Emerging Trends in the U.S. and Kansas Economies

Alison FelixSenior Policy AdvisorFederal Reserve Bank of Kansas City Denver Branch

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.

2

U.S. economic growth is expected to continue at a moderate pace in 2020.

Sources: Bureau of Economic Analysis and Federal Open Market Committee (FOMC) / Haver Analytics*Projections as of December FOMC meeting

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

-6%

-4%

-2%

0%

2%

4%

6%

'07Q4 '10Q4 '13Q4 '16Q4 '19Q4

HighLow

Year-over-Year Percent Change

FOMC Central Tendency

Projections*

‘20 ‘21 ‘22

3

Consumer spending is a major driver of growth in the U.S. economy.

Sources: Bureau of Economic Analysis / Haver Analytics

CONTRIBUTIONS TO REAL U.S. GROSS DOMESTIC PRODUCTPercent Change at Seasonally Adjusted Annualized Rates

2.1%

-3%

0%

3%

6%

-3%

0%

3%

6%

'14Q4 '15Q4 '16Q4 '17Q4 '18Q4 '19Q4

Net Exports Govt. Consumption & InvestmentGross Private Domestic Investment Personal Consumption Expenditures

Real GDP

4

Consumer spending increased at a moderate pace last year.

Sources: Bureau of Economic Analysis / Haver Analytics

REAL CONSUMPTION SPENDINGSeasonally Adjusted, Year-over-Year Percent Change

-12%

-8%

-4%

0%

4%

8%

Nov. '07 Nov. '09 Nov. '11 Nov. '13 Nov. '15 Nov. '17 Nov. '19

Real Personal Consumption Expenditures

Real Retail Sales

5

40

50

60

70

80

90

100

50

60

70

80

90

100

110

2005 2007 2009 2011 2013 2015 2017 2019

Consumer sentiment (L)

Good time to buy large household durables (R)

Index, Q1-1996 = 100 %

With high levels of consumer sentiment, spending is expected to remain solid this year.

Sources: University of Michigan / Haver Analytics

CONSUMER SENTIMENT

6

14

15

16

17

18

19

20

0

3

6

9

12

15

18

1980 1985 1990 1995 2000 2005 2010 2015

Personal saving rate (L)

Financial obligations ratio (R)

Historically low levels of financial obligations and higher personal saving rates could also support spending.

Sources: BEA, FRB / Haver Analytics

CONSUMER SAVINGS AND FINANCIAL OBLIGATIONSPercent of Disposable Income, Seasonally Adjusted

7

3%

4%

5%

6%

7%

8%

9%

10%

11%

'00 '03 '06 '09 '12 '15 '18

Median of FOMC longer-run projection*

FOMC Projections*

The unemployment rate has declined steadily over the past ten years and has fallen below most estimates of its longer-run level.

Sources: Bureau of Labor Statistics, National Bureau of Economic Research and Federal Open Market Committee (FOMC) / Haver Analytics*Projections as of December FOMC meeting; median unemployment rate

U. S. UNEMPLOYMENT RATESeasonally Adjusted

'22

8

Inflation is expected to move toward the FOMC’s two percent target over the next few years.

Sources: Bureau of Economic Analysis and Federal Open Market Committee / Haver Analytics*Projections as of December FOMC meeting; median projections

PERSONAL CONSUMPTION EXPENDITURE PRICE INDEX (PCEPI)Percent Change Year-over-Year

-2%

-1%

0%

1%

2%

3%

4%

5%

Headline Inflation

Core Inflation

FOMC’s Target Inflation Rate FOMC*

Projections

9

0%

1%

2%

3%

4%

5%

6%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Effective Federal Funds Rate

Source: Federal Reserve Board / Haver Analytics

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent.”

- January 2020 FOMC Statement

FOMC Median Projections: December 2019

10

90

95

100

105

110

115

Dec. '07 Dec. '09 Dec. '11 Dec. '13 Dec. '15 Dec. '17 Dec. '19

The U.S. and Kansas economies are adding jobs at a moderate pace.

Sources: Bureau of Labor Statistics / Haver Analytics and author’s calculations.

PAYROLL EMPLOYMENT GROWTHIndex 100 = December 2007, Seasonally Adjusted

Percent ChangeDec. ‘07 to Present Past Year

U.S. (Dec. ‘19) 10.1% 1.4%Kansas (Dec. ‘19) 4.0% 1.4%

United States

Kansas

11

The majority of industries in Kansas have added jobs over the past year.

Source: Bureau of Labor Statistics / Haver Analytics

CHANGE IN PAYROLL EMPLOYMENT, DECEMBER 2019Seasonally Adjusted Percent Change Year-over-Year

United StatesKansas

5.6%4.9%4.5%

2.3%2.3%2.0%

1.5%1.3%1.0%0.6%0.6%

0.1%0.0%

-0.9%-1.8%

-7.6%

Other ServicesLeisure & Hospitality

Natural Resources & MiningConstruction

Professional & Business ServicesLocal GovernmentState Government

Federal GovernmentHealth Care & Social Assistance

Financial ActivitiesRetail Trade

ManufacturingInformation

Wholesale TradeTransportation & Utilities

Private Educational Services

12

Unemployment rates are low across Kansas.

