• The Federal Reserve Bank will consider raising interest rates to tame the pockets of inflationary pressure building in the economy.

• Federal Reserve Chair Alan Greenspan spoke to the National Governors Association on July 11th. but had nothing to say about the current state of the economy. Mr. Greenspan's Congressional testimony had little surprises (see below).
• The President of the Federal Reserve Bank of Minneapolis (Ninth District), Dr. Gary Stern (not a member of the FOMC), was quoted in the USA Today of August 10th. 2000 as saying: "...the mild decline we have had in some stock indexes suggests that the we may see (moderation in) the so-called wealth effect". Dr. Stern also mentioned that an economic growth rate averaging 5% is not worrisome to him.

• Most Economists are now convinced the Federal Reserve Bank NOT TAKING ACTION on interest rates when they meet on August 22.
• OUR VIEW: We also think the Federal Reserve FOMC will take NO ACTION by leaving interest rates alone. Recent economic data show a slowing economy with no threat of Consumer Inflation.

RECENT ECONOMIC DATA RELEASES (from old to newer data):

• Orders for US Durable Goods rose a whopping 6.0% in May, twice what economists were expecting. The spike was due to demand for electronics. These figures have analysts worried that the interest rates vigil is not over.
• US New Home Sales declined 0.2% in May to 875,000 units. Including the 3 previous monthly declines, the housing market is slowing rapidly.
• The Conference Board reported that its Help Wanted Index dropped 6 points in May, a strong indication that the labor market and the economy is slowing.
• US Jobless Claims for week ending June 24th. rose slightly to 306,000 as the tight labor market and booming economy continue to ease.
• The US Commerce Department reported that US Personal Income grew 0.4% in May, 0.1% higher than forecasted. April's Personal Income growth was also revised downward to 0.6%. Consumer Spending grew a moderate 0.2% in May. This means income and spending growths are subduing.
• The Chicago Purchasing Managers reported that the Chicago PMI increased to 56.8% in June, after the surprising drop in May. Manufacturing growth was moderate. Input prices dropped to 63.6% in June, the second consecutive drop. The employment index was below the 50% level, thus indicating a cooling off in the tight labor market. Taking into account today's data and yesterday's, the market seem to agree there is a cooling off in the economy.
• The National Association of Purchasing Managers (NAPM) reported that its manufacturing index dropped for the fourth straight month to 51.8% in May. Though it is above 50%, which signifies expansion, but the index has been dropping steadily which means manufacturing (and the economy) is cooling off. The production, orders and prices components also fell for the period.
• US Construction grew 0.1% in May, due primarily to growth in Industrial, Retail, and Warehouse construction. Residential Construction cooled off, especially single family homes, which recorded a sharp decline as mortgage rates continue to rise. Public Building construction also fell.
• The Conference Board reported that the US Leading Economic Indicators fell 0.1% in May, a significantly lower drop than anticipated. Due to increases in Joblessness (Unemployment) and consumers' cautiousness about spending, the data is not too worrisome.
• The National Association of Purchasing Managers (NAPM) reported that its Non-Manufacturing business index grew to 64% in June, from May's 61.5% level. The Backlog of Orders index grew 3% in June. Analysts are worried that inflationary pressures might still be in the Non-Manufacturing sectors.
• US Chain Stores Sales for year-to-year June sales rose 3.4%, moderately slower than anticipated, as consumers continue to scale back purchases.
• US Jobless Claims for week ending July 1 declined to 296,000. The Jobless claims moving average is around 300,000, while the 4-Week moving average is approaching the 2.1 million mark, a figure that was last seen mid 1999.
• The Bureau of Labor Statistics reported that the US Unemployment rate dropped from 4.1% to 4.0% in June. Net job increases for June were 11,000, well below the 275,000 anticipated by analysts. The job increase looks low because the 190,000 Census workers released offset the 206,000 jobs created in the private sector.
