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PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
Current Economic Developments - September 11, 2003
Data released since your last Directors' meeting show the economy is picking up steam.
However, the labor market remains weak. Nonfarm payroll employment fell in August
for the seventh consecutive month. The unemployment rate fell one-tenth of a
percentage point, as more discouraged workers left the labor force. Although Initial
claims edged slightly downward in August, their level remained above 400,000.
Consumer confidence was mixed in August, but overall confidence levels have
been little changed over the past few months. Yet, uncertainty about the economy
has not slowed consumer spending. In July, home sales remained high and auto
sales rose. In August, auto and light truck sales hit their highest level since
October 2001, marking their second highest level on record.
The manufacturing sector showed some improvement in July and August. In July,
industrial production posted a large gain and capacity utilization edged upward.
The ISM index in August marked its highest level this year. But, new orders for
capital goods, excluding aircraft, were flat in July, suggesting future strength may
still be in question.
Nonfarm payroll employment fell in August for the seventh consecutive month.
And the unemployment rate fell one-tenth of a percentage point, as more
discouraged workers dropped out of the labor force.
Nonfarm Payroll Employment
Unemployment Rate
Change from Previous Month
200
Nonfarm Payroll
Employment
Percent
6.5
6.4
100
6.3
0
6.2
6.1
-100
6.0
5.9
-200
5.8
3-Month Moving Average
-300
5.7
5.6
-400
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
May-01
Nov-01
May-02
Nov-02
May-03
Source: Bureau of Labor Statistics.
5.5
Aug-02
Feb-03
Aug-03
Nov-02
May-03
The four-week moving average of initial claims ending August 30th, indicate claims
edged slightly downward in August. Still, claims remained above 400,000.
The help wanted index was flat in July, after rising in June.
Initial Claims
Help Wanted Index
Index, 1978 = 100
Thousands of Units at Annual Rates
50.0
500
475
45.0
450
425
40.0
400
375
Four-Week Moving
Average Ending
August 30th,
401,500
35.0
350
325
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Apr-01
Oct-01
Apr-02
Oct-02
Apr-03
Jul-02
30.0
Jan-03
Jul-03
Oct-02
Apr-03
Source: Department of Labor, Employment and Training Administration (claims), and The Conference Board (help wanted).
Surveys of consumer attitudes were mixed in August. Overall, confidence
has been little changed over the past few months.
Consumer Confidence and Expectations
Consumer Sentiment and Expectations
Index, 1966:Q1 = 100
Index, 1985 = 100
120
100
Consumer
Sentiment
110
Consumer
Expectations
100
Consumer
Expectations
95
90
90
85
80
80
70
Consumer
Confidence
75
60
70
50
Dec-01
Aug-02
Apr-02
Apr-03
Dec-02
Aug-03
65
Dec-01 Apr-02 Aug-02 Dec-02 Apr-03 Aug-03
Source: The Conference Board (Confidence) and The University of Michigan (Sentiment).
Real consumption rose in July, as consumer's continued to spend, especially on
durable goods. Retail sales, excluding autos, edged slightly downward in July,
still growth in this area remains healthy.
Real Consumption
Percent Change, Previous Month
Retail Sales
Percent Change, Previous Month
Percent Change, Previous Month
1.5
3.0
10.0
Retail Sales
Real Consumption
2.0
Excluding Autos
1.0
Durable Goods
5.0
1.0
0.5
0.0
0.0
0.0
-5.0
-1.0
-0.5
-1.0
Jan-02
Jul-02
Apr-02
-10.0
Jul-03
Jan-03
Oct-02
Apr-03
-2.0
Jan-02
Jul-02
Jan-03
Jul-03
Apr-02
Oct-02
Apr-03
Source: Bureau of Economic Analysis (Consumption) and U.S. Census Bureau (Retail Sales).
Consumer's continued to purchase autos in August, as vehicle sales marked their
second highest level on record. Sales hit a record high in October 2001.
Auto and Light Truck Sales
Millions of Units, Annualized
24.0
22.0
20.0
18.0
16.0
14.0
12.0
O
N
ct
-0
1
ov
-0
D 1
ec
-0
Ja 1
n0
Fe 2
b0
M 2
ar
-0
A 2
pr
M 02
ay
-0
Ju 2
n0
Ju 2
l-0
A 2
ug
-0
Se 2
p0
O 2
ct
-0
N 2
ov
-0
D 2
ec
-0
Ja 2
n0
Fe 3
b0
M 3
ar
-0
A 3
pr
M 03
ay
-0
Ju 3
n0
Ju 3
l-0
A 3
ug
-0
3
10.0
Source: Bureau of Economic Analysis.
Existing home sales rose in July, hitting a new record-high. New home sales
slipped in July, after hitting a record-high in June.
