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Richard W. Fisher President and CEO Federal Reserve Bank of Dallas Austin, Texas April 16, 2014 U.S. Economic Dashboard 5 5.5 6 6.5 7 7.5 0.5 8 4.5 8.5 4 9 3.28 3.5 3 7 Junk-bond spread (%) 7.5 8 9.5 10 6.5 9.5 6 5.45 5.5 ! 5 High Yield 11 Corp. Debt (%) 10 10.5 2 2.5 1 3 4 -1 4.5 2.6 -2.5 Percent of jobs recovered 9 4 . 9 8 2. 8 Warning lights Engine Unemp. Yield jump curve stall -0.5 4 4.5 -1 5 Trimmed Mean PCE Inflation (%) 6 5.5 6.5 7 7.5 8 5.5 8.5 5 6.7 4.5 Oil shock 3 1.3 5 6 2.5 3.5 0 -0.5 Year-over-year Real GDP growth 2 1.5 0.5 3.5 -2 9 1.5 0 -1.5 8.5 1 4 Unemployment 10 NOTE: Late November 2013 data (blue) compared with early April 2014 (orange). rate (%) 9 9.5 The Manufacturing and Nonmanufacturing ISM Indexes Both Ticked Upward in March Index, 50+ = expansion 60 Expansion average = 54.5 54.4 ISM Nonmanufacturing Mar. 55 53.7 53.1 50 ISM Manufacturing 45 40 35 30 2007 2008 2009 2010 2011 2012 2013 2014 SOURCES: Institute for Supply Management Report on Business monthly publication on manufacturing and nonmanufacturing data. Latest U.S. Jobs Report Confirms That Weak December and January Gains Were Aberrations Monthly change, thousands 400 350 6-month moving average 300 Mar. 192 188 250 200 150 100 50 0 2010 2011 SOURCE: Bureau of Labor Statistics. 2012 2013 2014 Initial Claims and Unemployment Rate Move Lower 4-week moving average, thousands Oct. '09 700 10.0 650 Percent 11 10 Unemployment rate 600 9 550 8 500 Mar. 6.7 450 6.5% threshold 7 6 400 5 350 Initial claims for unemployment insurance 300 Apr. 5 316 4 3 250 2008 2009 2010 SOURCE: Bureau of Labor Statistics. 2011 2012 2013 2014 The U.S. Credit Markets Are Awash in Liquidity • As of March 2014, the Fed’s par holdings of fixed-rate MBS exceeded 30 percent of the outstanding stock of those securities. • The Fed owns just shy of 24 percent of the stock of Treasury coupon securities. • Having purchased Treasuries further out on the yield curve, and done so in size, the Fed has driven nominal interest rates across the credit spectrum to lows not seen in over a half century. • This has allowed U.S. businesses to restructure their balance sheets and creatively manage their earnings. Corporate Bond Yields and Spreads Remain Low Percent 23 Percent 10 8 6 4 2 0 '10 21 19 17 15 Junk bond / 7-year Treasury spread 4.8 3.2 Average spread: 1997-2007 '11 '12 '13 '14 Junk bond yield 13 11 9 7 5.5 5 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 SOURCES: Moody’s; Bank of America Merrill Lynch; Federal Reserve Bank of Dallas. '11 '12 '13 '14 Equity Prices Have Soared Index 2,000 S&P 500 Stock Index 1,800 1,600 1,400 1,200 1,000 800 +175% since March ‘09 low 600 2007 2008 2009 2010 SOURCE: Standard & Poor’s. NOTE: S&P close at 676.53 on March 9, 2009. 2011 2012 2013 Inflation Is Still Below 2 Percent 12-month percent change 3.5 Headline PCE 3.0 2.5 “Mandate-consistent level” = 2% 2.0 April 2013 1.3 1.5 Feb 2014 1.3 Trimmed-mean PCE 1.0 0.9 0.5 0.0 2010 2011 2012 2013 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. 2014 Texas Economic Update • Texas employment grew 2.5% in 2013. – Added 278,000 jobs • In 2014, Texas grew 2.9% through February. – Added 54,500 jobs • Manufacturing lost jobs, but output expanding. • Construction and energy came in strong. • Expect 2.8% growth for the year. Texas’ Employment Growth Bests Nation’s Dec/Dec, SAAR 4 U.S. 3.4 Texas 2.9 3 2.3 2.1 2 1.6 1 2.5 1.7 1.7 1.3 0.8 0.5 0 -1 Year-to-date: Feb/Dec -2 -2.6 -3 -3.5 -3.8 -4 -5 2005 2007 2009 2011 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. 