Download President’s Report Board Directors

The
President’s
Report to the
Board of
Directors
March 1, 2013
Current Economic Developments - March 1, 2013
Data released since your last Directors' meeting show the economy was stronger in the fourth
quarter than originally estimated, and recent data suggest growth will pick up further in the first
quarter. The housing market continues to strengthen and consumer attitudes have improved,
while manufacturing data has been mixed. However, fiscal issues surrounding the budget
sequester and potential government shutdown remain areas of concern. Still, the economy
remains on track to grow at a moderate pace in the first half of the year.
In February, initial claims were relatively unchanged from their January average, and consumer
attitudes improved towards both current conditions and future expectations. Real consumption
expenditures continued to rise in January, despite a large decline in real incomes.
Housing market data was mostly positive in January, as the sector continues to show signs of
improvement. New home sales surged in January, and sales of existing homes increased slightly,
as both series continued an upward trend seen since mid-2011. New residential construction data
was mixed in January, as single-family permits rose to their highest level since June 2008, while
total permits fell. Housing starts also fell in January, albeit from an upwardly revised December
number.
Recent manufacturing data was mixed. The ISM index rose in February to its highest level since
June 2011, but industrial production eased in January. New orders for durable goods fell in
January, yet orders for nondefense capital goods excluding aircraft jumped, suggesting business
investment may strengthen.
Inflation remained subdued in January, as energy prices continued to ease. Although oil prices
increased slightly on average in February, they ended the month below their January average.
Initial claims for unemployment insurance in February were, on average, only slightly
higher than their January level, remaining near a five-year low. Claims are now only
slightly above the level seen at the onset of the recession.
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
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13*
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
* - 4-wk. ave. ending Feb. 23
Consumer attitudes improved in February, as both confidence and sentiment reached
their highest levels since November. Consumers are more optimistic about business
and labor market conditions, as concerns over fiscal cliff and payroll tax uncertainty
have subsided. Respondents to the University of Michigan survey also reported
heightened sensitivity to inflation rates.
Consumer Sentiment and Expectations
Index, 1966:Q1=100
Index, 1966:Q1=100
100
100
Current
Conditions
90
90
80
80
70
70
60
Sentiment
60
Expectations
50
50
40
40
Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13
Consumer Confidence and Expectations
Index, 1985 = 100
Index, 1985 = 100
120
120
100
100
Expectations
80
80
60
60
40
40
20
Present
Situation
Confidence
0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Feb-12
Nov-11
20
0
Feb-13
Aug-12
May-12
Nov-12
Source: The Conference Board (confidence) and University of Michigan (sentiment) / Haver Analytics.
Real disposable incomes plunged in January. The decline was mainly due to the
effects of special factors such as the payroll tax increase in January and the pre-taxhike boost in wages, salaries, and personal dividends, whichccontributed to the surge
in DPI in December. Despite the lower incomes, real consumption increased in
January by the same amount as seen in December.
Real DPI and Consumption
Percent Change, Previous Month
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
-5.0
Jan-10
Percent Change, Previous Month
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
-4.5
-5.0
Jan-13
Real Disposable Income
Real Consumption
Jul-10
Apr-10
Jan-11
Oct-10
Jul-11
Apr-11
Source: Bureau of Economic Analysis / Haver Analytics.
Jan-12
Oct-11
Jul-12
Apr-12
Oct-12
Housing market data continued to show positive signs in January. New home sales
jumped up in January to their highest level since July 2008, and December sales
were revised higher. Existing home sales increased above expectations in January,
but December sales were revised slightly lower.
New and Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
700
7000
600
6000
New Home Sales
500
5000
400
4000
300
3000
200
2000
Existing Home Sales
100
0
Jan-10
Jul-10
Apr-10
Jan-11
Oct-10
Jul-11
Apr-11
Jan-12
Oct-11
0
Jan-13
Jul-12
Apr-12
1000
Oct-12
Sources: U.S. Census Bureau (new home sales) and National Association of Realtors (existing sales) / Haver Analytics.
