Chad Wilkerson - Federal Reserve Bank of Kansas City · •Functions – 40 staff • Economic...
Transcript of Chad Wilkerson - Federal Reserve Bank of Kansas City · •Functions – 40 staff • Economic...
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Chad Wilkerson Oklahoma City Branch Executive and Economist
Federal Reserve Bank of Kansas City www.kansascityfed.org/oklahomacity
Risk Management Association December 11, 2012
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Federal Reserve Districts and Office Locations
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• Functions – 40 staff
• Economic research and outreach for U.S. monetary policy purposes • Examinations and inspections of Oklahoma financial institutions • Economic and financial education outreach to teachers and citizens • Community development outreach to low and moderate income areas
• 2013 board of directors
• Jim Dunn (chair), Chairman, Mill Creek Lumber & Supply, Tulsa • Paula Bryant-Ellis, COO, BOK Financial Mortgage Group, Tulsa • Linda Capps, Vice Chairman, Citizen Potawatomi Nation, Shawnee • Michael Coffman, CEO, Panhandle Oil & Gas, Inc., Oklahoma City • Pete Delaney, Chairman & CEO, OGE Energy Corp., Oklahoma City • Doug Tippens, President & CEO, Bank of Commerce, Yukon • K. Vasudevan, Chairman, Service & Technology Corp., Bartlesville
The Oklahoma City Branch of the Federal Reserve Bank of Kansas City
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• U.S. economic growth has been modest, as business investment and exports have waned • How the fiscal cliff is resolved has bearing on both near-term growth and long-term debt
• The range of views among FOMC members about monetary policy remains relatively wide
The U.S. Economy
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2.0 2.4
20.5
7.5
4.4
-3.0
1.3 1.5
8.5
3.6 5.3
-0.7
2.7 1.4
14.2
-2.2
1.1
3.5
-5
0
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10
15
20
25
Total GDP Consumerspending
Residentialinvestment
Businessinvestment
Exports Governmentspending
2012 Q1
2012 Q2
2012 Q3
Growth in Components of Real GDP
Percent change from the previous period, SAAR
Source: U.S. Bureau of Economic Analysis, Macroeconomic Advisors
GDP growth rebounded somewhat in Q3, but business spending weakened
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60
65
-1000
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-600
-400
-200
0
200
400
600
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
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
Early fourth quarter data has been mixed, but suggestive of further modest growth
Index
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-2
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-1
0
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2
3
4
5
6
Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12
European Financial Stress Index
U.S. Financial Stress Index
Financial stress in Europe remains elevated, but has improved lately
Eurozone and U.S. Financial Stress
Source: FRBKC
Index
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-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
Sequestration - $110 bn
Tax extenders - $20 bn
Payroll tax - $120 bn
Bush tax cuts - $180 bn
AMT - $120 bn
Obamacare - $20 bn
Business expensing - $10 bn
Medicare doc fix - $20 bn Other - $40 bn
Initial debt plan - $40 bn
Pending tax increases
Pending expiring programs
Pending spending cuts
Components of the “Fiscal Cliff” In dollars and as a share of GDP
Percent of GDP
Source: Merrill Lynch
The potential “fiscal cliff” of $720B+ and 4%+ of GDP is weighing on the economy
Extended UI - $40 bn
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Economic forecasters assume most of the fiscal cliff will be avoided, without recession
Sources: Blue Chip Economic Indicators, Congressional Budget Office, Haver Analytics
Real GDP Projections
-5
-4
-3
-2
-1
0
1
2
3
4
2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4
Real GDP, under CBO fiscal cliff scenario
Real GDP, Blue Chip forecasts
Percent change, quarter-over-quarter (SAAR)
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However, avoiding fiscal changes means further increases in the national debt
Source: Congressional Budget Office
Federal Debt as a Share of GDP
0
20
40
60
80
100
120
0
20
40
60
80
100
120
1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Actual Projected
Alternative Fiscal
Scenario (no cliff)
Percent
CBO’s Baseline
Projection (full cliff)
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Fiscal cliff components would have varying effects on GDP and the federal deficit in 2013
Source: Moody’s Analytics
Implied Multipliers on GDP and the Federal Deficit 2013
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Emergency UI
Sequestration Bush taxcuts (below
$250K)
Payroll taxholiday
AMT patch Bush tax cuts (above
$250K)
Affordable CareAct
Medicaredoc fix
Bonusdepreciation
Tax extenders
Ratio of GDP to deficit decline
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Unemployment Rate Seasonally Adjusted
Percent
Source: U.S. Bureau of Labor Statistics, FOMC
0
2
4
6
8
10
12
0
2
4
6
8
10
12
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Sept. FOMC Forecast Ranges in Yellow
At its Sept. meeting, the FOMC expected unemployment to gradually improve
Long Term
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PCE Inflation Index
Percent change, year-over-year
Source: U.S. Bureau of Economic Analysis, FOMC
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1
2
3
4
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6
7
8
0
1
2
3
4
5
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7
8
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Sept. FOMC Forecast Ranges in Yellow
And for inflation to remain at or near its long-term target through 2015
Long Term
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0
2
4
6
8
10
12
0
2
4
6
8
10
12
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
(1)
(3)
(2)
(12)
Federal Funds Rate Year-end target
Percent
Source: U.S. Bureau of Economic Analysis, FOMC
Sept. FOMC Forecast Ranges in Yellow
On monetary policy, over a third of FOMC participants disagree about timing
Long Term
Note – Number of participants who project the initial increase will occur in the specified year in parenthesis
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• Oklahoma’s economy continues to outperform the nation in 2012 • Energy intensive areas have done well, and housing is picking up
• But recently slower energy activity and the looming fiscal cliff are risks
The Oklahoma Economy
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92
94
96
98
100
102
92
94
96
98
100
102
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Index: Jan-08=100
Source: U.S. Bureau of Labor Statistics
Level of Payroll Employment Through October 2012
Unlike the nation, employment has risen above pre-recession levels in Oklahoma
OK
U.S.
