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The
President’s
Report to the
Board of
Directors
April 5, 2013
Current Economic Developments - April 5, 2013
Data released since your last Directors' meeting show the economy was stronger in the fourth
quarter than previously estimated and suggest faster growth during the first quarter. The housing
market continues to strengthen and consumer spending remains resilient, while labor market,
consumer attitudes, and manufacturing data have been mixed. Downside risks associated with
fiscal issues in Europe and the domestic budget sequester remain areas of concern, but the
economy continues on track to grow at a moderate pace in the first half of the year.
In March, nonfarm payrolls posted a smaller than expected gain, but job increases in the previous
two months were revised higher. The unemployment rate fell one-tenth of a percentage point due to
a decrease in the labor force. Initial claims for unemployment insurance rose in March, but remain
close to a five-year low. Consumer attitudes were mixed across the two primary surveys in March,
though the decrease in the confidence index was recorded prior to the improvement seen in the
sentiment index. Vehicle sales slowed in March but finished the first quarter with their best quarterly
sales pace in five years. In February, both real consumption and real incomes increased.
The housing market continued to show mostly positive signs in February. New home sales eased in
February, but have had their best start to a year since 2008. Existing home sales increased in
February to their highest level in over three years. Also in February, new residential construction
data improved, with single-family starts and total permits up to their highest levels since June 2008.
Recent manufacturing data was mixed. The ISM index fell in March, but continued to signal
expansion in the manufacturing sector, and the employment component of the index increased. In
February, industrial production accelerated, and capacity utilization also rose. New orders for
durable goods increased in February, but orders for nondefense capital goods excluding aircraft fell.
Headline inflation accelerated in February due to higher energy prices, but core indices remain more
steady, with core consumer prices inching up and core producer prices easing slightly.
Payroll employment increased by 88,000 jobs in March, well below expectations and
the weakest gain since June. On the positive side, payroll gains in January and
February were revised up by a total of 61,000 to 148,000 and 268,000, respectively.
The unemployment rate eased further to 7.6% in March, due to a decline in the labor
force.
Nonfarm Payroll Employment
Change from Previous Month
Unemployment Rate
Rate
400
9.5
300
9.0
200
8.5
100
8.0
0
7.5
-100
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Jun-11
Dec-11
Jun-12
Dec-12
Source: Bureau of Labor Statistics / Haver Analytics.
7.0
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Jun-11
Dec-11
Jun-12
Dec-12
Initial claims for unemployment insurance increased in March from the five-year low
seen in February, but their first quarter average was still the lowest since the first
quarter of 2008.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
600
600
Initial Claims for Unemployment Insurance
Quarterly Averages
550
550
500
12:Q2
12:Q3
12:Q4
13:Q1
500
450
378
371
377
355
450
400
400
350
350
300
300
250
250
200
Mar-10
Sep-10
Jun-10
Mar-11
Dec-10
Sep-11
Jun-11
Mar-12
Dec-11
200
Mar-13
Sep-12
Jun-12
Dec-12
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
Primary measures of consumer attitudes were mixed in March. Sentiment increased
for the third month in a row, as the current conditions index reached its highest level
in over five years. However, confidence dropped in March, led by a sizeable decline
in the expectations index. Respondants in the sentiment survey remained positive
about buying plans, while economic uncertainty stemming from the government
sequester was a major concern reported in the confidence survey.
Index, 1966:Q1 = 100
Consumer Sentiment and Expectations
Index, 1966:Q1 = 100
100
100
Current
90
90
Conditions
80
80
70
70
60
60
Future
Consumer
Expectations
Sentiment
50
50
40
40
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Index, 1985 = 100
Consumer Confidence and Expectations
Index, 1985 = 100
125
100
125
Consumer
Expectations
100
75
75
50
25
50
Consumer
Confidence
Present
Situation
25
0
0
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Source: The Conference Board (confidence) and University of Michigan (sentiment) / Haver Analytics.
Total vehicle sales dipped slightly below expectations in March, yet remain in line with
sales rates seen in the prior three months. Domestic vehicle sales held steady in
March for the fifth consecutive month. First quarter sales were the strongest since
the fourth quarter of 2007, due in part to increasing light truck sales, which dealers
attributed to growing demand in the construction industry.
Total Auto and Light Truck Sales
Millions of Units, Annualized
Millions of Units, Annualized
20.0
20.0
Quarterly Sales
18.0
18.0
12:Q2
12:Q3
12:Q4
13:Q1
14.1
14.5
15.0
15.3
16.0
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-10
Sep-10
Jun-10
Mar-11
Dec-10
Sep-11
Jun-11
Mar-12
Dec-11
4.0
Mar-13
Sep-12
Jun-12
Dec-12
Source: Bureau of Economic Analysis / Haver Analytics.
Real disposable income rose in February, after plunging in January, and has now
risen in three of the past four months. Real consumption continued to increase in
February, albeit at a slower pace than income. Thus, the personal saving rate inched
up in February, yet it remains near a five-year low.
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
Real Disposable Income
-2.0
-2.0
-3.0
-3.0
-4.0
-4.0
-5.0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Source: Bureau of Economic Analysis / Haver Analytics.
Feb-12
Nov-11
-5.0
Feb-13
Aug-12
May-12
Nov-12
New home sales declined in February, from a level in January that was revised
lower. However, new home sales still managed their best start to a year since 2008.
Meanwhile, sales of existing homes increased in February to their highest level since
November 2009.
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-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13
Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
6000
6000
5000
5000
4000
4000
3000
3000
2000
2000
Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13
Sources: U.S. Census Bureau (new homes sales) and National Association of Realtors (existing home sales) / Haver Analytics.
Housing starts rose in February, as single-family starts reached their highest level
since June 2008 and multi-family starts also increased. Building permits also rose in
February to their highest level since June 2008.
