Download United States Economic Update

National & Colorado
Economic Update
Alison Felix
Economist & Branch Executive
Federal Reserve Bank of Kansas City
Denver Branch
The U.S. economy continues to grow at a modest pace.
REAL GROSS DOMESTIC PRODUCT (GDP)
Annualized Percent Change from Previous Period
September 2012
FOMC Central
Tendency Projections
5%
4%
5%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
-3%
-3%
-4%
-4%
2007
2008
2009
2010
2011
Q1
Q2
2012
Source: Bureau of Economic Analysis & Federal Open Market Committee (FOMC)
Q3
2012
2013
2014
Projections
2
Unemployment rates have fallen over the past year but remain stubbornly
high.
UNEMPLOYMENT RATE
Seasonally Adjusted
10%
9.3%
9%
8.1%
4%
3%
5.1%
10%
9.0%
8.3%
8.1%
Colorado
7%
5%
8.9%
United States
8.2%
8%
6%
9.6%
9%
8.0%
7.8%
7%
September 2012
FOMC Central
Tendency Projections
5.8%
4.6% 4.6%
8%
4.8%
4.3%
6%
5%
4%
3.8%
3%
2%
2%
2005 2006 2007 2008 2009 2010 2011
Aug
Sep
2012
Source: Bureau of Labor Statistics & Federal Open Market Committee (FOMC)
2012 2013 2014
Projections
3
Inflation remains moderate despite increases in gasoline and food prices.
U.S. PERSONAL CONSUMPTION EXPENDITURE (PCE) INFLATION
Annualized Percent Change from Previous Period
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
2005 2006 2007 2008 2009 2010 2011
Q1
Q2
2012
Q3
2012 2013 2014
Projections
September 2012 FOMC
Central Tendency Projections
Source: Bureau of Economic Analysis & Federal Open Market Committee (FOMC)
4
“… the Committee also decided today to keep the target range for the federal funds
rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the
federal funds rate are likely to be warranted at least through mid-2015.”
- FOMC October Statement
9%
8%
7%
EFFECTIVE FEDERAL FUNDS RATE
6%
5%
4%
3%
2%
1%
0%
2002
2003
2004
2005
Source: Board of Governors of the Federal Reserve System
2006
2007
2008
2009
2010
2011
2012
5
“…the Committee will continue purchasing additional agency mortgage-backed securities at
a pace of $40 billion per month.
- FOMC October Statement
FEDERAL RESERVE BALANCE SHEET
Trillions
$3
$2
Foreign
Currency Swaps
Assets
Short-Term
Lending
$2
$1
Traditional Portfolio
$0
Currency in Circulation
-$1
-$2
$3
Federal Agency &
Mortgage-Backed
Securities
$1
$0
Trillions
-$1
Reserves
Liabilities
-$2
Other
-$3
2006
2007
Source: Board of Governors of the Federal Reserve System
2008
2009
2010
2011
-$3
2012
6
“The Committee also will continue through the end of the year its program to extend the
average maturity of its holdings of Treasury securities, and it is maintaining its existing
policy of reinvesting principal payments from its holdings of agency debt and agency
mortgage-backed securities in agency mortgage-backed securities.”
- FOMC October Statement
FEDERAL RESERVE BANK ASSETS Trillions
$3.0
Projected
QE3
All Other
$2.0
QE2
Federal Agency &
Mortgage Backed Securities
$1.5
Treasuries by Duration
>10 years
6 to 10 years
3 to 6 years
≤3 years
Operation
Twist
$1.0
Projected
Operation Twist
$0.5
$0.0
Oct'10
Source: Board of Governors of the Federal Reserve System
$2.5
Sep'11
Sep'12
Jan'13
7
FEDERAL RESERVE BANK DISTRICTS
Boston
Minneapolis
New York
Chicago
San Francisco
Cleveland
Kansas City
Richmond
St. Louis
Dallas
Source: Federal Reserve Bank of Kansas City
Philadelphia
Board of
Governors
Atlanta
8
Most states have experienced positive job growth over the past year.
SEPTEMBER 2012 NONFARM EMPLOYMENT
Year-over-Year Percent Change, Seasonally Adjusted
1.6%
2 to 5.6%
1 to 2
0 to 1
-1 to 0
-1.3 to -1
United States
1.4%
Source: Bureau of Labor Statistics
9
Employment gains over the past year have been spread across most
industries.