• The Economic Cycle Research Institute (ECRI) reported that its Future Inflation Gauge (ECRI FIG) edged up 0.4% to 123.1% in June. Although the data is lower the 11-year high seen this May, the current data shows that the economy still have price inflation pressures that can resurface at the slightest chance.
• US Consumer Credit grew $11.8 billion in May, well above analysts' expectations. The increasing consumer indebtedness is worrying to tighten lending requirements and charging higher interests.
• US Wholesale rose 0.4% in may, in line with expectations. Wholesale inventories increased 0.8% in the same period, mostly from non-durable goods. This are signs that the Wholesale sector is slowing down.
• The Federal Reserve Bank of Richmond's Manufacturing Shipment Index, which is a good measure of manufacturing activity in the Mid-Atlantic US, dropped to 2 in June. This indicates that manufacturing is growing at a slower region. Also in the same period, new orders and backlog of orders indexes dropped 3 and 7 points respectively. Prices paid for manufacturing inputs grew a robust 2.6% in June, an indication of input price pressures (inflation). The good news is, the input price inflation doesn't seem to be crossing over to consumer price inflation.
• US Jobless claims for weekending July 8th. rose to 319000. The short week due to the July 4th. holiday saw less people filing for initial claims, while auto plants closures for retooling sent many auto plant workers to file claims, thus offsetting the short week decline. Continuing unemployment claims also rose during the period. This means the tight labor market and its accompanying wage inflation continues to ease off.
• US Import prices gained 0.8% in June due primarily to increases in oil prices. Excluding oil, import prices were unchanged for the period. Export prices, however, dropped 0.1% in June, due mostly to Agricultural and Food related products. Capital goods export prices were however, unchanged.
• US Producer Price Index (PPI) grew 0.6% in June, 0.1% above analysts' expectations. The unexpected rise was attributed to increased energy prices. The Core PPI, which excludes volatile energy and food sectors, surprised analysts who expected it to hold steady, by dropping 0.1% for the month. As expected, PPI inflation hasn't made its way to consumers in form of higher prices, due mostly to cheaper imported comparable products. Analysts expect that to change in the coming months.
• US Industrial Production grew 0.2% in June, in line with forecasts. Technology and Telecommunications showed the highest production increases, while non-durables actually fell for the period. US Capacity Utilization for the month stood at 82.1%, right around the normal average (and 0.4% below the normal signal of aggressive expansion). Autos and Metals capacity utilization was were however, above the average.
• US Consumer Price Index (CPI), a good measure of consumer price inflation, rose greater-than-forecasted 0.6% in June. The Price Inflation now stands at 3.7% for the year. Core CPI, which excludes the volatile Energy and Food sectors, rose 0.2%, in line with forecasts. Over the year Core CPI now stands at 2.4%. Energy prices rose 5.6% for the period.
• The National Association of Home Builders (NAHB) reported that its Housing Market index for July rose to 58, one point above the downward revised June index of 57. Builders were fairly optimistic that the Federal Reserve might be done raising rates. Despite rising interest rates, gains in income are still making housing more affordable and in short supply.
• The US Department of Commerce reported that the trade deficit rose to $31.04 billion in May, a new record. A high trade deficit was expected due to high oil prices.
• The Philadelphia Federal Reserve Bank index, a good measure of manufacturing activity in the district, dropped to 0.7% in July, the lowest level in almost 2 years. Factory unfilled orders dropped to 18.8%. The prices paid index dropped to 26.8%, a still high number, indicating that, manufacturers still have input price inflation.
• US Housing Starts dropped 2.6% in June to 1.554 million units. Single family housing led the decline. This points to a steady slowing in the housing market.
• US Jobless Claims for weekending July 15 fall to 311,000. The four-week moving average for initial jobless claims now stands at 308,000, about 2,000 above the week before.
• The Conference Board reported that the US Consumer Confidence Index rose in July to 141.7, and the June figures were upgraded upward to 139.2. Consumer buying plans were weak, especially in the auto sector - This figure do not mean that the Federal Reserve will take action, but the Central Bank will now be alert.
