April 9, 2008

FOMC Minutes: Growth Has Deteriorated and Risks Have Increased
According to the minutes of the FOMC's March 18 meeting, the committee had “substantially” revised down its projection for real GDP growth this year while increasing expectations for inflation in the first half. Members stated that prospects for growth had deteriorated and risks had increased. Evidence was discussed that suggested that an “adverse feedback loop” could restrict credit, magnifying the economy's troubles. The chance that financial market stress, coupled with declining house prices, could lead to a more severe and protracted downturn was also cited.

Furthermore, committee members admitted that “calibrating the stance of policy was difficult.”  Therefore, policymakers argued that time will be needed to assess the effects of their recent actions, including the 300-basis point reduction in the target funds rate since last August. 08.04.08 (Source: Federal Reserve)

April 8, 2008

Consumer Credit Up 2.4 Percent; Non-Revolving Credit Growth Stalls
In February, total consumer credit increased by $5.2 billion, or 2.4 percent at a seasonally adjusted annualized rate, following January’s 4.9 percent increase. It should be noted that the Federal Reserve's measurement of consumer credit does not include mortgages and other loans secured by real estate.

The increase was almost entirely due to growth in revolving credit, which increased by $4.7 billion or 6.1 percent at an annualized rate. This is a slight moderation from the pace of revolving credit usage in January where it grew by 7.3 percent. Growth in non-revolving credit decelerated to 0.4 percent at an annualized rate. This is consistent with weak auto sales reported so far this year.
08.04.08 (Source: Federal Reserve)

March 27, 2008

Q4 GDP Growth Still at 0.6 Percent; Inventories Revised Down, Consumption and Exports Revised Up
The final GDP report for the fourth quarter of 2007 saw no revision, remaining at 0.6 percent real annualized growth. For all of 2007, real GDP increased 2.2 percent, down from 2.9 percent in 2006. This was the weakest annual GDP growth since 2002.

Along with some minor downward revisions to other components, the already declining inventory investment component was further revised downward so that it accounted for a 1.8 percent reduction to total GDP growth (previously a 1.5 percent drag). However, this downward revision was offset by an upward revision to personal consumption growth from 1.9 percent to 2.3 percent, as well as an upward revision to export growth from 4.8 percent to 6.5 percent.
08.03.27 (Source: Bureau of Economic Analysis)

March 19, 2008

Fed Slashes Interest Rates Again
The Federal Reserve's Federal Open Market Committee has cut the federal funds rate three-fourths of a percentage point to 2.25 percent, the lowest since late 2004. It marked the second back-to-back cuts of three-quarters of a percentage point. "Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters," the FOMC said. Read the FOMC statement. 

March 17, 2008

Industrial Production Declined in February
Industrial production fell 0.5 percent in February after a rise of 0.1 percent in January, according to the Federal Reserve. It was the first decline in four months.  

Much of the decrease in February resulted from factories cutting back as Americans spent less on furniture, appliances and automobiles. 08.03.17 (Source: Federal Reserve) 

March 10, 2008

Wholesale Sales Rise in January
Wholesale sales rose 2.7 percent in January, following a 0.5 percent drop in December, the Commerce Department said yesterday. Strong sales of durable goods and farm products helped spur the increase, which was the largest since a 3.3 percent jump in March 2004, officials said.

Consumer Credit Rises in January
Consumer Credit in January increased at a 3.3 percent annual rate, up from a 1.8 percent growth rate in December, the Federal Reserve said. Revolving credit, which includes credit card debt, increased at a rate of 7 percent in January, following a gain of 2.8 percent in December. Nonrevolving credit rose at a 1.1 percent rate for the second month in a row. Read more. 

Fed to Kick Up Auction Amounts
The Federal Reserve will boost the size of auctions planned for March 10 and March 24 to $50 billion each, up from the $30 billion previously announced, the agency said. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers. The Fed said it planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed. Read more. 

Wholesale Inventories Up 0.8 Percent; Sales Up 2.7 Percent
Wholesale inventories rose by 0.8 percent in January, following a 1.1 percent increase in December. A substantial increase in farm product inventories accounted for 37 percent of the total increase. The gain had more to do with a surge in agricultural commodity prices, rather then increased volume. However, excluding farm products, inventories still rose by 0.5 percent.

