BusinessJeeves.Com: Federal Reserve Monetary Policy Analysis

Federal Reserve Board of Governors Vice-Chairman and FOMC voting member, Roger Ferguson, made known on April 26th. at the Levy Institute's conference on financial structure that, why some sectors of the economy have slowed tremendously, the Housing sector was still holding on as can be seen in recent numbers.
Federal Reserve Bank of Kansas City President and FOMC voting member, Thomas Hoenig, also speaking at the Levi Institute's conference on financial structures on April 26th, commentated that overhanging business inventories, and the slowing retail spending are risks to the economy and its growth. President Hoenig also mentioned that historically high consumer and business debts can cause a drag on the economy when income falls.
Federal Reserve Bank of Philadelphia President and non-voting FOMC member, Anthony Santomero, stated on April 26th. in a speech to financial analysts in Philadelphia that he expects an "unacceptably slow" growth in the first 2 quarters of 2001, then the economy might pick up slowly, but acceptable growth will most likely come in 2002.
Federal Reserve Bank of San Francisco President and non-voting FOMC member, Robert Parry, told reporters on April 26th. after a speech in Santa Barbara that he thinks the US economic "recovery is going to be, perhaps in the initial stages, somewhat more moderate".
Federal Reserve Bank of St. Louis President William Poole (a voting FOMC Member), told a Tennessee student group on April 10th. that based on the recent economic data "the chance of a recession is --one in four", and that the economy has a 50% chance of gradual growth as we get more into year 2001. President Poole thinks that the US Gross Domestic Product (GDP) grew around 1% in the first quarter of the year.
Federal Reserve Bank of Dallas President Robert McTeer (a non-voting FOMC Member), commenting on April 6th. about the increase in March unemployment rate noted that " it is bad to see employment decline, but the amount of the decline was moderate compared to what it could be". He stated that though there has been a creeping back in inflation, right now "..the priority is on avoiding a worse slowdown. The focus now is on economic growth, rather than inflation". Answering reporters questions about when the slowdown will end, he acknowledged that he didn't know, but "..we are committed - I am committed - to making it [slowdown to end] as soon as possible".
Federal Reserve Board Governor Laurence Meyer (a voting FOMC Member) told a legislative issues gathering at Capitol Hill on April 5th. that the US economic expansion slowed sharper than he foresaw "... I did not see the degree of slowdown which turned out to be much sharper than I expected". Governor Meyer also noted that such sharp and unforeseen slowdowns are hard to forecast its future.
Federal Reserve Bank of Boston President Cathy E. Minehan (a voting FOMC Member) told a gathering of New England Pension Consultants in Boston on April 5th. that the US economic recovery seem to be "shrouded in uncertainty". President Minehan did admit that "significant downside risk" from a weak manufacturing, low stock prices, poor business investment and inventory glut could undermine consumer confidence and could lead to higher unemployment. She stated "the inventory overhang and the related retrenchment in business and consumer attitudes pose challenges for the US economy in the short run".
Federal Reserve Bank of San Francisco President Robert Parry (a non-voting FOMC Member) told an audience at the Rotary Club of Sacramento on April 5th. that the US economy is still expanding "if only very slowly" and will be "rocky" in the short run as evidenced by the stock market and the economic uncertainty. He however reassured that "the Fed will be especially alert in monitoring economic developments". He continued ".. when any important economic factor like the stock market, or foreign exchange rates, or consumer confidence appears to cause inflation or economic activity to deviate from the Feds basic goals, the Fed will respond".
Federal Reserve Bank of Chicago President Michael Moskow (a voting FOMC Member) told a business group in Rockford Illinois on April 4th. he doesn't think "that we're in a recession at this time".
Federal Reserve Bank of Dallas President Robert McTeer (a non-voting FOMC Member) told a gathering of mortgage bankers in Austin, Texas on April 4th. that the US economic deterioration has slowed, and that at the current rate that layoffs are happening "...it is inevitable the unemployment rate will go up". On the question of the US economy being in a recession, or the chances of it being in one, he stated that we are certainly above zero "..but not above 50%" Plain English: recession potential is alive but we are not there yet.
