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The
President’s
Report to the
Board of
Directors
April 5, 2012
Current Economic Developments - April 5, 2012
Data released since your last Directors' meeting suggest the economy grew further during the first
quarter, but likely at a lower rate than seen during the fourth quarter. Labor markets have continued
to improve, contributing to better consumer attitudes and increased consumption. Downside risks
associated with fiscal issues in Europe and rising energy costs have eased somewhat, and the
economy continues on track to grow at a moderate pace in the first half of the year.
In March, initial claims for unemployment insurance continued to fall and consumer attitudes were
mixed, though the improving employment conditions boosted optimism about current conditions.
Vehicle sales slowed in March but finished the first quarter with their best quarterly sales pace in four
years. In February, real consumption increased again despite falling real incomes.
The housing market took a step back in February, but overall has started the year on a more positive
note then seen since the end of the recession. Existing home sales eased slightly in February, but
have had their best start to a year since 2007. New home sales also decreased in February and are
down overall this year, following a strong fourth quarter. New residential construction data was mixed
in February, with permits up to their highest level in over three years while starts eased somewhat.
In the business sector, the ISM index rose in March for the fourth time in five months, a sign that
manufacturing is still expanding. In February, industrial production was flat while capacity utilization
rose further. New orders for durable goods increased in February, as did orders for nondefense
capital goods excluding aircraft. However, the lower than expected increase in "core" orders fell short
of offsetting the prior month's decrease, suggesting first quarter business investment will be lower
than previously anticipated.
Headline inflation accelerated in February due to higher energy prices, but core indices have eased
slightly and remain more steady.
Initial claims for unemployment insurance continued to decrease in March, falling to
their lowest level in nearly four years.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
700
700
Initial Claims for Unemployment Insurance
Quarterly Averages
650
600
550
11:Q2
11:Q3
11:Q4
12:Q1
425
409
389
369
650
600
550
500
500
450
450
400
400
350
350
300
300
250
Mar-09
Sep-09
Jun-09
Mar-10
Dec-09
Sep-10
Jun-10
Mar-11
Dec-10
250
Mar-12
Sep-11
Jun-11
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
Dec-11
Primary measures of consumer attitudes were mixed in March, but overall have
started the year on a more positive note. Sentiment increased in March for the
seventh month in a row, and though confidence dipped from its 12-month high in
February, its first quarter average was the highest in four years. Consumers were
more optimistic about current economic conditions, specifically in the labor market,
but less optimistic about short-term economic conditions.
Consumer Sentiment and Expectations
Index, 1966:Q1 = 100
Index, 1966:Q1 = 100
100
100
Current
90
90
Conditions
80
80
70
70
60
60
50
50
Future
Consumer
Expectations
40
40
Sentiment
30
30
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Consumer Confidence and Expectations
Index, 1985 = 100
Index, 1985 = 100
125
125
Consumer
Expectations
Consumer
Confidence
100
100
75
75
50
50
25
25
Present
Situation
0
0
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Source: The Conference Board (confidence) and University of Michigan (sentiment) / Haver Analytics.
Total vehicle sales were below expectations in March, and down from the four-year
high seen in February. Despite the lower total sales in March, first quarter sales were
the strongest since the first quarter of 2008, due in part to more favorable economic
conditions, more fuel-efficient vehicles, and unseasonably warm weather.
Total Auto and Light Truck Sales
Millions of Units, Annualized
Millions of Units, Annualized
20.0
20.0
Quarterly Sales
18.0
16.0
18.0
11:Q2
11:Q3
11:Q4
12:Q1
12.1
12.4
13.4
14.5
16.0
14.0
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
Mar-09
Sep-09
Jun-09
Mar-10
Dec-09
Sep-10
Jun-10
Source: Bureau of Economic Analysis / Haver Analytics.
Mar-11
Dec-10
4.0
Mar-12
Sep-11
Jun-11
Dec-11
Real disposable income declined again in February, and has now fallen in three of
the past four months. Despite the decreases, real consumption continued to rise in
February. Given those disparate measures, the personal saving rate fell to match its
lowest level since 2007.
Percent Change, Previous Month
Real DPI and Consumption
Percent Change, Previous Month
2.0
2.0
1.5
1.5
Real
Consumption
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
Real Disposable Income
-1.0
-1.0
-1.5
-1.5
-2.0
Feb-09
Aug-09
May-09
Feb-10
Nov-09
Aug-10
May-10
Feb-11
Nov-10
-2.0
Feb-12
Aug-11
May-11
Nov-11
Source: Bureau of Economic Analysis / Haver Analytics.
