emerging trends in the regional economy · – economic, financial education, and community...

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.

Emerging Trends in the Regional Economy

Alison Felix Economist & Branch Executive

Federal Reserve Bank of Kansas City Denver Branch

Overview of the Federal Reserve System

• Primary Functions – Monetary Policy: promote maximum employment, price stability and moderate

long-term interest rates

– Financial Services: bank for banks; bank for the federal government

– Banking Supervision and Regulation: ensure safety and soundness of banks and ensure that banks provide fair and equitable services to consumers.

• 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 150 employees

4

Despite weak growth in the first quarter, the U.S. economy bounced back in the second quarter and is expected to continue to expand at a moderate pace.

5 Source: Bureau of Economic Analysis and Federal Open Market Committee (FOMC)/Haver Analytics *Note: Projections as of September FOMC meeting

1.1%

3.0% 3.8%

-0.9%

4.6% 4.3%

2.1%

0.6%

3.9%

2.3% 2.6% 2.4%

2.0% 2.2% 2.0%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

'13Q2 '13Q3 '13Q4 '14Q1 '14Q2 '14Q3 '14Q4 '15Q1 '15Q2 2015 2016 2017

HighLow

FOMC Central Tendency Projections*

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

-2%

0%

2%

4%

6%

Aug '05 Aug '07 Aug '09 Aug '11 Aug '13 Aug '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.

6 Source: Bureau of Economic Analytics

Headline Inflation

Core Inflation

FOMC’s Target Inflation Rate

4.6%

9.6%

5.1% 5.5%

11.1%

6.2%

8.3%

16.7%

10.0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2007 2008 2009 2010 2011 2012 2013 2014 Aug Sep

2015

Measures of unemployment and under-employment have declined steadily over the past five years.

7 Source: Bureau of Labor Statistics

UNITED STATES UNEMPLOYMENT RATES Seasonally Adjusted

U-6

U-5

U-3

Unemployment rates have trended down in Colorado, New Mexico and Wyoming, but remain elevated in some areas.

8 Source: Bureau of Labor Statistics and Haver Analytics

UNEMPLOYMENT RATES August 2015, Seasonally Adjusted

Less than 4% 4 to 5% 5 to 6% 6 to 7% Greater than 7%

Unemployment Rate U-3* U-5** U-6** United States 5.1% 6.2% 10.0% Colorado 4.2% 4.9% 8.8% New Mexico 6.7% 8.5% 12.4% Wyoming 4.0% 4.8% 7.7% *U-3 values are as of August, 2015 for individual states and September, 2015 for the United States. **U-5 and U-6 values are 12-month moving averages as of Q2 2015 for individual states and are for September, 2015 for the United States.

95

100

105

110

115

120

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

Employment is increasing at a moderate pace in Colorado, but has declined in New Mexico and Wyoming since the first quarter.


PAYROLL EMPLOYMENT GROWTH Index 100 = September 2005, Seasonally Adjusted

Percent Change

Past 10 Years

Past Year

Peak to Current

U.S. (Sept. ‘15) 5.8% 2.0% 2.9% CO (Aug. ‘15) 13.1% 1.9% 6.8% NM (Aug. ‘15) 1.6% 0.3% -2.9% WY (Aug. ‘15) 10.2% 0.1% -2.2%

United States

Colorado

New Mexico

Wyoming

6.4% 5.4%

4.5% 3.1%

2.3% 2.2% 2.1%

1.9% 1.5% 1.2% 0.8%

0.3% -0.9% -1.2% -1.3%

-4.5%

ConstructionHealth Care & Social Assistance

Leisure & HospitalityState Government

Local GovernmentFinancial Activities

Private Educational ServicesFederal Government

ManufacturingRetail Trade

Transportation & UtilitiesNatural Resources & Mining

Wholesale TradeProfessional & Business Services

Other ServicesInformation

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


U.S. AND COLORADO PAYROLL EMPLOYMENT, AUGUST 2015 Seasonally Adjusted Percent Change Year-over-Year

United States Colorado

Top Performing Industries

Worst Performing Industries

New Mexico has struggled to recover from the recent recession, and employment declined in more than half of industries over the past year.

11

NEW MEXICO PAYROLL EMPLOYMENT, AUGUST 2015 Seasonally Adjusted

Source: Bureau of Labor Statistics

3.7% 2.7%

2.3% 0.9%

0.3% 0.1% 0.0%

-0.2% -0.4%

-0.9% -1.7%

-2.1% -2.6%

-3.6% -5.2%

Leisure & HospitalityEducation & Health Services

Professional & Business ServicesFinancial Activities

Federal GovernmentRetail Trade

Transportation & UtilitiesState Government

ManufacturingWholesale Trade

InformationOther Services

Local GovernmentNatural Resources & Mining

Construction

Percent Change Year-over-Year



10.0% 7.1%

5.1% 3.3% 2.7% 2.6%

1.1% 1.0% 0.6% 0.3% 0.0% 0.0% 0.0%

-0.4% -2.1%

-15.4%

Private Educational ServicesFinancial Activities

Leisure & HospitalityHealth Care & Social Assistance

InformationState Government

Professional & Business ServicesManufacturing

Local GovernmentRetail Trade

Wholesale TradeTransportation & Utilities

Federal GovernmentConstruction

Other ServicesNatural Resources & Mining

Declines in the energy sector are weighing on employment growth in Wyoming.

