Tag: FOMC

Monday Economic Report – November 24, 2014

Here is the summary for this week’s Monday Economic Report:

Central banks around the world have acted recently in an attempt to lift a sagging global economy. On Friday, for instance, the European Central Bank (ECB) announced that it has begun purchasing asset-backed securities, finally beginning a quantitative easing program that some have long sought. Earlier in the day, ECB President Mario Draghi said that “we will do what we must” to spur economic growth. In addition, the People’s Bank of China surprised markets by cutting interest rates on Friday. These actions followed the Bank of Japan’s announcement on October 31 that it would increase the amount of its monthly asset purchases. (continue reading…)

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The Federal Reserve Ends Its Latest Quantitative Easing Program

The Federal Open Market Committee (FOMC) has decided to end its quantitative easing (QE) program, which means that it will cease its purchases of long-term and mortgage backed securities. This move was expected, as it was largely telegraphed over the summer, and the Fed has continued slowing its purchases since tapering began in December 2013. It also noted its intentions to end QE when outlining its framework towards normalizing monetary policies last month. (continue reading…)

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Monday Economic Report – September 22, 2014

Here is the summary of this week’s Monday Economic Report: 

Manufacturing production declined unexpectedly in August, led lower by reduced motor vehicle output. This drop was likely the result of automakers’ switching over to a new model year and summer vacations. Indeed, auto production has risen 8.1 percent over the past 12 months, continuing to make it one of the bright spots in the economy. Excluding autos, manufacturing output rose 0.1 percent, suggesting slightly better news for the broader sector. Still, the larger story is the accelerated pace of output seen since the winter months, with the year-over-year pace up from 1.6 percent in January to 4.0 percent in August. Durable and nondurable goods production has increased 5.6 percent and 2.2 percent year-over-year, respectively. Hopefully, the August figures reflect a brief pause before picking up again in September.

Regional sentiment surveys tend to suggest that this might be the case. The Empire State Manufacturing Survey from the New York Federal Reserve Bank said that business conditions rose at their fastest pace in nearly five years, with 46 percent of those taking the survey saying that the environment had improved in the month. At the same time, the Philadelphia Federal Reserve Bank’s Manufacturing Business Outlook Survey found healthy rates of growth in September, even as the pace pulled back slightly from very strong gains in August. Each of these two surveys reported higher levels for new orders and shipments, but they were mixed regarding hiring growth. Nonetheless, manufacturers in both districts were overwhelming upbeat about the next six months, with more than half of respondents predicting sales increases. Moreover, the Philly Fed found that a majority of those taking its survey expect production to increase in the third and fourth quarters.

Meanwhile, housing starts fell from an annualized 1,117,000 units in July to 956,000 in August. To be fair, the July figure—the second fastest pace since November 2007—was likely an outlier, and the pendulum—not unexpectedly—swung back somewhat. Yet, the slowdown in August was still disappointing. On the bright side, while single-family and multi-family unit starts and permits were both down, the highly volatile multi-family segment comprised the bulk of the decline. Looking at a longer time horizon, each has continued a slow, but steady upward trajectory. I continue to expect housing starts to be solidly at 1.1 million by year’s end. Indeed, home-builder confidence was equally optimistic about better figures moving forward, with the Housing Market Index at its highest level since November 2005.

The Federal Reserve Board provided the other major headline from last week. The Federal Open Market Committee (FOMC) began laying out its principles for winding down the extraordinary stimulus that it has pursued since the financial crisis at the end of 2008. The Fed will end its purchases of long-term and mortgage-backed securities after its October FOMC meeting, and the expectation is that short-term interest rates will begin to “normalize” at some point in 2015. The federal funds rate, however, will remain near zero for a “considerable time after the asset purchase program ends,” a statement that some suggest means that normalization will not occur until mid-2015 at the earliest. Fortunately, news that consumer and producer pricing pressures eased in August was likely welcomed at the FOMC because it takes some pressure off of the Fed to act sooner, at least for now. (Inflation has accelerated from where it was earlier in the year, but remains below the Fed’s stated 2.0 percent goal.)

