u.s. and kansas city region economic and real estate conditions … · sharpest recession in...

Economic Conditions and Outlook for the U.S. and Kansas City Region

Institute of Management Accountants Kansas City, MO

March 19, 2013

Kelly D. Edmiston Federal Reserve Bank of Kansas City

Disclaimer: The views in this presentation are those of the speaker and do not necessarily represent the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System

Overview

• The U.S. economy continues to recover, but at a very modest pace

• Employment growth is thin, in the U.S. and in Kansas City, and by some measures, its worse than we think it is. But U.S. growth is getting stronger.

• Significant risks temper the outlook going forward • The residential real estate market, however, is doing

better

March 19, 2013 2 K. Edmiston, FRBKC

OUTPUT AND EMPLOYMENT



Sharpest recession in post-war period was followed by abnormally slow post-recession growth


-1.9

-3.1 -6

-4

-2

0

2

4

6

8

10

-4

-2

0

2

4

6

8

10

1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

Annual Percent Change Annual Percent Change

4.5 7.2 4.1

-8 -6 -4 -2 0 2 4 6 8

-8 -6 -4 -2 0 2 4 6 8

1980 1981 1982 1983 1984 1985

1980 - 1985

Source: U.S. Bureau of Economic Analysis

2.2

Quarterly Real GDP Growth (Annualized)

March 19, 2013

Source: U.S. Bureau of Economic Analysis

5 K. Edmiston, FRBKC

-8.9

-6.7

3.1

0.1

-10

-8

-6

-4

-2

0

2

4

6

-10

-8

-6

-4

-2

0

2

4

6

2007-I 2007-III 2008-I 2008-III 2009-I 2009-III 2010-I 2010-III 2011-I 2011-III 2012-I 2012-III

Annualized Percentage Change Annualized Percentage Change

$400B Stimulus

Low GDP growth in the fourth quarter driven largely by sharp drop in federal government spending (largely defense) and

inventory investment

March 19, 2013

Source: Bureau of Economic Analysis; Haver Analytics


0.1

1.5

0.4

1.0

0.2

-1.4 -1.6

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Total GDP Consumer Spending

Res. Invest

Bus. Invest

Net Exports

Gov. Spending

Inventories

2012:Q1 2012:Q2

2012:Q3 2012:Q4

Percentage Points Percentage Points

Although defense spending dropped sharply in the fourth quarter, it is often volatile; some pre-sequester shifting

March 19, 2013 K. Edmiston, FRBKC 7

Source: BEA; Haver Analytics

-8

-6

-4

-2

0

2

4

6

-8

-6

-4

-2

0

2

4

6

Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12

Percentage Change (Quarter-over-Quarter) (Seasonally Adjusted)

Defense Spending

Personal income growth has been flat late in the recovery; end-of-year likely reflects “fiscal cliff ” resolution response



10,000

11,000

12,000

13,000

14,000

15,000

10,000

11,000

12,000

13,000

14,000

15,000

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

$billions (SAAR, Inflation-Adjusted)

Personal savings rates (as a share of disposable income) have dropped off in recent months



0

2

4

6

8

10

0.0

2.0

4.0

6.0

8.0

10.0

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Percent Percent

Average consumer debt (less first mortgage) was relatively flat in the U.S. in 2012, but increased moderately in KS and MO

March 19, 2013

Source: Federal Reserve Bank of Kansas City; Federal Reserve Bank of New York Consumer Credit Panel/Equifax


0

5,000

10,000

15,000

20,000

25,000

0

5,000

10,000

15,000

20,000

25,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S.