• US Existing Home Sales for June rose 2.8% to 5.23 million units. While mortgage rates have been generally high for the year, home affordability have also risen to match the increases, thus spurring the demand. Data however, shows that mortgage rates have dropped in recent weeks, and the Federal Reserve will be watching if this spikes demand in housing.
• US Employment Cost Index (ECI) for the Second Quarter (Q2) 2000 rose only 1%. The Benefits component grew only 1.1% as opposed to 2% in Q1. The wage component grew 1% as opposed to a 1.1% growth in Previous Quarter. The Financial services component grew a mere 0.7% as compared to a 2.5% growth in Q1.
• US Jobless Claims for weekending July 22 was down to 272,000. The 4-week moving average was also down, but still good to indicate that the tight labor market continues to ease off.
• The US Help Wanted Index dropped to 81 in June, and the May figures were also revised downward. Another sign pointing to the easing labor market.
• US Orders for durable goods rose 10%, well above the less than 1% forecasted by analysts. The spike is because of Aircraft orders.
• The US Department of Commerce reported that the Gross Domestic Product (GDP) of the US rose a higher than expected 5.2% in Q2 2000, well above the revised Q1 data of 4.8%. The GDP Price Deflator grew 2.5%, below the Q1 growth of 3.3%. Consumer spending  (on durable goods mostly) grew at a slower rate of 3%, well below the 7.6% recorded in Q1. Personal Consumption Expenditure Price Gauge grew 2.3% for the quarter, well below the 3.5% recorded in Q1, while business spending and consumer spending on non-durable goods and services was still robust for Q2. The Commerce Department released revised data from 1997 to the present using newer census data and other revised economic data so as to give a better picture of the economy.
• The National Association of Purchasing Managers (NAPM) reported that its Chicago NAPM Index dropped to 52 in July, significantly lower than the June index of 56.8. The index measures the manufacturing activity in the Chicago area.
• The National Association of Purchasing Managers (NAPM) reported that, its National NAPM index, a good measure of manufacturing activity in the country, dropped to 51.8 in July.The Employment Index Component rose slightly to 52.7%. The Prices Index Component rose slightly to 61.9%. The Production Index Components like back orders were down. This data shows that the manufacturing sector is growing slowly (anything above 50.00 indicates growth), producer inflation is still persistent, manufacturing employment & production is weakening.
• US Department of Commerce reported that personal income growth was unchanged in June at 0.4%, in line with forecast. The May figures were revised downward to 0.3%. consumer spending rose to 0.5% in the period, while personal savings dropped 0.2% for the period to 0.1%. The Price Deflator, a measure of consumer inflation, grew 0.3% in June after coming in flat in May. This means that consumer inflation still has the potential for trouble. Good news is, this was the June data, and more than likely current data might show otherwise.
• US Construction Spending dropped 1.7% in June, well above expectations. Single family homes, public projects, and industrial buildings led the decline.
• The Conference Board reported that, US Index of Leading Economic Indicators came in flat in June at 106.0, the same level as it was in May. The Retail Sales, Vehicles Sales, Home Sales, Help Wanted, Civilian Payroll all came in with weakening numbers. The Unemployment Sector showed weakening as Unemployment Insurance Claims rose for the period.
• Orders for single family New Home Sales dropped 3.7% in June. This is the lowest level since December 1997, the US Commerce Department reported.
• US Vehicle Sales grew 200,000 to 17.1 million in July. This was however, 700,000 below April rates. Light truck sales, which have been down for the two previous months, rose sharply to 8.1 million units sold, the same level as in April.
• US Chain Stores Sales rose 4.2% in July, which is higher than the June growth of 3.4%.
• US Factory Orders for June rose by 5.5%, above economists' forecast, but higher than previous Month's rate.
• US Jobless Claims for week ending July 29 was 276,000, about 4,000 higher than the preceding week.
