Economic Update Alison Felix * Senior Economist Senior Economist Federal 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.
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Senior EconomistSenior Economist Federal Reserve Bank of ...€¦ · Senior EconomistSenior Economist Federal Reserve Bank of Kansas City *The views expressed are those of the presenter
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Economic UpdateAlison Felix*
Senior EconomistSenior EconomistFederal 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.
U.S. Economic Outlook
• Incoming data suggest that the U.S. economy co g da a sugges a e U S eco o ycontinues to recover at a moderate pace.– Manufacturing, energy and agriculture sectors are
diexpanding.– Consumer spending is well above year-ago levels.
• However, the U.S. economy faces many challenges over the next couple of years.– Unemployment rates are likely to remain stubbornly high.– Residential construction activity is likely to remain weak –
constrained by excess housing supply, falling prices and high foreclosure rates.
A moderate recovery is expected to continue over the next few yearscontinue over the next few years.
Real Gross Domestic ProductPercent change from previous period annualizedPercent change from previous period, annualized
4567
4567
10123
10123
5-4-3-2-1
5-4-3-2-1
FOMC Forecast Range (Jan2011)
-7-6-5
-7-6-5 Range (Jan 2011)
Source: Bureau of Economic Analysis; FOMC
Consumers are spending more as confidence levels gradually increaseconfidence levels gradually increase.
Retail Sales and Consumer Confidence
Percent change from a year ago Index
10
15
100
120Consumer Confidence (right axis)
Retail Sales (left axis)
5 80
-5
0
40
60
-15
-10
0
20
Source: Census Bureau and Consumer Confidence Board
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Inflation remains subdued but is starting to increase slightlyto increase slightly.
InflationPercent change from year ago Percent 55 g y g
4
5
4
5Overall PCE InflationCore PCE Inflation
2
3
2
3
11
-1
0
-1
0
Source: Bureau of Economic Analysis
Feb-01 Feb-03 Feb-05 Feb-07 Feb-09 Feb-11
Inflation expectations have also ticked up recentlyrecently.
Inflation ExpectationsPercent Percent
5
6
7
5
6
7U of Mich Inflation Expectations - 1 year forward5 Yr, 5 Yr Forward Breakeven Inflation Rate (TIPS)U of Mich Inflation Expectations - 5 years forward
3
4
5
3
4
5
0
1
2
0
1
2
-2
-1
0
-2
-1
0
M 06 M 07 M 08 M 09 M 10 M 11
Source: University of Michigan and Federal Reserve Board of Governors
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
The Tenth District of the Federal Reserve
Employment fell sharply during the recession but is now increasing in the
As expected, home sales plummeted after the expiration of the tax creditthe expiration of the tax credit.
Existing Home SalesSeasonally adjustedSeasonally adjusted
Index: 2005:Q4=100 Index
100
110
100
110USWichitaKS
80
90
80
90
KC
70
80
70
80
50
60
50
60
Source: NAR
2005:Q4 2006:Q4 2007:Q4 2008:Q4 2009:Q4 2010:Q4
Residential construction activity remains weakweak.
Value of Residential Construction ContractsSeasonally adjusted
Index: Feb-06=100 Index
100
110
100
110
US
70
80
90
70
80
90US
KS
40
50
60
40
50
60
10
20
30
10
20
30
Source: FW Dodge
1010Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11
Home prices continued to decline across most of the U S in 2010
Home Price Appreciation – 2010 Q4
most of the U.S. in 2010.
ppPercent change from one year ago
-1.71%
Legend0% and higher -2% to 0%-5% to -2%5% to 2%-10% to -5%Lower than -10%
Home price appreciation has varied widely over the past 5 years
Home Price Appreciation 2010 Q4
widely over the past 5 years.
Home Price Appreciation – 2010 Q4Percent change from five years ago
3.47%
Legend5% and higher 0% to 5%-10% to 0%-10% to -20%Lower than -20%
Foreclosure rates in Kansas are much lower than in other parts of the nation
Foreclosure Rate – 2010 Q4
lower than in other parts of the nation.
2.43%
LegendLegend1% to 2% 2% to 3%3% to 4%4% to 5%Hi h h 5%Higher than 5%
Commercial construction activity remains below pre-recession levelsbelow pre-recession levels.
Value of Commercial Construction ContractsSeasonally adjusted 3-mo mov avSeasonally adjusted, 3-mo. mov. av.
Index: Feb-06=100 Index
150
175
150
175
US
100
125
100
125KS
50
75
50
75
0
25
0
25
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11
Source: F.W. Dodge Inc.
Office and industrial vacancy rates have leveled off in KC and Wichitaleveled off in KC and Wichita.
Commercial Vacancy RatesPercent Percent
16
18
20
16
18
20
10
12
14
10
12
14
6
8
10
6
8
10
KC - OfficeKC - IndustrialKC Retail
2
4
2
4
2005:Q4 2006:Q4 2007:Q4 2008:Q4 2009:Q4 2010:Q4
KC - RetailKC - MultiFamWichita - Office
Source: Torto-Wheaton Research
Conclusions
• The U.S. and Kansas economies are e U S a d a sas eco o es a eexpected to continue to recover gradually over the next few years.– Weak residential construction activity and high
unemployment may prevent a more robust recovery.– Manufacturing, energy and agriculture sectors are expected g gy g p