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Reserve Watch and Commentary
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FOMC Meeting date: NEXT MEETING: AUGUST 21ST.
2001
MEETING
OUTCOME
-
LATEST
NEWS: The Federal Reserve FOMC and the Board
of Governors cut the Federal Funds Rate, the
interest rate banks charge each other for
overnight loans, by 25 basis points (0.25%)
to 3.50%, and the Federal Discount Rate, the
interest rate the Federal Reserve charges
banks on loans, was cut by 25 basis points
(0.25%) to 3.00%. The Central bank commented
that the weak US economy is still of great
concern, especially falling corporate profits
and a weak business investment market. The
slowdown seem to be spreading to Europe and
Japan. The Feds still confident the strong
household demand and productivity in the tech
sector will be a recovery catalyst - but willing
to cut again if need be.
Please visit our
ARCHIVES for previous issues.
MEETING AGENDA:
- The
Federal Reserve Bank FOMC will consider LOWERING
interest rates if the economy continues to
show more weakness. The FOMC has cut rates
6 times in 2001 alone.
BOARD MEMBERS' RECENT COMMENTS
- Federal
Reserve Chairman Alan Greenspan told US Congressional
leaders on July 24th. that another interest
rate cut might be needed to help the economy.
- Federal
Reserve Chairman Alan Greenspan told the House
Finance Committee on July 18th. that "the
uncertainties surrounding the current economic
situation are considerable". He continued
that "Until we see more concrete evidence
that the adjustments of inventories and capital
spending are well along, the risks would seem
to remain mostly tilted toward weakness in
the economy". Plain English: Economy is not
sliding as before and it is not recovering
fast either, but there is need to wait and
see if all these stimulus packages (interest
rates and tax refunds) can help - if not,
back to the cutting.
Board
Members Testimonies and Speeches page
THE GENERAL CONSENSUS ABOUT COMING MEETING:
- The
recent economic data and earnings warnings
have analyst thinking of one more 25 basis
points (0.25%) rate cut when the FOMC meets
again.
- OUR
VIEW: We agree, but think the Feds might cut
a little deeper. The markets have already
factored in a 25 basis points rate cut. In
other for investors to get back into the market,
we think the Feds MIGHT cut deeper. Such a
deep cut will come with a statement like the
economy seems to be picking up.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
- The
Mortgage Bankers Association (MBA) reported
that its MBA Mortgage Applications Index for
week ending June 22nd dropped 5.4% to 482.5.
All the indices closed lower.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending June 22nd, the EIA saw no increase
in US crude oil inventories, while the API
saw an increase of 565,000 barrels. For Distillates,
the EIA saw an increase of 2.1 million barrels,
while the API saw an increase of 2.2 million
barrels.
- The
Economy.Com reported that its Online Help
Wanted Index, a good measure of white collar
employee demand, declined in June. The June
4-week moving average dropped.
- The
Conference Board reported that, its (Newspaper)
Help Wanted Index, a good measure of blue
collar employee demand, dropped 5 points in
May to 60. The SouthAtlantic and Great Lakes
were the hardest hit.
- US
Jobless Claims for week ending June 23rd.
dropped 16,000 to 385,000 - below the all
important 400,000 mark. The 4-week moving
average dropped to 416,0000.
- US
Agricultural Prices dropped 0.9% in June.
Meat and Diary products prices were however,
still strong.
- US
GDP for Q1 2001 was revised downward to a
growth of only 1.2%.
- The
Chicago Purchasing Managers Association reported
that its Chicago PMI Index rose to 44.4% -
any point below 50% is considered a contraction.
All indices rose except Prices Paid, Inventories,
and Supplier Deliveries, which all dropped.
- The
National Association of Purchasing Managers
(NAPM) reported that its NAPM Index rose to
44.7% - any point below 50% is a contraction.
All indices rose except the Prices Paid and
New Export Orders indices, which closed lower.
- US
Personal Income rose only 0.2% in May. Personal
Consumption rose by 0.5%, as Personal Savings
deteriorated to -1.3%, the record levels seen
in January.
- US
Construction Spending rose a stronger than
expected 0.3% in May, as residential construction
continues to lead the charge.
- Worldwide
Semiconductor Sales dropped 7.3% in May. All
regions had a drop.
- US
Factory Orders rose a stronger than expected
2.5% in May. Inventory to Sales ratio improved
as Shipments rose, while Inventories declined.
- The
National Association of Purchasing Managers
reported that, its NAPM Non-manufacturing
Index rose to 52.1 in June, its highest level
this year - any point above 50 is an expansion.
