Recession & Recovery in Missouri and the U.S.

RECESSION AND RECOVERY INMISSOURI AND THE U.S. Alison Felix Senior Economist Federal Reserve Bank of Kansas City 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.

After slowing in the first half of 2011, growth ispicking up. Real Gross Domestic Product Percent change from previous period, annualized 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 FOMC Forecast -2 Central Tendency -3 -3 (Nov. 2011) -4 -4 Source: Bureau of Economic Analysis; FOMC

Business investment increased sharply inthe second and third quarters of last year. Growth in Components of Real GDP Percent change from previous period, annualized Percent 16 16 14 2010:Q4 14 2011:Q1 12 12 2011:Q2 10 10 2011:Q3 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 Total GDP Consumer Residential Business Exports Government Spending Investment Investment Spending Source: Bureau of Economic Analysis

Unemployment rates have fallen over thepast year but remain stubbornly high. Unemployment Rate Percent Percent 12 12 FOMC Forecast 11 11 Central Tendency 10 (Nov. 2011) 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 Source: Bureau of Labor Statistics; FOMC

After increasing in the first half of 2011, inflationhas moderated and is expected to be below 2%in 2012. PCE Inflation Percent change from previous period, annualized 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 FOMC Forecast -2 -3 Central Tendency -3 (Nov. 2011) -4 -4 -5 -5 Source: Bureau of Economic Analysis; FOMC

FOMC December Statement: “The Committee… currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid- 2013.” Fed Funds Rate Percent Percent6 65 Fed Funds Rate 54 43 32 21 10 0Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Source: FOMC

FOMC December Statement: “… the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.” Federal Reserve Balance Sheet Millions of Dollars Millions of Dollars3000000 3000000 Fed Agency Debt Mortgage-Backed Securities Purch2750000 2750000 Liquidity to Key Credit Markets2500000 2500000 Lending to Financial Institutions2250000 2250000 Long Term Treasury Purchases2000000 2000000 Traditional Security Holdings1750000 17500001500000 15000001250000 12500001000000 1000000 750000 750000 500000 500000 250000 250000 0 0 Jan-07 Sep-07 Jun-08 Feb-09 Nov-09 Jul-10 Apr-11 Dec-11 Source: FOMC

The Tenth District of the Federal Reserve

Despite some gains, employment is still wellbelow pre-recession levels. Total Nonfarm Employment Seasonally adjusted Index Index 106 106 US 104 MO 104 102 102 100 100 98 98 96 96 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Source: Bureau of Labor Statistics

The unemployment rate in Missouri issimilar to the national rate. Unemployment Rate Seasonally adjusted Percent Percent12 12 U.S.10 10 MO 8 8 6 6 4 4 2 2 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Source: Bureau of Labor Statistics

The industry mix in Missouri is very similar tothe national average. Employment Share by Industry Seasonally adjusted Percent Percent 18 18 16 US 16 MO 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 Trade Educ. State & Prof. Leis. Manuf. Fin. Svcs. Constr. Trans. Info & Health Loc. & Busi. & Hosp. & Util. Govt. Source: Bureau of Labor Statistics

Manufacturing employment growth outpacedevery other industry in Missouri over the pastyear. Employment Growth by Industry Nov-11 over Nov-10 Percent Percent 6 6 US 4 4 MO 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10 Prof. Educ. Leis. Manuf. Trans. Trade Constr. Fin. Svcs. State & Info & Busi. & Health & Hosp. & Util. Loc. Govt. Source: Bureau of Labor Statistics

Since the recession started, employment hasfallen in every industry except healthcare. Employment Growth by Industry Nov-11 over Dec-07 Percent Percent 15 15 10 US 10 5 MO 5 0 0 -5 -5 -10 -10 -15 -15 -20 -20 -25 -25 -30 -30 -35 -35 Educ. Leis. State & Prof. Trans. Trade Fin. Svcs. Info Manuf. Constr. & Health & Hosp. Loc. & Busi. & Util. Govt. Source: Bureau of Labor Statistics

Nationally, the manufacturing sector has beenexpanding for over two years. Manufacturing Activity Seasonally adjusted Index Index 65 65 60 60 55 55 50 50 45 45 US 40 6-month ahead 40 MO expectations Rest of Tenth District 35 35 30 30 2001:Q4 2003:Q4 2005:Q4 2007:Q4 2009:Q4 2011:Q4 Sources: ISM, FRBKC Manufacturing Survey Note: 50 = zero change

Manufacturers in Missouri expect increasedactivity over the next six months. Missouri Manufacturing Expectations Seasonally adjusted; six months ahead Index Index30 30 2011 Q125 2011 Q2 25 2011 Q320 2011 Q4 2015 1510 10 5 5 0 0-5 -5 Production Volume of new New orders Capital Employment orders for exports expenditures Source: FRBKC Manufacturing Survey

