advisory council on small business and agriculture 10th ... · advisory council on small business...

Advisory Council on Small Business and Agriculture Federal Reserve Bank of New York 10th Floor, Paul Volcker Boardroom

Monday, March 25, 2019 AGENDA 10:30 a.m.

10:40 a.m. - 11:00 a.m.

Welcome, Claire Kramer Mills, Chair & Assistant Vice President

The National Economy, Tom Klitgaard, Vice President

11:00 a.m. - 11:20 a.m. International Update, Matthew Higgins, Vice President

11:20 a.m. - 11:40 a.m. Regional Update, Jaison Abel, Assistant Vice President

11:40 a.m. - 12:00 p.m. Facilitated Discussion, Claire Kramer Mills, Chair & Assistant Vice President

12:00 p.m.

12:15 p.m.

12:15 p.m. - 1:15 p.m.

Adjourn to NWC Room-10F

Lunch

Round Table Discussion with John Williams, President and CEO

Introductory Remarks and Welcome from President Williams

Group Discussion

Your experiences provide insight into current economic conditions. In considering each question, please reflect on the experiences of your firm, firms of similar size, and firms in your industry. Please provide a rationale for each answer.

Sales Have sales volumes increased, decreased, or stayed the same in the first quarter of 2019? What are your expectations for the first half of 2019?

Investment Has investment (e.g. plant, equipment, technology) increased, decreased, or stayed the same in the first quarter of 2019? What are your expectations for the first half of 2019?

Employment Has employment increased, decreased, or stayed the same in the first quarter of 2019? Have you faced any recent labor shortages that have limited the ability to meet demand? Please explain. What are your employment expectations for the first half of 2019?

Advisory Council on Small Business and Agriculture Federal Reserve Bank of New York 10th Floor, Paul Volcker Boardroom

Monday, March 25, 2019

Prices Have input prices increased, decreased, or stayed the same in the first quarter of 2019? What are your expectations for the first half of 2019? Have prices of products/services sold increased, decreased, or stayed the same in the first quarter of 2019? Do you expect prices of products/services sold to increase in the first half of 2019?

Financing Conditions Over the past two quarters, please describe the financing conditions for firms of your size and in your industry. How have the terms and conditions for obtaining financing changed (tightened, eased, not changed)?

Outlook What is the most significant business opportunity you see in 2019? What is the chief growth barrier or concern facing your firm in 2019?

1:15 p.m. - 2:00 p.m. Fed Listens Session with John Williams, President and CEO

Concluding Remarks from President Williams

2:00 pm Adjourn

Advisory Council on Small Business and Agriculture Federal Reserve Bank of New York

Monday, March 25, 2019

ATTENDEE LIST

Gabriel Hernández Co-Founder and Head of Tax Division BDO Puerto Rico

Sarah LaFleur Founder & CEO MM.LaFleur

Waleska Rivera President Danosa Caribbean, Inc.

Council Members

Donnel Baird Founder & CEO BlocPower

Adenah Bayoh Founder Adenah Bayoh & Companies

Jassi Chadha President & CEO Axtria, Inc.

Federal Reserve Bank of New York

John Williams Michael Strine Jack Gutt Kausar Hamdani Rosanne Notaro Tom Klitgaard Matthew Higgins Claire Kramer Mills Jaison Abel Scott Lieberman Edison Reyes Alexandra Rosen

President & CEO First Vice President EVP, Communications & Outreach SVP, Communications & Outreach VP, Legal VP, Research & Statistics VP, Research & Statistics AVP, Outreach & Education AVP, Research & Statistics Associate, Outreach & Education Associate, Outreach & Education Associate, Corporate Secretary

The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

US Macro OverviewMarch 25, 2019

Thomas Klitgaard

Overview• Real GDP grew 3.1% in 2018, well above the economy’s

potential growth rate• This was a pickup from 2.5% in 2017, with government spending

and an inventory buildup key sources of the faster growth• Labor markets tighten while the rate of increase of wages and

core inflation moved higher

• Growth is expected to slow in 2019 to near 2.0%, just above the potential growth rate of around 1 ¾%• In this scenario, the labor market would remain tight and there

would continue to be some upward pressure on wages and prices

-5-4-3-2-10123456

-5-4-3-2-10123456

2007 2009 2011 2013 2015 2017 2019

GDP grew 3 percent in 20184 Quarter % Change

Source: Bureau of Economic Analysis Note: Shading shows NBER recessions.

GDP

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

2007 2009 2011 2013 2015 2017 2019

Consumer spending growth slowed in Q4Contribution to growth,4-quarter avg.

Source: BEA via Haver Analytics. Note: Shading shows NBER recessions.

