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The
President’s
Report to the
Board of
Directors
November 8, 2013
CURRENT ECONOMIC DEVELOPMENTS - November 8, 2013
Data released since your last Directors' meeting were mixed, but show that the economy
accelerated a bit in the third quarter due primarily to further buildup of inventories. Support from
manufacturing and business investment has improved, while consumer spending has slowed
and consumer attitudes have declined in the wake of the government shutdown. Overall, recent
data remains consistent with a slowly growing economy - one that is unlikely to improve much
further over the rest of the year.
In October, nonfarm payrolls posted a stronger-than-expected increase and job gains for the
previous two months were revised higher. However, the unemployment rate ticked up one-tenth
of a percentage point from the nearly five-year low seen in September. Initial claims for
unemployment insurance increased in October, erasing the decline seen in the third quarter.
The growth in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures, private inventory investment, exports, residential fixed
investment, nonresidential fixed investment, and state and local government spending. Those
effects were partly offset by a negative contribution from federal government spending. Imports,
which are a subtraction in the calculation of GDP, increased.
Consumer attitudes worsened in October and November to their lowest levels in months, with
the majority of respondents less optimistic about future conditions, likely due to continued fiscal
policy uncertainty.
Total consumer inflation accelerated slightly in the third quarter, as did the core index, but both
measures remained subdued. Oil prices fell steadily through October and into November,
reaching their lowest level since the spring.
Nonfarm payrolls added 204,000 jobs in October, and job gains for the previous two
months were revised upward by a total of 60,000 jobs. Despite the better-thanexpected payroll gains, the unemployment rate rose one-tenth of a percentage point
to 7.3% in October. The uptick in the unemployment rate was due primarily to a
sizeable decrease in the labor force that was outpaced a larger decline in civilian
employment.
Nonfarm Payroll Employment
Unemployment Rate
Change from Previous Quarter, Monthly Average
Rate
350
12.0
300
11.0
250
10.0
200
9.0
150
8.0
100
7.0
50
6.0
0
-100
4.0
Source: Bureau of Labor Statistics / Haver Analytics.
10
:Q
10 3
:Q
11 4
:
11 Q1
:Q
11 2
:Q
11 3
:Q
12 4
:
12 Q1
:Q
12 2
:Q
12 3
:Q
13 4
:
13 Q1
:Q
13 2
:
O Q3
ct
-1
3
5.0
10
:Q
10 3
:Q
11 4
:
1 1 Q1
:Q
11 2
:Q
11 3
:Q
12 4
:Q
12 1
:Q
12 2
:Q
12 3
:Q
13 4
:
1 3 Q1
:Q
13 2
:
O Q3
ct
-1
3
-50
Initial claims for unemployment insurance declined in the third quarter to reach their
lowest level since Q3 2007. However, claims edged back up in October, in line with
levels seen at the beginning of the year.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
550
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
10:Q3
11:Q1
10:Q4
11:Q3
11:Q2
12:Q1
11:Q4
12:Q3
12:Q2
13:Q1
12:Q4
13:Q3
13:Q2
Oct-13
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
Real GDP growth acccelerated in the third quarter. The higher rate was due primarily
to a deceleration in imports and accelerations in private inventory investment and in
state and local government spending that were partly offset by decelerations in
exports, in nonresidential fixed investment, and in PCE.
Annualized Percent Change
Real Gross Domestic Product
Annualized Percent Change
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
-1.0
-1.0
-2.0
-2.0
10:Q3
11:Q1
11:Q3
Source: Bureau of Economic Analysis / Haver Analytics.
12:Q1
12:Q3
13:Q1
13:Q3
Real consumption continued to decelerate in the third quarter and was a smaller
contributer to growth in third quarter GDP. Growth in both real and nominal incomes
also slowed in the third quarter. Without more growth in either jobs or income,
consumption growth is unlikely to improve much in the near term.
Personal Income
Real Consumption
Annualized Percent Change
Annualized Percent Change
5.0
15.0
Personal
Income
4.0
12.0
9.0
6.0
3.0
3.0
2.0
0.0
-3.0
Real Disposable
Income
1.0
-6.0
-9.0
0.0
10:Q3
11:Q3
11:Q1
12:Q3
12:Q1
13:Q3
13:Q1
10:Q3
11:Q3
11:Q1
12:Q3
12:Q1
13:Q3
13:Q1
Source: Bureau of Economic Analysis / Haver Analytics.
