Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
The President’s Report to the Board of Directors May 4, 2012 CURRENT ECONOMIC DEVELOPMENTS - May 4, 2012 Data since your last Directors' meeting show the economy continued to grow in the first quarter, but at a slower pace than in the fourth quarter. Contributing to the slowdown were effects that are expected to be temporary - namely higher oil prices and another sizeable drop in military spending - and growth is expected to pick up a bit over the rest of the year. While the recovery remains on course, persistant downside risks stemming from domestic fiscal issues and the European debt crisis continue to shed some uncertainty on the outlook. In April, nonfarm payrolls posted a weaker-than-expected gain, but the unemployment rate fell one-tenth of a percentage point as the size of the labor force shrunk further. Initial claims for unemployment insurance increased in April, and were well above their first quarter average. The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, and residential investment that were partly offset by negative contributions from government spending and nonresidential investment, as well as an increase in imports. In April, consumer attitudes were mixed but remained well above their late summer/early fall levels. The ISM manufacturing index improved in April, suggesting a possible improvement in manufacturing following the disappointing durable goods data for March. Inflation concerns remain minimal as headline measures slowed in the first quarter, and core indices remained at moderate levels. Unit labor costs eased in the first quarter, as did total compensation costs, as measured by the ECI. Oil prices fell in April but still averaged over $103 per barrel for the month. In April, nonfarm payrolls added 115,000 jobs, and revisions to the previous two months' estimates resulted in 53,000 additional jobs being created. Payroll gains were lower than anticipated and well below the first quarter monthly average of 233,000. The unemployment rate fell one-tenth of a percentage point in April to 8.1%, as a decrease in civilian employment was outpaced by a larger drop in the labor force. Nonfarm Payroll Employment Unemployment Rate Change from Previous Quarter, Monthly Average Rate 400 10.0 200 9.5 0 9.0 -200 8.5 -400 Change from Previous Month -600 Feb-12 Mar-12 Apr-12 259,000 154,000 115,000 8.0 7.5 -800 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 10:Q2 10:Q4 11:Q2 11:Q4 Apr-12 Source: Bureau of Labor Statistics / Haver Analytics. 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 10:Q2 10:Q4 11:Q2 11:Q4 Apr-12 Initial claims for unemployment insurance rose on average in April, reaching their highest level since November, despite a decrease in the last week of the month. Increases in first three weeks of the month marked a shift away from the downward trend seen since the middle of last year. Initial Claims Thousands of Units at Annual Rates Thousands of Units at Annual Rates 700 700 Monthly Levels 650 650 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12* 391 378 376 367 364 384 600 600 550 550 500 500 450 450 400 400 350 350 300 300 250 250 200 200 09:Q1 09:Q3 09:Q2 10:Q1 09:Q4 10:Q3 10:Q2 11:Q1 10:Q4 11:Q3 11:Q2 Source: Department of Labor, Employment and Training Administration / Haver Analytics. 12:Q1 11:Q4 Apr-12* * 4-wk. ave. ending April 28 The deceleration in real GDP in the first quarter primarily reflected a deceleration in private inventory investment and a downturn in nonresidential fixed investment that were partly offset by accelerations in personal consumption expenditures and in exports. Annualized Percent Change Real Gross Domestic Product Annualized Percent Change 8.0 8.0 6.0 6.0 4.0 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 09:Q1 09:Q3 10:Q1 Source: Bureau of Economic Analysis / Haver Analytics. 