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FOMC Meeting date: NEXT MEETING: DECEMBER
19TH. 2000
MEETING
OUTCOME
-
The
Federal Reserve DID NOT raise interest rates,
but moved from a neutral bias (not raising
rates) to a cut bias if they continue to see
more signs of the economy slowing further.
-
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%.
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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
- Federal
Reserve Vice-Chair Roger Ferguson, speaking
at the Rochester Institute of Technology
on December 6th. stated that "...we must
be equally vigilant against the risk of either
an extended period of growth unacceptably
below potential, or a resurgence of inflation".
Plain English: Some acknowledgement that the
economy might have slowed down enough.
- Federal
Reserve Bank of Philadelphia President Edward
M. Gramlich, a voting member of the FOMC,
noted in a press conference on December 6th.
that the economy is slowing and that "...in
the last few weeks signs of a slowdown have
become more visible".
- Federal
Reserve Bank of Chicago President Michael
Moskow, a non-FOMC voting member, reiterated
on December 6th. the speech he made the day
before that the economy is slowing, but the
chances of it heading into a recession are
"highly unlikely".
- Federal
Reserve Chair Alan Greenspan told a gathering
of bankers on December 5th. that "..in
an economy that already has lost some momentum,
one must remain alert to the possibility that
the greater caution and weakening asset values
in financial markets could signal or precipitate
an excessive softening in household and business
spending" - Plain English: Inflation
is not exactly the major threat it was before.
- Federal
Reserve Bank of San Francisco President, Robert
Parry (a voting FOMC member), stated on December
5th. that the US economy's growth has moved
to a more sustainable range.
- Federal
Reserve Bank of Chicago President Michael
Moskow (a Non FOMC voting member), stated
on December 5th. that, the economy is slowing
with little risk of a recession.
- Federal
Reserve Bank of San Francisco President and
FOMC voting member Robert Parry stated in
a November 28th. speech in Portland Oregon
that, the US economy is indeed slowing. Mr.
Parry however cautioned that it is "too
soon to know for sure if we have really got
the inflation risk under control". He
also mentioned that "the last round of
rate increases are probably still affecting
the economy".
- Federal
Reserve Bank of Chicago President (Non FOMC
voting member) Michael Moskow was quoted as
stating on November 28th. that in general
"the economic environment seems to be
in much better balance than it was in May,
but the risk of heightened inflation pressures
still dominates".
- Federal
Reserve Bank of St. Louis President (Non FOMC
voting Member) William Poole told an audience
of Business student in London, England, that
"we need to concentrate on the underlining
determinants of inflation and early warning
signs". Speaking to journalists afterwards,
Mr. Poole stated that " the bigger risk
we face is that inflation is more likely to
rise than fall over the next 3 to 10 years".
THE GENERAL CONSENSUS ABOUT
COMING MEETING:
- Most
analysts are convinced the Federal Reserve
FOMC WILL NOT change interest rates, but leave
rates unchanged in December. The Federal Reserve
FOMC could take action in the first half of
2001.
- OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
- US
Industrial Production dropped 0.1% in October.
Analysts expected a rise of 0.5%. Automobile
production dropped a whopping 6.6%, while
Capacity Utilization dropped 0.4% to stand
at 82.1%.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that US
Crude Oil inventories rose 1.5 million and
2.5 million barrels respectively. Reuters
survey of analysts expected an increase of
1.5 million barrels. The EIA and API reported
that Distillates inventories dropped 500,000
and 50,000 barrels respectively. Reuters survey
expected an increase of 500,000.
- US
Manufacturing and Trade inventories rose 0.1%
in September, well below expectations. The
year to year percent change dropped 0.4% to
fall back to 6.7%. Inventories-to-sales ratio
also dropped a point back to 1:33.
- US
Jobless Claims for week ending November 11th.
fell 20,000 to 326,000. The 4-week moving
average rose again to 322,000 - the highest
in 2 months.
- The
National Association of Home Builders (NAHB)
Housing Market Index for November stood at
65 - the highest level in over 2 quarters.
