1. National & Colorado Economic Update Alison Felix Economist & Branch Executive Federal Reserve Bank of Kansas City Denver Branch

2. 2 Source: Bureau of Economic Analysis & Federal Open Market Committee (FOMC) R EAL G ROSS D OMESTIC P RODUCT (GDP) Annualized Percent Change from Previous Period September 2012 FOMC Central Tendency Projections The U.S. economy continues to grow at a modest pace.

3. 3 Source: Bureau of Labor Statistics & Federal Open Market Committee (FOMC) September 2012 FOMC Central Tendency Projections United States Unemployment rates have fallen over the past year but remain stubbornly high. U NEMPLOYMENT R ATE Seasonally Adjusted

4. 4 Source: Bureau of Economic Analysis & Federal Open Market Committee (FOMC) U.S. P ERSONAL C ONSUMPTION E XPENDITURE (PCE) I NFLATION Annualized Percent Change from Previous Period Inflation remains moderate despite increases in gasoline and food prices. September 2012 FOMC Central Tendency Projections

5. 5 Source: Board of Governors of the Federal Reserve System E FFECTIVE F EDERAL F UNDS R ATE “… the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.” - FOMC October Statement

6. 6 Source: Board of Governors of the Federal Reserve System F EDERAL R ESERVE B ALANCE S HEET Traditional Portfolio Currency in Circulation Reserves Other Federal Agency & Mortgage-Backed Securities Foreign Currency Swaps Short-Term Lending Assets Liabilities Trillions “…the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. - FOMC October Statement

7. 7 Source: Board of Governors of the Federal Reserve System F EDERAL R ESERVE B ANK A SSETS Trillions >10 years 6 to 10 years 3 to 6 years ≤3 years Federal Agency & Mortgage Backed Securities All Other Treasuries by Duration QE2 Projected Operation Twist Operation Twist Projected QE3 “The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.” - FOMC October Statement

8. 8 Source: Federal Reserve Bank of Kansas City Board of Governors Kansas City San Francisco Dallas Minneapolis Atlanta St. Louis Richmond Chicago Cleveland New York Boston Philadelphia F EDERAL R ESERVE B ANK D ISTRICTS

9. Most states have experienced positive job growth over the past year. 9 Source: Bureau of Labor Statistics S EPTEMBER 2012 N ONFARM E MPLOYMENT Year-over-Year Percent Change, Seasonally Adjusted 2 to 5.6% 1 to 2 0 to 1 -1 to 0 -1.3 to -1 United States 1.4% 1.6%

10. 10 Source: Bureau of Labor Statistics C HANGE IN N ONFARM E MPLOYMENT, S EPTEMBER 2012 Seasonally Adjusted Employment gains over the past year have been spread across most industries. Over Past Year United States Colorado Top Performing Industries Worst Performing Industries

11. 11 Source: Bureau of Labor Statistics C HANGE IN N ONFARM E MPLOYMENT, S EPTEMBER 2012 Seasonally Adjusted Despite recent gains, employment is still below peak levels in many industries. United States Colorado Since December 2007

12. After a decline last year, real hourly wages are increasing in Colorado. 12 Source: Bureau of Labor Statistics R EAL H OURLY W AGE R ATE Percent Change from the Prior Year, Seasonally Adjusted United States Colorado September 2012 Colorado 2.2% United States -0.2%

13. 13 Source: McGraw Hill/F.W. Dodge Residential construction activity is picking up but remains below pre- recession levels. V ALUE OF R ESIDENTIAL C ONSTRUCTION Percent Change, Cumulative Year-to-Date January through September 2012 53.9% 40+% 20 to 40 0 to 20 -20 to 0 -20+ United States 26.4%

14. 14 Source: Federal Housing Finance Agency C HANGE IN H OME P RICES Year-over-Year, 2012Q2 FHFA Purchase-Only Index, Seasonally Adjusted Home prices have stabilized over the past year across most of the nation. 6 to 12.9% 4 to 6 2 to 4 0 to 2 -2 to 0 -4.7 to -2 United States 3.0% 4.8%

15. 15 Source: Federal Housing Finance Agency C HANGE IN H OME P RICES Peak to Current (2007Q1 to 2012Q2) FHFA Purchase-Only Index, Seasonally Adjusted Despite recent gains, home prices remain below peak levels in most states. 10 to 19.2% 5 to 10 0 to 5 -5 to 0 -10 to -5 -20 to -10 -56 to -20 United States -17.6% -3.4%

