FEDERAL RESERVE BANK OF FEDERAL KANSAS RESERVE CITY OKLAHOMA BANK OF CITY KANSAS BRANCH CITY U.S. and Oklahoma Economic Outlook Oklahoma Banking Association Emerging Leaders August 17, 1 Chad Wilkerson Oklahoma City Branch Executive and Economist *The views expressed herein are those of the presenter only and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Structure & Functions of the Federal Reserve The Fed consists of three main entities: Board of Governors: 7 members appointed by U.S. President Federal Reserve Banks: 1 total; semi-independent by design Federal Open Market Committee: 19 members; 1 voting Primary responsibility areas: Monetary policy Bank regulation Financial services
The Oklahoma City Branch of the Federal Reserve Bank of Kansas City Functions and purposes ~ staff Research on U.S. and Oklahoma economies; energy and manufacturing sectors Economic and financial education outreach, including to low/moderate income Examinations of Oklahoma financial institutions (~ banks, ~17 holding cos.) 1 OKC Fed Branch Board of Directors Clint Abernathy (chair), Owner, Abernathy Farms, Inc., Altus Susan Chapman Plumb, Board Chair & CEO, Bank of Cherokee County, Tahlequah Michael Coffman, CEO (retired), Panhandle Oil & Gas, Inc., Oklahoma City Tina Patel, Co-Owner & CFO, Promise Hotels, Tulsa Chris Turner, President & CFO, First State Bank, Oklahoma City Katrina Washington, Owner/Broker, Stratos Realty, Oklahoma City Dana Weber, Vice-Chair & CEO, Webco Industries, Sand Springs Oklahomans on Kansas City Fed head office Board Rose Washington (chair), Exec. Director, Tulsa Econ. Dev. Corp., Tulsa Doug Stussi, EVP & CFO, Love s Travel Stops & Country Stores, OKC
FEDERAL RESERVE BANK OF KANSAS CITY OKLAHOMA CITY BRANCH The U.S. Economy and Monetary Policy FR Designation (if any)
U.S. GDP growth was strong in Q, following above-trend solid growth in previous quarters Growth in U.S. Real GDP and Its Components 1 Percent change from the previous period, SAAR Q3 17 1 1 Q 17 Q1 1 Q 1 11.1 11. 9.3 1 7.3..1 3.9...3.... 3. 3. 3...1 1. -. -1.1-1. - Total GDP Consumer spending -3. Residential investment Business investment Exports Government spending - Source: U.S. Bureau of Economic Analysis
Monthly data on U.S. business activity and also show economic growth remains strong in mid-1 U.S. Payroll Employment and Business Indexes Change from previous month, thousands Index.... -. -. - Payroll Employment (left axis) 3. - ISM Manufacturing Index (right axis) ISM Non-Manufacturing Index (right axis) 3. -1. Jul- Jul-9 Jul-1 Jul-11 Jul-1 Jul-13 Jul-1 Jul-1 Jul-1 Jul-17 Jul-1 Source: Institute for Supply Management, Bureau of Labor Statistics
The labor market has continued to strengthen job gains have been strong and the unemployment rate has declined. 1 Percent Unemployment Rate Seasonally Adjusted Current (July 1): 3.9% 1 1 1 Jun. FOMC Forecast Ranges in Yellow 1 1 1 1 1 Long Term Sources: U.S. Bureau of Labor Statistics, FOMC
On a 1-month basis, both overall inflation and inflation for items other than food and energy have moved close to percent. PCE Inflation Index Percent change, year-over-year Current (June 1):.% Current Core PCE (June 1): 1.9% Jun. FOMC Forecast Ranges in Yellow 3 3 1 1 1 1 1 1 1 Long Term Sources: U.S. Bureau of Labor Statistics, FOMC
The [FOMC] expects that further gradual increases for the federal funds rate will be consistent with sustained expansion... Percent Federal Funds Rate Year-End Target Current Target: 1.7-.% 7 7 Jun. FOMC Forecast Ranges in Yellow 3 3 1 1 1 1 1 1 1 Long Term Sources: Federal Reserve Board, FOMC
The Fed has also begun to reduce its balance sheet Federal Reserve Balance Sheet $Trillions $Trillions 3 Short term lending, targeted lending programs, and rescue operations MBS & agency debt 3 Treasury securities and other assets 1 1 9 1 11 1 13 1 1 1 17 1 19 Source: Federal Reserve Board
FEDERAL RESERVE BANK OF KANSAS CITY OKLAHOMA CITY BRANCH Trends in the Oklahoma Economy 11 FR Designation (if any)
Oklahoma GDP dropped considerably in 1-1, after oil prices fell, but has mostly grown solidly since Real Gross Domestic Product 1 Percent change, quarter-over-quarter 1 1 1 U.S. OK 1 1 1 1 - - - - - - - Q1'13 Q'13 Q3'13 Q'13 Q1'1 Q'1 Q3'1 Q'1 Q1'1 Q'1 Q3'1 Q'1 Q1'1 Q'1 Q3'1 Q'1 Q1'17 Q'17 Q3'17 Q'17 Q1'1 - Source: U.S. Bureau of Economic Analysis
