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The
President’s
Report to the
Board of
Directors
April 2, 2009
Current Economic Developments - April 2, 2009
Data released since your last Directors' meeting suggest the economy contracted further
during the first quarter. While a small amount of positive data has started to mix in with the
negative, the combined effects of recent job losses, reductions of household wealth, and
shrinking global demand are likely to impede any significant economic improvement
throughout the first half of the year.
In March, initial claims for unemployment insurance rose again, ending the first quarter at a
26-year high. Consumer attitudes remained depressed during the month, hovering at or
near record lows. Auto and light truck sales picked up in March, but first quarter sales were
still the lowest in nearly 30 years. In February, real consumption fell in conjunction with a
decrease in real disposable incomes.
While the housing market continues to be a significant source of weakness in the economy,
it did provide some positive news in February. Sales of both new and existing homes
increased during the month, as did housing starts and building permits, marking the first
time since October 2004 that these four measures all increased in the same month.
In the business sector, both the ISM manufacturing and employment indices improved
in March, but remain well below 50. In February, industrial production and capacity utilization
both continued to fall. Also in February, orders for durable goods and nondefense capital
goods excluding aircraft rose from January, but remained down significantly from last year.
Inflation data was mostly unchanged in February, with small accelerations seen in consumer
price measures and small decelerations in producer measures. Oil prices rose in March,
reaching levels last seen in November.
Initial claims rose to their second-highest level ever in March, just short of the
record set in September 1982.
Initial Claims
Thousands of Units at Annual Rates
Thousands of Units at Annual Rates
700
650
700
650
Initial Claims for Unemployment Insurance
Quarterly Averages
600
600
08:Q2
08:Q3
08:Q4
09:Q1
377
441
512
622
550
550
500
500
450
450
400
400
350
350
300
300
250
Mar-06
Sep-06
Jun-06
Mar-07
Dec-06
Sep-07
Jun-07
Mar-08
Dec-07
Source: Department of Labor, Employment and Training Administration.
250
Mar-09
Sep-08
Jun-08
Dec-08
Consumer attitudes were mixed in March. Feelings towards current economic
conditions worsened, but expectations and overall disposition improved a bit.
Consumers are still primarily concerned about the labor market and personal
finances, while their overall outlook for the economy has improved only slightly.
Consumer Sentiment
Consumer Confidence
Index, 1966:Q1 = 100
Index, 1985 = 100
110
150
125
Consumer
Confidence
Present
Situation
Consumer
Sentiment
Current
Conditions
100
90
100
80
75
50
70
Consumer
Expectations
60
Future
Expectations
25
50
0
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Mar-07
Sep-07
Mar-08
Sep-08
40
Mar-09
Source: The University of Michigan.
Source: The Conference Board.
Total auto and light truck sales managed a surprising gain in March, but their first
quarter average was still the worst since 1981.
Total Auto and Light Truck Sales
Millions of Units, Annualized
Millions of Units, Annualized
22.0
22.0
Quarterly Sales
20.0
07:Q2
07:Q3
07:Q4
08:Q1
20.0
18.0
14.1
12.9
10.3
9.5
18.0
16.0
16.0
14.0
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
Mar-06
Sep-06
Jun-06
Mar-07
Dec-06
Source: Bureau of Economic Analysis.
Sep-07
Jun-07
Mar-08
Dec-07
6.0
Mar-09
Sep-08
Jun-08
Dec-08
Real disposable incomes fell in February, following five consecutive monthly
increases. Consumption also declined during the month, continuing its recent
volatile history.
Real DPI and Consumption
Percent Change, Previous Month
Percent Change, Previous Month
6.0
6.0
5.0
5.0
Real Disposable Income
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
-1.0
-2.0
-1.0
Real Consumption
-2.0
-3.0
-3.0
-4.0
Feb-06
Aug-06
May-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
-4.0
Feb-09
Aug-08
May-08
Nov-08
Source: Bureau of Economic Analysis.
Housing sales remain close to record lows, but did show signs of life in February.
New home sales rose for the first time since July, and sales of existing homes
increased to offset the previous month's decline.
New Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
1500
1500
1250
1250
1000
1000
750
750
500
500
250
250
0
0
Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09
Thousands of Units, Annualized
Existing Home Sales
Thousands of Units, Annualized
7500
7500
7000
7000
6500
6500
6000
6000
5500
5500
5000
5000
4500
4500
4000
4000
Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09
Source: U.S. Census Bureau (new homes sales) and National Association of Realtors (existing home sales).
New residential construction also reported positive news in February, with both
housing starts and building permits posting their first increases in eight months.
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
2400
2400
Building Permits
2100
2100
Housing Starts
1800
1800
1500
1500
1200
1200
900
900
600
600
300
Feb-06
Aug-06
May-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
300
Feb-09
Aug-08
May-08
Nov-08
Source: U.S. Census Bureau.
The ISM manufacturing and employment indices showed some improvement in
March, but both measures remain well below 50. On a quarterly basis, the ISM
index is at its lowest point in nearly 30 years and the employment index is at an
all-time low.
ISM Index
Index (50+ = Economic Expansion)
Index (50+ = Economic Expansion)
60.0
60
ISM Index
50.0
50
Employment Index
40.0
40
Quarterly Averages
30.0
08:Q2
08:Q3
08:Q4
09:Q1
ISM
49.1
47.4
36.1
35.9
Emp.
45.4
46.6
32.8
28.0
30
20.0
20
Mar-06
Sep-06
Jun-06
Mar-07
Dec-06
Source: Institute of Supply Management.