• The National Association of Purchasing Managers (NAPM) reported that its Non-manufacturing index dropped to 55.5% in July, well below the June levels of 64.0%.
• US Employment dropped 108,000 in July. The Unemployment rate held steady at 4.0% Average Hourly earnings however, gained higher to 0.4%, right where it was in April.
• The Economic Circle Research Institute (ECRI) reported that its future inflation index dropped well below economists' forecasts to 1.1%.
• US Productivity grew 5.3% for the second quarter 2000, the largest Q2 growth since 1983, and well higher than economists' forecasts. Durable goods manufacturing led with a 9.6% increase. Unit Labor Cost, a good measure of wage inflation, dropped 0.1% for the quarter, well below what economists were expecting, and the largest quarterly drop since 1984.
• The Federal Reserve Bank of Richmond reported that its district manufacturing sector shipment index grew 3 points in July, One point above June, but 8 points below the May value. New Orders index came in at 9, well below the June rate of 14. Backlog of Orders index dropped 4 points, well lower than the 7 points increase in June. The Six-Month Shipment Outlook index came in at 31 in July, 3 points below the June levels.
• US Producer Price Index (PPI), a measure of manufacturers' inflation, came in flat for the month of July, thanks to lower energy prices. Core PPI, which excludes the volatile energy and food sectors, rose modestly by 0.1% in the same period. The increase in Core PPI is attributed to aircraft and truck trailer activity pick up. Prices of Cars, Construction materials, and Computers declined for the period.
• US Retail Sales rose by 0.7% in July, higher than forecasted. Durable Goods led the rise with 1.2% growth, despite high borrowing costs. Non-Durable Goods rose a modest 0.4%, almost half the June growth of 0.7%.
• US Business Inventories grew 0.9% in June, well above economists' forecasts. The May figures were revised up to 0.9%. US Total Sales rose 0.9%, thanks to strengths in Manufacturers and Wholesale Trade Sales. Retail Sales grew a modest 0.4%.
• US Industrial production rose 0.4% in July, mostly due to the growth in the high-tech sector (computer related sector has grown 40% over the year). Automotive production was down 6.6%, while consumer goods production dropped 0.5% (consumer durable goods led the drop).
• The National Association of Home Builders (NAHB) reported that its Housing Index rose to 61 in August, and the July figures were revised upward to 58. Home Builders are optimistic about the recent reduction in mortgage rates.
• US Consumer Price Index (CPI), a broad measure of consumer inflation, rose 0.2% in July, 0.1% greater than economists estimated, and over-the-year CPI is now at 3.6%. Core CPI, which excludes the volatile Energy and Food sectors, rose 0.2% in July, in line with Forecasts. The over-the-year Core CPI now stands at 2.4%, the same level as 1998. Energy rose a modest 0.1%, well below the 5.6% June rise. Food rose 0.7%, now already 2.8% above last year's rates. Medical Care prices rose 0.3% in July. Over-the-year is now at 4.1%.
• US Housing Starts dropped 3.3% in July to 1.512 million units. Single Family units rose in July to 1.197 million, but was 3.1% below the May levels. Housing Starts are now about 2% below last year's with the South leading the decline.
• US Initial Jobless Claims for weekending August 12 rose to 313,000 - about 14,000 higher than the previous week, and the first 300,000+ in Four weeks.
• The US Trade deficit rose to $30.6 billion in June, but almost One billion dollars less than economists forecasted. The strong US economy is attracting foreign investments.

• The districts reported that the economy grew, but there were signs of moderation.
• Labor markets for various skills are still tight, with some districts seeing some wage increases.
• The districts reported an easing in consumer spending, thus keeping price increases (inflation) in check.
• Majority of the Districts reported that manufacturing activity is slowing, especially in the industrial districts east of the Mississippi river, and North of Georgia.
• Third district (Philadelphia) reported a flat manufacturing sector. A slight increase in shipments, but placement for new orders is unchanged. Tourism is brisk, while retail sales are almost at the same level as last year this time. Lending continues to slow, especially in mortgages.  
