U.S. and Oklahoma

Economic Outlook

Megan Williams

Associate Economist, Oklahoma City Branch

Federal Reserve Bank of Kansas City

www.kansascityfed.org/oklahomacity

• The “Fed” consists of three main entities:

• Board of Governors: 7 members appointed by U.S. President

• Federal Reserve Banks: 12 total; semi-independent by design

• Federal Open Market Committee: 19 members; 12 voting

• As with most central banks, the Fed’s primary

responsibilities fall within four general areas:

• Lender of last resort – provide liquidity in times of crisis

• Monetary policy – promote full employment and low inflation

• Bank regulation – ensure safety and soundness of banks

• Financial services – bank for banks, bank for federal govt.

Overview of the

Federal Reserve System

Federal Reserve Districts

and Office Locations

• History, staff, and functions

• Branch office opened in 1920; currently have about 35 staff

• Functions include economic research, bank examinations, public outreach

• 2011 branch board of directors

• Steve Agee (chairman), Dean, Oklahoma City Univ. Business School, OKC

• Jim Dunn, Chairman, Mill Creek Lumber and Supply Co., Tulsa

• Jacque Fiegel, Senior EVP and COO, Coppermark Bank, OKC

• Rose Washington Rentie, Executive Director, TEDC Creative Capital, Tulsa

• Doug Tippens, President and CEO, Bank of Commerce, Yukon

• K. Vasudevan, Chairman, Service and Technology Corp., Bartlesville

The Oklahoma City Branch of the

Federal Reserve Bank of Kansas City

The U.S.

Economy

-10

-8

-6

-4

-2

0

2

4

6

2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3

Real GDP growth picked up somewhat

in Q3, but still remains moderate

U.S. Real Gross Domestic Product

Percent change from the previous period, SAAR

Source: U.S. Bureau of Economic Analysis, FOMC

1.3 0.7

4.2

10.3

3.6

-0.9

2.0 2.3 1.6

14.8

4.3

-0.1

-2

0

2

4

6

8

10

12

14

16

Total GDP Consumer spending

Residential investment

Business investment

Exports Government spending

2011 Q2

2011 Q3

Growth in Components of Real GDP

Percent change from the previous period, SAAR

Source: U.S. Bureau of Economic Analysis

Business investment was strong, exports

grew further, and consumers spent more

25

30

35

40

45

50

55

60

65

-1000

-800

-600

-400

-200

0

200

400

600

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

Private Employment (left axis)

ISM Manufacturing Index (right axis)

ISM Non-Manufacturing Index (right axis)

Change from previous month, thousands

Source: Institute for Supply Management, Bureau of Labor Statistics

U.S. Private Payroll Employment and Business Indexes

Employment growth has been modest but

business indexes remain expansionary

Index

But financial stress continues to rise in

Europe, and is beginning to spread beyond

3-month EURIBOR-OIS & LIBOR-OIS Spreads

Source: Bloomberg

Percentage points

0

0.5

1

1.5

2

2.5

3

3.5

4

0

0.5

1

1.5

2

2.5

3

3.5

4

Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11

LIBOR

EURIBOR

November 2, 2011 FOMC Statement

“To support a stronger economic recovery and to help ensure that

inflation, over time, is at levels consistent with the dual mandate,

the Committee decided today to continue its program to

extend the average maturity of its holdings of securities as

announced in September…

“The Committee is maintaining its existing policies of reinvesting

principal payments from its holdings of agency debt and

agency mortgage-backed securities in agency mortgage-

backed securities and of rolling over maturing Treasury

securities at auction… The Committee also decided to keep

the target range for the federal funds rate at 0 to 1/4 percent

and currently anticipates that economic conditions--including low

rates of resource utilization and a subdued outlook for inflation over

the medium run--are likely to warrant exceptionally low levels for

the federal funds rate at least through mid-2013…

“Voting against the action was Charles L. Evans, who supported

additional policy accommodation at this time.”

The Oklahoma

Economy

Source: U.S. Bureau of Labor Statistics

Employment Growth, Year-over-Year (percent) October 2011

There is considerable variation in economic

strength across the nation and region

3.0

0.3 0.0 1.4

0.6

2.0

1.8

-6

-5

-4

-3

-2

-1

0

1

2

3

4

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11

Year-over-year percent change

Source: U.S. Bureau of Labor Statistics

Payroll Employment

After a milder recession than the nation,

Oklahoma has been adding jobs rapidly

OK

U.S.

Percent change year-over-year

Source: Bureau of Labor Statistics

Employment Growth October 2011

Most Oklahoma sectors have grown solidly

in 2011, led by energy and manufacturing

-4

-2

0

2

4

6

8

10

12

14

Total Energy Mfg Const Prof & Bus Svcs

Leis & Hosp

Finance Educ & Health

Trade, Transp.

& Utilities

State & Local Govt

Info

U.S.

OK

Unemployment Rate Seasonally Adjusted

Percent

Source: Bureau of Labor Statistics

Yet state unemployment has risen, as

discouraged workers resume job hunting

0

2

4

6

8

10

12

0

2

4

6

8

10

12

Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11

OK

U.S.

May: 5.3%

October: 6.1%

Percent

Source: U.S. Bureau of Labor Statistics

Change in Employment Since January 2008 Seasonally Adjusted

Oklahoma employment is now essentially

back to pre-recession levels, except in Tulsa

-4.7

-1.1

-0.1

-3.8

0.1

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

U.S. OK OKC Metro

Tulsa Metro

Rest of State

Percent

Source: FDIC

Noncurrent Loans as a Share of Total Loans Commercial Banks

Problem loans are still elevated, but OK

banks remain in better shape than the U.S.

0

1

2

3

4

5

6

0

1

2

3

4

5

6

Q3 2001 Q3 2002 Q3 2003 Q3 2004 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011

U.S.

OK

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

District NE KS MO Mtn States (CO, NM,

WY)

OK

Q1 2011

Q2 2011

Q3 2011

Source: FRBKC Agricultural Credit Survey

Tenth District Non-Irrigated Cropland Values Percent Change, Year-over-year

Surging farmland prices pose a potential

risk, particularly in the upper Mid-West

Percent

0

30

60

90

120

150

0

3

6

9

12

15

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

WTI Oil

Brent Oil

Natural Gas

$/MMBTU $ per Barrel

Source: Bloomberg

Energy Prices

Energy prices are always OK’s biggest risk,

and prices have moved quite a bit recently

The U.S. economy is growing

moderately but is facing headwinds

from Europe

Oklahoma’s growth has been very

strong in 2011, and fundamentals

remain fairly solid

Summary