Consumption

Contribution to growth,4-quarter avg.

0

500

1000

1500

2000

2500

3000

0

500

1000

1500

2000

2500

3000

2007 2009 2011 2013 2015 2017 2019

Q4 consumption affected by financial markets? Index

Source: Wall Street Journal via Haver Analytics.

S&P 500

Index

11.522.533.544.555.566.577.588.59

11.5

22.5

33.5

44.5

55.5

66.5

77.5

88.5

9

2007 2009 2011 2013 2015 2017 2019

The financial turmoil in Q4 has diminished in Q1Percentage Points

Source: Standard & Poor’s Global Fixed Income Research via Haver Analytics.

Credit Spreads (BB+ - AAA)

Percentage Points

-25

-20

-15

-10

-5

0

5

10

15

-25

-20

-15

-10

-5

0

5

10

15

2007 2009 2011 2013 2015 2017 2019

Notable weakness in durables, such as autos4 Quarter % Change


PCE: Autos

4 Quarter % Change

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

2007 2009 2011 2013 2015 2017 2019

Investment in structures recovered from the 2015-16 fallContribution to growth,4-quarter avg.


Investment in structures


0

20

40

60

80

100

120

140

0

20

40

60

80

100

120

140

2007 2009 2011 2013 2015 2017 2019

Lower oil prices may drag structure spending down Dollar Per Barrel

Source: WTI, EIA/Chicago Mercantile Exchange via Haver Analytics.

Crude Oil Prices

Dollar Per Barrel

-2

-1.5

-1

-0.5

0

0.5

1

1.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2007 2009 2011 2013 2015 2017 2019

Solid growth in spending on equipment Contribution to growth,4-quarter avg.


Equipment


-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

2007 2009 2011 2013 2015 2017 2019

Residential investment spending is fallingContribution to growth,4-quarter avg.


Housing


Note: Shading shows NBER recessions.

200

300

400

500

600

700

800

900

1000

3.2

3.6

4

4.4

4.8

5.2

5.6

6

6.4

6.8

2007 2009 2011 2013 2015 2017 2019

Home sales dropped in 2018 with higher mortgage rates%

Source: Mortgage Bankers Association, US Census Bureau via Haver Analytics

3-month moving average SAAR, Thous.

FRM 30-Year Interest Rate

(Left Axis)

New Single-Family Houses Sold(Right Axis)

Questions of affordability

-20

-15

-10

-5

0

5

10

15

-20

-15

-10

-5

0

5

10

15

2007 2009 2011 2013 2015 2017 2019

12 Month % Change 12 Month % Change

Source: CoreLogic via Haver Analytics Note: Shading shows NBER recessions.

Single Family House Price Index

ply

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

2007 2009 2011 2013 2015 2017 2019

Government spending boosted 2018 growthContribution to growth,4-quarter avg.


Government Spending


-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2007 2009 2011 2013 2015 2017 2019

Export growth slowed in second half of 2018Contribution to growth,4-quarter avg.


Exports


0

2

4

6

8

10

12

0

2

4

6

8

10

12

2007 2009 2011 2013 2015 2017 2019

The unemployment rate remains lowPercent Percent

Note: Shading shows NBER recessions.

Unemployment Rate

Source: Bureau of Labor Statisticsvia Haver Analytics

35

40

45

50

55

60

65

35

40

45

50

55

60

65

2007 2009 2011 2013 2015 2017 2019

Data on quits suggest a tight labor marketPercent Percent

Source: Bureau of Labor StatisticsNote: Grey shading shows NBER recessions.

Quits/Separations

0

1

2

3

4

0

1

2

3

4

2007 2009 2011 2013 2015 2017 2019

% change over year % change over year

Source: Bureau of Labor Statistics via Haver Analytics Note: Shading shows NBER recessions.

Average Hourly Earnings

Employment Cost Index

Wage inflation appears to be increasing

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

2007 2009 2011 2013 2015 2017 2019

12 Month % Change 12 Month % Change

Source: Bureau of Economic Analysis via Haver Analytics Note: Shading shows NBER recessions.

Core PCE

PCEFOMC Objective for

Headline PCE Inflation

Inflation is near the FOMC Objective of 2 percent

11

12

13

14

15

16

17

18

19

20

11

12

13

14

15

16

17

18

19

20

2007 2009 2011 2013 2015 2017 2019

Potential GDP

GDP is above potential by some estimatesTrillions of 2012 US$ Trillions of 2012 US$

Time Period PotentialGDP Growth

2000 - 2005 3.0%

2005 – 2010 1.8%

2010 – 2015 1.4%

2015 – 2020 1.8%

Source: Bureau of Economic Analysis, Congressional Budget Office via Haver Analytics Note: Shading shows NBER recessions.