Housing starts fell below expectations in January, from a level in December that was
revised substantially higher. The decline in total starts was due to a decrease in multiunit starts, as single-unit starts increased in January. Total starts have averaged over
900,000 over the past three months, continuing the rising trend seen since mid-2011.
Total building permits fell in January, yet single-family permits rose to their highest
level since June 2008.
Thousands of Units, Annualized
Housing Starts and Building Permits
Thousands of Units, Annualized
1200
1200
1000
1000
Building Permits
800
800
600
600
400
400
Housing Starts
200
200
0
0
Jan-10
Jul-10
Apr-10
Jan-11
Oct-10
Sources: U.S. Census Bureau / Haver Analytics.
Jul-11
Apr-11
Jan-12
Oct-11
Jul-12
Apr-12
Jan-13
Oct-12
The ISM manufacturing index rose in February for the third straight month, posting its
highest reading since June 2011 and signalling further expansion in the manufacturing
sector. However, the employment component of the index eased in February,
erasing most of the improvement seen in January.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
70.0
70.0
65.0
65.0
Employment Index
60.0
60.0
55.0
55.0
ISM Index
50.0
50.0
45.0
45.0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Feb-12
Nov-11
Aug-12
May-12
Feb-13
Nov-12
Source: Institute of Supply Management / Haver Analytics.
Industrial production eased slightly in January, following an upwardly revised increase
in December. The recent seasonably cold weather was a boon to production, as
higher demand for home heating fuels increased utilities output. Capacity utilization
fell in January, from an upwardly revised December reading.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
3.0
85.0
Capacity Utilization
(manufacturing)
Industrial
Production
2.0
80.0
1.0
75.0
0.0
70.0
-1.0
-2.0
Jan-10
Jul-10
Apr-10
Jan-11
Oct-10
Jul-11
Apr-11
Source: Federal Reserve Board of Governors / Haver Analytics.
Jan-12
Oct-11
65.0
Jan-13
Jul-12
Apr-12
Oct-12
In January, new orders for durable goods posted their first monthly decrease since
August and continued to decrease on a year-over-year basis, mostly due to a decline
in orders for transportation goods. Meanwhile, orders of nondefense capital goods
excluding aircraft rose sharply in January, posting their largest monthly gain in nearly
three years. The unanticipated strength in core orders in January may signal stronger
manufacturing output in the first quarter than previously expected.
New Orders
Percent Change, Year-over-year
Percent Change, Year-over-year
40.0
40.0
30.0
30.0
Durable Goods
Capital Goods Nondefense,
Excluding Aircraft
20.0
20.0
10.0
10.0
0.0
0.0
Percent Change, Previous
Month Nov-12
Dec-12
-10.0
Jan-13
Durables
0.62
3.72
-5.15
Ex. Air.
3.62
-0.28
6.30
-10.0
-20.0
-20.0
Jan-10
Jul-10
Apr-10
Jan-11
Oct-10
Jul-11
Apr-11
Jan-12
Oct-11
Jul-12
Apr-12
Jan-13
Oct-12
Source: U.S. Census Bureau / Haver Analytics.
Total consumer price growth continued to decelerate in January, led by falling energy
prices, as the headline index reached its lowest level since July 2012. The core index,
which excludes food and energy prices, ticked up in January, due in part to an
increase in apparel prices. Meanwhile, total producer prices accelerated slightly in
January, despite falling energy prices, while the core index decelerated.
Consumer Price Index
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
8.0
8.0
6.0
Consumer Price Index,
excluding food and energy
Consumer Price Index
4.0
6.0
4.0
2.0
2.0
0.0
0.0
-2.0
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
Producer Price Index
Percent Change, Year-Over-Year
May-12
Sep-12
-2.0
Jan-13
Percent Change, Year-Over-Year
12.0
8.0
12.0
Producer Price Index,
excluding food and energy
Producer Price Index
8.0
4.0
4.0
0.0
0.0
-4.0
Jan-10
May-10
Sep-10
Jan-11
Source: Bureau of Labor Statistics / Haver Analytics.