CHANGE IN NONFARM EMPLOYMENT, SEPTEMBER 2012
Seasonally Adjusted
Over Past Year
Natural Resources & Mining
Construction
Private Educational Services
Professional & Business Services
Wholesale Trade
Retail Trade
Leisure & Hospitality
Manufacturing
Health Care & Social Assistance
Other Services
Financial Activities
Local Government
State Government
Federal Government
Information
Transportation & Utilities
Top Performing Industries
Colorado
United States
Worst Performing Industries
-5%
Source: Bureau of Labor Statistics
0%
5%
10%
10
Despite recent gains, employment is still below peak levels in many
industries.
CHANGE IN NONFARM EMPLOYMENT, SEPTEMBER 2012
Seasonally Adjusted
Since December 2007
Natural Resources & Mining
Health Care & Social Assistance
State Government
Private Educational Services
Federal Government
Local Government
Leisure & Hospitality
Other Services
Professional & Business Services
Retail Trade
Wholesale Trade
Financial Activities
Manufacturing
Information
Transportation & Utilities
Construction
-40%
Source: Bureau of Labor Statistics
Colorado
United States
-20%
0%
20%
11
After a decline last year, real hourly wages are increasing in Colorado.
REAL HOURLY WAGE RATE
Percent Change from the Prior Year, Seasonally Adjusted
6%
September 2012
Colorado
2.2%
United States -0.2%
4%
6%
Colorado
2%
4%
2%
United States
0%
0%
-2%
-2%
-4%
-4%
-6%
Sep-08
Source: Bureau of Labor Statistics
Sep-09
Sep-10
Sep-11
-6%
Sep-12
12
Residential construction activity is picking up but remains below prerecession levels.
VALUE OF RESIDENTIAL CONSTRUCTION
Percent Change, Cumulative Year-to-Date January through September 2012
53.9%
40+%
20 to 40
0 to 20
-20 to 0
-20+
United States
26.4%
Source: McGraw Hill/F.W. Dodge
13
Home prices have stabilized over the past year across most of the nation.
CHANGE IN HOME PRICES Year-over-Year, 2012Q2
FHFA Purchase-Only Index, Seasonally Adjusted
4.8%
6 to 12.9%
4 to 6
2 to 4
0 to 2
-2 to 0
-4.7 to -2
United States
3.0%
Source: Federal Housing Finance Agency
14
Despite recent gains, home prices remain below peak levels in most states.
CHANGE IN HOME PRICES Peak to Current (2007Q1 to 2012Q2)
FHFA Purchase-Only Index, Seasonally Adjusted
-3.4%
10 to 19.2%
5 to 10
0 to 5
-5 to 0
-10 to -5
-20 to -10
-56 to -20
United States
-17.6%
Source: Federal Housing Finance Agency
15
Improvements in infrastructure and non-residential construction activity
have varied across the country.
VALUE OF NON-RESIDENTIAL & NON-BUILDING CONSTRUCTION
Percent Change, Cumulative Year-to-Date January through September 2012
28.8%
40+%
20 to 40
0 to 20
-20 to 0
-40 to -20
-40+
United States
-3.8%
Source: McGraw Hill/F.W. Dodge
16
Oil drilling has increased sharply over the past two years, but natural gas
drilling has declined.
ACTIVE DRILLING RIG COUNTS
United States
2,000
1,600
Natural Gas
Colorado
200
160
Crude Oil
120
1,200
800
80
400
40
0
0
'08
Source: Baker Hughes
'09
'10
'11
'12
'08
'09
'10
'11
'12
17
Mining activity made up slightly more than 4% of Colorado state domestic
product in 2011 and is a growing sector in the regional economy.
OIL & GAS WELLS
Drilling
Producing
OIL & GAS DRILLING PERMITS
Permits
Shale Plays
Basins
Source: Colorado Oil & Gas Conservation Commission (COGCC) & U.S. Department of Energy, Energy Information Administration
18
Despite the worst drought in three decades, U.S. net farm incomes are
projected to reach record highs in 2012.
U.S. REAL NET FARM INCOME
Constant 2005 Dollars (Billions)
$120
$120
$100
February
Forecast
$80
$100
$80
$60
$60
$40
$40
$20
$20
$0
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F
Source: U.S. Department of Agriculture
Note: ‘F’ denotes August 2012 forecast.
19
After expanding for three years in the Tenth District, the manufacturing
sector slowed somewhat in October.
MANUFACTURING ACTIVITY
Diffusion Index, Seasonally Adjusted, Month-over-Month
Kansas City District 48.2 October 2012
United States (ISM) 51.5 September 2012
65
60
55
Expanding
50
50
Contracting
45
40
35
30
Oct '02
Oct '04
Oct '06
Oct '08
Oct '10
Oct '12
Note: Federal Reserve Surveys are computed on an ISM Basis (50 = no change)
Source: Institute for Supply Management & Federal Reserve Bank of Kansas City
20
Manufacturers in the Tenth District still expect higher levels of activity over
the next six months but have become less optimistic.
