Emerging Trends in the Regional Economy · – Economic, financial education, and community...
Transcript of Emerging Trends in the Regional Economy · – Economic, financial education, and community...
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.
Emerging Trends in the Regional Economy
Alison Felix Economist & Branch Executive
Federal Reserve Bank of Kansas City Denver Branch
Overview of the Federal Reserve System
• Primary Functions – Monetary Policy: promote maximum employment, price stability and moderate
long-term interest rates
– Financial Services: bank for banks; bank for the federal government
– Banking Supervision and Regulation: ensure safety and soundness of banks and ensure that banks provide fair and equitable services to consumers.
• Structure – Board of Governors
• Consists of seven members who are appointed by the President and confirmed by the Senate to serve 14-year terms.
– Federal Reserve Banks
• There are 12 Regional Reserve Banks, each serving a unique district. These are semi-independent by design.
– Federal Open Market Committee (FOMC)
• Comprised of the 7 members of the Board of Governors and the 12 Reserve Bank Presidents (only 5 presidents are voting members on a rotating basis).
• Charged with conducting monetary policy to promote economic growth and price stability.
2
Regional Federal Reserve Banks and Branch Locations
3
The Denver Branch of the Federal Reserve Bank of Kansas City
• Functions
– Regional research and policy support covering the economies of Colorado, New Mexico and Wyoming
– Economic, financial education, and community development outreach – Examinations of Colorado, Wyoming and northern New Mexico financial institutions – Cash processing and distribution – Money Museum
– Around 150 employees
4
Despite weak growth in the first quarter, the U.S. economy bounced back in the second quarter and is expected to continue to expand at a moderate pace.
5 Source: Bureau of Economic Analysis and Federal Open Market Committee (FOMC)/Haver Analytics *Note: Projections as of September FOMC meeting
1.1%
3.0% 3.8%
-0.9%
4.6% 4.3%
2.1%
0.6%
3.9%
2.3% 2.6% 2.4%
2.0% 2.2% 2.0%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
'13Q2 '13Q3 '13Q4 '14Q1 '14Q2 '14Q3 '14Q4 '15Q1 '15Q2 2015 2016 2017
HighLow
FOMC Central Tendency Projections*
REAL U.S. GROSS DOMESTIC PRODUCT Percent Change from Previous Quarter at Seasonally Adjusted Annualized Rates
-2%
0%
2%
4%
6%
Aug '05 Aug '07 Aug '09 Aug '11 Aug '13 Aug '15
PERSONAL CONSUMPTION EXPENDITURE PRICE INDEX (PCEPI) Percent Change Year-over-Year
Inflation remains below the FOMC’s two percent target, weighed down by declining energy prices.
6 Source: Bureau of Economic Analytics
Headline Inflation
Core Inflation
FOMC’s Target Inflation Rate
4.6%
9.6%
5.1% 5.5%
11.1%
6.2%
8.3%
16.7%
10.0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2007 2008 2009 2010 2011 2012 2013 2014 Aug Sep
2015
Measures of unemployment and under-employment have declined steadily over the past five years.
7 Source: Bureau of Labor Statistics
UNITED STATES UNEMPLOYMENT RATES Seasonally Adjusted
U-6
U-5
U-3
Unemployment rates have trended down in Colorado, New Mexico and Wyoming, but remain elevated in some areas.
8 Source: Bureau of Labor Statistics and Haver Analytics
UNEMPLOYMENT RATES August 2015, Seasonally Adjusted
Less than 4% 4 to 5% 5 to 6% 6 to 7% Greater than 7%
Unemployment Rate U-3* U-5** U-6** United States 5.1% 6.2% 10.0% Colorado 4.2% 4.9% 8.8% New Mexico 6.7% 8.5% 12.4% Wyoming 4.0% 4.8% 7.7% *U-3 values are as of August, 2015 for individual states and September, 2015 for the United States. **U-5 and U-6 values are 12-month moving averages as of Q2 2015 for individual states and are for September, 2015 for the United States.
95
100
105
110
115
120
Sep. '05 Sep. '07 Sep. '09 Sep. '11 Sep. '13 Sep. '15
Employment is increasing at a moderate pace in Colorado, but has declined in New Mexico and Wyoming since the first quarter.
