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Nathan Kauffman Assistant Vice President and Omaha Branch Executive Federal Reserve Bank of Kansas City November 7, 2013
The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
• Nebraska Economic Outlook • U.S. Economic Outlook • Weight of Uncertainty • Monetary Policy
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
U.S. and Nebraska Real GDP
Index (2000 = 100)
Source: Bureau of Economic Analysis
-4-3-2-10123456
100
105
110
115
120
125
130
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
U.S. (Right Scale) Neb. (Right Scale)U.S. (Left Scale) Neb. (Left Scale)
Percent change from a year ago
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Source: Bureau of Labor Statistics
Percent
Unemployment Rate by State
0 1 2 3 4 5 6 7 8
1. North Dakota2. South Dakota
3. Nebraska4. Hawaii
5. Vermont6. Wyoming
7. Utah8. Iowa
9. New Hampshire10. MinnesotaUnited States
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-3.0-2.0-1.00.01.02.03.04.05.0
US: Aug. '13 NE: Aug. '12 NE: Aug. '13
Source: Bureau of Labor Statistics Numbers in parentheses indicate industry’s share of employment in Nebraska.
Employment Growth in Nebraska Percent change from previous year
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-10-8-6-4-20246810
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1 2013:Q1
Manufactured Exports (Left Scale)
Manufacturing Employment (Right Scale)
Billion Dollars Percent change from year ago
Nebraska Manufactured Exports and Employment Growth
Source: Bureau of Labor Statistics and WISERTrade
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Source: Residential Realtor Reports * Average price of all residential homes. ** Average price of single family homes.
Average Omaha and Lincoln Home Prices
100,000
125,000
150,000
175,000
200,000
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Lincoln*Omaha**
Dollars
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
2
4
6
8
10
12
14
2
4
6
8
10
12
14
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
OmahaLincoln
Months (seasonally adjusted)
Source: Residential Realtors’ Reports
Months Supply of Existing Homes for Sale
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
1.5
1.7
1.9
2.1
2.3
2.5
2.7
1.5
1.7
1.9
2.1
2.3
2.5
2.7
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2013201220112010
Source: Nebraska Department of Revenue
Nebraska Net Taxable Retail Sales
Billion dollars
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
020406080100120140160180200
020406080
100120140160180200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Actual Farm Income Expected Farm Income
Nebraska Farm Income Diffusion Index*
Source: Federal Reserve Bank of Kansas City * Bankers responded to each item by indicating whether conditions during the current quarter were higher than, lower than, or the same as in the year-earlier period. The index numbers are computed by subtracting the percent of bankers that responded "lower" from the percent that responded "higher" and adding 100.
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Kansas 22.5%
Source: Federal Reserve District Agricultural Credit Surveys (Chicago, Minneapolis, Kansas City, Dallas) Note: Tenth District (in orange) numbers reflect Third Quarter Gains. All other districts reflect second quarter gains.
Nebraska 13.1%
Northern Louisiana
1.5% Texas 2.2%
Oklahoma 12.2%
Wyoming Colorado Northern
New Mexico 21.2%
Iowa 18.0%
Montana 9.1%
Western Missouri 27.2%
Northern Indiana 21.0%
North Dakota 25.5%
South Dakota 23.0%
Minnesota 23.1%
Southern Wisconsin
7.0%
Northern Illinois 17.0%
Non-Irrigated Cropland Value Gains
Percent change from prior year
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
U.S. Economic outlook
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-10
-8
-6
-4
-2
0
2
4
6
-10
-8
-6
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012 2013 2014
Change from previous quarterChange from year ago
Calculations based on BEA and Blue Chip Forecast October 2013
Percent change from year ago
U.S. Real GDP Growth
Blue Chip Forecast
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2010 Annual 2011 Annual 2012 Annual 2013:Q1 2013:Q2
Private Investment Personal Consumption Government Net Exports
Annual percent change
Source: Bureau of Economic Analysis
Contribution to U.S. Real GDP Growth
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Exports
Commodities
Manufacturing
Housing
Consumer Spending
Booming sectors plateau in 2012
A Rebound in Household Spending The Wildcards
Investment
Government
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Consumer Spending and Sentiment Percent change from a year ago
Source: Bureau of Economic Analysis and The Conference Board
20406080100120140160180200
-8-6-4-202468
10Personal Consumption Expenditures (Left scale)Consumer Confidence (Right scale)
Index
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-80-60-40-20020406080100
20406080
100120140160180200
2006 2007 2008 2009 2010 2011 2012 2013
Case Shiller U.S. Home Price Index (Left scale)
Single-Family Housing Starts (Right scale)
Multi-Family Housing Starts (Right scale)
Case-Shiller Home Price Index and Housing Starts Percent change from previous year
Source: Census Bureau and Case-Shiller
Index
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-40-30-20-100102030405060
3035404550556065707580
2006 2007 2008 2009 2010 2011 2012 2013
ISM Manufacturing Composite Index (Left scale)
Net Exports (Right scale)
Real U.S. Net Exports and Manufacturing
Percent change from previous year
Source: Bureau of Economic Analysis and Institute for Supply Management
Index
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Percent of GDP
Source: Congressional Budget Office
Federal Government Debt as a Percent of GDP
020406080
100120140160180200
1945
1949
1953
1957
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
2017
2021
2025
2029
2033
2037
ActualExtended BaselineAlternative Scenario
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Uncertainty has weighed on the economy.
