LATEST NEWS: The Federal Reserve FOMC and the Board of
Governors on Tuesday May 7th. left the Federal Funds Rate, the
interest rate banks charge each other for overnight loans, UNCHANGED
at 1.75%, and the Federal Discount Rate, the interest rate the Federal
Reserve charges banks on loans, also UNCHANGED at 1.25%. The Feds also
had no bias in their traditional statement.
The
Federal Reserve Bank FOMC will consider either
LEAVING interest rates as they are, or INCREASING
them as the economy continues with its recovery.
In January and March 2002, the FOMC left interest
rates unchanged after cutting 11 times in 2001.
BOARD MEMBERS' RECENT COMMENTS
Federal
Reserve Chairman Alan Greenspan testified before
congress on April 17th. that "...the Federal
Reserve should have ample opportunity to adjust
policy to keep inflation pressures contained,
once sustained solid economic expansion is in
view". Plain English: The recovery is not
yet at a point to worry about inflation.
Federal
Reserve Bank of Dallas President and voting FOMC
member, Robert McTeer, stated in a Dallas Fed's
annual report on April 11th. that "while
the recovery has already begun, its strength and
durability remain uncertain". President McTeer
also added that "inflation declined during
the recession and seems poised to decline further
as growth accelerates in an economy with considerable
slack".
Federal
Reserve Bank of Dallas President and voting FOMC
member, Robert McTeer, stated in a Reuters™ interview
on April 4th. that the US economy is recovering.
Asked about when interest rate moves will be made,
considering their time lag, President McTeer stated
"When unemployment gets down below 5% and
is falling, and when capacity utilization is 77%,
then talk to me about lag because I might be more
willing to go with a preemptive policy".
Richmond
Federal Reserve President and non-voting FOMC
member, Alfred Broaddus, told Metro Chamber of
Commerce in Charleston, South Carolina on April
4th. that the analysts corner expecting a double-dip
or even more recessions "...is a distinctively
minority view and one I don't share given what
we know now". President Broaddus stated that
he is confident in the improvement of "....the
broadest indicators of the economy's health....".
Federal
Reserve Bank of Philadelphia President and voting
FOMC member, Anthony Santomero, told journalists
at the banking conference in Prague Czech Republic,
on March 27th. that the US economic recovery is
under way - "...data has been surprisingly
strong and recovery seems to be underway".
President Santomero continued that "...inflation
is, at the moment, well contained......".
Federal
Reserve Bank of Dallas President and voting FOMC
member, Robert McTeer, stated at a banking conference
in Prague Czech Republic, on March 26th. that
he doesn't see the US economy going into a double
dip. Commenting on the GDP Q1 and Q2 forecasted
growths of between 5% to 6% and 4% respectively,
President McTeer noted that "...these are
plausible sounding numbers - a strong first quarter
than a second quarter is very possible and not
particularly worrisome - 4% (Q2 growth) is a good
number right now". Commenting on inflation
fears and a possible rate increase, he stated
"...sooner or later, as the economy gathers
momentum and gets stronger, an adjustment will
have to be made, but I am not in a hurry".
Federal
Reserve Bank of New York President and voting
FOMC member, William McDonough, told a gathering
of the National Association of Business Economists
(NABE) in Washington DC. on March 26th. that he
thinks "...the preconditions for a rebound
are in place", and that "...continued
slack in the economy and the strong Dollar should
prevent inflation from rising an time soon".
Most
economists feel the Feds WILL NOT raise interest
rates this time either. The consensus is building
on a rate hike in (maybe) August.
OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
The
National Association of Home Builders (NAHB) reported
that its NAHB Housing Market Index rose 2 points
to 60 in March, due to increases in Present Sales
and 6 month expectations. Traffic of Potential
buyers declined.
US
Trade Deficit worsened in January by rising to
$28.5 billion.
Orders
for Semiconductor equipment rose in February,
as the SEMI Book-to-Bill Ration rose to 0.87,
its 6th. straight monthly gain.
US
New Residential Construction (Housing Starts)
rose 2.8% to 1.77 million in February, its highest
levels in 5 years.
The
Energy Information Administration (EIA) reported
that for weekending March 15th, crude oil inventory
rose 2.6 million barrels, while Distillates declined
2.5 million barrels.
The
Mortgage Bankers Association (MBA) reported that
for weekending March 15th, its MBA Mortgage Applications
Survey Index declined 11% to 471.6. The Purchase
Index declined to 310.9. The Refinance Index declined
to 1406.3 - its lowest level since July 13th.
2001 report. The 30 year fixed rate mortgage rose
to 7.11%.
US
Consumer Price Index (CPI), a good measure of
consumer inflation, rose 0.2% in February. The
Core CPI, which excludes volatile energy and food
sector, gained 0.3%.
