RECESSION AND RECOVERY IN NEBRASKA AND THE U.S. Alison Felix Senior Economist Federal Reserve Bank of Kansas City 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.
After slowing in the first half of 11, growth is picking up. 3 1-1 Real Gross Domestic Product change fromprevious period, annualized 3 1-1 FOMC Forecast Central Tendency (Jan. 1) - -3 - - -3 - Source: Bureau of Economic Analysis; FOMC
Consumer spending and inventory investment contributed to the increase in fourth quarter GDP. Growth in Components of Real GDP 18 1 1 1 8 change from previous period, annualized 11:Q1 11:Q 1 11:Q3 - - - Total GDP 11:Q Consumer Spending Source: Bureau of Economic Analysis Residential Business Investment Investment Exports Government Spending 18 1 1 1 1 8 - - -
Unemployment rates have fallen over the past year but remain stubbornly high. 1 11 1 9 Unemployment Rate FOMC Forecast Central Tendency (Jan. 1) 1 11 1 9 8 8 7 7 3 3 1 1 Source: Bureau of Labor Statistics; FOMC
After increasing in the first half of 11, inflation has moderated and is expected to be below % in 1. 3 1-1 PCE Inflation change from previous period, annualized 3 1-1 - FOMC Forecast -3 CentralTendency (Jan. 1) - - - -3 - - Source: Bureau of Economic Analysis; FOMC
FOMC January Statement: The Committee currently anticipates that economic conditions including low rates of resource utilization and a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through late 1. Fed Funds Rate Fed Funds Rate 3 3 1 1 Dec-1 Dec-3 Dec- Dec-7 Dec-9 Dec-11 Source: FOMC
FOMC January Statement: The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies 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. 3 7 17 1 1 1 7 Millions of Dollars Federal Reserve Balance Sheet Fed Agency Debt Mortgage-Backed Securities Purch Liquidity to Key Credit Markets Lending to Financial Institutions Long Term Treasury Purchases Traditional i lsecurity Holdings Millions of Dollars Jan-7 Nov-7 Sep-8 Jul-9 May-1 Mar-11 Jan-1 Source: FOMC 3 7 17 1 1 1 7
The Tenth District of the Federal Reserve
Employment in NE is approaching pre-recession levels after gains over the past years.. Total Nonfarm Employment Seasonally adjusted Index: Dec 1 = 1 Index 1 1 US NE 1 1 1 1 1 1 98 98 Dec-1 Dec-3 Dec- Dec-7 Dec-9 Dec-11 Source: Bureau of Labor Statistics
The unemployment rate in Nebraska is much lower than the national rate. 1 Unemployment Rate Seasonally adjusted 1 1 US U.S. NE 1 8 8 Dec-1 Dec-3 Dec- Dec-7 Dec-9 Dec-11 Source: Bureau of Labor Statistics
NE has a higher share of workers in government, manufacturing, finance and transportation jobs. 18 Employment Share by Industry Seasonally adjusted 18 1 US 1 1 NE 1 1 1 1 1 8 8 Trade Educ. & Health State & Loc. Govt. Prof. & Busi. Leis. & Hosp. Manuf. Fin. Svcs. Constr. Trans. & Util. Info Source: Bureau of Labor Statistics
Employment in professional and business services grew quickly over the past year in Nebraska. 8 Employment Growth by Industry Dec-11 over Dec-1 8 US NE - - - Prof. & Busi. Educ. & Health Leis. & Hosp. Manuf. Trade Trans. & Util. Constr. Fin. Svcs. State & Loc. Govt. Info - Source: Bureau of Labor Statistics
Since the recession started, employment has fallen in every industry except healthcare in the U.S. 1 Employment Growth by Industry Dec-11 over Dec-7 1 - - -1-1 -1-1 - US NE - - - -3 Educ. & Health Leis. & Hosp. State & Loc. Govt. Prof. & Busi. Trans. & Util. Trade Fin. Svcs. Info Manuf. Constr. -3 Source: Bureau of Labor Statistics
The manufacturing sector has been expanding for over two years. Index Manufacturing Activity Seasonally adjusted; month-over-month Index 3 US 1J 3 3 Jan- Jan- Jan- Jan-8 Jan-1 Jan-1 3 Sources: ISM, FRBKC Manufacturing Survey Note: 1J index is computed on ISM basis ( = zero change)
Manufacturers in the Tenth District expect increased activity over the next six months. 3 Index Tenth District Manufacturing Expectations Seasonally adjusted; sixmonths ahead Index 3 Oct-11 Nov-11 Dec-11 Jan-1 1 1 1 1 - - Production Volume of new orders New orders for exports Capital expenditures Employment Source: FRBKC Manufacturing Survey