In its FOMC statement, the Federal Reserve said that “economic activity is expanding at a moderate pace.” Nonetheless, it continues to worry about slack in the economy, particularly in labor markets. The Fed predicts growth this year of between 2.0 and 2.2 percent, with 2.6 to 3.0 percent real GDP growth next year. The unemployment rate is expected to fall to 5.9 or 6.0 percent by the end of 2014 and 5.4 to 5.6 percent by the end of 2015. In terms of inflation, the Fed forecasts prices growing by less than 2.0 percent over the next few years. If core inflation consistently exceeds 2.0 percent, it will give greater credence to hawks on the FOMC to increase rates sooner rather than later.

This week, we will get a sense of how manufacturing activity is faring globally with preliminary purchasing managers’ index (PMI) data from Markit for China, the Eurozone and the United States. The Chinese economy has begun to stabilize after slowing earlier in the year, but is still not growing by much. European growth has effectively come to a halt. In the United States, however, recent PMI data have reflected healthy gains in both demand and output over the summer months. We will also get new surveys from the Kansas City and Richmond Federal Reserve banks. Beyond those surveys, we will get the second revision to real GDP growth for the second quarter on Friday, with a consensus estimate of 4.3 percent growth, or just slightly higher than the previous 4.2 percent figure.

Other highlights this week include the latest data on consumer confidence, durable goods orders and shipments, and existing and new home sales.

Chad Moutray is the chief economist, National Association of Manufacturers. 

housing starts and permits - sept2014

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Federal Reserve Sets Principles for its Exit Strategy

The Federal Open Market Committee (FOMC) began laying out its framework for “normalizing” monetary policy moving forward. In particular, the Federal Reserve plans to end it quantitative easing program next month, with its purchases of long-term and mortgage-backed securities coming to a conclusion after its October meeting. Because of these purchases, the Fed’s balance sheet has now soared to over $4.4 trillion. Moving forward, the Fed’s assets will be reduced “in a gradual and predictable manner.” That does not mean, however, that the balance sheet will return to pre-crisis levels, as it is likely to remain at elevated levels for the foreseeable future. Still, the FOMC added the following language to its guidance, perhaps to allay worries from those who suggest that the Fed’s actions have distorted the marketplace:

The Committee intends that the Federal Reserve will, in the longer run, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.

Moreover, the Fed is expected to start raising short-term interest rates, which have effectively been zero since late 2008, beginning next year. The guessing game is when that will occur, whether in the first half or second half of 2015. The FOMC’s principles state that rates will begin to rise when “economic conditions and the economic outlook warrant” such an action. In the monetary policy statement issued at the conclusion of its September 16-17 meeting, the FOMC said that “it will take a balanced approach consistent with its longer-term goals of maximum employment and inflation of 2 percent” in deciding to normalize rates. Nonetheless, the statement continues to assert that the federal funds rate will be at its current low levels for a “considerable time after the asset purchase program ends.”

The decision to continue stimulating the economy for the foreseeable future despite progress in the economy was supported by most of the FOMC participants. Fed participants remain concerned about “slack” in the economy, particularly in labor markets. Yet, inflation hawks on the FOMC dissented with these actions. Dallas Federal Reserve Bank President Richard W. Fisher felt that the pickup in economic growth warranted less accommodative policies; whereas, Philadelphia Federal Reserve Bank President Charles I. Plosser would objected to the long time horizon for keeping short-term rates at their current levels.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Consumer Prices Fell 0.2 Percent in August on Reduced Energy Costs

The Bureau of Labor Statistics said that consumer prices fell 0.2 percent in August, the first monthly decline since April 2013. The decrease stemmed largely from reduced energy costs, which were off 2.6 percent in August. Gasoline prices decreased 4.1 percent for the month. Indeed, we have seen the average price of regular gasoline decline from $3.47 a gallon during the week of July 28 to $3.40 a gallon for the week of August 25, according to the Energy Information Administration. It has fallen further since then, averaging $3.35 per gallon this week.

In contrast, food prices continued to rise, up 0.2 percent, albeit at a slower pace than earlier in the year. Food costs have risen 2.4 percent year-to-date, or 2.7 percent over the past 12 months. As with past months, the largest food price increases in August were for beef and veal, chicken, eggs, fish, ham and seafood. These gains were somewhat offset, however, by decreased monthly costs for fruits and vegetables and beverages.

Meanwhile, when you exclude food and energy items, consumer prices were unchanged, mirroring producer price index data released yesterday. There were higher prices for new motor vehicles and shelter, with reduced costs for apparel, household furnishings and used cars and trucks.

