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The
President’s
Report to the
Board of
Directors
June 3, 2014
CURRENT ECONOMIC DEVEOPMENTS - June 3, 2014
Data released since your last Directors' meeting show that the economy contracted slightly in
the first quarter but suggest a rebound in growth in the second quarter. The labor market
showed further signs of strengthening, consumer attitudes were mixed but remained favorable,
and the housing market improved a bit but remained weak in the single family sector.
Economic growth is projected to pick up to a moderate pace over the rest of the year, as the
effects that contributed to the contraction in the first quarter - namely adverse weather
conditions, lower inventory investment, and a decline in exports - are likely to be temporary.
Initial claims for unemployment insurance ticked up in April but have fallen, as of May 24th, to
their lowest four-week moving average since before the recession. Consumer attitudes were
mixed in May, as indices measured by the Conference Board increased while those measured
by the University of Michigan decreased. In April, real incomes inched up, but real consumption
decreased for the first time since December.
The housing market showed mostly positive signs in April. New and existing home sales rose
in April, with sales of existing homes reaching their highest rate so far this year. Housing starts
and building permits both increased in April, but the improvement occurred mainly in the
multifamily sector. In the manufacturing sector, industrial production fell and capacity utilization
eased in April. New orders for durable goods ticked up in April, while orders for nondefense
capital goods, excluding aircraft, declined. Improvement eased on a year-over-year basis for
both series. However, the ISM index improved in May to its highest level since December.
Headline and core prices accelerated further in April. Oil prices rose on average in April,
and were unchanged from that elevated level in May.
Initial claims for unemployment insurance ticked up to 321,000 on average in April,
from a six-month low in March. Weekly claims have declined in May, and the fourweek moving average fell to 311,500 in the week ending May 24.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
500
500
450
450
400
400
350
350
300
300
250
250
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14*
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
* 4-wk. ave. ending May 24
Primary measures of consumer attitudes were mixed in May. The confidence index
increased, while the sentiment index declined. Consumers were more optimistic
about labor market conditions and future job trends. The main concerns for
respondents of the sentiment survey were personal financial prospects and income
growth.
Consumer Sentiment
Consumer Confidence
Index, 1966:Q1 = 100
Index, 1985 = 100
110
100
90
Current
Conditions
Consumer
Expectations
100
90
80
80
70
70
Present
Situation
60
Consumer
Confidence
50
40
May-12
Nov-12
May-13
60
Future
Expectations
Nov-13
Consumer
Sentiment
May-14
May-12
Nov-12
May-13
Nov-13
50
40
May-14
Source: The University of Michigan / Haver Analytics.
Source: The Conference Board / Haver Analytics.
Real disposable incomes rose 0.2% in April, and have grown 0.3%, on average, over
the past four months. Despite the increase in incomes, real consumption fell 0.3% in
April, its first decline since December.
Real DPI and Consumption
Percent Change, Previous Month
Percent Change, Previous Month
4.0
4.0
Real
Consumption
2.0
2.0
0.0
0.0
-2.0
-2.0
Real Disposable Income
-4.0
-4.0
-6.0
Apr-11
Oct-11
Jul-11
Apr-12
Jan-12
Oct-12
Jul-12
Source: Bureau of Economic Analysis / Haver Analytics.
Apr-13
Jan-13
-6.0
Apr-14
Oct-13
Jul-13
Jan-14
Housing data in April improved a bit after easing in the first quarter. New home sales
rose above expectations in April, following a decrease in March that was revised smaller.
Sales of existing homes also increased in April, reaching their highest sales rate since
December.
New and Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
6000
800
700
Existing
Home Sales
5500
New
Home Sales
600
5000
500
4500
400
300
4000
200
3500
100
0
3000
Apr-11
Oct-11
Jul-11
Apr-12
Jan-12
Oct-12
Jul-12
Apr-13
Jan-13
Oct-13
Jul-13
Apr-14
Jan-14
Source: U.S. Census Bureau (new homes sales) and National Association of Realtors (existing home sales) / Haver Analytics.
Housing starts rose in April for their third consecutive monthly increase, due mostly to
a jump in multifamily starts. Building permits also increased in April, due to a rise in
multifamily permits, as single-family permits decreased.
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
1400
1400
1200
1200
Building Permits
1000
1000
800
800
600
600
Housing Starts
400
400
200
200
0
0
Apr-11
Oct-11
Jul-11
Apr-12
Jan-12
Source: U.S. Census Bureau / Haver Analytics.
Oct-12
Jul-12
Apr-13
Jan-13
Oct-13
Jul-13
Apr-14
Jan-14
Industrial production fell more than expected in April, while gains in March were
revised higher. Capacity utilization eased in April, after increasing in each of the prior
two months.
