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PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
Current Economic Developments - October 9, 2003
Data released since your last Directors' meeting tell a similar story to last month.
The economy seems to be picking up, but the labor market remains weak.
September's employment report showed some improvement in the labor market,
as payrolls posted their first rise in eight months and job losses in August were
revised upward. Still the unemployment rate was unchanged and the latest
four-week moving average of initial claims continued to hover above 400,000.
The weak labor market pushed consumer attitudes down in September. Yet,
consumption remained strong as consumers continue to spend, especially on
durable goods. Auto sales slowed in September, compared to August, but sales
rates remain strong.
Despite August's drop in housing starts, the housing market remains in good shape,
as the level of housing starts remain high. Building permits grew in August, as did
new and existing home sales.
The manufacturing sector has shown some signs of improvement, but conditions have
yet to pick up, especially in the labor market.
Nonfarm payroll employment rose in September for the first time in eight months,
while September's unemployment rate was unchanged.
Nonfarm Payroll Employment
Unemployment Rate
Change from Previous Month
300
Nonfarm Payroll
Employment
200
Percent
6.5
6.4
6.3
100
0
6.2
6.1
6.0
-100
5.9
-200
3-Month Moving Average
-300
5.8
5.7
5.6
-400
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Source: Bureau of Labor Statistics.
5.5
Sep-02
Mar-03
Sep-03
Dec-02
Jun-03
The latest four-week moving average of initial claims continued to hover above
400,000.
Initial Claims for Unemployment Insurance
Thousands of Units at Annual Rates
500
Four-Week Moving Average
Ending September 27th, 403,500
450
400
350
300
250
200
Sep-99
Mar-00
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Source: Department of Labor, Employment and Training Administration.
And the help wanted index edged downward in August.
Help Wanted Index
Index, 1978 = 100
90.0
80.0
70.0
60.0
50.0
40.0
30.0
Aug-00
Dec-00
Apr-01
Aug-01
Dec-01
Apr-02
Aug-02
Dec-02
Apr-03
Aug-03
Oct-00
Feb-01
Jun-01
Oct-01
Feb-02
Jun-02
Oct-02
Feb-03
Jun-03
Source: The Conference Board.
Consumer sentiment, from the Michigan survey, fell in September, along with
a drop in expectations.
Consumer Sentiment
Index, 1966:Q1 = 100
120
110
Consumer Sentiment
100
Consumer Expectations
90
80
70
60
Sep-00
Mar-01
Dec-00
Sep-01
Jun-01
Mar-02
Dec-01
Sep-02
Jun-02
Mar-03
Dec-02
Sep-03
Jun-03
Source: University of Michigan.
And the Conference Board's survey of consumer attitudes showed decreases
in confidence and expectations in September, reversing the rises seen in August.
Consumer Confidence and Expectations
Index, 1985 = 100
120
110
Consumer
Expectations
100
90
80
70
Consumer
Confidence
60
50
Dec-01
Mar-02
Source: The Conference Board.
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Real consumption rose at a slower pace in August than in July, yet continues
to grow as consumers keep purchasing durable goods.
Real Consumption
Percent Change, Previous Month
Percent Change, Previous Month
1.5
15.0
Durable Goods
Real Consumption
1.0
10.0
0.5
5.0
0.0
0.0
-0.5
-5.0
-1.0
-10.0
Dec-01
Apr-02
Feb-02
Aug-02
Jun-02
Dec-02
Oct-02
Apr-03
Feb-03
Aug-03
Jun-03
Source: Bureau of Economic Analysis.
Autos and light truck sales in September slowed from August's quick pace, but
remain strong.
Auto and Light Truck Sales
Millions of Units, Annualized
20.0
19.0
18.0
17.0
16.0
15.0
14.0
Sep-02
Nov-02
Oct-02
Jan-03
Dec-02
Source: Federal Reserve Baord of Governors.
Mar-03
Feb-03
May-03
Apr-03
Jul-03
Jun-03
Sep-03
Aug-03
Housing starts fell in August, compared to July, but remain at high levels. Building
permits rose in August, as did new and existing homes sales. In fact, existing home
sales posted a record high.
New and Existing Home Sales
Housing Starts and Building Permits
Thousands of Units, Annualized
Thousands of Units, Annualized
6500
2000
Thousands of Units, Annualized
1200
Building Permits
1900
6250
1800
6000
1700
5750
New Homes
1100
1000
5500
1600
Housing
Starts
900
Existing Homes
3
A
ug
-0
b-
03
2
Fe
A
ug
-0
02
bFe
A
ug
-0
1
ug
A
Fe
b01
0
800
-0
3
A
ug
-0
Fe
b-
03
2
A
ug
-0
02
bFe
A
ug
-0
A
ug
-0
1
5000
Fe
b01
1400
0
1500
5250
Source: U.S. Census Bureau (Starts, Permits, and New Homes) and National Association of Realtors (Existing Homes).
