LATEST
NEWS: The Federal Reserve FOMC and the Board of
Governors on Tuesday August 13th. 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 Fed decided to shift its
bias to a possible interest rate cut next time
around, IF the weakening economic conditions
continue.
The Federal Reserve Bank FOMC will consider either LEAVING interest
rates as they are, or CUTTING them as the recovery seems to be stuck -
due mostly to capital markets problems on
accounting scandals. The FOMC left interest rates unchanged on
June 25th/26th, after cutting 11 times in 2001.
BOARD MEMBERS' RECENT COMMENTS
The
US Senate on July 31st approved the appointment
of Ben Bernanke and Donald Kohn to the last
remaining vacant seats on the board of
governors. Bernanke, the Chair of the Princeton
University Department of Economics, favors an
explicit inflation targeting scheme where prices
are kept under check - Alan Greenspan favors the
opposite. Dr. Bernanke will finish a partial
term expiring January 31st. 2004. Donald Kohn,
Federal Reserve insider who handles the
"Blue Book" - an illustration of
interest rates actions pros and cons - for the
Federal Reserve, will serve a full 14 year term
expiring January 31st. 2016.
Most
economists think anything is possible at the
August 13th. meeting, but almost all expect some
rate cut before the end of the year.
OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from newer to older data):
US
Q2 2002 non-farm Productivity Output rose 0.3%.
Labor Productivity rose 8.3%, while Unit Labor Costs
rose 2.4%.
US
Chain Store Sales rose a weaker than expected 2.6%
in July.
US
Producer Price Index (PPI), a good measure of
producer inflation, declined 0.2% in July. The Core
PPI, which excludes energy, declined 0.3%.
US
Jobless Claims for weekending August 3rd. declined
15,000 to 376,000. The 4-week moving average
declined 7,750 to 379,000.
US
Wholesale Sales rose 0.6% in June to $229.5 Billion,
as Inventories rose 0.3% to $281.9 billion, thus
forcing the Inventory-to-Sales Ratio to be unchanged
at 1.23.
The
Energy Information Agency (EIA) reported that for
weekending August 2nd, US crude oil inventories
declined 2.1 million barrels, as Distillates rose
700,0000 barrels.
The
Mortgage Bankers Association (MBA) reported that its
MBA Mortgage Applications Survey Index for
weekending August 2nd. rose 6.2% to 1066.9. The
Purchase Index rose to 374.0. The Refinance Index
rose to 5097.3. The 30-year fixed rate mortgage
declined to 6.17%.
US
Consumer Credit rose to $8.4 billion in June, due to
revolving line of credit (credit card and auto
finance credit).
US
Export Prices, excluding agriculture, rose 0.2% in
July. US Import Prices, excluding oil, was unchanged
in July.
The
Bank of Tokyo-Mitsubishi reported that for
weekending August 3rd, US Chain Store Sales rose
only 0.1%.
The
Institute of Supply Management (ISM), formerly the
NAPM, reported that its ISM Non-manufacturing Index
declined 4.1% to 53.1% in July - any point above 50%
is an expansion.
US
New Orders for Manufactured Goods (excluding
semiconductor sector) declined 2.4%, or $7.7
billion, to $313.2 billion in June. Shipments
declined 1.0%, or $3.2 billion, to $320.5 billion.
Inventory declined 0.1%, or $600 million, to $428
billion. The Inventory-to-Shipments Ratio rose to
1.34.
US
Non-farm payrolls rose 6,000 (statistically
unchanged), as the Unemployment Rate held steady at
5.9% in July.
US
Personal Income rose 0.6% in June, while Disposable
Personal Income rose 0.7%.
US
Average Workweek declined to a lower than expected
34.0 Hours, as Hourly Earnings rose a higher than
expected 0.3%.
US
Initial Jobless Claims for weekending July
27th. rose 20,000 to 387,000. The 4-week
moving average declined 250 to 386,000.
US
Construction Spending declined an unexpected
2.2% in June.
The
Institute of Supply Management (ISM), formerly
the NAPM, reported that the ISM Index, a good
measure of manufacturing activity in the US,
declined sharply in July to 50.5% - any point
above 50% is still an expansion.
US
Vehicles Sales rose to a surprising 18.1
million units sold in July.
The
Chicago Purchasing Managers' Association (PMI)
reported that its PMI Index, a good
measure of manufacturing activity in the
Chicago area, declined 7 points in July to
51.5% - any point above 50% is an
expansion.
The
US Gross Domestic Product (GDP) grew only
1.1% in Q2 2002.
US
Agricultural Prices rose 2.0% in July, due
mostly to the Weaker Dollar and the
drought.
The
Energy Information Administration (EIA)
reported that for weekending July 26th, US
crude oil inventory declined by 2 million
barrels, while Distillates gained 1.1
million barrels.
The
Mortgage Bankers Association (MBA)
reported that for weekending July 26th,
its MBA Mortgage Applications Survey Index
rose 23.2% to 1004.3. The Purchase Index
rose to 360.5. The Refinance Index rose to
4748.8. The 30-year fixed rate mortgage
rose to 6.32%.
The
Conference Board reported that, the US
Consumer Confidence Index declined
sharply from June's 106.3 reading to
97.1 in July.
