A Look at the
National and Local
Economic Landscape
Financial Executives Network
Group
St. Louis, MO
Kevin L. Kliesen
Business Economist and Research Officer
Federal Reserve Bank of St. Louis
March 6, 2014
Not an official document
An Outline of Today’s Presentation
•
The Big Picture
•
A Closer Look at U.S. Economic Conditions
•
The Outlook for the U.S. Economy in 2014: Two Views
•
What’s Going on in the St. Louis Economy?
2
Disclaimer
The views I will express are my own
and do not necessarily reflect the
positions of the Federal Reserve Bank
of St. Louis or the Federal Reserve
System.
The U.S. Economy: A View From 30,000 Feet
• Headwinds slowly becoming tail winds; but some
mixed signals thus far in 2014.
• The unemployment rate is falling faster than most
expected—but not the St. Louis Fed!
• The monetary punch bowl is full, credit risks appear
low, and banks are flush with cash.
• The performance of the U.S. economy in 2014 should
be better than last year—and with continued low
inflation.
4
The U.S. Economy Loses Some Momentum.
• The economy saw good growth over the second half of
2013. . . Led to building optimism.
• But then some key economic data came in weaker than
expected.
• Next, 2013-Q4 real GDP growth was revised from 3.2%
to 2.4%.
• In response, forecasts for 2014-Q1 growth have been
trimmed.
• Is this a first-quarter freeze out, an inventory
correction, or a return to the “new normal?”
5
Evidence for a Temporary Lull: A Perfect Storm.
• January temps were colder than usual and late-January
and early-February brought two big storms to the East
Coast.
• Many economic reports and surveys revealed weather
responsible for part of the slowdown.
•
In January, manufacturing output fell 0.8 percent, partly
because of the severe weather that curtailed production in
some regions of the country. (Industrial Production report).
• Also contributing to the slowdown was the expectation
of an inventory run-off.
6
In 2013, the production of goods produced but not
sold accounted for about a third of real GDP growth.
The Composition of Real GDP Growth: Inventory
Investment and Final Sales
Percent change over the past four quarters
4.0
3.0
1.75
2.0
1.0
0.79
0.0
-1.0
-2.0
Final Sales
-3.0
Inventories
-4.0
2007
2008
2009
2010
2011
2012
2013
7
But other key data show no evidence of a pending
collapse in economic activity.
Initial Weekly Claims for State Unemployment Insurance Benefits
Thousands, Four-week moving average
700
650
600
550
500
450
400
350
300
250
200
Dec.2005
Mar.2007
Jun.2008
Sep.2009
Dec.2010
Mar.2012
Jun.2013
Data through the week ending Feb. 22, 2014.
8
And the unemployment rate has fallen faster than
most forecasters and FOMC participants expected.
Actual and Projected Unemployment Rate
Percent of civilian labor force
11.0
Actual
10.0
Actual Projected
9.0
Trend
8.0
FOMC Projection,
March 2013
7.0
6.0
5.0
Dec.2009
6.6 (Jan)
FOMC Threshold (6.5%)
Oct.2010
Aug.2011
Jun.2012
Apr.2013
SOURCE: Bureau of Labor Statistics and author's calculations.
Feb.2014
Dec.2014
Oct.2015
9
Inflation remains relatively low and well below the
FOMC’s threshold.
The FOMC's Preferred Inflation Measure
Percent change from a year earlier
4.0
3.0
FOMC Threshold
2.5
2.0
1.1
1.0
0.0
Jan.2010
Nov.2010
Sep.2011
Jul.2012
May.2013
Mar.2014
NOTE: Inflation calculated from the personal consumption expenditures price index .
Last actual observation is December 2013.
10
Financial stress remains lower than average. This
generally bodes well for the economy.
The St. Louis Fed's Financial Stress Index
Weekly data
1.5
1.0
S&P Downgrade, GDP Revision,
and Europe, 2011
Week of
June 18 FOMC
0.5
0.0
-0.5
-1.0
-1.5
Dec.09
European
Turmoil, 2010
Jul.10
Feb.11
European Turmoil,
2012
Sep.11
Apr.12
Nov.12
Jun.13
Jan.14
Last observation: Week of Feb. 28, 2014.
