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The
President’s
Report to the
Board of
Directors
October 1, 2009
CURRENT ECONOMIC DEVELOPMENTS - October 1, 2009
Data released since your last Directors' meeting has been somewhat mixed, but still
foreshadow a stronger second half of the year. Consumers are more optimistic than they
have been in months, the manufacturing sector is showing signs of further improvement, and
the third quarter is likely to produce positive growth in GDP for the first time in over a year.
Still, as expected, labor markets will likely be last to turn around, slowing the recovery of the
economy as a whole.
In September, initial claims decreased as the labor market tried to find some stability.
Consumer attitudes were mixed in September, as sentiment posted a strong gain while
confidence eased a bit. Personal incomes posted another small loss, but consumption
surged as consumers took advantage of the 'CARS' stimulus rebates.
Housing market data was less favorable in August compared to recent months. Existing home
sales fell, and new home sales, housing starts, and building permits were all essentially flat.
In the business sector, the ISM index eased slightly in August but remained above 50.
Industrial production and capacity utilization both increased in August, building on the gains
seen in July. Data for durable goods orders continued to show significant year-over-year
declines in August, even as some recent monthly data has been more positive.
Any inflation concerns remain off the radar, as total prices fell again and core prices
continued to slow. Oil prices also eased a bit in September.
Initial claims for unemployment insurance fell in September, more than offsetting
the gain seen in August. Overall, weekly claims are down over 100,000 from their
March peak.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
700
700
650
650
600
550
500
Initial Claims for Unemployment Insurance
Thousands, Quarterly Average
08:Q4
09:Q1
09:Q2
09:Q3
512
623
624
559
600
550
500
450
450
400
400
350
350
300
300
250
250
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Source: Department of Labor, Employment and Training Administration / Haver Analytics.
The primary measures of consumer attitides were mixed in September. Consumer
sentiment soared to its highest level since the onset of the recession, but confidence
eased slightly. Similar disparities were seen in expectations and present conditions.
Consumers in both surveys shared primary concerns regarding their incomes and
personal finances.
Consumer Sentment
Index, 1966:Q1=100
Index, 1966:Q1=100
120
120
Current Conditions
100
100
Sentiment
80
80
60
60
Expectations
40
Sep-06
Jan-07
May-07
Sep-07
May-08
Sep-08
Jan-09
Consumer Confidence
Index, 1985 = 100
150
125
100
75
50
25
0
Sep-06
Jan-08
May-09
Index, 1985 = 100
Present Situation
Confidence
Expectations
Jan-07
May-07
Sep-07
Jan-08
May-08
40
Sep-09
Sep-08
Jan-09
May-09
150
125
100
75
50
25
0
Sep-09
Source: University of Michigan (sentiment) and The Conference Board (confidence) / Haver Analytics.
Real incomes fell for the third month in a row in August, but consumption still rose
at its fastest pace in eight years as the 'Cash-for-Clunkers' program fueled the
spending spree. With the program ending at the end of August, however, auto sales
are likely to slow which may impact consumption growth going forward.
Percent Change, Previous Month
Real DPI and Consumption
Percent Change, Previous Month
6.0
6.0
Real
Disposable Income
4.0
2.0
4.0
2.0
Real
Consumption
0.0
0.0
-2.0
-2.0
-4.0
Aug-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
Source: Bureau of Economic Analysis / Haver Analytics.
Aug-08
May-08
-4.0
Aug-08
Feb-09
Nov-08
May-09
The recovery in the housing market cooled a bit in August, as new home sales were
essentially flat and sales of existing homes decreased. The annual sales pace for
both measures was still higher in August than it was for most of the past year.
New and Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
1200
7000
Existing
Home Sales
6500
1000
6000
New
Home Sales
800
5500
600
5000
400
4500
200
4000
Aug-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
Aug-08
May-08
Feb-09
Nov-08
Aug-09
May-09
Source: U.S. Census Bureau / Haver Analytics.