Sales rose by 2.7 percent, after a 0.5 percent decline in December (which was the first drop in twelve months). This was the largest monthly increase in sales since 2004. Sales rose strongly for both durable and non-durable goods, but were led by a 16.1 percent increase in farm product sales. The inventory-to-sales ratio at current sales pace fell to 1.07 months from 1.09 months. 08.03.10 (Source: Census Bureau)

March 3, 2008

Construction Spending Down 1.7 Percent; Residential and Non-Residential Down
In January, construction spending decreased by 1.7 percent, following a decline of 1.3 percent in December. This was the fourth consecutive monthly decline and the largest during the period. Private construction fell by 2.2 percent, following a 1.3 percent drop in December. It was led by a 3.0 percent decline in residential construction; however, private non-residential construction fell by 1.2 percent also, the first drop since 2005, following Hurricane Katrina. From a year prior, residential construction spending was down 19.7 percent. Private non-residential spending was up 17.3 percent. Additionally, public construction fell by 0.2 percent over the month, but was 6.6 percent higher then a year prior.
08.03.03 (Source: Census Bureau)

ISM Manufacturing Index Down 1.7 Points to 48.3
After rebounding to above 50 in January, the ISM manufacturing composite index fell 1.7 points to 48.3 in February, its lowest level since April 2003. A value under 50 denotes manufacturing sector contraction.  The index has now been below 50 for two of the past three months. Notable components of the index included:

New Orders: Down 0.4 points to 49.1

Production: Down 4.5 points to 50.7

Employment: Down 1.1 points to 46.0

Inventories: Down 3.7 points to 45.4

Export Orders: Down 2.6 points to 56.0
08.03.03 (Source: Institute for Supply Management)

February 27, 2008

Durable Goods Orders Down 5.3 Percent; Shipments Up 1.8 Percent
In January, new orders for manufactured durable goods fell by a seasonally adjusted 5.3 percent, more then reversing the 4.4 rise in December. This was the largest drop since August and brings the total amount of orders to the lowest level since May. It should be noted that January is historically a weak month for orders, falling in six of the last eight years. The decline was led by a large drop in aircraft orders. Non-defense, ex-aircraft orders fell by a much lesser 1.4 percent. Still, orders declined in subcategories including machinery, computers and electronics.

Shipments of durable goods were up 1.8 percent over the month, following two consecutive monthly declines. With the exception of machinery, shipments were up in nearly every subcategory. Unfilled orders increased by 0.6 percent, the slowest rate since January 2007, and inventories grew by 0.6 percent, following a gain of 1.1 percent.
08.02.27 (Source: Census Bureau)

February 26, 2008

PPI: Up 1.0 Percent; 7.7 Percent from Year Earlier – Largest Increase in 26 Years
In January, producer prices for finished goods rose by 1.0, following a decline of 0.3 percent in December. The index was 7.7 percent higher then a year prior, the greatest increase since 1981. The month’s rise was led by increases in energy products which rose 1.5 percent. Core prices, less food and energy, rose by a lesser 0.4 percent over the month; however, this was still the largest gain since February 2007. From a year prior, core finished goods were 2.4 percent higher.  

Inflationary pressure is also building in earlier stages of production, which suggests elevated inflation in the future. Even ignoring food and energy, prices for core crude goods (basic production inputs) had risen by 21 percent from a year earlier.
08.02.26 (Source: Bureau of Labor Statistics)

FDIC: Fourth Quarter Banking Industry Earnings Fall 83.5 Percent to $5.8 Billion
The banking industry in the fourth reported a sharp decline in earnings to a level of net income of $5.8 billion, which was the lowest amount reported since 1991. This was a decline of 83.5 percent from the fourth quarter of 2006. Record-high loan-loss provisions, record losses in trading activities and goodwill impairment expenses combined to dramatically reduce earnings at a number of FDIC-insured institutions.

The average return on assets (ROA) in the quarter was 0.18 percent, down from 1.20 percent a year earlier. This is the lowest quarterly ROA since 1990, when it was a negative 0.19 percent. Insured institutions set aside a record $31.3 billion in provisions for loan losses. Fifty one percent of institutions reported lower earnings then a year prior. Most of the earnings weakness was concentrated in a handful of large institutions. A quarter of institutions over $10 billion suffered negative net income in the quarter.
08.02.26 (Source: Federal Deposit Insurance Corporation)

February 21, 2008

Fed Lowers Economic Growth Forecast
The Federal Reserve has lowered its 2008 economic growth forecast. The Fed said it believes that the gross domestic product will grow between 1.3 percent and 2 percent this year, down from its previous forecast of between 1.8 percent and 2.5 percent. The central bank also said it expects the 2008 unemployment rate to be between 5.2 percent and 5.3 percent, up from the previously projected 4.8 percent to 4.9 percent range. The forecast was published with the minutes of the Federal Open Market Committee's Jan. 29-30 meeting, at which members cut the federal funds rate 50 basis points to 3 percent. Read the meeting minutes.

