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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