recession and recovery in nebraska and the u.s. · cbo's baseline projection actual 60 80 60...

RECESSION AND RECOVERY IN NEBRASKA AND THE U.S.

Alison FelixSenior Economist

Federal Reserve Bank of Kansas CityFederal 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 is picking uppicking up.

Real Gross Domestic ProductPercent change from previous period annualizedPercent change from previous period, annualized

3

4

5

3

4

5

1

2

1

2

-2

-1

0

-2

-1

0

FOMCForecast

-4

-3

2

-4

-3

2 FOMC Forecast Central Tendency(Jan. 2012)

Source: Bureau of Economic Analysis; FOMC

Consumer spending and inventory investment contributed to the increase in fourth quarter GDP contributed to the increase in fourth quarter GDP.

Growth in Components of Real GDP

Percent change from previous period, annualized Percent

141618

141618

2011:Q1

2011:Q2

81012

81012 2011:Q3

2011:Q4

246

246

6-4-20

6-4-20

Source: Bureau of Economic Analysis

-6-6Total GDP Consumer

SpendingResidential Investment

Business Investment

Exports Government Spending

Unemployment rates have fallen over the past year but remain stubbornly highyear but remain stubbornly high.

Unemployment RatePercent PercentPercent Percent

910

1112

910

1112

FOMC Forecast Central Tendency(Jan. 2012)

678

9

678

9

3

45

6

3

45

6

01

2

01

2

Source: Bureau of Labor Statistics; FOMC

After increasing in the first half of 2011, inflation has moderated and is expected to be below 2% in 2012moderated and is expected to be below 2% in 2012.

PCE InflationPercent change from previous period, annualized 55 Percent change from previous period, annualized

3

4

5

3

4

5

0

1

2

0

1

2

3

-2

-1

3

-2

-1

FOMC Forecast CentralTendency

-5

-4

-3

-5

-4

-3 Central Tendency(Jan. 2012)

Source: Bureau of Economic Analysis; FOMC

FOMC January 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 late 2014.”

Fed Funds Rate

Percent Percent 66

4

5

4

5 Fed Funds Rate

2

3

2

3

0

1

0

1

Source: FOMC

00Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

FOMC January Statement: “The Committee also decided 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 f it h ldi f d bt d t b k d iti i 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 Dollars

27500003000000

27500003000000

Fed Agency Debt Mortgage-Backed Securities Purch

2000000225000025000002750000

2000000225000025000002750000

Liquidity to Key Credit Markets

Lending to Financial Institutions

Long Term Treasury Purchases

T di i l S i H ldi

125000015000001750000

125000015000001750000

Traditional Security Holdings

2500005000007500001000000

250000500000750000

1000000

Source: FOMC

0250000

0250000

Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12

The Tenth District of the Federal Reserve

Employment in NE is approaching pre-recession levels after gains over the past 2 years levels after gains over the past 2 years. .

Total Nonfarm EmploymentSeasonally adjustedSeasonally adjusted

Index: Dec 2001 = 100 Index106 106

US

104 104NE

102 102

98

100

98

100

Source: Bureau of Labor Statistics

98 98Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

The unemployment rate in Nebraska is much lower than the national ratelower than the national rate.

Unemployment RateSeasonally adjusted

Percent Percent 1212

U S

8

10

8

10U.S.

NE

66

44



NE has a higher share of workers in government, manufacturing finance and transportation jobsmanufacturing, finance and transportation jobs.

Employment Share by IndustrySeasonally adjustedSeasonally adjusted

Percent Percent

16

18

16

18

US

10

12

14

10

12

14NE

6

8

10

6

8

10

0

2

4

0

2

4


00Trade Educ.

& HealthState &

Loc. Govt.

Prof. & Busi.

Leis. & Hosp.

Manuf. Fin. Svcs. Constr. Trans. & Util.

Info

Employment in professional and business services grew quickly over the past year in Nebraskagrew quickly over the past year in Nebraska.

Employment Growth by IndustryDec 11 over Dec 10Dec-11 over Dec-10

Percent Percent

6

8

6

8

US

4

6

4

6NE

0

2

0

2

4

-2

4

-2


-4-4Prof.

& Busi.Educ.

& HealthLeis.

& Hosp.Manuf. Trade Trans.

& Util.Constr. Fin. Svcs. State &

Loc. Govt.

Info

Since the recession started, employment has fallen in every industry except healthcare in the U Sin every industry except healthcare in the U.S.

Employment Growth by IndustryDec 11 over Dec 07Dec-11 over Dec-07

Percent Percent

5

10

5

10

-5

0

-5

0

-15

-10

-15

-10

US

30

-25

-20

30

-25

-20NE


-30-30Educ.

& HealthLeis.

& Hosp.State &

Loc. Govt.

Prof. & Busi.

Trans. & Util.

Trade Fin. Svcs. Info Manuf. Constr.

The manufacturing sector has been expanding for over two yearsover two years.

Manufacturing ActivitySeasonally adjusted; month-over-monthy j ;

Index Index

60

65

60

65

50

55

50

55

40

45

40

45

30

35

30

35 US 10J

Sources: ISM, FRBKC Manufacturing SurveyNote: 10J index is computed on ISM basis (50 = zero change)

Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Manufacturers in the Tenth District expect increased activity over the next six monthsactivity over the next six months.

