Upstate New York Regional Advisory Board

Federal Reserve Bank of New York 33 Liberty Street

10F, Paul Volcker Boardroom Wednesday, September 7, 2016

AGENDA 10:30am 10:35am

Welcome and Adoption of the UNYRAB Charter, Tony Davis, Director Introductory Remarks, Jack Gutt, EVP

10:40am-11:10am The National Economy, Richard Peach, Senior Vice President 11:10am-11:40am

International Update, Matthew Higgins, Vice President

11:40am-12:00pm

Regional Update, Jaison Abel, Officer

12:00pm 12:15pm 12:15pm-1:55pm

Adjourn to NWC Room-10F Lunch Round Table Discussion with William Dudley, President and Michael Strine, First Vice President Your experience and that of your customers and suppliers can give us insight into current economic conditions.

Questions for discussion with President Dudley:

1. Has your firm experienced an increase in demand in recent

months? 2. Has demand for your product or service increased sufficiently that you increased or plan to increase employment in 2016? 3. Has demand for your product or service increased sufficiently that

you plan to increase investment in plant and equipment in 2016? 4. Has your access to credit changed in 2016? 5. How is the labor market in meeting your needs?

2:00 pm Adjourn

Upstate New York Regional Advisory Board

Federal Reserve Bank of New York 33 Liberty Street New York, NY

Wednesday, September 7, 2016

ATTENDEE LIST

Board Members Aminy Audi CEO & Chairman of the Board L. & J.G. Stickley Scott Bieler President & CEO West Herr Automotive Group Lynn Marie Finn President & CEO Superior Workforce Solutions, Inc. Kenneth M. Franasiak Chairman Calamar Anne Kress President Monroe Community College

Linda MacFarlane President & CEO Community Loan Fund of the Capital Region Martin Mucci President & CEO PayChex, Inc. Robert L. Stevenson President Eastman Machine Company

Federal Reserve Bank of New York

William Dudley Michael Strine Jack Gutt Richard Peach Linda Goldberg Matthew Higgins Anand Marri

President First Vice President EVP, Head of Communications & Outreach Group SVP, Research & Statistics SVP, Integrated Policy Analysis VP, Integrated Policy Analysis VP and Head of Outreach & Education

Jaison Abel Luis Uranga Tony Davis Adrian Franco Chelsea Cruz Angela Sun

Research Officer, Research & Statistics Officer and Chief of Staff, Chief of Staff’s Office Director, Community Engagement, Outreach & Education Director, Economic Education, Outreach & Education Associate, Community Engagement, Outreach & Education Associate, Legal

Global Economic Outlook

Upstate New York Regional Advisory BoardMatthew Higgins, 7 September 2016

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

Recent global economic performance and medium-term outlook

Foreign advanced economies’ struggle to escape “lowflation”

The United Kingdom after the Brexit referendum

China’s excess capacity challenge

Canadian economic performance since the global crisis

0

2

4

6

8

10

12

10 11 12 13 14 15 16 17

Global GDP Growth

Percent Q/Q‐4

6.3

1.5

3.5

Emerging ex. China

China

Advanced

Sources:  National sources, Boomberg.  Dotted lines show market growth forecasts.

3

4

5

6

7

11 12 13 14 15 16

Percent, CY/CY

Evolution of EME Market Growth Forecasts

2014

2013

2015

2012

Sources:  Blue Chip Economics, Consensus Economics.  Figures are GDP‐weighted averages for 25 EMEs.

20162017

-40

-30

-20

-10

0

10

20

30

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16

Percent positive or negative*

Citigroup Economic Surprise Indexes

Advanced Economies

Emerging Economies

*Weighted by series’ historical FX impact

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

05 06 07 08 09 10 11 12 13 14 15 16

Diffusion Index

Global Manufacturing PMI

Source:  Markit.

Average 2005 – 2008:Q1 = 53.2

Average 2012 – 2015:Q2 = 51.1

50.7Aug.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

12 13 14 15 16

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.

