RECESSION AND RECOVERY IN MISSOURI

AND THE U.S.

The views expressed are those of the presenter and do not necessarily reflect the positions of theFederal Reserve Bank of Kansas City or the Federal Reserve System.

Alison FelixSenior Economist

Federal Reserve Bank of Kansas City

After slowing in the first half of 2011, growth is picking up.

Real Gross Domestic ProductPercent change from previous period, annualized

Source: Bureau of Economic Analysis; FOMC

-4

-3

-2

-1

0

1

2

3

4

5

-4

-3

-2

-1

0

1

2

3

4

5

FOMC Forecast Central Tendency(Nov. 2011)

Business investment increased sharply in the second and third quarters of last year.

Growth in Components of Real GDP

Percent change from previous period, annualized Percent

Source: Bureau of Economic Analysis

-6

-4

-2

0

2

4

6

8

10

12

14

16

-6

-4

-2

0

2

4

6

8

10

12

14

16

Total GDP Consumer Spending

Residential Investment

Business Investment

Exports Government Spending

2010:Q4

2011:Q1

2011:Q2

2011:Q3

Unemployment rates have fallen over the past year but remain stubbornly high.

Unemployment RatePercent Percent

Source: Bureau of Labor Statistics; FOMC

0

1

2

3

4

5

6

7

8

9

10

11

12

0

1

2

3

4

5

6

7

8

9

10

11

12FOMC Forecast Central Tendency(Nov. 2011)

After increasing in the first half of 2011, inflation has moderated and is expected to be below 2% in 2012.

PCE InflationPercent change from previous period, annualized

Source: Bureau of Economic Analysis; FOMC

-5

-4

-3

-2

-1

0

1

2

3

4

5

-5

-4

-3

-2

-1

0

1

2

3

4

5

FOMC Forecast Central Tendency(Nov. 2011)

Fed Funds Rate

Percent Percent

Source: FOMC

0

1

2

3

4

5

6

0

1

2

3

4

5

6

Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

Fed Funds Rate

FOMC December Statement: “The Committee… currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”

FOMC December Statement: “… the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.”Federal Reserve Balance Sheet

Millions of Dollars Millions of Dollars

Source: FOMC

0

250000

500000

750000

1000000

1250000

1500000

1750000

2000000

2250000

2500000

2750000

3000000

0

250000

500000

750000

1000000

1250000

1500000

1750000

2000000

2250000

2500000

2750000

3000000

Jan-07 Sep-07 Jun-08 Feb-09 Nov-09 Jul-10 Apr-11 Dec-11

Fed Agency Debt Mortgage-Backed Securities Purch

Liquidity to Key Credit Markets

Lending to Financial Institutions

Long Term Treasury Purchases

Traditional Security Holdings

The Tenth District of the Federal Reserve

Despite some gains, employment is still well below pre-recession levels.

Total Nonfarm EmploymentSeasonally adjusted

Index Index

Source: Bureau of Labor Statistics

96

98

100

102

104

106

96

98

100

102

104

106

Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11

US

MO

The unemployment rate in Missouri is similar to the national rate.

Unemployment RateSeasonally adjusted

Percent Percent

Source: Bureau of Labor Statistics

2

4

6

8

10

12

2

4

6

8

10

12

Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11

U.S.

MO

The industry mix in Missouri is very similar to the national average.

Employment Share by IndustrySeasonally adjusted

Percent Percent

Source: Bureau of Labor Statistics

0

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18

Trade Educ. & Health

State & Loc.

Govt.

Prof. & Busi.

Leis. & Hosp.

Manuf. Fin. Svcs. Constr. Trans. & Util.

Info

US

MO

Manufacturing employment growth outpaced every other industry in Missouri over the past year.

Employment Growth by IndustryNov-11 over Nov-10

Percent Percent

Source: Bureau of Labor Statistics

-10

-8

-6

-4

-2

0

2

4

6

-10

-8

-6

-4

-2

0

2

4

6

Prof. & Busi.

Educ. & Health

Leis. & Hosp.

Manuf. Trans. & Util.

Trade Constr. Fin. Svcs. State & Loc.

Govt.

Info

US

MO

Since the recession started, employment has fallen in every industry except healthcare.

Employment Growth by IndustryNov-11 over Dec-07

Percent Percent

Source: Bureau of Labor Statistics

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

Educ. & Health

Leis. & Hosp.

State & Loc.

Govt.

Prof. & Busi.

Trans. & Util.

Trade Fin. Svcs. Info Manuf. Constr.

US

MO

Nationally, the manufacturing sector has been expanding for over two years.

Manufacturing ActivitySeasonally adjusted

Index Index

Sources: ISM, FRBKC Manufacturing SurveyNote: 50 = zero change

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

2001:Q4 2003:Q4 2005:Q4 2007:Q4 2009:Q4 2011:Q4

US

MO

Rest of Tenth District

6-month ahead expectations

Manufacturers in Missouri expect increased activity over the next six months.

