Upstate New York Regional Advisory Council Meeting

Federal Reserve Bank of New York 33 Liberty Street

10F, Paul Volcker Boardroom Wednesday, June 1, 2016

AGENDA

10:30am Introductory Remarks Jack Gutt, Executive Vice President

10:40am-11:10am The National Economy Richard Peach, Senior Vice President

11:10am-11:30am Regional Update

Jaison Abel, Research Officer 11:30am-12:00pm International Update

Matthew Higgins, Vice President 12:00pm 12:15pm 12:15pm-1:55pm

Adjourn to NWCR-10F Lunch Round Table Discussion with William Dudley, President Questions for discussion with President Dudley:

Your experience and that of your customers and suppliers can give us insight into current economic conditions. 1. Has your firm experienced an increase in demand in recent

months? 2. Has demand for your product or service increased sufficiently that you increased or plan to increase employment in 2016? 3. Has demand for your product or service increased sufficiently

that you plan to increase investment in plant and equipment in 2016?

4. Has your access to credit changed in 2016? 5. How is the labor market in meeting your needs?

2:00 pm Adjourn

Upstate New York Regional Advisory Board

Federal Reserve Bank of New York 33 Liberty Street New York, NY

Wednesday, June 1, 2016

ATTENDEE LIST

Board Members Aminy Audi CEO & Chairman of the Board L. & J.G. Stickley Lynn Marie Finn President & CEO Superior Workforce Solutions, Inc. Kenneth M. Franasiak Chairman Calamar James P. Laurito President Central Hudson Gas & Electric Corporation

Jordan Levy NY Partner Softbank Capital Linda MacFarlane President & CEO Community Loan Fund of the Capital Region Martin Mucci President & CEO PayChex, Inc. Carlos Unanue President Goya de Puerto Rico, Inc.

Federal Reserve Bank of New York

William Dudley Michael Strine Jack Gutt Richard Peach Matthew Higgins Anand Marri

President First Vice President EVP, Head of Communications & Outreach Group SVP, Research & Statistics VP, Integrated Policy Analysis VP and Head of Outreach & Education

Jaison Abel Luis Uranga Tony Davis Chelsea Cruz Edison Reyes Angela Sun

Research Officer, Research & Statistics Officer and Chief of Staff, Chief of Staff’s Office Director, Community Engagement, Outreach & Education Associate, Community Engagement, Outreach & Education Associate, Community Engagement, Outreach & Education Associate, Legal

US Macro Overview June 1, 2016

Overview

• US economic growth slowed over the past year due primarily to substantial dollar appreciation and weaker global growth.

– Consumer spending and housing continued to be the engines of growth for the US economy.

– Growth of business fixed investment slowed substantially, due in part to the sharp contraction in oil and gas drilling activity.

– Net exports exerted a substantial drag. – Inventories high relative to sales.

• Nonetheless, labor market conditions have continued to improve.

– Labor market is showing classic signs of being at or near full employment.

• Core inflation has moved up of late. – Rent inflation continues to edge higher. – Health care price inflation has moved higher. – Rate of decline of core goods prices has slowed.

2

80

100

120

140

80

100

120

140

2012 2013 2014 2015 2016

Nominal Trade-Weighted Value of US$ Index Index

Source: Federal Reserve Board

Jan-97=100

-1

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-1

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

1947 1957 1967 1977 1987 1997 2007 2017

Log Inventory/Sales with Trend Component (HP, 1600) Ln(I/S) Ln(I/S)

Source: BEA

Note: Shading shows NBER recessions.

-25

-20

-15

-10

-5

0

5

10

15

20

25

-25

-20

-15

-10

-5

0

5

10

15

20

25

2005 2007 2009 2011 2013 2015

Imports and Exports of Real Goods 4 Quarter % Change 4 Quarter % Change

Source: Bureau of Economic Analysis Note: Shading shows NBER recessions.

