U.S. and Kansas City Region Economic and Real Estate Conditions … · • Employment growth is...

Economic Conditions and Outlook for the U.S. and Kansas

Kansas House of Representatives Commerce, Labor and Economic Development Cmmittee

January 17, 2013

Kelly D. Edmiston Federal Reserve Bank of Kansas City

Overview

• The U.S. economy continues to recover, but at a very modest pace – But there remain considerable risks

• Employment growth is thin, in the U.S. and in Kansas, and by some measures, its worse than we think it is

• Kansas has some economic advantages that had mitigated the national economic doldrums, but has concentrations of some industries that have not done well – growth has not kept pace with the nation recently

• The residential real estate market, however, is doing better

January 17, 2013 2 K. Edmiston, FRBKC

U.S. ECONOMIC OVERVIEW AND FORECAST

Economic Conditions in the U.S. and Kansas


Annual Growth in Real GDP

January 17, 2013

-1.9

4.5

7.2

4.1

-3.5

3.0 1.7

-6

-4

-2

0

2

4

6

8

10

-6

-4

-2

0

2

4

6

8

10

1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

Annual Percent Change Annual Percent Change

1980 - 1985

2012 preliminary due Jan 30; FOMC forecast 1.7% - 1.8%

4.5 7.2 4.1

-8 -6 -4 -2 0 2 4 6 8

-8 -6 -4 -2 0 2 4 6 8

1980 1981 1982 1983 1984 1985

1980 - 1985

4 K. Edmiston, FRBKC

Quarterly Real GDP Growth (Annualized)

January 17, 2013

Source: U.S. Bureau of Economic Analysis

-8.9

-6.7

3.1

1.4

-10

-8

-6

-4

-2

0

2

4

6

-10

-8

-6

-4

-2

0

2

4

6

2007-I 2007-III 2008-I 2008-III 2009-I 2009-III 2010-I 2010-III 2011-I 2011-III 2012-I 2012-III

Annualized Percentage Change Annualized Percentage Change

$400B Stimulus Blue Chip Economic Forecast


Contributions to Percentage Change in Real GDP

January 17, 2013

Source: Bureau of Economic Analysis; Haver Analytics

4.1

2.0

1.3

3.1

1.1

0.8 0.7

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Total GDP Consumer Spending

Res. Invest

Bus. Invest

Net Exports

Gov. Spending

Inventories

2011:Q4 2012:Q1

2012:Q2 2012:Q3

Percentage Points Percentage Points


Retail Spending (Tenth Federal Reserve District, incl. Kansas)

January 17, 2013

Source: Federal Reserve Bank of Kansas City Beige Book Survey; latest release October 10, 2012

Aug

Sep Nov

Dec

-100

-80

-60

-40

-20

0

20

40

60

80

100

-100

-80

-60

-40

-20

0

20

40

60

80

100

Retailers Auto dealers

Index: 100=Neutral Index: 100=Neutral

Year-over-Year Diffusion Indexes


Retail Spending (3-month forecast) (Tenth Federal Reserve District, incl. Kansas)

January 17, 2013

Aug

Sep

Nov

Dec

-100

-80

-60

-40

-20

0

20

40

60

80

100

-100

-80

-60

-40

-20

0

20

40

60

80

100

Retailers Auto dealers


3-Month Ahead Diffusion Indexes


Personal Income Growth

January 17, 2013

60

70

80

90

100

110

120

60

70

80

90

100

110

120

2005 2006 2007 2008 2009 2010 2011 2012

Index: q1 2005 = 100 Index: q1 2005 = 100

Source: BEA; Haver Analytics


Savings as a Share of Disposable Income

January 17, 2013

0

2

4

6

8

10

0

2

4

6

8

10

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Percent Percent

Source: BEA; Haver Analytics


Average Debt per Consumer

January 17, 2013

$0

$4,000

$8,000

$12,000

$16,000

$20,000

$0

$4,000

$8,000

$12,000

$16,000

$20,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total Consumer Debt (excludes first mortgage)

Revolving Debt

U.S.

KS

U.S.

