federal reserve bank of kansas city u.s. and oklahoma .../media/files/publicat/... · mary c. daly,...

FEDERAL RESERVE BANK OF KANSAS CITY

U.S. and Oklahoma Economic Update

Council of Petroleum Accountants SocietiesSeptember 19, 2019

Chad WilkersonVice President and Oklahoma City Branch Executive*The views expressed herein are those of the presenter only and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY

The “Fed” consists of three main entities:• Board of Governors: 7 members appointed by U.S. President• Federal Reserve Banks: 12 total; semi-independent by design• Federal Open Market Committee: 19 members; 12 voting

Primary responsibility areas:• Monetary policy• Bank regulation • Financial services

Structure & Functions of the Federal Reserve

2


• Functions and purposes ~ 45 staff• Research on U.S. and Oklahoma economies; energy sector and business survey focus• Examinations of Oklahoma financial institutions (~45 banks, ~175 holding cos.)• Community development programming for low and moderate income groups, workforce focus• Economic education and public outreach programming

• 2019 OKC Fed Branch Board of Directors• Clint Abernathy (chair), Owner, Abernathy Farms, Inc., Altus• Susan Chapman Plumb, Chair & CEO, Bank of Cherokee County, Tahlequah• Walt Duncan, President, Duncan Oil Properties, Oklahoma City• Tina Patel, Co-Owner & CFO, Promise Hotels, Tulsa• Chris Turner, President & CFO, First State Bank, Oklahoma City• Katrina Washington, Owner/Broker, Stratos Realty, Oklahoma City• Dana Weber, Chair & CEO, Webco Industries, Sand Springs

The Oklahoma City Branch of the Federal Reserve Bank of Kansas City

3


Board of Governors• Jerome H. Powell, Chairman• Richard H. Clarida, Vice Chairman• Randal K. Quarles, Vice Chairman of Supervision• Lael Brainard• Michelle W. Bowman• Open• Open

Reserve Bank Presidents• John C. Williams, New York, Vice Chairman• James Bullard, St. Louis• Charles L. Evans, Chicago• Esther L. George, Kansas City• Eric Rosengren, Boston• Patrick T. Harker, Philadelphia• Robert S. Kaplan, Dallas• Neel Kashkari, Minneapolis• Loretta J. Mester, Cleveland• Thomas I. Barkin, Richmond• Raphael W. Bostic, Atlanta • Mary C. Daly, San Francisco

*Permanent voters in bold; 2019 rotating voters in red; 2020 rotating voters in blue

The Federal Reserve’s Role in Monetary Policy• Dual Mandate from U.S. Congress:

1) Maximum employment2) Price stability

• Federal Open Market Committee (FOMC):

4


5

U.S. Economic Outlook and Monetary Policy


Source: U.S. Bureau of Economic Analysis

Contributions to Percent Change in Real GDP

Sept. FOMC: “household spending has been…strong… business fixed investment and exports have weakened..”

2.93.5

-4.0

2.1

-6.2

8.6

2.11.1 1.4

-4.7

4.8

1.5

3.5

-0.4

3.1

1.1

-1.0

4.4 4.1

-1.5

2.92.1

4.3

-1.5 -0.6

-5.2

0.1

5.0

-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

Total GDP Consumerspending

Residentialinvestment

Businessinvestment

Exports Imports Governmentspending

Q3 2018Q4 2018Q1 2019Q2 2019

Percent change from the previous period, SAAR

6


Sept. FOMC: “The labor market remains strong and…the unemployment rate has remained low.”

Sources: U.S. Bureau of Labor Statistics, FOMC

U.S. Unemployment Rate

0

2

4

6

8

10

12

0

2

4

6

8

10

12

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 LongerRun

U.S. unemployment rateRangeMedian

PercentCurrent (Aug. 2019): 3.7%

Sept FOMC Forecast

7



Sept. FOMC: “Overall inflation and inflation for items other than food and energy are running below 2%”

PCE Inflation Index

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 LongerRun

PCE InflationRangeMedian

PercentCurrent Overall PCE (July 2019): 1.4%Current Core PCE (July 2019): 1.5%

Sept FOMC Forecast

8


Federal Funds Rate Year-End Target


Sept. FOMC: “In light of…global developments…muted inflation …the [FOMC] decided to lower the…rate.”

