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The
President’s
Report to the
Board of
Directors
April 4, 2014
Current Economic Developments - April 4, 2014
Data released since your last Directors' meeting show the economy was a bit stronger in the fourth
quarter than previously estimated but suggest slower growth during the first quarter. Support from
consumer spending remains resilient, while improvement in the housing market continues to show
signs of slowing and manufacturing data was mixed. Adverse weather conditions likely contributed
to slower growth in the first quarter, but these effects are expected to subside as the economy
rebounds to a moderate growth pace over the remainder of the year.
In March, nonfarm payrolls posted a strong gain, albeit one that was slightly below expecations,
while job gains in the previous two months were revised higher. The unemployment rate held steady
in March, as the labor force increased. Initial claims for unemployment insurance fell in March, and
were down on average in the first quarter. Consumer attitudes were mixed across the two primary
surveys in March, as the sentiment index fell while the confidence index rose to a six-year high.
Vehicle sales increased to a seven-year high in March. In February, both real consumption and real
incomes increased.
The ongoing recovery in the housing market showed further signs of easing in February. Both new
and existing home sales declined in February, as did housing starts. Meanwhile, housing permits
rose to their highest rate since October, due to an increase in multi-family permits.
Recent manufacturing data was mixed. The ISM index rose in March, and continued to signal
expansion in the manufacturing sector, but the employment component of the index declined. In
February, industrial production and capacity utilization both increased. New orders for durable goods
rose in February, but orders for nondefense capital goods excluding aircraft fell.
Headline inflation decelerated in February while core indices eased or held steady. Oil prices held
steady on average in March, and remained little changed in early April.
Payroll employment increased by 192,000 jobs in March, a bit below expectations.
Payroll gains in January and February were revised up by a total of 37,000 to
144,000 and 197,000, respectively. The unemployment rate held steady at 6.7% in
March, as a sizeable increase in the labor force was on pace with the rise in civilian
employment.
Nonfarm Payroll Employment
Change from Previous Month
400
Unemployment Rate
Rate
9.0
8.5
300
8.0
200
100
7.5
7.0
6.5
0
6.0
-100
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Jun-12
Dec-12
Jun-13
Dec-13
Source: Bureau of Labor Statistics / Haver Analytics.
5.5
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Jun-12
Dec-12
Jun-13
Dec-13
Initial claims for unemployment insurance decreased in March, to their lowest rate
since September, and were down on average in the first quarter compared to the
fourth quarter.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
550
550
Initial Claims for Unemployment Insurance
Quarterly Averages
500
450
13:Q2
13:Q3
13:Q4
14:Q1*
346
326
345
330
500
450
400
400
350
350
300
300
250
250
200
Mar-11
Sep-11
Jun-11
Mar-12
Dec-11
Sep-12
Jun-12
Mar-13
Dec-12
Sep-13
Jun-13
200
Mar-14**
Dec-13
*Includes four-week moving average, ending March 29, as
Source: Department of Labor, Employment and Training Administration / Haver Analytics. estimate for March in quarterly average.
**Four-week moving average, ending March 29.
Primary measures of consumer attitudes were mixed in March. Sentiment fell to its
lowest level since November, due to a decrease in expectations. Meanwhile,
confidence rose in March to its highest level in over six years, due to a jump in the
expectations index. Respondants in the sentiment survey remained positive about
personal finances but were more pessimistic about the general economic outlook,
while respondants in the confidence survey were less optmistic about income growth.
Index, 1966:Q1 = 100
Consumer Sentiment and Expectations
Index, 1966:Q1 = 100
110
110
100
100
Current
90
90
Conditions
80
80
70
70
60
60
Future
Consumer
Expectations
50
50
Sentiment
40
40
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Index, 1985 = 100
Consumer Confidence and Expectations
110
90
110
Consumer
Expectations
90
70
70
Present
Situation
50
30
Index, 1985 = 100
Consumer
Confidence
50
30
10
10
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14
Source: The Conference Board (confidence) and University of Michigan (sentiment) / Haver Analytics.
Total vehicle sales rose above expectations in March, to their highest annual rate in
seven years. Domestic vehicle sales also increased to a seven-year high in March.