TENTH DISTRICT MANUFACTURING EXPECTATIONS
Diffusion Index, Seasonally Adjusted, Six Months Ahead
35
2012Q1
2012Q2
2012Q3
Oct-12
30
25
20
15
10
5
0
-5
Production Volume of new Number of
orders
employees
Source: Federal Reserve Bank of Kansas City
Capital
New orders for
expenditures
exports
21
Growth has slowed sharply in Europe this year and is expected to remain
slow in 2013.
WORLD ECONOMIC OUTLOOK PROJECTIONS
12%
10%
8%
12%
2010
2011
2012
2013
Emerging &
Developing
Economies
10%
8%
6%
4%
6%
Advanced
Economies
4%
2%
2%
0%
0%
-2%
Hundreds
Percent Change over Prior Year
Germany
Euro Area
France
UK
Italy
Source: International Monetary Fund (IMF) (October 2012 World Economic Outlook)
Spain
China
India
-2%
22
Increases in exports to non-European countries are outpacing declines to
Europe.
COLORADO EXPORT GROWTH
Percent Change over Prior Year
August 2012
120%
Eurozone -5.3%
All Other Countries 27.3%
100%
120%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
-20%
-20%
-40%
-40%
-60%
-60%
-80%
Aug-09
Source: WISERTrade
Aug-10
Note: Eurozone includes the 27 EU member countries.
Aug-11
-80%
Aug-12
23
Exports to Europe make up 19 percent of total exports from Colorado.
COLORADO EXPORTS BY TRADING PARTNER
Billions
$9
$8
$7
$6
AUGUST 2012
YEAR-TO-DATE
Percent Change
Total Trade 11.2% SHARE*
All Other
7.1
35.7%
Japan
14.7
5.4
Mexico
15.6
10.3
Canada
33.9
21.0
China
4.9
8.7
Eurozone
-5.8
19.0
$5
$4
$3
$2
$1
$0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
'11
'12
YTD through August
Source: WISERTrade
Note: Eurozone includes the 27 EU member countries. *2011 Share
24
Under current law, several tax increases and spending cuts could lead to a
slowdown in economic growth next year.
GDP & THE “FISCAL CLIFF”
Percent Change (Annualized Quarterly Rates)
4%
3%
2%
1%
0%
-1%
-2%
-3%
CBO Baseline
-4%
(Current Law)
-5%
2007 2008 2009 2010 2011
Q1
Q2
Q3
2012
Source: Bureau of Economic Analysis & Congressional Budget Office (August 2012 Projections)
Q4
Q1
Q2
Q3
Q4
2013
25
Many private forecasters expect that the fiscal cliff will be avoided and that
the U.S. economy will continue to grow at a moderate pace.
GDP & THE “FISCAL CLIFF”
Percent Change (Annualized Quarterly Rates)
4%
Blue Chip
Consensus Forecast
3%
2%
1%
0%
-1%
-2%
-3%
CBO Baseline
-4%
(Current Law)
-5%
2007 2008 2009 2010 2011
Q1
Q2
Q3
2012
Q4
Q1
Q2
Q3
Q4
2013
Source: Bureau of Economic Analysis, Congressional Budget Office (August 2012 Projections), & Blue Chip Economic Indicators (September 2012 Forecast)
26
Under current law, U.S. deficits are expected to fall sharply over the next
several years.
U.S. DEFICIT TO GDP RATIO
8%
7%
6%
5%
Debt Service Payments
4%
Spending Cuts
3%
2%
Extended Tax Policies
1%
Baseline (Current Law)
0%
2012
2013
2014
2015
2016
2017
2018
2019
2020
CBO Projections
Source: Congressional Budget Office (August 2012 Projections)
27
U.S. Federal government debt levels as a percent of GDP are projected to
fall sharply if the fiscal cliff occurs.
U.S. DEBT TO GDP RATIO
120%
120%
100%
100%
Alternative
Scenario
80%
60%
Baseline
80%
60%
(Current Law)
40%
40%
20%
20%
0%
0%
1940
1950
1960
1970
1980
1990
Source: Bureau of Economic Analysis & Congressional Budget Office (August 2012 Projections)
2000
2010
2020
28
National & Colorado
Economic Update
This presentation will be available at
http://www.kc.frb.org/denver/
Alison Felix
[email protected]