012345678

012345678

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 LongerRun

Fed Funds RateRangeMedian

PercentCurrent Target: 1.75-2.00%

Sept FOMC Forecast

9


10

From September 18, 2019 FOMC Statement“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain…

“Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.”


11

OklahomaEconomic Outlook


-6-5-4-3-2-101234

-6-5-4-3-2-101234

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Percent change, year-over-year

U.S.OK

OKC MSA

Tulsa MSA

Sources: U.S. Bureau of Labor Statistics, NBER recession shading

Nonfarm Payroll Employment Growth

The pace of Oklahoma job growth has slowed in 2019 and has now mostly lagged the nation since 2015

12


Sources: U.S. Department of Labor, NBER recession shading

UI Claims Weekly AverageSeasonally Adjusted

New claims for unemployment insurance in Oklahoma recently returned to 2015-2016 levels, before dipping

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2004 2006 2008 2010 2012 2014 2016 2018

Number Number

U.S., left

OK, right

13


14Source: OK Tax Commission

Oklahoma and Metro Sales Tax Revenues

State sales tax growth also eased in early 2019 but picked back up in the metros so far in Q3

-15

-10

-5

0

5

10

15

20

-15

-10

-5

0

5

10

15

20

Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Q1-17 Q1-18 Q1-19


OK OKCTulsa

Note: Q3 2019 tax data shown through August 2019.


Sources: U.S. Bureau of Labor Statistics/Haver Analytics

-4

-2

0

2

4

6

8

10

-2

0

2

4

6

8

10

Constr. Transp. Edc. &Health

FedGovt.

Trade Leis. &Hosp.

Prof. &Bus.

Services

Fin. Act. State &LocalGovt.

Mfg. Mining

U.S. OK


Job Growth by IndustryJuly 2019

The slower state job growth recently has been driven mainly by job losses in energy and manufacturing

15


Sources: FRBKC Ag Credit Survey

Oklahoma Farm Income and Farmland Values

-20

-15

-10

-5

0

5

10

15

20

020406080

100120140160180200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Farm Income, left

Farmland Value, right

Diffusion Index

Expectations


In agriculture, incomes have continued to decline, but by less than in recent years, and land values have held

16


Sources: U.S. Bureau of Economic Analysis/Haver Analytics

Mining Sector Share of Oklahoma Economic Activity

Oil and gas’s share of Oklahoma’s economy remains high in terms of GDP and income, less so in jobs

0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018

Percent

GDP

Employment

PersonalIncome

17


Source: Federal Reserve Bank of Kansas City Energy Survey18

Oklahoma’s rig count has dropped this year, and regional energy firms expect further slowing ahead

Energy Sector Indicators

0

25

50

75

100

125

150

175

200

-80

-60

-40

-20

0

20

40

60

80

Q1'14 Q3'14 Q1'15 Q3'15 Q1'16 Q3'16 Q1'17 Q3'17 Q1'18 Q3'18 Q1'19 Q3'19

KC Fed Drilling/Business Activity Index, left

Oklahoma Rig Count, right

Index Rigs

Note: Q3 2019 rig count data shown through August 2019.