Federal Reserve Bank of Atlanta President Jack Guynn (a non-voting FOMC Member) told reporters after a speech in Duluth Georgia on April 4th. that he thinks "there have been some signs recently that we may be close to the bottom". Mr. Guynn did agree that the US economy's "..rate of deterioration has slowed". On the question of possible unemployment rate increase, he stated: "I happen to think the jobs data is going to be one of the really important metrics for us to watch over the period ahead".
Federal Reserve Bank of Philadelphia President Anthony M. Santomero (non voting FOMC Member), stated on April 3rd. that the US Labor Market seem to have softened, and manufacturing data now suggests there will be an up tick in the US economy in the second half of 2001.

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

US Trade Deficit fell to $33.26 billion in January, its lowest levels in 4 months, while the December figures were revised to a deficit of $33.2 billion.
The US Consumer Price Index (CPI), a good measure of consumer inflation, rose an above expected 0.3% in February. The increase was due to higher prices for Food, Medical Care transportation and housing, and tobacco. The Core CPI, which excludes volatile Food and Energy units, rose a stronger than expected 0.3%.
For week ending March 16th, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that, US Crude Oil inventory rose 5.0 million barrels and 7.6 million barrels respectively. Reuters Survey of analysts expected a rise of 2.5 million barrels! As for Distillates, the EIA and API saw decreases of 3.6 million barrels and 3.1 million barrels respectively. Reuters Survey expected a decrease of 1.0 million barrels.
US Jobless Claims for week ending March 17th. dropped 1,000 to 379,000. The 4-week moving average rose to 377,000 - These are levels we haven't seen since 1995.
US Index of Leading Economic Indicators dropped 0.3% in February to 108.7. The Coincident Index gained 0.1% to 116.5, while the Lagging Index dropped 0.4% to 107.1.
US Semiconductor Book-to-Bill ratio fell to a moderate 0.77 in February. New Orders were down with bookings 22% lower than February 2000. Shipments rose and continue to be higher than year 2000 levels.
US Existing Home Sales dropped a mere 0.4% in February to show a strong 5.18 million units sold.
US New Home Sales dropped only 22,000 in February to still show a robust 911,000 units sold. The Midwest US accounted to most of the drop, as the West saw a drop of only 4,000 units. The Northwest and the South saw increases in new home sales.
The Conference Board reported that US Consumer Confidence rose sharply in March to 117.0 - the highest level since December of last year. All the indices, including the 6-month outlook indices, showed positive results.
US Durable Goods Orders dropped a mere 0.2% in February, a lesser drop than economists expected. Industrial Machinery and Steel orders accounted for most of the drop, while Electronics components and electrical equipment orders rebounded strongly.
For week ending March 23rd., the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that US Crude Oil inventories rose 11.2 million barrels and 8.9 million barrels respectively. Reuters Survey of analysts expected an increase of only 1.2 million Barrels. API's figures for last week were also revised upward by an additional 900,000 barrels. For Distillates, the EIA and the API saw decreases of 2.8 million barrels and 447,000 barrels respectively. Reuters survey expected a decrease of 1.8 million barrels.
US GDP growth for Q4 was revised downward to a meager growth of 1.0% for the period.
US Jobless Claims for week ending March 24th. dropped 24,000 to 362,000. The 4-week moving average dropped 3,000 to 375,000.
The Conference Board reported that it Help Wanted Index, a good measure of blue collar demand for workers, declined in February to 71, the lowest levels since September 1993.
Economy.Com reported that its Online Help Wanted Index, a good measure of white collar demand for workers, dropped in March to a 4-week moving average of 112.5. Cut back in Internet related companies was identified as the reason.
US Personal Income rose 0.4% in February, slightly above forecast, while the January levels were revised downward to an increase of 0.5%. Consumption rose 0.3% for the period, while the January consumption figures were revised upward to an astonishing rise of 1%. Personal savings was unchanged at its record low 1.3%. The PCE Deflator grew a modest 0.2% - a good sign that inflationary pressures due to personal income increases is easing.
