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The
President’s
Report to the
Board of
Directors
July 5, 2013
Current Economic Developments - July 5, 2013
Data released since your last Directors' meeting show that the economy continues to recover at a
moderate pace and suggest that growth is likely to improve a bit in the second half of the year. The
housing and auto markets continue to strengthen, and the labor market has shown signs of improvement.
Although personal consumption has slowed recently, consumer attitudes continue to improve, which may
lead to increased spending in the near term. The manufacturing sector has shown positive signs, but
remains subdued. The impact of the federal budget sequester remains an area of concern, and higher
interest rates following the June FOMC statement may restrict growth over the second half of the year
more than previously anticipated.
In June, nonfarm payrolls posted a larger than expected gain, and job increases in the previous two
months were revised sharply higher. The unemployment rate held steady in June, as recent gains in
civilian employment have been matched by increases in the size of the labor force. Initial claims for
unemployment insurance fell in June and have reached their lowest quarterly average since the end of
2007. Consumer attitudes were mostly positive in June, due in large part to increased optimism towards
the economic outlook. Vehicle sales posted a gain in June to reach their highest sales rate since
November 2007. Real incomes increased in May, yet consumption posted only a small increase after an
April reading that was revised down to a decrease.
The housing market continued to show mostly positive signs in May. New home sales rose in May to their
highest rate in almost five years, and existing home sales jumped to their highest rate since November
2009. Housing starts rose in May, while total building permits fell, depsite an increase in single-family
permits. In the manufacturing sector, the ISM index improved above 50 in June, signaling an expansion in
manufacturing activity, following a contraction in the previous month. Industrial production and capacity
utilization were both flat in May. Orders for both durable goods and nondefense capital goods, excluding
aircraft, increased in May, and their year-over-year gains accelerated.
Total price indexes accelerated in May, while core measures eased slightly. Oil prices rose in June but
were down slightly on average in the second quarter compared to the first quarter.
Nonfarm payrolls rose by 195,000 in June, more than expected, and gains over the prior
two months were revised higher by a total of 70,000 jobs. Payroll growth averaged
196,000 jobs in the second quarter, slightly below the averages seen in the prior two
quarters. The unemployment rate was unchanged at 7.6% in June, as the size of the
labor force increased.
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
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Sep-11
Mar-12
Sep-12
Mar-13
Source: Bureau of Labor Statistics / Haver Analytics.
7.0
Jun-11
Dec-11 Jun-12
Dec-12
Jun-13
Sep-11 Mar-12
Sep-12
Mar-13
Initial claims for unemployment insurance eased in June and were down overall in
the second quarter, reaching their lowest quarterly average since the 4th quarter of
2007.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
500
500
Initial Claims for Unemployment Insurance
Thousands, Quarterly Average
450
12:Q3
12:Q4
13:Q1
13:Q2
371
377
355
346
450
400
400
350
350
300
300
250
Jun-10
Dec-10
Sep-10
Jun-11
Mar-11
Dec-11
Sep-11
Jun-12
Mar-12
250
Jun-13
Dec-12
Sep-12
Mar-13
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
Measures of consumer attitudes were mostly positive in June, as confidence jumped
to a more than five year high, and sentiment ticked down slightly from a May level
that was the highest in six years. Consumers continue to be more optimistic about
future expectations. However, all of the strength in the sentiment index occurred
among higher income households.
Consumer Sentiment
Consumer Confidence
Index, 1985 = 100
Index, 1966:Q1 = 100
100
100
Consumer
Expectations
Current
Conditions
90
75
80
50
Future
Expectations
Consumer
Confidence
25
0
Jun-11
70
Present
Situation
Dec-11
Jun-12
Consumer
Sentiment
Dec-12
Source: The Conference Board / Haver Analytics.
Jun-13
Jun-11
Dec-11
Jun-12
60
50
Dec-12
40
Jun-13
Source: The University of Michigan / Haver Analytics.
Total lightweight vehicle sales improved above expectations in June to reach their
highest rate since November 2007. Sales improved for both autos and light trucks in
June. Dealers attribute the increase in pickup truck sales this month, in part, to
continued recovery in the housing market, lower interest rates, better fuel economy,
and the need to replace an aging fleet.
