Statement by Thomas M. Hoenig, President, Federal Reserve Bank of Kansas City, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, March 10, 1993 - Statements to the Congress - Transcript

Federal Reserve Bulletin, May, 1993

As President of the Federal Reserve Bank of Kansas City, I am pleased to address this Senate committee. The Kansas City Bank serves the Tenth Federal Reserve District, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri. We operate branches in Denver, Oklahoma City, and Omaha.

Spanning the heartland, the Tenth District has traditionally relied on its natural resource industries. As a share of total output, for example, agriculture and energy are roughly twice as important to our economy as to the national economy. However, after severe farm and energy recessions in the 1980s, our economy has become more diverse. The region's manufacturing base is growing, a wide range of service firms is flourishing, and tourism is anchoring growth in some parts of the District.

Thanks, in part, to this more diverse economic base, the District economy felt less sting from the national recession of 1990-91 and has outpaced the nation throughout the recovery. The recent experience of the District is a sharp reversal from the 1980s, when our region consistently trailed the national economy because of farm and energy recessions and a regional downturn in real estate.

My testimony will discuss current economic conditions and prospects for growth in the Tenth Federal Reserve District. I will also share my views of the national economy and the role for monetary policy. In brief, the District economy grew at a moderate pace in 1992 and will probably grow moderately again in 1993, roughly matching the growth pace of the national economy. I expect the nation's recovery to stay on track, picking up momentum over the course of the year, and my view regarding monetary policy is that it should promote maximum sustainable growth within an environment of price stability.

RECENT PEFORMANCE OF THE TENTH DISTRICT ECONOMY

The economy of the Tenth Federal Reserve District grew moderately in 1992. Contributing to growth were the construction and retail sectors, which were generally strong across the seven-state region. Agriculture also posted a good year, with bumper crops and solid livestock profits. Energy activity remained sluggish, but there was a spurt of new drilling in the fourth quarter as exploration firms took advantage of expiring tax credits for coal-seam gas. Manufacturing activity slumped across the District, matching similar weakness nationwide.

The District economy grew faster than the national economy in 1992, based on two broad economic gauges. Real personal income in the District grew 2.3 percent from the third quarter of 1991 to the third quarter of 1992 (the last period for which data are available), compared with a 1.7 percent gain in the nation. Employment in the District grew 1.2 percent from the fourth quarter of 1991 to the fourth quarter of 1992, compared with 0.4 percent growth in the nation.

District Economy Outpaces the Nation

The Tenth District economy has been outperforming the nation throughout the recovery. Since the recession ended in March 1991, the District has added jobs at an annual rate of 1.1 percent, while employment in the nation has edged up at an annual rate of 0.2 percent. What accounts for the more buoyant economy in our region?

* Farm recovery. The farm economy, in contrast with some other parts of the national economy, has enjoyed a strong recovery. In the mid-1980s, agriculture suffered a severe downturn, as export markets and farmland values both declined. Since then, farmers have posted record or near-record net cash incomes, allowing them to put their financial house in order. Farmland values are still well below the peaks of the early 1980s, but farmers and their lenders are in solid financial condition. Strong farm income has also helped buoy business conditions in many rural communities across the region.

* Stable energy industry. The District's energy industry has stabilized after going through its own recession in the 1980s. Energy-dependent areas of the District, from Wyoming to Oklahoma, experienced downturns after oil prices plummeted in 1986. In the wake of lower oil prices, the energy industry down-sized. Although painful, the correction was relatively quick. More recently, the industry has steadied, being neither a significant source of strength, as in the early 1980s, nor a drag, as in the late 1980s.

* Strong construction activity. Chiefly responsible for maintaining the region's lead over the nation during the recovery has been a booming construction sector. Construction jobs in the District have grown at an annual rate of 2.8 percent throughout the recovery, compared with a decline at an annual rate of 1.8 percent in the nation. Construction activity has been robust in virtually all categories. Residential building in the region has surged, largely in response to lower mortgage rates. Nonresidential and nonbuilding construction have benefited from a fairly large number of public building projects under way in District states. The best example of such activity is the new Denver International Airport, which will be completed this year. Commercial real estate has been stable, with declining office vacancy rates and few new projects under way.