Chicago Purchasing Managers Association reported that its Chicago PMI Index, a good measure of manufacturing activity in the Chicago area, fell 8 points to 35.0% in March, its lowest point since March 1982. All the indices in the main index were down.
The National Association of Purchasing Managers (NAPM) reported that, its NAPM Index, a good measure of manufacturing activity, rose to 43.1% in March - any point below 50% is a contraction. The increase in March was the first upward movement in over 8 months, and at 43.1%, it is at its highest level since December. The New Export Orders index rose to 50.6%, breaking the 50% mark for the first time since September 2000. The Prices Paid, Supplier Deliveries and Inventory indices all dropped, while the other indices rose.
US Construction Spending rose an above expected 0.6% in February to $834.2 billion. All sectors of private construction spending rose, while public construction spending dropped.
US Factory Orders fell 0.4%, twice the amount forecasted, in February. Factory Orders have now fallen 2 months in a row. Electronics components however, gained due to the almost 20% increase in chip orders.
Worldwide Semiconductor Sales dropped 6.9% in February. The whole world had a decline, but the Americas decline led.
US Vehicle Sales declined slightly in March to 17.1 million units sold - only 400,000 less than February figures. All vehicle types declined expect light trucks, which saw a gain. Both domestic and foreign automobile makers saw declines except Ford Motor Company and Toyota Motor Company, who saw increases.
The Chicago Fed National Activity Index (CFNAI), a good measure of the nation's recession vulnerability, increased to -0.89% in February, and the 3-month moving average also increased to -0.81%. The 3-month moving average for January was revised to -0.78. With the CFNAI at such a high negative level, the threat of a recession is still alive and well.
The National Association of Purchasing Managers (NAPM) reported that, its NAPM Non-manufacturing Index dropped 1.4% in March to 50.3% - any point above 50% is an expansion. The New Orders and Inventories indices came in higher, while the Exports, Imports, Prices, and the Employment indices were lower.
For the week ending March 30th, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that US crude oil inventories increased 1.7 million barrels and 563,000 barrels respectively. Reuters Survey of analysts expected an increase of 2 million barrels. As for Distillates, The EIA and the API both saw a decrease of 3.9 million barrels. Reuters survey expected an increase of only 1.5 million barrels.
US Jobless Claims for week ending March 31st. rose 18,000 to 383,000. The 4-week moving average rose 2,000 to 378,000.
US Non-Farm payrolls dropped 87,000 in March, a whopping 37,000 more than most Economists forecasted, to push the Unemployment up one basis point (0.1%) to 4.3%, the highest level in 2 years.
US Consumer Credit rose a whopping $13.5 billion in February, $4.2 billion more than most analysts were anticipating. The Revolving credit growth was strongest as it almost doubled.
The Economic Cycle Research Institute (ECRI) reported that its Future Inflation Gauge (ECRI FIG) declined 1.4% in March to 111.0, while the over-the-year level dropped 10.2%.
US Wholesale Trade Sales dropped 0.2% in February, while wholesale trade inventory dropped a mild 0.1%. Inventory to Sales ratio now stands at 1.29.
The Richmond Fed Manufacturing Survey declined in March. The shipment index decline to -9, New Orders index dropped to -8, and the Backlog of Orders declined to -25. The six month shipment outlook declined to 28.
For week ending April 6th, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that US crude oil inventory increased 3.9 million barrels and 4.7 million barrels respectively. Reuters Survey of Analysts expected an increase of 2.3 million barrels. For Distillates, the EIA and API saw decreases of 2.1 million barrels and 1.7 million barrels respectively. Reuters expected a decrease of 1.1 million barrels.
US Import Prices declined 1.6% in March, while the February figure was revised to a decline of 0.6%. The drop in petroleum prices (5.9%) accounted for almost all of the drop. US Export Prices dropped a mere 0.1%, due mostly to the drop in consumer goods (excluding autos). Agricultural and food related export prices rose strongly by 0.2%, while capital goods prices rose 0.1%.
