St. Louis Federal Reserve economist presentations from the 2014 Economic Briefing.

1. An Examination of
Current Economic
Conditions in the Nation
and in Arkansas
October 15, 2014
Little Rock, AR
Kevin L. Kliesen,
FRB St. Louis
Charles S. Gascon,
FRB St. Louis
Michael R. Pakko,
UALR

2. Disclaimer
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.

3. Uncertainty in Decision-making
3
• “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!

4. A Brief on the U.S. Economy
4
• 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.

5. Lower oil prices are mostly bullish
for the near-term outlook.
5
Spot Crude Oil Prices: Brent
Dollars per barrel
120
115
110
105
100
95
90
85
Jan.2014 Mar.2014 May.2014 Jul.2014 Sep.2014
Last observation: October 10, 2014

6. A Brief on the U.S. Economy
6
• 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.

7. Financial stress levels have
increased but still remain below
average.
7
The St. Louis Fed's Financial Stress Index
Weekly data
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
European
Turmoil, 2010
Dec.09 Aug.10 Apr.11 Dec.11 Aug.12 Apr.13 Dec.13 Aug.14
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”

8. Lower levels of uncertainty bodes
well for businesses and markets—
and vice versa.
8
Economic Policy Uncertainty Index
Mean=100
275
250
225
200
175
150
125
100
75
50
Jan.2005 Oct.2006 Jul.2008 Apr.2010 Jan.2012 Oct.2013
Last actual observation is September 2014

9. The Near-Term Outlook:
The “Central Tendency”
9
• 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.

10. FOMC Participants: Stronger
growth, low inflation, and a falling
unemployment rate.
10
September 2014 FOMC Economic Projections for 2014-2015
Percent
3.1
7.0
1.0
2013 (A)
2014
2015
2.1
6.0
1.6
2.8
5.5
1.8
8.0
6.0
4.0
2.0
0.0
Real GDP Unemp. Rate Inflation
NOTE: FOMC Projections are the mid-points of the central tendencies. The unemployment
rate is the average of the fourth-quarter for the year indicated.

11. Risks to the economy and
alternative views of the outlook.
11
• 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.

12. Fed Views vs. Market Views
Expected Federal Funds Rates Estimated from Financial Futures Along with
Median of SEP Projections
Percent
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2016 2017
9/17/2014
Median June '14 SEP Projection
Median Sept '14 SEP Projection
2015
2014
Oct.2014 Apr.2015 Oct.2015 Apr.2016 Oct.2016 Apr.2017 Oct.2017 Apr.2018 Oct.2018

13. • 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.
13

14. The latest St. Louis Fed survey
suggests that District farmland
prices may have peaked.
14
Year-to-Year Change in Eighth District Quality Farmalnd Prices
Percent change from four quarters earlier
20.6
9.1
12.2
7.5
-3.5
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
2013:Q2 2013:Q3 2013:Q4 2014:Q1 2014:Q2

15. Four Looks at
Arkansas’ Economy
Charles S. Gascon
Regional Economist, Sr. Research Support Coordinator
October 15, 2014

16. A Look Back
2006 2010 2013

17. Output is up 8%

18. Producing more with fewer workers

19. Shift in employment toward the
service sector

20. Shift in employment toward the
service sector

21. Shift in employment toward the
service sector

22. Government payrolls shrinking
since 2010

23. Manufacturing and construction
sectors out almost 60,000 jobs

24. Housing prices have continued
to recover…

25. …but demand remains sluggish

26. A Look From Above
County Unemployment Rates, 2014:Q2

27. Unemployment rates consistent
with national average

28. Job growth has been half the
national rate

29. Strongest growth in Fayetteville

30. Incomes about 18% below
national average

31. Cost of living about 12% below
national average

32. Little Rock has the highest “real”
income

33. A Look Around the Region
Are we
keeping up
with the
Joneses?

34. 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%
Note: Average Real GSP Growth (2010-2013)
Source: Bureau of Economic Analysis

35. Job growth has been relatively
slow in most of the region
State Job Growth (%)
Texas 2.3
Tennessee 1.4
Oklahoma 1.2
US 1.1
Kentucky 0.9
Louisiana 0.7
Missouri 0.6
Kansas 0.5
Arkansas 0.4
Mississippi 0.4
Note: Avg annual Payroll growth from 2010:Q2 to 2014:Q2
Source: Bureau of Labor Statistics

36. Unemployment rates vary
significantly across states
State Unemployment
Oklahoma 4.6
Kansas 4.8
Louisiana 4.8
Texas 5.1
US 6.2
Tennessee 6.4
Arkansas 6.4
Missouri 6.6
Kentucky 7.6
Mississippi 7.7
Note: Unemployment Rate in 2014:Q2
Source: Bureau of Economic Analysis

37. Regional incomes below the
national average
MSA Income ($)
US $ 4 4,200
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 $ 3 3,446
Note: Per capita income in 2013
Source: Bureau of Economic Analysis

38. But prices are lower too!
MSA Cost of Living
US 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%
Note: Regional Price Parity for 2012
Source: Bureau of Economic Analysis

39. But prices are lower too!
MSA Income ($)
Kansas $ 48,254
Oklahoma $ 46,050
Missouri $ 45,327
Texas $ 44,840
Louisiana $ 44,439
US $ 4 4,200
Tennessee $ 43,001
Arkansas $ 4 1,579
Kentucky $ 40,380
Mississippi $ 38,711
Note: Real Per capita income in 2012
Source: Bureau of Economic Analysis

40. Business Outlook

41. Expectations for Local Economic
Conditions

42. Expectations for Local Economic
Conditions