The index of leading indicators rose for a fourth consecutive month in August.
Index of Leading Indicators
Percent Change, Previous Month
1.5
1.0
0.5
0.0
-0.5
D
ec
-0
Ja 1
n0
Fe 2
b02
M
ar
-0
2
A
pr
-0
2
M
ay
-0
Ju 2
n02
Ju
l-0
2
A
ug
-0
Se 2
p02
O
ct
-0
2
N
ov
-0
2
D
ec
-0
Ja 2
n0
Fe 3
b03
M
ar
-0
3
A
pr
-0
3
M
ay
-0
Ju 3
n03
Ju
l-0
3
A
ug
-0
3
-1.0
Source: The Conference Board.
Industrial production posted a modest gain in August, while capacity utilization
was flat. Both new orders for durable goods and capital goods, excluding aircrafts,
fell in August.
Industrial Production and Capacity Utilization
Percent Change, Previous Month
Percent of Capacity
1.0
84.0
Industrial Production
82.0
0.5
80.0
0.0
78.0
76.0
-0.5
74.0
Capacity Utilization
-1.0
72.0
Aug-00 Nov-00 Feb-01 May-01 Aug-01 Nov-01 Feb-02 May-02 Aug-02 Nov-02 Feb-03 May-03 Aug-03
Capital Goods Orders
Percent Change, Previous Month
10.0
Capital Goods Nondefense
Excluding Aircraft
5.0
0.0
-5.0
New Orders, Durable Goods
-10.0
Aug-00 Nov-00 Feb-01 May-01 Aug-01 Nov-01 Feb-02 May-02 Aug-02 Nov-02 Feb-03 May-03 Aug-03
Source: Federal Reserve Board of Governors (Production) and U.S. Census Bureau (Orders).
The ISM index edged slightly downward in September, compared to August, but
September's estimate marked the third consecutive month above 50. The
employment index continues to show job losses in manufacturing.
ISM Index
Index (50+ = Economic Expansion)
60.0
ISM Index
Employment Index
55.0
50.0
45.0
40.0
35.0
Sep-00
Mar-01
Dec-00
Sep-01
Jun-01
Source: Institute for Supply Management.
Mar-02
Dec-01
Sep-02
Jun-02
Mar-03
Dec-02
Sep-03
Jun-03
Real GDP was revised upward in the second quarter, led by greater inventory
investment, residential construction, and imports.
Real GDP
6.0
4.0
2.0
0.0
-2.0
00:Q2
00:Q4
01:Q2
01:Q4
02:Q2
02:Q4
03:Q2
Revisions to Second Quarter Real GDP
Description
Real GDP
Preliminary
Revised
3.1
3.3
Consumption
3.8
3.8
Business Investment
8.0
7.3
Residential Investment
4.5
6.6
Government
8.2
8.5
Exports
-1.2
-1.0
Imports
7.9
8.8
Final Sales
4.0
4.0
Source: Bureau of Economic Analysis.
Increases in both core consumer and core prodcuer prices remain modest.
Consumer Prices
Percent Change, Year-to-Year
3.5
3.0
2.5
2.0
Consumer Price Index
1.5
1.0
0.5
0.0
Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03
Consumer Price Index,
excluding food and energy
Producer Prices
Percent Change, Year-to-Year
Producer Price Index
4.0
2.0
0.0
Producer Price Index,
excluding food and energy
-2.0
-4.0
Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03
Source: Bureau of Labor Statistics.
Overall, the economy is picking up steam; however, the labor market remains weak
and the manufacturing sector still shows room for improvement.
Percent
Short-Term Interest Rates
1.9
1.8
1.7
1.6
Discount Window
Primary Credit
1.5
1.4
1.3
1.2
1.1
1.0
May-03
2.25
Jun-03
2.20
Jul-03
2.00
Aug-03
2.00
Federal Funds Rate
(effective rate)
0.00 0.50 1.00 1.50 2.00 2.50 3.00
0.9
Dec-0
Feb-02
Apr-02
Jun-02
Source: Federal Reserve Board of Governors.
Aug-02
Oct-02
Dec-02
Feb-03
Apr-03
Jun-03
Aug-03