2013 2014 Employment Growth by Sector 2014 total jobs gained in Texas = 54,500 Thousands of jobs 12 10 8.9 9.6 8.6 7.7 8 5.8 6 6.1 4.4 4 2.5 2 0.8 0 -2 -4 -2.9 Trade, Transp & Utilities (20.1%) Prof. & Educational & Business Government Health Services Services (16.1%) (13.2%) (13.1%) Leisure & Hospitality (10.2%) Manufacturing (7.7%) Financial Activities (6.1%) Oil & Gas Construction Extraction and Information (5.5%) Mining Support (1.8%) (2.5%) NOTES: Categories are North American Industry Classification System supersectors. Data seasonally adjusted. SOURCE: Federal Reserve Bank of Dallas. Texas’ Unemployment Rate Lower Than Nation’s Percent, SA 12 10 U.S. 8 6.7 6 Texas 5.7 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. Texas Manufacturing and Services Expanding Index 40 TMOS Production Index TSSOS Revenue Index 30 Mar-2014 20 10 0 -10 -20 -30 -40 2007 2008 2009 2010 NOTE: Gray bar indicates Texas recession. SOURCE: Federal Reserve Bank of Dallas. 2011 2012 2013 2014 Residential Home Construction Has Picked Up Index, SA, 5MMA Jan. 2008 = 100 200 180 Multifamily Permits 160 140 120 Residential Housing Starts 100 80 60 Single-Family Permits 40 20 0 2005 2006 2007 2008 2009 2010 SOURCES: Census Bureau; Bank of Tokyo-Mitsubishi. 2011 2012 2013 2014 Thriving Ports • Texas is top exporting state in nation: $280 billion in 2013. – Inland ports handle 46 percent; seaports 54 percent • Port of Houston is nation’s busiest seaport. – First in vessel calls and foreign tonnage, 2nd in total tonnage – Container tonnage small but rising, up 18 percent in last 5 years – According to the Port of Houston Authority, port operations directly support more jobs than largest peers SOURCES: Bureau of Transportation Statistics; WISERTrade; U.S. Maritime Administration; Port of Houston Authority; “Economic Snapshot” April 14, 2014, report by Jon McClure, staff writer, The Dallas Morning News. Texas Export Growth Index, SA Real Dollars Jan. 2000 = 100 260 Other 15% 240 17% Mexico 4% Canada 220 12% 7% European Union 200 Asia, excl. China 180 Latin America, excl. Mexico China Texas 2013:Q4 10% +24% since peak 35% 160 +2% 140 120 100 U.S. minus Texas 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SOURCES: Census Bureau; World Institute for Strategic Economic Research; Federal Reserve Bank of Dallas. Petroleum Exports Surge Index, Q1 2000 = 100 Real Dollars, SA 1400 Texas Total Petroleum & Coal Products 1200 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SOURCE: Wisertrade. Dallas Fed Forecasts Continued Growth Actual Job Growth, Y/Y Percent Change 5 Dallas Fed Consensus of Forecasters 4 3 2 1 0 -1 -2 -3 -4 1996 1998 2000 2002 2004 2006 2008 2010 SOURCES: Western Blue Chip Economic Forecast; Federal Reserve Bank of Dallas. 2012 2014 Job Growth by Wage Quartile, 2000-12 Percent change 35 30 Texas U.S. minus Texas 31.0 30.3 25 20 18.6 15 10 9.7 10.4 9.9 5 0.9 0 -5 -6.9 -10 Lowest wage quartile Lower-middle wage quartile Upper-middle wage quartile Highest wage quartile NOTES: Calculations include workers over age 15 with positive wages and exclude the self-employed. Wage quartiles constructed based on U.S. 2000 wage distribution. SOURCE: Current Population Survey Merged Outgoing Rotation Groups, 2000, 2012. Total Nonagricultural Employment Since 1990 in Selected States Increase since 1990 Index, January 1990 = 100 170 Texas +63% 160 150 Florida +44% 140 U.S. +26% 130 California +23% 120 Illinois +10% New York +9% 110 100 Michigan +5% 90 1990 1995 2000 2005 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. 2010 Texas Metro Business-Cycle Indexes Index, January 1990 = 100 450 Austin-Round Rock 400 February 2014 Houston-Sugar Land-Baytown Dallas-Plano-Irving MD 350 300 San Antonio Fort Worth-Arlington Index, January 1990 = 100 450 Laredo 400 Brownsville-Harlingen 350 El Paso 300 250 250 200 200 150 150 100 100 50 50 1990 1993 1996 1999 2002 2005 2008 2011 2014 McAllen-Edinburg-Pharr 1990 1993 1996 1999 2002 2005 2008 2011 2014 NOTE: The Indexes summarize movements in local employment, unemployment, wages and retail sales. SOURCE: Federal Reserve Bank of Dallas. Summary • The U.S. economy is picking up following a harsh winter. • Texas employment growth accelerated in 2014. – 2.9% growth – 55,400 jobs – Expect 2.8% growth for the year. Richard W. Fisher President and CEO Federal Reserve Bank of Dallas Austin, Texas April 16, 2014