KS

Source: FRBKC Consumer Credit Reports


Consumer Credit Delinquencies

January 17, 2013

3.2%

9.6%

1.8%

5.8%

1.9%

10.3%

1.6%

3.4%

106.4

83.2

0

25

50

75

100

125

150

175

200

0%

4%

8%

12%

16%

Auto Delinquency (percent of outstanding

loans)

Student Loan Delinquency (percent of outstanding

loans)

Bank Card Delinquency (percent of outstanding

accounts)

Delinquency on Any Account (percent of

outstanding accounts)

Bankruptcy Filings per 10,000 Households

(annual rate)

US KS

Source: FRBKC Consumer Credit Reports

Four-quarter moving average


FOMC Real GDP Growth Forecast (December, 2012)

January 17, 2013 Sources: Bureau of Economic Analysis; FOMC

1.7 2.3

3.0 3.0 2.3

-4

-3

-2

-1

0

1

2

3

4

5

-4

-3

-2

-1

0

1

2

3

4

5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 LR

Percent Percent

Through 1990

Through 2000

Current Projection

3.0 3.5

3.7

2.5

1.8


EMPLOYMENT AND UNEMPLOYMENT

Economic Conditions and Outlook for the U.S. and Kansas


Historical Recessions

January 17, 2013

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

Perc

ent L

oss

from

Em

ploy

men

t Pea

k

Weeks

1970 1974 1980 1981 1990 2001 2007


Employment Growth in the U.S. and Kansas

January 17, 2013

Source: BLS; Haver Analytics

-900

-600

-300

0

300

600

900

1200

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Thousands of Jobs (seasonally adjusted; 3 mos moving average) Thousands of Jobs (seasonally adjusted)

Kansas (left axis) 1yr: 16,800 (0.4%) 5yr: -43.4K (-3.1%)

U. S. (right axis) 1yr: 2.1 million (1.4%) 5yr: - 4.1M (-3.0%)


Employment Growth by Industry (last 12 months)

January 17, 2013

-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

Total Mfg. (12.4)

Nat Res. & Mng

(0.7)

Cons. (3.9)

Trade (14.8)

Trans. & Util. (3.8)

Info. (1.8)

Finance (5.4)

Prof. & Bus. Serv. (11.8)

Ed. & Health Serv. (14.0)

Leisure & Hosp.

(8.3)

Other Serv. (3.9)

Fed. Gvt. (2.0)

SL Govt. (17.1)

U.S. Employment Kansas Employment

Percent Percent


Employment Growth by Industry (since recession began in Dec 2007)

January 17, 2013

-40

-30

-20

-10

0

10

20

30

-50

-40

-30

-20

-10

0

10

20

Total Mfg. (12.4)

Nat Res. & Mng

(0.7)

Cons. (3.9)

Trade (14.8)

Trans. & Util. (3.8)

Info. (1.8)

Finance (5.4)

Prof. & Bus. Serv. (11.8)

Ed. & Health Serv. (14.0)

Leisure & Hosp.

(8.3)

Other Serv. (3.9)

Fed. Gvt. (2.0)

SL Govt. (17.1)

U.S. Employment Kansas Employment

Percent Percent


Unemployment Rates

January 17, 2013

7.8

5.4

0

2

4

6

8

10

12

0

2

4

6

8

10

12

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12

Percent Percent

Kansas

National


Unemployment and Labor Force Participation Rates

January 17, 2013

0

2

4

6

8

10

12

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 60.0

62.0

64.0

66.0

68.0

70.0

72.0

Labor Force Participation Rate (U.S.; down 3.9 percent from peak)

Labor Force Participation Rate (KS; down 4.6 percent from peak)

Unemployment Rate (U.S.)

Unemployment Rate (KS)

Source: U.S. Bureau of Labor Statistics: Haver Analytics


Jobs Deficit

January 17, 2013

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

160,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

160,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

4.1 Million

2.8 Million

Chart computes the employment level that would be required to keep the unemployment rate at the December, 2007 level, given structural trends in the labor force participation rate. The structural trend in labor force participation rates is discussed in Van Zandweghe (2012).

Source: Federal Reserve Bank of Kansas City Updated through July, 2012


Expanded Unemployment Rate

January 17, 2013

Source: U.S. Bureau of Labor Statistics; Haver Analytics

14.4

0

4

8

12

16

20

0

4

8

12

16

20 Percent Unemployed Percent Unemployed

U-6

U-3

United States

Kansas

10.4

0

4

8

12

16

20

0

4

8

12

16

20 Percent Unemployed Percent Unemployed

U-6

U-3


KEY KANSAS INDUSTRIES Economic Conditions and Outlook for the U.S. and Kansas


Manufacturing Indexes

January 17, 2013

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12

U.S. Tenth District

Index: 50 = Neutral Index: 50 = Neutral

Sources: ISM, FRBKC Manufacturing Survey


Aerospace Products and Parts (Average Production Workers per Year)

January 17, 2013

0

20

40

60

80

100

120

0

20

40

60

80

100

120

2008 2009 2010 2011

U.S.

