BusinessJeeves.Com: Federal Reserve Monetary Policy Analysis

Federal Reserve Chairman Alan Greenspan told the Senate Banking Committee on June 20th. that US inflation remains muted. Chairman Greenspan stated "We see no evidence that those costs are being passed through to final prices in any material way". Mr. Greenspan however, acknowledged that unit labor costs are increasing due to the slowing economy.
Federal Reserve Bank of Richmond President Alfred Broaddus, who is not an FOMC member, told a Virginia Housing Coalition gathering on June 14th. that, despite the slowdown in the US economy, the long term outlook is "very bright".
Federal Reserve Governor and voting FOMC member, Laurence Meyer, told a gathering of Economists in New York City on June 6th. that, the Feds must not lower interest rates too quickly so as to spark inflation risks. He stated that the Feds "ease to mitigate the risks of a persistent slowdown, or recession, we do not at the same time create conditions that would lead to higher inflation as the expansion gathers momentum". Governor Meyer also made known that "there are no signs yet that the economy is strengthening relative to its first quarter performance, and growth is likely to remain sluggish into the third quarter". The Governor also stated that household spending is being pulled down by negative "wealth effect" as stock valuations continue to plunge, but sees a recovery coming about if: the excess capacity in the high tech is absorbed quickly, and a rise in business investment spending.
Federal Reserve Chairman, Alan Greenspan, told the International Monetary Conference in a Singapore gathering on June 4th. that, he didn't see any inflationary pressures in the US economy - Fed speak for: we still can cut rates if need be.
Federal Reserve Bank of Chicago President and voting member of the FOMC, Michael Moskow, told the Rotary Club of Wilmette, Illinois on May 30th. that, "we now expect to see improvements " in the economy later in the year. "We now expect to see improvement later in the year, but there are significant risks facing us", he continued. President Moskow reassured that " the Fed's prompt response to the subpar economic growth of recent quarters" reduced the chances of the economic weakness to "continue in 2002".
Federal Reserve Bank of Dallas President and Non-voting member of FOMC, Robert McTeer, told a San Antonio Economic and Business Society luncheon on May 30th. that his "optimism of the long term" is not necessarily the same as his optimism of the short term. President McTeer expects the recent tax cuts to be evident by summer and hopefully he expects "consumption to hold up long enough" before manufacturing picks up.
Federal Reserve Chairman Alan Greenspan told the Economic Club of New York on May 24th. that "the period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response". Plain English: The economy is not out of the woods yet, and the Feds will act again if necessary.
Federal Reserve Board Governor Edward Kelley, a voting FOMC member, told the Rotary Club of Portland on May 22nd, that although he expects the US economy to resume to a much more steady improvement, soon, he doesn't expect the "booming" growth of the recent years.
Federal Reserve Bank of New York President and FOMC voting member, William McDonough, told reporters after addressing the New York Japan Society on May 22nd. that 3 or 4 years ago, "the average time of monetary policy application was 1 to 2 years", but with the much rapid moving markets, "almost certainly the lag in monetary policy application is shorter".
Federal Reserve Bank of Philadelphia President and non-voting FOMC member, Anthony Santomero, stated on May 22nd. in a speech at Willow Grove, Pennsylvania that, the 5 Feds rate cuts should help the economy pickup "over the remainder of this year and into early 2002". President Santomero also noted that a although consumer spending is still strong, a recovery in "business investment spending will take time".
Federal Reserve Bank of Minneapolis President and non-voting FOMC member, Gary Stern, stated on May 22nd. that although the economy has stabilized at its current subdued pace, he is optimistic that business inventory decreases, increased consumer spending and a brisk housing market will improve the economy further.

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

The National Association of Home Builders (NAHB) reported that, its NAHB Housing Market Index held steady at 57 in May. Present Single Family Sales declined by 2 points in the period, but the next 6 months outlook rose 3 points. Traffic of Potential Buyers rose a point.