In 1, state job growth has matched the nation after lagging in 1-1 the most since the 19s Payroll Employment Growth 1 Percent change, year-over-year 1 U.S. OK - - - - - - - - Jul-7 Jul- Jul- Jul-9 Jul-9 Jul-9 Jul- Jul- Jul-1 Jul-1 Jul-1 Source: U.S. Bureau of Labor Statistics
Employment levels are trending up in the metro areas, but non-metro is still below early 1 levels Source: U.S. Bureau of Labor Statistics Level of Payroll Employment Through June 1 1 Index: Jan-1=1 1 1 1 U.S. 1 1 1 1 OKC OK Tulsa 1 1 9 Non-Metro 9 9 Jan-1 May-1 Sep-1 Jan-1 May-1 Sep-1 Jan-17 May-17 Sep-17 Jan-1 May-1 9
State job gains the past year have been led by mining (oil & gas), and most sectors have added workers Oklahoma Job Growth by Industry June 1 1 Percent change, year-over-year 1 1 U.S. OK 1 1 1 - Total Mining Mfg. Prof. & Bus. Services Trade Transp. Leis. & Hosp. Fin. Act. Edc. & Health State & Local Govt. Fed Govt. Constr. - Source: Bureau of Labor Statistics
Manufacturing activity in the Tenth Fed District has posted record highs in 1, even with trade concerns Index Monthly Manufacturing Composite Indexes Seasonally Adjusted Index 3 KC Fed ISM 3 3 3 Jul- Jul-9 Jul-1 Jul-11 Jul-1 Jul-13 Jul-1 Jul-1 Jul-1 Jul-17 Jul-1 Source: Institute for Supply Management, FRBKC
The Oklahoma agriculture sector has shown some signs of stabilizing, with expectations up slightly Farm Income Indexes Diffusion Index Diffusion Index 1 1 1 1 1 1 Expectations 1 1 1 1 Oklahoma Tenth Fed District 7 9 1 11 1 13 1 1 1 17 1 Source: FRBKC Agricultural Credit Survey
Extreme drought in western Oklahoma has also eased somewhat lately, but the state mostly remains dry Source: U.S. Department of Agriculture
Banking conditions in Oklahoma remain very good despite the 1-1 economic slowdown Share of Banks Not Making a Profit Commercial Banks 3 Percent Percent 3 3 3 U.S. 1 1 1 1 OK Q1 Q1 9 Q1 1 Q1 11 Q1 1 Q1 13 Q1 1 Q1 1 Q1 1 Q1 17 Q1 1 Source: FDIC
Tax revenues are also growing strongly, following revenue declines and budget cuts in recent years Oklahoma State Tax Revenues Q3-1 through July Percent Percent 1 1 1 1 - -1-1 - - OK Total OK Sales 9 1 11 1 13 1 1 1 17 1 - -1-1 - - Source: OK Tax Commission
After rising in 1-1, Oklahoma has matched the U.S. unemployment rate the past years 1 11 1 9 7 3 1 Percent Unemployment rates Seasonally Adjusted 7 9 1 11 1 13 1 1 1 17 1 U.S. Percent OK 1 11 1 9 7 3 1 Source: U.S. Bureau of Labor Statistics
Unemployment is low across most of the state but remains somewhat higher in southeast OK June 17 Unemployment Rates Source: U.S. Bureau of Labor Statistics
Employment has risen in every county over the past year, but especially in western Oklahoma Employment Growth June 17 June 1.3% of LF Source: U.S. Bureau of Labor Statistics
Energy remains a large share of Oklahoma GDP, though it is well below its 1 share Percent Mining Sector Share of GDP Seasonally Adjusted Percent 1 Oklahoma 1 1 1 1 1 1 Texas 1 1 1 U.S. Q1' Q1' Q1'7 Q1' Q1'9 Q1'1 Q1'11 Q1'1 Q1'13 Q1'1 Q1'1 Q1'1 Q1'17 Q1'1 Source: U.S. Bureau of Economic Analysis
Oil and gas production is at a record high, but with considerably fewer rigs and workers than in the past Oklahoma Oil & Gas Rig Count, Employment, and Production Index May-9=1 Rig count Index May-9=1 17 Employment 17 1 Production (BOE/day) 1 1 1 1 1 7 7 199 199 199 199 199 1 1 1 1 1 Note: Employment is for total mining and logging, which in Oklahoma is almost completely oil and gas related. Production is shown as a 3-month moving average. Source: Baker Hughes, EIA/Haver Analytics
Most firms can profitably drill for oil in the areas they are active, and natural gas prices work for some firms Energy Survey Oil & Gas Prices 1 $/barrel Oil (WTI) Natural Gas (Henry Hub) $/million Btu 1 1 1 Survey average Survey ranges in orange 7 $ $ $9 $7 $7 $73 $7 $.9 $.9 $3. $. $.9 $3. $3.3 3 1 Current Price (/1/1) ProfitableSubstantial Price Increase Price Price expected in months Price expected in 1 year Price expected in years Price expected in years Current Price (/1/1) ProfitableSubstantial Price Increase Price Price expected in months Price expected in 1 year Price expected in years Price expected in years Source: FRBKC Energy Survey
Summary The U.S. economy continues to grow despite headwinds, and the Fed has been raising rates. The state and local economies were hurt by low commodity prices, but now are growing solidly. Strong productivity growth in the oil and gas sector could potentially limit future job growth.
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