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

Megan Williams - Federal Reserve Bank of Kansas City

Apr 11, 2014 - outlook appears favorable for 2014. • Oklahoma's economy also continues to grow, and conditions remain better than the nation. Summary ...

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