Greater Kansas City Chamber of Commerce October 28, 2016 Status of - - PowerPoint PPT Presentation

2017 Economic Forecast Greater Kansas City Chamber of Commerce

October 28, 2016

Status of the U.S. economy

The current recovery is stronger than the last one in terms of job growth, averaging 150K per month since it began, and 200K since 2011.

• 2,500
• 2,000
• 1,500
• 1,000
• 500

500 1,000 20002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016

U.S. Non-Farm Payroll Employment Change, quarterly

However, the current recovery is weaker than the prior one in terms of GDP growth, averaging 2.1% annually vs. 2.8% before, and

• nly 1.2% over

the last year.

• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 2000 2001 2002 2003200420052006 2007 200820092010 2011 2012 2013 2014 2015 2016

U.S. GDP Percent Change, quarterly

As a result, productivity growth is much weaker. GDP/employee is growing only ¾ % vs. 2%, and has recently turned negative.

• 2%
• 1%

0% 1% 2% 3% 4% 5% 2000 2001 2002 2003 2004 2005 2006 2007 20082009 2010 2011 2012 2013 2014 2015 2016

U.S. GDP/Employee Percent Change from Same Quarter One Year Ago

The unemployment rate, at 5%, is half its recession high, though still not as low as in the mid-

• 2000s. The pace of

decline is slowing even though up to 2.6 million people want more or better work.

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016

U.S. Unemployment Rates, quarterly

Official Unemployment Rate Plus discouraged and part-time for economic reasons

The labor supply is growing slowly, 100K per month, or half the current rate

• f job growth.

This is good for unemployment.

50,000 100,000 150,000 200,000 250,000

U.S Average Monthly Growth in Working Age Population 15-64

Labor force participation is rising, though still below the pre-recession trough, not to mention its peak.

70% 72% 74% 76% 78% 80% 82% 84% 2000 2001 2002 2003 200420052006 2007 20082009 2010 2011 2012 2013 2014 2015 2016

• US. Prime-Age Employment to Population Ratio,

25-54 years, quarterly

There is some evidence of labor shortages beginning to

• arise. Hires are

not keeping up with openings, indicating difficulty in meeting demand.

1,000 2,000 3,000 4,000 5,000 6,000 7,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Job Churn Openings, Hires, Quits and Layoffs, quarterly

Openings Hires Quits Layoffs

Demand

• utstripping

supply is helping real wages to increase. Household income is also rising at all levels

• f income.
• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5% 2000 2001 2002 2003 2004 2005 2006 2007 20082009 2010 2011 2012 2013 2014 2015 2016

U.S. Real Median Earnings Growth, Full-Time Workers, Percent change from 1 year ago, quarterly

Inflation remains well- contained, running at or below the FOMC’s 2% target.

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 20002001 2002 2003200420052006 2007 200820092010 2011 2012 2013 2014 2015 2016

U.S. Inflation Rate: Core PCE Personal Conumption Expenditures Price Index, Less Food and Energy

The Federal Funds rate still remains highly accommodative. Sluggish GDP growth has prevented the FOMC moving it up from near historic lows.

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 200020012002 2003200420052006 2007 200820092010 2011 2012 2013 2014 2015 2016

Federal Funds Rate, quarterly

U.S. economic forecast

The median FOMC forecast for GDP is for 1.8% growth in 2016, and 2% growth in 2017 and 2018. RSQE is more

• ptimistic.

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2011 2012 2013 2014 2015 2016 2017 2018

U.S. Real GDP Projections, FOMC vs. RSQE Fourth-quarter to fourth-quarter change

Actual FOMC Range FOMC Median RSQE

The FOMC expects to increase the Fed Funds rate ¼ % in

• 2016. After that, the

range of opinion is

• wide. The median

expectation is for ½- ¾ % increases each year until it reaches about 3%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

FOMC Participants' Assessment of Appropriate Monetary Policy Expected Federal Funds Rate at end of year

2016 2017 2018 2019 Longer-Run

Status of the KC economy

KC has struggled to rebound from the Great

• Recession. It is

lagging its peers in GDP and job growth, but is #2 in median household income growth.

0% 2% 4% 6% 8% 10%

Percent increase in real GDP 2014-15

KC relative to 30 peer metros

• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Percent increase in quality jobs 2015-16

• 1%

1% 3% 5% 7% 9% 11%

Percent increase in real median household income 2014-15

Only two key sectors are growing strongly, medical care and professional, scientific and technical

• services. But

they are also the largest.

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

Construction Manufacturing Wholesale Trade Health Care and Social Assistance Information Finance and Insurance Transportation and Warehousing Prof., Scientific, and Technical Svcs.

KC Employment by Industry 2001-2015

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 Construction Manufacturing Wholesale Trade Health Care and Social Assistance Information Finance and Insurance Transportation and Warehousing Prof., Scientific, and Technical Svcs.

