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FOMC Meeting date: NEXT MEETING: NOVEMBER 15TH.
2000
MEETING
OUTCOME
-
The
Federal Reserve DID NOT raise interest rates,
but warned of the increasing threat of inflation.
-
The
Federal Discount Rate, the cheap interest
the Federal Reserve charges banks for borrowing
money, still stays at 6.0%. The Federal Funds
Rate, the interest banks charge each other
for overnight loans, still stays at 6.5%.
Please visit our
ARCHIVES for previous issues.
MEETING AGENDA:
- The
Federal Reserve Bank FOMC will consider raising
interest rates if there are still signs of
inflationary pressure in the economy. The
FOMC has held rates steady in the past 3 meetings
BOARD MEMBERS' RECENT COMMENTS
- No
Public and worthwhile comments have been made
by Members of the FOMC.
- The
Federal Reserve Bank of Philadelphia President,
who is not a member of the FOMC, stated at
a workforce development summit on October
5th. that the weak Euro, the single European
currency regime, has not hurt the US economy
yet. However, the Federal Reserve is still
keeping a close eye on developments.
- Federal
Reserve Chairman Alan Greenspan spoke at a
financial markets conference on October 16th.,
but had nothing to say about the state of
the economy. Dr. Greenspan talked about the
need for stock markets to update and modernize
their trade settlement systems for faster
settlements.
- Federal
Reserve Chairman Alan Greenspan made known
in a speech to the Cato Institute, a Washington
D.C. conservative think thank on October 19th.
that, the Central Bank is closely watching
the effects high Oil prices are having on
the US economy. Mr. Greenspan however, admitted
that the "spillover from the surge in
oil prices has been modest". Mr. Greenspan
still cautioned that the tensions in the Middle
East, coupled with increasing oil prices still
pose "....potential implications for
economic stability and for monetary policy",
though much less than it would have been 30
years ago.
- Federal
Reserve Bank of Dallas President Robert McTeer,
also speaking at the Cato Institute's October
19th. conference, stated that interest rates
"policy should be based on measures of
inflation" and not just on changing Oil
Prices.
- Federal
Reserve Bank of San Francisco President Robert
Parry told a Los Angeles audience on October
19th. that "I don't think we should base
monetary policy on Oil".
- Federal
Reserve Bank of Saint Louis President Laurence
Meyer stated in a Saint Louis speech on October
19th. that the US economy has entered the
slow growth region, but faces higher Core
Inflation pressures from higher Oil prices
and low productivity growth.
- Federal
Reserve Bank of Dallas President Robert McTeer
is reported to have stated on October 25th.
that we should expect a dramatic slowdown
in Q3 2000 Gross Domestic Product (GDP) figures
due for release October 27th.
THE GENERAL CONSENSUS ABOUT
COMING MEETING:
- Most
analysts are not decisive yet, but they feel
the Federal Reserve WILL NOT raise rates during
an election month, and many economists think
with the effect of high crude oil prices and
the slower than expected growth in the Q3
GDP are signs that no action is needed.
- OUR
VIEW: We agree. Federal Reserve Governors'
comments on October 19th. are also a good
indication that the Central Bank WILL NOT
take action in November. The high energy prices
coupled with the poor stock market performance
has also kept the "wealth effect"
factor in check.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
- US
Leading Economic Indicators dropped 0.1% in
August, in line with economists' forecasts.
- US
New Home Sales for August came in at 893,000
- in line with forecasts, and the July figures
were revised downward to 921,000. All regions
recorded drops, but the west had the largest
drop.
- Worldwide
Semiconductor Sales rose 5.1% in August, Dismal.Com
reported. This is the 4th. straight month
that semiconductor sales have risen more than
4%, and it is now 52.7% above previous year's
sales.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
weekending September 29th, US Crude Oil inventories
rose 1.1 million and 3.4 million barrels respectively.