The
Philadelphia Fed Survey gained to 11.4 in March,
below economists' estimates, but its the
3rd. monthly increase in a row.
US
Initial Jobless Claims for weekending March 16th.
declined 12,000 to 371,000. The 4-week moving
average declined 2,500 to 379,000.
The
Conference Board reported that the US Leading
Economic Indicators were unchanged in February.
The Coincident Index rose 0.2%, while the Lagging
Index declined 0.3%.
US
Existing home Sales declined in February to 5.88
million units.
US
Durable Goods Orders rose 1.5% in February, its
third straight monthly gain.
The
Conference Board reported that the US Consumer
Confidence Index rose a whopping 15 points in
March to 110.2, as current and future expectations
sections of the index also posted strong gains.
The
Chicago Fed National Activity Index (CFNAI) improved
to 0.04 in February, as the 3-month moving average
improved to -0.28%.
US
Agricultural Prices rose 7.1% in March, due mostly
to higher prices of perishables like Lettuce.
The
Energy Information Administration (EIA) reported
that for weekending March 22nd, US crude oil inventory
declined 4.5 million barrels, while Distillates
declined 3.0 million barrels.
US
New Home Sales rose 5% to 875,000 units in February.
The
Mortgage Bankers Association (MBA) reported that
for weekending March 22nd, its MBA Mortgage Applications
Survey rose 4.9% to 494.8. The Purchasing Index
rose to 330.4. The Refinance Index rose to 1450.6.
The 30-year Fixed Rate Mortgage rose to 7.14%.
Worldwide
Semiconductor Billings was unchanged in February,
with the Americas and Asia Pacific seen increases,
while Europe and Japan were still weak.
US
Personal Income rose a strong 0.6% in February,
and Consumption also rose 0.6% in the same period.
The
University of Michigan Consumer Sentiment Survey
for March was revised upward to 95.7.
The
Chicago Purchasing Managers Association reported
that its Chicago PMI, a good measure of manufacturing
activity in the Chicago area, rose above estimates
to 55.7 - any point above 50 is an expansion.
US
Jobless Claims for weekending March 23rd. rose
a surprising 18,000 to 394,000. The 4-week moving
average rose 3,250 to 383,500.
US
Gross Domestic product (GDP) growth for Q4 2001
was revised upward to a growth of 1.7%.
The
Conference Board reported that its Help Wanted
Index, a good measure of blue collar employee
demand, rose 4 points to 51 in February.
US
Construction Spending rose 1.1% in February, due
mostly to residential construction.
The
Institute of Supply Management (ISM), formerly
known as the NAPM, reported that its ISM Index
rose to 55.6% in March - any point above above
50% is an increase in manufacturing activity.
This was the second straight monthly increase
in a row.
US Factory Orders declined 0.1% in February.
The Bank of Tokyo-Mitsubishi Chain Stores Sales
Index declined 0.6% for the week ending March
30th.
US Vehicle Sales Was 16.4 million in March, slightly
lower than last year's 16.7 million.
The Institute of Supply Management (ISM), formerly
the NAPM, reported that its Non-manufacturing
ISM Index declined slightly in march to 57.3%
- any point above 50% is an expansion.
The Energy Information Administration (EIA) reported
that for weekending March 29th, US crude oil inventory
rose 6.1 million barrels, while Distillates declined
2.8 million barrels.
The Mortgage Bankers Association (MBA) reported
that for weekending March 29th, its MBA Mortgage
Applications Survey Index declined 1.9% to 485.3.
The Purchase Index rose to 349.9. The Refinance
Index declined to 1272.3, while the 30-year Fixed
Rate Mortgage held steady at 7.14%.
US Jobless Claims for weekending March 30th. rose
a whopping 64,000 to 460,000. The 4-week moving
average rose 19,750 to 403,750.
The
Economic Cycle Research Institute (ECRI) reported
that, its Future Inflation Gauge (ECRI FIG) Index
declined 0.6% in March.
US
Consumer Credit rose $7.1 billion in March, with
Non-revolving credit accounting for $6 billion
of the increase.
US
Payroll employment rose 58,000 jobs in March,
as the Unemployment Rate rose to 5.7%.
Kansas
City Fed Manufacturing Survey improved to 24.0
in March.
US
Wholesale Trade rose 0.8% in February, as Inventories
declined 0.7%.
Richmond
Fed Manufacturing Survey improved to 20.0 in March
- the Third straight monthly rise.
Bank
of Tokyo-Mitsubishi chain Store Sales Index for
the weekending April 6th. rose 0.3%.
The
Energy Information Administration (EIA) reported
that for weekending April 5th, US crude oil inventory
declined 100,000 barrels, while Distillates rose
1.5 million barrels.
