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May 5, 2008 The Weekly Monitor The Federal Reserve cuts rates one more time and signals a move to the sidelines… For now. The case for still lower policy rates remains convincing. Q1-GDP data highlight sharp deceleration in real consumer spending. Carlos Leitao, Chief Economist [email protected] (514) 350-3000 Sébastien Lavoie, Economist [email protected] (514) 350-2931 Boris Wyka, CFA, Strategist [email protected] (514) 350-2975 For subscription: Martine Bérubé, Coordinator [email protected] (514) 350-3006 Non-farm payrolls for April: Employment declines by 20,000. Carlos Leitao Chief Economist The Monitor - Week of May 5, 2008 The Federal Reserve cuts rates one more time and signals a move to the sidelines… For now As widely anticipated, the Federal Reserve announced on April 30 th that it was lowering the federal funds rate by 25 basis points to 2.00%, and moving to the sidelines; the discount rate was also lowered by 25 basis points to 2.25%. The decision was not unanimous as Richard Fisher and Charles Plosser preferred no change in the Fed funds rate. The key sentence in the accompanying statement was: “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity”. Quite tellingly, the Fed also dropped its assessment that “downside risks to growth remain”. While signalling a clear preference for a more neutral stance, this is not necessarily as explicit a commitment as some market participants would have preferred. The case for still lower policy rates remains convincing The key issue, in our opinion, is that once recession becomes well entrenched, the downside risks rise dramatically. This is all the more problematic in an environment characterized by fragile financial markets; and the Fed still concedes that financial markets remain under “considerable stress” and credit conditions are still “tight”. In these circumstances, it would have been preferable to quickly bring policy rates to about 1.75% or 1.50% in order to short-circuit an eventual negative feedback loop. The housing market in particular has yet to hit bottom with all the economic and financial risks this entails: namely that increased credit losses further hamper banks’ ability to provide new credit, leading to increased unemployment, lower confidence and, ultimately, yet higher credit losses (i.e. a negative feedback loop). US Housing Starts and Building Permits 2.5 Central Bank Policy Rates 2.3 7.00 Units (Million) BoC Overnight Rate Fed Funds Rate 6.00 5.00 4.00 3.00 2.00 2.1 1.9 1.7 1.5 1.3 Housing Starts 1.1 Building Permits Source: Bank of Canada, Federal Reserve Bank As far as we are concerned, the Fed should cut rates again on June 25th by 25 basis points as the economic indicators to be published between now and then will likely show continued deterioration, particularly on the housing front. In fact, the pace of layoffs in the United States has picked up since the start of the year while new hiring has not improved significantly. More generally speaking, this past week’s main economic indicators -from the April employment and ISM reports to the advanced Q1 GDP estimate -- suggest the U.S. economy has basically stalled (and may have even entered a mild recession) but is not “vanishing” into a deep recession. Financial markets