Reuters survey of commodity analysts expected
a 1.3 million barrels. As for distillates,
the EIA reported a drop of 700,000 barrels,
while the API reported a rise of 330,000 barrels.
Reuters survey expected an increase of 800,000
barrels.
- The
National Association of Purchasing Managers
(NAPM) reported that its NAPM Non-Manufacturing
Index (Business Services) for September rose
2% to 62%. New Orders rose to 61%, while the
Price Index rose to 60.5%.
- The
Economy.Com and PC Data Online Index of Online
Sales rose to 76.4% in September. Percent
of daily users who buy online also rose.
- US
Factory Orders rose 2% in August. Information
Technology equipment and Aircraft Orders led
with the highest rise.
- US
Auto Sales in September rose to 17.8 million
units, with light truck sales leading. Today's
data shows a still robust economy with inflationary
pressures still very much alive.
- US
Initial Jobless Claims for week ending September
30th. stood at 299,000 - 10,000 higher than
the previous week, but still below the all
important 300,000 mark. The 4 week moving
average dropped to 306,000.
- US
September Retail Sales came in 3.9%, lower
than August. Apparel and Specialty stores
like Talbots led with a 24.8% sales jump,
well better than the 6% to 8% estimated. The
Limited also beat estimates, while AnnTaylor
Stores met its low end estimates. Gap, the
parent of Old Navy, saw an 8% sales drop in
September. AnnTaylor lost over 8%.
- The
Economic Cycle Research Institute (ECRI) reported
that its September Future Inflation Gauge
(ECRI FIG Index) Index dropped by 0.9% to
120.2, the lowest level in 4 months.
- The
US economy created 252,000 new jobs in September,
thus pushing the US Unemployment rate down
to 3.9%, the lowest level in decades. Average
hourly earnings rose a modest 0.2%.
- US
Consumer Credit rose to $13.4 billion in August,
significantly higher than forecasted. Revolving
credit almost doubled July levels.
- The
Richmond Federal reserve Manufacturing Survey,
a measure of Manufacturing activity in the
district, reported that its September Shipment
Index dropped more than half to 9. The New
Orders Index rose 3 times higher than the
previous levels to 12, and the highest in
3 months. Backlog of Orders Index dropped
by 3 points. The 6-month Shipment Outlook
Index was 28, the lowest level in months.
Wages paid by Manufacturers eased a little
as the labor market held steady due to low
growth in employment.
- US
Wholesale Trade for August rose 0.3%, slightly
below expectations, but higher than the decline
recorded in July. Inventory grew 0.6%, higher
than the previous month, while Inventory to
Sales ratio held steady at 1.30.
- US
jobless claims for week ending October 7th
rose slightly to 306,000 - 5000 more than
previous week. The 4 week moving average dropped
to 302,000.
- US
Import Prices rose a sharp 1.5% in September,
due primarily to oil imports. US Export Prices
gained 0.5% in the same period, led by Agricultural
products.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending October 6th., US Crude Oil inventories
dropped 1 million and 3.9 million barrels
respectively. Reuters' survey of market analysts
expected a drop of 1.1 million barrels. The
EIA and API reported that distillates dropped
500,000 and 3.3 million respectively - Reuters
survey expected an increase of 500,000 barrels.
- US
Producer Price Index (PPI), a good measure
of producer inflation, grew 0.9% in September,
almost 2 times the forecasted growth rate.
The Core PPI, which excludes volatile energy
and food prices, grew 0.3% for the period,
3 times more than expected, but only 1.2%
above the levels seen this time last year.
- US
Retail Sales rose 0.9% in September, 0.3%
higher than was expected. The August and July
levels were revised downward to 0.1% and 0.8%
respectively. Both Non-durable goods and Durable
goods sales rose 0.9% in September (durable
goods dropped 0.2% in August).
- US
Business inventories rose 0.7% in August,
well above forecasts. July inventories figures
were revised upward to 0.4%. Inventory to
sales ratio rose to 1.34.