12

WYOMING PAYROLL EMPLOYMENT, AUGUST 2015 Seasonally Adjusted

Source: Bureau of Labor Statistics

Percent Change Year-over-Year



Migration has varied across Colorado, New Mexico and Wyoming.

13 Source: Census Bureau

NET MIGRATION 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% New Mexico -0.6% Wyoming -0.4%

0

20

40

60

80

100

120

140

160

Jul '05 Jul '07 Jul '09 Jul '11 Jul '13 Jul '15

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

14 Source: McGraw Hill/F.W. Dodge

VALUE OF RESIDENTIAL CONSTRUCTION Index 100 = July 2005, Seasonally Adjusted Three-Month Moving Average


Wyoming New Mexico

The recovery in residential construction activity has been driven by strong gains in multifamily building at the national level.

15 Source: Census Bureau/Haver Analytics

MONTHLY HOUSING PERMITS Thousand of Permits, Seasonally Adjusted

0.0

0.3

0.6

0.9

1.2

1.5

Aug. '05 Aug. '07 Aug. '09 Aug. '11 Aug. '13 Aug. '150.0

0.3

0.6

0.9

1.2

1.5

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

0

1

2

3

4

5

Aug. 05 Aug. 07 Aug. 09 Aug. 11 Aug. 13 Aug. 150

50

100

150

200

250

Aug. 05 Aug. 07 Aug. 09 Aug. 11 Aug. 13 Aug. 15


New Mexico Wyoming

MULTI-FAMILY

SINGLE FAMILY

Home prices are rising in most states...

16 Source: Federal Housing Finance Agency

FHFA PURCHASE-ONLY HOME PRICE INDEX (2015Q2) 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%

10.6%

United States 5.4%

2.8%

2.5%

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

17 Source: Federal Housing Finance Agency

FHFA PURCHASE-ONLY HOME PRICE INDEX (2007Q1 – 2015Q2) 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 -2.4%

26.7% Over 20% 10 to 20 0 to 10 -10 to 0 -20 to -10 Below -20%

8.1%

-10.1%

Vacancy rates are low across the Denver metro, but commercial vacancies remain elevated in Albuquerque.

18 Source: Torto-Wheaton Research

4%

8%

12%

16%

20%

24%

COMMERCIAL VACANCY RATES

4%

8%

12%

16%

20%

24%

Office

Industrial

Denver Albuquerque

Office

Industrial

Tourism activity has picked up in Colorado, New Mexico and Wyoming over the past two years.

19

HOTEL OCCUPANCY RATES

54%

58%

62%

66%

70%

74%

CO N.M. WY

Historical Average201320142015

Source: Rocky Mountain Lodging Report

Expanding

Contracting

Manufacturing activity has slowed in the region due in part to a weak energy sector and a strong dollar.

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

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

U.S. 50.2 September 2015 Kansas City 46.0

District September 2015

30

35

40

45

50

55

60

65

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

Drilling rigs have fallen sharply in 2015, but oil production has been slow to decline.

21 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

400

480

560

0

2

4

6

8

10

12

14

Jul. '05 Jul. '10 Jul. '15

CO

U.S.

N.M.

WY

0

20

40

60

80

100

120

0

400

800

1,200

1,600

2,000

2,400

Oct. '08 Apr. '12 Oct. '15

CO

U.S.

N.M.

WY

U.S. States U.S. States

Prior to additional oil price declines in the third quarter, energy firms expected activity to be roughly flat over the next six months.

22 Source: FRBKC Energy Survey

FRBKC ENERGY SURVEY Quarterly Diffusion Indexes

-100

-80

-60

-40

-20

0

20

40

60

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q42015 (exp)

Drilling/BusinessActivityAccess to Credit

Profits

-100

-80

-60

-40

-20

0

20

40

60

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q42015(exp)

EmploymentEmployee HoursWages/Benefits

23 Sources: Kansas City Federal Reserve Bank’s Energy Survey, Energy Information Administration, Reuters

$/Barrel

40

60

80

100

120

40

60

80

100

120

Jan. '14 Jun. '14 Nov. '14 Apr. '15 Sep. '15 Feb. '16 Jul. '16 Dec. '16

September 29 WTI Futures

WTI

Energy Survey avg. breakeven in late Sept. 2014 - $78

Late Mar. 2015 avg. breakeven - $62

June 2015 price needed for substantial increase in drilling to occur- $73

$/Barrel

REPORTED BREAKEVEN OIL PRICES AND WTI EXPECTATIONS

Breakeven oil prices have fallen as productivity rises and costs decline, but oil prices remain well below the levels needed for a substantial increase in drilling.

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

Crop prices remain low, and cattle prices are starting to decline after record profits last year.

25 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

Sep. '09 Sep. '11 Sep. '13 Sep. '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

Sep. '09 Sep. '11 Sep. '13 Sep. '15

Feeder CattleLive Cattle

For additional information on the regional economy: http://www.KansasCityFed.org/Denver

http://www.kansascityfed.org/Denver

emerging trends in the regional economy · – economic, financial education, and community...

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