Tenth Federal Reserve District Economic Outlook

Tenth Federal Reserve District Economic Outlook

GIC’s Central Banking Series Conference Fayetteville, Arkansas November 6, 2017 George A. Kahn

Vice President and Economist

Tenth District outlook themes

•

Tenth District growth remains slower than the nation.

•

Tenth District economic growth improved this year, following two difficult years in 2015-16.

•

Tenth District unemployment rates began falling again earlier this year, coinciding with rising wage pressures.

•

A strong rebound in oil and gas helped in H1 2017, but energy activity was slowing before the hurricanes.

2

Several District states grew slower compared to the nation.

SEPTEMBER 2017 TOTAL NONFARM EMPLOYMENT Year-over-Year Percent Change, Seasonally Adjusted

-1.1% 1.6% 1.0%

1.5% -0.4% 1.3% 1.1%

Percent Change Year-over-Year Over 3% 2 to 3 1 to 2 0 to 1 Below 0%

United States 1.2%

Source: Bureau of Labor Statistics.

3

Unemployment rates are around or below the national average in most of the District.

SEPTEMBER 2017 UNEMPLOYMENT RATE

Seasonally Adjusted

4.5% 2.5% 6.2%

2.8% 3.8% 3.8% 4.0%

Over 6% 5 to 6 4 to 5 3 to 4 Below 3%

United States 4.2%

Source: Bureau of Labor Statistics.

4

District unemployment began falling again earlier this year, and wage pressures have risen.

WAGE PRESSURES VS. AVERAGE HOURLY EARNINGS

3-Month Moving Average % of firms

%

60

6

55

5

Tenth District unemployment rate (R)

50

4

45

Services Survey wage pressures (L)

40

3

35

2

30 Tenth District average hourly earnings growth (R)

25 20 Mar-14

Sep-14

Mar-15

Source: Bureau of Labor Statistics, FRBKC Services Survey.

Sep-15

Mar-16

Sep-16

1

Mar-17

0 Sep-17

5

Professional and business services added the most jobs, while the largest declines occurred in state and local government and information.

SEPTEMBER 2017 PAYROLL EMPLOYMENT Seasonally Adjusted

Percent Change Year-over-Year

Natural Resources and Mining Professional and Business Services

3.9%

Tenth District United States

2.7%

Share of District Jobs 1.9% 13.2%

Educational and Health Services

1.9%

14.1%

Financial Activities

1.7%

5.8%

1.3%

Leisure and Hospitality

10.8%

0.9% 0.8%

4.5%

Federal Government

0.5%

2.2%

Other Services

0.4%

3.8%

Wholesale Trade

0.3%

3.8%

Construction Manufacturing

7.5%

Transportation and Utilities

-0.1%

3.8%

Retail Trade

-0.1%

Local Government

-0.2%

10.7%

State Government

-0.7%

Information

-0.9%

Source: Bureau of Labor Statistics/Haver Analytics.

11.5% 4.5% 1.9% 6

Manufacturing activity continues to expand in the U.S. and District, after contracting in the region most of the past year.

MANUFACTURING ACTIVITY

Diffusion Index, Seasonally Adjusted, 3-Month Moving Average 65

Expanding

60

Mfg. Activity ISM FRBKC

65

September 2017 60.8 58.5

60

55

55

50

50

45

45 ISM FRBKC OK/WY

40

Contracting 35 Sep-13

Mar-14

Sep-14

Mar-15

Sep-15

Mar-16

Source: Institute for Supply Management & Federal Reserve Bank of Kansas City/Haver Analytics.

Sep-16

Mar-17

40

35 Sep-17 7

Capital Spending plans are favorable in most District industries, and less negative in ag.

TENTH DISTRICT SURVEYS CAPITAL SPENDING INDEXES 6-Month Ahead, Diffusion Index

100

100 80

Energy

80

60

60

40

40 Manufacturing

20

Services

20 0

0 -20

-20

-40

-40

-60

-60

-80

-80

-100

Agriculture

Q3-07

Q3-08

Source: FRBKC Surveys.

Q3-09

Q3-10

Q3-11

Q3-12

Q3-13

Q3-14

Q3-15

Q3-16

Q3-17

-100

8

Oil prices remain profitable for some District firms, but are expected to stay around $50.

TENTH DISTRICT ENERGY SURVEY OIL PROFITABLE PRICE AND NEAR-TERM EXPECTATIONS $/Barrel

$/Barrel

110

110 WTI Prices & Futures Profitable WTI Price (avg) Expected WTI Price (avg) Expected WTI Price (1 SD) Expected WTI Price (range)

100 90 80

100 90 80

70

70

60

60

1 standard deviation

50

50

40

40 Min. breakeven price

30 20

Q3 2014

Q1 2015

Source: FRBKC Energy Survey, EIA, CME.

Q3 2015

Q1 2016

Q3 2016

Q1 2017

Q3 2017

30 Q1 2018

Q3 2018

20

9

U.S. energy activity was slowing even before the hurricanes, albeit from a high level.

U.S. RIG COUNT VS. EMPLOYMENT Thousands

# of rigs

750

2,400

700

2,100

650

U.S. oil & gas employees (left)

1,800

U.S. effective rig count (right)

600

1,500

550

1,200

500

900

450 400 350 Jan-14

600

U.S. actual rig count (right)

Jul-14

Jan-15

Source: Bureau of Labor Statistics, Baker Hughes, EIA, Staff.

Jul-15

300 Jan-16

Jul-16

Jan-17

Jul-17

0

10

The anticipated impact from hurricanes on regional factories and energy activity was mostly moderate.

WHAT TYPE OF IMPACT IS YOUR FIRM ANTICIPATING AS A RESULT OF HURRICANES HARVEY AND/OR IRMA? %

ESTIMATED DURATION OF IMPACT FROM HURRICANE HARVEY Avg. # of weeks 10

50 45

9

40

8

35

7

30

6

25

5

20

4

15

3

10

2

5

1

0

0 Strong negative impact

Moderate No impact Moderate negative positive impact impact

Source: FRBKC Surveys.

Strong positive impact

Upstream Offshore

Upstream Pipelines/ Refineries Trade OnShore Transportation (Imports/Exports)

11

Agricultural prices continue to drift down, creating difficulties for farmers and rural areas.

CROP AND LIVESTOCK SPOT PRICES 14

$/bushel

$/hundredweight

Cattle (R)

12 10

Hogs (R)

8

120 100 80

6

60

4

Corn (L)

40

2

Source: USDA, Haver.

160 140

Wheat (L)

0 Oct-07

180

20 Oct-09

Oct-11

Oct-13

Oct-15

0 Oct-17 12

Farmland values are declining as a result of sustained declines in farm income.

DISTRICT FARMLAND VALUES Percent Change from Previous Year 35

35

Nonirrigated Irrigated Ranchland

30 25

30 25

20

20

15

15

10

10

5

5

0

0

-5

-5

-10

-10

2002

2005

Source: FRBKC Ag Credit Survey.

2008

2011

2014

2017

13

Summary • The labor market continues to tighten.

• District growth remains slower than the nation.

• A strong rebound in oil and gas helped in H1 2017, but energy activity has leveled off.

• Low levels of ag and energy commodity prices are expected in the near term.

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