Emerging Trends in the U.S. and Colorado Economies
Alison FelixEconomist and Branch ExecutiveFederal 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
The Structure of the Federal Reserve System
• The Federal Reserve System was created by Congress in 1913.
• It is a public-private, decentralized institution consisting of the Board of Governors in Washington, D.C. and 12 regional Reserve Banks.
– Board of Governors• Consists of seven members who are appointed by the President and confirmed by the Senate
to serve 14-year terms.• There are currently five members of the Board of Governors: Jerome Powell, Michelle
Bowman, Lael Brainard, Richard Clarida and Randal Quarles.
– Regional Federal Reserve Banks• There are 12 Regional Reserve Banks, each serving a unique district. These are semi-
independent by design.• The Reserve Banks are governed by their Board of Directors, and the Directors (excluding
Banking Directors) select the President of the Bank.
– 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.
3
Regional Federal Reserve Banks and Branch Locations
4
The Primary Functions of the Federal Reserve System
• Conduct the Nation’s Monetary Policy– The Federal Open Market Committee is the group charged with conducting monetary policy within
the U.S.– The Committee has a statutory mandate from Congress to promote maximum employment, stable
prices and moderate long-term interest rates.
• Provide and Maintain an Effective and Efficient Payments System– The Federal Reserve supplies payments services to the public through depository institutions
including banks, credit unions and savings and loans. – We also serve as a banking and fiscal agent for the United States government.– Payment services includes cash processing, processing and clearing checks, transferring funds
and issuing, transferring and redeeming U.S. government securities.
• Supervise and Regulate Banking Operations– The Federal Reserve ensures the safety and soundness of banks and ensures that banks provide
fair and equitable services to consumers.– The Federal Reserve also monitors and promotes the stability of the financial system as a whole.
5
The U.S. economy is expected to expand at a moderate pace this year.
Sources: Bureau of Economic Analysis and Federal Open Market Committee (FOMC) / Haver Analytics*Projections as of September FOMC meeting
REAL U.S. GROSS DOMESTIC PRODUCTPercent Change from Previous Quarter at Seasonally Adjusted Annualized Rates
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
'09Q3 '10Q3 '11Q3 '12Q3 '13Q3 '14Q3 '15Q3 '16Q3 '17Q3 '18Q3 '19Q3
HighLow
Year-over-Year Percent Change
FOMC Central Tendency
Projections*
‘19 ‘20 ‘21
6
The unemployment rate has declined steadily over the past nine 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 September FOMC meeting; median unemployment rate
U. S. UNEMPLOYMENT RATESeasonally Adjusted
'213%
4%
5%
6%
7%
8%
9%
10%
11%
'00 '03 '06 '09 '12 '15 '18
Median of FOMC longer-run projection* FOMC
Projections*
7
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 September FOMC meeting; median projections
PERSONAL CONSUMPTION EXPENDITURE PRICE INDEX (PCEPI)Percent Change Year-over-Year
-2%
0%
2%
4%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Headline Inflation
Core Inflation
FOMC’s Target Inflation Rate FOMC*
Projections
8 Source: Federal Reserve Board / Haver Analytics
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.”
- October 2019 FOMC Statement
FOMC Median Projections: September 2019
0%
1%
2%
3%
4%
5%
6%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Effective Federal Funds Rate
9
90
100
110
120
130
Dec. '07 Dec. '09 Dec. '11 Dec. '13 Dec. '15 Dec. '17
Employment has been increasing in Colorado and the nation for more than nine years.
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. (Oct. ‘19) 9.8% 1.4%Colorado (Sep. ‘19) 18.7% 2.1%Denver (Sep. ‘19) 22.2% 1.7%
United States
Colorado
Sep. ‘19
Denver
10
The majority of industries in Colorado have added jobs over the past year.
Source: Bureau of Labor Statistics / Haver Analytics
CHANGE IN PAYROLL EMPLOYMENT, SEPTEMBER 2019Seasonally Adjusted Percent Change Year-over-Year
United StatesColorado
6.7%3.0%
2.4%2.2%
1.9%1.8%1.8%
1.3%1.1%1.1%
0.7%0.0%
-0.4%-0.6%
-1.0%-1.7%
Professional & Business ServicesLeisure & Hospitality
Other ServicesHealth Care & Social Assistance
Local GovernmentManufacturing
Natural Resources & MiningState Government
Federal GovernmentTransportation & Utilities
Retail TradePrivate Educational Services
Wholesale TradeConstruction
Financial ActivitiesInformation
11
Unemployment rates are low across Colorado.