Total lightweight vehicle sales in October were unchanged from their September pace,
and below thei third quarter average. The recent softening of sales may have been a
result of declining consumer attitudes, likely due to fiscal policy uncertainty, leading
consumers to delay large purchases.
Total Auto and Light Truck Sales
Millions of Units, Annualized
20.0
16.0
12.0
8.0
4.0
0.0
10:Q3 10:Q4
11:Q1 11:Q2
11:Q3 11:Q4
12:Q1 12:Q2
12:Q3 12:Q4
13:Q1 13:Q2
13:Q3 Oct-13
Source: Bureau of Economic Analysis / Haver Analytics / Edmunds.com / N.Y Times.
Business investment slowed in the third quarter, as nonresidential structures
decelerated and equipment and software decreased for the first time in one year.
Business Investment
Annualized Percent Change
Annualized Percent Change
40.0
40.0
30.0
30.0
Structures
20.0
20.0
10.0
10.0
0.0
0.0
Business
Investment
-10.0
-10.0
Equipment
and Software
-20.0
-20.0
-30.0
-30.0
-40.0
-40.0
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
13:Q1
13:Q3
Source: Bureau of Economic Analysis / Haver Analytics.
On a year-over-year basis, new orders for durable goods decelerated in the third
quarter, after surging in the second quarter. Meanwhile, orders of nondefense capital
goods, excluding aircraft, rose on a year-over-year basis, but fell a bit when
compared to the second quarter.
Durable Goods Orders
Percent Change, year-over-year
Percent Change, year-over-year
30.0
30.0
Percent change, previous quarter
25.0
20.0
2012:Q4
2013:Q1
2013:Q2
2013:Q3
Dur.
3.64
-0.98
6.58
-2.56
Cap.
3.28
4.97
2.07
-1.86
15.0
20.0
15.0
Durable Goods,
New Orders
10.0
5.0
25.0
10.0
Capital Goods Nondefense,
Excluding Aircraft
5.0
0.0
0.0
-5.0
-5.0
-10.0
-10.0
10:Q3
11:Q1
11:Q3
Source: U.S. Census Bureau / Haver Analytics.
12:Q1
12:Q3
13:Q1
13:Q3
Residential investment posted another solid gain in the third quarter and has now
increased in each of the last twelve quarters.
Residential Investment
Annualized Percent Change
Annualized Percent Change
30.0
30.0
20.0
20.0
10.0
10.0
0.0
0.0
-10.0
-10.0
-20.0
-20.0
-30.0
-30.0
-40.0
-40.0
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
13:Q1
13:Q3
Source: U.S. Census Bureau / Haver Analytics.
Housing data was mixed in the third quarter. Existing home sales rose for the ninth
consecutive quarter to reach their highest quarterly average in over six years. New
home sales fell slightly in the second quarter, and have continued to fall, on average,
in July and August. New home sales data for September will be released on 12/4.
New and Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
600
6000
500
5500
Existing
Home Sales
400
5000
300
4500
200
4000
New Home Sales
100
3500
0
3000
10:Q3
11:Q1
11:Q3
Source: U.S. Census Bureau / Haver Analytics.
12:Q1
12:Q3
13:Q1
13:Q3*
* New Home Sales 13:Q3 estimate is the average of
July & Aug, since Sept data is currently unavailable
Government spending ticked up in the third quarter, its first increase in one year. The
improvement was due to an acceleration in state and local government spending, as
federal spending continued to fall.
Government Spending
Annualized Percent Change
Annualized Percent Change
6.0
6.0
Contribution to % Change in Real GDP
4.0
2012:Q4
2013:Q1
2013:Q2
2013:Q3
-1.31
-0.82
-0.07
0.04
4.0
2.0
2.0
0.0
0.0
-2.0
-2.0
-4.0
-4.0
-6.0
-6.0
-8.0
-8.0
-10.0
-10.0
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
13:Q1
13:Q3
Source: Bureau of Economic Analysis / Haver Analytics.
Export growth slowed in the third quarter, but managed to offset a smaller increase
in imports, which resulted in a boost to GDP from net exports.
Exports and Imports
Annualized Percent Change
Annualized Percent Change
20.0
20.0
Net Exports Contribution to Percent Change in GDP
15.0
2012:Q4
2013:Q1
2013:Q2
2013:Q3
0.68
-0.28
-0.07
0.31
15.0
Exports
10.0
10.0
5.0
5.0
0.0
0.0
Imports
-5.0
-5.0
-10.0
-10.0
10:Q3
11:Q1
11:Q3
Source: Bureau of Economic Analysis / Haver Analytics.
