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.

Emerging Trends in the U.S. & Colorado Economies

Sam ChapmanAssistant Economist

Federal Reserve Bank of Kansas City Denver Branch

Overview of the Federal Reserve System

• Primary Functions– Monetary Policy: promote maximum employment and price stability

– Financial Services: bank for banks; bank for the federal government

– Banking Supervision and Regulation: ensure safety and soundness of banks and ensure that banks provide fair and equitable services to consumers.

• Structure– Board of Governors

• Consists of seven members who are appointed by the President and confirmed by the Senate to serve 14-year terms.

– Federal Reserve Banks• There are 12 Regional Reserve Banks, each serving a unique district. These are semi-

independent by design.

– Federal Open Market Committee (FOMC)• Comprised of the 7 members of the Board of Governors and the 12 Reserve Bank

Presidents (only 5 presidents are voting members on a rotating basis).• Charged with conducting monetary policy to promote economic growth and price

stability.

2

Regional Federal Reserve Banks and Branch Locations

3

The Denver Branch of the Federal Reserve Bank of Kansas City

• Functions – around 160 staff– Regional research covering the economies of Colorado, New Mexico and Wyoming– Economic, financial education, and community development outreach– Examinations of Colorado, Wyoming and northern New Mexico financial institutions– Cash processing and distribution– Money Museum

• 2017 Denver Board of Directors– Richard Lewis (Chair): President and CEO of RTL Networks, Inc.– Ashley Burt: President of The Gunnison Bank and Trust Company– Gary DeFrange: President and COO of Winter Park Resort– Taryn Edwards: Senior Vice President of Saunders Construction– Edmond Johnson: President and Owner of Premier Manufacturing, Inc.– Jeff Wallace: CEO of Wyoming Bank and Trust– Katharine Winograd: President of Central New Mexico Community College

4

5Source: Bureau of Economic Analysis and Federal Open Market Committee (FOMC)/Haver Analytics*Projections as of September FOMC meeting

REAL U.S. GROSS DOMESTIC PRODUCTPercent Change from Previous Quarter at Seasonally Adjusted Annualized Rates

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

'07Q2 '08Q2 '09Q2 '10Q2 '11Q2 '12Q2 '13Q2 '14Q2 '15Q2 '16Q2 '17Q2

HighLow

Year-over-Year Percent Change

FOMC Central Tendency

Projections*

‘17‘18‘19

The U.S. economy continues to expand at a moderate pace.

Consumer spending continues to expand at a solid pace.

6Sources: Bureau of Economic Analysis & Haver Analytics

REAL CONSUMPTION SPENDINGSeasonally Adjusted , Year-over-Year Percent Change

-12%

-8%

-4%

0%

4%

8%

Aug. '05 Aug. '07 Aug. '09 Aug. '11 Aug. '13 Aug. '15 Aug. '17

Real Personal Consumption Expenditures

Real Retail Sales

Business and consumer confidence have increased in recent months.

50

60

70

80

90

100

110

Sep. '05 Sep. '07 Sep. '09 Sep. '11 Sep. '13 Sep. '15 Sep. '17

Univ. of Michigan Consumer Sentiment, Q1:1966 = 100

NFIB Small Business Optimism Index, Q1:1986 = 100

7Source: University of Michigan, National Federation of Independent Business, & Haver Analytics

BUSINESS AND CONSUMER SENTIMENTSeasonally Adjusted

-2%

-1%

0%

1%

2%

3%

4%

5%

Aug. '07 Aug. '09 Aug. '11 Aug. '13 Aug. '15 Aug. '17

PERSONAL CONSUMPTION EXPENDITURE PRICE INDEX (PCEPI)Percent Change Year-over-Year

Inflation is near the FOMC’s two percent target.

8Source: Bureau of Economic Analysis

Headline Inflation

Core Inflation

FOMC’s Target Inflation Rate

4.25.1

8.3

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

'80 '85 '90 '95 '00 '05 '10 '15

Measures of unemployment and under-employment have declined steadily over the past six years.