US Consumer Price Index (CPI), a good measure of consumer inflation, rose a lower than expected 0.3% in April. The Core CPI, which excludes volatile energy and food sectors, rose 0.2%, in line with economists forecast. The CPI would have been lower if fuel prices didn't rise 1.8% for the period.
US Housing Starts rose a stronger than expected 1.5% in April to 1.609 million units, due to lower mortgage rates. Single Family homes led the surge. All regions of the country saw construction boosts except the Midwest, which had a decline.
US Internet Sales dropped 19.3% since Q4 2000 to $6.99 billion in Q1 2001, but still $1.8 billion higher than the Q1 2000 levels. E-commerce as percentage of total sales declined to 0.91%. It is worth noting that non e-commerce sales also declined.
For week ending May 11th, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that, US crude oil inventories increased 2.4 million barrels and 0.8 million barrels respectively, while Distillates declined 0.2 million barrels and 2.0 million barrels respectively.
US Index of Leading Indicators rose 0.1% in April to 108.7, the first increase since January. The Coincident Index held steady at 116.5, while the Lagging Index dropped 0.3% to 106.7.
US Jobless Claims for week ending May 12th. dropped 8,000 to 380,000. The 4-week moving average dropped 3,000 to 401,000.
The Philadelphia Fed (Manufacturing) Index revised course in May by worsening to -8.8, while the April figure was revised to -7.2. On the upside, the Prices Paid Index dropped from 7.0 to 1.5, inventories improved from -16.6 to -10.5, while the 6 month outlook moved from 25.7 to 33.1.
US Trade Deficit expanded in March to $31.2 billion, after contracting to $26.9 billion in February. US Exports dropped by $900 million in March, an almost exact reversal of February gains. The goods sector rose sharply in March, with Mexico accounting to a lion's share.
For week ending May 18th, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that, US crude oil inventories increased 3.4 million barrels and 2.0 million barrels respectively, and that Distillates decreased 0.8 million barrels and 1.4 million barrels respectively.
US Semiconductor Book-to-Bill ratio dropped to 0.42 in April. The drop was due to an almost 50% drop in bookings to $711.8 million, while Shipments dropped to $1.684 billion.
US Jobless Claims dropped 8,000 in week ending May 12th to 380,000. The 4-week moving average dropped 3,000 to 401,000 - still above the significant 400,000 mark.
US New Home Sales dropped to 894,000 units sold in April, while the March levels were revised downward to 988,000. The Midwest and the South saw the most decline. The new home sales decline was attributed to interest rates increases, which moved from 6.95% in March to 7.08% in April.
US Gross Domestic Product (GDP) growth in Q1 2001 was revised downward to a growth of only 1.3%, 0.1% lower than what economists expected. Lower inventory investment and weaker consumption were the reasons behind the fall.
US Existing Home Sales dropped 4.2% in April to 5.20 million units, as inventories continue to rise, at 3.8 months in April. The west had the largest drop.
US New Orders for Durable Goods plunged 5.0% in April, more than twice what economists were expecting. Durable Orders excluding transportation dropped 3.3%. Non defense Capital Goods orders dropped 5.2%, while Shipments dropped a strong 3.6%.
The Conference Board reported that US Consumer Confidence rose an above expected 6.5 points in May to 115.5, due an improved outlook.
US Personal Income gained 0.3% in April, in line with economists' estimates. Personal Consumption rose a strong 0.4%, the highest monthly growth in a year, while savings dropped further to -0.7%.
US Jobless Claims for week ending May 26th. rose 8,000 to 419,000, while the 4-week moving average dropped to 403,000.
The Purchasing Managers Association reported that their PMI Index, a good measure of manufacturing activity in the Chicago area, lost 0.2% in May to 38.7% - any point below 50% is a contraction. The May drop was accounted for by drops in the Order Backlogs and Supplier Deliveries indices.
The Conference Board reported that its US Help Wanted Index, a good measure of blue collar employment demand, declined 2 points to 65 in April. The decline was led by the Great Lakes and the Pacific regions.