- The
National Association of Home Builders (NAHB)
reported that its Housing Market Index rose
63 in October. Traffic of potential buyers
rose to 46.
- US
Industrial Production for September rose to
0.2%, well higher than the forecasted losses.
Auto Production rose a strong 3.9%, but non-auto
manufacturing had the highest overall increases.
- US
Consumer Price Index (CPI), a good measure
of consumer inflation, rose 0.5% in September,
slightly above expectation. Core CPI, which
excludes volatile Energy and Food sectors,
rose 0.3%, also slightly above expectation.
- US
Housing Starts for September rose 0.3% to
1.53 million units. The Northeast and West
saw rises, while the South & Midwest experienced
declines.
- For
the week ending of October 13th, the Energy
Intelligence Agency (EIA), and the American
Petroleum Institute (API) reported that US
Crude Inventory dropped 4.5 million &
3.1 million barrels respectively. Reuters'
survey of analysts expected a drop of 3.0
million barrels. EIA and API also reported
that, Distillates inventory dropped 900,000
and 540,000 respectively - Reuters expected
a rise of 750,000 barrels.
- US
Trade Deficit for August came in at $29.4
billion, over $2 billion less than economists
expected, and less than the revised July levels
of $31.7 billion. US exports surged $3.22
billion since July, as imports rose only $1
billion since July.
- The
Philadelphia Fed Index, a good measure of
manufacturing activities in the Federal Reserve
District, dropped 3.8% in October, well more
that anticipated. The New Orders Index dropped
3.7%, while Manufacturing Inventory rose 8.4%.
The 6 Months Outlook Index dropped to 14.0%
from September's 24.7%. The Prices Paid Index
dropped 20.6%.
- US
Jobless Claims dropped to 307,000 for the
week ending of October 14th. The 4 Week Moving
Average came in at 303,000 - a 1,000 drop,
but still above the 300,000 mark.
- US
Existing Home Sales for September dropped
2.7% to 5.14 million units. Only the West
posted gains (2%).
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending October 20th., US Crude Oil inventories
grew 2.4 million and 1.7 million barrels respectively.
Reuters Survey of Analysts expected an increase
of 2.5 million barrels. EIA and API also reported
that in the same period, distillates dropped
600,000 and 552,000 barrels respectively.
Reuters survey expected an increase of 525000!
- US
Employment Cost Index (ECI), a measure of
average labor cost, rose 0.9% in Q3, below
forecast, and below Q2 and Q1 increases.
- US
Jobless Claims for week ending October 21
dropped to 305,000, while the previous week's
figures were revised upward to 310,000.
- US
Online Help Wanted Index, a measure of white
collar employment, dropped to 128 in October.
- The
US Gross Domestic Product (GDP), a measure
of overall economic growth, grew 2.7% in Q3,
slightly smaller than expected, and the lowest
growth since Q2 1999. Housing and Government
spending drops were the cause of the GDP drop.
Government spending drop was the lowest in
7 quarters.
- US
Orders for durable goods rose 1.8% in September,
well stronger than forecasted, but lower than
the August levels. Electronics components
and transportation equipment orders were strong,
while industrial machinery and equipment orders
dropped for the period.
- US
Personal Income rose 1.1% in September, well
over what economists forecasted, due mostly
to Agricultural subsidies. Excluding Agriculture,
Personal Income rose a modest 0.4%. Consumer
spending grew 0.8%. The Personal Savings Rate
also improved. The PCE deflator rose 0.4%
due to oil prices.
- The
Conference Board reported that the US Consumer
Confidence Index dropped in October to 135.2.
- New
Home Sales for September rose a higher than
expected 946,000.
- Chicago
Purchasing Managers reported that for the
Month of October, its Chicago PMI index, a
good measure of manufacturing activity in
the Chicago area, dropped to 48.7 - any point
below 50 is a sign of manufacturing slow down.
- The
Federal Reserve Districts "Beige Book"
report for September and October shows a stable
and moderating economy with some slow down
in consumer spending and services.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
weekending October 27th., US Crude Oil inventories
dropped 1.5 million and 700,000 barrels respectively.