could then be justified in concluding that the Federal Reserve has rightly moved to the sidelines. However, we continue to believe that only a marked improvement in the economic data “guarantees” a neutral Fed. Anything short of a durable improvement (as opposed to a temporary boost provided by the fiscal package over the next three months or so) keeps the likelihood of further rate cuts very much alive. Apr-08 Apr-07 Apr-06 Apr-05 Apr-04 Apr-03 Apr-02 Apr-01 Apr-00 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 0.00 Apr-99 0.9 1.00 Inflation risks are real but, at this stage, present less of a burden than a deep recession; we are not forecasting a deep recession but, at the same time, the likelihood of such an event should not be so summarily dismissed. Inflation remains a concern mainly because rising food and energy prices risk “unanchoring” inflation expectations. Nevertheless, we share the Federal Reserve’s view that commodity prices will at least “level out” in the coming months. Moreover, an economy that is growing well below potential for a prolonged period will inevitably open up a significant output gap, which will exert downward pressure on prices. Moreover, in the current environment, higher food and energy prices could well prove to be more disinflationary than inflationary as they force consumers to reduce discretionary spending by more than would otherwise be the case. Q1-GDP data highlight sharp deceleration in real consumer spending The advanced estimate of overall real GDP growth for the first quarter of 2008 was surprisingly positive -- +0.6% SAAR – but hardly a picture of strength. Real consumer spending decelerated sharply to only 1.0% (2.3% in Q4-07, residential construction plunged yet again (-26.7%), business investment declined (-2.5%) and net exports contributed less than expected. Residential investment declined for a 9th consecutive quarter and is showing no signs of stabilising; on a peak-to-trough basis, the correction in residential investment has now reached a massive 34%. 2 The Monitor - Week of May 5, 2008 8% 7% 6% 5% 4% 3% 2% 1% 0% 2% Quarterly Change, annualized Source: Hav er Analy tics The most important sources of growth in the first quarter were an unintentional (but small) build-up in inventories and a sudden jump in defence spending. Final domestic demand, a better picture of underlying trends in the domestic economy, declined 0.4% and should decline again in the second quarter. We find it particularly troublesome that business investment declined with spending on new machinery & software basically stalling (-0.7%) and non-residential construction dropping a very large 6.0%; non-residential construction had not turned negative since Q3-2005. Non-farm payrolls for April: Employment declines by 20,000 Rate of unemployment: 5.0% Wages (y/y %): 3.4% Fed’s inflation “comfort index” (rate of unemployment minus wages): 160 basis points (130 bps in December 2007 and only 60 bps in July 2007). Dec-08 1% Dec-07 -1% Dec-06 -2% Dec-05 -3% Unemploy ment Rate Av erage Hourly Remuneration, y /y Dec-04 0.6% R eal GD P Dec-03 0.7% C o nsump t io n Dec-02 -1.5% Invest ment Dec-01 0.4% Go ver nment Dec-99 0.2% N et Exp o r t s Dec-98 0.8% Invent o r ies Average Hourly Rem uneration and Unem ploym ent Dec-00 United