Total Auto and Light Truck Sales
Millions of Units, Annualized
Millions of Units, Annualized
20.0
20.0
Quarterly Sales
Millions of Units, Annualized
18.0
18.0
16.0
12:Q3
12:Q4
13:Q1
13:Q2
16.0
14.0
14.5
15.0
15.3
15.3
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
Jun-10
Dec-10
Sep-10
Jun-11
Mar-11
Dec-11
Sep-11
Jun-12
Mar-12
0.0
Jun-13
Dec-12
Sep-12
Mar-13
Source: Bureau of Economic Analysis / Haver Analytics.
In May, real incomes increased for the fourth consecutive month, and April's increase
was revised slightly higher. The higher incomes provided a small boost to consumption
in May, but consumption in April was revised down to a decrease. Consumption in April
was previously seen increasing 0.1%. The weakness in consumption so far in the second
quarter is consistent with the expected effects of the tax increases that occurred earlier
this year.
Real DPI and Consumption
Percent Change, Previous Month
Percent Change, Previous Month
4.0
4.0
3.0
3.0
2.0
2.0
Real
Consumption
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
May-10
Nov-10
Aug-10
May-11
Feb-11
Nov-11
Aug-11
Source: Bureau of Economic Analysis / Haver Analytics.
May-12
Feb-12
-6.0
May-13
Nov-12
Aug-12
Feb-13
The housing market continued to show signs of improvement in May, with new home
sales rising to their highest rate in nearly five years. Sales of existing homes jumped
in May to their highest rate since November 2009, which was the peak of the home
buyer stimulus credit.
New Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
600
600
400
400
200
200
0
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Existing Home Sales
Thousands of Units, Annualized
Jan-13
0
May-13
Thousands of Units, Annualized
5500
5500
5000
5000
4500
4500
4000
4000
3500
3500
3000
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
3000
May-13
Source: U.S. Census Bureau (new homes sales) and National Association of Realtors (existing home sales) / Haver Analytics.
New residential construction data was mixed in May. Housing starts rose in May, but
only partly offset the large drop seen in April. Building permits eased in May, but
remain near a five-year high. The decline in total permits was due to a decrease in
multifamily permits, as single-family permits increased in May.
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
400
400
Housing Starts
200
200
0
0
May-10
Nov-10
Aug-10
May-11
Feb-11
Source: U.S. Census Bureau / Haver Analytics.
Nov-11
Aug-11
May-12
Feb-12
Nov-12
Aug-12
May-13
Feb-13
The total ISM index rose above 50 in June, signaling an expansion in manufacturing
activity, after falling below 50 in May. The employment index fell below 50 in June for
the first time since September 2009, while the prices index rose above 50 in June.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
90.0
90.0
80.0
80.0
Prices Index
70.0
70.0
Employment
Index
60.0
60.0
50.0
50.0
Quarterly Averages
40.0
30.0
12:Q3
12:Q4
13:Q1
13:Q2
ISM
50.9
50.6
52.9
50.2
Emp.
53.2
51.4
53.6
49.7
Prcs.
50.5
54.3
57.5
50.7
ISM Index
40.0
30.0
20.0
20.0
Jun-10
Dec-10
Sep-10
Jun-11
Mar-11
Dec-11
Sep-11
Jun-12
Mar-12
Dec-12
Sep-12
Jun-13
Mar-13
Source: Institute of Supply Management / Haver Analytics.
Industrial production was flat in May, after a decrease in April that was revised
slightly smaller. The increases seen in February and March were both revised lower.
Capacity utilization also held steady in May, after decreasing in each of the previous
two months, and is little changed from levels seen a year ago.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
2.0
78.0
Capacity Utilization
(manufacturing)
Industrial
Production
77.0
76.0
1.0
75.0
74.0
73.0
0.0
72.0
71.0
-1.0
May-10
Nov-10
Aug-10
May-11
Feb-11
Nov-11
Aug-11
Source: Federal Reserve Board of Governors / Haver Analytics.
May-12
Feb-12
70.0
May-13
Nov-12
Aug-12
Feb-13
Durable goods orders rose in May compared to April, and their year-over-year growth
rate accelerated. Similarly, orders for nondefense capital goods excluding aircraft
increased in May, and their annual pace picked up a bit.