Tenth District Manufacturing ExpectationsSeasonally adjusted; sixmonths aheadSeasonally adjusted; six months ahead

Index Index

25

30

25

30Oct-11Nov-11

15

20

15

20Dec-11Jan-12

5

10

5

10

-5

0

5

-5

0

5

Source: FRBKC Manufacturing Survey

55Production Volume of new

ordersNew orders for exports

Capital expenditures

Employment

Crop prices have fallen somewhat from high levels last summer levels last summer.

Crop Prices$/B h l $/B h l$/Bushel $/Bushel

14

16

18

14

16

18

Beans

Wheat

10

12

14

10

12

14Corn

6

8

10

6

8

10

2

4

2

4

Source: Commodity Research Bureau

00Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

High input costs are trimming profit i f li t k tmargins for livestock operators.

U.S. Livestock Prices and Breakeven Costs

$/Hundredweight $/Hundredweight

120

130

120

130

90

100

110

90

100

110

60

70

80

60

70

80

30

40

50

30

40

50Cattle PriceCattle breakevenHog priceHog breakeven

Source: USDA

2020Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Hog breakeven

Ag bankers continue to report that farm income and capital spending are higher than a year agoand capital spending are higher than a year ago.

Tenth District Farm Income and Capital Spending

Index Index

160

180

160

180

100

120

140

100

120

140

60

80

100

60

80

100

20

40

20

40 Farm Income

Capital Spending

Source: FRBKC Ag Credi t Survey

002006Q3 2007Q3 2008Q3 2009Q3 2010Q3 2011Q3

Farmland prices have increased sharply in NebraskaNebraska.

Nebraska Non-irrigated Farmland ValuesgYear-over-year

Percent Percent

40

45

40

45

20

25

30

35

20

25

30

35

5

10

15

20

5

10

15

20

-10

-5

0

5

-10

-5

0

5

Source: FRBKC Agricultural Credit Survey

2002 Q3 2005 Q3 2008 Q3 2011 Q3

Home sales activity rebounded over the past year but remains below pre recession levelsyear but remains below pre-recession levels.

Existing Home SalesSeasonally adjusted

Index: 2001:Q3=100 Index

150

160

150

160

US

120

130

140

120

130

140 NE

90

100

110

90

100

110

70

80

90

70

80

90

Source: NAR

60602001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3

Residential construction activity remains weak but has increased over the past few monthsincreased over the past few months.

Value of Residential Construction ContractsSeasonally adjusted 3 mo moving avgSeasonally adjusted, 3 mo. moving avg.

Index Nov-01=100 Index

200

225

200

225

US

125

150

175

125

150

175 NE

75

100

125

75

100

125

25

50

25

50

Source: FW Dodge


Home prices in Nebraska have outperformed the national prices national prices.

Home PricesSeasonally adjustedSeasonally adjusted

Index: 2001:Q3=100 Index

150

160

150

160

US

NE

130

140

130

140

NE

120

130

120

130

100

110

100

110

Source: FHFA purchase only index

90902001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3

Foreclosure rates in Nebraska are lower than in other parts of the nationother parts of the nation.

Foreclosure Rate

Percent Percent

5

6

5

6

U.S.

44NE

2

3

2

3

11

Source: Mortgage Bankers Association

002001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3

Federal government debt levels have increased significantly over the past few yearssignificantly over the past few years.

Federal Government Debt as a Percent of GDPPercent Percent 140140

100

120

100

120Alternative Fiscal Scenario

CBO's Baseline Projection

Actual

60

80

60

80

0

20

40

0

20

40

Source: Congressional Budget OfficeNote: According to the CBO, "The alternative fiscal scenario incorporates the assumptionsthat all expiring tax provisions (other than the payroll tax reduction) … are extended; that

1940 1950 1960 1970 1980 1990 2000 2010 2020

the AMT is indexed for inflation after 2011 … ; that Medicare's payment rates for physicians'services are held constant… ; and that the automatic enforcement procedures specified by theBudget Control Act of 2011 do not tax effect. The budgetary effects under the alternativefiscal scenario also include the incremental interest costs associated with projected additional borrowing."

Projected reductions in the deficit rely on the expiration of many current policiesthe expiration of many current policies.

Deficits Projected in CBO’s Baseline and Under an Alternative Fiscal Scenario

Percentage of Gross Domestic Product

7

8

7

8Additional Debt ServicePrevent Spending CutsExtend Tax Policies

5

6

5

6Extend Tax PoliciesBaseline

2

3

4

2

3

4

0

1

2

0

1

2

Source: Congressional Budget Office

State government tax revenues increased in FY2011 but remained below pre recession levels2011 but remained below pre-recession levels.

State Tax Revenued dIndex: 2002=100 Index

150

160

150

160

US

NE

130

140

130

140

110

120

110

120

90

100

90

100

Source: US Census Bureau

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Among the top 25 Nebraska export countries, EU countries combine for 9 5% of exportscountries combine for 9.5% of exports.

Nebraska Exports by DestinationNebraska Exports by Destination

Canada

Mexico

27.61%

EU

Japan

China

4.66%

Korea, South

Australia

Hong Kong

22.58%

9.50%

7.51%

4.79% Taiwan

Russia

Vietnam

Brazil

Other

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 Nebraska economy has outperformed the U.S. over the y ppast few years due, in large part, to the strength of the agriculture sector.

Both the U.S. and Nebraska economies are expected to continue to recover over the next couple of 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.federal government faces high debt levels.

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

recession and recovery in nebraska and the u.s. · cbo's baseline projection actual 60 80 60...

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