Single Family home sales rose 3 points to
72. Traffic of Potential buyers held steady
at 46, and the 6 month single family homes
sales projection also held steady at 72.
- The
US Consumer Price Index (CPI), a good measure
of consumer inflation, grew a moderate 0.2%
in October, thanks to lower oil prices. Core
CPI, which excludes volatile energy and food
sectors, also gained only 0.2%.
- The
Philadelphia Fed Survey, a good measure of
manufacturing activity in the Philadelphia
Federal Reserve District, grew a whopping
5.2% in November. Shipments, New Orders, and
Unfilled Orders indices all rose, while Prices
paid & received, Number of Employees,
and 6 month outlook indices declined.
- US
Housing Starts for October rose 0.1% to 1.53
million units. All regions saw an increase
except the South.
- US
Trade Deficit for September came in a record
$34.26 billion, about $4 billion more than
economists anticipated, and about $5 billion
more than the August deficit which was revised
to $29.81 billion. US Exports dropped $5 billion,
while US Imports rose $3.85 billion.
- US
Jobless Claims for week ending November 18th.
rose 7,000 to 336,000. The 4 week moving average
stood at 331,000.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that US
Crude Oil inventories for week ending November
18th. rose 6.2 million and 6.4 million barrels
respectively. Reuters' survey of analysts
expected an increase of 2.3 million barrels.
For Distillates, EIA reported a decrease of
300,000 barrels, while the API reported an
increase of 65,000 barrels. Reuters' survey
expected an increase of 500,000 barrels.
- US
Semiconductor Book to Bill ratio for October
(3 - month moving average) held steady at
1.17. Shipments rose 5% to $2.539 billion,
and Bookings also rose 5% to 3.04 billion.
- US
Existing Home Sales dropped 3.9% in October
to 4.96 million units. All regions were weak
except the South.
- The
Department of Commerce reported that ecommerce
sales for Q3 200 rose 15% to $6.37 billion,
and ecommerce as percent of sales rose 0.1%
to 0.78%.
- The
Conference Board reported that US Consumer
Confidence for November dropped to 133.5,
the second drop in a row and the lowest levels
in 12 months. Consumer expectations and purchasing
plans for the next 6 months all came in lower.
- US
Orders for Durable Goods dropped an unexpected
5.5% in October, the highest drop in 3 months.
Although Industrial Machinery orders rose,
Aircraft and Electrical/Electronics related
orders all dropped for the period.
- US
Gross Domestic Product (GDP) for the second
quarter was revised downward to a growth of
only 2.4%., the lowest growth in 4 years.
Spending on New Construction and Imports were
revised upward. Consumer, Exports and Business
IT demand was still strong.
- For
week ending November 24th., the Energy Information
Agency (EIA) reported that US crude oil inventories
decreased by 100,000 barrels, while the American
Petroleum Institute (API) reported an increase
of 1.8 million barrels. Reuters' survey of
analysts expected an increase of 3 million
barrels. Both EIA and API reported increases
in distillates at 1.7 million and 1.6 million
barrels respectively. Reuters' survey expected
an increase of only 100,000 barrels.
- US
Chain Store Sales grew a modest 3.4% in November,
0.4% less than the month before, and the slowest
growth since March. Apparel stores were hardest
hit, followed by drug stores. Department Stores
sales rose 0.9%.
- US
Initial Jobless Claims for week ending November
25th. grew 19,000 to 358,000, while the previous
week's figures were revised to 339,000. The
4-week moving average rose to 343,000.
- Dismal.Com
reported that its Online Help Wanted Index,
a good measure of the white collar job market,
dropped to 121.0 - a 2.5 points in week ending
November 25th. The index has been in decline
since June. The 4-week moving average also
dropped.
- US
Personal Income dropped 0.2% in October, this
is lower than expected and the lowest in 8
months. Spending however grew 0.2%, thus forcing
the savings rate to a record low 0.8%. The
Personal Consumption Expenditure (PCE) deflator
dropped to 0.2% from last year's 0.4%.