1

Global Economic Outlook

Small Business and Agricultural Advisory CouncilMatthew Higgins, 25 March 2019

The views expressed here are those of the author, and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System

Roadmap

Update on the global economic and industrial cycle

China’s recent growth performance and long-term prospects

2

-1

0

1

2

3

4

5

6

7

8

9

12 13 14 15 16 17 18 19

China

Percent SAAR

Other EMEs

Advanced Economies

excluding U.S.

Sources: national sources, staff calculations. Q4 growth rates for some foreign economies reflect staff estimates.

Global GDP Growth

1.1

1.8

6.5

4th quarter

30

35

40

45

50

55

60

65

-6

-4

-2

0

2

4

6

8

99 01 03 05 07 09 11 13 15 17 19

Percent SAAR

Global GDP Growth and Composite PMI

GDP Growth

Composite PMI

Correlation = 0.83

Sources: national sources, Markit Economics

Feb.

Diffusion Index

3

-40

-20

0

20

40

60

01-18 04-18 07-18 10-18 01-19 04-19

Percent positive or negative*

Citigroup Economic Surprise Indexes

Advanced Economies

Emerging Economies

*Weighted by series’ historical FX impact

1.5

2.0

2.5

3.0

3.5

4.0

2017 2018 2019

Percent, CY/CY

2019

2018

Sources: Blue Chip Economics, Consensus Economics. Figures are GDP-weighted averages for five AEs (counting the euro area as one economy) and 24 EMEs. The latest vintage surveys are from early to mid December.

2019

2018

EMEs ex. China

Advanced Economies

Evolution of Global Market Growth Forecasts

2020

2020

4

47.5

50.0

52.5

55.0

57.5

10 11 12 13 14 15 16 17 18 19

Diffusion Index

Source: Markit Economics.

50.6

Feb.

53.3

Services

Manufacturing

Global Manufacturing and Services PMIs

47.5

50.0

52.5

55.0

57.5

10 11 12 13 14 15 16 17 18 19

Diffusion Index

Source: Markit Economics, JPMorgan.

50.1

Feb.

49.9New Export Orders

New Orders

Manufacturing New Orders

5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

95 97 99 01 03 05 07 09 11 13 15 17 19

Percent SAAR, rolling 3-mo. basis

Source: CPB World Trade Monitor.Data exclude construction.

Global Recession Great

Recession

Asia Crisis &Russia Default

Global Industrial Production Growth

90

100

110

120

130

140

17-01 17-04 17-07 17-10 18-01 18-04 18-07 18-10 19-01 19-04

Indexes, January 2017 = 100

S&P500FTSE EME equity index

Note: Index values are in dollar terms.

U.S. and EME equity performance

6

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

12 13 14 15 16 17 18 19

Percent change from year ago

G-3: Core Consumer Price Inflation

Japan

United States Euro Area

Sources: BEA, Eurostat, BoJ. U.S. inflation measured using the PCE index.

1.9

1.0

0.4

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

00 02 04 06 08 10 12 14 16 18

Normalized: mean = 0, STD = 1.0

Chinese GDP growth and alternative indicator

GDP Growth Alternative indicator

Sources: national sources, staff estimates. The alternative indictor is an average of four different models.

7

0

1

2

3

4

5

6

7

8

9

10

0 10,000 20,000 30,000 40,000

Real per capita GDP at 2011 PPPs

5-ye

ar-a

head

per

cap

ita g

row

th ra

te

Per capita income growth vs. PPP income levels

Japan1956-1996

Korea1974-2014

China1998-2015

Sources: Penn World Tables, version 9.0, World Economic Outlook database, author’s calculations.

0

10

20

30

40

50

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Per Capita Income Levels Relative to the United States

China

Turkey

Percent at current PPPs

Brazil

Sources: Penn World Tables, WEO database.

40

28

25

8

80

100

120

140

160

180

200

220

2018 2022 2026 2030 2034 2038

Real per capita income projections for China

Optimistic projection

“Not-so-bad”projection

Indexes: Real per capita income in 2018 = 100

Sources: Penn World Tables, version 9.0, World Economic Outlook database, author’s calculations. The “not–so-bad” projection assumes slower TFP growth and a more rapid decline in the capital spending share of GDP.

Comparative Pac Rim performance( 20-year index values )

Japan 186Hong Kong 193Korea 220Singapore 214Taiwan 279

205

167

40

45

50

55

60

65

70

T-20 T-10 T T+10 T+20

Working-age populations around China’s income level

JapanT = 1976

Asian NIEs*T = 1991

Population aged 20-64 as percent of totalChina

T = 2018

Sources: Penn World Tables, UN population database. * Hong Kong, Korea, Singapore and Taiwan.