10:Q3 11:Q1 11:Q3 12:Q1 In the first quarter, personal income posted its largest quarterly gain in one year, but real incomes slowed following two quarters of accelerated growth. Consumption accelerated for the third straight quarter, despite the lower real income, and continued to be a primary contributor to GDP growth. Personal Income Real Consumption Annualized Percent Change Annualized Percent Change 5.0 12.0 4.0 Personal Income 9.0 3.0 6.0 2.0 3.0 1.0 0.0 0.0 Real Disposable Income -3.0 -1.0 -2.0 -6.0 -3.0 -9.0 -4.0 -12.0 -5.0 09:Q1 10:Q1 09:Q3 11:Q1 10:Q3 12:Q1 11:Q3 09:Q1 10:Q1 09:Q3 11:Q1 10:Q3 12:Q1 11:Q3 Source: Bureau of Economic Analysis / Haver Analytics. Lightweight vehicle sales inched up in April, slightly above their March level, but not quite reaching their first quarter average. Sales in April were largely supported by increased demand for smaller, more fuel-efficient vehicles as consumers looked to combat elevated gas prices. Total Auto and Light Truck Sales Millions of Units, Annualized 20.0 16.0 12.0 8.0 4.0 0.0 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1Apr-12 Source: Bureau of Economic Analysis / Haver Analytics. Business investment decreased in the first quarter for the first time in over two years, and equipment and software investment slowed for the second consecutive quarter. Business Investment Annualized Percent Change Annualized Percent Change 40.0 40.0 30.0 30.0 Equipment and Software 20.0 20.0 10.0 10.0 0.0 0.0 -10.0 -10.0 Business Investment -20.0 -20.0 -30.0 -30.0 -40.0 -40.0 -50.0 -50.0 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 Source: Bureau of Economic Analysis / Haver Analytics. In the first quarter, durable goods orders decreased slightly for the first time in over one year, and orders of nondefense capital goods, excluding aircraft, slowed to nearly flat. On a year-over-year basis, durable goods orders posted a weaker gain compared to the sharp upturn in the fourth quarter of 2011, and growth of core orders continued to decelerate. Percent Change, Previous Quarter Durable Goods Orders Percent Change, Previous Quarter 15.0 15.0 Capital Goods Nondefense, Excluding Aircraft 10.0 10.0 5.0 5.0 0.0 0.0 Durable Goods, New Orders -5.0 -5.0 Percent Change, year-over-year -10.0 -15.0 11:Q2 11:Q3 11:Q4 12:Q1 Durables 8.2 8.8 12.8 7.8 Cap. Ex. Air 10.6 9.5 7.4 7.3 -10.0 -15.0 -20.0 -20.0 09:Q1 09:Q3 10:Q1 Source: U.S. Census Bureau / Haver Analytics. 10:Q3 11:Q1 11:Q3 12:Q1 Residential investment increased in the first quarter at its fastest pace in nearly two years. This marks the fourth consecutive quarterly increase, following a period of volatility directly after the recession. Residential Investment Annualized Percent Change Annualized Percent Change 40.0 40.0 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 -50.0 -50.0 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 Source: U.S. Census Bureau / Haver Analytics. New home sales ticked upward in the first quarter, following a solid increase in the previous quarter. Existing home sales posted another strong gain in the first quarter and have erased the majority of the losses seen in the first three quarters of 2010. New and Existing Home Sales Thousands of Units, Annualized Thousands of Units, Annualized 700 6500 600 6000 New Home Sales 500 5500 Existing Home Sales 400 5000 300 4500 200 4000 100 3500 0 3000 09:Q1 09:Q3 10:Q1 Source: U.S. Census Bureau / Haver Analytics. 10:Q3 11:Q1 11:Q3 12:Q1 Government spending declined again in the first quarter, although not as much as in the previous quarter, subtracting over half of a percentage point from GDP growth. State and local government cutbacks, as well as another decrease in federal defense spending, contributed to the decline in overall government expenditures. Government Spending Annualized Percent Change Annualized Percent Change 25.0 25.0 20.0 20.0 15.0 15.0 Federal 10.0 10.0 Total 5.0 5.0 0.0 0.0 -5.0 -5.0 State and Local -10.0 -10.0 -15.0 -15.0 -20.0 -20.0 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 Source: Bureau of Economic Analysis / Haver Analytics. Imports continued to accelerate in the first quarter, led by large increases in industrial supplies and auto imports, while exports grew at a slightly faster rate. Overall net exports had a nearly neutral effect on GDP in the first quarter, after providing a slight drag in the fourth quarter. Exports and Imports Annualized Percent Change Annualized Percent Change 50.0 50.0 40.0 40.0 30.0 30.0 Imports 20.0 20.0 10.0 10.0 0.0 0.0 Exports -10.0 -10.0 -20.0 -20.0 Contribution to % Change in GDP: Net Exports -30.0 -40.0 2011:Q2 2011:Q3 2011:Q4 2012:Q1 0.24 0.43 -0.26 -0.01 -30.0 -40.0 -50.0 -50.0 09:Q1 09:Q3 10:Q1 Source: Bureau of Economic Analysis / Haver Analytics. 