2018 Kansas City Economic Forecast · PDF file2018 Kansas City Economic Forecast Greater...
Transcript of 2018 Kansas City Economic Forecast · PDF file2018 Kansas City Economic Forecast Greater...
2018 Kansas City Economic ForecastGreater Kansas City Chamber of Commerce
October 26, 2018
Status of the U.S. Economy
The economy is a beacon of stability in a sea of uncertainty
Natural environment Hurricanes and wildfires and…
Fiscal policy environment Health care, debt ceiling, another shut down?, tax
reform/cut
Trade policy environment TPP and whither NAFTA?
Foreign policy environment Nuclear brinkmanship w/North Korea, the Wall vs
skills
Despite the first employment loss in nearly 7 years, the labor market is healthy and absorbing workers faster than new workers are entering
261219
148
-100-50
050
100150200250300350400
J M M J S N J M M J S N J M M J S N J M M J S
2014 2015 2016 2017
U.S. Non-Farm Payroll Employment Changemonthly change in thousands
Monthly change 12-month moving average
Both the official unemployment rate and the U-6 rate continue to decline, and more in the last year than the previous one.
Official unemployment is at the lowest level in 16 years.
5.95.0 4.9
4.2
11.8
10.0 9.78.3
0
2
4
6
8
10
12
14
J M M J S N J M M J S N J M M J S N J M M J S
2014 2015 2016 2017
Perc
ent
U.S. Unemployment Rates, monthly
Official unemployment rate
Plus marginally attached workers and those working part-time for economic reasons
Openings exceed hires, and the gap is increasing. Quits are rising in line with hires as workers more easily find new jobs
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
J M M J S N J M M J S N J M M J S N J M M J
2014 2015 2016 2017
Thou
sand
s
U.S. Job ChurnOpenings, Hires, Layoffs and Quits
Openings Hires Layoffs Quits
Wages are improving, but wage increases are not accelerating.
-1.5%
2.7%
2.1%2.3%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017
Real full-time median weekly wage Percent change since one year ago
Neither are prices.
Given the tightening labor market, why isn’t the inflation rate increasing?
1.7
1.3
1.8
1.3
0.0
0.5
1.0
1.5
2.0
2.5
J M M J S N J M M J S N J M M J S N J M M J
2014 2015 2016 2017
U.S. Inflation Rate: Core PCE vs. FOMC TargetPersonal Consumption Expenditures Price Index, Less
Food and Energy
Core PCE FOMC Target
To head off underlying inflationary pressures, the FOMC is raising interest rates and normalizing its balance sheet
0.40
1.15
0.0
1.0
2.0
3.0
4.0
5.0
6.0
J M M J S N J M M J S N J M M J S N J M M J S N J M M J S
2013 2014 2015 2016 2017
Pece
nt
Federal Funds Rate, monthly
Rising wealth creates economic resilience:
S&P up 15% Housing up 5%Net worth up 9%
-5
0
5
10
15
20
25
1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017
Perc
ent
Stock Market, Home Prices and Net Worth Percent change from one year ago, quarterly
S&P 500
S&P/Case-Shiller 20-City Composite Home Price Index
Households and Nonprofit Organizations; Net Worth,
Rising wealth leads to rising optimism which is now leading to rising investment in the real, as well as financial, economy.
15.5
3.3
-5
0
5
10
15
20
25
1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017
Perc
ent
Stock Market and Private InvestmentPercent change from one year ago, quarterly
S&P 500 Real Gross Private Domestic Investment
GDP rebounded sharply in the second quarter, to 3.1 percent.
Since a year ago, it is up 2.2 percent, the same as its post-recession average.