Overall, the consumer price index rose 1.7 percent from August 2013 to August 2014, down from the 2.0 percent pace observed in July. This suggests a slight easing in inflationary pressures, even as it still reflects an acceleration from the 1.1 percent year-over-year rate in February. Similarly, core inflation – which excludes food and energy items – was also up 1.7 percent year-over-year, down from 1.9 percent the month before.

The Federal Open Market Committee (FOMC), which is winding up its meeting today, no doubt welcomes news that pricing pressures have lessened somewhat in August. Core inflation remains below the Federal Reserve’s stated target of 2 percent. Still, the FOMC will closely watch to see how pricing pressures develop in the coming months, particularly as it prepares to start normalizing short-term rates in early 2015.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Consumer Inflation Eased Slightly in July, but with Prices Up 2 Percent in the Past 12 Months

The Bureau of Labor Statistics said that consumer prices increased 0.1 percent in July, its slowest pace in 6 months. Nonetheless, food prices continue to rise, up 0.4 percent in July. The price of food purchased for the home has risen 2.2 percent year-to-date, or 2.5 percent in the past 12 months. The bulk of this increase has come from meats, eggs, shellfish and fresh produce. For instance, consumers have spent 9.3 percent more year-over-year on meats (e.g., beef and veal, pork, poultry and fish and seafood), with an increase of 0.4 percent for the month, mirroring the headline figure.

In contrast, energy prices have eased, mirroring producer price data released last week. Consumers have benefited from lower prices for natural gas and petroleum. For instance, the cost of West Texas intermediate crude oil declined from a recent peak of $107.95 per barrel on June 20 to $98.23 on July 31. The consumer price index data suggest that energy prices fell 0.3 percent in July. At the same time, energy expenses have risen 1.2 percent over the past 12 months, largely from higher costs for the home.

Excluding food and energy, consumer prices were up 0.1 percent, matching the increase seen the month before. Higher prices for apparel, medical care, new motor vehicles and shelter were somewhat offset by reduced costs for transportation services and used cars and trucks.

Overall, the consumer price index rose 2.0 percent from July 2013 to July 2014, its fourth straight month with an inflation rate of 2.0 percent or more. With that said, it represents an easing from the 2.1 percent paces seen in May and June. The core inflation rate – which excludes food and energy – has been 1.9 percent for three consecutive months.

While core pricing pressures have accelerated from earlier in the year, they appear to be stabilizing somewhat this summer. That should be good news for the Federal Reserve, which has targeted 2.0 percent in its stated goals. Still, the Federal Open Market Committee will closely watch to see how pricing pressures develop in the coming months, particularly as it prepares to start normalizing short-term rates in early 2015.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Despite Higher Food Producer Prices in July, Overall Inflationary Pressures Eased Slightly

The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.1 percent in July, slowing from the 0.4 percent gain seen in June. Specifically, producer prices for final demand goods were unchanged for the month, with food prices up 0.4 percent but energy costs down 0.6 percent. The increase in food costs stemmed largely from higher prices for meats and shellfish; however, there was some relief from recent price gains for produce. On the energy side, producers have benefited from lower prices for natural gas and petroleum of late. For instance, the cost of West Texas intermediate crude oil declined from a recent peak of $107.95 per barrel on June 20 to $98.23 on July 31.

Beyond food and energy, core prices for final demand goods rose 0.2 percent in July. The largest increases were seen in apparel for women, girls and infants; commercial furniture; industrial chemicals; light motor trucks; pharmaceuticals; and transformers and power regulators. These were offset somewhat by declines in prices for floor coverings, gold and platinum jewelry, pet food, sanitary paper products, tires and x-ray equipment.

On an annual basis, producer prices for final demand goods and services rose 1.7 percent over the past 12 months. This was down for the third straight month, off from the 2.1 percent pace observed in April. Likewise, core inflation – which excludes food and energy costs – increased 1.6 percent over the past 12 months, down from 2.0 percent in May.

