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.

U.S. & Colorado Economic Update

Alison Felix Economist & Branch Executive

Federal Reserve Bank of Kansas City Denver Branch

Overview of the Federal Reserve System

• Primary Functions – Monetary Policy: promote full employment and price stability

– Payments Services: bank for banks; bank for federal government

– Banking Supervision and Regulation: ensure safety and soundness of banks

• 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 165 employees

4

The U.S. economy expanded at a solid pace in the second half of 2014, and growth is expected to continue at a similar pace this year.

5 Source: Bureau of Economic Analysis and Federal Open Market Committee (FOMC)/Haver Analytics

*Note: Projections as of March FOMC meeting

0.1%

2.7%

1.8%

4.5%

3.5%

-2.1%

4.6% 5.0%

2.2% 2.7% 2.7%

2.4%

2.3% 2.3% 2.0%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

'12Q4 '13Q1 '13Q2 '13Q3 '13Q4 '14Q1 '14Q2 '14Q3 '14Q4 2015 2016 2017

HighLow

FOMC Central Tendency

Projections*

REAL U.S. GROSS DOMESTIC PRODUCT Percent Change from Previous Quarter at Seasonally Adjusted Annualized Rates

4.6%

9.6%

4.9%

5.5% 5.1%

3.8%

8.8%

4.2%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2007 2008 2009 2010 2011 2012 2013 2014 Feb Mar 2015 2016

2015

Unemployment rates have declined sharply in the U.S. and Colorado and are expected to decline further as the economic recovery strengthens.

6 Source: Bureau of Labor Statistics & Federal Reserve Board *March2015 Projections.

UNEMPLOYMENT RATES Seasonally Adjusted

FOMC

Central Tendency Projections*

United States

Colorado

-2%

0%

2%

4%

6%

Feb. '05 Feb. '07 Feb. '09 Feb. '11 Feb. '13 Feb. '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.

7 Source: Bureau of Economic Analytics

Headline Inflation

Core Inflation

FOMC’s Target

Inflation Rate

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

8 Source: Federal Reserve Board

EFFECTIVE FEDERAL FUNDS RATE

“To support continued progress toward maximum employment and price stability, the

Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the

federal funds rate remains appropriate… Consistent with its previous statement, the

Committee judges that an increase in the target range for the federal funds rate remains unlikely

at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the

target range for the federal funds rate when it has seen further improvement in the labor

market and is reasonably confident that inflation will move back to its 2 percent objective over

the medium term.”

- March 2015 FOMC Statement

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

$4

$5

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

$4

$5

2009 2010 2011 2012 2013 2014 2015

FEDERAL RESERVE BALANCE SHEET Trillions Trillions

9 Source: Federal Reserve Board

Traditional Portfolio

Currency in Circulation

Reserves Other

Federal Agency & Mortgage-Backed

Securities

Foreign Currency Swaps

Short-Term Lending

Assets

Liabilities

“The Committee 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 and of rolling

over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of

longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

- March 2015 FOMC Statement

Most states have experienced positive job growth over the past year.

10 Source: Bureau of Labor Statistics/Haver Analytics

PAYROLL EMPLOYMENT, MARCH 2015

Year-over-Year Percent Change, Seasonally Adjusted

Over 3%

2 to 3

1 to 2

0 to 1

-1 to 0

United States

2.3%

2.8%

95

100

105

110

115

120

125

Mar. '05 Mar. '07 Mar. '09 Mar. '11 Mar. '13 Mar. '15

Employment has been increasing in Colorado and in the nation for more than four years, with Colorado gains outpacing the nation.

11 Source: Bureau of Labor Statistics

PAYROLL EMPLOYMENT GROWTH

Index 100 = March 2005, Seasonally Adjusted Percent Change Past 10 Years

Past Year

Dec. ‘07 to

Current

U.S. 6.1% 2.3% 2.0%

CO 13.2% 2.8% 6.5%

United States

Colorado

10.4%

8.9%

5.2%

4.2%

3.5%

3.3%

3.0%

2.8%

2.4%

1.7%

1.0%

0.8%

0.7%

0.6%

0.4%

-2.3%

Construction

Natural Resources & Mining

Health Care & Social Assistance

Leisure & Hospitality

Transportation & Utilities

Manufacturing

Private Educational Services

Financial Activities

Wholesale Trade

Local Government

Professional & Business Services

Retail Trade

Other Services

State Government

Federal Government

Information

Job gains have been broad-based across industries in the U.S. and Colorado over the past year.

12 Source: Bureau of Labor Statistics

CHANGE IN PAYROLL EMPLOYMENT, MARCH 2015 Seasonally Adjusted

Percent Change Year-over-Year

United States

Colorado

Top Performing Industries

Worst Performing Industries

Parts of Colorado continue to experience strong population growth and net in-migration.