9Source: Bureau of Labor Statistics

U. S. UNEMPLOYMENT AND UNDER-EMPLOYMENT RATESSeasonally Adjusted

U-6

U-5

U-3

Sept.‘17

0%

1%

2%

3%

4%

5%

6%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

10Source: Federal Reserve Board

EFFECTIVE FEDERAL FUNDS RATE

”

“In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”

- September 2017 FOMC Statement

11Source: Federal Reserve Board

-$5-$4-$3-$2-$1$0$1$2$3$4$5

-$5-$4-$3-$2-$1$0$1$2$3$4$5

2011 2012 2013 2014 2015 2016 2017

Traditional Portfolio

Currency in Circulation

Reserves

Other

Federal Agency & Mortgage-Backed

SecuritiesForeign

Currency Swaps

Short-Term Lending

Assets

Liabilities

FEDERAL RESERVE BALANCE SHEETTrillions

The FOMC has announced in September that it will begin to cease reinvestment of a portion of its assets beginning in October.

Unemployment rates are below national rates in most of Colorado.

12Source: Bureau of Labor Statistics and Haver Analytics

UNEMPLOYMENT RATESAugust 2017, Seasonally Adjusted

Less than 2%2 to 3%3 to 4%4 to 5%

Unemployment Rate U-3 U-5* U-6*United States (Sept. ‘17) 4.2% 5.1% 8.3%Colorado (Aug. ‘17) 2.4% 3.3% 6.4%Routt County 2.1%

*U-5 and U-6 values are 12-month moving averages as of Q2 2017 for Colorado and are for September, 2017 for the United States.

80

85

90

95

100

105

110

115

Sep. '07 Sep. '09 Sep. '11 Sep. '13 Sep. '15 Sep. '17

Employment has been increasing in Colorado and the nation for more than six years, with Colorado gains outpacing the nation.

13Source: Bureau of Labor Statistics

PAYROLL EMPLOYMENT GROWTHIndex 100 = September, 2007, Seasonally Adjusted

Percent Change

Past 10Years

Past Year

U.S. (Sept. ‘17) 6.2% 1.2%Colorado 13.7% 1.8%Routt County -3.1% 2.1%

United States

Colorado

Routt County

August ‘17

5.1%3.0%2.8%2.6%

2.6%2.2%

1.7%1.6%1.6%

0.3%0.2%0.1%0.1%

-0.3%-1.8%

-3.5%

Other ServicesHealth Care & Social Assistance

Retail TradeProfessional & Business Services

Financial ActivitiesTransportation & Utilities

Leisure & HospitalityState Government

Wholesale TradeInformation

Federal GovernmentLocal Government

ConstructionManufacturing

Private Educational ServicesNatural Resources & Mining

The majority of industries in Colorado have added jobs over the past year, but employment in the energy sector has declined sharply.

14Source: Bureau of Labor Statistics

CHANGE IN PAYROLL EMPLOYMENT, AUGUST 2017Seasonally Adjusted Percent Change Year-over-Year

United StatesColorado

Parts of Colorado continue to experience strong population growth and net in-migration.

15Source: Census Bureau

NET MIGRATIONTotal 2016 Net Migration as a Percentage of 2016 Population

More than 2%

1% to 2%

0% to 1%

-1% to 0%

-2% to -1%

Less than -2%

Annual Percent Change 2016United States 0.3%Colorado 1.1%Routt County 0.9%

Residential construction activity has been increasing for more than six years, led by strong gains in multifamily building.

16Source: Census Bureau/Haver Analytics

RESIDENTIAL PERMITSSeasonally Adjusted

Single Family

Multifamily

0

1,500

3,000

4,500

Aug. '07 Aug. '12 Aug. '17

United States Colorado

0

50,000

100,000

150,000

Aug. 07 Aug. 12 Aug. 17

Home prices have increased sharply over the past several years in Colorado.