For week ending May 25th., the Energy Information Agency (EIA) and the American Petroleum Institutes (API) reported that, US crude oil inventories dropped 1.8 million barrels and 4.0 million barrels respectively, while distillates increased 2.2 million barrels and 1.9 million barrels respectively.
The Chicago Fed National Activity Index (CFNAI), a good measure of recession risks, dropped 0.96% (3-month moving average) to -1.09%. A large drop in the 3-month moving average indicates that the economy can still head into a recession.
US Payroll jobs declined 19,000 in May, due mostly to the poor manufacturing environment. The Unemployment Rate dropped 0.1% in May to 4.4%, due to a decline in the labor force.
The National Association of Purchasing Managers (NAPM) reported that their NAPM Index, a good measure of manufacturing activity in the nation, dropped to 42.1 - any point below 50% is a contraction. All the indices dropped.
US Construction Spending rose 0.3% in April. New housing and public construction accounted for most of the gain. Single family construction rose strongly.
The Economic Cycle Research Institute (ECRI) reported that, its Future Inflation Gauge ECRI FIG dropped 1.1% in May to 106.1, the 11th. drop in 13 months. Over the year, the index has dropped 13.9% - a clear sign that inflation is not on the horizon.
US Vehicle Sales held steady in May at 16.7 million units sold, well better than analysts expected. Light Truck sales increased, but were offset by declining Auto sales. GM and Nissan were the only makers who saw their sales increase from the previous month.
World Semiconductor Sales dropped 4.7% in April, with Asia Pacific (excluding Japan) having the only increase in sales.
The National Association of Purchasing Managers (NAPM) reported that, its NAPM Non-manufacturing Index declined 0.5% to 46.6% in May - any point below 50% is a contraction. The New Orders index rose, while the Prices index held steady, and the rest of the indices dropped.
US Productivity in Q1 2001 was revised to a drop of 1.2%, while Growth in Unit Labor Costs was revised upward from 5.2% to 6.3% growth. Manufacturing productivity dropped 2.1%, the first decline since 1993.
US Factory Orders dropped a lower than expected 3.0% in April. Durable Goods Orders dropped a whopping 5.0%.
For week ending June 1st, the Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that US crude oil inventory rose 1.6 million barrels and 3.4 million barrels respectively, while Distillates rose 3.8 million barrels and 4.1 million barrels respectively.
The Mortgage Bankers Association (MBA) reported that, its MBA Index of Mortgage Applications rose a strong 5.2% in the week ending June 1st. The 4-week moving average rose to 513.3.
US Jobless Claims rose 13,000 for week ending June 2nd. to 432,000 - the highest level in about 9 years. The 4-week moving average also grew to a 9 year high of 414,000.
US Consumer Credit rose a whopping 11.2% annualized growth of $14 billion in April to $1.584 trillion. Revolving credit had an annualized increase of 17.3% as credit card debts mount.
US Chain Store Sales grew a mere 1.6% in May. Apparel stores had a decline of 5.4%, while Department stores and Footwear stores had declines of 2.7% and 2.4% respectively. On the upside, Drug, Wholesale and Discount stores saw increases of 9.3%, 5.3%, and 2.7%, while Electronics stores had increase of 2%.
US Wholesale Trade Sales rose 0.3% in April. On the downside, inventory also rose 0.3%, thus keep the Inventory-to-Sales ratio unchanged at 1.31.
The Richmond Fed Manufacturing Survey Index still shows a weakening economy in the district in May. New Orders, Backlog of Orders, and the Six Month Outlook indices declined, while the Shipments index improved to -20.
The Mortgage Brokers Association (MBA) reported that their MBA Index of Mortgage Applications rose 6.1% to 553.3 in week ending June 8th. The Refinance index a strong 14.4%, the Adjustable Mortgage index rose 9.7%, while the Fixed Mortgage index rose 5.7%. The Purchasing index dropped.