Overall, this suggests that inflationary pressures have eased slightly over the past couple months. While we have seen some acceleration in producer prices since the beginning of the year, costs remain below the Federal Reserve’s stated threshold of 2 percent. This indicates the inflation remains in-check, at least for now, and the recent deceleration should ease the pressure on the Federal Open Market Committee to expedite its plans to normalize rates. Of course, the final decision to raise short-term rates will hinge on economic data in the months to come.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Consumer Prices Ease a Bit in June, Still Reflect an Acceleration in the Second Quarter

The Bureau of Labor Statistics reported that consumer prices increased 0.3 percent in June, easing a bit from the 0.4 percent growth rate seen in May. Still, it is clear that prices have accelerated in the second quarter, led by higher food and energy costs. The annualized rate of growth in the second quarter was 3.5 percent, a substantial jump from the 1.8 percent annual pace seen in the first quarter. Of course, this figure perhaps overstates the significance of the last three months, with the consumer price index up 2.1 percent over the past 12 months. Even there, though, the year-over-year rate has jumped from being just 1.1 percent in February.

In the June data, the largest jump in consumer prices came from energy, up 1.6 percent for the month and building off of the 0.9 percent increase in May. Indeed, the price of West Texas intermediate crude has increased from an average of $97.63 per barrel in December to $100.80 in March to $105.79 in June. Much of the latest rise in prices has stemmed from Middle Eastern turmoil, particularly in Iraq at that time. Energy costs have risen 2.8 percent in the past three months alone, primarily from higher gasoline prices.

Meanwhile, food prices were up 0.1 percent, its slowest pace of growth in four months. In fact, prices of food for the home were unchanged in June, the first non-positive growth figure in six months. Higher prices for meats and eggs were offset by some easing in the costs of bakery items, cereals, dairy products and fruits and vegetables. Nonetheless, the cost of food for the consumer has risen 1.8 percent over the past six months, something that Americans are bound to notice in the grocery aisle.

Outside of food and energy, core consumer inflation decelerated in June to 0.1 percent growth in June. Over the past 12 months, core consumer prices have risen 1.9 percent, unchanged from May but up from 1.6 percent in January. In June, the largest increases were seen in airfare, apparel, housing, medical care and tobacco.

While pricing pressures have definitely picked up in the second quarter, the year-over-year pace still remains mostly in-line with the Federal Reserve Board’s stated goals. They will no-doubt continue to watch inflation numbers closely, but the Federal Open Market Committee (FOMC) is unlikely to deviate from its current monetary policy trajectory at next week’s meeting.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – June 23, 2014

Here are the files for this week’s Monday Economic Report:

The Federal Reserve Bank downgraded its estimates of growth for 2014, with real GDP growth of 2.1 percent to 2.3 percent. This was down from its March projection of 2.8 percent to 3.0 percent, largely due to weaknesses in the first quarter. Nonetheless, the Federal Reserve still projects a pickup in activity during the second half of the year that will continue into 2015, with an unchanged outlook of 3.0 percent to 3.2 percent growth next year. The unemployment rate is anticipated to fall to 6.0 percent by year’s end and as low as 5.4 percent in 2015.

With that in mind, the Federal Open Market Committee (FOMC) observed that “growth in economic activity has rebounded in recent months,” even as it cited continued slack in the labor market. The FOMC continued to taper its asset purchases, down from $45 billion per month to $35 billion, and it mostly reiterated its intent to keep a highly accommodative monetary policy stance for the foreseeable future. Short-term interest rates are expected to start rising at some point next year. Yet, there is renewed chatter among “inflation hawks” about increased pricing pressures of late. Core consumer prices, which exclude food and energy costs, rose 1.95 percent over the past 12 months, its fastest year-over-year pace in 19 months. While inflation still appears to be in check, the recent run-up in costs has fueled a debate about whether short-term rates might need to increase sooner than conventional wisdom might suggest.

For manufacturers, activity continues to recover from winter-related softness at the beginning of the year. Manufacturing production has risen 2.8 percent since January’s decline, with 3.6 percent growth over the past 12 months. Capacity utilization for the sector increased to 77.0 percent in May, its highest level since March 2008. Similarly, manufacturers in the New York and Philadelphia Federal Reserve districts reported strong growth in their respective June surveys. More importantly, respondents were mostly optimistic about future activity. More than half of those taking each survey said they anticipate increased new orders over the next six months. The Philadelphia Federal Reserve report also noted that 73.9 percent of its manufacturers predicted increased production in the second half of this year, with nearly 48 percent forecasting output growth of more than 4 percent.