13 Source: Census Bureau

NET MIGRATION POPULATION GROWTH

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%

0

20

40

60

80

100

120

140

Feb. '05 Feb. '07 Feb. '09 Feb. '11 Feb. '13 Feb. '15

Residential construction activity has picked up over the last few years, but remains well below pre-recession levels.

14 Source: McGraw Hill/F.W. Dodge

VALUE OF RESIDENTIAL CONSTRUCTION

Index 100 = February 2005, Seasonally Adjusted Three-Month Moving Average

United States

Colorado

The residential construction sector is recovering, led by strong gains in multifamily building.

15 Source: Census Bureau/Haver Analytics

RESIDENTIAL PERMITS Seasonally Adjusted

Single Family

Multifamily

0

2,000

4,000

6,000

Feb. '05 Feb. '10 Feb. '150

700

1,400

2,100

Feb. '05 Feb. '10 Feb. '15

Colorado Denver

Home prices are rising in most states...

16 Source: Federal Housing Finance Agency

FHFA PURCHASE-ONLY HOME PRICE INDEX (2014Q4)

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%

7.9%

United States

4.9%

…yet prices remain below pre-recession values in many states.

17 Source: Federal Housing Finance Agency

FHFA PURCHASE-ONLY HOME PRICE INDEX (2007Q1 – 2014Q4)

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

-4.9%

19.2% Over 20%

10 to 20

0 to 10

-10 to 0

-20 to -10

Below -20%

Expanding

Contracting

Manufacturing activity has slowed in recent months.

18 Source: Institute for Supply Management & Federal Reserve Bank of Kansas City

MANUFACTURING ACTIVITY Diffusion Index, Seasonally Adjusted, Month-over-Month

U.S. 51.5 March 2015

Kansas City 47.8

District March 2015

30

35

40

45

50

55

60

65

Mar. '05 Mar. '07 Mar. '09 Mar. '11 Mar. '13 Mar. '15

Tourism activity has picked up in Colorado over the past year.

19 Source: Colorado Hotel and Lodging Association, Denver International Airport

HOTEL OCCUPANCY RATES Colorado

90

100

110

120

130

140

Feb. '05 Feb. '10 Feb. '15

Denver International

Airport

AIRPORT TRAFFIC Seasonally Adjusted, Index 100 = February 2005

United States

65.0% 64.8% 59.0%

30%

40%

50%

60%

70%

80%

90%

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Aug

Sep

t

Oct

No

v

Dec

10-Year Range

2015201410-Year Average

YTD

Average

Drilling rigs have fallen sharply in recent months, but oil production continues to increase.

20 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

0

2

4

6

8

Jan. '05 Jan. '10 Jan. '15

Colorado – Right Axis

United States – Left Axis

0

10

20

30

40

50

0

400

800

1,200

1,600

2,000

'08 '09 '10 '11 '12 '13 '14 '15

Colorado –

Right Axis

United States –

Left Axis

Energy firms expect additional declines in drilling, profits and employment over the next six months.

21 Source: FRBKC Energy Survey

-100

-80

-60

-40

-20

0

20

40

60

Q12014

Q22014

Q32014

Q42014

Q12015

Q32015 (exp)

Drilling/BusinessActivityAccess to Credit

Profits-100

-80

-60

-40

-20

0

20

40

60

Q12014

Q22014

Q32014

Q42014

Q12015

Q32015(exp)

Employment

Employee Hours

Wages/Benefits

FRBKC ENERGY SURVEY Quarterly Diffusion Indexes

Breakeven oil prices have fallen as productivity rises and costs decline.

22 Source: Energy Information Administration, Reuters

REPORTED BREAKEVEN OIL PRICES AND WTI PRICE EXPECTATIONS Diffusion Index, Seasonally Adjusted, Month-over-Month

$/Barrel

40

60

80

100

120

40

60

80

100

120

Jan. '14 May. '14 Sep. '14 Jan. '15 May. '15 Sep. '15 Jan. '16 May. '16 Sep. '16

April 3 WTI Futures

WTI

Energy Survey

avg. breakeven

in late Sept.

2014 - $79

Dec. 2014 exp.

year-end 2015

WTI price - $70

Late Mar. 2015

avg. breakeven -

$62

Mar. 2015 exp.

year-end 2015 WTI

price - $56

$/Barrel

Crop prices remain low, while cattle prices may have peaked.

23 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

Mar. '09 Mar. '11 Mar. '13 Mar. '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

Mar. '09 Mar. '11 Mar. '13 Mar. '15

Feeder Cattle

Live Cattle

Note: Feeder Cattle are 750-800lbs

U.S. real net farm income is projected to decline 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

For additional information on the regional economy:

http://www.KansasCityFed.org/Denver