12:Q1
12:Q3
13:Q1
13:Q3
Measures of consumer attitudes have declined so far in the fourth quarter, as the
confidence index in October reached its lowest level since April and the sentiment
index in mid-November reached its lowest level in nearly two years. The declining
attitudes were due, in part, to large drops in the expectations indices, as the federal
government shutdown decreased consumers' optimism about future economic
conditions.
Consumer Confidence and Expectations
Index, 1985 = 100
Index, 1985 = 100
120
120
100
100
Confidence
80
80
60
60
Expectations
40
40
20
20
0
0
10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3 12:Q4 13:Q1 13:Q2 13:Q3 Oct-13
Consumer Sentiment and Expectations
Index, 1966:Q1=100
Index, 1966:Q1=100
100
100
Sentiment
80
80
60
60
Expectations
40
40
20
20
10:Q3
11:Q1
10:Q4
11:Q3
11:Q2
12:Q1
11:Q4
12:Q3
12:Q2
13:Q1
12:Q4
13:Q3
13:Q2
Nov-13
Oct-13
Source: The Conference Board (confidence) and University of Michigan (sentiment) / Haver Analytics.
The ISM manufacturing index continued to improve in October, after rising on
average in the third quarter, and continued to show expansion in the sector. The
employment index declined in October, falling below its third quarter average.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
65.0
65.0
ISM Index
60.0
60.0
55.0
55.0
50.0
50.0
45.0
45.0
Employment Index
40.0
40.0
35.0
35.0
10:Q3
11:Q1
10:Q4
11:Q3
11:Q2
12:Q1
11:Q4
Source: Institute for Supply Management / Haver Analytics.
12:Q3
12:Q2
13:Q1
12:Q4
13:Q3
13:Q2
Oct-13
Growth in total consumer prices ticked up a bit in the third quarter, after easing in each
of the past two quarters. Growth in core prices also edged up in the third quarter, but
remains subdued.
Total Price Indices
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
6.0
6.0
4.0
Chained Consumer Price
Index
PCE Price Index
4.0
2.0
2.0
0.0
0.0
Consumer Price Index
-2.0
-2.0
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
13:Q1
13:Q3
Core Price Indices
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
4.0
4.0
Chained Consumer Price Index,
excluding food and energy
PCE Price Index, excluding food
and energy
2.0
0.0
2.0
0.0
Consumer Price Index,
excluding food and energy
-2.0
-2.0
10:Q3
11:Q1
11:Q3
12:Q1
12:Q3
13:Q1
13:Q3
Source: Bureau of Labor Statistics / Haver Analytics.
On average, oil prices in October dropped from the levels seen in the third quarter.
The daily closing prices fell consistently during the month and have continued to fall
in early November, reaching $94.2 per barrel on November 7.
Past Five Months
Domestic Spot Oil Price
Dollars per Barrel
Dollars per Barrel
120.0
140.0
120.0
110.0
100.0
100.0
80.0
90.0
60.0
80.0
40.0
10:Q3
11:Q2
12:Q1
Source: Wall Street Journal / Haver Analytics.
12:Q4
13:Q3
Jun-13
Aug-13
Oct-13
Data released since your last Directors' meeting were mixed, but show that the economy
accelerated a bit in the third quarter due primarily to further buildup of inventories. Support from
manufacturing and business investment has improved, while consumer spending has slowed
and consumer attitudes have declined in the wake of the government shutdown. Overall, recent
data remains consistent with a slowly growing economy - one that is unlikely to improve much
further over the rest of the year.
Percent
Short-Term Interest Rates
0.5
0.4
Federal Funds Rate
(effective rate)
0.3
Discount Window Primary Credit
0.75
0.75
0.75
0.75
0.75
0.75
0.2
1.50
1.00
0.50
12:Q3 12:Q4
13:Q1 13:Q2 13:Q3 Oct-13
0.00
0.1
0.0
10:Q3 10:Q4
11:Q1 11:Q2
11:Q3
11:Q4 12:Q1
12:Q2 12:Q3
12:Q4 13:Q1
13:Q2 13:Q3
Source: Federal Reserve Board of Governors / Haver Analytics.
Oct-13
Report compiled by Christy Marieni