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FOMC Meeting date: NEXT MEETING: JANUARY 30TH-31ST.
2001
MEETING
OUTCOME
-
The
Federal reserve FOMC as expected CUT the Federal
Funds Rate, the interest rate banks charge
each other, by 50 basis (0.50%) points to
5.50%. The Federal Reserve also CUT the Federal
Discount Rate, the interest rate the Federal
Reserve charges banks for borrowing money,
by 50 basis (0.50%) points to 5.00%.
-
The
Bank blamed energy costs and lack of consumer
confidence which is putting pressure on business
profit margins. The Federal Reserve also left
its bias unchanged and made known it will
still cut rates if desired results are not
met.
-
The
Federal Reserve FOMC unexpectedly took action
on interest rates on January 3rd. in a special
session. On January 3rd. 2001, the Federal
Reserve FOMC CUT the Federal Funds rate, the
interest rate banks charge each other, 50
basis points (0.50%) to 6.0% - the biggest
cut since 1992. The Federal Reserve FOMC also
cut the Discount Rate, the interest rate the
Federal Reserve charge banks, 25 basis points
(0.25%) to 5.5%. The bank explained that the
high oil prices and the weak performance of
financial markets is sapping household and
business purchasing power. The Central bank
also made known that it is ready to act more
when they meet at the end of the month, if
need be.
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MEETING AGENDA:
- The
Federal Reserve Bank FOMC will consider LOWERING
interest rates if the economy continues to
show more weakness. The FOMC has held rates
steady in the past 4 meetings
BOARD MEMBERS' RECENT COMMENTS
- Federal
Reserve Bank of Philadelphia President Anthony
Santomera (Non voting FOMC member), stated
on January 11th. that he hasn't seen signs
that the US economy has stopped growing. Mr.
Santomero also predicted that economic activity
will pick up by the second half of 2001.
- Federal
Reserve Board Vice Chairman Roger Ferguson
(a voting member of the FOMC) stated in a
Bay Area Council speech on Friday January
12th. that the economy will be weak in the
early part of 2001, and the Feds will act
"prudently and forcefully" to make
available "monetary and financial conditions
that will foster price stability and promote
sustainable growth in output". Plain
English: The Feds will be on the lookout to
cut rates again to stimulate growth if need
be.
- Federal
Reserve Chairman Alan Greenspan mentioned
in his Senate Budget committee testimony on
January 25th. that the US economy is almost
at flat growth. Chairman Greenspan also accepted
that a tax cut could stimulate the economy
if: It is done early because of its extreme
lag in helping the economy, and he also warned
on the need to show fiscal discipline because
the surplus is still a projection, not money
in the bank. Mr. Greenspan reiterated his
stand that the federal debt needs be paid
up, but not with the surplus being allowed
to be a drag on the economy, but rather a
stimulant.
THE GENERAL CONSENSUS ABOUT
COMING MEETING:
- Most
analysts are convinced the Federal Reserve
FOMC WILL LOWER interest rates again by up
to Fifty basis points (0.50%) based on the
congressional testimony of Federal Reserve
Chair Alan Greenspan.
- OUR
VIEW: We agree with the consensus.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
- The
National Association of Home Builders (NAHB)
reported that its NAHB Housing Market Index
dropped to 57 in December, their lowest level
since June. Single Family home sales for the
next 6 months and traffic of potential buyers
indices were also at their lowest levels since
June.
- US
Trade Deficit for for October narrowed to
$33.18 billion, slightly lower than economists
expected. The Services sector accounted for
all the narrowing, while the Goods sector
saw a slight increase in trade deficit.
-
US Housing Starts edged up higher 2.2% in
November to 1.56 million units - thanks to
falling mortgages, while the October figures
were revised downward to 1.53 million units.
The Western US led in growth with a whopping
28% growth.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that US
Crude Oil inventory grew 3.1 million and 2.4
million barrels respectively for week ending
December 15th. Reuters' Survey of analysts
expected an increase of 1 million barrels.
The EIA reported that Distillates grew 900,000
barrels, while the API saw a drop of 891,000
barrels. Reuters survey expected a drop in
distillates of 1.7 million barrels.