Exports

Imports

0

200

400

600

800

1000

1200

1400

1600

1800

0

200

400

600

800

1000

1200

1400

1600

1800

2000 2002 2004 2006 2008 2010 2012 2014 2016

Baker Hughes US Oil Rig Count Active Oil Rigs Active Oil Rigs

Source: Baker Hughes Note: Shading shows NBER recessions.

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

2012 2013 2014 2015 2016

Aggregate Weekly Hours Worked Y/Y % Change Y/Y % Change

Source: Bureau of Labor Statistics

Note: Shading shows NBER recessions.

Goods-Producing Industries

Private Service-Providing

Industries

-6

-5-4-3-2-10123456

-6-5-4-3-2-10123456

2006 2008 2010 2012 2014 2016

Real Wage & Salary Income versus Real PCE 24 Mo % Change AR 24 Y/Y % Change AR

Source: Bureau of Economic Analysis

Note: Shading shows NBER recessions.

Real W&S Income

Real PCE

Housing Starts

0

400

800

1200

1600

2000

0

50

100

150

200

250

300

350

400

450

2000 2002 2004 2006 2008 2010 2012 2014 2016

Thousands, 3 MMA Thousands, 3 MMA

Source: Census Bureau, via Haver Analytics Note: Shading shows NBER recessions.

Total Multifamily (Left Axis)

Single Family (Right Axis)

4

Single Family Housing Market

3

4

5

6

7

8

9

10

11

12

13

-20

-15

-10

-5

0

5

10

15

20

25

2000 2002 2004 2006 2008 2010 2012 2014 2016

12 Month % Change Months

Source: CoreLogic, National Association of Realtors, via Haver Analytics Note: Shading shows NBER recessions.

Single Family House Price Index

(Left Axis) Months’ Supply

(Right Axis)

“Normal” Range for Months’ Supply

0

0.005

0.01

0.015

0.02

0.025

0.03

0

0.005

0.01

0.015

0.02

0.025

0.03

1968 1978 1988 1998 2008

Housing Starts and Existing Homes Sales Per Capita Units Units

Source: BLS, Census Bureau, NAR

Note: Shading shows NBER recessions.

Housing Starts

Existing Home Sales

.0178 (average over 1968-2003)

.009 (average over 1968-2003)

-800-600-400-200020040060080010001200140016001800

-1000

-500

0

500

1000

1500

2000

1999 2001 2003 2005 2007 2009 2011 2013 2015

Household Formations 2 Year Avg. Change 2 Year Avg. Change

Source: Bureau of the Census Note: Shading shows NBER recessions.

Total (Left Axis)

Renter (Left Axis)

Owner (Right Axis)

500

550

600

650

700

750

800

500

550

600

650

700

750

800

1999 2001 2003 2005 2007 2009 2011 2013 2015

Credit Score at Mortgage Origination: All First Mortgages Credit Score Credit Score

Source: FRBNY / Consumer Credit Panel

Note: Shading shows NBER recessions.

Median

10th Percentile

25th Percentile

About 35 – 40 Million People

-25

-20

-15

-10

-5

0

5

10

15

20

25

-25

-20

-15

-10

-5

0

5

10

15

20

25

2005 2007 2009 2011 2013 2015

Bank Assets: Domestically and Foreign Chartered Banks % Change Year-to-Year % Change Year-to-Year

Source: Federal Reserve Board Note: Shading shows NBER recessions.

Commercial and Industrial Loans

(Left Axis)

Residential Real Estate Loans (Right Axis)

Commercial Real Estate Loans

(Left Axis)

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

60 65 70 75 80 85 90

Quarterly data1980Q1 – 2007Q4

Equipment Investment Spending and Capacity Utilization Real Business Investment in New Equipment (% Change – Year to Year)

Real Business Investment in New Equipment (% Change – Year to Year)

Source: Federal Reserve Board, Bureau of Economic Analysis

Manufacturing Capacity Utilization (Percent of Capacity)

2016 Q1:

(75.3, -0.3)

15

-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Government Consumption and Gross Investment 4 Quarter % Change 4 Quarter % Change

Source: Bureau of Economic Analysis Note: Shading shows NBER recessions.