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
1200
1200
1000
1000
Building Permits
800
800
600
600
400
400
Housing Starts
200
200
0
0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Source: U.S. Census Bureau / Haver Analytics.
Aug-11
May-11
Feb-12
Nov-11
Aug-12
May-12
Feb-13
Nov-12
The ISM manufacturing index fell in March to its lowest level since December.
However, the index remained above 50, signaling expansion in the manufacturing
sector for the fourth consecutive month. The employment index rose in March,
reaching its highest level since June.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
80.0
80.0
70.0
70.0
Employment Index
60.0
60.0
ISM Index
50.0
50.0
Quarterly Averages
40.0
30.0
40.0
12:Q2
12:Q3
12:Q4
13:Q1
ISM
52.3
50.9
50.6
52.9
Emp.
56.1
53.2
51.4
53.6
20.0
30.0
20.0
Mar-10
Sep-10
Jun-10
Mar-11
Dec-10
Sep-11
Jun-11
Mar-12
Dec-11
Sep-12
Jun-12
Mar-13
Dec-12
Source: Institute of Supply Management / Haver Analytics.
Industrial production accelerated in February, and was revised slightly higher in
January. Strength in durable goods manufacturing and utilities output contributed to
the total production increase in February. Capacity utilization improved in February,
reaching its highest level since April 2008.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
2.5
80.0
Capacity Utilization
(manufacturing)
2.0
1.5
75.0
1.0
0.5
0.0
70.0
-0.5
-1.0
Industrial Production
-1.5
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Source: Federal Reserve Board of Governors / Haver Analytics.
Feb-12
Nov-11
65.0
Feb-13
Aug-12
May-12
Nov-12
New orders for durable goods jumped in February, more than offsetting the decline
seen in January, and also posted a moderate year-over-year gain. Meanwhile, orders
of nondefense capital goods excluding aircraft dropped in February, offsetting a little
less than half of the strong increase seen in January. Core orders also fell on a yearover-year basis in February.
Durable Goods Orders
Percent Change, Year-over-year
Percent Change, Year-over-year
40.0
40.0
30.0
30.0
Capital Goods Nondefense,
Excluding Aircraft
Durable Goods,
New Orders
20.0
20.0
10.0
10.0
0.0
0.0
Percent Change, Previous Month
-10.0
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Durables
1.08
0.62
3.58
-3.75
5.60
Ex. Air.
3.03
3.26
-0.78
6.70
-3.24
-10.0
-20.0
-20.0
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
Source: U.S. Census Bureau / Haver Analytics.
Total consumer prices accelerated in February on a year-over-year basis, mostly due
to a sharp rise in energy costs. Core CPI, which excludes the volitile energy and food
categories, also edged up in February. Total producer prices underwent similar
changes, but core producer inflation eased a bit in February.
Consumer Price Index
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
6.0
4.0
6.0
Consumer Price Index,
excluding food and energy
Consumer Price Index
4.0
2.0
2.0
0.0
0.0
-2.0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Feb-12
Nov-11
May-12
Producer Price Index
Percent Change, Year-Over-Year
-2.0
Feb-13
Aug-12
Nov-12
Percent Change, Year-Over-Year
12.0
8.0
12.0
Producer Price Index,
excluding food and energy
Producer Price Index
8.0
4.0
4.0
0.0
0.0
-4.0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Source: Bureau of Labor Statistics / Haver Analytics.
Aug-11
May-11
Feb-12
Nov-11
-4.0
Feb-13
Aug-12
May-12
Nov-12
Oil prices eased a bit in March to their lowest monthly average since December. After
increasing in the first couple of days in April, prices fell to $93.3 per barrel as of April
4th, in line with their March average.
Domestic Spot Oil Price
Dollars per Barrel
Dollars per Barrel
150.0
150.0
Quarterly Averages
125.0
12:Q2
12:Q3
12:Q4
13:Q1
93.5
92.3
88.2
94.4
125.0
100.0
100.0
75.0
75.0
50.0
50.0
25.0
25.0
0.0
0.0
Mar-10
Sep-10
Jun-10
Mar-11
Dec-10
Sep-11
Jun-11
Mar-12
Dec-11
Sep-12
Jun-12
Mar-13
Dec-12
Source: Wall Street Journal / Haver Analytics.
Real GDP growth was revised upward in the final fourth quarter estimate, primarily
reflecting upward revisions to nonresidential fixed investment and to exports, which
were partly offset by a downward revision to personal consumption expeditures.
Real GDP
Annualized Percent Change
Annualized Percent Change
6.0
6.0
3.0
3.0
0.0
0.0
-3.0
-3.0
09:Q4
10:Q2
10:Q4
11:Q2
11:Q4
12:Q2
12: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
0.1
2.1
9.7
11.3
17.5
-6.9
-3.9
-4.5
1.7
0.4
1.8
13.2
11.8
17.6
-7.0
-2.8
-4.2
1.9
Data released since your last Directors' meeting show the economy was stronger in the fourth
quarter than previously estimated and suggest faster growth during the first quarter. The housing
market continues to strengthen and consumer spending remains resilient, while labor market,
consumer attitudes, and manufacturing data have been mixed. Downside risks associated with
fiscal issues in Europe and the domestic budget sequester remain areas of concern, but the
economy continues on track to grow at a moderate pace in the first half of the year.
Short-Term Interest Rates
Percent
0.4
0.3
Federal Funds Rate
(effective rate)
Discount Window Primary Credit
1.50
1.00
0.2
0.75
0.75
0.75
0.75
0.75
0.50
0.00
Nov-12
0.1
Jan-13
Mar-13
0.0
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Source: Federal Reserve Board of Governors / Haver Analytics.
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Report compiled by Christy Marieni