Reuters survey of analysts expected an inventory
rise of 3 million barrels! EIA and API reported
that US Distillates inventories increased
1.4 million and 1.1 million respectively.
Reuters survey expected an increase of 200,000.
- The
National Association of Purchasing Managers
(NAPM) reported that its October NAPM Index,
a good measure of manufacturing activity in
the country, dropped to 48.3%, slightly lower
than forecasted, and the lowest level in about
2 years. Any value above 50% indicates an
expansion. The New Orders, Backlog of Orders,
Production, and New Export Orders Indices
all dropped and were below 50%. The Prices
Paid Index dropped to 51.8%, while Imports
and Supplier Deliveries Indices rose to 51.8%
and 51.4% respectively.
- US
Construction Spending in September rose 2%,
significantly above estimates. Residential
Housing starts held steady, while Commercial,
Industrial, and Public Building sectors rose
significantly.
- US
Index of Leading Economic Indicators for September
was unchanged. Coincident and Lagging Indices
rose.
- US
Retail Chain Sores Sales for October rose
only 3.2%, the lowest growth in 6 months.
- US
Productivity rose 3.8% in Q3. Labor costs
rose 2.5%, as opposed to the Q2 drop of 0.2%.
- US
Initial Jobless Claims for week ending October
28th. was unchanged.
- US
Vehicle Sales in October dropped to 16.8 million,
the lowest level in 8 months.
- The
US Unemployment Rate for October was unchanged
at 3.9%. US Payroll jobs grew 137,000 and
the September figures were revised downward
to 195,000.
- The
National Association of Purchasing Managers
(NAPM) reported that its NAPM Non-manufacturing
Index for October lost 4 points to 58%. Exports,
Imports, Inventories, and Employment indices
all rose.
- The
Economic Cycle Research Institute (ECRI) reported
that its Future Inflation gauge (ECRI FIG),
a good measure of future inflation, dropped
1.8% to 117.1.
- US
Factory Orders rose 1.6% in September, well
above estimates. Electronics, Communications
equipment, and Aircraft orders all recorded
double digits for the period.
- US
Consumer Credit grew $6.5 billion in September,
well below estimates. Revolving credit grew
6.8%, while non-revolving credit rose 4%.
- Worldwide
Semiconductor Billings rose to $18.40 billion,
a 1.9% growth in September. Japan led in growth,
followed by Europe, Asia Pacific, and the
Americas.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending November 3rd, US Crude Oil inventories
increased by 35,000 barrels according to the
API, while the EIA reported a drop of 1.6
million barrels. Reuters' survey of analysts
expected an increase of 2.5 million barrels!
The EIA and API reported that US Distillates
rose 2.1 million and 1.3 million barrels respectively.
Reuters' survey expected a rise of 1.5 million
barrels.
- US
Import prices rose 0.5% in October. Over the
year import prices now stand at 5.5%. The
modest gains in import prices is due to the
drop in crude oil prices. US Export prices
dropped 0.1% for the same period, with only
agricultural and other food prices posting
modest gains.
- US
Wholesale Sales rose 0.7% in September. Overall
Q3 Sales rose 1.0%. Inventories rose 0.2%,
while inventory-to-sales ratio held steady
at 1:30.
- US
Jobless Claims for week ending November 4th
rose to 334,000 - well above expectations.
- US
Producer Price Index (PPI), a good measure
of producer inflation, rose 0.4% in October.
Core PPI, which excludes volatile energy and
food sectors, actually dropped 0.1% - Economists
expected a rise of 0.1%.
- US
Retail sales for October rose 0.1%, slightly
higher than expected.
- The
Richmond Fed Manufacturing Index, a good measure
of manufacturing activity for the Federal
Reserve District of Richmond, dropped 2 points.