- US
Jobless Claims for week ending December 16th.
rose 34,000 to 354,000 - an exact revision
of what happened the previous week. The 4-week
moving average rose to 347,000.
- The
US Semiconductor Book to Bill ratio dropped
to 1.12 in November. Over the year new orders
rose 62%.
- The
US Gross Domestic Product (GDP) for Q3 2000
was revised downward to a growth of only 2.2%
- the least quarterly growth since 1996.
- The
Philadelphia Fed Index, a good measure of
manufacturing activity in the Federal Reserve
district, dropped 6.1% in December. New Orders
index rose, while Shipments, Prices Paid,
Prices Received, Inventories, Number of Employees,
Average Workweek, and the 6 month Outlook
indices all fell.
- US
Personal Income grew 0.4% in November, while
Consumption grew 0.3% - all in line with estimates.
The Savings rate dropped One bases point to
0.8%, while wages and salaries grew only 0.3%,
the lowest growth since August.
- US
Durable goods orders rose a strong 2.3% in
November, the highest since August. Industrial
equipment (including computer related) rose
for the first time since July. Electronics,
Electrical and Transport equipment also rose.
- US
Index of Leading Economic Indicators fell
0.2% in November to 105.3, the second straight
drop (three straight drops is generally considered
a recession). The October figures were revised
downward to a drop of 0.3% to 105.5. The November
Coincident Index rose 0.1% to 116.3 - reversing
the exact drop in October, while the Lagging
Index gained 0.3% to 106.4 - the 8th straight
monthly gain.
- The
Conference Board reported that, US Consumer
Confidence fell to 128.3 in December. Other
indices like Present Situation, Expectations,
Jobs and Business Conditions all declined
for the month.
- US
Existing Home Sales rose 4.4% in November
to 5.22 million units sold, the first monthly
gain in 3 months.
- US
Jobless Claims for week ending December 23rd.
dropped 23,000 units to 333,000. The 4-week
moving average dropped 7,000 units to 341,000.
- US
Crude Oil prices for week ending December
22nd. came in around what Reuters Survey of
analysts predicted. The Energy Information
Agency (EIA) and the American Petroleum Institute
(API) reported drops of 1.3 million and 100,000
barrels respectively. The EIA and API reported
that distillates dropped 1.5 million and 1.9
million barrels respectively.
- The
The New York Purchasing Managers Association
reported that its New York PMI Index for December
to 289.0 from November's 291.5 levels. New
York City area business activity slowed for
the first time since January 1999.
- Economy.Com
reported that its Online Help Wanted Index,
a good measure of white collar employment
activity, declined to 115.6 for the week ending
December 23rd. The 4-week and 12-week moving
averages all declined.
- US
Help Wanted Index for November eased 4 points
to 75. East South Central US saw a rise, Pacific
and Mid Atlantic held steady, while the rest
of the country declined.
- The
Chicago Purchasing Manager's PMI Index rose
3 points in December to 44.7 - Any point above
50 is an expansion. The Production index rose
to 50.8, New Orders rose to 41.6, Prices Paid
index rose to 61.0, and Employment rose to
44.9. Order Backlogs dropped to 32.2, Inventories
dropped to 36.8, and Supplier Deliveries dropped
to 49.2.
- The
National Association of Purchasing Managers
(NAPM) reported that its NAPM Index dropped
to 43.7 in December, well below what
economists expected, and the lowest levels
since 1991 - Any point above 50 is an expansion.
The Prices Paid, Supplier Deliveries, and
New Orders Indices all closed higher, while
New Orders, Production, Backlog of Orders,
Inventories, Employment, and Imports indices
all closed lower.
- US
Construction Spending dropped 0.6% in November
to $815.6 billion. The drop in spending was
above expectations, but economists attributed
the decline to the unusually cold weather
around the country. Industrial Construction
spending, however, rose sharply for the period.
- Worldwide
Semiconductor sales 3-month moving average
dropped to $18.28 billion. Europe and Japan
recorded gains for the period, while the Americas
and Asia Pacific (excluding Japan) had losses.
