Beef Industry Conference April 11, 2014
Megan Williams Associate Economist and Manager, Oklahoma City Branch Federal Reserve Bank of Kansas City www.kansascityfed.org/oklahomacity
Overview of the Federal Reserve System •
The “Fed” consists of three main entities: •
Board of Governors: 7 members appointed by U.S. President
•
Federal Reserve Banks: 12 total; semi-independent by design
•
Federal Open Market Committee: 19 members; 12 voting
As with most central banks, the Fed’s primary responsibilities fall within four general areas: •
•
Lender of last resort – provide liquidity in times of crisis
•
Monetary policy – promote full employment and low inflation
•
Bank regulation – ensure safety and soundness of banks
•
Financial services – bank for banks, bank for federal govt.
Federal Reserve Districts and Office Locations
The Oklahoma City Branch of the Federal Reserve Bank of Kansas City •
•
Functions – 40 staff •
Research on U.S. and Oklahoma economies
•
Economic and financial education outreach
•
Examinations of Oklahoma financial institutions
2014 board of directors • • • • • •
Jim Dunn (chair), Chairman, Mill Creek Lumber & Supply, Tulsa Clint Abernathy, Owner, Abernathy Farms, Inc., Altus Linda Capps, Vice Chairman, Citizen Potawatomi Nation, Shawnee Michael Coffman, CEO, Panhandle Oil & Gas, Inc., Oklahoma City Pete Delaney, Chairman & CEO, OGE Energy Corp., Oklahoma City Charles Hall, Chairman & CEO, Exchange Bank & Trust Co., Perry
The U.S. Economy and Monetary Policy
GDP growth was relatively strong in the second half of 2013 Growth in Components of Real GDP
20
Percent change from the previous period, SAAR Q2 2013
15
14.2
Q3 2013 Q4 2013
10.3
9.5
10
8.0 4.7 4.8
4.1
5 2.5
2.6
5.7
3.3
3.9
1.8 2.0 0.4
0 -0.4
-5 -5.2 -7.9
-10 Total GDP
Consumer spending
Residential investment
Business investment
Exports
Government spending
Source: U.S. Bureau of Economic Analysis, Macroeconomic Advisors
Monthly data show 2014 started out a bit slower, due in part to weather U.S. Private Payroll Employment and Business Indexes 600
Index
Change from previous month, thousands
65
400
60
200
55
0
50
-200
45
-400
40
-600
35
Private Employment (left axis) ISM Manufacturing Index (right axis)
-800 -1000 Mar-09
ISM Non-Manufacturing Index (right axis)
Mar-10
Mar-11
Mar-12
Mar-13
30
25 Mar-14
Source: Institute for Supply Management, Bureau of Labor Statistics
GDP forecasts for 2014-16 remain strong, as the economy recovers further Real Gross Domestic Product Percent change, year-over-year 8
8 Mar. FOMC Forecast Ranges in Yellow
6
6
4
4
2
2
0
0
-2
Long Term
-2
-4
-4 1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Source: U.S. Bureau of Economic Analysis, FOMC
Unemployment continues to fall and could reach long-term levels by 2015 Unemployment Rate Seasonally Adjusted Percent 12
12 Mar. FOMC Forecast Ranges in Yellow
10
Long Term
10
8
8
6
6
4
4
2
2
0
0 1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Sources: U.S. Bureau of Labor Statistics, FOMC
Inflation remains relatively low and is expected to stay subdued through 2016 PCE Inflation Index 8
Percent change, year-over-year
8
7
7
6
6
5
5 Mar. FOMC Forecast Ranges in Yellow
4
4 Long Term
3
3
2
2
1
1
0
0 1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Sources: U.S. Bureau of Labor Statistics, FOMC
Most FOMC participants project the first federal funds rate increase in 2015 Federal Funds Rate Year-end target 12
Percent
12
10
10
8
Long Term
6
8
6
Mar. FOMC Forecast Ranges in Yellow (2)
4
(13)
2
4
2
(1)
0
0 1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Note – Number of participants who project the initial increase will occur in the specified year in parenthesis Sources: Federal Reserve Board, FOMC
The Fed’s balance sheet is now set to grow slightly slower in 2014 than in 2013 Federal Reserve Balance Sheet 5
$Trillions
5
Assets 4
4 3 2 1
3
Other Short term lending, targeted lending programs, and rescue operations
MBS & agency debt
2 1
Treasury securities
0
0
Currency
-1
-1
Reserves -2
-2 Other
-3
-3 -4
-4 Liabilities -5 2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
Sources: Federal Reserve Board
-5 2014
The Oklahoma Economy
OK employment is above pre-recession levels, with some differences across the state Level of Payroll Employment Through February 2014 108
Index: Jan-08=100
108
106
106 OKC Metro
104 102
104 102
Oklahoma
100
100
Non-Metro OK
98
98
U.S.