Consumer Prices Rise in January
The Consumer Price Index rose by 0.4 percent in January, matching its December increase, the Labor Department reported. Core inflation, which excludes food and energy, rose by 0.3 percent, the biggest jump in seven months. That increase reflected higher prices for medical care, education, clothing, tobacco and airline fares, officials said.

February 20, 2008

CPI: Headline Up 0.4 Percent; Core Up 0.3 Percent
In January, the Consumer Price Index increased 0.4 percent, the same rate of increase as in December. From a year prior, prices were up 4.3 percent. Higher energy prices led the increase, which were 19.6 percent higher then a year earlier.

Core CPI inflation, less food and energy, increased 0.3 percent in January, up from 0.2 percent in December, and was the highest growth rate since January 2007. From a year prior, it was 2.5 higher.
08.02.20 (Source: Bureau of Labor Statistics)

Housing Starts Up 0.8 Percent; Permits Down 3.0 Percent
Housing starts increased slightly, rising 0.8 percent to 1.012 million units in January after falling 14.8 percent in December. From a year earlier, housing starts were down 27.9 percent. The increase was led by higher construction of multi-family units (5+), which rose 22 percent. Single family homes declined 5.2 percent. Total building fell 3.0 percent.

By region, housing starts increased by 12.0 percent in the Midwest , and by 18.9 percent in the Northeast. Starts fell in the West and South by 6.2 percent and 2.9 percent, respectively.
08.02.20 (Source: Census Bureau)

February 19, 2008

Industrial Output Weak Again in January
U.S. industrial production rose by 0.1 percent in January, a weak showing that matched the December increase, the Federal Reserve said. All of the January increase came from a 2.2 percent rise in output at utility companies to heat homes and businesses, officials said. Output fell 1.3 percent at auto plants due weak demand, and output also dropped at factories making wood products and furniture, sectors that have been hit hard by the housing slump, the Fed said.

February 15, 2008

Industrial Production Up 0.1 Percent
In January, industrial production rose 0.1 percent following 0.1 percent increase in December. The gain was led by a 2.2 percent increase in utility output. Mining production fell 1.8 percent, and manufacturing was unchanged, following a 0.2 percent increase in December.

Growth was solid in business equipment and business supplies, which rose 0.4 percent and 0.5 percent, respectively. Business investment has remained solid in recent months despite a general slowdown. In addition, consumer goods also posted a significant gain of 0.3 percent, the largest increase since July.

Weighing down on the topline manufacturing value were construction supplies and materials, which fell 1.1 percent and 0.1 percent, respectively. Auto manufacturing also fell 1.3 percent. Capacity utilization remained unchanged.
08.02.15 (Source: Federal Reserve)

Import Prices Up 1.7 Percent; Export Prices Up 1.2 Percent
The Import Price Index increased 1.7 percent in January, following a 0.2 percent drop in December. The advance was fueled by a 5.5 percent increase in petroleum prices. Non-petroleum import prices increased 0.6 percent, led by increased in industrial materials and supplies. From a year prior, import prices were up 13.7 percent, while non-petroleum import prices were up 3.6 percent.

Export prices increased 1.2 percent in January following a 0.4 percent increase in December. Both agricultural and non-agricultural products contributed to the increase. From a year prior, prices were up 6.7 percent.
08.02.15 (Source: Bureau of Labor Statistics)

Consumer Confidence Down 8.8 Points to Lowest Level in 16 Years
The University of Michigan Consumer Sentiment Index reversed January’s increase by falling 8.8 points in February to 69.6, the lowest level since 1992. The decline was almost evenly divided between the two main components of the index. The current conditions component fell 9.0 points to 85.4, and the future expectations component fell 8.7 points to 59.4.

Short term inflationary expectations rose. One-year expectations increased to 3.7 percent after three months at 3.4 percent. Five-year expectations were unchanged at 3.0 percent.
08.02.15 (Source: University of Michigan)

Bernanke: Economy to Grow at Sluggish Pace
The housing slump and a credit crisis caused by rising subprime mortgage defaults have weakened the economy, Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee. "The outlook for the economy has worsened in recent months and the downside risks to growth have increased," Bernanke said. The "virtual shutdown" of the subprime mortgage market, and lenders' reluctance to make jumbo home loans over $417,000 have aggravated housing-market problems, he said. While he has not predicted a recession, Bernanke believes there will be a period of sluggish growth "followed by a somewhat stronger pace of growth starting later this year" as the Fed's rate cuts and the economic stimulus package's tax rebates take effect. Read Bernanke's testimony.  Read other witnesses' testimony. 