16. 16 Source: McGraw Hill/F.W. Dodge V ALUE OF N ON -R ESIDENTIAL & N ON - BUILDING C ONSTRUCTION Percent Change, Cumulative Year-to-Date January through September 2012 Improvements in infrastructure and non-residential construction activity have varied across the country. 28.8% 40+% 20 to 40 0 to 20 -20 to 0 -40 to -20 -40+ United States -3.8%

17. Oil drilling has increased sharply over the past two years, but natural gas drilling has declined. 17 Source: Baker Hughes A CTIVE D RILLING R IG C OUNTS United StatesColorado Crude Oil Natural Gas

18. Mining activity made up slightly more than 4% of Colorado state domestic product in 2011 and is a growing sector in the regional economy. 18 Source: Colorado Oil & Gas Conservation Commission (COGCC) & U.S. Department of Energy, Energy Information Administration O IL & G AS W ELLS O IL & G AS D RILLING P ERMITS Drilling Producing Basins Shale Plays Permits

19. Despite the worst drought in three decades, U.S. net farm incomes are projected to reach record highs in 2012. 19 Source: U.S. Department of Agriculture Note: ‘F’ denotes August 2012 forecast. U.S. R EAL N ET F ARM I NCOME Constant 2005 Dollars (Billions) February Forecast

20. 20 Source: Institute for Supply Management & Federal Reserve Bank of Kansas City After expanding for three years in the Tenth District, the manufacturing sector slowed somewhat in October. M ANUFACTURING A CTIVITY Diffusion Index, Seasonally Adjusted, Month-over-Month Note: Federal Reserve Surveys are computed on an ISM Basis (50 = no change) Kansas City District 48.2 October 2012 United States (ISM) 51.5 September 2012 Expanding Contracting 50

21. 21 Source: Federal Reserve Bank of Kansas City T ENTH D ISTRICT M ANUFACTURING E XPECTATIONS Diffusion Index, Seasonally Adjusted, Six Months Ahead Manufacturers in the Tenth District still expect higher levels of activity over the next six months but have become less optimistic.

22. 22 Source: International Monetary Fund (IMF) (October 2012 World Economic Outlook) W ORLD E CONOMIC O UTLOOK P ROJECTIONS Percent Change over Prior Year Growth has slowed sharply in Europe this year and is expected to remain slow in 2013. Advanced Economies Euro Area Germany France ItalySpain UK Emerging & Developing Economies ChinaIndia

23. Increases in exports to non-European countries are outpacing declines to Europe. 23 C OLORADO E XPORT G ROWTH Percent Change over Prior Year August 2012 Eurozone -5.3% All Other Countries 27.3% Source: WISERTrade Note: Eurozone includes the 27 EU member countries.

24. Exports to Europe make up 19 percent of total exports from Colorado. 24 C OLORADO E XPORTS BY T RADING P ARTNER Billions Source: WISERTrade Note: Eurozone includes the 27 EU member countries. *2011 Share Total Trade 11.2% S HARE * All Other 7.1 35.7% Japan 14.7 5.4 Mexico 15.6 10.3 Canada 33.9 21.0 China 4.9 8.7 Eurozone -5.8 19.0 A UGUST 2012 Y EAR - TO -D ATE Percent Change YTD through August

25. 25 Source: Bureau of Economic Analysis & Congressional Budget Office (August 2012 Projections) GDP & THE “F ISCAL C LIFF ” Percent Change (Annualized Quarterly Rates) CBO Baseline (Current Law) Under current law, several tax increases and spending cuts could lead to a slowdown in economic growth next year.

26. 26 Source: Bureau of Economic Analysis, Congressional Budget Office (August 2012 Projections), & Blue Chip Economic Indicators (September 2012 Forecast) GDP & THE “F ISCAL C LIFF ” Percent Change (Annualized Quarterly Rates) CBO Baseline (Current Law) Many private forecasters expect that the fiscal cliff will be avoided and that the U.S. economy will continue to grow at a moderate pace. Blue Chip Consensus Forecast

27. 27 U.S. D EFICIT TO GDP R ATIO Source: Congressional Budget Office (August 2012 Projections) Debt Service Payments Spending Cuts Extended Tax Policies Baseline (Current Law) CBO Projections Under current law, U.S. deficits are expected to fall sharply over the next several years.

28. U.S. D EBT TO GDP R ATIO 28 Source: Bureau of Economic Analysis & Congressional Budget Office (August 2012 Projections) Alternative Scenario Baseline (Current Law) U.S. Federal government debt levels as a percent of GDP are projected to fall sharply if the fiscal cliff occurs.

29. Alison Felix Alison.Felix@kc.frb.org This presentation will be available at http://www.kc.frb.org/denver/ National & Colorado Economic Update Economic Update