Regional President Speech

Richard W. Fisher President and CEO Federal Reserve Bank of Dallas Austin, Texas April 16, 2014 U.S. Economic Dashboard 1.5 2 1.5 2 2.5 6 6.5 7 1 2.5 5.5 7.5 1 3 0.5 3 5 8 0.5 3.5 8.5 0 3.5 4.5 0 4 4 3.28 9 1.3 -0.5 4 -0.5 4.5 9.5 3.5 3 10 -1 5 Junk-bond -1 4.5 Trimmed Mean spread (%) PCE Inflation (%) 2.6 -1.5 5 Year-over-year 7.5 8 8.5 Real GDP growth 6.5 7 7.5 7 9 -2 5.5 6 8 6.5 9.5 Percentof jobs recovered 5.5 8.5 -2.5 6 9 4 . 9 6 10 5 9 8 2 . 8 5.45 6.7 Warning lights 5.5 10.5 4.5 9.5 ! 5 11 4 10 High Yield Unemployment Engine Unemp. Yield Oil Corp. Debt(%) stall jump curve shock rate (%) NOTE: Late November 2013 data (blue) compared with early April 2014 (orange). The Manufacturing and Nonmanufacturing ISM Indexes Both Ticked Upward in March Expansion average = 54.5 Index, 50+ = expansion 54.4 60 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 400 350 300 6-month moving average Mar. 250 192 188 200 150 100 50 0 2010 2011 2012 2013 2014 SOURCE: Bureau of Labor Statistics. Initial Claims and Unemployment Rate Move Lower 4-week moving average, thousands Percent 700 Oct. '09 11 10.0 650 10 Unemployment rate 600 9 550 8 500 Mar. 7 6.7 450 6.5% threshold 6 400 5 350 Initial claims for Apr. 5 unemployment insurance 4 300 316 250 3 2008 2009 2010 2011 2012 2013 2014 SOURCE: Bureau of Labor Statistics. 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 Junk bond / 7-year Treasury spread 10 21 8 6 19 4.8 4 3.2 17 2 Average spread: 1997-2007 0 15 '10 '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 '11 '12 '13 '14 SOURCES: Moody’s; Bank of America Merrill Lynch; Federal Reserve Bank of Dallas. 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 2011 2012 2013 SOURCE: Standard & Poor’s. NOTE: S&P close at 676.53 on March 9, 2009. Inflation Is Still Below 2 Percent 12-month percent change 3.5 3.0 Headline PCE 2.5 “Mandate-consistent level” = 2% 2.0 April 2013 1.3 Feb 2014 1.5 1.3 Trimmed-mean PCE 1.0 0.9 0.5 0.0 2010 2011 2012 2013 2014 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. 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 3.4 U.S. Texas 2.9 3 2.5 2.3 2.1 2 1.6 1.7 1.7 1.3 0.8 1 0.5 0 -1 Year-to-date: Feb/Dec -2 -3 -2.6 -3.5 -4 -3.8 -5 2005 2007 2009 2011 2013 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. 2014 Employment Growth by Sector Thousands of jobs 2014 total jobs gained in Texas = 54,500 12 9.6 10 8.9 8.6 7.7 8 6.1 5.8 6 4.4 4 2.5 2 0.8 0 -2 -2.9 -4 Trade, Prof. & Oil & Gas Educational & Leisure & Financial Transp & Government Business Manufacturing Construction Extraction and Information Health Services Hospitality Activities Utilities (16.1%) Services (7.7%) (5.5%) Mining Support (1.8%) (13.2%) (10.2%) (6.1%) (20.1%) (13.1%) (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 5.7 Texas 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 TMOS Production Index TSSOS Revenue Index 40 30 Mar-2014 20 10 0 -10 -20 -30 -40 2007 2008 2009 2010 2011 2012 2013 2014 NOTE: Gray bar indicates Texas recession. SOURCE: Federal Reserve Bank of Dallas. Residential Home Construction Has Picked Up Index, SA, 5MMA Jan. 2008 = 100 200 180 Multifamily Permits 160 140 120 Residential 100 Housing Starts 80 60 Single-Family Permits 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SOURCES: Census Bureau; Bank of Tokyo-Mitsubishi. 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 17% 15% Mexico 240 4% Canada Texas 220 12% 7% European Union 200 Asia, excl. China 2013:Q4 10% +24% Latin America, excl. 180 since peak Mexico 35% China 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 Texas Total Petroleum & Coal Products 1400 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 Dallas Fed 5 Consensus of Forecasters 4 3 2 1 0 -1 -2 -3 -4 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 SOURCES: Western Blue Chip Economic Forecast; Federal Reserve Bank of Dallas. Job Growth by Wage Quartile, 2000-12 Percent change 35 31.0 Texas U.S. minus Texas 30.3 30 25 18.6 20 15 9.7 10.4 9.9 10 5 0.9 0 -5 -6.9 -10 Lowest wage quartile Lower-middle wage Upper-middle wage Highest wage quartile quartile 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 Index, January 1990 = 100 since 1990 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 2010 SOURCES: Bureau of Labor Statistics; Federal Reserve Bank of Dallas. Texas Metro Business-Cycle Indexes February 2014 Index, January 1990 = 100 Index, January 1990 = 100 450 450 Laredo Austin-Round Rock 400 Houston-Sugar Land-Baytown 400 McAllen-Edinburg-Pharr Dallas-Plano-Irving MD Brownsville-Harlingen 350 350 San Antonio El Paso Fort Worth-Arlington 300 300 250 250 200 200 150 150 100 100 50 50 1990 1993 1996 1999 2002 2005 2008 2011 2014 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

Richard W. Fisher (2014, April 15). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20140416_richard_w_fisher

@misc{wtfs_regional_speeche_20140416_richard_w_fisher,
  author = {Richard W. Fisher},
  title = {Regional President Speech},
  year = {2014},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20140416_richard_w_fisher},
  note = {Retrieved via When the Fed Speaks corpus}
}