Housing starts and building permits both posted small increases in August, offsetting
the even smaller decreases of the previous month.
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
2000
2000
1750
1750
1500
1500
Building Permits
1250
1250
Housing Starts
1000
1000
750
750
500
500
250
250
Aug-06
Feb-07
Nov-06
Aug-07
May-07
Source: U.S. Census Bureau / Haver Analytics.
Feb-08
Nov-07
Aug-08
May-08
Feb-09
Nov-08
Aug-09
May-09
The ISM diffusion index eased in September, but remained above 50 for the second
month in a row. The index's third quarter average was also above 50, signifying its
strongest quarter in two years.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
60.0
60.0
55.0
55.0
ISM
Index
50.0
50.0
45.0
45.0
40.0
40.0
Employment
Index
Quarterly Averages
35.0
30.0
25.0
08:Q4
09:Q1
09:Q2
09:Q3
ISM
36.1
35.9
42.6
51.5
Emp.
32.8
28.0
36.5
46.1
35.0
30.0
25.0
20.0
20.0
Sep-06
Mar-07
Dec-06
Sep-07
Jun-07
Mar-08
Dec-07
Sep-08
Jun-08
Mar-09
Dec-08
Sep-09
Jun-09
Source: Institute for Supply Management / Haver Analytics.
Further improvement was seen in the manufacturing sector in August, as both
industrial production and capacity utilization increased for the second month in a row
following several months of steady declines.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
3.0
85.0
Capacity Utilization
(manufacturing)
2.0
80.0
1.0
0.0
75.0
-1.0
70.0
-2.0
Industrial Production
-3.0
65.0
-4.0
-5.0
60.0
Aug-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
Source: Federal Reserve Board of Governors / Haver Analytics.
Aug-08
May-08
Feb-09
Nov-08
Aug-09
May-09
Durable goods orders posted another year-over-year decline in August, but the drop
was less severe than those seen over the previous eight months. Orders of
nondefense capital goods, excluding aircraft, also continued to fall.
Durable Goods Orders
Percent Change, Year-over-year
Percent Change, Year-over-year
20.0
20.0
15.0
15.0
Durable Goods,
New Orders
10.0
Capital Goods Nondefense,
Excluding Aircraft
10.0
5.0
5.0
0.0
0.0
-5.0
-5.0
-10.0
-10.0
Durable Goods, New Orders
Percent change, month-over-month
-15.0
-15.0
-20.0
May-09
Jun-09
Jul-09
Aug-09
-20.0
-25.0
1.35
-1.14
4.76
-2.40
-25.0
-30.0
-30.0
Aug-06
Feb-07
Nov-06
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
May-07
Nov-07
May-08
Nov-08
May-09
Source: U.S. Census Bureau / Haver Analytics.
Recent data continued to show little evidence of inflationary pressure. Headline
prices fell further, and core prices slowed a bit more.
Consumer Price Index
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
6.0
6.0
Consumer Price Index,
excluding food and energy
4.0
4.0
2.0
2.0
0.0
0.0
Consumer Price Index
-2.0
-4.0
Aug-06
Dec-06
Apr-07
-2.0
Aug-07
Dec-07
Apr-08
Aug-08
Producer Price Index
Percent Change, Year-Over-Year
Dec-08
Apr-09
Percent Change, Year-Over-Year
15.0
10.0
-4.0
Aug-09
15.0
Producer Price Index,
excluding food and energy
10.0
5.0
5.0
0.0
0.0
-5.0
-10.0
Aug-06
-5.0
Producer Price Index
Dec-06
Apr-07
Aug-07
Source: Bureau of Labor Statistics / Haver Analytics.
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
-10.0
Aug-09
Oil prices eased slightly in September.
Domestic Spot Oil Price
Dollar per Barrel
Dollar per Barrel
140.0
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
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Source: Wall Street Journal / Haver Analytics.
The decline in real GDP was revised smaller in the final second quarter estimate,
due primarily to an upward revision to nonresidential fixed investment.