Crop prices have fallen somewhat from high levels last summer. 18 1 1 1 1 8 Crop Prices $/Bushel $/Bushel Beans Wheat Corn 18 1 1 1 1 8 Jan- Jan- Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-1 Source: Commodity Research Bureau
High input costs are trimming profit margins for livestock operators. 13 1 11 1 9 8 7 $/Hundredweight U.S. Livestock Prices and Breakeven Costs $/Hundredweight Cattle Price Cattle breakeven 3 Hog price 3 Hog breakeven Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-1 Source: USDA 13 1 11 1 9 8 7
Ag bankers continue to report that farm income and capital spending are higher than a year ago. Tenth District Farm Income and Capital Spending 18 Index Index 18 1 1 1 1 1 1 1 1 8 8 Farm Income Capital Spending Q3 7Q3 8Q3 9Q3 1Q3 11Q3 Source: FRBKC Ag Credi t Survey
Farmland prices have increased sharply in Nebraska. 3 3 1 1 - -1 Nebraska Non-irrigated Farmland Values Year-over-year Q3 Q3 8 Q3 11 Q3 3 3 1 1 - -1 Source: FRBKC Agricultural Credit Survey
Home sales activity rebounded over the past year but remains below pre-recession recession levels. Existing Home Sales 1 Index: 1:Q3=1 Seasonally adjusted Index 1 1 US 1 1 NE 1 13 13 1 1 11 11 1 1 9 9 8 8 7 7 1:Q3 3:Q3 :Q3 7:Q3 9:Q3 11:Q3 Source: NAR
Residential construction activity remains weak but has increased over the past few months. Value of Residential Construction Contracts Index Nov-1=1 Seasonally adjusted, 3 mo. moving avg. Index US 17 NE 1 1 1 7 17 1 1 1 7 Dec-1 Dec-3 Dec- Dec-7 Dec-9 Dec-11 Source: FW Dodge
Home prices in Nebraska have outperformed the national prices. Home Prices 1 Index: 1:Q3=1 Seasonally adjusted Index 1 1 US NE 1 1 1 13 13 1 1 11 11 1 1 9 1:Q3 3:Q3 :Q3 7:Q3 9:Q3 9 11:Q3 Source: FHFA purchase only index
Foreclosure rates in Nebraska are lower than in other parts of the nation. Foreclosure Rate U.S. NE 3 3 1 1 1:Q3 3:Q3 :Q3 7:Q3 9:Q3 11:Q3 Source: Mortgage Bankers Association
Federal government debt levels have increased significantly over the past few years. 1 Federal Government Debt as a of GDP 1 1 Alternative Fiscal Scenario CBO's Baseline Projection 1 1 Actual 1 8 8 19 19 19 197 198 199 1 Source: Congressional Budget Office Note: According to the CBO, "The alternative fiscal scenario incorporates the assumptions that all expiring tax provisions (other than the payroll tax reduction) are extended; that the AMT is indexed for inflation after 11 ; that Medicare's payment rates for physicians' services are held constant ; and that the automatic enforcement procedures specified by the Budget Control Act of 11 do not tax effect. The budgetary effects under the alternative fiscal scenario also include the incremental interest costs associated with projected additional borrowing."
Projected reductions in the deficit rely on the expiration of many current policies. Deficits Projected in CBO s Baseline and Under an Alternative Fiscal Scenario 8 7 3 1 age of Gross Domestic Product Additional Debt Service Prevent Spending Cuts Extend Tax Policies Baseline 8 7 3 1 Source: Congressional Budget Office
State government tax revenues increased in FY 11 but remained below pre-recession recession levels. 1 Index: =1 State Tax Revenue Index 1 1 US NE 1 1 1 13 13 1 1 11 11 1 1 9 9 FY FY 3 FY FY FY FY 7 FY 8 FY 9 FY 1 FY 11 Source: US Census Bureau
Among the top Nebraska export countries, EU countries combine for 9.% of exports. Nebraska Exports by Destination Canada Mexico EU 7.1% Japan China Korea, South.% Australia Hong Kong.79% Taiwan 7.1%.8% 9.% Russia Vietnam Brazil Other
Conclusions The pace of the U.S. economic recovery slowed in the first half of 11, but growth picked up in the second half of last year. The Nebraska economy has outperformed the U.S. over the past few years due, in large part, to the strength of the agriculture sector. Both the U.S. and Nebraska economies are expected to continue to recover over the next couple of years. However, economic growth may rely more heavily on private demand in the U.S. as problems persist in Europe and the U.S. federal government faces high debt levels.
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