- The
National Association of Purchasing Managers
(NAPM) reported that, its NAPM Non-manufacturing
Index dropped 5.5% in December to 53.0 - any
point above 50 is an expansion. Exports and
Prices indices all gained, while New Orders,
Imports, Inventory, and Employment indices
all dropped.
- US
Chain Store Sales for December rose only 0.7%
- the lowest December gains in 30 years. Apparel
stores were hit the hardest.
- US
Jobless Claims for week ending December 30th.
rose 16,000 to 375,000. The 4-week moving
average rose to 352,000.
- Economy.Com/PC
Data Index of Online Shopping rose to 250
in December, almost doubling the 1999 figures.
- For
week ending December 29th., the Energy Information
Agency (EIA) reported that US Crude Oil inventory
decreased by 1.8 million barrels, while the
American Petroleum Institute (API) reported
an increase of 64,000 barrels. Reuters Survey
of analysts expected a decrease of 3.5 million.
EIA and API reported that Distillates inventory
increased 1.4 million and 3.5 million barrels
respectively. Reuters survey expected a decrease
of 1.2 million barrels.
- US
Factory Orders rose 1.7% in November, thanks
to a strong gain from electronics components
orders. Computer equipment orders were down
slightly.
- US
Vehicle Sales declined 7% in December to 15.5
million units sold.
- US
Payrolls for December increased 105,000, while
the November figures were revised downward
to a 59,000 growth. The US Unemployment Rate
held steady at 4.0% for the second straight
month.
- The
Economic Cycle Research Institute (ECRI) reported
that its Future Inflation Gauge index (ECRI
FIG) declined 0.1% in December to 114.3 -
the 8th. straight monthly decline.
- US
New Home Sales for November declined 20,000
units to 909,000. All US regions had declines
except the South which saw an increase.
- US
Consumer Credit rose $12.9 billion in November
to $1.523 trillion, a 10.2% increase from
the previous year.
- The
Richmond Fed Manufacturing Survey Index lost
6 points in December. Shipments, New Orders,
and Backlog of Orders indices had major losses,
while the 6-month Shipment Outlook index rose
10 points to 43, its highest level in over
2 quarters.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that US
Crude Oil inventories dropped 400,000 barrels
and 589,000 barrels respectively for week
ending January 5th. Reuters Survey of analysts
expected an increase of 1.4 million barrels.
The EIA and API reported that Distillates
gained 700,000 barrels and 33,000 barrels
respectively. Reuters survey expected an increase
of 1.4 million barrels.
- US
November Wholesale Sales held steady. Inventories
grew 0.4%, while the Inventory/Sales ratio
still held steady at 1:31.
- US
Jobless Claims for week ending January 6th.
dropped 36,000 to 345,000. The 4-week moving
average rose to 363,000 - its highest levels
since November 2000.
- US
Import Prices dropped 0.5% in December, with
petroleum prices leading the decline with
a 9.3% decline. Export prices dropped a modest
0.1%, with Consumer Goods (excluding autos)
leading with a 0.2% drop.
- US
Producer Price Index (PPI), a good measure
of manufacturers inflation, was unchanged
in December. Core PPI, which excludes the
volatile energy and food sector, grew 0.3%,
well above expectations and at the highest
level since May.
- US
Retail Sales grew 0.1%, well above expectations.
Surprisingly, durable goods like auto sales
rose, while retail sales (excluding autos)
and non-durables were unchanged.
- US
Business Inventories grew 0.5% in November
- in line with economists' estimates. Inventory
to sale ratio jumped to 1:36.
- The
US Consumer Price Index (CPI), a good measure
of consumer inflation, rose 0.2% in December
- in line with expectations. The Core CPI,
which excludes the volatile energy and food,
rose only 0.1%.
- The
National Association of Home Builders (NAHB)
Housing Marketing Index dropped to 54 in January
2001, its lowest level since February 1997.
All other indices including the 6 month outlook
declined.
- US
Industrial Production fell 0.6% in December.
Capacity Utilization also dropped to 80.6%.
- The
US Trade Deficit dropped $32.99 billion in
November, while the October figures were revised
to a drop of $33.55 billion. US Imports declined
an impressive $1.33 billion, while US Exports
dropped a mere $770 million.
