The State of Our Manufacturing Economy

Chad WilkersonVice President, Economist, and Oklahoma City Branch Executive

Federal Reserve Bank of Kansas Citywww.kansascityfed.org/oklahomacity

Oklahoma Conference on Manufacturing October 9, 2013

Federal Reserve Districts and Office Locations

The U.S. Economyand Manufacturing

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

Q2 2013

-10

-8

-6

-4

-2

0

2

4

6

2

-2

-8.3

-5.4

-0.4

1.3

3.9

1.6

3.9

2.8 2.8

-1.3

3.2

1.4

4.9

3.7

1.2

2.8

0.11.1

2.5

Growth in Real GDP

Percent change from the previous period, SAAR

Source: U.S. Bureau of Economic Analysis, Haver Analytics

U.S. GDP growth improved in Q2 2013 after slowing earlier with the fiscal cliff

Percent

Source: U.S. Bureau of Labor Statistics

U.S. Manufacturing Employment and Output Percent change, year-over-year

But growth in U.S. factory output and jobs slowed through the first half of 2013

-20

-15

-10

-5

0

5

10

-20

-15

-10

-5

0

5

10

OutputEm-ploy-ment

Percent

Source: U.S. Bureau of Labor Statistics

U.S. Manufacturing IndicatorsPercent change, year-over-year

Productivity growth remained moderate, with compensation closely tracking it

-6

-4

-2

0

2

4

6

8

10

-6

-4

-2

0

2

4

6

8

10

Output/hourHourly compensa-tion

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

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Jul-09

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Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

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Apr-13

May-13

Jun-13

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Sep-13

-1000

-800

-600

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0

200

400

600

25

30

35

40

45

50

55

60

65

Private Employment (left axis)ISM Manufacturing Index (right axis)ISM Non-Manufacturing Index (right axis)

Change from previous month, thousands

Source: Institute for Supply Management, Bureau of Labor Statistics

U.S. Private Payroll Employment and Business Indexes

Q3 data suggest U.S. economic growth picked up, including in manufacturing

Index

Unemployment Rate Seasonally Adjusted

Percent

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

1983

1984

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1989

1990

1991

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1998

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2008

2009

2010

2011

2012

2013

2014

2015

2016

0

2

4

6

8

10

12

0

2

4

6

8

10

12

Sept. FOMC Forecast Ranges in Yellow

In its latest projections, the FOMC expected unemployment to continue to improve

Long Term

1983

1984

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1989

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1991

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2013

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Long

Term

0

2

4

6

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12

0

2

4

6

8

10

12

(2)

(3)

(12

Federal Funds RateYear-end target

Percent

Source: U.S. Bureau of Economic Analysis, FOMC

Sept FOMC Forecast Ranges in Yellow

On interest rates, most FOMC participants expect little change until 2015

Long Term

Note – Number of participants who project the initial increase will occur in the specified year in parenthesis

The Oklahoma Economy and Manufacturing

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-1392

94

96

98

100

102

104

92

94

96

98

100

102

104Index: Jan-08=100

Source: U.S. Bureau of Labor Statistics

Level of Payroll Employment Through August 2013

Employment in Oklahoma remains above pre-recession levels, but has eased lately

Oklahoma

U.S.

Percent change year-over-year

Employment Growth by Industry August 2013

A drop in energy jobs has hurt the state this year, but manufacturing jobs have held up

Source: Bureau of Labor Statistics

-10

-8

-6

-4

-2

0

2

4

6

8

1.7

3.0 3.4

2.0

0.1

-0.1

-2.6

1.91.4

2.8 3.0

0.5

5.4

1.8 1.60.7 0.3 0.2 0.1 0.0

-1.3

-8.1

U.S. OK

Source: OK Employment Security Commission

And unemployment rates in nearly all of Oklahoma remain better than the U.S. rate

County Unemployment RatesJuly 2013

Percent

Source: WiserTrade

Total Manufacturing Exports Percent change, year-over-year

Oklahoma manufacturing exports have risen recently, more than the nation

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13-40

-30

-20

-10

0

10

20

30

40

-40

-30

-20

-10

0

10

20

30

40

U...