After sharp increases in 2010, Missourimanufacturing exports fell in 2011. Missouri Manufactured Exports Year-over-year Percent Percent 60 60 2009 50 50 2010 40 40 2011 YTD Oct 30 30 20 20 10 10 0 0 -10 -10 -20 -20 -30 -30 -40 -40 -50 -50 Total Transp Equip Chemicals Machinery Food Computers & (27.8%) (22.2%) (11.9%) (11.2%) Electronics (5.6%) Source: Wiser Trade Note: Number in parantheses represents the share of Missouri manufactured exports.

Crop prices have fallen somewhat from highlevels last summer. Crop Prices $/Bushel $/Bushel 18 18 Beans 16 16 Wheat 14 14 Corn 12 12 10 10 8 8 6 6 4 4 2 2 0 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Source: Commodity Research Bureau

Farmland prices have increased sharply inMissouri. Missouri Non-irrigated Farmland Values Year-over-year Percent Percent 30 30 25 25 20 20 15 15 10 10 5 5 0 0 -5 -5 2002 Q3 2005 Q3 2008 Q3 2011 Q3 Source: FRBKC Agricultural Credit Survey

Home sales activity remains slow. Existing Home Sales Seasonally adjusted140 Index: 2001:Q3=100 Index 140 US130 130 MO120 120110 110100 10090 9080 8070 7060 60 2001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3 Source: NAR

Residential construction activity remains weakbut has increased over the past few months. Value of Residential Construction Contracts Seasonally adjusted 225 Index Nov-01=100 Index 225 200 US 200 175 MO 175 150 150 125 125 100 100 75 75 50 50 25 25 0 0 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Source: FW Dodge

Home prices in Missouri increased in thethird quarter but remain well-below peaklevels. Home Prices Seasonally adjusted160 Index: 2001:Q3=100 Index 160 US150 150 MO140 140130 130120 120110 110100 100 90 90 2001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3 Source: FHFA - purchase only index

Foreclosure rates in Missouri are lower thanin other parts of the nation. Foreclosure Rate Percent Percent 6 6 U.S. 5 5 MO 4 4 3 3 2 2 1 1 0 0 2001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3 Source: Mortgage Bankers Association

U.S. commercial construction activity isweaker than pre-recession levels. Value of Commercial Construction Contracts Seasonally adjusted, 3-month moving average325 Index Nov-01=100 Index 325300 300 US275 275250 MO 250225 225200 200175 175150 150125 125100 100 75 75 50 50 25 25 0 0 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Source: FW Dodge

Federal government debt levels haveincreased significantly over the past fewyears. Federal Government Debt as a Percent of GDP Percent Percent 200 200 180 Actual 180 160 Extended-Baseline Scenario 160 140 Alternative Fiscal Scenario 140 120 120 100 100 80 80 60 60 CBO Projection 40 40 June 2011 20 20 0 0 1945 1955 1965 1975 1985 1995 2005 2015 2025 2035 Source: Congressional Budget Office Note: According to the CBO, "The extended-baseline scenario adheres closely to current law, following CBOs 10-year baseline budget projections through 2021 and then extending the baseline concept for the rest of the long-term projection period. The alternative fiscal scenario incorporates several changes to current law that are widely expected to occur or that would modify some provisions that might be difficult to sustain for a long period."

State government tax revenues increased in FY 2011 but remained below pre-recession levels. State Tax Revenue160 Index: 2002=100 Index 160 US150 150 MO140 140130 130120 120110 110100 10090 90 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 Source: US Census Bureau

Among the top 25 Missouri export countries,EU countries combine for 14% of exports. Missouri Exports by Destination Canada Mexico China 20% Korea, South Japan 31% Belgium Singapore Germany Brazil United Kingdom 10% Australia Netherlands 5% 8% Venezuela 4% 5% Argentina Other

The baby boom generation is nearingretirement. Missouri Population by Age 10 Percent Percent 10 1990 8 2010 8 6 6 4 4 2 2 0 0 Source: US Census Bureau

Conclusions The pace of the U.S. economic recovery slowed in the first half of 2011, but growth picked up in the second half of last year. The U.S. and Missouri economies are still expected to recover at a moderate pace over the next few years. However, economic growth may rely more heavily on private demand in the U.S. as problems persist in Europe and the U.S. federal government faces high debt levels.

Presentations can be found online at:http://www.kansascityfed.org/speeches/index. cfm

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Recession & Recovery in Missouri and the U.S.

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Recession & Recovery in Missouri and the U.S. — Presentation Transcript