9 Source: Bureau of Labor Statistics
PAYROLL EMPLOYMENT GROWTH Index 100 = September 2005, Seasonally Adjusted
Percent Change
Past 10 Years
Past Year
Peak to Current
U.S. (Sept. ‘15) 5.8% 2.0% 2.9% CO (Aug. ‘15) 13.1% 1.9% 6.8% NM (Aug. ‘15) 1.6% 0.3% -2.9% WY (Aug. ‘15) 10.2% 0.1% -2.2%
United States
Colorado
New Mexico
Wyoming
6.4% 5.4%
4.5% 3.1%
2.3% 2.2% 2.1%
1.9% 1.5% 1.2% 0.8%
0.3% -0.9% -1.2% -1.3%
-4.5%
ConstructionHealth Care & Social Assistance
Leisure & HospitalityState Government
Local GovernmentFinancial Activities
Private Educational ServicesFederal Government
ManufacturingRetail Trade
Transportation & UtilitiesNatural Resources & Mining
Wholesale TradeProfessional & Business Services
Other ServicesInformation
Job gains have been broad-based across industries in the U.S. and Colorado over the past year.
10 Source: Bureau of Labor Statistics
U.S. AND COLORADO PAYROLL EMPLOYMENT, AUGUST 2015 Seasonally Adjusted Percent Change Year-over-Year
United States Colorado
Top Performing Industries
Worst Performing Industries
New Mexico has struggled to recover from the recent recession, and employment declined in more than half of industries over the past year.
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NEW MEXICO PAYROLL EMPLOYMENT, AUGUST 2015 Seasonally Adjusted
Source: Bureau of Labor Statistics
3.7% 2.7%
2.3% 0.9%
0.3% 0.1% 0.0%
-0.2% -0.4%
-0.9% -1.7%
-2.1% -2.6%
-3.6% -5.2%
Leisure & HospitalityEducation & Health Services
Professional & Business ServicesFinancial Activities
Federal GovernmentRetail Trade
Transportation & UtilitiesState Government
ManufacturingWholesale Trade
InformationOther Services
Local GovernmentNatural Resources & Mining
Construction
Percent Change Year-over-Year
Top Performing Industries
Worst Performing Industries
10.0% 7.1%
5.1% 3.3% 2.7% 2.6%
1.1% 1.0% 0.6% 0.3% 0.0% 0.0% 0.0%
-0.4% -2.1%
-15.4%
Private Educational ServicesFinancial Activities
Leisure & HospitalityHealth Care & Social Assistance
InformationState Government
Professional & Business ServicesManufacturing
Local GovernmentRetail Trade
Wholesale TradeTransportation & Utilities
Federal GovernmentConstruction
Other ServicesNatural Resources & Mining
Declines in the energy sector are weighing on employment growth in Wyoming.
12
WYOMING PAYROLL EMPLOYMENT, AUGUST 2015 Seasonally Adjusted
Source: Bureau of Labor Statistics
Percent Change Year-over-Year
Top Performing Industries
Worst Performing Industries
Migration has varied across Colorado, New Mexico and Wyoming.
13 Source: Census Bureau
NET MIGRATION Total 2014 Net Migration as a Percentage of 2014 Population
More than 2%
1% to 2%
0% to 1%
-1% to 0%
-2% to -1%
Less than -2%
Annual Percent Change 2014 United States 0.3% Colorado 1.0% New Mexico -0.6% Wyoming -0.4%
0
20
40
60
80
100
120
140
160
Jul '05 Jul '07 Jul '09 Jul '11 Jul '13 Jul '15
Residential construction activity has picked up over the last several years, but remains below pre-recession levels.
14 Source: McGraw Hill/F.W. Dodge
VALUE OF RESIDENTIAL CONSTRUCTION Index 100 = July 2005, Seasonally Adjusted Three-Month Moving Average
United States Colorado
Wyoming New Mexico
The recovery in residential construction activity has been driven by strong gains in multifamily building at the national level.
15 Source: Census Bureau/Haver Analytics
MONTHLY HOUSING PERMITS Thousand of Permits, Seasonally Adjusted
0.0
0.3
0.6
0.9
1.2
1.5
Aug. '05 Aug. '07 Aug. '09 Aug. '11 Aug. '13 Aug. '150.0
0.3
0.6
0.9
1.2
1.5
Aug. '05 Aug. '07 Aug. '09 Aug. '11 Aug. '13 Aug. '15
0
1
2
3
4
5
Aug. 05 Aug. 07 Aug. 09 Aug. 11 Aug. 13 Aug. 150
50
100
150
200
250
Aug. 05 Aug. 07 Aug. 09 Aug. 11 Aug. 13 Aug. 15
United States Colorado
New Mexico Wyoming
MULTI-FAMILY
SINGLE FAMILY
Home prices are rising in most states...
16 Source: Federal Housing Finance Agency
FHFA PURCHASE-ONLY HOME PRICE INDEX (2015Q2) Percent Change Year-over-Year, Seasonally Adjusted
Over 10% 7.5 to 10 5 to 7.5 2.5 to 5 0 to 2.5 Below 0%
10.6%
United States 5.4%
2.8%
2.5%
…yet prices remain below pre-recession values in many states.
