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FOMC Meeting date: NEXT MEETING: DECEMBER 11TH.
2001
MEETING
OUTCOME
-
LATEST
NEWS: The Federal Reserve FOMC and the Board
of Governors on Tuesday November 6th. cut
the Federal Funds Rate, the interest rate
banks charge each other for overnight loans,
by 25 basis points (0.25%) to 1.75%, and the
Federal Discount Rate, the interest rate the
Federal Reserve charges banks on loans, was
cut by 25 basis points (0.25%) to 1.25% so
as to boost a struggling US and world economies.
Interest rates are now at their lowest levels
in 40 years, and this is the 11th cut this
year. The Feds is concerned about the continuing
US and global economic weaknesses.
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ARCHIVES for previous issues.
MEETING AGENDA:
- The
Federal Reserve Bank FOMC will consider LOWERING
interest rates to boost the recovery of the
US and world economy, as they try to turn
the corner after the September 11th. US terrorist
attacks that caused a full blown recession.
The FOMC has cut interest rates a whopping
10 times in 2001 alone.
BOARD MEMBERS' RECENT COMMENTS
- Federal
Reserve Bank of New York President, and a
voting member of the FOMC, William McDonough,
stated at the 2001 Financial Services Leadership
Forum on December 6th. that he doesn't know
what the economy might do next, and that what
the Feds don't know yet is "are we at
a turn, have we reached the turn?". President
McDonough however, feels that "when we
pull out of the recession, the ability of
the American economy to grow will still be
in place".
- Federal
Reserve Bank of Chicago President, and a voting
member of the FOMC, Michael Moskow, stated
on November 28th. in Fort Wayne Indiana that,
the US economy will pick up next year, but
the "exact timing is difficult to predict".
President Moskow continued that, he hasn't
"seen any signs" yet of a "positive economic
growth". He expects inventories to start coming
down, when business and capital spending start
going up - "while inventories have come down
quite a bit, I think they can come down further"
before a recovery will occur. President Moskow
gave a similar speech in Chicago on November
27th.
- Federal
Reserve Governor, and a voting member of the
FOMC, Lawrence Meyer, stated on November 27th.
that some economists' idea that the Federal
Reserve should have not cut rates aggressively
after the September attacks, but should have
kept its power dry are "misguided - indeed
the reverse of what would be appropriate".
Governor Meyer thinks the aggressive cuts
were the right action, and expects that a
good economic stimulus plan coupled with some
aggressive rate cuts should see the economy
"gradually strengthening over next year".
- Federal
Reserve Bank of St. Louis President, and a
voting member of the FOMC, William Poole,
told reporters after a speech at the Rotary
Club of Little Rock, Arkansas on November
20th. that, the Federal Reserve still "has
further room to cut US interest rates".
President Poole noted that "the point
you can't cut anymore is zero.." and
he doesn't "..believe that we have come
close to running out of possibilities for
monetary policy".
Board
Members Testimonies and Speeches page
THE GENERAL CONSENSUS ABOUT COMING MEETING:
- Most
economists are expecting a further rate cut
due to uneven signs of a recovery. The coming
holiday season will be a missed opportunity
if consumers are not encouraged to buy, a
major problem facing the economy right now.
Most economists expect a cut of only 25 basis
points (0.25%) across the board.
- OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
- The
Mortgage Bankers Association (MBA) reported
that for week ending November 2nd, its MBA
Mortgage Applications Survey Index rose 23%
to 1037.9. The Purchase Index rose 19.7% to
318.4. The Refinance Index rose 24.3% to 5223.2.
-
US
Productivity grew a strong 2.7% in Q3 2001,
due primarily to declines in hours worked,
which 3.6%. Output declined 1%. Real Compensation
per Hour rose 3.8%, its highest increase this
year, while the Implicit Price Deflator rose
at the same levels as Q2, 1.5% to 116.6.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending November 2nd, US crude inventory
rose 3.6 million barrels and 3.68 million
barrels respectively, while Distillates increased
300,000 barrels and 1.54 million barrels respectively.
-
US
Consumer Credit grew only an annualized rate
of 2.5% in September, or $3.2 billion from
August levels to a total Credit in September
of $1.597 trillion. US Consumer Credit has
been declining steadily due to economic uncertainty.
-
US
Wholesale Sales declined 1.3% in September,
while inventories declined 0.1%. The Inventory-to-Sales
Ratio rose to 1.32.
-
US
Chain Store Sales grew a strong 2.3% in October.
Drug Stores, Discount Stores, and Wholesale
Clubs accounted for the growth.
