Download PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,

PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
Current Economic Developments - February 13, 2003
Data released since your last Directors' meeting show the economy continues to
expand, although at a slow pace. Concern about future stength remains high and
data for the first quarter remains sparse. Nonfarm payroll employment rose by
143,000 in January, marking the biggest job gain since November 2000. Still
December's payroll employment was revised further downward and the 3-month
moving average, which is a better indicator of labor market strength, remains
below zero. The unemployment rate fell to 5.7%.
In January, auto and light truck sales slowed, as consumer confidence fell.
And on the supply side, the ISM index edged slightly downward.
During the fourth quarter, real GDP growth slowed, led by a pullback
in consumer spending on durable goods. The deceleration in consumer
spending was partly offset by an increase in fixed investment and an
acceleration in government spending.
Nonfarm payroll employment rose in January for the first time in three months,
by 143,000 yet the 3-month moving average remains below zero.
Nonfarm Payroll Employment
Change from Previous Month
200
Recession
Began
Payroll Employment
100
0
-100
3-Month Moving Average
-200
-300
-400
-500
Jan-01
May-01
Mar-01
Sep-01
Jul-01
Source: Bureau of Labor Statistics.
Jan-02
Nov-01
May-02
Mar-02
Sep-02
Jul-02
Jan-03
Nov-02
Initial claims edged downward in January to its lowest level since July 2002,
yet claims have been relatively flat over the past six months. The unemployment
rate fell in January to 5.7 precent.
Unemployment Rate and Initial Claims
Thousands of Units at Annual Rates
Percent
6.5
500
6.0
450
Recession
Began
5.5
400
5.0
4.5
Initial Claims
4-Week Moving Average
Ending February 1st
384,750
Unemployment
Rate
350
4.0
300
Jan-01
May-01
Mar-01
Sep-01
Jul-01
Jan-02
Nov-01
May-02
Mar-02
Sep-02
Jul-02
Jan-03
Nov-02
Source: Department of Labor.
Total auto and light truck sales slowed in January, compared to December.
January's estimate was also slightly lower than the average seen during
the fourth quarter.
Auto and Light Truck Sales
Millions of Units at Annual Rates
22.0
Recession
Began
21.0
2002:Q1 2002:Q2 2002:Q3 2002:Q4
16.3
16.3
17.6
20.0
16.5
January
16.1
19.0
18.0
17.0
16.0
15.0
Jan-01
May-01
Mar-01
Sep-01
Jul-01
Source: Bureau of Economic Analysis.
Jan-02
Nov-01
May-02
Mar-02
Sep-02
Jul-02
Jan-03
Nov-02
Consumer confidence and expectations fell in January, as concern about
weak economic growth increased and geo-political risks rose.
Confidence and Expectations
Index, 1985 = 100
Recession
Began
140
Consumer
Expectations
120
100
Consumer
Confidence
80
60
Jan-00
Jan-01
Jan-02
Jan-03
Source: The Conference Board.
Sentiment and Expectations
Index, 1966:Q1 = 100
120
Recession
Began
110
Consumer
Sentiment
100
90
Consumer
Expectations
80
70
Jan-00
Jan-01
Jan-02
Jan-03
Source: The University of Michigan.
The ISM index slowed in January, compared to December. Still estimates
over the past two months show some improvement, compared to the previous
five months.
ISM Indexes
Index (50+ = Economic Expansion)
60.0
Recession
Began
55.0
50.0
45.0
40.0
35.0
Jan-00
May-00
Sep-00
Jan-01
Source: Institute for Supply Management.
May-01
Sep-01
Jan-02
May-02
Sep-02
30.0
Jan-03
Economic growth slowed during the fourth quarter. The deceleration was
led by a sharp pullback in consumption.
Real Gross Domestic Product
Annualized Percent Change
8.0
Recession
Began
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
99:Q4
00:Q1 00:Q2
00:Q3
00:Q4
01:Q1 01:Q2
01:Q3
01:Q4
02:Q1 02:Q2
02:Q3 02:Q4
Source: Bureau of Economic Analysis.