- The
Conference Board reported that its Help Wanted
Index for October gained one point to 79.
This was still below the 80's range we have
seen since 1994.
- The
Chicago Purchasing Managers reported that
their Purchasing Managers Index, a good measure
of manufacturing activity in the Chicago area,
lost 7 points to 41.7 in November. Employment,
New Orders, Production, Inventories, Supplier
Deliveries all came in lower.
- The
National Association of Purchasing Managers
(NAPM) reported that its NAPM Index, a good
measure of manufacturing activity in the nation,
dropped to 47.7% in November - any figure
above 50% means an expansion. Imports and
Prices Paid indices rose above 50%, and New
Export Orders, Backlog of Orders, Production,
and New Orders indices also rose but below
the 50% mark. Supplier Deliveries, Inventories
and Employment indices all dropped and were
below the 50% mark.
- US
Construction Spending rose 0.8% in October
to $825 billion. Industrial Construction led
the increase with 5%, followed by Retail and
Warehousing, Multifamily Housing, and Educational
construction.
- The
US Index of Leading Economic Indicators fall
0.2% in October to 105.5. The Coincident Index
dropped 0.1, the highest drop in 8 months.
The Lagging Index was unchanged for the second
month in a row.
- US
New Home Sales in October rose to 928,000
units, the the September figures were revised
upward to 953,000 units. Fixed Mortgage Rates
also declined to their lowest levels in 2
years. All regions saw a drop in new home
sales, except the Northeast which actually
saw growth.
- Semiconductor
Sales worldwide slowed drastically in October
to an over-the-year growth of only 39%. Japan
had the least decline with only 6%.
- US
Auto Sales slowed in November to 16.6 million
units, due primarily to slowdown in light
truck sales. GM saw the most drop in sales.
Ford Motor and Toyota saw an increase in sales,
while DaimlerChrysler, Honda and Nissan held
steady.
- The
National Association of Purchasing Managers
(NAPM) reported that for November, its NAPM
Non-manufacturing Index rose 0.5% to 58.5%
- any point above 50% is an expansion. Prices,
Inventory, Imports, and New Orders indices
all dropped. The Employment Index rose.
- US
Factory Orders Fell 3.3% in October, in line
with expectations.
- US
Productivity for Q3 2000 was revised downward
0.5% to a 3.3% growth rate, while the Unit
Labor Costs were revised upward to a 2.9%
growth.
- For
week ending December 1st, the Energy Information
Agency (EIA) reported that, US crude oil inventories
rose 2 million barrels, while the American
Petroleum Institute (API) reported a drop
of 3.7 million barrels. Reuters' survey of
analysts expected an increase of 3 million
barrels. For Distillates, the EIA and the
API saw increases of 3.4 million and 3.3 million
barrels respectively. Reuters' survey expected
a decrease of 1.3 million barrels.
- US
Jobless Claims for week ending December 2
dropped 9,000 to come in at 352,000. The 4-week
moving average edged up 1,000 to 345,000.
- US
Consumer Credit grew $16.6 billion in October.
- US
Payroll employment increased a mere 94,000
in November, well below the growth expected.
US Unemployment Rate edged up 0.1% to 4.0%,
the highest levels in over 8 months.
- The
Economic Cycle Research Institute (ECRI) reported
that, its Future Inflation Gauge (ECRI FIG)
dropped 1.96% to 115.1 in November, while
the October figures were revised to a 2% drop
to 117.4.
- US
Wholesale Trade was flat in October. Inventory
to Sales ratio is still at 1:30 for 4 straight
months.
- US
Import Prices grew 0.2% in November, while
Export Prices rose only 0.1% - Agricultural
export prices rose 1.1%.
- US
Retail Sales in November surprised by everyone
by posting a decline of 0.4%. Weak auto sales
were the major reason behind the dismal performance.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending December 8th, the US Crude Oil
inventories decreased by 3.4 million and 1.1
million barrels respectively. Reuters' Survey
of Analysts expected an increase of 2.6 million
barrels! EIA and API also reported that Distillates
decreased 4.7 million and 4.5 million barrels
respectively. Reuters' survey expected a decrease
of only 500,000 barrels.