- The
Conference Board reported that the US Index
of Leading Economic Indicators dropped 0.6%
in December to 108.3, a bigger drop than expected.
The Coincident Index rose 0.1% again to 116.6,
while the Lagging Index dropped 0.1% to 107.4.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
weekending January 19th, US Crude Oil inventories
dropped 1.1 million and 2 million barrels
respectively. Reuters' Survey of analysts
expected an increase of 150,000 barrels. EIA
reported that distillates increased by 1 million
barrels, while API reported a decrease of
826,000. Reuters survey expected a decrease
of 1.75 million.
- US
Employment Cost Index grew a modest 0.8% in
Q4 to an over the year growth of 4.1%. The
wages and salaries component also grew a mere
0.7% to a yearly 3.8%.
- Economy.Com
reported that its Online Help Wanted Index,
a good measure of white collar employment,
dropped further in January to a 4-week moving
average of 112.2, and the 12-week moving average
dropped to 116.6.
- The
Conference Board reported that its Help Wanted
Advertisement Index rose slightly in December
to 79.
- US
Jobless Claims for week ending January 20th.
rose 12,000 to 316,000. The increase is attributed
to the large corporate layoffs.
- US
Existing Home Sales in December fell 7.4%
to 4.87 million units sold - the largest decline
since July 2000.
- US
Semiconductor Book to Bill Ratio dropped in
December to 1:03 as chip makers hold back
on expansion due to weak orders.
- The
Conference Board reported that the US Consumer
Confidence Index for January 2001 dropped
14.2 points to 114.4, a much larger drop than
economists were expecting, and the index is
now at its lowest point in 4 years. All the
indices that make up the main all declined
or moved in a direction that showed a lack
of confidence.
BEIGE BOOK (12 DISTRICTS) REPORT
OF JANUARY 17TH. 2001
- The
Districts reported a majority of the districts
showing a slowing economic activity, except
for the Second and Twelfth Districts.
- New
England Districts (First & Second Districts)
The First District (Boston) reported that
the economy is growing slightly. Some Insurance
companies have moved work abroad and have
raised rates in the US due to decreased price
competition. The Second district (New York)
Reported strong growth with robust holiday
sales and a tight labor market. In transportation,
truckers have seen an increased case of bankruptcies
and repossessions as business activity continues
to slow nationwide.
- Third
district (Philadelphia) reported that the
economy has slowed further due to auto sales.
Holiday sales barely beat the year before,
while businesses expect less improvement in
the coming 7 months.
- Fourth
district (Cleveland) reported that the economy
has not moved since the last report, and there
are some plants operating 30% below capacity,
with more failures expected. Holiday sales
were less than stellar, but the labor market
remains surprisingly tight.
- The
Mid-Atlantic Fifth District (Richmond) reported
that the unusually cold weather and the slowing
economy have kept retail and home sales low.
Factory activity was slow, but manufacturers
are optimistic about the coming months.
- Southeastern
Sixth District (Atlanta) reported a slowdown
in all sectors of the economy, with little
optimism for the future.
- Midwestern
"plains" districts (Seventh, Eight,
Ninth & Tenth) The Ninth District (Minneapolis)
reported that its economy is beginning to
weaken, with fewer companies reporting raises
in wages. The Seventh (Chicago) reported that
a harsh weather kept retail shoppers away.
Labor markets are beginning to ease, and businesses
are cautious about the 6 month outlook. The
Eighth district (St Louis) reported that auto
and retailers are showing business is down
as much as 5%. Builders are upbeat about the
coming months due to lower interest rates
expectations, with the Memphis and Little
Rock areas already reporting a pickup in retail
sales. Tenth District (Kansas City) reported
that economic activities has declined in all
sectors. The labor market still remains
tight.
- Western
districts (Eleventh & Twelfth) The Twelfth
District (San Francisco) reported a strong
economic activity in construction, real estate,
and manufacturing. Manufacturers are however,
concerned about the rising energy prices.
Credit availability is down for office construction
and high tech firms. The Eleventh District
(Dallas) reported that the economy is generally
slowing down, especially with Texas Intermediate
Crude Oil plummeting about $10/barrel. The
high natural gas prices have caused some plants
to close down.
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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