Source: Bureau of Labor Statistics / Haver Analytics
UNEMPLOYMENT RATESSeptember 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 (Oct. ‘19) 3.6% 4.3% 7.0%Colorado (Sep. ‘19) 2.7% 3.5% 6.4%Denver (Sep. ‘19) 2.6%
*U-5 and U-6 values are 12-month moving averages as of Q3 2019 for Colorado and are for Oct. 2019 for the United States.
12
Population growth has slowed in Colorado since the 1990s, but people continue to migrate into the state.
Source: Census Bureau / Haver Analytics
CONTRIBUTIONS TO POPULATION CHANGE IN COLORADOAnnual
0.0%
1.0%
2.0%
3.0%
4.0%
0
40,000
80,000
120,000
160,000 Net Migration (Left)Births – Deaths
(Left)
Year-over-Year Percent Population Change (Right)
Persons
13
Residential construction activity has increased significantly since 2009, but permitting has declined so far this year.
0
9,000
18,000
27,000
36,000
45,000
2001
2004
2007
2010
2013
2016
2019
Source: Census Bureau / Haver Analytics
RESIDENTIAL PERMITSSeasonally Adjusted, Year-to-Date through September
Colorado
Single FamilyMultifamily
Denver
0
6,000
12,000
18,000
24,000
30,000
2001
2004
2007
2010
2013
2016
2019
Single FamilyMultifamily
14
Low inventories have led to strong home price appreciation in recent years in Colorado.
Source: Federal Housing Finance Agency / Haver Analytics
HOME PRICESSeasonally Adjusted, Index 100 = Q2:2009
United States
Colorado
75
100
125
150
175
200
225
'09Q2 '11Q2 '13Q2 '15Q2 '17Q2 '19Q2
Denver
15
24 percent of renters and 9 percent of homeowners are severely burdened by housing costs in Colorado.
Note: Moderate burdens are defined as households with housing costs of between 30 – 50% of household income. Costs above 50% of household income are considered severely burdening.Source: IPUMS-USA and author’s calculations
COLORADO HOUSING COST-BURDEN RATES BY HOUSEHOLD INCOMEPercent of Ownership Category
0
5
10
15
20
25
30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Moderately Burdened Moderately BurdenedSeverely Burdened Severely Burdened
Renters
Owners
16
The services sector weakened in October.
Sources: Kansas City Federal Reserve Bank and ISM / Haver Analytics
NON-MANUFACTURING AND SERVICES ACTIVITYDiffusion Index, Seasonally Adjusted, Month-over-Month
U.S. 54.7October 2019
Kansas City 47.5District
October 2019Contracting
Expanding
40
45
50
55
60
65
Oct. '14 Oct. '15 Oct. '16 Oct. '17 Oct. '18 Oct. '19
17
Contracting
Expanding
40
45
50
55
60
65
Oct. '09 Oct. '11 Oct. '13 Oct. '15 Oct. '17 Oct. '19
Manufacturing activity has contracted slightly in recent months.
Sources: Kansas City Federal Reserve Bank and ISM / Haver Analytics
MANUFACTURING ACTIVITYDiffusion Index, Seasonally Adjusted, Month-over-Month
U.S. 48.3October 2019
Kansas City 48.7District
October 2019
18
Colorado exports have decreased so far this year.
Sources: WISERTrade and Census Bureau
$0.0$1.0$2.0$3.0$4.0$5.0$6.0$7.0$8.0$9.0
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
COLORADO EXPORTS BY TRADING PARTNERBillions
'18'19
SEPTEMBER 2019 YEAR-TO-DATEYear-over-Year Percent Change
Total Trade -4.6% SHARE*All Other 0.4 31.5%Japan -10.8 5.5Mexico -21.1 15.1Canada 0.2 17.3 China -9.1 12.5Eurozone 1.4 18.1
*Shares are for 2018
YTD September
19
Energy activity has increased substantially over the past few years.
Sources: Baker Hughes and Energy Information Administration / Haver Analytics
U.S. CO
CRUDE OIL PRODUCTIONMillions of Barrels, Monthly, Seasonally Adjusted
Colorado (right)
0
3
6
9
12
15
18
21
0
60
120
180
240
300
360
420
Aug. '07 Aug. '09 Aug. '11 Aug. '13 Aug. '15 Aug. '17 Aug. '19
United States (left)
20
Looking ahead, contacts expect energy activity to weaken in the months ahead.
Source: Kansas City Federal Reserve Bank Energy Survey
ENERGY SURVEY ACTIVITY INDICATORSQuarterly Diffusion Index
-100
-80
-60
-40
-20
0
20
40
60
80
Q1:2014 Q1:2015 Q1:2016 Q1:2017 Q1:2018 Q1:2019 Q1:2020(exp)
Drilling/Business ActivityProfitsNumber of Employees
For additional information on the regional economy:http://www.KansasCityFed.org/Denver