Percent

Source: WiserTrade

Manufacturing Exports by Industry (Top 5 Oklahoma export industries)

Jul-12 YTD vs. Jul-13 YTD

Aircraft and machinery have driven the rebound in Oklahoma exports this year

-30

-25

-20

-15

-10

-5

0

5

10

15

20

U.S.OK

Percent

Source: WiserTrade

Manufacturing Exports by Destination (Top 5 Oklahoma export destinations)

Jul-12 YTD vs. Jul-13 YTD

Oklahoma’s exports to Europe have surged, and exports to China have remained solid

Europe China Mexico Canada Japan-30

-25

-20

-15

-10

-5

0

5

10

15

20

U.S.OK

Index

Source: FRB Kansas City

Manufacturing Composite Indexes Month-over-month, Seasonally Adjusted

As in the nation, regional manufacturing activity improved in the third quarter

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

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Jan-10

Feb-10

Mar-10

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May-10

Jun-10

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Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

KC Fed

ISM

Index

Source: FRB Kansas City

Tenth Fed District Manufacturing Expectations Six-month ahead, Seasonally Adjusted

And expectations among regional plant managers increased in September

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

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0

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50

Capital Spending

Employment

Production

Percent

Source: U.S. Bureau of Labor Statistics

Manufacturing Employment Percent change, year-over-year

For most of the past decade, Oklahoma factory jobs have grown faster than the U.S.

Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13-20

-15

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-5

0

5

10

-20

-15

-10

-5

0

5

10

U.S.

OK

Percent

Source: U.S. Bureau of Labor Statistics

Manufacturing Share of Total Employment

Manufacturing’s share of employment in Oklahoma is now similar to the nation

Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-136

7

8

9

10

11

12

6

7

8

9

10

11

12

U.S.

OK

Source: U.S. Bureau of Labor Statistics

Oklahoma Manufacturing Employment by Industry Change in number of jobs, 2002-2012

Nearly all of the net job gains in the state have been in machinery or primary metals

Transportation equipmentFood

Plastics & rubberPrinting

WoodComputer & electronic

Misc.Furniture

Nonmetallic mineralFabricated metal

PaperPetroleum

Elec. equip., appliance, & comp.Chemical

Beverage & tobaccoPrimary metal

Machinery

-6000 -4000 -2000 0 2000 4000 6000 8000

Source: U.S. Census Bureau ASM

Share of Manufacturing Output by Industry 2011

Machinery, metals, petroleum, and mineral manufacturing make the state most unique

  Percent of Total OutputLocation QuotientIndustry U.S. Oklahoma

Petroleum & coal products 4.4 13.9 3.2Machinery 7.1 16.4 2.3Nonmetallic mineral products 2.3 4.5 2.0Fabricated metal products 7.2 14.3 2.0Paper 3.6 5.2 1.4Plastics & rubber products 4.1 4.6 1.1Food 12.2 9.9 0.8Transportation equipment 12.6 9.4 0.8Elec. equip., appliance, & components 2.5 1.8 0.7Primary metal 3.8 2.7 0.7Printing & related support activities 2.3 1.4 0.6Miscellaneous 4.5 2.1 0.5Beverage & tobacco products 3.7 1.7 0.5Wood products 1.3 0.6 0.5Chemical 16.1 7.4 0.5Furniture & related products 1.4 0.6 0.4Computer & electronic products 9.5 3.5 0.4

       Note - Location quotient is the division of local employment share by national employment share

• U.S. manufacturing slowed in early 2013 as jobs and hours flattened out, but growth has risen since Q2

• Regional and Oklahoma factory activity has also picked up lately, driven in part by stronger exports

Summary

For more information about the Kansas City Fed’s Monthly Survey of Manufacturers,

please go to our website:www.kansascityfed.org/research/indicatorsdata/mfg

For more information about the Oklahoma economy, subscribe to the quarterly

Oklahoma Economist at:www.kansascityfed.org/publications/research/oke

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