KS

MO

$ per Consumer (four-quarter moving average)

Peak debt

Economic growth will likely be weak in 2013 before picking up in 2014-15; longer-run growth will be lower by historical standards

March 19, 2013

Sources: Bureau of Economic Analysis; FOMC; Blue Chip Economic Indicators


2.1 3.0 3.0

2.3 1.9

2.7

-4

-3

-2

-1

0

1

2

3

4

5

-4

-3

-2

-1

0

1

2

3

4

5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 LR

Percent Percent

Through 1990

Through 2000

Through 2007 2.7

3.5 3.7

2.5

Blue Chip Consensus Forecasts

(March, 2013)

LR growth rate FOMC Real GDP Growth Forecast (Dec, 2012)

GDP and Potential GDP


0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Actual Projected

$trillions $trillions

Source: Congressional Budget Office

By historical standards, for employment the 2007– 2009 recession was especially deep and the recovery especially weak


Source: U.S. Bureau of Labor Statistics; Haver Analytics

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 Months

1970 1974 1980 1981 1990 2001 2007

% Change from Peak Employment

Employment growth in the U.S. and Kansas City has been slow and levels remain well below pre-recession levels

March 19, 2013

Source: BLS; Haver Analytics


-900

-600

-300

0

300

600

900

1,200

-9

-6

-3

0

3

6

9

12

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

KC

U.S.

U. S. (right axis) 1yr: 2.3 million (1.7%) 5yr: - 3.3M (-2.4%) [February]

Kansas City (left axis) 1yr: 3,800 (0.4%) 5yr: -24.4K (-2.4%) [December]

Thousands of Jobs (seasonally adjusted; 3 mos moving average) Thousands of Jobs seasonally adjusted)

The decline in unemployment rates is due partly to employment growth, but also partly to a decline in labor force participation


10.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

60.0

62.0

64.0

66.0

68.0

70.0

72.0

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Unemployment Rate (right axis)

Labor Force Participation Rate (left axis.; down 2.5 pct pts)

7.7 (Feb)

Percent of Working-Age Population (non-institutionalized)(seas.adj.) Percent of Labor Force (seas. adj.)

Source: U.S. Bureau of Labor Statistics: Haver Analytics

An alternative measure of labor force utilization that includes discouraged workers and reluctant part-timers (U-6) reveals a

much higher unemployment rate than is typically reported (U-3)


Source: U.S. Bureau of Labor Statistics; Haver Analytics

14.3

7.7

6.4

0

4

8

12

16

20

0

4

8

12

16

20

Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Percent Unemployed (seasonally adjusted)

U-6

U-3

K.C. (U-3) (December)

Percent Unemployed (seasonally adjusted)

Reclaiming lost jobs is not sufficient for a labor market recovery, as the labor force has grown since the recession began

March 19, 2013

Source: Federal Reserve Bank of Kansas City Updated through October 2012


120,000

125,000

130,000

135,000

140,000

145,000

150,000

120,000

125,000

130,000

135,000

140,000

145,000

150,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3.8 Million

2.8 Million

thousands thousands

Actual Employment

Employment Required to Reach Unemployment Rate at Dec 2007 Level

Chart computes the employment level that would be required to keep the unemployment rate at the December, 2007 level, given structural trends in the labor force participation rate. The structural trend in labor force participation rates is discussed in Van Zandweghe (2012).

RISKS TO THE OUTLOOK



Federal debt is projected to continue to increase as a share of GDP on what is potentially an unsustainable path

Source: Congressional Budget Office


0%

20%

40%

60%

80%

100%

120%

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Percent of GDP

More of the fiscal cliff played out than was previously anticipated, likely putting a drag on 2013 GDP

March 19, 2013

Payroll Tax Payroll Tax

Extended UI Extended UI

AMT Fix Expires

BushCuts Expire

Sequestratation, -0.5

-4

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

Full Fiscal Cliff Scenario

Widely Anticipated Scenario (Embedded in Dec 2012 FOMC

forecast; latest public release)

v Partial

Effective March 1

Indexed to inflation

Source: Goldman Sachs; www.whitehouse.com


European Debt Crisis

Australia Austria

Belgium

Canada

Czech Republic Denmark

France

Germany

Greece

Iceland

Ireland

Italy

Japan

Netherlands

New Zealand

Poland Slovak Republic

Slovenia

Spain

United Kingdom

Euro Area

-12

-10

-8

-6

-4

-2

0 0 20 40 60 80 100 120 140

United States

2011

GO

VT.