Industrial Production and Capacity Utilization
Percent Change, Previous Month
Percent of Capacity
1.5
79.0
Industrial Production
78.0
Capacity Utilization
(manufacturing)
1.0
77.0
0.5
76.0
75.0
0.0
74.0
-0.5
73.0
-1.0
Apr-11
Oct-11
Jul-11
Apr-12
Jan-12
Oct-12
Jul-12
Apr-13
Jan-13
72.0
Apr-14
Oct-13
Jul-13
Jan-14
Source: Federal Reserve Board of Governors / Haver Analytics.
New orders for durable goods rose slightly in April, following a sizeable increase in
March that was revised higher. Orders of nondefense capital goods, excluding
aircraft, fell in April after rising in March. Both series showed improvement on a
year-over-year basis in April, albeit at a slower pace than seen in the previous month.
New Orders
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
30.0
30.0
Percent change, month-over-month
Jan-14
Feb-14
Mar-14
Dur.
-2.53
2.61
3.72
0.62
Cap.
-1.89
0.10
4.68
-1.22
Durable Goods
20.0
Apr-14
20.0
10.0
10.0
0.0
0.0
Capital Goods Nondefense,
Excluding Aircraft
-10.0
-10.0
Apr-11
Oct-11
Jul-11
Apr-12
Jan-12
Source: U.S. Census Bureau / Haver Analytics.
Oct-12
Jul-12
Apr-13
Jan-13
Oct-13
Jul-13
Apr-14
Jan-14
The ISM manufacturing index rose in May, reaching its highest level so far this year
and continuing to signal expansion in the manufacturing sector. However, the
employment component of the index declined in May.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
65.0
65.0
ISM Index
60.0
60.0
Employment Index
55.0
55.0
50.0
50.0
45.0
45.0
May-11
Nov-11
Aug-11
May-12
Feb-12
Nov-12
Aug-12
May-13
Feb-13
Nov-13
Aug-13
May-14
Feb-14
Source: Institute of Supply Management / Haver Analytics.
Headline consumer prices accelerated in April, their second consecutive monthly
acceleration, as the PCE index reached its highest rate since October 2012. Core
prices, which exclude food and energy, also accelerated in April for the second
consecutive month, and the PCE index reached its highest rate in over one year.
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
PCE Price Index
4.0
2.0
2.0
0.0
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Core Price Indices
Percent Change, Year-Over-Year
Aug-13
Dec-13
0.0
Apr-14
Percent Change, Year-Over-Year
4.0
4.0
Consumer Price Index,
excluding food and energy
3.0
Chained Consumer Price Index,
excluding food and energy
3.0
2.0
2.0
PCE Price Index, excluding food
and energy
1.0
0.0
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
1.0
Apr-13
Source: Bureau of Labor Statistics / Bureau of Economic Analysis / Haver Analytics.
Aug-13
Dec-13
0.0
Apr-14
Oil prices in May, on average, were unchanged from their April level, which was the
highest monthly average since September. Prices edged up towards the end of May,
and started June at $102.5 per barrel as of June 2.
Domestic Spot Oil Price
Dollars per Barrel
Dollasr per Barrel
125.0
125.0
100.0
100.0
75.0
75.0
50.0
50.0
25.0
25.0
0.0
0.0
May-11
Nov-11
Aug-11
May-12
Feb-12
Nov-12
Aug-12
May-13
Feb-13
Nov-13
Aug-13
May-14
Feb-14
Source: Wall Street Journal / Haver Analytics.
First quarter GDP growth was revised down in the second estimate to -1.0% from
0.1%. The lower growth rate primarily reflected a downward revision to private
inventory investment and an upward revision to imports that were partly offset by an
upward revision to exports.
Revisions to First Quarter Real GDP
Description
Real GDP
Advance Estimate
2nd Estimate
0.1
-1.0
Personal Consumption (PCE)
3.0
3.1
Business Investment
-2.1
-1.6
Residential Investment
-5.7
-5.0
Government
-0.5
-0.8
Exports
-7.6
-6.0
Imports
-1.4
0.7
Final Sales
0.7
0.6
Change in Nonfarm Inv. ($2005 Bil.)
65.7
30.4
Real GDP
6.0
4.0
2.0
0.0
-2.0
11:Q1
11:Q3
12:Q1
Source: Bureau of Economic Analysis / Haver Analytics.
12:Q3
13:Q1
13:Q3
14:Q1
Data released since your last Directors' meeting show that the economy contracted slightly in
the first quarter but suggest a rebound in growth in the second quarter. The labor market
showed further signs of strengthening, consumer attitudes were mixed but remained favorable,
and the housing market improved a bit but remained weak in the single family sector.
Economic growth is projected to pick up to a moderate pace over the rest of the year, as the
effects that contributed to the contraction in the first quarter - namely adverse weather
conditions,
lower inventory investment, and a decline in exports - are likely to be temporary.
Percent
Short-Term Interest Rates
0.3
0.2
1.50
1.00
Discount Window Primary Credit
0.75
0.75
0.75
0.75
0.75
0.50
0.1
0.00
Dec-13 Jan-14 Feb-14 Mar-14 Apr-14
0.0
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Source: Federal Reserve Board of Governors / Haver Analytics.
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
Report compiled by Christy Marieni