New home sales declined slightly in February, from a level in January that was also
revised lower. Sales in December, however, were revised sharply higher, resulting in
fourth quarter sales that were the highest since the spring of 2010. Sales of existing
homes also eased in February, but still managed their best start to a year since 2007.
Thousands of Units, Annualized
New Home Sales
Thousands of Units, Annualized
600
600
500
500
400
400
300
300
200
200
100
100
0
0
Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12
Thousands of Units, Annualized
Existing Home Sales
Thousands of Units, Annualized
6000
6000
5000
5000
4000
4000
3000
3000
2000
2000
Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12
Sources: U.S. Census Bureau (new homes sales) and National Association of Realtors (existing home sales) / Haver Analytics.
Housing starts fell in February, due to a sharp decline in single-family starts, likely the
effect of seasonal weather changes. However, the average of starts since November
is the highest four-month average since the end of 2008. Building permits increased
in February to the highest level since October 2008.
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
1000
1000
800
800
Building Permits
600
600
400
400
Housing Starts
200
200
0
0
Feb-09
Aug-09
May-09
Feb-10
Nov-09
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Feb-12
Nov-11
Source: U.S. Census Bureau / Haver Analytics.
The ISM manufacturing index rose in March, marking its fourth increase in the past
five months. The employment index also increased sharply in March, reaching its
highest level since June. The index continues to signal that the manufacturing sector
is expanding, further evidence of the key role it has played in the ongoing recovery.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
70.0
70.0
60.0
60.0
ISM Index
50.0
40.0
50.0
40.0
Employment Index
Quarterly Averages
30.0
11:Q2
11:Q3
11:Q4
12:Q1
ISM
56.6
52.1
52.4
53.3
Emp.
60.0
54.6
53.7
54.5
20.0
30.0
20.0
Mar-09
Sep-09
Jun-09
Mar-10
Dec-09
Sep-10
Jun-10
Source: Institute of Supply Management / Haver Analytics.
Mar-11
Dec-10
Sep-11
Jun-11
Mar-12
Dec-11
Industrial production was unchanged in February, but from a level in January that
was revised higher. The continuing warm weather kept demand for heating fuels low,
resulting in a slight decrease in utilities production. Capacity utilization improved
further in February, reaching its highest level since February 2008.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
2.0
80.0
Industrial Production
1.0
75.0
0.0
70.0
-1.0
65.0
Capacity Utilization
(manufacturing)
-2.0
Feb-09
Aug-09
May-09
Feb-10
Nov-09
Aug-10
May-10
Feb-11
Nov-10
60.0
Feb-12
Aug-11
May-11
Nov-11
Source: Federal Reserve Board of Governors / Haver Analytics.
New orders for durable goods rose in February, marking their fourth increase in the
past five months. Orders of nondefense capital goods excluding aircraft also rose in
February, but the increase was weaker than anticipated and fell well short of
offsetting the decrease seen in January. Both series continued to post moderate
year-over-year gains.
Percent Change, Year-over-year
Durable Goods Orders
Percent Change, Year-over-year
30.0
30.0
Capital Goods Nondefense,
Excluding Aircraft
20.0
20.0
10.0
10.0
0.0
0.0
Durable Goods,
New Orders
-10.0
-10.0
Percent Change, Previous Month
-20.0
Oct-11
-30.0
-20.0
Nov-11
Dec-11
Jan-12
Feb-12
Durables
0.08
4.20
3.34
-3.49
2.41
Ex. Air.
-0.93
-1.50
3.54
-3.44
1.73
-40.0
-30.0
-40.0
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
Source: U.S. Census Bureau / Haver Analytics.
Total consumer prices continued to ease in February on a year-over-year basis,
despite a sharp increase from January due to rising gas prices. Excluding the effect
of the higher energy costs, core CPI eased in February, both monthly and year-overyear. Producer price measures underwent similar changes. The 12-month change in
total prices continued its downward trend while core inflation held mostly steady.
Consumer Price Index
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
8.0
8.0
Consumer Price Index
4.0
4.0
0.0
0.0
Consumer Price Index,
excluding food and energy
-4.0
Feb-09
Aug-09
May-09
Feb-10
Nov-09
Aug-10
Feb-11
May-10
Nov-10
May-11
Producer Price Index
Percent Change, Year-Over-Year
-4.0
Feb-12
Aug-11
Nov-11
Percent Change, Year-Over-Year
10.0
10.0
Producer Price Index
5.0
5.0
0.0
0.0
Producer Price Index,
excluding food and energy
-5.0
-10.0
Feb-09
Aug-09
May-09
Feb-10
Nov-09
Aug-10
May-10
Feb-11
Nov-10
-5.0
-10.0
Feb-12
Aug-11
May-11
Nov-11
Source: Bureau of Labor Statistics / Haver Analytics.