17 Source: Federal Housing Finance Agency
FHFA PURCHASE-ONLY HOME PRICE INDEX (2007Q1 – 2015Q2) Percent Change Peak to Current, Seasonally Adjusted
Over 10% 7.5 to 10 5 to 7.5 2.5 to 5 0 to 2.5 Below 0%
United States -2.4%
26.7% Over 20% 10 to 20 0 to 10 -10 to 0 -20 to -10 Below -20%
8.1%
-10.1%
Vacancy rates are low across the Denver metro, but commercial vacancies remain elevated in Albuquerque.
18 Source: Torto-Wheaton Research
4%
8%
12%
16%
20%
24%
COMMERCIAL VACANCY RATES
4%
8%
12%
16%
20%
24%
Office
Industrial
Denver Albuquerque
Office
Industrial
Tourism activity has picked up in Colorado, New Mexico and Wyoming over the past two years.
19
HOTEL OCCUPANCY RATES
54%
58%
62%
66%
70%
74%
CO N.M. WY
Historical Average201320142015
Source: Rocky Mountain Lodging Report
Expanding
Contracting
Manufacturing activity has slowed in the region due in part to a weak energy sector and a strong dollar.
20 Source: Institute for Supply Management & Federal Reserve Bank of Kansas City
MANUFACTURING ACTIVITY Diffusion Index, Seasonally Adjusted, Month-over-Month
U.S. 50.2 September 2015 Kansas City 46.0
District September 2015
30
35
40
45
50
55
60
65
Sep. '05 Sep. '07 Sep. '09 Sep. '11 Sep. '13 Sep. '15
Drilling rigs have fallen sharply in 2015, but oil production has been slow to decline.
21 Source: Baker Hughes & Department of Energy, Energy Information Administration/Haver Analytics
OIL RIG COUNT Number of Active Drilling Rigs
OIL PRODUCTION Million Barrels per Month, SA
0
80
160
240
320
400
480
560
0
2
4
6
8
10
12
14
Jul. '05 Jul. '10 Jul. '15
CO
U.S.
N.M.
WY
0
20
40
60
80
100
120
0
400
800
1,200
1,600
2,000
2,400
Oct. '08 Apr. '12 Oct. '15
CO
U.S.
N.M.
WY
U.S. States U.S. States
Prior to additional oil price declines in the third quarter, energy firms expected activity to be roughly flat over the next six months.
22 Source: FRBKC Energy Survey
FRBKC ENERGY SURVEY Quarterly Diffusion Indexes
-100
-80
-60
-40
-20
0
20
40
60
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q42015 (exp)
Drilling/BusinessActivityAccess to Credit
Profits
-100
-80
-60
-40
-20
0
20
40
60
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q42015(exp)
EmploymentEmployee HoursWages/Benefits
23 Sources: Kansas City Federal Reserve Bank’s Energy Survey, Energy Information Administration, Reuters
$/Barrel
40
60
80
100
120
40
60
80
100
120
Jan. '14 Jun. '14 Nov. '14 Apr. '15 Sep. '15 Feb. '16 Jul. '16 Dec. '16
September 29 WTI Futures
WTI
Energy Survey avg. breakeven in late Sept. 2014 - $78
Late Mar. 2015 avg. breakeven - $62
June 2015 price needed for substantial increase in drilling to occur- $73
$/Barrel
REPORTED BREAKEVEN OIL PRICES AND WTI EXPECTATIONS
Breakeven oil prices have fallen as productivity rises and costs decline, but oil prices remain well below the levels needed for a substantial increase in drilling.
U.S. real net farm income is projected to decline sharply in 2015.
24 Source: USDA
0
20
40
60
80
100
120
140
1970 1980 1990 2000 2010
U.S. REAL NET FARM INCOME Billions, 2009 Dollars
2015 Forecast
Crop prices remain low, and cattle prices are starting to decline after record profits last year.
25 Sources: The Wall Street Journal, Chicago Board of Trade, and USDA
U.S. CROP PRICES Dollars per Bushel
2
4
6
8
10
12
14
16
18
1
2
3
4
5
6
7
8
9
Sep. '09 Sep. '11 Sep. '13 Sep. '15
Corn (left scale)
Soybeans (right scale)
U.S. LIVESTOCK PRICES Dollars per Hundredweight
80
120
160
200
240
280
80
120
160
200
240
280
Sep. '09 Sep. '11 Sep. '13 Sep. '15
Feeder CattleLive Cattle
For additional information on the regional economy: http://www.KansasCityFed.org/Denver