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1 2 3 4 1 2 3 4 1 2 3 4 1 2
2014 2015 2016 2017
U.S. Real GDP GrowthSeasonally adjusted at annual rates, quarterly
A “Goldilocks” economy
Growing at its current potentialBased on rate of growth of the labor force
(0.8 %) plus rate of growth of productivity (1.3%)
Unemployment rate at lowest level since 2001Rising wagesNo sign of inflation
U.S. Economic Forecast
The median FOMC forecast for GDP calls for 2017 to be better than 2016. But growth is expected to slow in 2018 from 2.4 to 2.1 percent
2.7 2.6
2.3
2.0 2.22.4
2.1 2.01.8 1.8
1.8
2.2
1.7
1.4 1.4
1.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 Longer run
Perc
ent
U.S. Real GDP Projections, FOMC vs. RSQE
Actual FOMC Median FOMC Range
The University of Michigan forecast used to drive the regional forecasting model is slightly more optimistic than the FOMC median.
1.8
2.4 2.32.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 Longer run
Perc
ent
U.S. Real GDP Projections, FOMC vs. RSQE
Actual RSQE FOMC Range
Median FOMC projection is to raise Fed Funds once more in 2017, 3 times in 2018 and 2 more in 2019, each by . be 0.25%, ending between 2.5% and 2.75%
0
0.5
1
1.5
2
2.5
3
3.5
4
2016 2017 2018 2019 2020 2021 2022
Perc
ent
FOMC Participants' Assessment of Appropriate Monetary Policy
Expected Federal Funds Rate at end of year
2017 2018 2019 2020 Longer run
Longer run
Status of the KC Economy
Lots of construction, especially industrial space. Also much redevelopment in and around Downtown. Biggest mixed use is Brookridge. Biggest retail is Metro North mall
More on the horizon…
Buck O’Neil bridgeKCI modernizationStreet car expansion
The region’s job growth has ramped up in recent years, to about 22,000 per year. But the geographic composition of job growth has shifted.
0
5,000
10,000
15,000
20,000
25,000
30,000
2012 2013 2014 2015 2016 2017
Employment Change in the Kansas City MetroKansas side vs. Missouri side
Year-over-year change in 12-month moving average
Mo Side KS Side MSA
Which is cause and which is effect is unclear, but there is a high degree of correlation between the fortunes of the states and the two halves of our region.
(10,000)
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2012 2013 2014 2015 2016 2017
Employment Change in Kansas and MissouriYear-over-year change in 12-month moving average
KS MO
KC’s employment growth appears to be matching that of the U.S., except for two sectors –Information and Prof/Sci/Tech services
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Construction Manufacturing WholesaleTrade
Health Careand SocialAssistance
Information Finance andInsurance
Transportationand
Warehousing
Professional,Scientific, and
TechnicalServices
KC Employment Change by Industry, 2010-2016Major traded sectors
Prof/Sci/Tech includes Life Sciences, Engineering and Architecture, and IT (Cerner, cybersecurity). The region is growth twice as fast as the U.S in these innovative sectors.
17%
7%3%
15%
-38%
6%
17%
29%
15%
7% 7%
14%
3% 6%
15% 16%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Construction Manufacturing WholesaleTrade
Health Careand SocialAssistance
Information Finance andInsurance
Transportationand
Warehousing
Professional,Scientific, and
TechnicalServices
U.S. and KC Employment Percent Change, 2010-2016Major traded sectors
KC Rate US Rate
Doing as well as the U.S. used to be good enough. No more. Compared to our peer metros, the region is slipping on several key indicators.
Metropolitan Kansas City currently ranks 17th in GDP, 12th in quality jobs, and 14th in real median household income. But its rank on how fast these are growing is 19th, 24th, and 20th, respectively.
KC’s growth is sufficient to lower its unemployment rate, though it appears to be leveling out. It is still slightly lower than the U.S rate.
0
2
4
6
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12
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Une
mpl
oym
ent R
ate
U.S. and KC Unemployment Rate ComparisonNot Seasonally Adjusted
KC US
KC wages have tended to grow slightly slower than the U.S. , and their average just slightly above 2% is modest. But their 5.3% growth rate over the past year suggests wage growth is beginning to improve.