February 14, 2008

Trade Deficit Down 6.2 Percent In 2007
In December, the trade deficit in goods and services narrowed by 6.9 percent from November. Exports increased by 1.5 percent, and imports decreased by 1.1 percent. For the year 2007, the trade deficit declined by 6.2 percent to $712 billion, or 5.1 percent of GDP. In 2006, the deficit was equal to 5.7 percent of GDP.  Both exports and imports of goods and services increased. Exports rose by 12.2 percent, while imports rose by 5.9 percent.

For 2007, the trade deficit had the following percent changes by region in nominal dollars:

Europe: -12.4 percent                        Canada : -11.9 percent

Mexico : 15.9 percent                            China : 10.2 percent

Japan : -6.4 percent                             OPEC Nations: 18.4 percent
08.02.14 (Source: Census Bureau)

February 5, 2008

Labor Productivity Up 1.8 Percent
Nonfarm business productivity grew 1.8 percent in the fourth quarter, as a seasonally adjusted annualized rate. This followed a surge in productivity in the third quarter of 6.0 percent, following slower growth over the previous year. The gain was led by a 2.5 percent gain in manufacturing productivity, and in particular durable goods manufacturing which rose 4.6 percent on an annualized basis. This was due in part because of a reduction of labor hours worked.

From the fourth quarter of 2006 to the fourth quarter of 2007, growth in productivity was 2.6 percent, the highest year-over-year growth since 2004. Measured as the average of 2007 over the average of 2006, productivity growth was 1.6 percent, compared to 1.0 percent the previous year.

Hourly compensation rose 3.9 percent ( SAAR ) in the fourth quarter, following a downwardly revised 4.0 percent gain in the third quarter (previously 4.2 percent). On a year-over-year basis, hourly compensation was up 3.7 percent. However, real hourly compensation fell 0.3 percent in the fourth quarter, as inflation accelerated. Real hourly compensation was down 0.3 percent from a year prior, but up 0.6 percent for all of 2007.
08.02.06 (Source: Bureau of Labor Statistics)

February 4, 2008

Payrolls Down 17,000; Unemployment Rate at 4.9 Percent
Payrolls fell in January by 17,000, after an upwardly revised gain of 82,000 jobs in December (previously 18,000). Private payrolls rose a scant 1,000, while a decline in government payrolls pushed the number into the negative. The drop in employment marks the first decline since August 2003. Furthermore, the BLS released its benchmark revision for 2007.  The year ended with 376,000 fewer jobs than previously estimated, with the downward revisions spread across the year.

January 31, 2008

Personal Income Up 0.5 Percent; Spending Up 0.2 Percent
Personal income rose 0.5 percent in December, following November’s 0.4 percent gain. The increase was led by strong growth in rental income and transfer payments related to an adjustment having to do with Medicare. However, wage and salary growth also grew significantly at 0.4 percent. From a year prior, income was 5.8 percent higher.

Consumer spending inched up 0.2 percent, down from the large 1.0 percent rise in November. The gain was led by service spending. Spending on durable goods declined, while spending on nondurable goods was virtually flat but it followed a large increase in November.

Inflation, as measured by the PCE deflator, rose 0.2 percent in December. Core prices, less food and energy, also rose 0.2 percent. From a year prior, they both stood 3.5 percent and 2.2 percent higher, respectively.
08.01.31 (Source: Bureau of Economic Analysis)

Employment Costs Up 0.8 Percent
Employer costs rose 0.8 percent in the fourth quarter, following an identical increase in the third quarter. Wages and salaries rose 0.8 percent, while benefit costs rose 0.9 percent. On a year-ago basis, total compensation rose 3.3 percent in the fourth quarter, unchanged from the prior quarter.
08.01.31 (Source: Bureau of Labor Statistics)

January 30, 2008

Fed Cuts Funds Rate 50 Basis Points to 3.00 Percent
The Discount Rate was also cut by 50 basis points to 3.50 percent. One member voted against the fed funds rate cut, preferring no cut, while the discount window cut was unanimous. The Federal Open Market Committee’s comments from current and prior press releases are shown below:

                   January 30th Meeting                                           January 22nd Decision