US Chain Store Sales grew a weak 1.7% in March due to poor weather and the slowing economy. Apparel, Department Stores, and Footwear stores posted negative growth.
US Producer Price Index (PPI), a good measure of producer inflation, dropped 0.1% in March. The Core PPI, which excludes the volatile energy and food sectors, rose 0.1%.
US Jobless claims for week ending April 7th. rose 9,000 to 392,000, while the 4-week moving average rose to 381,000.
US Retail Sales dropped 0.2% in March, while the February data was revised upward to a no change, instead of the previous loss of 0.2%. Durable sales accounted for most of the drop.
US Business Inventories dropped a bigger-than-expected 0.2% in February, and the January inventory strong gains were revised downward to 0.1%. Retailers inventories dropped the most with 0.4%, followed by Wholesalers who saw a drop of 0.1%. Total Business Sales dropped 0.3% from January levels. The Inventory to Sales Ratio held steady at 1.37.
The National Association of Home Builders (NAHB) Index of Housing activity lost 2 points in April to 56. Single Family sales and the outlook for the next 6 months dropped . Traffic of potential buyers however, rose 3 points to 41.
US Consumer Price Index (CPI), a good measure of consumer inflation, rose 0.1% in March - in line with expectations. The Core CPI, which excludes the volatile energy and food sectors, rose 0.2% for the the period. For the year, the Core CPI is at an annualized gain of 2.7%, which is higher the the year before levels of 2.0%.
US Industrial Production rose 0.4% in March, due mostly to business equipment. Auto manufacturing rose 8.3% for the period. US Capacity Utilization rose 0.1% to 79.4%.
US Housing Starts dropped 1.3% in March to 1.61 million units. Single family housing dropped, while Multi-family housing rose. The West and Northeast saw increases in housing starts, while the South and Midwest experienced decreases.
US Index of leading Indicators dropped 0.3% in March to 108.5, the lowest level in over 2 quarters. The Coincident Index rose 0.1% to 116.6%, while the Lagging Index dropped 0.4% to 106.9%.
For week ending April 13th, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that US crude oil inventory grew 6.2 million barrels and 7.3 million barrels respectively. Reuters Survey of analysts expected a decrease of 2 million barrels. For Distillates, the EIA saw an increase of 400,000 barrels, while the API saw a decrease of 430,000 barrels. Reuters survey expected a decrease of 1 million barrels.
The US Trade Deficit narrowed in February by falling to $26.99 billion, while the January level was revised to $33.3 billion. The Goods sector improved due to exports in aircraft shipments, while petroleum and technology related imports declined.
US Jobless Claims for week ending April 14th. dropped 10,000 to 385,000. The 4-week moving average held steady at 382,000.
The Philadelphia Fed Index continued to improve in March as the General Business (diffusion) Index improved to -7.2, which has being improving since hitting -36.8 in January. Shipments, Unfilled Orders, Delivery Times, Inventories, and the Six Month Outlook indices all improved, while the Average Workweek, Number of Employees, Prices paid and Prices Received indices were worse than the month before.
The Conference Board reported that, US Consumer Confidence Index for April dropped 8 points to 109.2, back to the February levels. Present Situation and Expectations indices all dropped.
US Semiconductor Bookings-to-Billings ratio dropped in March to 0.64, their lowest levels since September 1998. Shipments dropped to $2.038 billion, their lowest levels in over 2 quarters. Bookings also dropped to their lowest levels in the same time frame to total March bookings of $1.305 billion.
US New Home Sales rose 4.2% in March to 1.02 million units sold. All parts of the country saw increased sales except the West, which recorded a decrease. Also in March, Fixed Mortgage Rates on 30-year mortgages dropped to 6.95%, a level not seen in years.
US Existing Home Sales rose 4.8% in March to 5.44 million units sold, which was close to the June 1999 record sales of 5.45 million units.
US Durable Goods Orders rose 3.0% in March to $205.1 billion, with transportation equipment orders accounting for all of the increase.
The Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that for week ending April 20th, US crude oil inventories dropped 1.4 million barrels and 1.5 million barrels respectively. Reuters Survey of analysts expected an increase of 2.0 million barrels. For Distillates, the EIA and the API saw decreases of 600,000 barrels and 1.2 million barrels respectively. Reuters survey expected a decrease of 500,000 barrels.
The Conference Board reported that it Help Wanted Index, a good measure of blue collar labor demand, declined in March to 66, its lowest levels in 8 years. Plains and Mountain states had the most decline, while the Southeast and Central region saw increases.
US Employment Compensation Cost Index rose 1.1% in Q1 of 2001. The Benefits and Wages sub-sectors all saw increases.
Economy.Com reported that its Online Help Wanted Index, a good measure of collar labor demand, declined in April from 107.6 to 105.2.
US Jobless Claims for week ending April 21st. rose a strong 18,000 to 408,000. The 4-week moving average also gained to 395,000.
The US Gross Domestic Product (GDP), a measure of all goods and services produced in the US, rose 2.0% in the First Quarter of 2001, twice what economists were forecasting. Business Spending rose solidly and above estimates by 1.1%, and Consumer Spending also grew bigger than expected by 3.1%. Durable Goods expenditure rose a strong 11.9%, due to the strong auto expenditure.
US Personal Income rose 0.5% in March, in line with economists' estimates, while the January and February figures were revised upward to 0.6% and 0.5% growth respectively. The US Savings Rate improved to -0.8%, while Personal Consumption grew a modest 0.3%. The PCE Deflator was unchanged, as Wages and Salary grew a mere 0.5%.
Chicago Purchasing Managers Association reported that, its Chicago PMI, a good measure of manufacturing activity in the area, rose from 35.0 in March to 38.9 in April. All the indices gained except the Prices Paid and Employment indices, which declined for the period.
The National Association of Purchasing Managers (NAPM) reported that its National NAPM Index, a good measure of manufacturing activity, rose 0.1 to 43.2 in April. New Orders and Production indices rose, while the Imports, Inventories, Employment, Prices Paid, etc. all declined. Backlog of Orders Index was unchanged.
US Construction Spending rose a strong 1.3% in March to $854.4 billion. Non-residential housing and public building rebounded.
US Agricultural Prices rose 3.9% in April, as higher prices on fruits, nuts, and vegetables offset the weak tobacco, poultry & eggs, and food grains.
US Factory Orders rose 1.8% in March , which was better than the 0.1% drop seen in February. The March increase is the first increase since August 2000.
US Jobless Claims for week ending April 28th. rose 9,000 to 421,000. The 4-week moving average also rose, breaking the 400,000 mark to 405,000.
The National Association of Purchasing Managers (NAPM) reported that its Non-manufacturing NAPM Index dropped 3.2% in April to 47.1%, which is worse than the 50%+ economists were expecting - a point below 50% indicates contraction. New Orders and Employment indices dropped for the month.
US Unemployment Rate rose to 4.5% in April, the highest levels since 1998, as the economy lost 223,000 payroll jobs for the period.
The Economic Cycle Research Institute (ECRI) reported that, its Future Inflation Gauge (ECRI FIG) for April declined 2.0% to 107.4.
US Consumer Credit grew a modest $6.1 billion in March, about $10 billion less than what economists expected. Revolving credit once again outgrew non-revolving credit.
US Productivity Growth dropped 0.1% in Q1 of 2001, the first productivity drop since 1995, and higher than economists expected. Hourly Compensation Cost rose 5.2%. Unit Labor Costs also rose 5.2%, the largest increase in 2 years. The Implicit Price Deflator rose to 2.5.
US Wholesale Sales dropped 1.3% in March - analysts expected an increase of 0.1%. Inventory rose a modest 0.1%, and Inventory-to-Sales ratio rose to 1.32, while the February level was revised upward to 1.30.
The Richmond Fed Manufacturing Survey declined in April as Shipments, New Orders, and Backlog of Orders all declined. On the positive side, the Six Month Shipment Outlook however, rose to 37.
US Jobless Claims dropped 41,000 for the week ending May 5th. to 384,000. The 4 week moving average dropped 3,000 points to 403,000.