The Energy Information Agency (EIA) and the American Petroleum Institute (API) reported that for week ending June 8th, US crude oil inventory decreased 8.2 million barrels and 13.2 million barrels respectively. For Distillates, the EIA saw a decrease of 700,000 barrels, while the API saw an increase of 274,000.
US Import Prices rose 0.3% in May, due to a rebound in oil prices, which surged 5.5%. The April Import prices were revised to a drop of 0.6%. US Export Prices however, drooped 0.3%.
US Retail Sales rose a mere 0.1% in May. Home furnishings, Furniture, Food and Drinking places, and beverages accounted for the meager increase.
US Producer Price Index (PPI), a good measure of producer inflation, rose a moderate 0.1% in May. Core PPI, which excludes volatile energy and food, rose 0.2%, in line with economists' estimates.
US Jobless Claims for week ending June 9th. dropped 12,000 to 428,000. The 4-week moving average rose to 425,000.
US Business Inventories were unchanged in April. Business Sales dropped 0.50%, thus forcing the Inventory-to-Sales ratio to edge up to 1.44.
US Consumer Price Index (CPI), a good measure of consumer inflation, grew 0.4% in May, in line with economists' estimates. The Core CPI, which excludes volatile energy and food sectors, grew a narrower-than-expected 0.1%.
US Industrial Production declined by 0.8% in May, well below economists' estimates. US Industrial Capacity Utilization dropped to 77.4%.
The National Association of Home Builders (NAHB) reported that its NAHB Hosing Market Index rose 2 points in June to 58. Single Family index improved 3 points to 64. The Next 6 Months outlook index improved by 1 point to 67, while Traffic of Potential Buyers index held steady.

BEIGE BOOK (12 DISTRICTS) REPORT OF JUNE 13TH. 2001

The US economy slumped further in April and May as manufacturing stagnated while unemployment continue to mount.
New England Districts (First & Second Districts) The First District (Boston) reported that retail sales are expected to be flat for the rest of the year as pessimism sets in due to the still slowing economy. The Second district (New York) Reported that manufacturing, retailing, financial services, commercial real estate sales were soft, while housing is still holding on.
Third district (Philadelphia) reported that manufacturing continued to decline and retail sales were flat. Auto sales were noticeably lower than last year's levels.
Fourth district (Cleveland) reported that manufacturing, retailing, and other sectors of the economy continue to decline. Steel, machine tools and other manufactured goods haven't shown signs of recovery.
The Mid-Atlantic Fifth District (Richmond) reported one of the most upbeat economic activity for the districts. Tourism was strong, services and housing is still growing slightly, but factory and retail services weakened.
Southeastern Sixth District (Atlanta) reported that only retail sales showed a modest growth, while other sectors continue to decline.
Midwestern "plains" districts (Seventh, Eight, Ninth & Tenth) The Seventh (Chicago) reported that loan renewals and extensions from farmers was rampant. Construction and real estate activity have softened, but still stronger than usual as consumers continue to spend. Unemployment claims are however, rising rapidly. The Eighth district (St Louis) reported that factory closings and businesses filing for Chapter 11 bankruptcy have increased dramatically due to higher energy prices. The Ninth District (Minneapolis) reported that jobless claims rose 55% for the 4-weeks ending May 19th, in comparison to last year. Plant closings and the slowdown in construction and manufacturing was the culprit. On the upside, home sales were up for the period. Tenth District (Kansas City) reported that residential construction and auto sales were still hanging on, while retail sales was unchanged. Plant managers however, complained of being overstocked.
Western districts (Eleventh & Twelfth) The Eleventh District (Dallas) reported that energy exploration have picked up, thus increasing prices in drilling related products. The tight labor market seen before has eased as more and more high tech workers joint the unemployed. Stiff competition is driving down prices in autos, petrochemicals and airline tickets. The Twelfth District (San Francisco) reported that manufacturers cut back on output and jobs due to the high energy costs and the weakening US economy. The high energy costs also ate into corporate profits. Retail sales and services sectors slowed as consumers cut back on high end expenditures like cars, electronics and even high-speed internet access services.

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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