-
US
Initial Jobless Claims declined 46,000 to
450,000 for the week ending November 3rd.
The 4 week moving average declined 9,000 to
487,000.
-
US
Import Prices declined 2.4% in October. Imported
Capital Goods prices rose 0.1%, while Imported
Consumer Goods (excluding vehicles) Prices
declined 0.1%. US Export Prices declined 0.7%
in October. Agricultural Commodities and Capital
Goods Export Prices declined 1.7% and 0.4%
respectively, while Export Consumer Goods
(excluding vehicles) Prices saw no growth
for the period.
-
US
Producer Price Index (PPI), a good measure
of producer inflation, declined 1.6% in October,
its largest decline in decades, due to low
energy prices. The Core PPI, which excludes
the volatile Energy and food sections, declined
0.5%.
-
The
University of Michigan's Consumer Sentiment
Survey rose from 82.7 in October to 83.5 in
November. Expectations Index rose to 76.2,
while Present Conditions Index rose 94.9.
-
The
Kansas City Fed Manufacturing Survey improved
in October. The Production, Volume of New
Orders, and Prices paid for Raw Materials
indices all improved.
-
The
Richmond Fed Manufacturing Survey declined
in October, as all indices posted losses.
-
US
Retail Sales rose 7.1% in October, about 2
times the growth economists were expecting.
Motor Vehicles & parts Dealers, Clothing
& Accessories Stores, Food Services &
Drinking Places, etc. indices gained, while
Furniture & Home Furnishings Stores index
was lower.
-
The
Mortgage Bankers Association (MBA) reported
that for week ending November 9th, its MBA
Mortgage Applications Survey rose 1.7% to
1055.5. The Purchase Index declined 10.4%
to 285.4, while the Refinance Index rose 6%
to 5534.5.
-
US
Business Inventories declined 0.5% in September.
All indices declined, while the Inventory-to-Sales
Ratio rose from 1.42 to 1.45 due to lower
sales after the September 11th. attacks.
-
The
Philadelphia Fed Survey Index improved in
November to -20.2. Average Workweek, Delivery
Times, Inventories, New Orders, Number of
Employees, Prices Paid, and Unfilled Orders
indices improved, while Prices Received, Shipments,
and 6 Month Outlook indices closed lower.
-
The
Energy Information Agency (EIA) reported that
for week ending November 9th, US crude oil
inventory decreased by 200,000 barrels. The
American Petroleum Institute (API) saw an
increase of 1.06 million barrels. For Distillates,
both the EIA and API saw increases of 2.5
million and 2.41 million barrels respectively.
-
US
Jobless Claims declined by 8,000 to 444,000
in the week ending November 10th. The 4-week
moving average declined 13,000 to 475,000.
-
The
National Association of Home Builders (NAHB)
reported that, its NAHB Housing Market Index
for November gained 2 points to 49. The 2
points gain came from Single Family Home Sales
expectations in the next 6 months, and the
rise in Traffic of Potential Buyers index,
which rose 6 points to 39.
-
US
Consumer Price Index (CPI), a good measure
of consumer inflation, declined 0.3% in October,
due mostly to low energy prices. The Core
CPI, which excludes the energy and food sectors,
gained 0.2% for the 4th. month in a row.
-
US
Industrial Production in October declined
1.1%. Auto production declined 4.0%, while
Industrial Capacity Utilization declined to
74.8%, the 13th. monthly decline in a row.
-
US
New Residential Construction declined 1.3%
in October to 1.552 million. The Northeast
and the Midwest saw gains. The South was unchanged,
while the West lost.
-
The
Conference Board reported that US Index of
Leading Economic Indicators rose a much greater
than expected 0.3% in October. The Coincident
Index declined 0.2%, while the Lagging Index
declined 0.3%.
-
The
US Trade Deficit improved in September. Imports
declined $8.4 billion from month ago to $18.7
billion, while Exports declined $7.2 billion
to $77.3 billion in the same period.
-
US
Jobless Claims declined 15,000 to 427,000
in week ending November 17th. The 4 week moving
average declined 20,000 to 454,000.
-
The
University of Michigan Consumer Sentiment
Index improved in November to 83.9. Both the
Expectations and Present Conditions indices
improved to 76.6 and 95.3 respectively.
-
The
Energy Information Agency (EIA) reported that
for week ending November 16th, US crude oil
inventory declined by 1.3 million barrels,
while the American Petroleum Institute (API)
saw an increase of 357,000 barrels. For Distillates,
the EIA and API saw decreases of 200,000 barrels
and 669,000 barrels respectively.