1.6

0.8

0.5

0

20

40

60

80

100

08 09 10 11 12 13 14 15 16 17

Percent

Central Bank Credit as a Share of GDP

Japan

United States

Euro Area

Sources:  BoJ, ECB, Federal Reserve.  Projections assume that announced BoJ and ECB asset purchase programs proceed thorough 2017:Q1, in line with explicit official commitments.  Both programs, however, are open‐ended.  Federal reserve credit is assumed to remain constant at its current level.

AE Core Inflation Performance with Negative Policy Rates

Country Date AdoptedInitial Core

InflationCurrent Core

Inflation

Japan January 2016 1.1 0.5

Sweden February 2015 1.0 1.2

Switzerland December 2014 0.4 -0.4

Denmark September 2014 0.7 1.0

Euro Area June 2014 0.8 0.8

Sources: National  sources, OECD.  Policy rates  are as  follows:    Japan, marginal  current account balances; Sweden, repo rate;   Switzerland, 3‐mo. LIBOR target; Denmark, CD rate; Euro Area,   deposit rate.

Market Growth Forecast Changes Since Brexit Referendum( percent, calendar-year basis )

2016 2017 2016 2017

Current Forecast 1.6 0.4 1.5 1.3 Top 3 1.8 1.4 1.7 1.6 Bottom 3 1.3 -0.8 1.4 0.9

Change Since Vote -0.2 -1.7 -0.1 -0.4 Top 3 -0.2 -1.0 0.0 -0.3 Bottom 3 -0.3 -2.7 -0.1 -0.7

United Kingdom Euro Area

Source: Blue Chip Economics. Panel includes 22 individual forecasts. Survey periods are early September and early June.

35

40

45

50

55

60

65

-8

-6

-4

-2

0

2

4

6

8

07 08 09 10 11 12 13 14 15 16 17

Percent SAAR

UK GDP Growth and Composite Output PMI

GDP Growth

Composite PMI

Correlation = 0.85

Sources:  Markit Economics

July

Aug.

Diffusion Index

Legal Arrangements of Selected Non-EU Countries

Norway Switzerland Turkey Canada

Legal frameworkEuropean Economic

Association

European Free Trade Area + bilateral

agreements Customs UnionFree Trade Agreement

Tarrif-free trade with EU

Contributes to EU budget

Limited restrictions on labor mobility and immigration from EU

Implments most EU legal and regulatory norms

Unrestricted access to EU single market for financial services

EU voting rights

10

15

20

25

30

35

40

45

50

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

China and other EMEs:  Capital Spending as a Share of GDP

China

Other EMEs

Percent

Source:  WEO database, staff forecast for 2016.

60

70

80

90

100

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

China: Capacity Utilization in the Industrial Sector 

Percent

Source: CEIC, PBOC

Excess capacity

Normal range

Capacity shortage

73.8%

0

100

200

300

400

500

600

700

800

900

Ch

ina

Japa

n

Indi

a

US

Rus

sia

S. K

ore

a

Ger

ma

ny

Bra

zil

Tur

key

Ukr

ain

e

Italy

Ta

iwa

n

Mex

ico

Ira

n

Fra

nce

Spa

in

Ca

nad

a

UK

Crude Steel Production

Million tons 

Source: World Steel Association, data as of 2015

0

20

40

60

80

100

120

-25

-20

-15

-10

-5

0

5

10

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Employed in SOEs (yearly change, rhs)

Employed in SOEs (lhs)

Global financial crisis

SOE restructuring

China: SOE Employment

Persons mn Persons mn

Source: CEIC

90

95

100

105

110

115

08 09 10 12 12 13 14 15 16

Indexes, 2008:Q1 = 100

Advanced Economy Real GDP

Japan

United States

Euro area ex. Germany

Germany

U.S.

Canada

95

100

105

110

115

120

08 09 10 12 12 13 14 15 16

Indexes, 2008:Q1 = 100

Canada:  Provincial Employment

Quebec

United States

Manitoba & Sascatchewan

Ontario

Maritime Provinces

Alberta

British Columbia

US Macro Overview September 7, 2016

Overview • Growth of real GDP has slowed sharply over the past year and a half due

primarily to substantial dollar appreciation, weaker global growth, and steep declines in commodity prices.