First quarter sales were unchanged from their fourth quarter rate, as the uptick in
March offset the likely result of unseasonably cold weather holding back shoppers in
January and February.
Total Auto and Light Truck Sales
Millions of Units, Annualized
Millions of Units, Annualized
20.0
20.0
Quarterly Sales
18.0
16.0
13:Q2
13:Q3
13:Q4
14:Q1
15.5
15.7
15.6
15.6
18.0
16.0
14.0
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
Mar-11
Sep-11
Jun-11
Mar-12
Dec-11
Sep-12
Jun-12
Mar-13
Dec-12
4.0
Mar-14
Sep-13
Jun-13
Dec-13
Source: Bureau of Economic Analysis / Haver Analytics.
Real disposable income increased in February for the second consecutive month.
Real consumption also rose in February, following an increase in January that was
revised lower. The growth in incomes slightly outpaced the growth in consumption,
thus, the personal saving rate inched up in February.
Percent Change, Previous Month
Real DPI and Consumption
Percent Change, Previous Month
4.0
4.0
3.0
3.0
Real
Consumption
2.0
2.0
1.0
1.0
0.0
0.0
-1.0
-1.0
-2.0
-2.0
Real Disposable Income
-3.0
-3.0
-4.0
-4.0
-5.0
-5.0
-6.0
Feb-11
Aug-11
May-11
Feb-12
Nov-11
Aug-12
May-12
Source: Bureau of Economic Analysis / Haver Analytics.
Feb-13
Nov-12
-6.0
Feb-14
Aug-13
May-13
Nov-13
New home sales declined in February, from a rate in January that was revised lower.
Meanwhile, sales of existing homes eased slightly in February to their lowest rate
since July 2012.
New Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
600
600
500
500
400
400
300
300
200
200
100
100
0
0
Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14
Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
6000
6000
5000
5000
4000
4000
3000
3000
2000
2000
Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14
Sources: U.S. Census Bureau (new homes sales) and National Association of Realtors (existing home sales) / Haver Analytics.
Housing starts were essentially unchanged in February, as a decrease multi-family
starts offset an increase in single-family starts. Meanwhile, building permits rose in
February to their highest rate since October, due to an increase in multi-family
permits that more than offset a decline in single-family permits.
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
1400
1400
1200
1200
1000
1000
Building Permits
800
800
600
600
Housing Starts
400
400
200
200
0
0
Feb-11
Aug-11
May-11
Feb-12
Nov-11
Source: U.S. Census Bureau / Haver Analytics.
Aug-12
May-12
Feb-13
Nov-12
Aug-13
May-13
Feb-14
Nov-13
The ISM manufacturing index ticked up in March, but its first quarter average was
below the averages seen in the third and fourth quarter of last year. The index
remained above 50, continuing to signal expansion in the manufacturing sector. The
employment index fell in March, reaching its lowest level since June.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
70.0
70.0
65.0
65.0
60.0
60.0
Employment Index
55.0
55.0
50.0
50.0
ISM Index
45.0
45.0
Quarterly Averages
13:Q2
13:Q3
13:Q4
14:Q1
ISM
50.8
55.7
56.7
52.7
Emp.
49.8
55.1
55.2
51.9
40.0
35.0
30.0
40.0
35.0
30.0
Mar-11
Sep-11
Jun-11
Mar-12
Dec-11
Sep-12
Jun-12
Mar-13
Dec-12
Sep-13
Jun-13
Mar-14
Dec-13
Source: Institute of Supply Management / Haver Analytics.
Industrial production increased in February, following a decline in January. Production
rose in manufacturing and mining, more than offsetting the decrease in utilities
production. Capacity utilization improved in February, after declining in each of the
previous two months.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
79.0
2.0
Capacity Utilization
(manufacturing)
1.5
Industrial Production
78.0
77.0
1.0
76.0
0.5
75.0
0.0
74.0
-0.5
73.0
-1.0
72.0
-1.5
Feb-11
Aug-11
May-11
Feb-12
Nov-11
Aug-12
May-12
Source: Federal Reserve Board of Governors / Haver Analytics.