During the fourth quarter, the slowdown in consumer spending was led by a
drop in durable goods consumption.
Real Consumption
Annualized Percent Change
40
7.0
Recession
Began
6.0
30
Durable Goods
Total Consumption
20
5.0
4.0
3.0
10
2.0
0
1.0
-10
0.0
99:Q4
00:Q1 00:Q2 00:Q3 00:Q4
Source: Bureau of Economic Analysis.
01:Q1 01:Q2 01:Q3 01:Q4
02:Q1 02:Q2 02:Q3 02:Q4
The weaker consumer spending was offset somewhat by increases in
residential and business investment. Business investment posted its first
gain in over two years.
Residential and Business Investment
Annualized Percent Change
20.0
Recession
Began
Residential Investment
10.0
0.0
Business Investment
-10.0
-20.0
99:Q4
00:Q1 00:Q2 00:Q3 00:Q4
01:Q1 01:Q2 01:Q3 01:Q4
02:Q1 02:Q2 02:Q3 02:Q4
Source: Bureau of Economic Analysis.
Slower consumer spending was also offset somewhat by an increase in
government spending.
Government Spending
Annualized Percent Change
12.0
Recession
Began
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
99:Q4
00:Q1 00:Q2 00:Q3 00:Q4
Source: Bureau of Economic Analysis.
01:Q1 01:Q2 01:Q3 01:Q4
02:Q1 02:Q2 02:Q3 02:Q4
And productivity fell during the fourth quarter for the first time since the
second quarter of 2001. Despite the drop in productivity, compensation
costs eased somewhat.
Productivity and Costs
Annualized Percent Change
20.0
15.0
Recession
Began
10.0
Compensation Costs
5.0
0.0
Output per Hour
-5.0
99:Q4
00:Q1 00:Q2 00:Q3 00:Q4
01:Q1 01:Q2 01:Q3 01:Q4
02:Q1 02:Q2 02:Q3 02:Q4
Source: Bureau of Labor Statistics.
During the fourth quarter, the ECI's total compensation eased somewhat,
following the recent pattern of wages and salaries, despite an increase
in benefit costs.
Employment Cost Index
Percent Change, Year-Over-Year
5.5
Benefit Costs
Civilian Workers
Recession
Began
5.0
Total Compensation
Civilian Workers
4.5
4.0
3.5
Wages and Salaries
Civilian Workers
3.0
2.5
99:Q4
00:Q1 00:Q2
00:Q3
Source: Bureau of Labor Statistics.
00:Q4
01:Q1 01:Q2
01:Q3
01:Q4
02:Q1 02:Q2
02:Q3
02:Q4
Over the past year, inflation at both the consumer and producer levels have
remained low.
Producer Prices
Consumer Prices
Percent Change, Year-to-Year
Percent Change, Year-to-Year
6.0
4.0
Producer Price Index
Consumer Price Index,
excluding food and energy
5.0
3.5
4.0
Producer Price Index,
excluding food and energy
3.0
3.0
2.0
2.5
1.0
2.0
0.0
Recession
Began
1.5
Recession
Began
-1.0
-2.0
1.0
-3.0
Consumer Price Index
Dec-99
Dec-00
Jun-00
0.5
Dec-02
Dec-01
Jun-01
Jun-02
Dec-99
Dec-00
Jun-00
Source: Bureau of Labor Statistics.
-4.0
Dec-02
Dec-01
Jun-01
Jun-02
Source: Bureau of Labor Statistics.
Overall, the economy is expanding, but increasing geopolitical risks and falling
consumer confidence have raised downside risks.
Federal Funds Rate
Percent
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jan-01
May-01
Sep-01
Source: Federal Reserve Board of Governors.
Jan-02
May-02
Sep-02
Jan-03