Regional Economic ConditionsJaison R. Abel

Advisory Council on Small Business and Agriculture Meeting – March 25, 2019

The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

Overview of Regional Conditions• Business activity in the New York-Northern New Jersey region slowed

in late 2018 and has remained subdued in early 2019.

• Despite modest job growth in much of the region, labor markets havebecome extremely tight. As a result, wage growth has picked upthroughout the region.

• Private-sector employment in Puerto Rico is now above pre-stormlevels, though overall job gains on the island continue to be weigheddown by a weak public sector.

• Manufacturers in New York State report fairly significant effects onemployment and compensation from the recent increase in theminimum wage, while service firms report more limited effects.

FEDERAL RESERVE BANK OF NEW YORK 1

Current Economic ConditionsFRBNY Regional Business Surveys

Source: Federal Reserve Bank of New York. 2

-60

-40

-20

0

20

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Business LeadersSurvey

(Service Sector)

Empire StateManufacturing

Survey

Mar

Diffusion Index

Shading indicates NBER recession

Regional Employment TrendsIndexes of Total Employment, Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com. 3

80

90

100

110

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Feb

Jan

DownstateNY

Upstate NY

UnitedStates

PuertoRico

NorthernNJ

+1.4%

+1.8%

+0.8%

+0.6%

+2.7%

Annual% Change

Index (Dec2007=100)

Shading indicates NBER recession

Private-Sector Jobs in Puerto RicoPreliminary vs Revised Estimates

Source: U.S. Bureau of Labor Statistics, Moody’s Economy.com, FRBNY calculations. 4

610

625

640

655

670

685

Jan16 Jul16 Jan17 Jul17 Jan18 Jul18 Jan19

BLSRevised

FRBNYEarly

Benchmark

BLSPreliminary

Jan

Thousands

Recent Job Growth in the NY-NNJ RegionAnnual Percent Change, 3-Month Average (Nov-Jan)

5

GlensFalls

Elmira BinghamtonKingston

Buffalo Rochester SyracuseUtica

Albany

Ithaca

NYC

Watertown

Dut

ches

s-Pu

tnam

Newark

MiddlesexMonmouth

Ocean

NorthCountry

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com.

Strong GrowthModerate GrowthModest GrowthLittle or No GrowthDecline

Exceptionally Tight Labor MarketsLong-Run and Current Unemployment Rates, Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com. 6

6.1

5.1 5.0 5.1

7.8

6.1

4.1

4.85.3

6.25.8 5.9 5.8

6.15.8

8.3

3.83.2 3.3

3.94.13.8

3.3 3.33.7 3.8 3.8 3.9 4.0 4.1 4.2

5.1

0%

2%

4%

6%

8%

10%

United States

LongIsland

New York City

Ithaca

AlbanyRochester

Syracuse GlensFalls Buffalo

UticaElmira

Binghamton

Watertown

Fairfield

NorthernNew

JerseyLowerHudson

Valley

Long-Run AverageCurrent

Regional Labor Force TrendsIndexes of Total Labor Force, Seasonally Adjusted

7Source: U.S. Bureau of Labor Statistics, Current Population Survey and Moody’s Economy.com.

92

96

100

104

108

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

New York City

United States

Upstate NY

NorthernNJ

Index (Dec2007 = 100)

Shading indicates NBER recession.

Dec

Wage Growth Has Picked Up in the RegionFRBNY Supplemental Survey

Source: Federal Reserve Bank of New York. 8

0%

1%

2%

3%

4%

5%

6%

Jan2017

Feb2018

Nov2018

Jan2017

Feb2018

Nov2018

Business Leaders Survey Empire State Manufacturing Survey

By about what percentage, on average, has a typical worker’s wage/salary (not including benefits) changed over the past 12 months?

3.0

3.84.2

2.8

3.4

4.0

Increase in NYS Minimum Wage2017 Through 2022

Source: New York State Government. 9

$8

$9

$10

$11

$12

$13

$14

$15

$16

2016 2017 2018 2019 2020 2021 2022

Long Island& Westchester

New York CityLarge Employers

(11+ Workers)

Upstate New York

New York CitySmall Employers

(<11 Workers)

(To $15)

Effects of NYS Minimum Wage IncreaseFRBNY Supplemental Survey Report, February 2019

Source: Federal Reserve Bank of New York.

Q: Has the increase in the minimum wage, effectiveJanuary 1, 2019, had any effect on your business’sdecisions about compensation and/or employment?

36%

27%

37%

60%

14%

27%

NoEffect

SmallEffect

Moderate/Significant

Effect

Empire State Manufacturing Survey

Business Leaders Survey

10

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