States: Contribution to Real Q1-GDP Growth Source: Bureau of Labour Statistic The headline number is certainly not as weak as anticipated but is hardly a picture of strength… Manufacturing (-46k) and construction (-61k) continue to shed jobs, while the gains were primarily in the professional & business services (+39k) and health & education (+52k). The bottom line is that the U.S. economy remains weak and has now experienced four consecutive monthly declines in employment. Our simple measure of the Fed’s degree of “comfort” about inflation (unemployment minus wage growth) continues to ease, in line with growing labour market slack. This strongly suggests food and energy inflation are not spreading to the rest of the economy. Our base case forecast – shallow recession followed by sluggish recovery – remains very much on track. Current market expectations for a speedy recovery from what is now being described as simply a “stall” are overly optimistic. In our opinion, monthly job losses will jump into the 100,000 range this spring, and will likely remain elevated until at least the Fall; the rate of unemployment will likely reach 6.0% by year-end. 3 The Monitor - Week of May 5, 2008 North American Forecasts This Week's Forecasts This Week (%) Next 4 Weeks In 3 Months Canada 3-Month T-Bills 2-Year Bond 10-Year Bond Canadian Dollar (CAN$/US$) 2.55 2.70 3.55 1.0100 - 2.65 2.80 3.65 1.0180 1.50 2.40 3.85 104 1.540 - 1.60 2.50 3.90 106 1.570 2.40 2.65 3.50 1.0050 - 2.60 2.85 3.70 1.0250 2.60 2.70 3.60 1.020 1.40 2.30 3.65 100 1.54 - 1.60 2.50 3.85 105 1.57 1.60 2.30 3.80 100 1.550 United States 3-Month T-Bills 2-Year Bond 10-Year Bond Yen (Yen/US$) Euro (US$/Euro) 05/05/2008 Interest-Rate and Exchange-Rate Forecasts Historical Data Forecasts* 2006 2007 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 4.13 4.12 4.06 4.22 4.29 4.31 4.11 4.11 4.25 4.31 4.25 3.84 3.74 3.99 4.08 3.50 1.88 2.55 3.42 3.94 2.75 2.60 2.80 3.65 4.15 2.50 2.60 2.70 3.60 4.25 2.50 2.60 2.65 3.55 4.15 2.50 2.60 2.60 3.60 4.30 2.75 2.85 2.85 3.80 4.45 Federal Funds Rate 3-Month Treasury Bills 2-Year Bond 10-Year Bond 30-Year Bond 5.13 4.77 4.86 4.81 4.94 4.88 4.09 4.12 4.57 4.81 4.25 3.10 3.08 4.03 4.45 2.25 1.30 1.62 3.42 4.30 1.75 1.50 2.35 3.90 4.65 1.75 1.70 2.20 3.70 4.45 1.75 1.80 2.30 3.60 4.40 1.75 1.90 2.40 3.80 4.60 2.00 2.00 2.50 4.00 4.80 Canadian Dollar (US$/C$) Canadian Dollar (Euro/C$) Euro (US$/Euro) Yen (Yen/US$) 0.876 0.690 1.270 117 0.952 0.680 1.400 117 1.002 0.687 1.459 112 0.974 0.616 1.580 100 0.980 0.632 1.550 102 0.970 0.634 1.530 98 0.950 0.625 1.520 93 0.960 0.640 1.500 92 0.975 0.659 1.480 90 Canada Overnight Rate 3-Month Treasury Bills 2-Year Bond 10-Year Bond 30-Year Bond United States Quarter-end data and annual averages May 5th, 2008 4 The Monitor - Week of May 5, 2008 Market Review: Bonds and Currencies International 3-Month Rates Current Yield 1.25 2.48 0.57 3.60 3.91 3.68 4.85 U.S. Canada Japan Germany France Italy U.K. International Bonds: Benchmark 10-Year Yield Current Yield U.S. 3.83 Canada 3.72 Japan 1.50 Germany 4.18 France 4.39 Italy 4.67 U.K. 4.77 Provincial Bonds: Benchmark 10-Year Yield Current Yield Canada 3.58 Alberta 4.14 British Columbia 4.15 Prince Edward Island 4.06 Manitoba 4.11 New Brunswick 4.11 Nova Scotia 4.12 Ontario 4.16 Quebec 