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
1. Government Shutdown 2. Affordable Care Act 3. Debt Ceiling 4. Middle East 5. Farm Bill 6. Federal Reserve Chair 7. Regulatory Environment
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Risk Uncertainty
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Risk Uncertainty Probability (Percent)
0
5
10
15
20
1 2 3 4 5 6 7 8 9 10
Probability (Percent)
1 2 3 4 5 6 7 8 9 10
?
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
0
10
20
30
40
50
60
70
Debt Ceiling Debates
Lehman
CBOE Volatility Index (VIX)
Source: Yahoo! Finance
The “Fear” Index
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Index of Economic Policy Uncertainty
B) Black Monday C) 1st Gulf War G) 9/11 H) 2nd Gulf War J) Lehman N) Debt Ceiling Debates
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Occurrences of “uncertain” in Fed District Beige Books
Source: Federal Reserve Board of Governors
05
101520253035404550
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
Instances of Use 2006 Average
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
1. “… national economic and political conditions lend uncertainty and downside risks to the outlook.”
2. “…firms continued to expand cautiously, as they face ongoing uncertainty.”
3. “…most bankers remained optimistic, although they expressed uncertainty on behalf of their business customers…”
4. “Defense contractors are still coping with uncertainty…” 5. [Producers] “…will not proceed because of uncertainty about
the economy…” 6. “Builders are uncertain about the effect of rising interest
rates…” Source: Federal Reserve Board of Governors
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Monetary Policy
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Sustainable Economic Growth
Price Stability
Foundation based on the Phillips Curve
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
-2
-1
0
1
2
3
4
5
-2
-1
0
1
2
3
4
5
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Overall PCE Price IndexPCE Price Index - Excluding Food and Energy
Personal Consumption Expenditures Price Index
Percent change from previous year
Source: Bureau of Economic Analysis
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Five year, Five year Ahead Breakeven Inflation Rate
Percent
Source: Haver Analytics
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
2000 2002 2004 2006 2008 2010 2012
Fed Funds 1-Year Treasury10-year Treasury 5-Year Treasury
Percent
Source: Federal Reserve
Fed Funds Rate and Treasury Yields
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
2
3
4
5
6
7
8
9
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012
Percent
30-year Conventional Fixed Mortgage Rate
Source: Federal Reserve Board of Governors
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Federal Reserve Balance Sheet: Assets
Billion Dollars
0
500
1000
1500
2000
2500
3000
3500
4000
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Fed Agency Debt MBS Purchases Liquidity to Key Credit MarketsLending to Financial Institutions Long Term Treasury PurchasesTraditional Security Holdings
Source: Federal Reserve Board of Governors
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Source: Federal Reserve Board of Governors
Growth in Monetary Aggregates Index (Jan 2000=100)
100
200
300
400
500
600
700
100
150
200
250
300
350
400
450
500
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
M2Monetary Base
QE1
QE2
QE3
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Appropriate Pace of Policy Firming Target Federal Funds Rate at Year-End
0
1
2
3
4
5
6
Source: Federal Reserve Board, Summary of Economic Projections, September 2013
Percent
2013 2014 2015 Longer Run
Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha
Modest growth in Nebraska supported by housing, manufacturing, and agriculture. Concerns in agriculture.
The U.S. economy continues to grow slowly, but
uncertainty may be hindering growth. Housing and consumer spending provide support. Government spending and investment remain questionable.
Fed continues asset purchases with inflation
remaining low.
For More Information on
The Midwestern Economy and Rural America
www.kansascityfed.org/omaha