New Orders and Prices indices rose above the
50 points marks.
- The
Mortgage Bankers Association (MBA) reported
that for week ending June 29th, the MBA Index
of Mortgage Applications rose 0.8% to 486.3.
The Refinancing index led the charge with
a weekly increase of a strong 1.6%, while
the Fixed Interest rate index rose 1.2%. The
Adjustable interest rates index dropped 2.1%
for the period.
- US
Jobless Claims for week ending June 30th rose
7,000 to 399,000. The 4-week moving average
declined to 408,000.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending June 29th, US crude oil inventories
declined 4.8 million barrels and 4 million
barrels respectively, while Distillates rose
1.6 million barrels and 12 million barrels
respectively.
- The
Chicago Fed National Activity Index (CFNAI),
a measure of US economic activity, saw its
3 month moving average fell further to -1.04%
in May, the lowest since December 1991.
- US
Vehicle Sales rose to 17.1 million units sold
in June. Light Trucks accounted for all the
increase. As for the big 3 domestic makers,
Ford Motors and DaimlerChrysler saw increases
in sales.
- The
Economic Cycle Research Institute (ECRI) reported
that their Future Inflation Gauge (ECRI FIG),
a good measure of future inflation, declined
1% in June to 104.2. Over the year, the index
has declined 14.9%.
- US
Consumer Credit grew a mere $6.5 billion in
May, well below estimates and the lowest monthly
growth since December. Non-revolving credit
grew a slower than anticipated $3.3 billion,
also the slowest growth since December.
- The
Richmond Fed manufacturing Survey held steady
in June with a drop of 20. The New Orders
and Backlog of Orders indices declined, while
the 6 Month Outlook Index rose.
- US
Wholesale Sales declined 0.1% in May, while
Inventories increased 0.2%, thus pushing the
Inventory to Sales ratio up to 1.32, its highest
level this year.
- The
Mortgage Bankers Association (MBA) reported
that for week ending July 6th, its MBA Mortgage
Application Index dropped 11.1% to 432.4.
The 4-week moving average dropped to 477.9.
All the component indices saw declines.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending July 6th, the EIA saw a 2.9 million
barrels increase in US crude oil inventories,
while the API saw a decrease of 909,000 barrels.
As for distillates, the EIA and the API saw
increases of 3.6 million barrels and 3.4 million
barrels respectively.
- US
Jobless Claims grew a strong 42,000 to 445,000
for week ending July 7th. The 4 week moving
average also rose to 411,000.
- US
Chain Store Sales rose a moderate 2.8% in
June. Apparel, Department, and Footwear stores
all saw declines.
- US
Import prices dropped 0.5% in June, thanks
to a significant drop in petroleum prices.
US Export prices dropped by 0.3%.
- US
Retail Sales rose a mere 0.2% in June. Excluding
autos, retail sales actually dropped 0.2%,
led by clothing and accessories stores.
- US
Producer Price Index (PPI), a good measure
of producer inflation, dropped 0.4% in June.
Core PPI gained a modest 0.1%.
- US
Business Inventories were unchanged in May,
while Sales rose 1.1% to push the Inventories-to-Sales
Ratio down to 1.42, its lowest level since
October of last year.
- US
Industrial Production declined 0.7% in June,
slightly lower than expected. Capacity Utilization
declined to 77.0%, due mostly to a 1.1% decline
in automobile production.
- The
National Association of Home Builders (NAHB)
reported that its NAHB Housing Market Index
dropped 2 points in July to 56. Single family
current and next 6 months expected sales,
and traffic of potential buyers all declined.
- The
Mortgage Bankers Association (MBA) reported
that for week ending July 13th, its MBA Mortgage
Applications Survey rose 8.3 to 468.4. Refinance,
Fixed Mortgage and Adjustable Mortgage indices
all rose.
- US
Consumer Price Index (CPI), a good measure
of consumer inflation, rose a strong 0.2%
in June. Core CPI, which excludes volatile
oil and food sectors, also rose a strong 0.3%.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending July 13th, US Crude Oil inventories
rose 7.0 million barrels and 5.56 million
barrels respectively, while Distillates increased
2.7 million barrels and 2.75 million barrels
respectively.
- US
New Home Starts rose 3% in July to 1.66 million
units. Single Family units accounted for all
of the increase.
- US
Trade Deficit narrowed in May to $28.3 billion.
- US
Index of Leading Economic Indicators rose
0.3% in June. The Coincident and Lagging indices
all declined in the period.