Federal (Left Axis)

State & Local (Right Axis)

0

2

4

6

8

10

12

56

58

60

62

64

66

68

2000 2002 2004 2006 2008 2010 2012 2014 2016

Percent Percent

Source: Bureau of Labor Statistics, via Haver Analytics Note: Shading shows NBER recessions.

Labor Force Participation Rate

(Left Axis)

Unemployment Rate

(Right Axis)

Employment-Population Ratio

(Left Axis)

Labor Market Indicators

5

0

2

4

6

8

10

12

60

65

70

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

2015

Labor Share of National Income and Unemployment Percent Rate

Source: Bureau of Economic Analysis, BLS Note: Shading shows NBER recessions.

Labor Share of National Income

(Left Axis)

Unemployment Rate

(Right Axis)

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016

12 Month % Change 12 Month % Change

Source: Bureau of Economic Analysis, via Haver Analytics Note: Shading shows NBER recessions.

Total PCE

Core PCE

FOMC Objective

PCE Deflator

-3

-2

-1

0

1

2

3

4

5

-3

-2

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016

CPI Inflation: Core Goods and Core Services 12 Month % Change 12 Month % Change

Source: Bureau of Labor Statistics Note: Shading shows NBER recessions.

Core Goods

Core Services

Total Core CPI

6

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

2000 2002 2004 2006 2008 2010 2012 2014 2016

Rental Vacancy Rate and Rent of Primary Residence Percent 12 Month % Change

Source: Census Bureau, BLS Note: Shading shows NBER recessions.

Rental Vacancy Rate

(Left Axis)

Rent of Primary Residence (Right Axis)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Personal Consumption Expenditures: Health Care Price Index 12 Month % Change 12 Month % Change

Source: Bureau of Economic Analysis Note: Shading shows NBER recessions.

17% of total PCE deflator 19% of core PCE deflator

-30

-20

-10

0

10

20

30

-10

-8

-6

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016

Dollar Exchange Rate and Nonoil Import Prices 12 Month % Change 12 Month % Change

Source: Federal Reserve Board, Bureau of Labor Statistics, via Haver Analytics

Note: Shading shows NBER recessions. Dollar is Board’s trade-weighted measure.

Nonoil Import Prices

(Left Axis)

Exchange Value of Dollar

(Right Axis)

7

40

42

44

46

48

50

52

54

56

58

60

-2

-1

0

1

2

3

4

5

6

2012 2013 2014 2015 2016

Manufacturing Output and the ISM Manufacturing Index 6 Mo. % Change AR Level

Source: Federal Reserve Board, ISM.

Manufacturing Output

(Left Axis)

ISM Index (Right Axis)

-0.09

-0.06

-0.03

0

0.03

0.06

0.09

-0.09

-0.06

-0.03

0

0.03

0.06

0.09

1947 1957 1967 1977 1987 1997 2007 2017

Cyclical Component of Log Inventory/Sales Log points Log points

Source: BEA

Note: Shading shows NBER recessions.

Regional Economic Conditions Jaison R. Abel, Research Officer

Upstate New York Regional Advisory Board Meeting – June 1, 2016

The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

Overview of Regional Conditions

• Upstate New York’s slow and steady expansion lost some momentum over the past year, with little job gains seen in recent months.

• Job growth has been modest in Albany and Buffalo, and flat in Rochester and Syracuse, while steep job losses have continued to plague Binghamton.

• The region’s housing markets have generally remained stable, though home building activity has picked up recently in a few areas.