-
The
Mortgage Bankers Association (MBA) reported
that for week ending November 16th, its MBA
Mortgage Applications Survey rose 6.6% to
985.8. The Purchase Index rose 3.7% to 296.0,
while the Refinance Index declined 9.7% to
4998.3.
-
US
Semiconductor Shipments declined to $916.2
million in October, while Bookings rose $31.9
million to $651.1 million, thus pushing the
Book-to-Bill Ratio up to 0.71.
-
The
National Bureau of Economic Research (NBER)
reported today that, the US economy has been
in a recession since March, and it expects
it to turn around in mid 2002.
-
The
Conference Board reported that, US Consumer
Confidence declined to 82.2 in October, the
lowest level in 7 years, and well off the
increase economists were expecting.
-
US
Sales of Existing Homes rose 5.5% to 5.17
million in October, due mostly to the low
mortgage rates.
-
The
Mortgage Bankers Association (MBA) reported
that its MBA Mortgage Applications Survey
for week ending November 23rd. declined 8.2%
to 905.1. The Purchase Index rose 28.3% to
324, while the Refinance Index declined to
4998.3. The Average 30-year Mortgage Rate
rate rose from 6.84% seen last week to 6.89%.
-
The
Commerce Department reported that, US E-Commerce
sales in Q3 2001 rose to $7.5 billion, while
total retail sales declined 2.6% for the period.
-
The
American Petroleum Institute (API) and the
Energy Information Administration (EIA) reported
that for week ending November 23rd., US crude
oil inventories declined about 1 million and
3.1 million barrels respectively, while Distillates
rose 5 million and 5.1 million barrels respectively.
-
The
Conference Board reported that its Help Wanted
Index, a good measure of blue collar employee
demand, declined 6 points in October to 46,
its lowest levels since 1982.
-
US
Durable Goods Orders gained 12.8% in October.
-
US
New Home Sales rose 0.2% in October to a stronger
than expected 880,000. The October level is
slightly higher than the September adjusted
levels of 878,000, but only 5% below last
year's levels.
-
US
Jobless Claims for weekending November 24th.
rose 54,000 to 488,000. The 4 week moving
average declined 2,000 to 454,000.
-
The
Chicago Purchasing Managers Association reported
that for the month of November, its Chicago
PMI Index, a good measure of manufacturing
activities in the region, declined to 41.1%
- any point below 50% is a contraction. This
is the 14th. consecutive monthly contraction.
-
US
Agricultural Prices declined a lower than
expected 1% in October.
-
US
Gross Domestic Product (GDP) for the Third
Quarter (Q3) was revised to a decline of 1.1%,
its worst showing in a decade.
-
The
National Purchasing Managers Association (NAPM)
reported that for the month of November, its
NAPM Index, a good measure of manufacturing
activities in the nation, rose to 44.5% -
any point below 50% is a contraction.
-
US
Personal Income declined less than 0.1% in
October, but Consumer Spending rose a strong
2.9%.
-
Global
Semiconductor Sales rose a strong 2.5% in
October, as all regions, except Japan, saw
an increase in Sales.
-
US
Construction Spending rose $16 billion, or
1.9% in October, due mostly to public building
activity.
-
The
Energy Information Administration (EIA) and
the American Petroleum Institute (API) reported
that for weekending November 30th, US crude
oil inventories rose 4.2 million barrels and
2 million barrels respectively, while distillates
gained 2.4 million barrels and 3.8 million
barrels respectively.
-
The Chicago Fed National Activity Index (CFNAI)
declined to 1.56% in October.
-
The National Association of Purchasing Managers
(NAPM) reported that, its Non-manufacturing
NAPM Index rose a stronger than expected 10.7%
to 51.3% in November - any point above 50%
is an expansion.
-
The Mortgage Bankers Association (MBA) reported
that its MBA Mortgage Applications Survey
for weekending November 30th. declined 17.6%
to 745.5. The Purchase Index rose to 350.9,
while the Refinance Index declined to 3040.
The 30-year fixed mortgage rate declined from
last week's 6.98% to 6.83%.
US
Jobless Claims declined 18,000 to 475,000 in
the week ending December 1st. The 4-week moving
average rose 5,750 to 460,750.
-
US
Factory Orders rose a strong 7.1% in October,
while Shipments rose2.2%. Inventories declined
0.4%, thus pushing the Inventory-to-Shipments
Ratio declined to 1.40.
-
US
Chain Store Sales grew a paltry 2% in November,
due to a warmer than usual weather, and consumers'
restrained shopping.
