Midwest Perspectives Bill Testa Community Banking Conference Vice - - PowerPoint PPT Presentation

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Midwest Perspectives Bill Testa Community Banking Conference Vice - - PowerPoint PPT Presentation

May 31, 2023 152 likes •523 views

Midwest Perspectives Bill Testa Community Banking Conference Vice President University of Wisconsin--Whitewater April 27, 2018 Federal Reserve Bank of Chicago Topics Today U.S. Economy (doing well) Midwest Economy Near Term (doing

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Bill Testa Vice President Federal Reserve Bank of Chicago Community Banking Conference University of Wisconsin--Whitewater April 27, 2018

Midwest Perspectives

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Topics Today

  • U.S. Economy (doing well)
  • Midwest Economy
  • Near Term (doing well except ag)
  • Long run challenges (slow growth of

pop and workforce, especially small places and rural areas)

April 27, 2018 Federal Reserve Bank of Chicago 2

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Overview of U.S.

  • 1. Upward revision to Q4 2017 GDP estimate together with strengthening

business and consumer optimism has lead to higher economic expectations for 2018.

  • 2. Consumer sentiment increased to 14 year high in April, aided by improving

incomes and strength in the labor markets.

  • 3. Business activity (Investment and Export Recovery) remains strong especially

in manufacturing.

  • 4. The prospect of high tariff environment has added to market volatility and

business uncertainty.

  • 5. Economy running close to potential as labor markets tighten.
  • 6. Wage and price growth firming while inflation (and expectations) remains

below the 2-percent objective.

  • 7. Many forecasts revised higher for this year and next with fiscal stimulus of tax

reform and higher federal spending

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Billions Chained $2009, % Change Q/Q at SAAR

  • 10.0
  • 5.0

0.0 5.0 10.0 15.0 20.0 12,000 13,000 14,000 15,000 16,000 17,000 18,000

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

$ Billions

Q4 ‘17 $17,287 2.9%

U.S. Real GDP

Percent

Source: U.S. Bureau of Economic Analysis

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U.S. Real GDP – CBO Projections

Percent Change, Fourth Quarter to Fourth Quarter

In Billions of Chained $2009 2.0 1.5 3.3 2.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2018 2019 - 2020 Jun '17 Fcst Apr '18 Fcst Percent

Source: Congressional Budget Office.

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Real Personal Consumption

Real Personal Consumption Expenditures1 and Retail Sales2

Percent Change Year-over-year

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2016 2017 2018 PCE Retail

Source: Author’s calculation using U.S. Census Bureau of Economic Analysis data.

  • 1. Real Personal Consumption Expenditures - SAAR
  • 2. Real Retail Sales and Food Services - SA

Feb ’18 2.7% 1.7%

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Consumer Sentiment

University of Michigan

Index 20 40 60 80 100 120 140 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

January ‘00 112.0

Source: Thomson Reuters / University of Michigan

Mar ’18 101.4

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Income and Savings Rate

  • 6.0
  • 4.0
  • 2.0

0.0 2.0 4.0 6.0 8.0 10.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Percent

Percent Change and Percent of DPI

Feb ‘18 2.2%

Source: U.S. Bureau of Economic Analysis

Post Recession 1.8% Pre-recession 3.1% 0.0 2.0 4.0 6.0 8.0 10.0 12.0 '00 '02 '04 '06 '08 '10 '12 '14 '16

Percent

Feb ’18 3.4% Post recession Average 5.5% Pre-recession average 4.0%

Real DPI - % Chg. Yr./Yr., $2009 Personal Saving Rate - % of DPI

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ISM Purchasing Managers Index

Manufacturing & Composite, SA - Greater than 50 = Expansion

35.0 40.0 45.0 50.0 55.0 60.0 65.0

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18

  • Mfg. PMI (LHA)

Composite (LHA)

Source: Institute for Supply Management , Haver Analytics and FRED

Index

Mar ‘18 59.3 58.9

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Industrial Production & New Orders

Index, 2012 = 100

80.0 85.0 90.0 95.0 100.0 105.0 110.0 115.0 '17 '17 '17 '17 '17 '17 '17 '17 '17 '17 '17 '17 '18 '18 Total Manufacturing

Index

Source: Board of Governors, Federal Reserve and U.S. Census Bureau

80.0 85.0 90.0 95.0 100.0 105.0 110.0 115.0 2017 A J O 2018 All Mfg.

  • Mfg. Durable Goods

Index Industrial Production New Orders

Feb ‘18 106.5 104.9 Feb ’18 104.8 112.6

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  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 '11 '12 '13 '14 '15 '16 '17 '18 PCE - All Items PCE - Core 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Actual Target

Unemployment Rate & Prices

Percent Unemployed, PCE / CPI % Change Yr./Yr.