US Import Prices dropped 0.5% in April, while March figures were revised to a decline of 1.5%, thanks to the 0.5% drop in Petroleum Prices. US Export Prices held steady.
US Chain Store Sales rose a strong 3.8% in April due to better weather conditions around the country.
US Producer Price Index (PPI), a good measure of producer inflation, rose 0.3% in April. The Core PPI, which excludes the volatile energy and food sectors, rose a strong 0.2%.
US Retail Sales rose 0.8% in April, well above the 0.1% increase analysts were expecting. Excluding auto sales, retail sales rose a strong 0.7%.
US Industrial Production declined above expected 0.3% in April, while Capacity Utilization declined to 78.5%.
US Business Inventories dropped 0.3% in March, while Total Business Sales also declined to 0.3%, thus holding inventory-to-sales ratio at 1.37 for the third month in a row.
The Kansas Fed Manufacturing Survey showed continuing weakness in Q1 2001. All the indices from New Orders, Production, Prices Received, etc. all declined.

BEIGE BOOK (12 DISTRICTS) REPORT OF APRIL 2ND. 2001

The US economy was "slow" in March and the early part of April. Residential construction was remarkably strong in almost all of the districts.
New England Districts (First & Second Districts) The First District (Boston) reported that the economy slowed. Retailer had worse than expected sales, while manufacturing was flat. Tourism and residential home sales are still robust. The Second district (New York) Reported moderate economic growth. Real estate sales and construction is beginning to slow, as labor markets continue to be tight. Retail sales was flat, while manufacturing growth was mixed.
Third district (Philadelphia) reported that the economy was showing mixed signals with retailers seen an uptick in early April. Housing sales was robust with builders getting prices above their expectations. Manufacturing however, continues to decline.
Fourth district (Cleveland) reported that the economy was still weak, with only residential construction being the bright spot. Steel production, manufacturing and retail are all down.
The Mid-Atlantic Fifth District (Richmond) reported that economy expanded moderately. Retail sales picked up in early April, and low mortgage rates are now creating a booming refinance business. Manufacturing however, weakened drastically.
Southeastern Sixth District (Atlanta) reported that the economy declined. All sectors were down, with only Florida showing improved residential construction as picking up.
Midwestern "plains" districts (Seventh, Eight, Ninth & Tenth) The Seventh (Chicago) reported that the economy was growing at very slow pace. Retailers seem so sure about the economic turn around that, most are already expanding, despite sluggish sales. The Eighth district (St Louis) reported that the economy was mixed with brisk business pickup in Real estate sales activity. High energy prices are taking their toll on trucking services, while manufacturing continue to layoff in droves. The Ninth District (Minneapolis) reported a mixed economy. Retail Sales and Manufacturing results were mixed as high energy costs and spring floods added more problems to an already fragile situation. Tenth District (Kansas City) reported that the economy had sluggish growth. Construction and Retail sales were flat, as manufacturing continued to slow. As energy prices continue to be high, drilling has now hit a 10 year high, thus providing a lifeline in the district.
Western districts (Eleventh & Twelfth) The Eleventh District (Dallas) reported that the economy is generally slowing down. Layoffs are up significantly as manufacturing declined, and oil refineries shut down for repairs. The Twelfth District (San Francisco) reported a weakening economy as the energy crises took its toll on manufacturing. Retail sales were lower than expected. As the high energy prices are passed on to consumers, most consumers are now resistant to price increases and cutting back on spending.

HUMPHREY-HAWKINS (CONGRESSIONAL TESTIMONY) REPORT OF FEBRUARY 13th., 28th. and March 2nd. 2001

The economy in the last 2 months is not as weak as the end of 2000, and there seems to be no further need to cut interest rates BEFORE its March 20th. meeting.
The US economy is "at the moment" not in a recession.
The poor economic conditions at the last weeks of year 2000 are improving.
The major goal now is "inventory rebalancing". That is, the bank will follow policies that will help businesses sell their excess inventories by stimulating consumer confidence and purchasing.
Interest Rates will be lowered again in March, IF NEED BE.

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