- US
Jobless Claims dropped 35,000 for the week
ending July 14th. to 414,000. The 4 week moving
average rose to 415,000.
- The
Philadelphia Fed Survey dropped 12.2 in July.
- US
Semiconductor Book-to-Bill Ratio rose to 0.54
in June due to a 12% drop in Shipments and
a 1% drop in New Orders Bookings.
- The
Mortgage Bankers Association (MBA) reported
that, its MBA Mortgage Applications Index
for week ending July 20th. rose 8.3 to 509.2,
while the Purchase Index rose 4.7 to 324.9.
All indices (Refinance, Fixed Mortgage, and
Adjustable Mortgage) rose..
- US
Existing Home Sales dropped a slight 0.6%
in June to 5.33 million units.
- For
week ending July 20th, the Energy Information
Agency (EIA) reported that US crude oil inventory
increased by 1.4 million barrels, while the
American Petroleum Institute (API) saw a decrease
of 712,000 barrels. For distillates, the EIA
and API saw increases of 1.5 million barrels
and 1.395 million barrels respectively.
- The
Conference Board reported that its Help Wanted
Index, a good measure of blue collar employee
demand, dropped to 58 in June.
- Dismal.Com
reported that, its Online Help Wanted Index,
a good measure of white collar employee demand,
dropped to 101.0 in July.
- US
Jobless Claims dropped a whopping 51,000 in
the week ending July 21st, to 366,000. The
4-week moving average also declined to 409,000.
- US
Durable Goods New Orders fell 2% in June.
All sectors posted a drop except the Semiconductor
sector, which saw a gain.
- US
Employment Cost Index rose a modest 0.9% in
Q2 2001. Over the year, the index is now up
3.9%.
- US
Gross Domestic Product (GDP) grew a mere 0.7%
in Q2 of 2001. Consumer Spending grew a modest
2.1% due to home furnishings expenditure,
while Business Spending dropped 13.6%. Inventory
Stockpile declined lower than the previous
quarter. The Implicit Price Deflator, a good
inflation gauge, dropped one full point to
2.3%.
- US
New Home Sales rose 1.7% to 922,000 units
sold in June, while the May figures were revised
to 907,000. The West and Midwest were the
only regions that saw declines.
- US
Personal and Disposable Incomes rose 0.3%
in June. US Personal Consumption rose a strong
0.4%. Personal Savings decline slightly to
1.1%, after the May rate was revised upward
from -1.1% to 1.2%.
- The
Conference Board reported that, the US Consumer
Confidence declined to 116.5 in July. Except
Employment, all the other long-term outlook
indices rose.
- The
Chicago Purchasing Managers Association (PMA)
reported that, its Chicago PMI index dropped
to 38% in July - any point below 50% is a
sign of manufacturing contraction.
- The
Mortgage Bankers Association (MBA) reported
that, the MBA Mortgage Applications Survey
dropped by 0.4 to 507.2 for week ending July
27th. The Purchasing Index dropped 4.0 to
312.0. Fixed Rate Mortgage declined 0.8, while
Refinancing and Adjustable mortgage indices
rose.
- The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending July 27th, US crude oil inventory
decreased 1.1 million barrels and 3.456 million
barrels respectively, while Distillates increased
900,000 million barrels and 1.479 million
barrels respectively.
- The
National Association of Purchasing Managers
(NAPM) reported that, its NAPM Index dropped
back to 43.6% in July - any level below 50%
is a contraction. Production, Backlog of Orders,
Employment and New Export Orders indices rose,
while New Orders, Prices Paid, Supplier Deliveries,
Inventories, and Imports declined.
- US
Construction Spending slipped 0.7% in June
to $861.6 billion. Public Education, Private
Non-Residential Offices, and Private Residential
New Multi-families accounted for the drop.
- US
Vehicle Sales dropped to 16.3 million units
sold in July. Both light trucks and autos
declined. GM and Ford Motor Co. saw a decline,
while DaimlerChrysler, Honda, Toyota, and
Nissan saw no changes.
-
Worldwide Semiconductor Sales dropped 8.7%
in June, the 10th. consecutive drop. All regions
saw a drop in Sales.
- US
Factory Orders dropped 2.4% in June. The Semiconductor
sector saw a strong advance in Orders.
- US
Jobless Claims for week ending July 28th.
dropped 23,000 to 346,000. The 4-week moving
average dropped below the all important 400,000
mark to 395,000.