KC Employment by Industry 2001-2015

Since mid- 2014, KC total employment has been growing slightly faster than the U.S. average.

• 5%
• 4%
• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 2010 2011 2012 2013 2014 2015

Total Non-Farm Employment Percent change from 1 year ago

US KC

Professional, scientific and technical services has generally grown faster than the U.S. and is currently growing twice as fast

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 2010 2011 2012 2013 2014 2015

Professional Services Percent change from 1 year ago

US KC

Health care has also grown faster than the U.S., currently by more than a full percentage point.

• 2%

0% 2% 4% 6% 8% 10% 2010 2011 2012 2013 2014 2015

Health Care Percent change from 1 year ago

US KC

Local manufacturing struggled a bit coming out of the recession, but has recently been growing at more than twice the national average.

• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 2010 2011 2012 2013 2014 2015

Manufacturing Percent change from 1 year ago

US KC

Growth in finance and insurance has been very volatile relative to the nation. Currently it is growing about ¾ percentage point faster locally than nationally.

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 2010 2011 2012 2013 2014 2015

Finance and Insurance Percent change from 1 year ago

US KC

Growth in construction has generally kept pace with the national average.

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 2010 2011 2012 2013 2014 2015

Construction Percent change from 1 year ago

US KC

Transportation has grown slower than the nation throughout most

• f the recovery,

and is currently growing about half as fast.

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 2010 2011 2012 2013 2014 2015

Transportation Percent change from 1 year ago

US KC

While wholesale trade has grown faster than the nation in the past, it is currently declining locally while growing nationally.

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 2010 2011 2012 2013 2014 2015

Wholesale Percent change from 1 year ago

US KC

Information, which includes telecom, has been flat nationally but declining steeply locally.

• 35%
• 30%
• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 2010 2011 2012 2013 2014 2015

Information Percent change from 1 year ago

US KC

Slightly faster employment growth locally has resulted in the region’s unemployment rate being about ½ percentage point below the nation’s.

0% 2% 4% 6% 8% 10% 12% 2000 2001 2002 2003 2004 20052006 2007 20082009 2010 2011 2012 2013 2014 2015 2016

KC vs. US unemployment rate

KC US

Both KC and the U.S. are seeing acceleration in wage increases

• ver the past

year.

• 3%
• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 7% 2010 2011 2012 2013 2014 2015

KC vs. U.S. Average Weekly Wage Percent change from 1 year ago

US KC KC Trend

KC economic forecast

Somewhat faster employment growth produces above average GDP growth in 2016 for KC. In 2017, the it is expected that the national economy regains the GDP growth advantage.

1.8% 2.0% 2.0% 1.9% 1.9% 1.9% 2.4% 2.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2015 2016 2017 2018

KC vs. U.S. Real GDP Growth, 2015-2018 Annual change, fourth-quarter to fourth-quarter basis

KC US

Health care and professional services are expected to lead the region’s employment growth, while information is projected to continue to decline.

138 4,072 1,269 2,182 486 5,031 400 2,020 517 2,170 575 1,326 (2,000) (1,000) - 1,000 2,000 3,000 4,000 5,000 6,000 Other Govt. Services - Prof. Tech. Sci. Services - Mgmt of Companies Services - Admin & Waste Mgmt. Services - Educational Services - Health Care Services - Arts, Ent. Rec. Services - Accomodations and Food Svcs Services - Other Finance-Insurance-Real Estate Retail & Wholesale Trade Information

• Trans. & Utilities

Construction Manufacturing

Kansas City Employment Change by Industry Measured fourth-quarter to fourth-quarter

2016 2017 2018

Conclusion

 The current recovery is already longer than average.  2% GDP growth appears to be the new normal  Employment growth remains strong relative to labor supply growth, putting downward pressure on unemployment and upward pressure on wages.  The benefits of growth are now being shared more widely than in earlier stages of the recovery.  The current recovery is likely past its mid-point, but how far past is unclear.

The biggest worry, both locally and nationally, is slow, even negative, productivity growth.

72,000 74,000 76,000 78,000 80,000 82,000 84,000 86,000 88,000 90,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

KC vs. U.S. Productivity GDP/job, U.S. is metro portion only

KC US

This recovery, we’ve had no period where employment and productivity were both growing.

1,200 1,225 1,250 1,275 1,300 1,325 1,350 1,375 1,400 1,425 72,000 74,000 76,000 78,000 80,000 82,000 84,000 86,000 88,000 90,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

KC vs. U.S. Productivity Compared to KC Employment

KC GDP/Emp US GDP/Emp KC Emp (right axis, in thousands)

Thank you!

Questions?

Frank Lenk Director of Research Services Mid-America Regional Council flenk@marc.org