FEDERAL RESERVE BANK OF NEW YORK 1

Source: Federal Reserve Bank of New York. 2

Current Economic Conditions FRBNY Regional Business Surveys

-30

-20

-10

0

10

20

30

Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16

Business Leaders Survey (Service Sector)

Empire State Manufacturing Survey

Diffusion Index

May

Harsh Winter

Current Business Climate FRBNY Business Leaders Survey

Source: Federal Reserve Bank of New York. 3

-100

-75

-50

-25

0

25

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Business Leaders Survey (Current Climate)

May

Diffusion Index

Shading indicates NBER recession

Regional Consumer Confidence Overall Consumer Confidence

4 Source: Sienna Research Institute, University of Michigan.

45

60

75

90

105

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

United States

Upstate NY

May Prelim

Index Value

Shading indicates NBER recession

Q1

Regional Employment Trends Total Employment, Seasonally Adjusted

Source: Bureau of Labor Statistics and Moody’s Economy.com. 5

92

96

100

104

108

112

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

United States

Upstate Metros

Downstate NY

Apr

+2.2%

+2.0%

+0.4%

12-Month Annual Percent

Change

Index (December 2007 = 100)

Shading indicates NBER recession

Dashed Line Indicates U.S. Employment Trough (February 2010)

Sectors Driving Upstate Job Growth 3-Month Moving Average, Seasonally Adjusted

6 Source: Bureau of Labor Statistics and Moody’s Economy.com.

90

95

100

105

110

115

2010 2011 2012 2013 2014 2015 2016

Manufacturing

Leisure & Hospitality

Education & Health

Professional & Business

Government

Total

Index (February 2010 = 100)

Apr

Job Growth in the Region 12-Month Annual Percent Change

Source: Bureau of Labor Statistics and Moody’s Economy.com. 7

2.6%

1.4%

1.1% 0.9%

0.7% 0.6% 0.6% 0.2% 0.1%

-0.9%

-2%

-1%

0%

1%

2%

3%

United States

Albany Utica Syracuse

Binghamton

New York City

Kingston Dutchess- Putnam

Buffalo

Rochester

Long Island

Regional Home Price Trends CoreLogic Single-Family Home Price Index, Seasonally Adjusted

8 Source: CoreLogic Home Price Index (including distressed sales); Aggregation and seasonal adjustment by FRBNY staff.

60

70

80

90

100

110

120

130

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Buffalo

Rochester

Syracuse

United States

Albany

Index (U.S. Peak of March 2006 = 100) Dec 2011

Shading indicates NBER recession

Percent Change Dec11-Mar16

+19%

+2% +5% +7% +38%

Regional Home Building Activity Total Residential Permits, 4-Quarter Moving Average

9 Source: Census Bureau and Moody’s Economy.com.

0

200

400

600

800

1,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Q1

Buffalo

Rochester

Syracuse

Albany

Number of Units

Shading indicates NBER recession

Global Economic Outlook

Upstate New York Regional Advisory Council Matthew Higgins, 1 June 2016

The views expressed here are those of the author, and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.

Roadmap Recent global economic performance and medium-term

outlook

Foreign advanced economies’ struggle to escape “lowflation”

Political economy risks in Europe

Economic outllook and risks in China

Global oil market developments and outlook

70

80

90

100

110

120

14-01 14-04 14-07 14-10 15-01 15-04 15-07 15-10 16-01 16-04

Indexes, January 2014 = 100 U.S. and EME equity performance

S&P500 FTSE EME equity index

Note: Index values are in dollar terms

-40

-30

-20

-10

0

10

20

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

Percent positive or negative* Citigroup Economic Surprise Indexes

Advanced Economies

Emerging Economies

*Weighted by series’ historical FX impact

0

2

4

6

8

10

12

10 11 12 13 14 15 16 17 18

Global GDP Growth Percent Q/Q-4

Market Forecasts

Advanced

China

EMEs ex. China 6.3

2017:Q4

3.4

1.6

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

05 06 07 08 09 10 11 12 13 14 15 16

Diffusion Index

Global Manufacturing PMI

Source: Markit.