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Source: U.S. Bureau of Labor Statistics
Unemployment Rates (percent) October 2012
Unemployment is lowest in energy and agriculture states, highest on the coasts
5.3
U.S. = 7.9
7.9
5.2 3.8
5.7 6.9
6.3
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Source: OK Employment Security Commission
Unemployment is below national levels in all but 4 (southeast) Oklahoma counties
County Unemployment Rates September 2012
2.3% – 4.2%
4.3% – 6.2%
6.3% – 9.9%
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Source: Baker Hughes
Location of Active Drilling Rigs in Oklahoma Nov. 21, 2012
The location of current oil activity overlaps very closely with county unemployment
Oil
Gas
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-16
-12
-8
-4
0
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12
16
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24
Total Leis &Hosp
Info Prof &BusSvcs
State &LocalGovt
Trade &Transp.
FedGovt
Finance Const Mfg Educ &Health
Energy
Q1 2012 Q2 2012 Q3 2012 Oct-12*
Percent change, quarter-to-quarter, annualized
*Compared to Q3 2012
Oklahoma Employment Growth by Industry
Most industries in the state have continued to add jobs, but energy has shed jobs lately
Source: Bureau of Labor Statistics
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Number of rigs
Source: Baker Hughes
Oklahoma Rig Count Seasonally Adjusted
The state rig count is down from summer highs, as gas prices remain too low
0
50
100
150
200
250
0
50
100
150
200
250
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12
Oil
Natural Gas
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Diffusion Index
Source: ISM, Federal Reserve Banks
Manufacturing Month-over-Month PMI Indexes Seasonally Adjusted
Regional manufacturing activity has also slowed in recent months
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
KC FedISMNY, Philly, Rich, Dallas Avg.
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Diffusion Index
Source: ISM, Federal Reserve Banks
Manufacturing 6-Month Ahead Indexes Seasonally Adjusted
Factory expectations have also eased, but remain positive except for hiring
-40
-30
-20
-10
0
10
20
30
40
50
-40
-30
-20
-10
0
10
20
30
40
50
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
ProductionEmploymentCapital Spending
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3.4 2.3 2.8 2.1 2.2
1.3 1.5 1.7
9.1 9.8 9.3
6.6 4.6
4.9 4.6 3.8
0
2
4
6
8
10
12
14
U.S. NE KS MO CO WY OK NM
Rest of World
Europe
Exports as Share of GDP, 2010 U.S. and Tenth District states
Percent
Sources: U.S. Bureau of Economic Analysis, USDA, WISERTRADE
Exposure to Europe is much less in Oklahoma than in the nation or even region
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Federal Expenditures Per Capita, Fiscal Year 2010 U.S. and Tenth District states
Percent
Sources: U.S. Census Bureau, Consolidated Federal Funds Report
Exposure to the “fiscal cliff” is probably about average in Oklahoma as a whole
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
U.S. NM MO WY OK KS CO NE
Salaries & WagesProcurement ContractsGrantsOther Direct PaymentsRetirement & Disability
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0
150
300
450
600
750
900
1,050
1,200
1,350
1,500
0
16,000
32,000
48,000
64,000
80,000
96,000
112,000
128,000
144,000
160,000
Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12
US (left)OK (right)
Number, 3-month moving avg.
Single-Family Housing Permits Seasonally adjusted
On the positive side, housing activity has grown strongly in Oklahoma the past year
Source: U.S. Census Bureau
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65
70
75
80
85
90
95
100
105
110
65
70
75
80
85
90
95
100
105
110
2002Q3 2004Q3 2006Q3 2008Q3 2010Q3 2012Q3
OK
U.S.
Index: 2007Q1=100
Source: FHFA
Home Price Index Purchase-Only
Oklahoma home prices are edging up, and unlike U.S. are higher than pre-recession
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Percent
Source: FDIC
Noncurrent Loans as a Share of Total Loans Commercial Banks
Past due loans still remain much more elevated in the U.S. than Oklahoma
0
1
2
3
4
5
6
0
1
2
3
4
5
6
Q3 2002 Q3 2003 Q3 2004 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q2 2013
U.S.
OK
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Percent
Source: FDIC
Share of Unprofitable Institutions Commercial Banks
And the share of unprofitable banks in Oklahoma is basically back to “normal”
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
Q3 2002 Q3 2003 Q3 2004 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q2 2013
U.S.
OK
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0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
District NE MO KS Mtn States (CO, NM,
WY)
OK
Q1 2012Q2 2012Q3 2012
Source: FRBKC Agricultural Credit Survey
Tenth District Non-Irrigated Cropland Values Percent Change, Year-over-year
Regional farmland values are still up considerably from year-ago levels
Percent
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Recent U.S. economic growth has
been modest, with low inflation, as fiscal concerns remain a focus
Oklahoma economic activity remains
relatively solid, but low gas prices have hurt and the fiscal cliff looms
Summary
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For more information about the Oklahoma and Kansas economies, subscribe to the quarterly Oklahoma Economist
for Oklahoma and the Midwest Economist for Kansas at: www.kansascityfed.org/publications/research/oke
Questions?