- US
Producer Price Index (PPI), a good measure
of price inflation in the manufacturing sector,
rose 0.1% in November. Core PPI, which excludes
the volatile energy and food sectors, rose
1.05% - the same level as the month before.
- US
Initial Jobless claims for week ending December
9th. dropped 32,000 to 320,000. The 4-week
moving average dropped 2,000 to 343,000.
- US
Business Intories for October grew 0.6%, well
above forecast. Inventory to sales ratio also
rose to 1:35.
- US
Trade Deficit for Q3 2000 was again a new
record at $113.8 billion - goods and services
had the highest deficits.
- US
Consumer Price Index (CPI), a good measure
of price inflation to consumers, rose 0.2%
in November. Core CPI, which excludes the
volatile energy and food sectors, rose 0.3%
- slightly higher than expected.
- US
Industrial Output dropped 0.2% in November,
well higher than expected.
BEIGE
BOOK (12 DISTRICTS) REPORT OF DECEMBER 6TH. 2000
- The
Districts reported a majority of the districts
showing a slowing economic activity, while
a few showing steady economic activity.
- New
England Districts (First & Second Districts)
The First District (Boston) reported that
the economy is growing . Labor shortages are
still tight as employers offer pay raises
up to 5% to keep workers. The Second district
(New York) Reported moderate growth with no
inflation threats. Labor shortages is still
chronic enough that some employers are offering
pay raises up to 10%, while entry-level wages
have bumped up up to 15%.
- Third
district (Philadelphia) reported that the
economy picked up but only marginally. Retail
reported that they exceeded expectations this
holiday season. Manufacturing activity was
steady, but most manufacturers are optimistic
about the coming months.
- Fourth
district (Cleveland) reported that the strong
US Dollar is making export of steel, chemicals,
and paper products impossible. Labor market
tightness have eased.
- The
Mid-Atlantic Fifth District (Richmond) reported
a modest growth in the economy. Retail sales
were weak during the beginning of the holiday
season, but now picking up. Labor markets
remained tight.
- Southeastern
Sixth District (Atlanta) reported a moderately
expanding economy. Retail sales picked up
in the thanksgiving season. Tourism picked
up due to hotel rooms demand around Tallahassee.
Labor markets and Construction all eased.
- Midwestern
"plains" districts (Seventh, Eight,
Ninth & Tenth) The Ninth District (Minneapolis)
reported a steady economy. Retail Sales and
Commercial construction have all picked up
and have an optimistic outlook. The Seventh
(Chicago) reported a slowing economy for the
fourth report in a row. Manufacturing is slowing
enough to cause manufacturers to scale back
and lay off people. Retail sales was low but
the sector is very optimistic about the remaining
holiday season days. The Eighth district (St
Louis) reported that its economy is easing.
Retail sales and manufacturing are all weak.
Layoffs and general labor market easing are
becoming widespread. Tenth District (Kansas
City) reported signs of a slowing economy.
Vehicle sales have slowed noticeably. The
drilling for oil, and natural gas especially,
is still up, but not to the levels of the
previous three reports. Labor markets haven't
eased yet.
- Western
districts (Eleventh & Twelfth) The Twelfth
District (San Francisco) reported a solid
economy in most states of the district. Construction,
Oil, and Gas sectors are still going strong,
with skilled labor shortages in the sectors
have caused double digit pay increases. The
adverse financial market has caused more layoffs
and closures of Dot Com businesses, and even
the manufacturing sector is beginning to feel
the heat. The strong dollar has affected manufacturers
who have found themselves under priced in
the global market. The Eleventh District (Dallas)
reported a weakening economy due to the chaos
in the financial markets. Legal firms are
reporting a booming business in bankruptcy
and litigation work. Manufacturing, retail
sales, and real estate sectors have all slowed.
The Oil and Gas industries are still strong
and consequently still keeping the labor market
tight.
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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