DE

FIC

ITS,

Perce

nt of

GD

P

2011 NET GOVT. DEBT, Percent of GDP

Source: Organization for Economic Co-operation & Development


European Interest Rate Spreads

March 19, 2013

Source: Bloomberg

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13

Italy France UK Spain


U.S. Exports to the EU (Goods Only)

March 19, 2013

0

50,000

100,000

150,000

200,000

250,000

300,000

0

50,000

100,000

150,000

200,000

250,000

300,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

$2012M $2012M

Source: U.S. Census Bureau Note: Inflation adjusted with BEA implicit GDP deflator


RESIDENTIAL REAL ESTATE



Existing homes sales have been growing at a steady and substantial rate

0

20

40

60

80

100

120

0

20

40

60

80

100

120

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Kansas City

U.S.

Index: Jan 2006 = 100 Index: Jan 2006 = 100

U.S. sales up 12.8 percent Year-over-year

Sources: National Realtors Association; Kansas City Regional Association of Realtors; Haver Analytics


KC sales up 9 percent Year-over-year

Demand Headwinds

• Economy/Financial Security • Uncertainty about Market • Household Formation • Credit Availability

Homebuyer traffic suggests continued improvement in existing sales, but demand headwinds continue to exist

Homebuyer Traffic


Proprietary Data Removed

The months supply of existing homes (KC MSA) favors sellers, but is due largely to low inventories rather than higher sales


0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

5.6

Months Months

Source: Kansas City Regional Association of Realtors

Existing single-family home prices growth varies significantly by index; prices are stable in Kansas City but have seen little growth

metro-wide

Source: Haver Analytics; FHFA; NAR March 6, 2013 28 K. Edmiston, FRBKC

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Q1-2006 Q3-2006 Q1-2007 Q3-2007 Q1-2008 Q3-2008 Q1-2009 Q3-2009 Q1-2010 Q3-2010 Q1-2011 Q3-2011 Q1-2012 Q3-2012

FHFA House Price Index: Kansas City, MO-KS (Q1 1995=100)

NAR Median Sales Price: Total Existing Homes, United States ($)

FHFA House Price Index: Purchase Only, United States (SA, Q1-91=100)

Percent Change (Annual) Percent Change (Annual)

Most housing price indices show modest improvement in KC prices

Mortgage delinquencies in Kansas are trending downward, but less significantly than in many other areas of the country


9.6% 8.4%

2.0% 1.6%

4.8% 4.1%

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Past Due

Foreclosure

Seriously Delinquent

Share of Outstanding Mortgages

Federal Reserve Bank of Kansas City Consumer Credit Reports; Lender Processing Services, Inc.

Missouri mortgage delinquencies are trending downward with a sharp reduction in foreclosures in 2012


11.1%

8.9%

1.8% 1.2%

5.6%

4.1%

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Past Due

Foreclosure

Seriously Delinquent

Share of Outstanding Mortgages

Federal Reserve Bank of Kansas City Consumer Credit Reports; Lender Processing Services, Inc.

Mortgage delinquencies are trending downward more substantially in other parts of the U.S., putting Kansas City more in-line with national trends

K. Edmiston, FRBKC 31

Status of Mortgage Pool KC Metro Kansas City Missouri USA

Delinquent 30 days 3.1 3.4 3.5 3.0

Delinquent 60 days 1.2 1.4 1.3 1.2

Delinquent 90 days + 2.9 3.7 2.9 3.4

In Foreclosure Process 1.4 1.4 1.2 3.2

SERIOUSLY DELINQUENT 4.3 5.1 4.1 6.6

TOTAL PAST DUE 8.6 9.9 8.9 10.8 Data Source: Lender Processing Services, Inc. (January, 2013 data)

March 6, 2013


Kansas City Serious Delinquency Rates (Jan 2013)

Data Source: Lender Processing Services, Inc.

Contact Information: Kelly D. Edmiston Senior Economist Community Development 1 Memorial Drive Kansas City, MO 64198 (816) 881-2004 [email protected]


u.s. and kansas city region economic and real estate conditions … · sharpest recession in...

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