Feb-13
Nov-12
71.0
Feb-14
Aug-13
May-13
Nov-13
New orders for durable goods increased in February, more than offsetting the decline
seen in January, but barely posted a year-over-year gain. Meanwhile, orders of
nondefense capital goods excluding aircraft fell in February, their second decline in
three months. However, core orders rose on a year-over-year basis in February.
Durable Goods Orders
Percent Change, Year-over-year
Percent Change, Year-over-year
20.0
20.0
15.0
15.0
Durable Goods,
New Orders
10.0
10.0
5.0
5.0
0.0
0.0
-5.0
Percent Change, Previous Month
-10.0
-15.0
-5.0
Capital Goods Nondefense,
Excluding Aircraft
-10.0
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Durables
-0.69
2.75
-5.28
-1.36
2.17
Ex. Air.
-0.56
3.04
-1.56
0.81
-1.35
-15.0
-20.0
-20.0
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
Source: U.S. Census Bureau / Haver Analytics.
Headline consumer prices eased in February, after accelerating in each of the prior
three months. Core prices, which exclude food and energy, also eased in February
as measured by the CPI, but held steady as measured by the PCE Price Index.
Total Price Indices
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
6.0
6.0
Consumer Price Index
Chained Consumer Price
Index
4.0
4.0
PCE Price Index
2.0
2.0
0.0
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Core Price Indices
Percent Change, Year-Over-Year
Jun-13
Oct-13
0.0
Feb-14
Percent Change, Year-Over-Year
4.0
4.0
Chained Consumer Price Index,
excluding food and energy
Consumer Price Index,
excluding food and energy
3.0
3.0
2.0
2.0
PCE Price Index, excluding food
and energy
1.0
0.0
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Source: Bureau of Labor Statistics / Bureau of Economic Analysis / Haver Analytics.
1.0
Jun-13
Oct-13
0.0
Feb-14
Oil prices held steady on average in March, reaching over $100 per barrel for the
second consecutive month. Prices continued to hover around $100 per barrel in the
first few days of April.
Domestic Spot Oil Price
Dollars per Barrel
Dollars per Barrel
150.0
150.0
Quarterly Averages
125.0
13:Q2
13:Q3
13:Q4
14:Q1
94.2
105.8
97.4
98.8
125.0
100.0
100.0
75.0
75.0
50.0
50.0
25.0
25.0
0.0
0.0
Mar-11
Sep-11
Jun-11
Mar-12
Dec-11
Sep-12
Jun-12
Mar-13
Dec-12
Sep-13
Jun-13
Mar-14
Dec-13
Source: Wall Street Journal / Haver Analytics.
Real GDP growth was revised upward in the final fourth quarter estimate, primarily
reflecting an upward revision to personal consumption expenditures that was partly
offset by downward revisions to nonresidential fixed investment and to private
inventory investment.
Real GDP
Annualized Percent Change
Annualized Percent Change
6.0
6.0
3.0
3.0
0.0
0.0
-3.0
-3.0
10:Q4
11:Q2
11:Q4
12:Q2
12:Q4
13:Q2
13:Q4
Fourth Quarter Revisions
Description
Real GDP
Personal Consumption
Business Investment
Equipment and Software
Residential Investment
Government
Exports
Imports
Final Sales
Source: Bureau of Economic Analysis / Haver Analytics.
Second Estimate
Third Estimate
2.4
2.6
7.3
10.6
-8.7
-5.6
9.4
1.5
2.3
2.6
3.3
5.7
10.9
-7.9
-5.2
9.5
1.5
2.7
Data released since your last Directors' meeting show the economy was a bit stronger in the fourth
quarter than previously estimated but suggest slower growth during the first quarter. Support from
consumer spending remains resilient, while improvement in the housing market continues to show
signs of slowing and manufacturing data was mixed. Adverse weather conditions likely contributed
to slower growth in the first quarter, but these effects are expected to subside as the economy
rebounds to a moderate growth pace over the remainder of the year.
Short-Term Interest Rates
Percent
0.3
Federal Funds Rate
(effective rate)
0.2
Discount Window Primary Credit
1.50
1.00
0.75
0.75
0.75
0.75
0.75
0.50
0.1
0.00
Nov-13
Jan-14
Mar-14
0.0
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Source: Federal Reserve Board of Governors / Haver Analytics.
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Report compiled by Christy Marieni