Federal Reserve Bank of Kansas City - Nathan …...Nathan Kauffman Assistant Vice President and...

Nathan Kauffman Assistant Vice President and Omaha Branch Executive Federal Reserve Bank of Kansas City November 7, 2013

The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha

• Nebraska Economic Outlook • U.S. Economic Outlook • Weight of Uncertainty • Monetary Policy


U.S. and Nebraska Real GDP

Index (2000 = 100)

Source: Bureau of Economic Analysis

-4-3-2-10123456

100

105

110

115

120

125

130

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S. (Right Scale) Neb. (Right Scale)U.S. (Left Scale) Neb. (Left Scale)

Percent change from a year ago


Source: Bureau of Labor Statistics

Percent

Unemployment Rate by State

0 1 2 3 4 5 6 7 8

1. North Dakota2. South Dakota

3. Nebraska4. Hawaii

5. Vermont6. Wyoming

7. Utah8. Iowa

9. New Hampshire10. MinnesotaUnited States


-3.0-2.0-1.00.01.02.03.04.05.0

US: Aug. '13 NE: Aug. '12 NE: Aug. '13

Source: Bureau of Labor Statistics Numbers in parentheses indicate industry’s share of employment in Nebraska.

Employment Growth in Nebraska Percent change from previous year


-10-8-6-4-20246810

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1 2013:Q1

Manufactured Exports (Left Scale)

Manufacturing Employment (Right Scale)

Billion Dollars Percent change from year ago

Nebraska Manufactured Exports and Employment Growth

Source: Bureau of Labor Statistics and WISERTrade


Source: Residential Realtor Reports * Average price of all residential homes. ** Average price of single family homes.

Average Omaha and Lincoln Home Prices

100,000

125,000

150,000

175,000

200,000

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Lincoln*Omaha**

Dollars


2

4

6

8

10

12

14

2

4

6

8

10

12

14

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

OmahaLincoln

Months (seasonally adjusted)

Source: Residential Realtors’ Reports

Months Supply of Existing Homes for Sale


1.5

1.7

1.9

2.1

2.3

2.5

2.7

1.5

1.7

1.9

2.1

2.3

2.5

2.7

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013201220112010

Source: Nebraska Department of Revenue

Nebraska Net Taxable Retail Sales

Billion dollars


020406080100120140160180200

020406080

100120140160180200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Actual Farm Income Expected Farm Income

Nebraska Farm Income Diffusion Index*

Source: Federal Reserve Bank of Kansas City * Bankers responded to each item by indicating whether conditions during the current quarter were higher than, lower than, or the same as in the year-earlier period. The index numbers are computed by subtracting the percent of bankers that responded "lower" from the percent that responded "higher" and adding 100.


Kansas 22.5%

Source: Federal Reserve District Agricultural Credit Surveys (Chicago, Minneapolis, Kansas City, Dallas) Note: Tenth District (in orange) numbers reflect Third Quarter Gains. All other districts reflect second quarter gains.

Nebraska 13.1%

Northern Louisiana

1.5% Texas 2.2%

Oklahoma 12.2%

Wyoming Colorado Northern

New Mexico 21.2%

Iowa 18.0%

Montana 9.1%

Western Missouri 27.2%

Northern Indiana 21.0%

North Dakota 25.5%

South Dakota 23.0%

Minnesota 23.1%

Southern Wisconsin

7.0%

Northern Illinois 17.0%

Non-Irrigated Cropland Value Gains

Percent change from prior year


U.S. Economic outlook


-10

-8

-6

-4

-2

0

2

4

6

-10

-8

-6

-4

-2

0

2

4

6

2007 2008 2009 2010 2011 2012 2013 2014

Change from previous quarterChange from year ago

Calculations based on BEA and Blue Chip Forecast October 2013

Percent change from year ago

U.S. Real GDP Growth

Blue Chip Forecast


-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2010 Annual 2011 Annual 2012 Annual 2013:Q1 2013:Q2

Private Investment Personal Consumption Government Net Exports

Annual percent change


Contribution to U.S. Real GDP Growth


Exports

Commodities

Manufacturing

Housing

Consumer Spending

Booming sectors plateau in 2012

A Rebound in Household Spending The Wildcards

Investment

Government


Consumer Spending and Sentiment Percent change from a year ago

Source: Bureau of Economic Analysis and The Conference Board

20406080100120140160180200

-8-6-4-202468

10Personal Consumption Expenditures (Left scale)Consumer Confidence (Right scale)