17Source: Federal Housing Finance Agency

HOME PRICESSeasonally Adjusted, Index 100 = Q2:2007

60

80

100

120

140

160

'07Q2 '09Q2 '11Q2 '13Q2 '15Q2 '17Q2

United States

Colorado

Tourism activity has been strong in Colorado over the past few years.

18Source: Colorado Hotel and Lodging Association

HOTEL OCCUPANCY RATESColorado

REAL HOTEL ROOM RATESColorado, 1999 Dollars

71.8%71.4%66.2%

30%

40%

50%

60%

70%

80%

90%

Jan

Feb

Mar

Apr

May Jun Jul

Aug

Sept

Oct

Nov Dec

10-Year Avg.2017201610-Year Average

YTD Averages

$158.1$153.3

$133.9

$100

$110

$120

$130

$140

$150

$160

$170

$180

Jan

Feb

Mar

Apr

May Jun Jul

Aug

Sept

Oct

Nov Dec YTD

Averages

Expanding

Contracting

30

35

40

45

50

55

60

65

Sep. '07 Sep. '09 Sep. '11 Sep. '13 Sep. '15 Sep. '17

19Source: Institute for Supply Management & Federal Reserve Bank of Kansas City

MANUFACTURING ACTIVITYDiffusion Index, Seasonally Adjusted, Month-over-Month

U.S. 60.8September 2017

Kansas City 58.3District

September 2017

Manufacturing activity has expanded in recent months after weak activity in 2015 and 2016.

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '16 '17

Colorado export activity has increased in recent months after declining over the past few years.

20Source: WISERTrade Note: Eurozone includes the 27 EU member countries.

Total Trade 6.0% SHARE*All Other -0.8 31.1%Japan 7.9 5.9Mexico 36.9 14.1Canada -0.2 17.9 China 1.9 13.2Eurozone 3.7 17.8

AUGUST 2017Percent Change

COLORADO EXPORTS BY TRADING PARTNERBillions

YTD – August

*Share is for 2016

Oil and natural gas prices have increased over the past year, but additional gains are expected to be gradual.

21Source: Bloomberg Energy Services

$0

$2

$4

$6

$8

$10

$12

$14

$0

$20

$40

$60

$80

$100

$120

$140

Oct. '07 Oct. '09 Oct. '11 Oct. '13 Oct. '15 Oct. '17

WTI Oil Spot Price (left-axis)Henry Hub Spot Price (right-axis)

ENERGY PRICES

$/ Barrel $/Million BTU

Futures

Energy activity has picked up in recent months after declining significantly since mid-2014.

22Source: Baker Hughes, Energy Information Administration and Haver Analytics

U.S. CO

0

3

6

9

12

15

0

80

160

240

320

400

Jul. '07 Jul. '12 Jul. '17

United StatesColorado

0

40

80

120

160

0

700

1,400

2,100

2,800

Oct. '10 Apr. '14 Oct. '17

United StatesColorado

U.S. CO

TOTAL RIG COUNTCRUDE OIL PRODUCTION

Millions of Barrels, Monthly, Seasonally Adjusted

Energy contacts in the Tenth District expect the sector to expand slightly in the first quarter of next year.

23Source: FRBKC Energy Survey

-100-80-60-40-20

020406080

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Q42016

Q12017

Q22017

Q32017

Q12018(exp)

Drilling/Business ActivityEmploymentProfits

FRBKC ENERGY SURVEYQuarterly Diffusion Indexes

Farm income is expected to remain weak in 2017.

24Source: USDA

0

20

40

60

80

100

120

140

1980 1986 1992 1998 2004 2010 2016

2017*

U.S. REAL NET FARM INCOMEBillions, 2016 Dollars

*Forecast for 2017

For additional information on the regional economy:http://www.KansasCityFed.org/Denver