KS

Index: 2008 = 100 Index: 2008 = 100

Source: Annual Survey of Manufacturers; Haver Analytics


Information (incl. Telecommunications) (Employment)

January 17, 2013

0

20

40

60

80

100

120

0

20

40

60

80

100

120

2007

03

2007

05

2007

07

2007

09

2007

11

2008

01

2008

03

2008

05

2008

07

2008

09

2008

11

2009

01

2009

03

2009

05

2009

07

2009

09

2009

11

2010

01

2010

03

2010

05

2010

07

2010

09

2010

11

2011

01

2011

03

2011

05

2011

07

2011

09

2011

11

2012

01

2012

03

2012

05

2012

07

2012

09

2012

11

Index: 2007 QI = 100 Index: 2007 QI = 100

U.S.

KS

Source: BLS Establishment Survey; Haver Analytics


Agriculture

January 17, 2013

0.00

4.00

8.00

12.00

16.00

20.00

0.00

4.00

8.00

12.00

16.00

20.00

2007 2008 2009 2010 2011 2012

Corn Soybeans Wheat

$/bushel $/bushel

0

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012

Capital Spending

Farm Income

Index: 100 = Neutral Index: 100 = Neutral

-10

-5

0

5

10

15

20

25

30

35

-10

-5

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012

Irrigated Cropland

Ranchland

Nonirrigated Cropland

% change (year-over-year)

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012

Cattle Breakeven Hog Breakeven

Hog Price Cattle Price


RESIDENTIAL REAL ESTATE Economic Conditions and Outlook for the U.S. and Kansas


Existing Home Sales

January 17, 2013

0

20

40

60

80

100

120

0

20

40

60

80

100

120

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

KC Wichita Topeka

Index: Jan 2007 = 100 Index: Jan 2007 = 100

Source: Area Realtors Associations


Demand Constraints

• Economy/Financial Security • Uncertainty about Market • Household Formation • Credit Availability

Existing Single-Family Home Activity

Homebuyer Traffic

January 17, 2013

0.0

25.0

50.0

75.0

100.0

0

25

50

75

100

Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

First-Time Homebuyer Traffic Current Homeowner Traffic Investor Traffic



Months Supply of Homes

January 17, 2013

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12

Months Months

Kansas City

Wichita

Source: Area Realtors Associations


Home Prices

January 17, 2013

Source: FHFA / Haver Analytics

0

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S KS Lawrence Manhattan Topeka Wichita KC

Index: 2002 Q1 = 100 Index: 2002 Q1 = 100


Housing Starts

January 17, 2013

0

20

40

60

80

100

120

0

20

40

60

80

100

120

Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12

Index: March 2006 = 100 Index: March 2006 = 100


RISKS Economic and Commercial Real Estate Conditions and Outlook


The Fiscal Cliff (Current Projection 2013 is 2.3% - 3.0%)

January 17, 2013

Payroll Tax Payroll Tax

Extended UI Extended UI

AMT Fix Expires

BushCuts Expire

Sequestratation, -0.5

-4

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

Fiscal Cliff Scenario Likely Scenario (Embedded in forecast)

v Partial

Delayed two months

Indexed to inflation

Source: Goldman Sachs; www.whitehouse.com


European Debt Crisis

Australia Austria

Belgium

Canada

Czech Republic Denmark

France

Germany

Greece

Iceland

Ireland

Italy

Japan

Netherlands

New Zealand

Poland Slovak Republic

Slovenia

Spain

United Kingdom

Euro Area

-12

-10

-8

-6

-4

-2

0 0 20 40 60 80 100 120 140

United States

2011

GO

VT.

DE

FIC

ITS,

Perce

nt of

GD

P

2011 NET GOVT. DEBT, Percent of GDP

Source: Organization for Economic Co-operation & Development


European Interest Rate Spreads

January 17, 2013

Source: Bloomberg

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13

Italy France UK Spain


U.S. Exports to the EU (Goods Only)

January 17, 2013

0

50,000

100,000

150,000

200,000

250,000

300,000

0

50,000

100,000

150,000

200,000

250,000

300,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

$2012M $2012M

Source: U.S. Census Bureau Note: Inflation adjusted with BEA implicit GDP deflator


Federal Debt (% of GDP)

Source: Congressional Budget Office

0%

20%

40%

60%

80%

100%

120%

0%

20%

40%

60%

80%

100%

120%

'40 '50 '60 '70 '80 '90 '00 '10 '20

Debt to GDP Ratio

CBO Alternative Scenario

CBO March Baseline

Percent Percent


Contact Information: Kelly D. Edmiston Senior Economist Community Development 1 Memorial Drive Kansas City, MO 64198 (816) 881-2004 [email protected]


U.S. and Kansas City Region Economic and Real Estate Conditions … · • Employment growth is...

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