New and Existing Home Sales
Thousands of Units, Annualized
6500
Thousands of Units, Annualized
6250
6000
1300
Existing Homes
5750
New Homes
1200
5500
1100
5250
1000
2
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
800
D
-0
-0
ct
ov
N
O
pSe
2
02
2
2
-0
-0
A
Ju
l
ug
2
02
n-
Ju
M
ay
-0
-0
pr
A
ar
-0
2
2
02
900
M
bFe
nJa
D
ec
-0
02
1
5000
Source: National Association of Realtors (Existing Homes) and U.S. Census Bureau (New Homes).
Housing starts and building permits remained strong in July.
Housing Starts and Building Permits
Thousands of Units,
Annualized
2000
Building Permits
1900
Housing Starts
1800
1700
1600
D
ec
-0
1
Ja
n02
Fe
b02
M
ar
-0
2
A
pr
-0
M 2
ay
-0
2
Ju
n02
Ju
l-0
A 2
ug
-0
Se 2
p02
O
ct
-0
N 2
ov
-0
D 2
ec
-0
2
Ja
n03
Fe
b03
M
ar
-0
3
A
pr
-0
M 3
ay
-0
3
Ju
n03
Ju
l-0
3
1500
Source: U.S. Census Bureau.
The manufacturing sector showed signs of life in July, as industrial production
posted its largest gain since January and capacity utilization edged upward.
Industrial Production and Capacity Utilization
Percent of Capacity
Percent Change, Previous Month
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
Jul-00
Jan-01
Oct-00
Jul-01
Apr-01
Jan-02
Oct-01
Jul-02
Apr-02
Jan-03
Oct-02
Jul-03
Apr-03
Source: Federal Reserve Board of Governors.
New orders for capital goods, excluding aircraft, were flat in July, following two
months of positive growth. July's flat estimate suggests the strength of future
orders may still be in question.
Durable and Capital Goods Orders
Percent Change, Previous Month
10.00
Capital Goods Nondefense
Excluding Aircraft
5.00
0.00
-5.00
Durable Goods Orders
-10.00
Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03
Jan-02 Mar-02 May-02
Jul-02
Sep-02 Nov-02 Jan-03 Mar-03 May-03
Jul-03
Source: U.S. Census Bureau.
The ISM index continued to rise in August, marking its highest level this year.
The employment index has yet to improve.
ISM Index
Index (50+ = Economic Expansion)
60.0
55.0
50.0
45.0
40.0
35.0
30.0
Dec-01
Apr-02
Feb-02
Aug-02
Jun-02
Dec-02
Oct-02
Apr-03
Feb-03
Aug-03
Jun-03
Source: U.S. Census Bureau (orders) and Institute for Supply Management (ism index).
Consumer and producer prices remain low, especially core prices.
Consumer Prices
Percent Change, Year-to-Year
3.5
3.0
Consumer Price Index
2.5
2.0
1.5
Consumer Price Index,
excluding food and energy
Jan-02
Mar-02
May-02
Jul-02
Sep-02
Nov-02
Jan-03
1.0
Mar-03
May-03
0.5
Jul-03
Producer Prices
Percent Change, Year-to-Year
4.0
Producer Price Index
2.0
0.0
-2.0
Producer Price Index,
excluding food and energy
Jan-02
Mar-02
May-02
Source: Bureau of Labor Statistics.
Jul-02
Sep-02
Nov-02
Jan-03
Mar-03
May-03
-4.0
Jul-03
Second quarter real GDP was revised upward, reflecting increases in consumption,
federal defense spending, and business investment.
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
Advanced
Preliminary
2.4
3.1
Consumption
3.3
3.8
Business Investment
6.9
8.0
Residential Investment
6.0
4.5
Government
7.5
8.2
Exports
-3.1
-1.2
Imports
9.2
7.9
Final Sales
3.2
4.0
Real GDP
Source: Bureau of Economic Analysis.
Upward revisions to productivity in the second quarter show workers were more
productive than previously thought.
Productivity
Annualized Growth Rate
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
00:Q2
00:Q4
00:Q3
01:Q2
01:Q1
Source: Bureau of Labor Statistics.
01:Q4
01:Q3
02:Q2
02:Q1
02:Q4
02:Q3
03:Q2
03:Q1
All in all, consumption and residential investment remains strong. And business
investment appears to be picking up. But, the labor market remains weak and
there has been little sign of improvement.
Percent
Short-Term Interest Rates
4.0
Federal Funds Rate
(effective rate)
3.0
Discount Window
Primary Credit
2.0
3.00
2.25
2.20
2.00
2.00
2.00
1.00
1.0
0.00
May-03
Jul-03
Jun-03
Aug-03
0.0
Aug-
Oct-01
Dec-01
Feb-02
Apr-02
Source: Federal Reserve Board of Governors.
Jun-02
Aug-02
Oct-02
Dec-02
Feb-03
Apr-03
Jun-03
Aug-03