– Consumer spending continued to be the main engine of growth for the US economy, helped along by falling energy and food prices.

– Housing has lost forward momentum despite quite low mortgage interest rates. – Growth of business fixed investment slowed substantially, due in part to the sharp contraction

in oil and gas drilling activity. – Net exports exerted a substantial drag. – Inventories high relative to sales.

• Nonetheless, the labor market continued to improve over the period and

is now showing classic signs of being at or near full employment.

• Core inflation has edged higher over the past year but remains below the FOMC’s objective.

– Rent inflation continues to edge higher. – Health care price inflation has moved higher. – Core goods prices are declining reflecting past dollar appreciation and excess inventories.

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

2000 2002 2004 2006 2008 2010 2012 2014 2016

Growth of Real GDP Four Quarter Percent Change Four Quarter Percent Change

Source: Bureau of Economic Analysis

Note: Shading shows NBER recessions.

1

60

80

100

120

140

0

200

400

600

800

1000

1200

1400

1600

1800

2011 2012 2013 2014 2015

Broad Trade-Weighted Exchange Value of US $ (right axis)

Nominal Trade-Weighted Value of US$ and Rig Count Active Oil Rigs Index

Source: Federal Reserve Board and Baker Hughes

Note: Shading shows NBER recessions.

Rig Count (left axis)

2

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

2012 2013 2014 2015 2016

Aggregate Weekly Hours Worked Y/Y % Change Y/Y % Change

Source: Bureau of Labor Statistics

Note: Shading shows NBER recessions.

Goods-Producing Industries

Private Service-Providing

Industries

3

0

2

4

6

8

10

12

60

65

70

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

2015

Labor Share of National Income and Unemployment Rate Percent Rate

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

Labor Share of National Income

(Left Axis)

Unemployment Rate

(Right Axis)

4

Personal Saving Rate and Energy Price Index Energy Price Index Personal Saving Rate

Sources: Bureau of Economic Analysis and Bureau of Labor Statistics via Haver Analytics

Personal Saving Rate (left axis)

Energy Price Index (right axis)

12-month Change (left axis) Monthly Change

(right axis)

12-month Percent Change Monthly Percent Change (Annualized) Real Personal Consumption Expenditures

Note: Shading shows NBER recessions. 5

0

2

4

6

8

10

12

400 450 500 550 600 650 700

0

2

4

6

8

10

12

Source: Bureau of Economic Analysis and Federal Reserve Board

Households’ Net Worth as a Percent of Disposable Income

2006Q1 to present

Note: Fitted line is from 1983Q1 to 2005Q4.

Personal Saving Rate and Household Net Worth Personal Saving Rate (Percent) Personal Saving Rate (Percent)

2016Q1 (640, 6.1)

1983Q1 to 2005Q4

2006Q1 (643, 3.8)

6

0

0.2

0.4

0.6

0.8

1

1.2

1.4

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1950 1960 1970 1980 1990 2000 2010

Household Liabilities/Disposable Personal Income Ratio Ratio

Source: Federal Reserve Board

7 Note: Shading shows NBER recessions.

-800

-600

-400

-200

0

200

400

600

800

1000

1200

1400

1600

1800

-1000

-500

0

500

1000

1500

2000

1999 2001 2003 2005 2007 2009 2011 2013 2015

Household Formations 2 Year Avg. Change 2 Year Avg. Change

Source: Bureau of the Census Note: Shading shows NBER recessions.

Total (Left Axis)

Renter (Left Axis)

Owner (Right Axis)

8

60

65

70

1965 1971 1977 1983 1989 1995 2001 2007 2013

60

65

70Percent Percent

Source: Census Bureau 9

Aggregate Homeownership Rate*

*Owner-occupied housing units divided by total occupied housing units.