Average 2005 – 2008:Q1 = 53.2

Average 2012 – 2015:Q2 = 51.1

90

95

100

105

110

115

08 09 10 12 12 13 14 15 16

Indexes, 2008:Q1 = 100

Advanced Economy Real GDP

Japan

United States

Euro area

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

12 13 14 15 16

Percent change from year ago

G-3: Core Consumer Price Inflation

Japan

U.S.

Euro Area

Sources: BEA, Eurostat, BoJ. U.S. inflation measured using the PCE index.

1.6

0.7 0.7

0

20

40

60

80

100

08 09 10 11 12 13 14 15 16 17 18

Percent

Central Bank Credit as a Share of GDP

Japan

United States

Euro Area

Sources: BoJ, ECB, Federal Reserve. Projections assume that announced BoJ and ECB asset purchase programs proceed as planned, and that Federal Reserve credit remains constant at its current level. Nominal GDP is assumed to grow in line with current market forecasts.

AE Core Inflation Performance with Negative Policy Rates

Country Date AdoptedInitial Core

InflationCurrent Core

Inflation

Japan January 2016 0.8 0.7

Sweden Feruary 2015 0.8 1.5

Switzerland December 2014 0.1 -0.3

Denmark September 2014 0.6 0.4

Euro Area June 2014 0.7 0.7

Sources: National sources, OECD. Policy rates are as follows: Japan, marginal current account balances; Sweden, repo rate; Switzerland, 3-mo. LIBOR target; Denmark, CD rate; Euro Area, deposit rate.

-12

-10

-8

-6

-4

-2

0

2

4

-12

-10

-8

-6

-4

-2

0

2

4

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Greece: Primary Budget Balance Percent of GDP Percent of GDP

Sources: European Commission, IMF April 2016 Fiscal Monitor, staff calculations. Note: Primary balances exclude bank recapitalization costs.

Program Targets IMF Assessment

49%

41%

10%

18%

0

5

10

15

20

25

30

35

40

45

50

0

10

20

30

40

50

60

Remain Leave Undecided Brexit Odds

Brexit: Current Polls and Bookmakers' Odds Percent, 5-poll average Percent

Sources: Whatukthinks.org, Oddschecker.com. As of May 26, 2016.

Bookmakers

6

8

10

12

14

16

18

6

8

10

12

14

16

18

1-Jan 15-Jan 29-Jan 12-Feb 26-Feb 11-Mar 25-Mar 8-Apr 22-Apr 6-May 20-May

GBP, EUR, and JPY 3m Implied Volatility Index Index

Sources: Bloomberg.

EUR

GBP

JPY

45.0

47.5

50.0

52.5

55.0

57.5

10 11 12 13 14 15 16

Diffusion Indexes

China: Manufacturing PMIs

National Stat. Bureau

Caixin

6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

China: Actual vs basket-implied exchange rate RMB per USD

Source: Bloomberg, IPA staff calculations.

RMB/dollar spot rate that would keep basket-implied RMB constant at mid-August 2015 value

RMB/$ spot rate

-250

-200

-150

-100

-50

0

50

100

150

200

10 11 12 13 14 15 16

Basic balance

Reserves

Net Private non-FDI capital flows

Chinese Capital Flows $U.S. billions

April, quarterly rate

China: Incremental Increases in Real Credit and Real GDP

0

4

8

12

16

20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Sources: BIS, PBoC, China National Bureau of Statistics, staff estimates and forecast.

Trillions of 2010 Rmb

Bank credit

Shadow credit and corporate bonds

Incremental increase in real GDP

20

30

40

50

60

70

80

1-yr. 2-yr. 3-yr. 4-yr. 5-yr. 6-yr. 7-yr.

June 30, 2015

January 20

May 3

U.S. dollars per barrel

Brent futures curve

Source: Bloomberg.

1-mo.

84

86

88

90

92

94

96

98

84

86

88

90

92

94

96

98

06 07 08 09 10 11 12 13 14 15 16

Global Oil Supply and Demand Millions of barrels per day

Source: International Energy Agency, Oil Market Report, various issues

Global Supply

Global Demand

Forecast