96
96
Tulsa Metro
94
94
92 Jan-08
92 Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Source: U.S. Bureau of Labor Statistics
Since last year, federal jobs fell across the state, but some other sectors grew strongly Oklahoma Job Growth by Industry Feb-14 10
Percent change year-over-year OK
8
OKC Tulsa
6
Rest of OK 4 2 0 -2 -4 -6 Total
Hospitality Constr.
Trade & Transp.
Finance
Edc. & Health
Energy
State & Local Govt.
Prof. & Bus. Services
Mfg.
Fed. Govt
Source: Bureau of Labor Statistics
Unemployment rates remain low throughout most of the state Oklahoma County Unemployment Rates January 2014
Source: OK Employment Security Commission
Rig counts have edged higher the last few months, driven by oil Oklahoma Active Drilling Rig Count Seasonally Adjusted 250
Number of rigs
250 Oil Natural Gas
200
200
150
150
100
100
50
50
0 Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
0 Mar-14
Source: Baker Hughes
And oil and gas production in the state has continued to increase Oklahoma Oil and Gas Production 350
Bcf/month
Thousand barrels/day
210
Oil (left) Natural gas (right)
300
180
250
150
200
120
150 Q4 2008
Q4 2009
Q4 2010
Q4 2011
Q4 2012
90 Q4 2013 Source: EIA
Manufacturing activity has trended higher lately, likely to due weather improvements Manufacturing Composite Index Seasonally Adjusted 65
Index
Index
65
60
60
55
55
50
50
45
45 KC Fed
40
40
ISM 35
35
30 Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
30 Mar-14
Source: ISM, FRBKC
Drought conditions persist in much of western Oklahoma U.S. Drought Monitor, March 2011
U.S. Drought Monitor, March 2012
U.S. Drought Monitor, March 2013
U.S. Drought Monitor, March 2014
Source: USDA
Cattle inventory has dropped more in OK than elsewhere, but may have bottomed U.S. Cattle Inventory As-of January 2014 7.0
Million Head
Million Head
110
6.5
105
6.0
100
5.5
95
5.0
90
Kansas (left scale) Nebraska (left scale)
4.5
85
Oklahoma (left scale) U.S. (right scale)
4.0
80 1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: USDA
Housing construction remained solid in 2013 despite slightly higher rates Single-Family Housing Permits Seasonally adjusted 160,000
Number of permits, 3-month moving avg.
1,600
140,000
1,400
U.S. (left axis) OK (right axis)
120,000
1,200
100,000
1,000
80,000
800
60,000
600
40,000
400
20,000
200
0 Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
0 Feb-14
Source: U.S. Census Bureau
Home prices are now well-above prebust levels, unlike the nation Home Price Index Purchase-Only 115
Index: 2007Q1=100
115
110
110
OKC
105
105
OK
100
100
Tulsa
95
95 90
90 85
85
U.S.
80
80
75
75
70 2003Q4
2005Q4
2007Q4
2009Q4
2011Q4
70 2013Q4 Source: FHFA
Banking conditions in the state remain better than in the nation Noncurrent Loans as a Share of Total Loans Commercial Banks Percent 6
6
5
5
U.S. 4
4
3
3
OK
2
2
1
1
0 0 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Source: FDIC
Summary •
U.S. economic growth has been solid with low inflation, and the outlook appears favorable for 2014
•
Oklahoma’s economy also continues to grow, and conditions remain better than the nation
Questions and Links For more information about the Oklahoma City Branch of the Federal Reserve Bank of Kansas City, visit our website at: http://www.kansascityfed.org/oklahomacity/
For more information about the Oklahoma economy, subscribe to the quarterly Oklahoma Economist at: www.kansascityfed.org/publications/research/oke