Real GDP
6.0
3.0
0.0
-3.0
-6.0
-9.0
06:Q2
06:Q4
07:Q2
07:Q4
08:Q2
08:Q4
09:Q2
Revisions to Second Quarter Real GDP
Description
Real GDP
Preliminary
Final
-1.0
-0.7
Consumption
-1.0
-0.9
Business Investment
-10.9
-9.6
Equipment & Software
Residential Investment
Government
-8.4
-4.9
-22.8
-23.3
6.4
6.7
Exports
-5.0
-4.1
Imports
-15.1
-14.7
Final Sales
0.4
0.7
Source: Bureau of Economic Analysis / Haver Analytics.
Overall, data released since your last Directors' meeting has been somewhat mixed, but
still foreshadow a stronger second half of the year. Consumers are more optimistic than they
have been in months, the manufacturing sector is showing further signs of improvement, and
the third quarter is likely to produce positive growth in GDP for the first time in over a year.
Still, as expected, labor markets will likely be last to turn around, slowing the recovery of the
economy as a whole.
Percent
Short-Term Interest Rates
Percent
5.0
1.00
4.0
Federal Funds Rate
(effective rate)
5.0
Discount Window Primary Credit
4.0
0.75
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.25
3.0
3.0
0.00
Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
2.0
2.0
1.0
1.0
0.0
0.0
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Source: Federal Reserve Board of Governors / Haver Analytics.
Dec-08
Mar-09
Jun-09
Sep-09
PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
October 8, 2009
Current Economic Developments - Addendum: Data released in the past week
The job market continued to deteriorate it September. Nonfarm payrolls shed another
263,000 jobs, bringing the total number of job losses since the start of the recession above
7 million. The unemployment rate rose to 9.8% in September, a 26-year high. Details of the
employment report were generally dismal, especially in terms of duration of unemployment,
discouraged workers, and those forced to work part-time.
Auto sales tumbled back to their pre-'CARS' level in September, but the rebate program was
enough to boost sales overall in the third quarter to their highest level since the third quarter
of 2008.
The ISM nonmanufacturing index improved to 50.9 in September, signaling an expanding
economy for the first time in over a year. In August, manufacturers' orders and shipments
both fell, offsetting some of the gains seen in July.
Redbook sales increased 0.4% in the first week of October, compared to September. Sales
in the week ending October 3rd were 1.9% lower than during the same period last year. Oil
prices rose during the past week, averaging $70.5 per barrel compared to last week's average
of $66.9.
In September, a record 35.6% of the unemployed had been jobless for more than
six months, while an alternative guage of unemployment that includes discouraged
workers and those forced to work part time rose to a record 17.0%. Additionally, the
average total work week fell to an all-time low of 33 hours.
Nonfarm Payroll Employment
Unemployment Rate
Change from Previous Month
Rate
300
11.0
150
10.0
0
9.0
-150
8.0
-300
7.0
-450
-600
-750
-900
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Dec-07
Jun-08
Dec-08
Jun-09
Source: Bureau of Labor Statistics / Haver Analytics.
6.0
5.0
4.0
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Dec-07
Jun-08
Dec-08
Jun-09
Lightweight vehicle sales returned to near-record-low levels in September following
the expiration of the 'CARS' stimulus program. The success of the rebates cleared out
much of the inventory and pulled many purchases forward, leaving a more difficult
sales environment in its wake.
Total Lightweight Vehicle Sales
Millions of Units, Annualized
Millions of Units, Annualized
20.0
20.0
Quarterly Sales, 2009
Millions of Units, Annualized
15.0
Q1
Q2
Q3
9.5
9.6
11.5
15.0
10.0
10.0
5.0
5.0
0.0
Sep-06
Mar-07
Dec-06
Sep-07
Jun-07
Mar-08
Dec-07
Source: Bureau of Economic Analysis / Haver Analytics.
Sep-08
Jun-08
0.0
Sep-09
Mar-09
Dec-08
Jun-09