Contribution to Decline by Age of Household Head: Under 35: 23.7% 35 to 44: 35.4% 45 to 54: 29.1% 55 to 64: 11.7% 65 plus: -0.9%

Single Family Housing Market

3

4

5

6

7

8

9

10

11

12

13

-20

-15

-10

-5

0

5

10

15

20

25

2000 2002 2004 2006 2008 2010 2012 2014 2016

12 Month % Change Months

Source: CoreLogic, National Association of Realtors, via Haver Analytics Note: Shading shows NBER recessions.

Single Family House Price Index

(Left Axis)

Months’ Supply

(Right Axis)

“Normal” Range for Months’ Supply

10

0

0.005

0.01

0.015

0.02

0.025

0.03

0

0.005

0.01

0.015

0.02

0.025

0.03

1968 1978 1988 1998 2008

Housing Starts and Existing Homes Sales Per Capita Units Units

Source: BLS, Census Bureau, NAR

Note: Shading shows NBER recessions.

Housing Starts

Existing Home Sales

.0178 (average over 1968-2003)

.009 (average over 1968-2003)

11

500

550

600

650

700

750

800

500

550

600

650

700

750

800

1999 2001 2003 2005 2007 2009 2011 2013 2015

Credit Score at Mortgage Origination: All First Mortgages Credit Score Credit Score

Source: FRBNY / Consumer Credit Panel

Note: Shading shows NBER recessions.

Median

10th Percentile

25th Percentile

About 35 – 40 Million People

12

-20

-15

-10

-5

0

5

10

15

-20

-15

-10

-5

0

5

10

15

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Business Fixed Investment 4Q % Change 4Q % Change

Source: Bureau of Economic Analysis

Note: Shading shows NBER recessions.

13

-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Government Consumption and Gross Investment 4 Quarter % Change 4 Quarter % Change

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

Federal (Left Axis)

State & Local (Right Axis)

14

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016

12 Month % Change 12 Month % Change

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

Total PCE

Core PCE

FOMC Objective

PCE Deflator

15

-3

-2

-1

0

1

2

3

4

5

-3

-2

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016

CPI Inflation: Core Goods and Core Services 12 Month % Change 12 Month % Change

Source: Bureau of Labor Statistics

Note: Shading shows NBER recessions.

Core Goods

Core Services

Total Core CPI

16

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

2000 2002 2004 2006 2008 2010 2012 2014 2016

Rental Vacancy Rate and Rent of Primary Residence Percent 12 Month % Change

Source: Census Bureau, BLS Note: Shading shows NBER recessions.

Rental Vacancy Rate

(Left Axis)

Rent of Primary Residence (Right Axis)

17

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Personal Consumption Expenditures: Health Care Price Index 12 Month % Change 12 Month % Change

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

17% of total PCE deflator 19% of core PCE deflator

18

Reference Charts

19

Impact of Brexit on US Forecast

• Slightly higher path for exchange value of US dollar.

• Somewhat weaker foreign growth. • Somewhat weaker business fixed investment. • Total estimated impact is to reduce growth of

real GDP over the period from 2016Q3 through 2017Q2 by 0.1 percentage point.

20

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

1947 1957 1967 1977 1987 1997 2007

Corporate Profits Corporate Profits/National Income Corporate Profits/National Income

Source: Bureau of Economic Analysis

Note: Shading shows NBER recessions.

21

Change2014Q2-

Q2-2014 Q2-2016 2016Q2

TOTAL CORPORATE PROFITS 14.4 12.6 -1.8 DOMESTIC INDUSTRIES 11.8 10.1 -1.7 FINANCIAL 3.2 2.8 -0.4 NONFINANCIAL 8.6 7.3 -1.3 REST OF WORLD 2.7 2.5 -0.2 RECEIPTS FROM 4.6 4.2 -0.4 PAYMENTS TO 1.9 1.7 -0.2

Source: Bureau of Economic Analysis

CORPORATE PROFITS BY SOURCE(PERCENT OF NATIONAL INCOME)

22

Regional Economic Conditions Jaison R. Abel, Research Officer

Upstate New York Regional Advisory Board Meeting – September 7, 2016

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

• Job growth has continued in most parts of the District, though the August regional business surveys point to a decline in activity.

• New York City remains on a strong growth trajectory, while job growth in upstate NY and northern NJ has been slower. Puerto Rico continues to lose jobs.