- The
Chicago Fed National Activity Index (CFNAI),
a good measure of the US economy's recession
risks, dropped to -1.02 in June, and the 3-Month
moving average also dropped to -1.05. The
farther away from zero the measurement, the
greater the recession risk.
- US
Non-farm Payroll declined 42,000 in July as
the Unemployment Rate held steady at 4.5%.
US average hourly earnings grew only 0.3%
from the previous month, but grew 4.4% over
the year.
- The
National Association of Purchasing Managers
(NAPM) reported that its Non-Manufacturing
NAPM Index declined 3.2% in July to 48.9%
- any point below 50% is a contraction. New
Orders and Inventory indices declined for
the period.
- The
Economic Cycle research Institute (ECRI) reported
that, its Future Inflation Gauge (ECRI FIG)
Index declined 0.6% in July to 103.2.
- US
Productivity rose 2.5% in Q2 of 2001, due
primarily to a drop in hours worked, while
output was almost constant. Unit Labor Costs
in non farm businesses rose 2.1% (Nondurable
manufacturing had a whopping 8.6% increase
in Unit Labor Cost, while overall manufacturing
had a 6.4% increase).
- US
Consumer Credit dropped $1.5 billion in June,
well different from the $7.8 billion increase
economists were expecting. The revolving line
of credit grew at its lowest pace since October
1999.
-
-
The
Mortgage Brokers Association (MBA) reported
that for week ending August 3rd, its MBA Mortgage
Applications Survey Index rose 3.6% to 525.3.
The Purchase Index rose 2.0% to 318.2. The
Refinance, Fixed Mortgage, and Adjustable
Mortgage indices all gained.
-
US
Wholesale Inventories declined 0.2% in June,
while Wholesale Sales declined 0.9%, thus
pushing the the Inventory-to-Sales Ratio higher
for the third straight time to 1.33.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending August 3rd, US Crude Oil inventory
declined 6.5 million barrels and 3.35 million
barrels respectively, while Distillates increased
200,000 barrels and 808,000 barrels respectively.
-
US
Jobless Claims for week ending August 4th.
rose 33,000 to 385,000. The 4-week moving
average declined 16,000 to 380,000.
-
US
Chain Store Sales grew a modest 3.4% in July,
with Drug Stores, Discount Stores, Footwear
Stores, and Wholesale Clubs account for the
gains.
-
US
Import Prices declined 1.6% in July, thanks
to a 6.1% drop in petroleum products prices.
The June Import Prices were revised to a decline
of 0.4%. US Export Prices declined only 0.4%
in July - very favorable to the US.
-
US
Producer Price Index (PPI), a good measure
of producer inflation, dropped 0.9% in July
due to the low energy prices. The Core PPI,
which excludes volatile Energy and Food sectors,
gained 0.2%, twice the gain seen in June.
-
US
Retail Sales were unchanged in July, and grew
only a mere 3% over the year.
-
The
Richmond Fed manufacturing Survey improved
in July. Shipment, Backlog Orders and New
Orders indices improved. The 6-Month Shipping
Outlook declined, but still higher than the
first 6 months of the year.
-
The
Mortgage Bankers Association (MBA) reported
that, for week ending August 10th, its MBA
Mortgage Applications Survey Index declined
3.2% to 508.4, while the Purchase Index declined
5.5% to 300.7.
-
The
Energy Information Agency (EIA) reported that
for week ending August 10th, US Crude oil
inventory declined 2.8 million barrels, while
the American Petroleum Institute (API) saw
an increase of 113.000 barrels. For Distillates,
both saw decreases of 900,000 barrels and
138,000 barrels respectively.
-
US
Industrial Production declined a mere 0.1%
in July, well below the 0.3% drop economists
were expecting. US Industrial Capacity Utilization
declined to 77.0%, while Auto Production rose
3.2%, its largest gain in 3 months.
-
The
National Association of Home Builders (NAHB)
reported that, its NAHB Housing Market Index
rose 6 points in August to 62. Single Family
Sales rose 7 points to 68. Traffic of Potential
Buyers index rose 5 points to 45, while the
Outlook for Next 6 Months rose 3 points to
69.
-
US
Business Inventories declined 0.4% in June,
thanks to the 0.7% decline in manufacturing
inventory, which helped the Inventory-to-Sales
Ratio to rise 0.01 to 1.43.
-
US
Consumer Price Index (CPI), a good measure
of consumer inflation, declined 0.3% in July.
Core CPI, which excludes volatile energy and
food sectors, rose 0.2%.
-
The
Philadelphia Fed Index worsened in August
by declining from -12.2 in July to -23.5 in
August. Shipments and Prices Received indices
improved, while indices like Inventories,
New Orders, Prices Paid, Number of Employees,
etc., worsened.