Oil prices continued to rise in March, amid ongoing supply concerns stemming from
geopolitical tension in the Middle East. March prices were the highest since April
2011, and the first quarter average was the highest since the third quarter of 2008.
Domestic Spot Oil Price
Dollars per Barrel
Dollars per Barrel
150.0
150.0
Quarterly Averages
125.0
11:Q2
11:Q3
11:Q4
12:Q1
102.3
89.5
94.1
102.9
125.0
100.0
100.0
75.0
75.0
50.0
50.0
25.0
25.0
0.0
0.0
Mar-09
Sep-09
Jun-09
Mar-10
Dec-09
Source: Wall Street Journal / Haver Analytics.
Sep-10
Jun-10
Mar-11
Dec-10
Sep-11
Jun-11
Mar-12
Dec-11
Real GDP growth was unrevised in the final fourth quarter estimate, primarily
reflecting a downward revision to exports that was offset by an upward revision to
nonresidential fixed investment. The other primariy components of GDP were either
unchanged or underwent only minor revisions.
Real GDP
Annualized Percent Change
Annualized Percent Change
6.0
3.0
0.0
-3.0
-6.0
-9.0
-12.0
6.0
3.0
0.0
-3.0
-6.0
-9.0
-12.0
08:Q4
09:Q2
09:Q4
10:Q2
10:Q4
11:Q2
11:Q4
Fourth Quarter Revisions
Description
Second Estimate
Third Estimate
3.0
2.1
2.8
4.8
11.5
-4.4
4.3
3.8
1.1
3.0
2.1
5.2
7.5
11.6
-4.2
2.7
3.7
1.1
Real GDP
Personal Consumption
Business Investment
Equipment and Software
Residential Investment
Government
Exports
Imports
Final Sales
Source: Bureau of Economic Analysis / Haver Analytics.
Overall, data released since your last Directors' meeting suggest the economy grew further during
the first quarter, but likely at a lower rate than seen during the fourth quarter. Labor markets have
continued to improve, contributing to better consumer attitudes and increased consumption.
Downside risks associated with fiscal issues in Europe and rising energy costs have eased
somewhat, and the economy continues on track to grow at a moderate pace in the first half of the
year.
Percent
Short-Term Interest Rates
0.3
Federal Funds Rate
(effective rate)
0.2
Discount Window Primary Credit
1.50
1.00
0.75
0.75
0.75
0.75
0.75
0.50
0.00
Nov-11
Jan-12
Mar-12
0.1
0.0
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Source: Federal Reserve Board of Governors / Haver Analytics.
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
April 12, 2012
Current Economic Developments - Addendum: Data released in the past week
Nonfarm payrolls grew well below expectations, adding 120,000 jobs in March, the smallest
monthly increase since October 2011. However, in the first quarter overall, payrolls added
676,000 jobs, it's strongest quarter in six years. The unemployment rate fell to 8.2% in March,
due primarily to a sizeable decrease in the labor force, which more than outweighed a small
drop in civilian employment.
In March, import prices rose 1.3%, following a downwardly revised 0.1% decrease in
February. The March increase was the first since November and was mainly due to rising oil
prices. Prices for exports advanced 0.8% in March, the third monthly increase this year.
Wholesale inventories rose 0.9% and wholesale trade rose 1.2% in February, both from
upwardly revised January numbers. The inventory/sales ratio held at 1.17 for the fifth
consecutive month in February.
Redbook sales rose 0.8% through the first retail week of April, compared to March, and
were up 4.1% from the same period last year. Oil prices decreased over the past week,
averaging $102.1 per barrel compared to last week's average of $104.1.
Payroll employment increased by 120,000 jobs in March, well below expectations and
the weakest gain in five months. Despite March's disappointing results, payrolls grew
an average of 212,000 jobs per month in the first quarter, up from an average of
164,000 in the fourth quarter. The unemployment rate eased further to 8.2% in March,
due to a decline in the labor force.
Nonfarm Payroll Employment
Change from Previous Month
600
400
Unemployment Rate
Rate
11.0
10.0
200
9.0
0
8.0
-200
-400
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Jun-10
Dec-10
Jun-11
Dec-11
Source: Bureau of Labor Statistics / Haver Analytics.
7.0
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Jun-10
Dec-10
Jun-11
Dec-11