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An Examination of Current Economic Conditions in the Nation and in Arkansas October 15, 2014Little Rock, ARKevin L. Kliesen,FRB St. LouisCharles S. Gascon,FRB St. Louis Michael R. Pakko,UALR
The views we will express are our own and do not necessarily reflect the positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
Disclaimer
Uncertainty in Decision-making
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• “There’s uncertainty about what the path of the economy will be.”—Chair Janet Yellen (June 18)
• Information gleaned from our contacts helps to reduce this uncertainty.
• A positive feedback loop: less uncertainty helps to create better policy, and thus better economic outcomes.
• Forums like this are vitally important to the Fed!
A Brief on the U.S. Economy
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• Momentum interrupted . . . Momentum restored.
• Job growth has averaged more than 200,000/month this year and the unemployment rate continues to fall.
• Inflation is slowing thanks to falling oil prices and slower growth of food and medical care prices.
• This is good for the consumer.
Lower oil prices are mostly bullish for the near-term outlook.
5
85
90
95
100
105
110
115
120
Jan.2014 Mar.2014 May.2014 Jul.2014 Sep.2014
Spot Crude Oil Prices: BrentDollars per barrel
Last observation: October 10, 2014
A Brief on the U.S. Economy
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• Business capital spending appears to be on a more solid footing.
• Housing has been more mixed, but still looks to be on an upward trajectory.
• Less drag from government—expenditures and hiring are increasing modestly.
• A stronger dollar and weaker global growth could pressure U.S. exports in Q4 and into 2015.
Financial stress levels have increased but still remain below average.
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-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Dec.09 Aug.10 Apr.11 Dec.11 Aug.12 Apr.13 Dec.13 Aug.14
The St. Louis Fed's Financial Stress IndexWeekly data
European Turmoil, 2010
Last observation: Week of Oct. 3, 2014.
S&P Downgrade, GDP Revision, and Europe, 2011
European Turmoil, 2012
Week of June 18, 2013 FOMC
Zero is “normal”
Lower levels of uncertainty bodes well for businesses and markets—and vice versa.
8
50
75
100
125
150
175
200
225
250
275
Jan.2005 Oct.2006 Jul.2008 Apr.2010 Jan.2012 Oct.2013
Economic Policy Uncertainty IndexMean=100
Last actual observation is September 2014
The Near-Term Outlook: The “Central Tendency”
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• The Fed’s latest asset purchase program is coming to an end.
• New exit strategy principles established.
• However, markets believe that the return to a “normal” policy rate will be a slow process.
• Depends on the evolution of the data, though.
FOMC Participants: Stronger growth, low inflation, and a falling unemployment rate.
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3.1
7.0
1.0
2.1
6.0
1.6
2.8
5.5
1.8
0.0
2.0
4.0
6.0
8.0
Real GDP Unemp. Rate Inflation
2013 (A)
2014
2015
September 2014 FOMC Economic Projections for 2014-2015Percent
NOTE: FOMC Projections are the mid-points of the central tendencies. The unemploymentrate is the average of the fourth-quarter for the year indicated.
Risks to the economy and alternative views of the outlook.
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• Some risks are known but are difficult to quantify (pandemics, geopolitical risks, etc.).
• Signs of financial market excesses.
• Global growth slows by more than expected.
• The economy achieves “escape velocity” . . . the markets begin to worry that the Fed is behind the curve.
Fed Views vs. Market Views
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Oct.2014 Apr.2015 Oct.2015 Apr.2016 Oct.2016 Apr.2017 Oct.2017 Apr.2018 Oct.2018
9/17/2014
Median June '14 SEP Projection
Median Sept '14 SEP Projection
Expected Federal Funds Rates Estimated from Financial Futures Along with Median of SEP ProjectionsPercent
2015
2016 2017
2014
• According to the St. Louis Fed’s latest report on agricultural credit conditions in the second quarter of 2014:– Farm income decreased modestly from a year earlier.
– Quality farmland values averaged $5,473/acre, down slightly over the past year.
– Bankers expect farm income and equipment expenditures in the third quarter to be sharply below last year’s levels.
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The latest St. Louis Fed survey suggests that District farmland prices may have peaked.
14
20.6
9.112.2
7.5
-3.5-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2
Year-to-Year Change in Eighth District Quality Farmalnd PricesPercent change from four quarters earlier
Four Looks at Arkansas’ EconomyCharles S. GasconRegional Economist, Sr. Research Support CoordinatorOctober 15, 2014
A Look Back
2006 20132010
Output is up 8%
Producing more with fewer workers
Shift in employment toward the service sector
Shift in employment toward the service sector
Shift in employment toward the service sector
Government payrolls shrinking since 2010
Manufacturing and construction sectors out almost 60,000 jobs
Housing prices have continued to recover…
…but demand remains sluggish
A Look From AboveCounty Unemployment Rates, 2014:Q2
Unemployment rates consistent with national average
Job growth has been half the national rate
Strongest growth in Fayetteville
Incomes about 18% below national average
Cost of living about 12% below national average
Little Rock has the highest “real” income
A Look Around the RegionAre we keeping up with the Joneses?
Regional growth above national average
State Output Growth(%)Texas 4.7%Oklahoma 2.9%Kansas 2.4%Arkansas 2.3%Kentucky 2.3%Tennessee 2.2%US 2.1%Louisiana 1.4%Mississippi 1.3%Missouri 0.7%
Source: Bureau of Economic AnalysisNote: Average Real GSP Growth (2010-2013)
Job growth has been relatively slow in most of the region
State Job Growth (%)Texas 2.3Tennessee 1.4Oklahoma 1.2US 1.1Kentucky 0.9Louisiana 0.7Missouri 0.6Kansas 0.5Arkansas 0.4Mississippi 0.4Note: Avg annual Payroll growth from 2010:Q2 to 2014:Q2Source: Bureau of Labor Statistics
Unemployment rates vary significantly across states
State UnemploymentOklahoma 4.6Kansas 4.8Louisiana 4.8Texas 5.1US 6.2Tennessee 6.4Arkansas 6.4Missouri 6.6Kentucky 7.6Mississippi 7.7
Source: Bureau of Economic AnalysisNote: Unemployment Rate in 2014:Q2
Regional incomes below the national average
MSA Income ($)US 44,200$ Kansas 43,380$ Texas 43,271$ Oklahoma 41,399$ Louisiana 40,617$ Missouri 39,933$ Tennessee 39,002$ Arkansas 36,423$ Kentucky 35,857$ Mississippi 33,446$
Source: Bureau of Economic AnalysisNote: Per capita income in 2013
But prices are lower too!
MSA Cost of LivingUS 0.0%Texas -3.5%Louisiana -8.6%Tennessee -9.3%Oklahoma -10.1%Kansas -10.1%Kentucky -11.2%Missouri -11.9%Arkansas -12.4%Mississippi -13.6%
Source: Bureau of Economic AnalysisNote: Regional Price Parity for 2012
But prices are lower too!
MSA Income ($)Kansas 48,254$ Oklahoma 46,050$ Missouri 45,327$ Texas 44,840$ Louisiana 44,439$ US 44,200$ Tennessee 43,001$ Arkansas 41,579$ Kentucky 40,380$ Mississippi 38,711$
Source: Bureau of Economic AnalysisNote: Real Per capita income in 2012
Business Outlook
Expectations for Local Economic Conditions
Expectations for Local Economic Conditions