10:Q3 11:Q1 11:Q3 12:Q1 Consumer confidence fell unexpectedly in April, but was still higher than its first quarter average. Sentiment increased again in April, reaching its highest level since February 2011. In general, consumers are slightly less upbeat towards employment conditions and reported weaker personal financial situations. Consumer Confidence and Expectations Index, 1985 = 100 Index, 1985 = 100 120 120 100 100 Expectations 80 80 60 60 40 40 Confidence 20 20 0 0 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 Apr-12 Consumer Sentiment and Expectations Index, 1966:Q1=100 Index, 1966:Q1=100 100 100 80 80 Sentiment 60 60 Expectations 40 40 20 20 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 Apr-12 Source: The Conference Board (confidence) and University of Michigan (sentiment) / Haver Analytics. Both the ISM index and the employment index improved in April to their highest levels since June 2011, indicating the continued expansion of the manufacturing sector that began after the end of the recession. ISM Index Index (50+ = Economic Expansion) Index (50+ = Economic Expansion) 70.0 70.0 60.0 Employment Index ISM Index 60.0 50.0 50.0 40.0 40.0 30.0 30.0 20.0 20.0 09:Q1 09:Q3 09:Q2 10:Q1 09:Q4 10:Q3 10:Q2 Source: Institute for Supply Management / Haver Analytics. 11:Q1 10:Q4 11:Q3 11:Q2 12:Q1 11:Q4 Apr-12 Headline consumer inflation eased further in the first quarter, due primarily to decelerating food and energy prices. The core index continued to pick up in the first quarter, but appears to be leveling off from the steady increases of last year. The headline producer price index exhibited similar behavior in the first quarter, while the core index eased slightly. Percent Change, Year-Over-Year Consumer Price Index Percent Change, Year-Over-Year 6.0 6.0 Consumer Price Index Consumer Price Index, excluding food and energy 4.0 4.0 2.0 2.0 0.0 0.0 -2.0 -2.0 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 Producer Price Index Percent Change, Year-Over-Year Percent Change, Year-Over-Year 12.0 12.0 9.0 Producer Price Index, excluding food and energy 6.0 9.0 Producer Price Index 6.0 3.0 3.0 0.0 0.0 -3.0 -3.0 -6.0 -6.0 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 Source: Bureau of Labor Statistics / Haver Analytics. Oil prices continued to rise sharply during the first quarter, averaging over $102 per barrel and erasing the decline seen in the third quarter of last year. However, prices fell in April from March, the first monthly decline since September 2011. Past Five Months Domestic Spot Oil Price Dollars per Barrel Dollars per Barrel 120.0 130.0 120.0 110.0 110.0 100.0 90.0 100.0 80.0 70.0 60.0 90.0 50.0 40.0 80.0 30.0 09:Q1 09:Q4 10:Q3 Source: Wall Street Journal / Haver Analytics. 11:Q2 12:Q1 Dec-11 Feb-12 Apr-12 Productivity fell in the first quarter, as hours worked increased faster than output. Compensation per hour and unit labor costs both slowed for the second straight quarter. Productivity and Costs Annualized Percent Change Annualized Percent Change 12.0 12.0 9.0 Output Per Hour 9.0 Compensation Per Hour 6.0 6.0 3.0 3.0 0.0 0.0 -3.0 -3.0 Unit Labor Costs -6.0 -6.0 -9.0 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 -9.0 12:Q1 11:Q3 Source: Bureau of Labor Statistics / Haver Analytics. In the first quarter, total compensation growth eased as slowing benefit costs offset faster wage and salary growth. Growth in benefit costs has slowed substantially since mid-2011 and has been the driving force behind the downward trend in total compensation seen over that time. Employment Cost Index Percent Change, year-over-year Percent Change, year-over-year 5.0 5.0 4.0 4.0 Benefit Costs 3.0 3.0 Total Compensation 2.0 2.0 Wages and Salaries 1.0 0.0 1.0 0.0 09:Q1 09:Q3 10:Q1 Source: Bureau of Labor Statistics / Haver Analytics. 10:Q3 11:Q1 11:Q3 12:Q1 Data since your last Directors' meeting show the economy continued to grow in the first quarter, but at a slower pace than in the fourth quarter. Contributing to the slowdown were effects that are expected to be temporary - namely higher oil prices and another sizeable drop in military spending - and growth is expected to pick up a bit over the rest of the year. While the recovery remains on course, persistant downside risks stemming from domestic fiscal issues and the European debt crisis continue to shed some uncertainty on the outlook. Percent Short-Term Interest Rates 0.8 0.6 Federal Funds Rate (effective rate) 1.50 0.4 1.00 Discount Window Primary Credit 0.75 0.75 0.75 0.75 0.75 0.75 0.50 0.2 0.00 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 Apr-12 0.0 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 Source: Federal Reserve Board of Governors / Haver Analytics. Apr-12