11
The U.S. Economy in 2014: The Case for Faster
Growth
•
Diminishing headwinds, but with periodic hiccups.
•
Business investment—a key to stronger growth—is likely
to pick up; stronger global growth will help.
•
Housing should remain a source of strength.
•
Job growth to remain healthy. . . the unemployment
continues to fall.
•
Inflation is likely to remain below 2%, helping to keep
interest rates relatively low and stable.
12
Forecasters expect a better composition of growth
in 2014: More final sales; fewer unsold goods.
Real GDP Growth and its Composition in 2013 and 2014(F)
Percent
4.0
3.7
3.0
2.0
3.4
2013:H1
2013:H2
2014:H1
2.7
2.5
1.8
1.2
1.0
1.0
0.7
0.0
-1.0
-1.0
-2.0
Real GDP
Final Sales
Inventories
13
The Case for Weaker-than-Expected Growth in
2014: A Return to the New Normal
•
What some Fed Presidents are saying.
• The expansion is nearly 5 years old and labor productivity
growth—a key economic variable—is paltry.
•
Labor market fundamentals mean that job gains of
180,000/month are not sustainable.
•
This unfortunate combination suggests the economy’s
true growth is around 2%, with a natural rate of
unemployment around 6%.
•
Pushing too hard on the gas could lead to higher inflation.
14
A Warning from the President of the San Francisco
Federal Reserve Bank
•
The current high level of long-term unemployment may not
influence inflation pressures to the same degree as shortterm unemployment (unemployed < 27 weeks).
•
The overall unemployment rate may be less useful for
forecasting inflation now than it normally is.
•
Accordingly, it could be that slack in labor markets is much
less than assumed.
•
I currently see this as a risk to the inflation outlook. For
now, measures of wage and price inflation remain muted.
15
Something to worry about?
Short-term Unemployment Rate: Actual and Median Rate
Percent
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1992
1995
1998
2001
Source: Bureau of Labor Statistics.
2004
2007
2010
2013
Data through January 2014.
16
Now, this is Something to Worry about: The
Economic Policy Concern that Dwarfs All Others
Real Per Capita GDP Growth During Business Expansions
Percent change, annualized
Years for
Living
Standards to
Double at
Different
Growth Rates:
4.0
3.5
3.4
3.0
2.3
2.5
2.0
1.7
1.5
1.2
1.0
0.5
0.0
1982-90
NOTE: Quarterly data
1991-2001
2001-07
Business Expansions
2009-Present
3.4%: 21 Years
2.3%: 30 Years
1.7%: 41 Years
1.2%: 58 Years
To Conclude: Will the U.S. Economy Escape the
Doldrums in 2014?
•
That’s our forecast and we’re sticking it to yet!
•
But we recognize that: (1) Most forecasters have been
too optimistic the past few years; and (2) there appear to
be some strong impediments to growth.
•
Are those impediments temporary or more longerlasting? It’s too early to tell.
•
Monetary policy has done all it can. Fiscal policymakers
can help—in several dimensions. Will they?
18
Turning to the St.
Louis Economy
19
In 1990, St. Louis’ largest employers were in trade,
transportation and manufacturing.
2.4
5.9
Trade, Transp. &
Utilities
Education & Health
4.2
Professional & Business
Services
Government
21.3
17.4
Leisure & Hospitality
11.4
Mining & Construction
4.3
12.4
8.9
11.8
Manufacturing
Information
Financial
20
Fast forward to 2013: The St. Louis economy is
dominated even more by service-based industries.
The Five Largest Industries by Employment: St. Louis vs. United States
Percent of total employment
0
5
10
15
20
25
19
19
Trade, Transp. & Utilities
18
Education & Health
15
St. Louis MSA
Professional & Business
Services
15
12
Government
Leisure & Hospitality
Source: Bureau of Labor Statistics/ Haver Analytics
United States
14
16
11
10
21
In 2013, St. Louis saw strong job growth in its
largest industry, but weak overall job growth.
St. Louis Employment Growth in the Five Largest Industries in 2013
Percent change
3.0
2.3
2.0
1.0
0.7
1.3
1.2
0.0
0.0
-1.0
-2.0
-2.3
-3.0
Total
Trade,
Education & Professional Government Leisure &
Transp. &
Health
& Business
Hospitality
Utilities
Services
22
St. Louis’ MSA unemployment rate is near the U.S.
average but above the Missouri average rate.