Missouri Manufacturing ExpectationsSeasonally adjusted; six months ahead

Index Index

Source: FRBKC Manufacturing Survey

-5

0

5

10

15

20

25

30

-5

0

5

10

15

20

25

30

Production Volume of new orders

New orders for exports

Capital expenditures

Employment

2011 Q12011 Q22011 Q32011 Q4

After sharp increases in 2010, Missouri manufacturing exports fell in 2011.

Missouri Manufactured ExportsYear-over-year

Percent Percent

Source: Wiser TradeNote: Number in parantheses represents the share of Missouri manufactured exports.

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

Total Transp Equip (27.8%)

Chemicals (22.2%)

Machinery (11.9%)

Food (11.2%)

Computers & Electronics

(5.6%)

2009

2010

2011 YTD Oct

Crop prices have fallen somewhat from high levels last summer.

Crop Prices$/Bushel $/Bushel

Source: Commodity Research Bureau

0

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Beans

Wheat

Corn

Farmland prices have increased sharply in Missouri.

Missouri Non-irrigated Farmland ValuesYear-over-year

Percent Percent

Source: FRBKC Agricultural Credit Survey

-5

0

5

10

15

20

25

30

-5

0

5

10

15

20

25

30

2002 Q3 2005 Q3 2008 Q3 2011 Q3

Home sales activity remains slow.

Existing Home Sales

Seasonally adjustedIndex: 2001:Q3=100 Index

Source: NAR

60

70

80

90

100

110

120

130

140

60

70

80

90

100

110

120

130

140

2001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3

US

MO

Residential construction activity remains weak but has increased over the past few months.

Value of Residential Construction Contracts

Seasonally adjustedIndex Nov-01=100 Index

Source: FW Dodge

0

25

50

75

100

125

150

175

200

225

0

25

50

75

100

125

150

175

200

225

Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11

US

MO

Home prices in Missouri increased in the third quarter but remain well-below peak levels.

Home Prices

Seasonally adjustedIndex: 2001:Q3=100 Index

Source: FHFA - purchase only index

90

100

110

120

130

140

150

160

90

100

110

120

130

140

150

160

2001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3

US

MO

Foreclosure rates in Missouri are lower than in other parts of the nation.

Foreclosure Rate

Percent Percent

Source: Mortgage Bankers Association

0

1

2

3

4

5

6

0

1

2

3

4

5

6

2001:Q3 2003:Q3 2005:Q3 2007:Q3 2009:Q3 2011:Q3

U.S.

MO

U.S. commercial construction activity is weaker than pre-recession levels.

Value of Commercial Construction Contracts

Seasonally adjusted, 3-month moving averageIndex Nov-01=100 Index

Source: FW Dodge

0

25

50

75

100

125

150

175

200

225

250

275

300

325

0

25

50

75

100

125

150

175

200

225

250

275

300

325

Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11

US

MO

Federal government debt levels have increased significantly over the past few years.

Federal Government Debt as a Percent of GDPPercent Percent

Source: Congressional Budget OfficeNote: According to the CBO, "The extended-baseline scenario adheres closely to currentlaw, following CBO's 10-year baseline budget projections through 2021 and then extending the baseline concept for the rest of the long-term projection period. The alternative fiscal scenario incorporates several changes to current law that are widelyexpected to occur or that would modify some provisions that might be difficult to sustainfor a long period."

0

20

40

60

80

100

120

140

160

180

200

0

20

40

60

80

100

120

140

160

180

200

1945 1955 1965 1975 1985 1995 2005 2015 2025 2035

Actual

Extended-Baseline Scenario

Alternative Fiscal Scenario

CBO Projection June 2011

State government tax revenues increased in FY2011 but remained below pre-recession levels.State Tax Revenue

Index: 2002=100 Index

Source: US Census Bureau

90

100

110

120

130

140

150

160

90

100

110

120

130

140

150

160

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

US

MO

Among the top 25 Missouri export countries, EU countries combine for 14% of exports.

Missouri Exports by Destination

31%

10%

8%5%5%

4%

20%

Canada

Mexico

China

Korea, South

Japan

Belgium

Singapore

Germany

Brazil

United Kingdom

Australia

Netherlands

Venezuela

Argentina

Other

The baby boom generation is nearing retirement.

Missouri Population by AgePercent Percent

Source: US Census Bureau

0

2

4

6

8

10

0

2

4

6

8

10

1990

2010

Conclusions

The pace of the U.S. economic recovery slowed in the first half of 2011, but growth picked up in the second half of last year.

The U.S. and Missouri economies are still expected to recover at a moderate pace over the next few years.

However, economic growth may rely more heavily on private demand in the U.S. as problems persist in Europe and the U.S. federal government faces high debt levels.

Presentations can be found online at:http://www.kansascityfed.org/speeches/i

ndex.cfm