• Fourth district (Cleveland) noted declines in steel prices. Retail sales is slowing, while new car sales are set to outperform last year's. The falling demand in new homes have led to 20% to 30% layoffs in the home construction, while commercial construction remains brisk. Labor markets are still tight in the district, especially in Transportation and Shipping which are still quite strong, despite high fuel prices. 
• Midwestern "plains" districts (Seventh, Eight, Ninth & Tenth) The Ninth District (Minneapolis) reported that labor market continue to be tight especially in labor intensive services industries like Restaurants. Construction, mining and tourism are still showing some strength, while consumer spending seem to be softening. The Seventh (Chicago) reported some of the strongest signs of the slowing economy. Consumer spending has moderated. New and existing home sales are slowing. Lending has been showing signs of slowing lately. Manufacturing is slowing, due primarily to the high borrowing cost for durable goods (merchants are offering discounts to counter the slow in demand). Construction (non-residential) is still strong in the Chicago district. The Eighth district (St Louis) is one of few districts that actually had a pick up in economic activity. The Labor Market is still tight with a moderate increase in wages, especially in the services sector.  Home sales were down in the district. Consumer spending hasn't cooled significantly as Banker report a flat growth in bank deposits. Tenth District (Kansas City) reported that the economy grew at a steady space. Retail sales is picking up steam, while durables like Automobile sales were flat, and expected to slow further due to interest rates increases. New and existing home sales are are expected to be flat in the coming months. Overall borrowing is holding, while deposits have dropped, despite a lenient borrowing environment. 
• Western districts (Eleventh & Twelfth) The Twelfth District (San Francisco) reported an expanding economy with some signs of slowing economic activity. Labor Markets are still tight with some areas reporting wage increases that outstripped productivity. Manufacturing and Real Estate continue to show strengths. Loan availability is hard, especially Venture Capital. The Eleventh District (Dallas) reported signs of an economic slowdown. The Loan market is still strong, while retail sales was either flat in some areas or slowing. Manufacturing has been easing off lately, while the Labor Market continues to be tight.
• The Mid-Atlantic Fifth District (Richmond) reported a strong tourism activity again, despite a moderation in other economic activity. Retail sales is slowing, while the Labor Market is moderate. The mild weather was good for farmers and most are optimistic of a good bumper crop. Loans continue to weaken in the district as an economic slowdown fears mount. 
• Southeastern Sixth District (Atlanta) reported an easing economy. Apparel industry continues to be hampered by a tight labor market. Construction was also mixed with single family homes cooling off, while commercial construction continue to be brisk. Overall, construction is not near last year's high growth rates. Loans were also mixed with all sectors showing strong growth, while the Real Estate sector saw some cooling off. The Agricultural sector continues to be of concern as the Drought conditions continue to hamper agricultural production.
• New England Districts (First & Second Districts) The First District (Boston) reported a slowing economy. Tight Labor Markets have prompted retailers to issue wage increases, which haven't shown up in consumer prices. Manufacturing however, is picking up. Demand for Housing demand is cooling due to increased borrowing costs and prices. The Second district (New York) reported a moderation in its economy. Real Estate and Energy prices continue to be high. Housing construction and and sales seem to be cooling off. that wage inflation is not carrying over to retail prices. The Labor Market continue to be tight especially for office and construction workers. To compensate for the tight labor conditions, most employers are giving wage increases, with one employment agency reportedly paying 20% higher wages to entry-level positions than the previous year. Demand for consumer and mortgage loans continue to slow. 

HUMPHREY-HAWKINS (CONGRESSIONAL) REPORT OF JULY 20th. 2000

• The US economy still needs to be slowed down.
• It is too early to declare victory in the inflation fight..
• Costs held in check by productivity gains.
• Energy prices are a threat to containing inflation.
• Spending on consumer goods and housing has come down a "several notches"..
• Fiscal discipline stressed so as to keep up on government surpluses.

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