Download PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,

PRESIDENT'S REPORT TO THE BOARD OF DIRECTORS,
FEDERAL RESERVE BANK OF BOSTON
Current Economic Developments - March 13, 2003
Data released since your last Directors' meeting show the economy tentatively continuing
its slow expansion. Nonfarm payroll employment fell by 308,000 in February, marking
the largest decrease since 2001. With rising initial claims and the unemployment rate
hovering near 5.8%, the labor market remains weak.
Consumer confidence continued to fall in February, as economic risks and geo-political
concerns continued to rise. Consumer spending fell in January, led by a slowdown in
auto sales. Auto sales remained weak in February as well. In fact, so far during the first
quarter, average monthly sales are lower than they have been in more than four years.
On balance, the housing market weakened somewhat in January. Existing home sales
hit a new record high, while new home sales plummeted.
Despite recent drops in the ISM index, the manufacturing sector showed some signs of
improvement in January, as industrial production and new orders for capital goods rose.
Nonfarm payroll employment dropped by 308,000, leaving the three-month
average below zero. The unemployment rate rose slightly to 5.8%.
Unemployment Rate
Nonfarm Payroll Employment
Change from Previous Month
Percent
200
6.5
Payroll
Employment
100
Recession
Began
6.0
0
5.5
-100
Unemployment Rate
5.0
-200
4.5
Recession
Began
-300
3-Month Moving Average
-400
-500
Jan-01
Jun-01 Nov-01 Apr-02 Sep-02 Feb-03
Source: Bureau of Labor Statistics.
4.0
3.5
Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03
Initial claims rose in February as the latest 4-week moving average
edged above 400,000, hitting it's highest level in nine weeks.
Initial Claims
Thousands of Units at Annual Rates
500
Recession
Began
4-Week Moving Average
Ending March 1st,
408,750
450
400
350
300
Dec-00
Apr-01
Feb-01
Aug-01
Jun-01
Dec-01
Oct-01
Apr-02
Feb-02
Aug-02
Jun-02
Dec-02
Oct-02
Feb-03
Source: Department of Labor.
Consumer confidence and expectations slipped in February, as concerns
about the economy and geo-political risks increased.
Confidence and Expectations
Index, 1985 = 100
Recession
Began
Consumer
Confidence
Consumer
Expectations
140
120
100
80
Feb-00
Feb-01
60
Feb-03
Feb-02
Source: The Conference Board.
Sentiment and Expectations
Index, 1966:Q1 = 100
120
Recession
Began
Consumer
Expectations
Consumer
Sentiment
110
100
90
80
70
Feb-00
Source: The University of Michigan.
Feb-01
Feb-02
60
Feb-03
Real consumption fell in January, as auto sales slowed.
Real Consumption
Percent Change, Previous Month
2.5
Recession
Began
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Source: Bureau of Economic Analysis.
The slowdown in auto sales continued in February. So far during the first
quarter, average monthly sales are the lowest they have been since the
third quarter of 1998.
Auto and Light Truck Sales
Millions of Units at Annual Rates
19.0
1st Quarter Average
(January and February)
18.0
17.0
Recession
Began
16.0
Nov-02
Dec-02
Jan-03
Feb-03
15.9
18.2
16.1
15.3
15.0
14.0
98:Q1
98:Q3
99:Q1
Source: Bureau of Economic Analysis.
99:Q3
00:Q1
00:Q3
01:Q1
01:Q3
02:Q1
02:Q3
03:Q1
On average, the housing market weakened somewhat in January. Existing
home sales hit a new record high, while new homes sales fell to their lowest
level since January 2002. Housing starts were basically flat and building permits
fell.
Housing Starts and Permits
New and Existing Home Sales
Thousands of Units, Annualized
Thousands of Units, Annualized
Thousands of Units, Annualized
1100
1900
6200
New Home Sales
6000
Recession
Began
Recession
Began
1050
Building
Permits
1800
5800
1000
5600
950
5400
900
5200
850
5000
1700
1600
Housing
Starts
800
1500
Existing Home Sales
4800
Jan-00
Jan-01
Jul-00
750
Jan-03
Jan-00
Jan-02
Jul-01
Jul-02
Jan-01
Jul-00
Source: National Association of Realtors (Existing) and U.S. Census Bureau (New).