New Orders Index dropped 2 points, as opposed
to the 12 points gained in September. Backlog
of Orders dropped 1 point, as opposed to the
3 points in September. Six Month Shipment
Outlook stood at 22, the lowest level in 8
months.
BEIGE BOOK (12 DISTRICTS) REPORT
OF NOVEMBER 1ST. 2000
- The
Districts reported mixed economic activity
from moderate growth to a slow down. There
were only pockets of growth (and decline)
that can be categorized as above the norm.
- New
England Districts (First & Second Districts)
The First District (Boston) reported that
retailers gave pay increases of up to 5% in
other to maintain employees. Labor pressures
are increasing despite a slowing economy.
About 30% of manufacturers have raised output
prices as a wide manufacturing parts shortage
takes its toll. The Second district (New York)
Reported almost no change since the last report.
Home sales are still strong and expected to
be strong for a while. Retail sales, especially
for big ticket items, have risen recently.
Oil related industries from refineries on
are operating at full capacity.
- Third
district (Philadelphia) reported that manufacturers
are expecting business to pick up moderately
in the next 2 quarters. Labor compensation
this year is already higher than last year's.
The slowing national economy is causing a
reduction in work hours and inventory accumulation.
No wonder, local bankers are taking a second
look on some of their commercial loans.
- Fourth
district (Cleveland) reported that the construction
workers shortage has eased. New Homes prices
have also eased and are expected to slow further.
The strong US Dollar is making export of household
durable goods impossible. The other concerns
are that the coming holiday season will see
a shortage of store clerical workers.
- The
Mid-Atlantic Fifth District (Richmond) reported
a modest rise in Manufacturing, and a growing
retail sales sector. Southeastern Virginia
area home sales have subsided, while Central
North Carolina still has high labor price
pressures for skilled workers.
- Southeastern
Sixth District (Atlanta) reported a tight
labor market and the lack of skilled workers.
The high oil prices are increasing costs in
everything and everywhere. Health care and
insurance costs are rising. The drought that
swept through the district is a major concern.
No wonder, retailers are preparing for the
coming holiday season with a cautious accumulation
of inventory.
- Midwestern
"plains" districts (Seventh, Eight,
Ninth & Tenth) The Ninth District (Minneapolis)
reported a slowing in consumer spending. Labor
markets are still very tight (Montana will
need up to 300 teachers next year, while Minnesota
still has about 1700 nursing positions still
going unfilled). Employee benefits are climbing,
so are energy costs, with natural gas prices
expected to be up to 50% higher this winter
than last year's. The Seventh (Chicago) reported
a slowing economy for the third report in
a row. Consumer spending has slowed, new orders
for heavy trucks was flat. Farmers are expecting
a good soybean and corn crop. Inflation is
in line, and there were few reports of wage.
The rise in health insurance was a concern.
The Eighth district (St Louis) reported that
labor shortages and wage pressures have resurfaced
so fiercely that referral and retention bonuses
are climbing as fast as wages. The high fuel
prices are eating into profit margins, especially
for truckers. Tenth District (Kansas City)
reported a modestly expanding economy. Vehicle
sales were soft, and so was the consumer and
mortgage loan markets. Retail sales rose slightly.
The drilling for oil, and natural gas especially,
has picked up for the third report in a row.
As such, Oil drilling related wages are up
slightly.
- Western
districts (Eleventh & Twelfth) The Twelfth
District (San Francisco) reported a still
reasonably strong home sales market. Labor
shortages are still high and creating wage
pressures. Employment bonuses are the order
of the day, but the volatility in the stock
market has put a lid on Internet companies
giving out stock options. Timber exports to
Asia has fallen. The Euro's demise has also
hurt orders for machine tools and equipment.
Food prices are also down, thus prompting
some California farmers to cut back on production.
The Eleventh District (Dallas) reported a
weakening economy. Most prices held steady,
except oil related prices. Manufacturing outlook
is gloomier than normal. Oil and natural gas
exploration has risen sharply with the number
of oil rigs operating are now at the highest
levels since 1991.
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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