-
US
Productivity grew a mere 1.5% in Q3 2001.
Manufacturing Productivity rose a strong 2.5%,
while Unit Labor Costs also rose a strong
2.3% for the period.
-
US
Payroll Jobs declined 331,000 in November,
thus pushing the Unemployment Rate higher
to 5.7%.
-
US
Consumer Credit rose a strong $7 billion,
due mostly in increases in non-revolving consumer
credit like Auto purchases. The Revolving
consumer credit declined for the 4th. straight
month.
-
The
Economic Cycle Research Institute (ECRI) reported
that, its Future Inflation Gauge (ECRI FIG)
declined 1.3% in November to 95, its lowest
level in 26 years. This shows that the weak
economy will not spark inflation anytime soon.
BEIGE BOOK (12 DISTRICTS) REPORT
OF NOVEMBER 28TH. 2001
- The
US economy showed some additional slowing
in some regions.
- New
England Districts (First & Second Districts)
The First District (Boston) reported that
there has been some recovery since September
11th, but still generally sluggish. Customers
of manufacturers are slow in paying up, retailers
have to offer deep discounts before they can
attract customers. Construction and home furnishings
suppliers are optimistic about the future.
The Second district (New York) reported that
some rebound have been seen since Sept. 11th.
Manhattan office space situation exasperated,
but hotel occupancy levels have risen about
25% more to around 75%. Discount retail stores
and home furnishing stores have seen increased
traffic, but total purchases per customer
are down.
- Third
district (Philadelphia) reported that manufacturing,
retail, banking and business activity in general
remained soft. Manufacturers however, have
seen inventory backlogs decline due to aggressive
inventory reduction practices. Most companies
are now operating at levels where further
employee reduction is impossible.
- Fourth
district (Cleveland) reported that they are
seen signs of an emerging recovery. Factory
orders are improving, retailers are upbeat
about this holiday season, as the economy
expects a better first half in 2002. Discount
retailers are also doing well. Trucking and
shipping companies have raised prices lately,
despite a November drop in volume.
- The
Mid-Atlantic Fifth District (Richmond) reported
that its economy declined for the period.
Car sales rose due to 0% financing, and retailers
are optimistic about the holiday season. Factory
activities declined in October and November.
- Southeastern
Sixth District (Atlanta) reported that tourism
declined sharply, manufacturing continue to
decline and cut jobs. On the bright side,
Car sales are up due to the 0% financing,
and the housing market is up due to the low
interest rates. The Lockheed Martin contract
worth $200 billion for Joint Strike Force
(JSF) fighters is expected to create many
jobs.
- The
Seventh (Chicago) reported that holiday spending
was modest, despite deep discounts. Loan defaults
are up. Construction is down, and so are agricultural
prices (except milk, which actually rose).
Insurance sales was brisk for the period.
-
The Eighth district (St Louis) reported that
Retail sales is up strongly, housing permits
and commercial real estate are up. Manufacturing
however, continues to be weak. The late rains
have extended the autumn harvest, which ended
up being a good way to avoid transportation
bottlenecks.
-
The Ninth District (Minneapolis) reported
that commercial construction is down, loan
payment defaults are a concern. Wages are
slightly up, and so are healthcare costs.
Mortgage refinancing is booming.
- Tenth
District (Kansas City) reported that manufacturing
was flat, as layoffs continue. Borrowing is
down, and so is oil and gas drilling. On the
bright side, food processing industries are
going strong, and retail sales is around the
year before levels.
- The
Eleventh District (Dallas) reported that telecommunications
and petroleum demand are down, while inventories
are up. High tech manufacturers saw a flat
sales period. Deep discounts in retail stores
can't seem to attract customers. Loan demand
has held steady, but bankruptcies and other
credit related problems have risen sharply.
- The
Twelfth District (San Francisco) reported
that loan demand is off, tourism is off, commercial
office space in formerly hot markets is now
abundant, and with lower rents too. Ranchers
are reporting that cattle prices are down,
and Boeing's job cuts is hurting the pacific
Northwest and Southern California. Semiconductor
sales and prices have stabilized. Mortgage
refinancing is booming.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF OCTOBER 17th. 2001
- The
US Economy recovered somewhat from the September
11th. terrorist attacks, but the recovery
is uneven.
- The
long term economic and productivity growths
are still on course.
- The
economy is still biased towards weakness in
the short term.
- Risk
premiums will increase in the long run due
to the attacks.
- Greenspan
avoided to take sides on the stimulus package
now working its way in congress.
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