Sources: EIA, Federal Reserve Bank of Kansas City Energy Survey19

Volatile and marginally profitable oil prices, plus low natural gas prices, have contributed to slower activity

Oil & Natural Gas Profitability and Prices

0

20

40

60

80

100

120

0

1

2

3

4

5

6

7

8

2014 2015 2016 2017 2018 2019

Henry Hub, leftNatural Gas: Avg. Profitable Price, leftWTI, rightOil: Avg. Profitable Price, right

Oil prices ($/barrel)Natural gas prices ($/mmbtu)


Sources: EIA, Federal Reserve Bank of Kansas City

Global supply and demand for oil appears aligned, but is being held together in part from Chinese demand

Global Petroleum Consumption and Production

20

Contributions to Change in Global Petroleum Consumption

92

94

96

98

100

102

104

92

94

96

98

100

102

104Consumption

Production

mpbd

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0USChina



Sources: Baker Hughes, U.S. Energy Information Administration

Note: Employment is for total mining and logging, which in Oklahoma is almost completely oil and gas related. Production is shown as a 3-month moving average.

Oklahoma Oil & Gas Rig Count, Employment, and Production

Even with fewer Oklahoma rigs and workers this year, oil and gas production in the state continues to rise

0

25

50

75

100

125

150

175

200

0

25

50

75

100

125

150

175

200

1990 1994 1998 2002 2006 2010 2014 2018

Index May-90=100

Rig Count

Production (BOE/day)Employment

21


22

Past industries with rapid productivity gains generally shed jobs the following decade, even as output rose

-75-50-250255075100125

-75-50-25

0255075

100125

Computer& electronicproduct mfg

Electronic& appliance

stores

Wirelesstelecomcarriers

Utilities Nonstoreretailers

Travelarrangement& reservation

services

Empl.placement

& exec.search

Airtransport

Percent change

Employment

Real capital expendituresReal output

Sources: U.S. Census Bureau, Bureau Economic Analysis, Bureau of Labor Statistics/Haver Analytics, Author's calculations.

Change in output, investment, and employment 10 years after productivity surge


Sources: U.S. Bureau of Labor Statistics, NBER recession shading

01234567891011

0123456789

1011

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Percent

U.S.

OKOKC MSA

Tulsa MSA

Despite slower state and metro economic growth recently, unemployment remains exceptionally low

Unemployment RatesSeasonally Adjusted

23


U.S. vs. Oklahoma population growth, 1970-2018

Oklahoma population changes by component, 2003-2018*

-2.0

-1.0

0.0

1.0

2.0

3.0

-20,000

-10,000

0

10,000

20,000

30,000

2003 2006 2009 2012 2015 2018

Net Domestic Migration, leftNet International Migration, leftNatural Increase, leftPopulation, right

Percent change, year-over-yearPersons

Note: Annual BEA population data used through 2017, Census population data used for the most recent year.

-2

-1

0

1

2

3

4

-2

-1

0

1

2

3

4

1970 1976 1982 1988 1994 2000 2006 2012 2018


U.S.

OK

Sources: Bureau of Economic Analysis, Census Bureau/Haver Analytics,Population and Housing Unit Estimates – Census Bureau and authors’ calculations

Looking at longer-term trends, more people have been leaving Oklahoma than moving into the state

24


Oklahoma Net Domestic Migration by Area, 2011-2018

Sources: Bureau of Economic Analysis, Census Bureau/Haver Analytics,Population and Housing Unit Estimates – Census Bureau and authors’ calculations

Large metro migration improved slightly in 2018, while outflows from western Oklahoma have been sizable

-10,000

-5,000

0

5,000

10,000

15,000

-10,000

-5,000

0

5,000

10,000

15,000

2011 2012 2013 2014 2015 2016 2017 2018

Persons

Tulsa

OKC

Rest of state (OK-metros)

Lawton

Net Domestic Migration by County, 2015-2018

25


26 Sources: U.S. Census Bureau ACS 1-year sample Public Use Microdata, IPUMS-USA, authors' calculations.

Oklahomans with a bachelor’s degree or more are mostly moving to Texas, especially Dallas-Fort Worth

Note: Metro area timeseries data was harmonized in IPUMS using the 2013 OMB delineations.

