stronger than the U.S. economy 32
Kansas GDP Upward Trend Slowed in 2016 Real total GDP for Kansas U.S. Bureau of Economic Analysis Millions of chained 2009 dollars, annual, not seasonally adjusted 33
Kansas Employment Trending Down Since 2016 Total nonfarm employment in Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jul 2007 - Aug. 2017 34
Kansas Unemployment Below U.S. Rate Civilian unemployment rate, U.S. and Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U.S. Bureau of Labor Statistics Seasonally adjusted, Jul. 2007 - Aug. 2017 35
Kansas Median Household Income Below, More Variable Than U.S. Levels Real median household income, U.S. and Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U. S. Census Bureau Annual 2016 CPI-U-RS adjusted dollars, not seasonally adjusted, Jan. 1984 Jan. 2016 36
Kansas Per Capita Income Trending Tight to U.S. Levels Since 2008 Personal income per capita, U.S. and Kansas Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U. S. Census Bureau Annual, not seasonally adjusted, Jan. 2000 Jan. 2016 37
Bumpy, Uphill Ride for Households and Markets 38
Rebounding Home Sales Still Below Pre-Recession Levels New Residential Home Sales Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). U. S. Census Bureau Seasonally adjusted annual rate, Jan. 1997 Aug. 2017 39
Consumer Spending Bumpy in 2017 Real Disposable Personal Income and Real Consumer Spending U. S. Bureau of Economic Analysis May 2017 Aug. 2017 40
Retail Sales Trending Up, Bumpy Since Jan. 2016 Total retail trade and food services U. S. Census Bureau Jan. 2016 Aug. 2017 41
Inflation is Trending Lower CPI for All Urban Consumers, 12-month percent change U.S. Bureau of Labor Statistics Not seasonally adjusted, Aug. 2016 Aug., 2017 42
Long-Term Bull Market Trend 43
Stock Market Upward, Bumpy Since July 2017 44
Long-Term Downward Trend in Treasury Yields, Choppy Waters 45
Long-Term Downward Trend in Muni Bond Yields, Choppy Waters 46
Muni Market Volatility Tracks with Long-Term Yields 47
Muni Bond Market Responds to Credit Quality 48
Tax-Exempt Muni Bonds Save Real Money for Public Projects 49
Current MMD Yields Still in Lower Historic Range 50
Monetary and Fiscal Policy are Always Big Deals 51
Fed Left Federal Funds Rate Unchanged September 2017 Effective federal funds rate Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Federal Reserve of St. Louis Jul. 1, 2007 Sept. 1, 2017 52
Fed Began Gradually Drawing Down Its Balance Sheet in October 2017 Federal Reserve total assets Note: Shaded areas represent recessions as determined by the National Bureau of Economic Research (NBER). Federal Reserve of St. Louis Jul. 1, 2007 Oct. 11, 2017 53
New Administration s Broad Economic Policies Widespread impacts on economy affecting all major components of GDP Personal consumption, business investment, government spending and imports and exports Policy Proposals Tax reform -- Infrastructure package Healthcare reform -- Trade policy revisions Less regulation -- Immigration reform 54
Overall Impact of Administration s Key Economic Policies? Still being sorted out Uncertainties regarding long-term economic effects It depends Situational Leadership, Ken Blanchard Uncertainties surround implementation particulars, funding sources and offsets, timing, midterm election impacts, and net effects Additional considerations Debt ceiling and government funding Changes at Fed 55
Forecast 56
Global GDP Growth Picking Up GDP at constant prices, % change (projections) Total, Annual growth rate (%) OECD (2017), Real GDP forecast (indicator), Accessed on Oct. 11, 2017 57
Looking Ahead 58
Expect Unexpected Change Economy s structural issues will impact path forward Market volatility expected to continue Carefully monitor national policy proposals and impacts Update long-term financial plan, including capital and debt Reassess risks and update contingency plans Refine early detection and response systems Innovate, redesign and transform 59
Questions? 60