• Middle-wage jobs have finally started to return, though to different degrees across the region.

FEDERAL RESERVE BANK OF NEW YORK 1

Current Economic Conditions FRBNY 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

Business Leaders Survey

(Service Sector)

Empire State Manufacturing

Survey

Aug

Diffusion Index

Shading indicates NBER recession

Regional Employment Trends Indexes of Total Employment, Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com; data are early benchmarked by FRBNY staff. 3

82

88

94

100

106

112

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Downstate NY

United States

Upstate NY

Puerto Rico

Northern NJ

+1.5%

+1.7%

+0.3%

+1.3%

-1.8%

Y-O-Y

Jul

Index (Dec2007=100)

Shading indicates NBER recession

Recent Job Growth in the Region Percent Change in Total Employment, 2015 to 2016 (May-July)

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com; data are early benchmarked by FRBNY staff. 4

1.8% 1.7%

1.4%

0.8% 0.8%

0.5% 0.1% 0.0%

-0.2%

-1.0%

-2%

-1%

0%

1%

2%

Albany

Utica

Syracuse

Binghamton

New York City

Kingston

Dutchess-Putnam

Buffalo

Rochester

Long Island

United States

Job Categories Based on 2015 Median Wages, United States

Source: U.S. Bureau of Labor Statistics (Occupational Employment Statistics).

Management Computer & Math

Legal Engineering

Business & Finance Healthcare Practitioners

Sciences

Education Arts & Entertainment Installation & Repair

Construction Social Services

Protective Services Administrative Support

Production Transportation

Healthcare Support Sales

Building Maintenance Personal Care

Farming Food Preparation

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

50% 20% 30% Higher Wage Middle Wage Lower Wage

5

Job Gains in the United States Net Change in Total Employment, Thousands

2,104

1,205

2,184

0

500

1,000

1,500

2,000

2,500

1,470

2,261

1,577

2010 to 2013 2013 to 2015

Higher Wage

Higher Wage

Lower Wage

Middle Wage

Middle Wage

Lower Wage

6 Source: U.S. Bureau of Labor Statistics (Occupational Employment Statistics).

Middle-Wage Jobs Returning in the U.S.

• Growth in traditional blue collar jobs:

Construction [+400,000]

Production [+300,000]

Transportation [+500,000]

Installation & Repair [+250,000]

• Education jobs growing again as local government fiscal pressures have subsided. [+150,000]

• Rebound in Administrative Support jobs. [+400,000]

FEDERAL RESERVE BANK OF NEW YORK 7

Job Gains and Losses in the Region Net Change in Total Employment, Thousands

8

Higher Middle Lower

Higher Middle Lower

130

179 157

35 23 27

-90

0

90

180

-45

0

45

90

Higher Middle Lower

Higher Middle Lower

102

18

144

27 7 17

Downstate NY: 2013-2015

New Jersey: 2013-2015

Downstate NY: 2010-2013

New Jersey: 2010-2013

Source: U.S. Bureau of Labor Statistics (Occupational Employment Statistics).

Job Gains and Losses in the Region Net Change in Total Employment, Thousands

-30

0

30

60

-40

-20

0

20

Upstate NY: 2010-2013

Puerto Rico: 2010-2013

Higher Middle

Lower

Higher Middle

Lower

15

-25

22

2

-29

14

Higher Middle Lower

Higher Middle Lower

Upstate NY: 2013-2015

Puerto Rico: 2013-2015

12 5 19

4

-39

-2

9 Source: U.S. Bureau of Labor Statistics (Occupational Employment Statistics).

Middle-Wage Job Gains Weak in Some Areas

Upstate NY Limited bounce back in Education and Construction jobs

coupled with ongoing declines in Administrative Support and Production jobs.

New Jersey Steep losses in Administrative Support and Production jobs.

Puerto Rico Broad-based declines in middle-wage jobs, with large job losses

tied to the island’s weak public sector (Education, Protection) along with an acceleration in Construction job losses.

FEDERAL RESERVE BANK OF NEW YORK 10