Durable Goods Orders
Percent Change, Year-over-year
Percent Change, Year-over-year
40.0
40.0
Durable Goods,
New Orders
30.0
30.0
20.0
20.0
10.0
10.0
0.0
0.0
Capital Goods Nondefense,
Excluding Aircraft
-10.0
-10.0
Percent change, month-over-month
-20.0
-30.0
Feb-13
Mar-13
Apr-13
May-13
Dur.
6.40
-5.93
3.59
3.66
Ex air
-4.78
1.14
1.19
1.49
-20.0
-30.0
-40.0
-40.0
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Source: U.S. Census Bureau / Haver Analytics.
Total prices accelerated in May, as both the consumer and producer price indexes
ticked up after decelerating in each of the prior two months. The faster growth rate in
consumer prices was due, in part, to higher energy services prices. Core prices
eased slightly in May, however, for both consumers and producers.
Percent Change, Year-Over-Year
Consumer Price Index
Percent Change, Year-Over-Year
6.0
6.0
Consumer Price Index,
excluding food and energy
Consumer Price Index
4.0
4.0
2.0
2.0
0.0
0.0
-2.0
May-10
Sep-10
Jan-11
Percent Change, Year-Over-Year
May-11
Sep-11
Jan-12
May-12
Producer Price Index
Sep-12
Jan-13
-2.0
May-13
Percent Change, Year-Over-Year
10.0
10.0
8.0
Producer Price Index
Producer Price Index,
excluding food and energy
6.0
8.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
-2.0
May-10
Sep-10
Jan-11
May-11
Sep-11
Source: Bureau of Labor Statistics / Haver Analytics.
Jan-12
May-12
Sep-12
Jan-13
-2.0
May-13
Oil prices rose in June for the second month in a row, reaching their highest levels
since April 2012. Prices continued to rise further in the first few days of July,
reaching $101.2 per barrel as of July 3.
Domestic Spot Oil Price
Dollasr per Barrel
Dollars per Barrel
160.0
160.0
Quarterly Averages
140.0
12:Q3
12:Q4
13:Q1
13:Q2
92.3
88.2
94.4
94.2
140.0
120.0
120.0
100.0
100.0
80.0
80.0
60.0
60.0
40.0
40.0
20.0
20.0
0.0
0.0
Jun-10
Dec-10
Sep-10
Jun-11
Mar-11
Dec-11
Sep-11
Jun-12
Mar-12
Dec-12
Sep-12
Jun-13
Mar-13
Source: Wall Street Journal / Haver Analytics.
First quarter real GDP growth was revised down in the third estimate to 1.8% from 2.4%.
The lower growth rate primarily reflected downward revisions to personal consumption
expenditures, exports, and nonresidential fixed investment that were party offset by a
downward revision to imports.
Real GDP
Annualized Percent Change
Annualized Percent Change
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
-2.0
-2.0
10:Q1
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
13:Q1
First Quarter Revisions
Description
Real GDP
Personal Consumption
Business Investment
Equipment and Software
Residential Investment
Government
Exports
Imports
Change in Private Inventories
Source: Bureau of Economic Analysis / Haver Analytics.
2nd Estimate
3rd Estimate
2.4
3.4
2.2
4.6
12.1
-4.9
0.8
1.9
$28.3 (bil. 2005$)
1.8
2.6
0.4
4.1
14.0
-4.8
-1.1
-0.4
$26.8(bil. 2005$)
Data released since your last Directors' meeting show that the economy continues to recover at a moderate
pace and suggest that growth is likely to improve a bit in the second half of the year. The housing and auto
markets continue to strengthen, and the labor market has shown signs of improvement. Although personal
consumption has slowed recently, consumer attitudes continue to improve, which may lead to increased
spending in the near term. The manufacturing sector has shown positive signs, but remains subdued. The
impact of the federal budget sequester remains an area of concern, and higher interest rates following the June
FOMC statement may restrict growth over the second half of the year more than previously anticipated.
Percent
Short-Term Interest Rates
0.4
0.3
Federal Funds Rate
(effective rate)
Discount Window Primary Credit
2.00
1.50
1.00
0.50
0.00
0.2
0.75
0.75
0.75
0.75
0.75
Feb-13 Mar-13 Apr-13 May-13 Jun-13
0.1
0.0
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Source: Federal Reserve Board of Governors / Haver Analytics.
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Report compiled by Christy Marieni