0

2000

4000

6000

8000

10000

12000

0

2000

4000

6000

8000

10000

120002003-2007 2013-2017

Number of people

States Gaining the Most Oklahomans with a Bachelor's or More on Net

Net Migration of Oklahomans with a Bachelor's or More to Texas

-10000

-8000

-6000

-4000

-2000

0

2000

4000

6000

-10000

-8000

-6000

-4000

-2000

0

2000

4000

6000

2005 2007 2009 2011 2013 2015 2017

Dallas-Fort Worth MSA

All Other Texas

Total Oklahomans With Bachelor'sDegree or More Moving to Texas

Number of people


27 Sources: U.S. Census Bureau ACS 5-year estimates, ACS 1-year sample Public Use Microdata, IPUMS-USA, authors' calculations.

Consequence: Educational attainment is growing less Silver lining?: People keep coming, just more have left

Educational Attainment as the Share of Population Over 25 with a Bachelor's or More

-30000-25000-20000-15000-10000-5000050001000015000200002500030000

-30000-25000-20000-15000-10000

-50000

50001000015000200002500030000

2000 2002 2004 2006 2008 2010 2012 2014 2016

Inflow Oklahoma Outflow OKC MSAInflow OKC MSA Outflow Oklahoma

Number of people

28.8

23.5

28.126.2

31.3

37.3

30.9

24.8

29.628.7

33.7

39.4

2022242628303234363840

2022242628303234363840

U.S. Oklahoma OKC Texas DFW Colorado

2013 2017

Percent of Population

Oklahoma Domestic Migration Flows of Those with a Bachelor's or More


28

* Local Government SectorNote: Only includes industries with data disclosed for both 2013 and 2018.Sources: Bureau of Labor Statistics QCEW data and authors' calculations.

Rank Industries Adding the Most Jobs OK Empl. Change

OK Empl. % Change

U.S. Empl. % Change

OK Empl. Share 2018

Location Quotient 2013

Location Quotient 2018

1 Restaurants 14,359 12% 14% 8.1% 1.1 1.12 Warehousing and storage 8,148 153% 61% 0.8% 0.7 1.13 Aerospace product and parts manufacturing 6,314 94% 1% 0.8% 1.2 2.44 Gambling industries* 3,729 21% -13% 1.3% 11.1 16.45 Executive, legislative and general government* 3,439 12% 3% 2.0% 0.9 1.16 Outpatient care centers 3,074 48% 37% 0.6% 0.8 0.97 Building equipment contractors 3,019 14% 24% 1.6% 1.1 1.18 Management of companies and enterprises 2,647 16% 13% 1.2% 0.7 0.79 Other amusement and recreation industries 2,324 25% 18% 0.7% 0.7 0.8

10 Utility system construction 2,321 23% 24% 0.8% 1.9 2.111 Computer systems design and related services 2,018 27% 25% 0.6% 0.4 0.412 Accounting and bookkeeping services 2,011 15% 8% 1.0% 1.2 1.413 Offices of other health practitioners 2,008 26% 23% 0.6% 0.9 1.014 Other ambulatory health care services 1,908 50% 14% 0.4% 1.2 1.715 Gasoline stations 1,764 11% 8% 1.1% 1.6 1.716 Insurance agencies and brokerages 1,521 15% 24% 0.7% 0.9 0.9

Sources: Bureau of Labor Statistics QCEW data and authors' calculations

In addition, despite outmigration and slower overall growth, some industries in the state have thrived

Oklahoma Industries Adding the Most Jobs, 2013-2018


29

While none of the rapidly growing industries pay as much as energy, several are well above average

Average Annual Oklahoma Wage by Industry


• The national economy continues to grow, with low unemployment, but business investment has slowed

• Oklahoma job growth has slowed in 2019, as lower oil and gas prices hurt, but unemployment remains very low

• A longer-term trend worth watching is the state’s switch in net domestic migration flows in recent years, as more highly educated Oklahomans have been moving out

• At the same time, though, some industries in the state continue to thrive, many of which pay good wages

Summary

30


Questions?

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