Meanwhile, the housing market has provided mixed progress so far this year, even as we remain cautiously optimistic about future months. New housing starts decreased from an annualized 1,071,000 units in May to 1,001,000 in June. Despite the decline, it was the second straight month that starts have exceeded 1 million units, and the underlying trend remains positive. April’s figure was an outlier, with the year-to-date average being 969,000. As such, we continue to make slow-but-steady progress. At the same time, housing permits also declined, but single-family permitting increased from 597,000 units at the annual rate to 619,000, the fastest pace since November. This could be a sign that residential construction will accelerate in the months ahead. I still believe we will reach 1.1 million housing starts by year’s end. Moreover, homebuilder confidence was also higher for the month.

This week, we will get additional data on the health of the housing and manufacturing sectors. The Kansas City and Richmond Federal Reserve Banks will unveil their latest surveys, and Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. We hope they will continue to reflect rebounding activity in the United States, and analysts will be closely following the June Chinese PMI data to see if the sector expands for the first time in 2014. The other key number to watch will be the second revision of real GDP for the first quarter. The consensus estimate is for the decline in output to exceed 1.5 percent, worse than the 1.0 percent decrease in the first revision. Other highlights include new data on consumer confidence, durable goods orders and shipments, existing and new home sales and personal income and spending.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – June 16, 2014

Here is the summary for this week’s Monday Economic Report:

Despite a very weak start to 2014, there is an expectation among manufacturers that the second half of the year will be better than the first. Indeed, average manufacturing sales forecasts in the latest NAM/IndustryWeek survey were the highest in two years, with capital investment and hiring plans also moving in the right direction. Indeed, these data points were consistent with 4.0 percent production growth in the sector between now and the fourth quarter of this year, and roughly 86 percent of respondents were either somewhat or very positive in their outlook. These findings mirrored similarly optimistic assessments from business economists, who predict real GDP growth of 3 percent or more in each of the remaining quarters of 2014, with industrial production up 3.7 percent for the year as a whole.

Despite more upbeat perceptions for the coming months, concerns continue to linger. Respondents to the NAM/IndustryWeek survey remain frustrated with political inaction and the slow pace of economic growth. The top business challenges continue to be rising health care costs (72.7 percent) and an unfavorable business climate (71.4 percent). When asked about policy priorities for the next few years, slowing entitlement spending (84.4 percent), finding a long-term budget deal (82.9 percent), reducing regulatory burdens (81.9 percent) and controlling health care costs (78.5 percent) were at the top of the list.

At the same time, consumers remain cautious. The University of Michigan and Thomson Reuters reported that consumer confidence edged lower for the second straight month, although sentiment has not changed much in the first six months of this year. There are persistent worries about labor and income growth, which appear to be preventing Americans from being more optimistic about the future.

These anxieties might also have been a factor in the weaker-than-expected retail spending numbers for May. While retail sales rose for the fourth consecutive month and purchases continue to reflect a rebound from winter-related softness, May’s increase of 0.3 percent was about half of what was predicted. In fact, excluding motor vehicles and gasoline station sales, spending was flat for the month. Nonetheless, one could also paint a more positive picture, with retail sales up 2.2 percent since November and 4.3 percent year-over-year. So perhaps May’s figures were just a pause in an otherwise decent upward trajectory for consumer spending. Small business owners were more upbeat about sales expectations in the latest National Federation of Independent Business (NFIB) survey. The NFIB’s Small Business Optimism Index reached its highest level in May since September 2007, or before the recession began.

Along those lines, the number of nonfarm job postings reached a pre-recessionary high in April. For manufacturers, job openings have increased in the past two months but remain below their recent peak in November. April’s increases in the manufacturing sector were primarily from durable goods firms. Net hiring (or hires minus separations) was also up for the month in manufacturing; however, it also suggests weaker employment growth in early 2014 versus the more robust hiring activity in the second half of 2013. This leaves room for improvement for the coming months.

This week, we will get several economic indicators on manufacturing and housing activity. For example, this morning, the Federal Reserve is expected to show a rebound in industrial production for May after the decline in April, and we will be looking for similar signs in surveys from the New York and Philadelphia Federal Reserve Banks. Tomorrow, we will get new data on housing starts and permits, with the consensus being around 1.04 million annualized units in May, down slightly from 1.07 million in April. On the monetary policy front, we have seen increased pricing pressures of late, even as core inflation for producers declined in May. Yet, the Federal Reserve is not expected to alter its course this week when the Federal Open Market Committee meets. Other highlights this week include new information on consumer prices, leading indicators and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers. 

manufacturing job openings - jun2014

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