U.S., Missouri, and St. Louis MSA Unemployment Rate, Jan. 2007 - Dec. 2013
Percent
11
10
9
8
7
6.8 (StL)
6.7 (U.S.)
6
5.9 (MO)
5
United States
Missouri
St. Louis MSA
4
3
2007
2008
Source: Bureau of Labor
2009
2010
2011
2012
2013
2014
23
Within Missouri MSAs, St. Louis has the highest
unemployment rate
Unemployment Rates in Missouri MSAs (Jan. 2009 to Dec. 2013)
Percent
11
St. Louis
Kansas City
Springfield
Columbia
10
9
8
7
6.8
6
5.9
5
5.0
4
4.2
3
Jan.2009
Oct.2009
Jul.2010
Apr.2011
Source: Bureau of Labor Statistics/ Haver Analytics
Jan.2012
Oct.2012
Jul.2013
Apr.2014
24
St. Louis’ post-recession real GDP growth has been
weak relative to the nation and other area cities
Real GDP Growth, 2009-2012: How Does St. Louis Stack Up?
Annualized Percentage Change
4.5
3.9
4.0
3.5
3.0
2.5
2.2
2.0
1.5
1.2
1.2
1.0
0.6
0.5
0.0
St. Louis
Source: BEA/ Haver Analytics
Little Rock
Louisville
Memphis
All MSAs
25
The bust in house prices appears to explain a small
part of St. Louis’ weak growth since 2009.
CoreLogic House Price Index
Average Annual Percent Change for Period Indicated
14
11.6
12
10.8
10
8
St. Louis MSA
6.5
United States
6
4.3
4
2
0
-0.2
-2
-2.4
-4
-6
-2.6
-5.9
-8
2000-2005
2006-2009
Source: CoreLogic and author's calculations.
2010-2012
2013
26
In fact, St. Louis has had pretty weak real GDP growth
for more than a decade.
Annualized Growth of Real GDP in the St. Louis MSA, the Nation, and the
Largest Surrounding MSAs, 2001-2012
Percent per year
2.00
1.8
1.75
1.6
1.4
1.50
1.25
1.00
0.7
0.75
0.50
0.5
0.25
0.00
St. Louis
Little Rock
Louisville
Memphis
United States
27
St. Louis’ poor economic performance importantly
stems from its weak labor productivity growth.
Annualized Growth of Output Per Worker in the St. Louis MSA, the Nation, and the Largest
Surrounding MSAs, 2001-2012
Percent per Year
1.75
1.50
1.3
1.25
1.4
1.4
1.0
1.00
0.8
0.75
0.50
0.25
0.00
St. Louis
Little Rock
Louisville
Memphis
United States
Source: Bureau of Labor Statistics, Bureau of Economic Analysis/ Haver Analytics; author's calculations
28
Since 2001, St. Louis city and MSA has seen an
outflow of persons in the labor force.
Growth of Labor Force in Selected Missouri Cities
Annualized percent change since 2001
2.0
1.5
1.2
1.0
0.8
0.5
0.6
0.2
0.0
-0.5
-0.1
-0.2
-0.3
-1.0
-1.5
-1.2
-2.0
29
Is St. Louis poised to turn the corner? Some
Challenges and Opportunities.
• The Good: A world class university and medical center;
a vibrant health care sector; a sizable financial sector; a
dominant bio-tech company; and T-Rex.
• The aging of the population presents both challenges
and opportunities for the health care and financial
industries.
• The Not-so-Good: Like many Midwestern states,
Missouri’s business climate is not ranked as high as
other states in faster-growing areas.
30
The Outlook for St. Louis: Near and Far
•
St. Louis economy has been growing slower than the
nation’s economy for quite some time. U.S. growth is
expected to be around 3% in 2014.
•
Housing construction and manufacturing (less so) have
been sources of strength for the U.S. economy, but these
are relatively small part of the St. Louis economy.
•
Continued modest growth is likely for the St. Louis
region over the next few years.
31
Questions?
32
If you would like a PDF copy
of my presentation, please
e-mail me at:
kliesen@stls.frb.org
33