4.28 Saskatchewan 4.15 Newfoundland 4.28 May-02-08 124 -68 235 266 243 360 May-02-08 -11 -233 36 57 85 94 May-02-08 Spreads (b.p.) against U.S. -1 week -4 weeks -1 quarter - 1 year 111 -78 342 252 228 350 -74 -438 -116 -108 -112 40 65 -269 42 52 20 221 Spreads (b.p.) against U.S. -1 week -4 weeks -1 quarter - 1 year Jan-08 -2 -230 43 65 90 102 59 -70 207 257 261 392 -49 -300 -46 -41 -24 41 -3 -251 28 40 63 49 Spreads (b.p.) against Canada -1 week -4 weeks -1 quarter - 1 year Jan-08 55.8 56.8 48.3 53.3 53.3 53.8 57.8 69.8 57.3 70.3 61.0 62.0 72.5 67.5 67.5 67.0 63.0 74.0 62.5 70.5 May-02-08 -1 week 1.0182 0.9821 0.9366 1.9755 105.33 1.5432 1.0158 0.9844 0.9395 1.9908 104.30 1.5647 -2 -225 38 58 92 93 103 -172 164 161 126 320 Jan-08 31 -206 43 55 83 98 44.7 43.7 56.5 49.7 49.2 49.2 47.7 91.1 47.2 52.9 20.0 22.0 34.0 22.0 28.0 28.0 27.0 35.5 25.0 33.0 21.0 24.0 20.0 23.0 21.0 24.0 21.0 23.0 20.0 21.5 Currencies -4 weeks -1 quarter - 1 year Jan-08 (%) 2.8 -2.7 -6.1 -0.4 -4.9 5.2 59.8 60.8 72.3 65.8 66.3 65.8 63.3 77.7 63.3 69.8 Currencies Canada (Canada/US$) Canada (US$/Canada) Australia (Australia/US$) U.K. (US$/£) Japan (US$/Yen) Euro (US$/Euro) Data updated as at: 1.0275 0.9732 0.9132 1.9853 99.85 1.5805 0.9927 1.0074 0.9091 1.9778 106.73 1.4832 1.1069 0.9034 0.8207 1.9932 120.16 1.3587 05/05/08 5 The Monitor - Week of May 5, 2008 Market Review: Fixed Income Charts Yield on 3-Month T-Bills % Yield on 10-Year Federal Bonds % 7.0 7.0 Canada U.S. 6.0 5.0 Canada U.S. 6.0 4.0 5.0 3.0 2.0 4.0 1.0 Canada - Yield Curve % 4.0 3.5 3.0 2.5 02-May-08 -1 month -1 year 2.0 1.5 1.0 130 6m 2y 5y 30 Jan-08 Jan-07 Jan-06 02-May-08 -1 month -1 year 3m 6m 2y 5y 10y 30y Credit risk: TED spread Spread between 3-month T-bills and eurodollar rates Yield Spreads in basis points (Canada minus U.S.) 80 Jan-05 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 10y 02-May-08 -1 month -1 year Jan-04 Jan-03 Jan-02 Jan-01 U.S. - Yield Curve % 4.5 3m 3.0 Jan-00 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 0.0 2.5 2.0 1.5 1.0 -20 0.5 -70 28-Mar-08 04-Jan-08 12-Oct-07 10y 20-Jul-07 5y 27-Apr-07 2y 02-Feb-07 6m 10-Nov-06 3m 18-Aug-06 -120 26-May-06 0.0 6 The Monitor - Week of May 5, 2008 Market Review: Stocks Exchange and Commodities Stock Market Summary Level May-02-08 52w HI Change (%) 52w LOW (-1W) (-4W) (-13W) (-52W) Jan-2008 Canada S&P/TSX S&P/TSX 60 S&P/TSX Small Cap Index 14,280 847 692 14,626 850 838 12,132 710 610 1.3 1.2 0.5 4.5 5.4 1.8 7.2 8.8 3.5 3.7 7.9 -14.7 2.9 4.4 -2.3 United States S&P 500 Dow Jones Nasdaq 1,414 13,058 2,477 1,565 14,165 2,859 1,273 11,740 2,169 1.1 1.3 2.2 3.2 3.6 4.5 1.3 2.5 2.6 -6.1 -1.6 -3.7 -3.0 -0.7 -5.9 6,216 7,043 5,070 14,049 26,241 2,123 5,760 69,366 6,732 8,106 6,168 18,262 31,638 2,360 6,854 69,366 5,414 6,182 4,431 11,788 20,294 1,725 5,164 48,016 2.0 2.1 1.8 1.3 2.8 -0.3 1.7 6.4 4.5 4.1 3.4 5.7 8.1 3.1 1.7 7.6 3.1 1.1 1.8 4.1 8.8 7.8 -2.1 13.6 -5.9 -6.3 -16.5 -20.1 25.9 10.0 -8.5 37.1 -3.4 -11.8 -9.2 -6.7 -5.2 -7.4 -10.4 9.5 International U.K. - FTSE 100 Germany - DAX France - CAC 40 Japan - Nikkei 225 Hong Kong - Hang Seng Russia - RST Australia - ASX All Ordinaries Brazil - Bovespa S&P/TSX Sector Summary May-02-08 S&P/TSX Energy Materials Industrials Consumers Discretionary Consumers Staples Health Care Financials Information