-
US
Jobless Claims declined 8,000 for the week
ending August 11th. to 380,000. The 4 week
moving average declined 9,000 to 371,000.
-
US
New Residential Construction rose 2.8% in
July to 1.672 million units. All regions saw
an increase expect the Midwest, which saw
a decline.
-
US
Trade Deficit rose to an anticipated $29.4
billion in June, while the May data was revised
to a deficit of $28.5 billion. The Goods sector
accounted for the deterioration of trade.
-
The
Conference Board reported that US Leading
Economic Indicators rose 0.3% in July, the
4th. straight monthly rise. The Coincident
Index rose 0.10%, reversing a 0.10% decline
seen last month. The Lagging Index dropped
0.70%.
BEIGE BOOK (12 DISTRICTS) REPORT
OF AUGUST 8TH. 2001
- The
US economy was still stagnant in June and
July.
- New
England Districts (First & Second Districts)
The First District (Boston) reported that
retail sales are worst than expected and manufacturing
is also down with the 2 sectors hoping on
a recovery next year. Real Estate was robust
before, but is beginning to wobble too.
The Second district (New York) Reported that
office vacancies are rising everywhere, especially
in New York City. Retail Sales and Commercial
Real Estate are struggling. Loans are leveling
off as loan delinquencies continue to rise.
Chain stores are going as far as cutting back
on back-to-school and Christmas orders. Home
sales however, remains strong.
- Third
district (Philadelphia) reported that auto
sales picked up (mostly for imports). Manufacturing
slowdown is still continuing, and so is Retail
sales. Industrial equipment and materials
orders are still sluggish. On the upside,
factories are expecting a pick up in business
the next 6 months.
- Fourth
district (Cleveland) reported that steel inventories
are high as orders dropped off significantly,
despite a 25% drop in steel prices. Temporary
worker demand declined sharply as retailers
expect little change during the back-to-school
period. Auto sales have leveled off after
aggressive purchase incentive offers dried
up. Like most parts of the country, Residential
Home Sales is hanging on due to the low mortgage
rates.
- The
Mid-Atlantic Fifth District (Richmond) reported
that the strong US Dollar was making it harder
to compete against foreign manufacturers.
Northern Virginia and around Raleigh, North
Carolina reported a sharp increase in office
space and a drop in commercial construction
due to technology companies' downsizing and
closings. Retail sales was below expectations,
but moderate growth was seen in services businesses
like finance.
- Southeastern
Sixth District (Atlanta) reported that due
to the economic slowdown, companies are cutting
hours and temporary workers. Textile, Paper
Mills, and Shipyards have all being hit hard.
Commercial Real Estate continue to weaken,
but Retail sales saw a spark of life in July.
Residential home sales is still robust, especially
in South Florida.
- Midwestern
"plains" districts (Seventh, Eight,
Ninth & Tenth) The Seventh (Chicago)
reported that the only spark of activity was
in household lending. The Eighth district
(St Louis) reported that residential real
estate sales and prices are still strong.
Banks have tightened the credit standard for
business loans, as many manufacturer now expect
a turnaround in the first quarter of 2002.
The Ninth District (Minneapolis) reported
that home sales and building was still robust,
consumer spending was slightly up, and energy
& Gas exploration is above last year's
levels. Retail sales were from flat to higher.
Tenth District (Kansas City) reported that
auto sales rose in July. Mortgage demand was
flat in July, but still better than last year's.
Office vacancies are now common in the major
cities as more Dot Coms folded and high tech
manufacturing being hit the hardest.
- Western
districts (Eleventh & Twelfth) The
Eleventh District (Dallas) reported that price
declines for crude oil and gas were hurting
the region. The hot weather in the region
is affecting livestock production. High-tech
manufacturers were optimistic that their free
fall might be over. Layoffs have caused a
glut of both skilled and unskilled labor.
The Twelfth District (San Francisco) reported
that high energy costs are forcing some companies
to add backup power systems and/or change
their production schedules. Layoffs continue
in high-tech and advertising. Retail sales,
manufacturing, airline tickets prices, and
rental property prices are dropped.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF JULY 18th. and JULY 24th.
2001
- The
economy is shaking off its malaise, but more
action may be needed.
- Economy
not sliding in a free fall, but not turning
as needed yet.
- Waiting
to see if there is evidence that inventory
and capiatl spending adjustments pick up.
- Another
interest rate cut might be needed to help
the economy.
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