Source: Bureau of Labor Statistics / Haver Analytics

UNEMPLOYMENT RATESNovember 2019, Seasonally Adjusted

Less than 2%2 to 3%3 to 4%4 to 5%Greater than 5%

Unemployment Rate U-3 U-5* U-6*United States (Dec. ‘19) 3.5% 4.2% 6.7%Kansas (Dec. ‘19) 3.2% 3.8% 5.7%

*U-5 and U-6 values are 12-month moving averages as of Q3 2019 for Colorado and are for Dec. 2019 for the United States.

13

Wage growth has picked up in Kansas over the past couple of years.

Note: Grey bars indicate recession.Source: Bureau of Labor Statistics

REAL WAGE GROWTHYear-over-Year Percent Change, Four-Quarter-Moving-Average

-2%

0%

2%

4%

6%

8%

Q2:1992 Q4:1996 Q2:2001 Q4:2005 Q2:2010 Q4:2014 Q2:2019Kansas United States

14

Population growth has been minimal in Kansas in recent years as people continue to leave the state.

Source: Census Bureau / Haver Analytics

CONTRIBUTIONS TO POPULATION CHANGE IN KANSASAnnual

-2%

-1%

0%

1%

2%

3%

4%

-20,000

-10,000

0

10,000

20,000

30,000

40,000 Net Migration (Left)Births – Deaths (Left)

Year-over-Year Percent Population Change (Right)

Persons

15

The services sector is expanding moderately.

Sources: Kansas City Federal Reserve Bank and ISM / Haver Analytics

NON-MANUFACTURING AND SERVICES ACTIVITYDiffusion Index, Seasonally Adjusted, Month-over-Month

U.S. 55.0December 2019

Kansas City 56.9District

January 2020

Contracting

Expanding

40

45

50

55

60

65

Jan. '14 Jan. '15 Jan. '16 Jan. '17 Jan. '18 Jan. '19 Jan. '20

16

Contracting

Expanding

30

35

40

45

50

55

60

65

Jan. '07 Jan. '10 Jan. '13 Jan. '16 Jan. '19

Manufacturing activity has contracted over the past six months.

Sources: Kansas City Federal Reserve Bank and ISM / Haver Analytics

MANUFACTURING ACTIVITYDiffusion Index, Seasonally Adjusted, Month-over-Month

U.S. 47.2December 2019

Kansas City 49.3District

January 2020

Jan. ‘20

17

Global economic growth slowed in 2019 but is expected to improve this year in many countries.

-2%

0%

2%

4%

6%

8%

AdvancedEconomies

UnitedStates

Germany Eurozone U.K. Emergingand

DevelopingEconomies

China India

20182019202020212022

Sources: International Monetary Fund / Haver Analytics

GLOBAL ECONOMIC OUTLOOKReal Gross Domestic Product, Annual Percent Change

18

Kansas exports increased slightly last year.

Sources: WISERTrade and Census Bureau

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

KANSAS EXPORTS BY TRADING PARTNERBillions

'18'19

NOVEMBER 2019 YEAR-TO-DATEYear-over-Year Percent Change

Total Trade 3.0% SHARE*All Other 12.5 29.2%Japan 2.8 8.7Mexico 11.9 18.2Canada -22.5 16.8 China 0.0 9.2Eurozone 15.5 17.9

*Shares are for 2018

YTD November

19

Higher government payments supported U.S. farm income in 2019.

* Forecasts for 2019.**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 percentage of bankers who responded "lower" Note: MFP = Market Facilitation Program, which provided trade relief payments to agricultural producers for lost revenues resulting from trade conflicts.Sources: USDA and Federal Reserve Bank of Kansas City.

U.S. Net Farm IncomeBillions

0255075

100125150175200

2005

2007

2009

2011

2013

2015

2017

2019

Changes in Kansas Farm IncomeDiffusion Index**

40

60

80

100

120

140

160

180

2005

2007

2009

2011

2013

2015

2017

2019

*

Farm IncomeFarm Income with Farm Bill Programs+ MFP and Disaster Assistance

20

Agriculture prices generally remained flat through 2019.

Sources: Wall Street Journal and staff calculations.

AGRICULTURAL COMMODITY PRICESIndex, 100 = 2010 Average

50

75

100

125

150

175

200

225

50

75

100

125

150

175

200

225

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cattle

Wheat

Soybeans

Corn

For additional information on the regional economy:https://www.kansascityfed.org/research/regionaleconomy

https://www.kansascityfed.org/research/indicatorsdata