Technology Telecommunication Services Utilities Level 52w HI 52w LOW Jan-2008 14,280 14,626 12,132 1.3 4.5 7.2 3.7 2.9 3,656 3,341 1,114 1,356 1,506 380 1,809 449 958 1,917 3,775 3,718 1,439 1,489 1,824 519 2,069 449 1,120 2,054 2,896 2,515 1,053 1,077 1,397 352 1,533 265 842 1,753 -0.4 -4.2 0.2 3.3 5.9 2.1 4.5 8.6 2.9 2.7 7.9 -3.4 -1.6 6.9 1.4 2.8 6.1 9.9 4.5 4.3 16.8 2.7 -6.1 9.9 2.7 5.1 0.1 32.4 7.9 -2.1 8.2 27.5 -18.8 2.2 -14.1 -25.8 -10.3 68.2 -6.6 3.8 9.0 5.5 -13.8 8.5 -4.9 -1.8 -1.9 13.7 -3.3 -3.4 Commodities May-02-08 London -- Gold (US$/once) London -- Silver (US$/once) Aluminium (US$/LB) Copper (US$/LB) WTI Crude Oil (US$/barrel) Natural Gas (Henry Hub) (US$/MMBTU) (-1W) Change (%) (-4W) (-13W) (-52W) 853.00 16.49 1.32 3.86 116.32 10.48 52w HI 1011.25 20.70 1.44 4.03 121.57 11.04 52w LOW 642.10 11.18 1.05 2.87 61.48 5.35 Level (-1W) 891.50 16.86 1.35 3.96 121.57 10.74 (-4W) 905.50 17.67 1.33 3.98 106.23 9.38 (-13W) 914.75 16.87 1.17 3.26 88.97 7.90 (-52W) 688.80 13.55 1.29 3.75 61.94 7.56 Jan-2008 840.25 15.05 1.07 3.04 98.42 7.63 Data updated as at: 05/05/08 7 The Monitor - Week of May 5, 2008 Calendar of Major Economic Indicators KEY ECONOMIC INDICATORS WEEK OF MAY 5, 2008 Canada Date Time Release Unit Data for: LBS * Consensus Previous May 6 8:30 Building Permits M/M March - 1.2% -1.0% - April - 55.0 59.0 Thousands April 215.0 225.0 243.0 M/M April 6.0% 6.0% 6.0% Thousands April 10.0 10.0 14.6 Billions March C$5.0 C$4.5 C$4.9 Unit Data for: LBS* Consensus Previous Billions March - $6.5 $5.2 Thousands May - 375 380 M/M March - 0.5% 1.1% Billions March - -$61.4 -$62.3 May 6 10:00 Ivey Purchasing Managers Index May 8 8:15 Housing Starts May 9 7:00 Unemployment Rate May 9 7:00 Net Change in Employment May 9 8:30 International Merchandise Trade * Laurentian Bank Securities Forecast Consensus from Bloomberg L.P. United States Date May 7 May 8 May 8 May 9 Time Release 15:00 Consumer Credit 8:30 Initial Jobless Claims 10:00 Wholesale Inventories 8:30 Trade Balance Consensus from Bloomberg L.P. 8 The Monitor - Week of May 5, 2008 North American Economic Indicators Canada Month Leading Indicator Gross Domestic Product Industrial Production Manufacturing Shipments Housing Starts ( ' 000) * Retail Sales - Ex-Autos Trade Balance (M$) * Employment ( ' 000) * * Unemployment Rate * Consumer Price Index - Ex-Food & Energy Industrial Product Price Index Raw Materials Price Index Money Supply M1 February January January January March January January January March March February February February February February Monthly Chg. (%) or Level Current Previous -0.3 0.6 1.1 1.3 257 1.5 1.3 3,260 15 6.0 0.4 0.4 0.1 0.5 0.1 0.1 -0.7 -2.5 -3.7 223 0.0 0.2 2,292 43 5.8 -0.2 -0.4 1.0 3.6 0.9 Annualized Rate (%) or Level - 3 Month - 6 Month - 1 Year -1.9 0.3 -6.5 -5.7 230 3.8 2.0 3,094 -3 6.0 1.1 -0.7 9.1 19.3 7.9 -0.4 1.1 -4.2 -9.7 231 3.4 4.2 3,320 31 5.9 0.9 0.4 1.8 16.3 4.6 2.2 2.2 -1.0 -3.6 201 6.0 6.7 5,016 27 6.1 1.8 1.3 -0.8 14.9 7.8 United States Month Leading Indicator ISM - Manufacturing * Consumer Confidence Index * Industrial Production Capacity Utilization Rate * Manufacturing Shipments Housing Starts ( ' 000) * Retail Sales - Ex-Autos Trade Balance (M$) * Non-Farm Payrolls ( ' 000) * * Civilian Employment ( ' 000) * * Unemployment Rate * Consumer Price