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 February 5, 2009 CURRENT ECONOMIC DEVELOPMENTS - February 5, 2009 Data since your last Directors' meeting show the economy posted its biggest contraction in over 25 years in the fourth quarter, and the weakness in the economy is likely to persist through the first half of this year. The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential investment that were partly offset by positive contributions from inventory investment, government spending, and a decrease in imports. In January, initial claims continued to rise amid further weakening of the labor market. Consumer attitudes were mixed in January, and most measures remain at or near record low levels. Inflation worries are for now a thing of the past, as headline prices for both consumers and producers grew at their slowest paces in years in the fourth quarter. The concern now is that prices may hold at levels less than ideal for economic growth. Unit labor costs slowed a bit during the fourth quarter, while total compensation, as measured by the ECI, grew at its slowest pace ever. Oil prices stabilized in January, following a steep decline seen over the past five months. Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third. The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports. The decrease in real GDP would have been larger if not for an accumulation of inventories. 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 05:Q4 06:Q2 Source: Bureau of Economic Analysis. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Despite an increase in real incomes in the fourth quarter, consumers continued to curtail their spending. Personal Income Real Consumption Annualized Percent Change Annualized Percent Change 6.0 15.0 Personal Income 12.0 4.0 9.0 2.0 6.0 3.0 0.0 0.0 -2.0 -3.0 -6.0 Real Disposable Income -4.0 -9.0 -12.0 -6.0 05:Q4 06:Q4 06:Q2 07:Q4 07:Q2 08:Q4 05:Q4 06:Q4 06:Q2 08:Q2 07:Q4 07:Q2 08:Q4 08:Q2 Source: Bureau of Economic Analysis. Auto sales fell throughout 2008 and continued to slow in January. Last month's sales pace was the slowest since July 1982. Total Auto and Light Truck Sales Millions of Units, Annualized Millions of Units, Annualized 20.0 Nov Dec Jan 18.0 10.1 10.3 9.5 16.0 14.0 12.0 10.0 8.0 6.0 4.0 05:Q4 05:Q4 06:Q2 06:Q2 06:Q4 06:Q4 Source: Bureau of Economic Analysis. 07:Q2 07:Q2 07:Q4 07:Q4 08:Q2 08:Q2 08:Q4 08:Q4 Jan-09 Business investment fell sharply in the fourth quarter, aided by the largest drop in equipment and software investment since 1958. Business Investment Annualized Percent Change Annualized Percent Change 20.0 20.0 15.0 15.0 Business Investment 10.0 10.0 5.0 5.0 0.0 0.0 -5.0 -5.0 -10.0 -10.0 Equipment and Software -15.0 -15.0 -20.0 -20.0 -25.0 -25.0 -30.0 -30.0 05:Q4 06:Q2 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Source: Bureau of Economic Analysis. In the fourth quarter, new orders for durable goods fell at their fastest pace on record. Orders for nondefense capital goods, excluding aircraft, also fell, following three consecutive quarters of growth. Durable Goods Orders Percent Change, year-over-year Percent Change, year-over-year 20.0 20.0 16.0 16.0 Capital Goods Nondefense, Excluding Aircraft 12.0 12.0 8.0 8.0 4.0 4.0 0.0 0.0 -4.0 -4.0 Durable Goods, New Orders -8.0 -8.0 -12.0 -12.0 -16.0 -16.0 -20.0 -20.0 05:Q4 06:Q2 Source: U.S. Census Bureau. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Residential investment posted another significant decline in the fourth quarter. Since its peak in the fourth quarter of 2005, investment has fallen in every quarter for three full years. Residential Investment Annualized Percent Change Annualized Percent Change 10.0 10.0 0.0 0.0 -10.0 -10.0 -20.0 -20.0 -30.0 -30.0 -40.0 -40.0 05:Q4 06:Q2 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Source: U.S. Census Bureau. The pace of new home sales in the fourth quarter was the slowest since 1982:Q2, aided by an all-time-low rate in December. Since their peaks in 2005:Q3, the sales pace of new homes has fallen over 70% and of existing homes over 35%. New and Existing Home Sales Thousands of Units, Thousands of Units, Annualized Annualized 1500 7500 New Home Sales 7000 Existing Home Sales 1250 6500 1000 6000 750 5500 500 5000 250 4500 0 4000 05:Q4 06:Q2 Source: U.S. Census Bureau. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Growth in government spending eased in the fourth quarter. Government Spending Annualized Percent Change 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 05:Q4 06:Q2 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Source: Bureau of Economic Analysis. Exports and imports both posted stiff declines in the fourth quarter. With the global economy slowing down, the support to real GDP from nex exports has evaporated. Exports and Imports Annualized Percent Change Annualized Percent Change 30.0 30.0 Exports 20.0 20.0 10.0 10.0 0.0 0.0 Imports -10.0 -10.0 Net Exports: Contribution to % change in Real GDP -20.0 08:Q1 08:Q2 08:Q3 08:Q4 0.77 2.93 1.05 0.09 -20.0 -30.0 -30.0 05:Q4 06:Q2 Source: Bureau of Economic Analysis. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Initial claims for unemployment insurance continued to escalate through the fourth quarter and into January as employment conditions deteriorated further. January's estimate was the highest since November 1982. Initial Claims Thousands of Units at Annual Rates Thousands of Units at Annual Rates 600 600 550 550 500 500 450 450 400 400 350 350 300 300 250 250 05:Q4 06:Q2 06:Q1 06:Q4 06:Q3 07:Q2 07:Q1 07:Q4 07:Q3 08:Q2 08:Q1 08:Q4 08:Q3 Jan-09 Source: Department of Labor, Employment and Training Administration. Consumer attitudes were mixed in January after deteriorating in the fourth quarter. Sentiment improved in January to a four-month high, but confidence fell to establish a new record low. Consumer Sentiment and Expectations Index, 1966:Q1=100 100 90 Index, 1966:Q1=100 100 Sentiment 90 80 80 70 70 60 Expectations 50 60 50 40 40 05:Q4 06:Q1 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 Jan-09 Consumer Confidence and Expectations Index, 1985 = 100 Index, 1985 = 100 120 120 100 100 Confidence 80 80 60 60 40 Expectations 40 20 20 05:Q4 06:Q1 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 Jan-09 Source: The Conference Board (confidence) and University of Michigan (sentiment). The ISM index fell sharply in the fourth quarter, and held close to that level in January. The employment index, while down from its fourth quarter average, was unchanged in January from its December estimate. ISM Index Index (50+ = Economic Expansion) Index (50+ = Economic Expansion) 65.0 65.0 60.0 60.0 ISM Index 55.0 55.0 50.0 50.0 45.0 45.0 40.0 40.0 Employment Index 35.0 35.0 30.0 30.0 25.0 25.0 05:Q4 06:Q2 06:Q1 06:Q4 06:Q3 07:Q2 07:Q1 07:Q4 07:Q3 08:Q2 08:Q1 08:Q4 08:Q3 Jan-09 Source: Institute for Supply Management. Headline inflation slowed considerably in the fourth quarter, for both consumers and producers. Core consumer prices slowed to their lowest rate in over four years, but producer prices accelerated for the fourth consecutive quarter. Going forward, inflation is likely to remain subdued and may hold at less than ideal levels for some time. Consumer Price Index Percent Change, Year-Over-Year 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 05:Q4 06:Q2 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Producer Price Index Percent Change, Year-Over-Year Percent Change, Year-Over-Year 10.0 8.0 10.0 8.0 Producer Price Index Producer Price Index, excluding food and energy 6.0 6.0 4.0 4.0 2.0 2.0 0.0 0.0 05:Q4 06:Q2 Source: Bureau of Labor Statistics. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 Productivity accelerated in the fourth quarter as a decline in output was more than offset by a greater drop in hours worked. Unit labor costs slowed during the period, but compensation picked up a bit. Productivity and Costs Percent Change, Previous Quarter Percent Change, Previous Quarter 15.0 15.0 Compensation Per Hour 12.0 12.0 9.0 9.0 Output Per Hour 6.0 6.0 3.0 3.0 0.0 0.0 -3.0 -3.0 Unit Labor Costs -6.0 05:Q4 06:Q2 06:Q4 07:Q2 07:Q4 08:Q2 -6.0 08:Q4 Source: Bureau of Labor Statistics. In the fourth quarter, total employment costs grew at their slowest pace on record, as wages and salaries and benefit costs decelerated. Employment Cost Index Annualized Percent Change Annualized Percent Change 6.0 6.0 Total Compensation Benefit Costs 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 Wages and Salaries 1.0 1.0 05:Q4 06:Q2 Source: Bureau of Labor Statistics. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 After a dropoff in oil prices seen over the past several months, prices stabilized in January. Past Five Months Domestic Spot Oil Price Dollars per Barrel Dollars per Barrel 130.0 110.0 120.0 100.0 110.0 90.0 100.0 80.0 90.0 70.0 80.0 60.0 70.0 50.0 60.0 40.0 50.0 40.0 05:Q4 06:Q3 07:Q2 08:Q1 08:Q4 Sep-08 Nov-08 30.0 Jan-09 Source: Wall Street Journal (oil prices). Overall, data since your last Directors' meeting show the economy posted its biggest contraction in over 25 years in the fourth quarter, and the weakness in the economy is likely to persist through the first half of this year. Short-Term Interest Rates Percent Percent 10.0 10.0 Discount Window Primary Credit 9.0 5.02 3.67 8.0 2.33 2.25 7.0 1.31 0.50 6.0 07:Q4 08:Q1 08:Q2 08:Q3 6.00 5.00 4.00 3.00 2.00 1.00 0.00 9.0 8.0 7.0 6.0 08:Q4 Jan-09 Federal Funds Rate (effective rate) 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 05:Q4 06:Q2 06:Q1 06:Q4 06:Q3 Source: Federal Reserve Board of Governors. 07:Q2 07:Q1 07:Q4 07:Q3 08:Q2 08:Q1 08:Q4 08:Q3 Jan-09 PRESDIENT'S REPORT TO THE BOARD OF DIRECTORS, FEDERAL RESERVE BANK OF BOSTON February 12, 2009 Current Economic Developments - Addendum: Data released in the past week The labor market deteriorated further in January, as nonfarm payrolls posted their most significant loss in 34 years and unemployment reached a 16-year high. Job losses for the previous two months were also revised higher. In December, wholesale inventories fell 1.4% and wholesale trade fell 3.6%. Also in December, the U.S. trade balance narrowed to a six-year low of $39.9 billion, as weakening global demand for U.S.-produced goods more than offset a decrease in our demand for imports. Through the first week of February, Redbook sales were up 0.7% compared to January, but down 1.7% compared to the same period last year. Oil prices decreased slightly over the past week, averaging $39.8 per barrel as opposed to the previous week's average of $41.2. In January, payroll employment posted its biggest monthly decrease since December 1974. Since the start of the recession payrolls have been reduced by more than 3.5 million jobs, half of those losses coming in the past three months. Nonfarm Payroll Employment Unemployment Rate Change from Previous Quarter, Monthly Average Rate 8.0 300 200 100 Nov-08 Dec-08 Jan-09 6.8 7.2 7.6 7.5 7.0 0 6.5 -100 6.0 -200 -300 5.5 -400 Change from Previous Month -500 Nov-08 Dec-08 Jan-09 -600 -597,000 -577,000 -598,000 5.0 4.5 4.0 -700 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 07:Q1 07:Q3 08:Q1 08:Q3 Jan-09 Source: Bureau of Labor Statistics. 06:Q4 07:Q2 07:Q4 08:Q2 08:Q4 07:Q1 07:Q3 08:Q1 08:Q3 Jan-09