Source: U.S. Department of Labor: Bureau of Labor Statistics , Bureau of Economic Analysis and the Federal Reserve

Unemployment PCE Inflation – All Items

Target 2.0% Mar ‘18 4.1% Percent Percent Feb ‘18 1.8% 1.6%

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We’re likely at potential and headed above it

April 27, 2018 Federal Reserve Bank of Chicago 12

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0.0 1.0 2.0 3.0 4.0 5.0 6.0 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 0.50 1.00 1.50 2.00 2.50 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Quit Rate Layoffs & Discharge Rate

Labor Conditions

Job Openings and Quit & Layoff Rates

Quits and Layoffs & Discharges Divided by Nonfarm Payroll

Ratio Percent

Mar ‘18 1.37

Jan ‘18 2.21% 1.19%

Unemployed / Job Adds

Sources: U.S. Department of Labor – Job Openings and Labor Turnover Survey (JOLTS) and Conference Board – Help Wanted Online Data (HWOL)

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Topics Today

  • U.S. Economy
  • Midwest Economy
  • Near Term
  • Long run challenges

April 27, 2018 Federal Reserve Bank of Chicago 14

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Our District’s labor market is in good shape too

April 27, 2018 Federal Reserve Bank of Chicago 15

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Things are going well in our District

April 27, 2018 Federal Reserve Bank of Chicago 16

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Things are going particularly well for manufacturers

April 27, 2018 Federal Reserve Bank of Chicago 17

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Things are going well in the rest of the world too

April 27, 2018 Federal Reserve Bank of Chicago 18

IMF real GDP growth forecast for 2018

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Agricultural economy

April 27, 2018 Federal Reserve Bank of Chicago 19

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7th District Agriculture Products (as % of U.S. total, 2017)

0% 10% 20% 30% 40% 50%

Grain Corn Soybeans Hogs Eggs Milk Production Cattle

Source: Calculations based on data from USDA, National Agricultural Statistics Service April 27, 2018 Federal Reserve Bank of Chicago 20

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Real Cash Crop Prices

($/bushel for Central IL, adjusted by CPI-U for January 2010)

10 20 30 40 1976 1981 1986 1991 1996 2001 2006 2011 2016 Corn Soybeans

Sources: The Wall Street Journal and U.S. Bureau of Labor Statistics April 27, 2018 Federal Reserve Bank of Chicago 21

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Real USDA Livestock Prices

($/hundredweight, adjusted by CPI-U for January 2010)

50 100 150 200 250 1976 1981 1986 1991 1996 2001 2006 2011 2016 Hogs Cattle

Sources: USDA, National Agricultural Statistics Service and U.S. Bureau of Labor Statistics April 27, 2018 Federal Reserve Bank of Chicago 22

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Dairy exports and milk prices

$10 $14 $18 $22 $26

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Price per cwt. 2 4 6 8 Billion dollars

Exports Price

2018 USDA forecast Source: USDA, World Agricultural Outlook Board April 27, 2018 Federal Reserve Bank of Chicago 23

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Real net farm income and direct government payments to farmers

25 50 75 100 125 150 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

billion 2018$

government payments

*USDA forecast

2018*

Source: USDA, Economic Research Service April 27, 2018 Federal Reserve Bank of Chicago 24

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Annual change in farmland values in 7th Federal Reserve District

  • 30
  • 20
  • 10

10 20 30 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Percent

Source: Federal Reserve Bank of Chicago April 27, 2018 Federal Reserve Bank of Chicago 25

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Farm loan volume with “major” or “severe” repayment problems in 7th Federal Reserve District

2 4 6 8 10 1998 2001 2004 2007 2010 2013 2016 percent

Source: Federal Reserve Bank of Chicago April 27, 2018 Federal Reserve Bank of Chicago 26

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Topics Today

  • U.S. Economy
  • Midwest Economy
  • Near Term
  • Long run challenges

April 27, 2018 Federal Reserve Bank of Chicago 27

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A rich, prosperous region with world class assets, but challenged

  • We are a goods-producing region with technology displacing

labor, especially manual labor

  • Many large cities are an asset during an era of

globalization/urbanization

  • but older industrial/ag cities struggling to become service-oriented
  • small cities and rural areas struggling
  • We are a populous and diverse region (but Sunbelt

migration challenging)

  • World-class skilled workforce (but aging and becoming

closed to immigration on U.S. side)

April 27, 2018 Federal Reserve Bank of Chicago 28

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Manufacturing as share of total jobs

April 27, 2018 Federal Reserve Bank of Chicago 29

Midwest U.S. percent

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Changing technology/globalization not kind to small places

April 27, 2018 Federal Reserve Bank of Chicago 30

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Population change region and county

April 27, 2018 Federal Reserve Bank of Chicago 31

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Demographics: Sunbelt trends return

April 27, 2018 32 Federal Reserve Bank of Chicago

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Aging adding to workforce dearth

April 27, 2018 Federal Reserve Bank of Chicago 33

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34 34 34

Congressional Delegates 1950 2010 Loss Change (%) U.S. 437 435

  • 2

0% WI 10 8

  • 2
  • 20%

MN 9 8

  • 1
  • 11%

IL 25 18

  • 7
  • 28%

IN 11 9

  • 2
  • 18%

MI 18 14

  • 4
  • 22%

OH 23 16

  • 7
  • 30%

PA 30 18

  • 12
  • 40%

NY 43 27

  • 16
  • 37%

GLS 169 118

  • 51
  • 30%

Loss of political representation

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QUESTIONS?

April 27, 2018 Federal Reserve Bank of Chicago 35