Index - Ex-Food & Energy Producer Price Index - Ex-Food & Energy Money Supply M1 February March March February February February February February February January March March March February February February February February Monthly Chg. (%) or Level Current Previous -0.3 48.6 65 -0.5 80.4 -2.1 1,065 -0.6 -0.2 -58,200 -80 -24 5.1 0.0 0.0 0.3 0.5 -1.1 -0.4 48.3 76 0.1 81.0 1.1 1,071 0.4 0.5 -57,856 -76 -255 4.8 0.4 0.3 1.0 0.4 -1.6 Annualized Rate (%) or Level - 3 Month - 6 Month - 1 Year -2.9 48.4 91 -1.5 81.1 -5.3 1,178 -3.3 -0.9 -57,586 -77 -81 5.0 3.1 2.3 4.0 4.7 -4.0 -3.0 48.6 100 -0.1 81.2 2.6 1,347 1.6 4.1 -58,895 2 -49 4.7 4.7 2.5 1.0 3.2 -2.9 -1.5 50.7 108 1.3 80.9 5.5 1,487 2.6 4.3 -57,356 45 -15 4.4 4.1 2.3 6.8 2.5 -0.1 * Level * * Average level for the last 3 months, 6 months and 1 year Data updated as at: 05/05/08 9 The Monitor - Week of May 5, 2008 North American Forecasts Canada Historical Data Real GDP (%) Forecasts* 2006 2.8 2007 2.7 2007 Q4 4.2 7.2 7.4 2.1 3.9 0.7 5.0 0.8 1.8 4.7 4.2 5.1 3.2 3.7 0.9 5.7 1.0 1.1 7.4 6.9 14.3 2.4 6.7 -8.5 10.9 0.8 -0.2 4.5 6.2 10.5 2.2 3.5 -7.0 -2.4 0.4 0.2 3.8 1.9 3.5 -1.2 3.3 -1.5 2.7 0.4 0.0 3.5 2.2 4.9 -2.5 2.6 0.0 2.2 0.4 0.0 2.0 2.0 6.3 228 5.0 2.1 2.1 6.0 227 5.8 2.4 1.6 5.9 214 2.2 2.2 1.3 5.9 229 1.3 1.4 1.1 6.0 212 2.5 1.7 1.2 6.1 205 2.5 Consumption Private investment Machinery and equipment Residential construction Public investment Exports Imports Federal budget balance in % of GDP Current account balance in % of GDP Inflation (%) Total Core Unemployment rate (%) Housing Starts (000s) Before-tax profits (%) 0.8 2008 Q1 2008 Q2 2008 Q3 2008 Q4 0.0 0.6 2.6 2.3 2008 1.3 2009 2.3 3.5 1.9 4.0 -2.9 2.6 0.5 2.4 0.4 0.4 4.8 4.7 9.0 1.3 4.3 -3.4 4.9 0.4 0.1 3.4 2.4 5.4 -3.0 2.9 1.6 3.4 0.6 0.7 2.3 1.6 6.1 195 2.9 1.9 1.3 6.0 210 3.0 2.4 1.9 6.1 195 4.6 Real GDP (and its components) and before-tax profits: for quarters, quarter-to-quarter change annualized; for whole years, change from the previous year. Inflation: change in price index from a year earlier. Unemployment rate: average rate for the quarter or the year. * as of April 07, 2008 United States Historical Data Real GDP (%) Consumption Private investment Machinery and equipment Residential construction Public investment Exports Imports Inflation (%) Total Core Unemployment rate (%) Housing Starts (000s) Before-tax profits (%, y/y) Forecasts 2006 2.9 2007 2.2 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 0.6 0.6 -0.5 1.3 1.3 3.1 6.4 5.9 -4.6 1.8 8.4 5.9 2.9 3.7 1.3 -17.0 2.0 8.1 1.9 2.3 4.1 3.1 -25.2 1.9 6.5 -1.4 1.0 -3.9 -0.7 -26.6 2.0 5.5 2.5 0.0 9.3 -0.5 -25.0 0.8 4.8 2.7 1.5 1.0 1.0 -10.0 1.7 4.5 3.2 3.2 2.5 4.6 1811.9 16.8 2.9 2.3 4.6 1343.8 2.7 4.0 2.3 4.8 1151 2.5 4.2 2.4 4.9 1035 2.5 3.5 2.3 5.3 950 -2.0 3.5 2.3 5.6 925 -0.5 2008 1.2 2009 1.6 2010 2.5 1.3 1.2 1.0 -5.0 1.8 4.4 3.4 1.4 2.1 1.5 -21.3 2.1 7.1 1.8 1.5 2.0 1.9 -2.8 0.8 5.1 3.7 2.3 4.1 4.2 2.8 0.8 6.1 3.9 3.0 2.2 6.0 975 2.0 3.5 2.3 5.5 971 0.5 2.4 2.0 6.0 1200 2.0 2.5 2.2 5.8 1300.0 5.0 Real GDP (and its components) and before-tax profits: for quarters, quarter-to-quarter change annualized; for whole years, change from the previous year. Inflation: change in price index from a year earlier. Unemployment rate: average rate for the quarter or the year. May 5, 2008 10