july 14, 2021 colorado hispanic chamber of commerce
TRANSCRIPT
FEDERAL RESERVE BANK OF KANSAS CITY
Economic Outlook
July 14, 2021 – Colorado Hispanic Chamber of Commerce
Nicholas Sly
Assistant Vice President, Economist and Denver Branch Executive
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
• Consumer spending continues to grow, supported by healthy household balance sheets and
ongoing labor market improvement
• The balance of consumer spending between goods and services has yet to fully normalize, which
has implications for the inflation outlook over the medium term
• Recruiting workers is a key challenge for many businesses, keeping the focus on wage pressures
in coming months
• Readings of inflation picked up recently due to a variety of factors, many of which that will likely
fade in the near term
Outlook themes
2
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Source: BEA, Haver Analytics
Note: Grey bars indicate recession shading3
Consumer activity and business investment activity are supporting
ongoing economic growth this year
-10
-8
-6
-4
-2
0
2
4
6
8
10
-10
-8
-6
-4
-2
0
2
4
6
8
10
2007 2009 2011 2012 2014 2016 2018 2020
Real GDP q/q Real GDP y/y
% chg, saar % chg, saar
-31% q/q change
(Q2 2020)
33% q/q change
(Q3 2020)
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Source: Opportunity Insights
Note: Zero line corresponds to January 2020 levels4
Consumer spending in Colorado now exceeds pre-pandemic levels
-40
-30
-20
-10
0
10
20
-40
-30
-20
-10
0
10
20
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21
Retail Spending: U.S. Retail Spending: CO
% chg 7d ma, sa % chg 7d ma, sa
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Sources: BEA, NBER, Haver Analytics5
The composition of spending remains shifted more towards goods than
is typical, especially during economic downturns
20
40
60
80
100
120
140
20
40
60
80
100
120
140
2005 2008 2011 2014 2017 2020
Durables Consumption Services Consumption
Index, Feb-20 = 100 Index, Feb-20 = 100
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Sources: BEA, NBER, Haver Analytics6
Services prices are typically the primary driver of overall inflation rates,
but goods and import prices are making outsized contributions currently
-25
-20
-15
-10
-5
0
5
10
15
20
25
-5
-4
-3
-2
-1
0
1
2
3
4
5
2005 2008 2011 2014 2017 2020
Core PCE: Services Inflation (Left) Core PCE: Goods Inflation (Left) Import Price Index (Right)
y/y % chg y/y % chg
2004 – 2006 Average
2004 – 2006 Average
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
60
80
100
120
140
160
180
60
80
100
120
140
160
180
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ISM Manufacturing: Supplier Deliveries Index ISM Manufacturing: Prices Paid Index
Diffusion Index
Slower Deliveries/
Higher Prices
Diffusion Index
Sources: Institute for Supply Management, Haver Analytics7
Supplies of many goods and services are having trouble keeping pace
with demand, leading to delays and cost pressures
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
0
4
8
12
16
20
0
4
8
12
16
20
2010 2011 2013 2014 2016 2017 2019 2020
Unemployment Rate: White Unemployment Rate: Black
Unemployment Rate: Asian Unemployment Rate: Hispanic
Natural Rate of Unemployment
% %
Sources: BLS, CBO, NBER, Haver Analytics8
The unemployment rate continues to trend downward, though it is still
elevated for some minority workers
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Source: FRBKC Surveys9
Majority of firms report that the inability to find qualified workers is
primary challenge affecting hiring plans
0
10
20
30
40
50
60
70
80
90
0
10
20
30
40
50
60
70
80
90
Can't find workers with
required skills
High labor costs Uncertainty about
govt. policies
Want to keep
operating costs low
Uncertainty about
Coronavirus
What are the three most important factors restraining your hiring plans?
1st 2nd 3rd
% %
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Sources: BLS, Haver Analytics
Note: Each data series shows the size of the respective labor force above the age of 20, indexed to Jan 2020 levels
10
Labor force participation is recovering faster for minority workers
94
95
96
97
98
99
100
101
94
95
96
97
98
99
100
101
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21
Black Hispanic White
Index Index
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Sources: FRB Summary of Economic Projections11
Recent projections from the FOMC for the median participant indicate
expectations for stability in the rate environment through 2022
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2021 2022 2023 Longer Run
Median FOMC Projection of Fed Funds Rate Target Fed Funds Rate
% %
FEDERAL RESERVE BANK OF KANSAS CITYFEDERAL RESERVE BANK OF KANSAS CITY
Looking forward
12
• Private demand from consumers and businesses are going to be drivers of the outlook
• Low labor supply may pose a more persistent headwind and its implications for hiring and wage
growth will warrant close monitoring in coming months
• The stance of monetary policy remains accommodative.