-4%
-2%
0%
2%
4%
6%
8%
2010 2011 2012 2013 2014 2015 2016 2017
U.S and KC Average Weekly WagePercent change from one year ago
US KC KC Trend
KC Economic Forecast
KC and U.S. GDP grew an identical 2.2 percent over the last year. KC is shown rebounding less strongly from temporary slowdowns. This is probably a modelling anomaly
1.7%
2.1%
2.3%2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2016 2017 2018 2019
U.S. and KC GDP GrowthPercent change from one year ago, quarterly
KC US
The KC economy will catch up to U.S. growth and stabilize at 2.3 percent per year. U.S. growth rates are expected to gradually decline. at 2.3
1.7%
2.1%
2.3%2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2016 2017 2018 2019
U.S. and KC GDP GrowthPercent change from one year ago, quarterly
KC US
The story is similar for employment, though both KC and U.S. employment growth rates are gradually declining.
1.5%1.3%
1.3%1.4%
0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2016 2017 2018 2019
U.S. and KC Total Employment Growth RatePercent change from one year ago, quarterly
KC US
As a result, KC is will add an average of 20,000 jobs over the last 2 years, and will add an average of 19,000 jobs over the next two.
20,782 18,729
19,694 18,392
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5,000
10,000
15,000
20,000
25,000
2015-16 2016-17 2017-18 2018-19
KC Total Employment GrowthFourth quarter to fourth quarter
Health Care, Government, Retail, Prof/ Sci/Tech and Accommodation and Food Service are the region’s largest industries in terms of jobs.
2,611 3,083 5,469
11,893 21,355
27,282 31,698 31,912
53,821 59,511 59,836
69,441 71,469 75,862
91,626 94,801
101,233 125,016
135,760 162,974 163,145
- 50,000 100,000 150,000 200,000
Forestry, Fishing, and Related…UtilitiesMining
FarmInformation
Educational services; privateArts, Entertainment, and Recreation
Management of CompaniesTransportation and Warehousing
Real Estate and Rental and LeasingWholesale Trade
ManufacturingConstruction
Other Services, except Public AdminFinance and Insurance
Administrative and Waste…Accommodation and Food Services
Professional, Scientific, and TechnicalRetail Trade
GovernmentHealth Care and Social Assistance
KC Employment by IndustrySecond quarter, 2017
Prof/Sci/Tech, Construction, and Health Care are expected to grow the fastest, followed by Finance, Administrative support, and Local government (which includes schools)
(387)
(263)
(240)
(229)
(180)
(99)
77
243
262
339
479
583
606
678
1117
2,167
2,729
3,776
3,833
4,643
(2,000) (1,000) - 1,000 2,000 3,000 4,000 5,000
Accommodation and Food ServicesUtilities
Other Services, except Public AdminManufacturing
InformationTransportation and Warehousing
Forestry, Fishing, and Related…Arts, Entertainment, and Recreation
MiningEducational services; privateManagement of Companies
Wholesale TradeReal Estate and Rental and Leasing
Retail TradeGovernment
Administrative and Waste…Finance and Insurance
Health Care and Social AssistanceConstruction
Professional, Scientific, and Technical
KC Employment Growth by IndustryFourth quarter to fourth quarter change
2016-17 2017-18 2018-19
Risks to the forecast
Upside risks include:Construction of New KCI terminalBuck O’Neil bridge replacementStreet car expansion
Amazon HQ2Downside risks include:Sprint merger with T-MobileDecline of in-store retailSwirling uncertainty
Conclusion
Despite being the third longest expansion in U.S. history, nothing foreseeable appears likely to knock it off course
Low unemployment, rising wages, low inflation suggest we are in a rare “Goldilocks” moment
KC is matching the U.S. stride for stride
But it is falling behind peer metros on several key metrics
To increase economic resilience in the face of uncertainty, civic leaders must continue to focus on improving the drivers of regional prosperity—trade, talented people, and innovation and entrepreneurship.