May-11
Sep-11
Jan-12
May-12
Sep-12
-4.0
Jan-13
On average oil prices posted another small gain in February, although daily closing
prices fell slightly during the last week of the month. Prices reached $92.1 per barrel on
February 28th, which was well below the January average.
Domestic Spot Oil Price
Dollasr per Barrel
Dollars per Barrel
150.0
150.0
125.0
125.0
100.0
100.0
75.0
75.0
50.0
50.0
25.0
25.0
0.0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
0.0
Aug-11
Feb-12
Aug-12
Feb-13
May-11
Nov-11
May-12
Nov-12
Source: Wall Street Journal / Haver Analytics.
Real GDP growth was revised upward in the fourth quarter. The higher growth rate
primarily reflected an upward revision to exports, a downward revision to imports, and
an upward revision to nonresidential fixed investment that were partly offset by a
downward revision to private inventory investment.
Revisions to Fourth Quarter Real GDP
Description
Advance
2nd Estimate
-0.1
0.1
Personal Consumption
2.2
2.1
Business Investment
8.4
9.7
12.4
11.3
Real GDP
Equipment and Software
Residential Investment
15.3
17.5
Government
-6.6
-6.9
Exports
-5.7
-3.9
Imports
-3.2
-4.5
Final Sales
1.1
1.7
Real GDP
6.0
4.0
2.0
0.0
09:Q4
10:Q2
10:Q4
Source: Bureau of Economic Analysis / Haver Analytics.
11:Q2
11:Q4
12:Q2
12:Q4
Data released since your last Directors' meeting show the economy was stronger in the fourth
quarter than originally estimated, and recent data suggest growth will pick up further in the first
quarter. The housing market continues to strengthen and consumer attitudes have improved,
while manufacturing data has been mixed. However, fiscal issues surrounding the budget
sequester and potential government shutdown remain areas of concern. Still, the economy
remains on track to grow at a moderate pace in the first half of the year.
Percent
Short-Term Interest Rates
0.4
Discount Window Primary Credit
0.3
0.75
0.75
0.75
0.75
0.75
1.50
1.00
0.50
0.2
0.00
Oct-12 Nov-12 Dec-12 Jan-13 Feb-13
Federal Funds Rate
(effective rate)
0.1
0.0
Feb-1 Mar-12
Apr-12 May-12
Jun-12 Jul-12
Aug-12 Sep-12
Oct-12 Nov-12
Dec-12 Jan-13
Feb-13
Source: Federal Reserve Board of Governors / Haver Analytics.
PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
March 7, 2013
Current Economic Developments - Addendum: Data released in the past week
Lightweight vehicle sales rose slightly in February, selling at their fastest annual pace
since November. The increase was led by light duty truck sales.
In February, the ISM nonmanufacturing index improved to 56.0, its highest level in
one year. The employment index eased to 57.2 in February, but remained well above
50, signaling nonmanufacturing employment is still increasing. In January,
manufacturers' orders fell 2.0%, while shipments fell 0.2% and shipments of
nondefense capital goods excluding aircraft declined 1.1%.
Employment data from the Bureau of Labor Statistics is due out Friday morning.
Market expectations are for payrolls to post a monthly gain of 160,000, slightly more
than the January gain of 157,000, and the unemployment rate is expected to hold
steady at 7.9%.
Total auto and light truck sales increased slightly in February from January, posting
their highest annual sales rate since November. Dealers attributed the stronger
sales to more fuel-efficient vehicles and the need for businesses to replace older
pickup trucks.
Total Auto and Light Truck Sales
Millions of Units, Annualized
Millions of Units, Annualized
20.0
20.0
16.0
16.0
12.0
12.0
8.0
8.0
4.0
4.0
0.0
Feb-10
Aug-10
May-10
Feb-11
Nov-10
Aug-11
May-11
Source: Bureau of Economic Analysis / Haver Analytics.
Feb-12
Nov-11
0.0
Feb-13
Aug-12
May-12
Nov-12