Index


-80-60-40-20020406080100

20406080

100120140160180200

2006 2007 2008 2009 2010 2011 2012 2013

Case Shiller U.S. Home Price Index (Left scale)

Single-Family Housing Starts (Right scale)

Multi-Family Housing Starts (Right scale)

Case-Shiller Home Price Index and Housing Starts Percent change from previous year

Source: Census Bureau and Case-Shiller

Index


-40-30-20-100102030405060

3035404550556065707580

2006 2007 2008 2009 2010 2011 2012 2013

ISM Manufacturing Composite Index (Left scale)

Net Exports (Right scale)

Real U.S. Net Exports and Manufacturing

Percent change from previous year

Source: Bureau of Economic Analysis and Institute for Supply Management

Index


Percent of GDP

Source: Congressional Budget Office

Federal Government Debt as a Percent of GDP

020406080

100120140160180200

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013

2017

2021

2025

2029

2033

2037

ActualExtended BaselineAlternative Scenario


Uncertainty has weighed on the economy.


1. Government Shutdown 2. Affordable Care Act 3. Debt Ceiling 4. Middle East 5. Farm Bill 6. Federal Reserve Chair 7. Regulatory Environment


Risk Uncertainty


Risk Uncertainty Probability (Percent)

0

5

10

15

20

1 2 3 4 5 6 7 8 9 10

Probability (Percent)

1 2 3 4 5 6 7 8 9 10

?


0

10

20

30

40

50

60

70

Debt Ceiling Debates

Lehman

CBOE Volatility Index (VIX)

Source: Yahoo! Finance

The “Fear” Index


Index of Economic Policy Uncertainty

B) Black Monday C) 1st Gulf War G) 9/11 H) 2nd Gulf War J) Lehman N) Debt Ceiling Debates


Occurrences of “uncertain” in Fed District Beige Books

Source: Federal Reserve Board of Governors

05

101520253035404550

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13

Instances of Use 2006 Average


1. “… national economic and political conditions lend uncertainty and downside risks to the outlook.”

2. “…firms continued to expand cautiously, as they face ongoing uncertainty.”

3. “…most bankers remained optimistic, although they expressed uncertainty on behalf of their business customers…”

4. “Defense contractors are still coping with uncertainty…” 5. [Producers] “…will not proceed because of uncertainty about

the economy…” 6. “Builders are uncertain about the effect of rising interest

rates…” Source: Federal Reserve Board of Governors


Monetary Policy


Sustainable Economic Growth

Price Stability

Foundation based on the Phillips Curve


-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Overall PCE Price IndexPCE Price Index - Excluding Food and Energy

Personal Consumption Expenditures Price Index

Percent change from previous year



0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Five year, Five year Ahead Breakeven Inflation Rate

Percent

Source: Haver Analytics


0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

2000 2002 2004 2006 2008 2010 2012

Fed Funds 1-Year Treasury10-year Treasury 5-Year Treasury

Percent

Source: Federal Reserve

Fed Funds Rate and Treasury Yields


2

3

4

5

6

7

8

9

2

3

4

5

6

7

8

9

2000 2002 2004 2006 2008 2010 2012

Percent

30-year Conventional Fixed Mortgage Rate



Federal Reserve Balance Sheet: Assets

Billion Dollars

0

500

1000

1500

2000

2500

3000

3500

4000


Fed Agency Debt MBS Purchases Liquidity to Key Credit MarketsLending to Financial Institutions Long Term Treasury PurchasesTraditional Security Holdings




Growth in Monetary Aggregates Index (Jan 2000=100)

100

200

300

400

500

600

700

100

150

200

250

300

350

400

450

500


M2Monetary Base

QE1

QE2

QE3


Appropriate Pace of Policy Firming Target Federal Funds Rate at Year-End

0

1

2

3

4

5

6

Source: Federal Reserve Board, Summary of Economic Projections, September 2013

Percent

2013 2014 2015 Longer Run


Modest growth in Nebraska supported by housing, manufacturing, and agriculture. Concerns in agriculture.

The U.S. economy continues to grow slowly, but

uncertainty may be hindering growth. Housing and consumer spending provide support. Government spending and investment remain questionable.

Fed continues asset purchases with inflation

remaining low.

For More Information on

The Midwestern Economy and Rural America

www.kansascityfed.org/omaha

Federal Reserve Bank of Kansas City - Nathan …...Nathan Kauffman Assistant Vice President and...

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