Sep-07
Jun-07
Mar-08
Dec-07
Sep-08
Jun-08
Mar-09
Dec-08
Industrial production and capacity utilization both continued to fall in February.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
3.0
88.0
2.0
84.0
Industrial Production
1.0
80.0
0.0
-1.0
76.0
-2.0
72.0
Capacity Utilization
(manufacturing)
-3.0
68.0
-4.0
-5.0
Feb-06
Aug-06
May-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
64.0
Feb-09
Aug-08
May-08
Nov-08
Source: Federal Reserve Board of Governors.
New orders for durable goods rose in February for the first time in seven months,
but were still down significantly on a year-over-year basis. Orders of nondefense
capital goods, excluding aircraft, followed a similar path.
Durable Goods Orders
Percent Change, Year-over-year
Percent Change, Year-over-year
20.0
20.0
Capital Goods Nondefense,
Excluding Aircraft
15.0
15.0
10.0
10.0
5.0
5.0
0.0
0.0
-5.0
Durable Goods,
New Orders
-5.0
-10.0
-10.0
-15.0
Percent Change, Previous Month
Dec-08
Jan-09
Feb-09
Durables
-4.59
-7.85
3.49
Ex. Air.
-5.93
-12.25
7.12
-20.0
-25.0
-15.0
-20.0
-25.0
-30.0
-30.0
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
May-06
Nov-06
May-07
Nov-07
May-08
Nov-08
Source: U.S. Census Bureau.
Total consumer prices remained virtually unchanged in February, while core prices
picked up slightly. Producer prices continued to fall.
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
Consumer Price Index
0.0
-2.0
Feb-06
0.0
Aug-06
May-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
-2.0
Feb-09
Aug-08
Nov-07
May-08
Nov-08
Producer Price Index
Percent Change, Year-Over-Year
Percent Change, Year-Over-Year
12.0
12.0
Producer Price Index,
excluding food and energy
8.0
8.0
4.0
4.0
0.0
0.0
Producer Price Index
-4.0
Feb-06
Aug-06
May-06
Feb-07
Nov-06
Aug-07
May-07
Feb-08
Nov-07
-4.0
Feb-09
Aug-08
May-08
Nov-08
Source: Bureau of Labor Statistics.
Oil prices rose in March, reaching their highest levels since November. Still, their
first quarter average was the lowest since the second quarter of 2004.
Domestic Spot Oil Price
Dollars per Barrel
Dollars per Barrel
150.0
150.0
Quarterly Averages
125.0
125.0
08:Q2
08:Q3
08:Q4
09:Q1
124.0
118.0
58.4
43.0
100.0
100.0
75.0
75.0
50.0
50.0
25.0
25.0
0.0
0.0
Mar-06
Sep-06
Jun-06
Source: Wall Street Journal.
Mar-07
Dec-06
Sep-07
Jun-07
Mar-08
Dec-07
Sep-08
Jun-08
Mar-09
Dec-08
The drop in real GDP was revised slightly downward in the final fourth quarter
estimate. The lower figure primarily reflected downward adjustments to private
inventory investment and to business and residential investment that were partially
offset by a downward revision to imports.
Real GDP
Annualized Percent Change
Annualized Percent Change
9.0
6.0
3.0
0.0
-3.0
-6.0
-9.0
9.0
6.0
3.0
0.0
-3.0
-6.0
-9.0
05:Q4
06:Q2
06:Q4
07:Q2
07:Q4
08:Q2
08:Q4
Fourth Quarter Revisions
Description
Preliminary
-6.2
-4.3
-21.1
-28.8
-22.2
1.6
-23.6
-16.0
-6.4
$-19.9b
Real GDP
Personal Consumption
Business Investment
Equipment and Software
Residential Investment
Government
Exports
Imports
Final Sales
Change in Private Inventories
Revised
-6.3
-4.3
-21.7
-28.1
-22.8
1.3
-23.6
-17.5
-6.2
$-25.8b
Source: Bureau of Economic Analysis.
Overall, data released since your last Directors' meeting suggest the economy contracted
further during the first quarter. While a small amount of positive data has started to mix in
with the negative, the combined effects of recent job losses, reductions of household wealth,
and shrinking global demand are likely to impede any significant economic improvement
throughout the first half of the year.
Percent
Short-Term Interest Rates
4.0
Federal Funds Rate
(effective rate)
3.0
Discount Window Primary Credit
2.00
1.25
2.0
0.86
1.00
0.50
0.50
0.50
0.00
Nov-08
Jan-09
Mar-09
1.0
0.0
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Source: Federal Reserve Board of Governors.
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
April 8, 2009
Current Economic Developments - Addendum: Data released in the past week
The labor market continued to deteriorate in March. Nonfarm payrolls shed another 663,000
jobs, bringing the total number of jobs lost since the start of the recession to greater than
five million. These cumulative job losses brought the unemployment rate up to 8.5% in
March, its highest point since November 1983.
The ISM non-manufacturing index fell to 40.8 in March, from 41.6 in February. The index
has been below 50 for six consecutive months, but did show some improvement in the
first quarter from the fourth. The employment component of the index fell to 32.3 in March,
bringing the first quarter average to a record low.
Oil prices decreased a bit over the past week, averaging $50.9 per barrel compared to last
week's average of $52.2.
Payroll employment decreased by over two million in the first quarter of the year.
The latest January estimate of a drop of 741,000 jobs is the largest single-month
decline since October 1949.
Nonfarm Payroll Employment
Change from Previous Month
Unemployment Rate
Rate
400
9.0
300
8.5
200
100
0
8.0
7.5
-100
7.0
-200
6.5
-300
6.0
-400
-500
-600
-700
-800
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Jun-07
Dec-07
Jun-08
Dec-08
Source: Bureau of Labor Statistics.
5.5
5.0
4.5
4.0
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Jun-07
Dec-07
Jun-08
Dec-08