The
Mortgage Bankers Association (MBA) reported that
its MBA Mortgages Application Survey for week
ending April 5th. declined 4.8% to 462.0. The
Purchase Index declined to 332.8. The Refinance
Index declined to 1213.5. The 30-year Fixed Rate
Mortgages declined to 6.96%.
US
Chain Store sales rose 6.4% in March.
US
Jobless Claims for weekending April 6th. declined
55,000 to 438,000. The 4-week moving average rose
9750 to 433,750.
US
Import Prices, excluding Crude oil imports, was
unchanged. US Export Prices, excluding Agricultural
products, rose 0.2%.
US
Producer Price Index (PPI), a good measure of
producer inflation, rose a surprising 1.0% in
March. The Core PPI rose 0.1%.
US
Retail Sales rose a mild 0.2% in March. Excluding
auto sales, retail sales rose a stronger 0.4%.
The
University of Michigan Consumer Sentiment Survey
declined to 94.4 in April, due to rising oil prices
on the Middle East conflict.
The National Association of Home Builders (NAHB)
reported that its NAHB Housing Market Index was
unchanged in April at 60.
US Business Inventories declined 0.1% in February,
while Sales declined 0.9%, thus pushing the Inventory-to-Sales
Ratio higher to 1.38.
US
Consumer Price Index (CPI), a good measure of
consumer inflation, grew a lower-than-expected
0.3% in March. Core CPI, which excludes the volatile
energy and food sectors, grew 0.1%.
US
Industrial Production rose 0.7% in March, while
Capacity Utilization rose to 75.4%.
US
New Residential Construction Activity declined
7.8% in March to 1.65 million.
The
Bank of Tokyo-Mitsubishi Chain Store Sales Index
for weekending April 13th. declined.
US
Trade Deficit rose to $31.5 billion in February,
its highest levels in almost a year.
The
Energy Information Administration (EIA) reported
that for weekending April 12th, US crude oil inventory
declined 5.6 million barrels, while Distillates
declined 1.1 million barrels.
The Mortgage Bankers Association (MBA) reported
that for weekending April 12th, its MBA Mortgage
Applications Survey Index rose 1.9% to 470.6.
The Purchase Index rose to 337.3. The Refinance
Index rose to 1246.1. The 30-year Fixed Rate Mortgage
declined to 6.92%.
BEIGE BOOK (12 DISTRICTS)
REPORT OF MARCH 7TH. 2002
The
US economy is showing recovery signs.
The
First District (Boston) reported that manufacturing
and retailing is picking up. Business still slow,
but staffing companies are seeing improvements.
Real Estate is not in a free fall again.
The Second district (New York) reported a mixed
economy with housing and retail sales still doing
fine, while employment continues to struggle.
Third
district (Philadelphia) reported that manufacturing
and retail sales are upbeat about the future.
Auto sales are steady. Real Estate and commercial
loan markets are still weak.
Fourth
district (Cleveland) reported that the labor market
is still weak. Retail and construction are still
strong sales, while manufacturing, shipping and
trucking continue to improve.
The
Mid-Atlantic Fifth District (Richmond) reported
that manufacturing and retail were strong. Demand
for temporary workers is up. Demand for commercial
loans was was low, while residential mortgage
loans were still strong.
Southeastern
Sixth District (Atlanta) reported that retail
sales, and residential real estate were strong.
Tourism and hospitality reported improvements,
while bank lending was soft. Defense contractors
are seeing strong activity. Insurance and medical
costs are rising.
The
Seventh (Chicago) reported that manufacturing
and labor market were weak due to decreased consumer
spending. Lending improved slightly.
The Eighth district (St Louis) reported that Retailers
are optimistic about the future. Real estate continues
to be weak. Farmers are uncertain as they wait
for the package of the Farm Bill. Lending is improving.
The Ninth District (Minneapolis) reported that
mining and residential construction are up. Commercial
construction, tourism and energy declined.
Tenth
District (Kansas City) reported that Retail and
home sales rose. Agriculture still suffering from
dry weather.
The
Eleventh District (Dallas) reported that retail
sales improved, while construction and real estate
continue to weaken. Agriculture was sluggish,
as the energy sector shows signs of bottoming
out.
The
Twelfth District (San Francisco) reported that
consumer spending is exceedingly high, as the
technology sector continues to pick up. Commercial
real estate and lending are still weak. Agriculture
held steady.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF FEBRUARY 27th., MARCH 7th., and
April 17th. 2002.
The
strength of the recovery is still unclear as of
April 17th.
The
US Economy is recovering, but the recovery will
be a moderate one.
US
Foreclosures are up due to the weak economy.
Chairman
Greenspan stated that he doesn't think it is wise
to put a statutory ceiling on public debt.
There
is need to increase minority lending for home
ownership so as to increase their economic participation.
Chairman
Greenspan stated he doesn't see the need for a
stimulus package.
Greenspan
stated on the second day of testimony that the
recovery is already underway.