1400
Jan-03
Jan-02
Jul-01
Jul-02
Source: U.S. Census Bureau.
In February, the ISM index dropped for a second consecutive month, hovering
just over 50.
ISM Indexes
Index (50+ = Economic Expansion)
60.0
Recession
Began
55.0
50.0
45.0
40.0
35.0
Feb-00
Jun-00
Oct-00
Source: Institute for Supply Management.
Feb-01
Jun-01
Oct-01
Feb-02
Jun-02
Oct-02
30.0
Feb-03
Yet, industrial production and capacity utilization showed some improvement
in January.
Industrial Production and Capacity Utilization
Percent of Capacity
84.0
Percent Change, Previous Month
1.0
Recession
Began
0.8
83.0
82.0
0.6
81.0
0.4
80.0
0.2
79.0
0.0
78.0
-0.2
77.0
-0.4
Industrial Production
76.0
-0.6
75.0
Capacity Utilization
-0.8
74.0
-1.0
73.0
Jan-00
Apr-00
Jul-00
Oct-00
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Source: Federal Reserve Board of Governors.
And new orders for capital goods, excluding aircraft, also showed
improvement.
New Orders for Capital Goods
Percent Change, Year-to-Year
30.00
Recession
Began
20.00
10.00
0.00
-10.00
Capital Goods Nondefense
Excluding Aircraft
-20.00
-30.00
Jan-00
Jul-00
Source: U.S. Census Bureau.
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
In February, oil prices rose to over $35.00 dollars a barrel for the first time
since October 1990.
Oil Prices
Dollar/Barrel
40.0
35.0
30.0
25.0
20.0
Recession
Began
15.0
10.0
Feb-90
Feb-92
Feb-91
Feb-94
Feb-93
Feb-96
Feb-95
Feb-98
Feb-97
Feb-00
Feb-99
Feb-02
Feb-01
Feb-03
Source: Wall Street Journal.
Although rising oil prices have spurred increases in consumer and producer prices,
core inflation remains low.
Producer Prices
Consumer Prices
Percent Change, Year-to-Year
Percent Change, Year-to-Year
6.0
4.0
Producer Price Index
Consumer Price Index,
excluding food and energy
5.0
3.5
Producer Price Index,
excluding food and energy
3.0
4.0
3.0
2.0
2.5
1.0
2.0
Recession
Began
0.0
Recession
Began
1.5
-1.0
-2.0
1.0
Consumer Price Index
Jan-00
Jan-01
Source: Bureau of Labor Statistics.
Jan-02
-3.0
0.5
Jan-03 Jan-00
Jan-01
Source: Bureau of Labor Statistics.
Jan-02
-4.0
Jan-03
Although the fourth quarter is behind us, revisions to real GDP indicate
growth during the fourth quarter was stronger than originally thought. However,
all of the revision was in inventory accumulation.
Revisions to Fourth Quarter Real GDP
Real Gross Domestic Product
Annualized Percent Change
8.0
Recession
Began
7.0
Description
Advanced
Preliminary
Real GDP
0.7
1.4
Consumption
1.0
1.5
Business
Investment
1.5
2.5
Residential
Investment
6.8
9.4
Government
4.6
4.9
Exports
-1.7
-4.4
Imports
3.7
7.2
Final Sales
1.3
1.2
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
99:Q4 00:Q2 00:Q4 01:Q2 01:Q4 02:Q2 02:Q4
00:Q1 00:Q3 01:Q1 01:Q3 02:Q1 02:Q3
Source: Bureau of Economic Analysis.
All in all, data indicate economic conditions are slightly more fragile compared
to last month, while concerns about future consumer spending have increased.
Federal Funds Rate
Percent
6.0
Discount Window
Primary Credit
3.0
1.5
0.0
5.0
4.0
2.5
2.5
3.0
Jan-03
Feb-03
2.0
1.0
0.0
Feb-01
Jun-01
Oct-01
Source: Federal Reserve Board of Governors.
Feb-02
Jun-02
Oct-02
Feb-03