The
Bank of Tokyo-Mitsubishi US Chain
Store Sales Index fro weekending July
27th. declined 0.4%.
The
University of Michigan reported that
US Consumer Sentiment declined 4.3
points to 88.1 in July.
The
Conference Board reported that US
Help Wanted Index, a good measure
of blue collar employee demand,
rose by 3 points in June to 47.
US
Existing Home Sales declined
sharply in June to 5.07 million
units sold.
US
New Home Sales rose in June to
1.001 million - a new record.
The
Chicago Fed National Activity
Index (CFNAI), a good measure of
the US economic activity, improved
significantly in June to 0.14 -
well better the -0.04 seen in May.
US
Durable Goods Orders declined 3.8%
in June.
The
US Employment Cost Index (ECI)
rose a modest 1.0% in Q2 2002, and
3.9% since Q2 2001.
US
Initial Jobless Claims for
weekending July 20th. declined
21,000 to 362,000. The 4-week
moving average declined 7,500 to
384,000.
The
Mortgage Bankers Association
(MBA) reported that for week
ending July 19th, its MBA
Mortgage Applications Survey
rose 12.9% over the week to
815.2 - its highest levels
since November 23rd. The
Purchase Index declined to
351.4. The Refinance Index
rose 53.4% over the week to
3512.4 - its highest levels in
8 months. The 30-year fixed
rate mortgage declined to
6.26%.
The
Energy Information
Administration (EIA) reported
that for weekending July 19th,
US crude oil inventory
declined 3.7 million barrels,
while Distillates declined
200,000 barrels.
.
BEIGE BOOK (12 DISTRICTS)
REPORT OF JULY 31ST. 2002
The
current Beige Book data was significantly
the same from the last one.
The US economic recovery is very sluggish.
The
First District (Boston) reported that retailers are less upbeat than
they were before. Manufacturing is mixed.
Residential Real Estate is still strong.
The Second district (New York) reported that the
economy eased off since the last report, as
commercial real estate and labor markets softened.
Manufacturing was weakening in July, as New York
City real estate seem to be weakening. Loans are
weak, but the increasing delinquency seem to have
leveled off.
Third district (Philadelphia) reported that business
conditions improved in July. Auto sales are up, manufacturers are
forecasting increased sales, as retailers expect
a steady condition for the rest of the year,
with some bright spots seen in back-to-school
sales. Lending rose on commercial lending.
Investment houses saw an increased transfer of
funds from equity markets to money-markets.
Fourth district (Cleveland) reported that the economy was
slightly better in July. Manufacturing, retail
sales and shipping all improved. Steel prices
have stabilized, while labor markets remain
unchanged.
The Mid-Atlantic Fifth District (Richmond) reported that its
economic activity rose modestly as housing sales was strong, and were
mortgage lending. Manufacturing, tourism and
retail sales rose modestly. The Drought is
affecting agriculture, and services were flat.
Southeastern Sixth District (Atlanta) reported that economic
activity was still sluggish. Labor markets are unchanged,
manufacturing is mixed, and retail sales was
sluggish. Tourism was weak, as was lending
activity.
The Seventh (Chicago) reported that its
economy remained sluggish. Residential housing
was still strong, but non-residential was
significantly soft. Consumer spending and retail
sales remained mixed, with most declining in
recent weeks. Business lending was weak, but
mortgage lending was still robust. Agriculture
was mixed, but largely expected to be below last
year's harvest.
The Eighth district (St Louis)
reported that the overall economy is still improving as manufacturing,
retail sales and low to mid-priced homes
continue to expand and see good business
activity. Lending activity is strong. The Wheat
harvest is expected to be lower than last years,
but agriculture respondents expect a fair to
good harvest year.
The Ninth District (Minneapolis) reported
that its economy was expanding modestly. Agriculture, consumer
spending, residential construction, tourism and
manufacturing grew in the period, as mining and
energy leveled off, while commercial
construction weakened.
Tenth District (Kansas
City) reported that its economy continues to improve, but signs of a
weakness are creeping in. Manufacturing and
residential real estate activity improved. some
manufacturing and construction prices rose, but
price pressures are generally still low. Retail
sales and energy activity held steady, while
commercial real estate and vehicle sales
weakened. Spring crops and pastures in the
western parts of the district were affected by
the drought.
The Eleventh District (Dallas)
reported that the economy is improving slowly, as terrorism, corporate
accounting scandals, and the consequence
weakness in the stock market was of concern. The
manufacturing and services sector are improving
slowly. Retail sales, construction, real estate
sales and energy all softened. A notable
improvement was the recent rains, which was a
welcomed relief from the heat and drought
conditions.
The Twelfth
District (San Francisco) reported that the economy continued to
improve moderately. Housing prices are rising,
due to the strong residential housing market,
while commercial real estate remained weak.
Retail sales and services were moderate. High
tech manufacturing, especially in semiconductor,
is improving. Agriculture also improved,
especially in recent weeks.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF JULY 16th. and 17th. 2002.
Chairman
Greenspan was optimistic that the business
investments in the 1990s are still bearing
productivity fruits.
He
doesn't see a "bubble" in the booming
housing market.
US
economy to grow between 3.50% to 3.75% this year
with little inflation.
Chairman
Greenspan also expects corporations to restate
their financial numbers lower.
