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June 26, 2003 –Economic observers are looking hard for signs of a rebound,
but this month’s indicators suggest that an economic recovery has not yet
arrived. GDP was weaker than expected in the first quarter, although with
the war over, second quarter growth is expected to be better. Other
indicators showed either slight declines or moderate growth. For example,
the ISM Report on Manufacturing was better than the previous month’s
results, but durable goods orders were disappointing; both indicate a still
weak manufacturing sector. Employment figures, ever a lagging indication
of the state of the economy, have pushed downward, with unemployment at its
highest level in nine years. And Consumer Confidence is flat, although
consumers expect a stronger economy in the next six months. Due to these
weak readings, the Fed is maintaining an expansionary monetary policy.
Read this month’s e-newsletter to learn more about how the economy is
doing. Some of the articles listed below require the Adobe Acrobat Reader. Click here to download it for free. |
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Federal Funds Rate: 1.0%, down 0.25% in June
The Federal Open Market Committee (FOMC) consists of the Federal Reserve Governors and Reserve Bank Presidents, but only five of the 12 presidents vote with the governors on rate changes. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. In a much anticipated move, the Fed lowered the federal funds rate by a quarter point, bringing the rate to its lowest level since 1958. Only one bank president voted against the move, arguing for a steeper 0.50% cut. The group expects the economy to pick up in the near future, but cautioned that further deflation is still possible. The June 11 Beige Book indicated a continuingly sluggish economy, although none of the Federal Reserve Districts reported any declines in overall activity. The St. Louis office (Louisville is part of the St. Louis district) again reported declining activity in manufacturing, weak retail sales and a down office real estate market. To view the entire or district reports, go to: http://www.federalreserve.gov/FOMC/BeigeBook/2003/20030611/default.htm. (Federal Open Market Committee of the Federal Reserve Board) Click here for more information |
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Real Gross Domestic Product (GDP): Growth rate of 1.4% for 2003Q1, final
(1.4% in 2002Q4)
Gross Domestic Product measures the total production and consumption of goods and services in the United States on a quarterly basis. This month’s final estimate of first quarter performance is below expectations and was likely impacted by the war with Iraq. For 2002, overall growth was 2.4%. Major contributors to growth in the first quarter of 2003 included: personal consumption (2.0%) and residential fixed investment (10.1%). Weak import sales (-6.2% versus –1.3% for exports) and slow inventory accumulation ($4.8 billion versus $25.8 billion in the fourth quarter of 2002) contributed to the downward revision of first quarter GDP. Non-residential (business) spending fell 4.4% after growing 2.3% in the fourth quarter. Real final sales of domestic product grew 2.3% after growing 1.1% the previous quarter. Some economists consider this a better estimate of real GDP growth. (Bureau of Economic Analysis) Click here for more information |
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Personal Consumption Expenditures: Growth rate of 2.0% for 2003Q1, final
(1.7% in 2002Q4)
Personal Consumption Expenditures (PCE) measures consumer-spending activity. This month’s moderate growth was inline with expectations. Durable goods slipped 2.0%, versus -8.2% in 2002Q4. Nondurable goods expenditures grew by 6.1% (versus 5.1% in 2002Q4) while services grew 0.9% (versus 2.2% in 2002Q4). Among durable goods, motor vehicle sales fell by $7.9 billion, while furniture and household equipment sales added $.3 billion. Nondurable goods sector sales were mixed, with a jump over the previous quarter in food sales ($19 billion from $12.8 billion) but declines in clothing and shoes ($2.2 billion from $6.5 billion) and energy ($.3 billion from $1.4 billion). Services sector growth was much slower than in the previous quarter ($7.9 billion versus $20.0 billion), fueled mostly by medical care ($10.1 billion) and housing ($4.1 billion). (Bureau of Economic Analysis) Click here for more information |
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Industrial Production: 109.6% (of 1997 average), up 0.1% in May
The industrial production (IP) index measures the change in output since 1997 (base year) in manufacturing, mining, and electric and gas utilities in the United States. After two months of decline, this past month’s figure was slightly better than anticipated. Products held steady at 106.2, while non-industrial supplies and materials both grew by 0.2% to 113.1 and 111.7, respectively. Of the major industry groups, manufacturing grew 0.2%, mining rose by 0.8%, and utilities slid 0.8%. Consumer goods fell by 0.1% due in large part to a decline in durable goods such as automotive products. Capacity utilization remained stable at 74.3% and is 1.1% higher than it was a year ago. Year-over-year production overall was lower by 0.8%. (Federal Reserve Board) Click here for more information |
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Manufacturing ISM Report on Business: 49.4%, up 4.0% in May
The Institute for Supply Management surveys 400 purchasing managers nationwide representing 20 industries regarding manufacturing activity to create this index. Index values above 50 indicate an expanding economy, while values below 50 indicate economic contraction. The index has been below the critical 50 percent since March. The improvement in May was due mostly to an increase in new orders, which grew 6.7% to 51.9%, and the production index, which rose 4.5% to 51.5%. Employment remained low at 43.0%, but is higher by 1.6% than a month ago. Eleven of the 20 industries within the Index reported growth: petroleum; glass, stone, and aggregate; chemicals; fabricated metals; electronic components and equipment; food; instruments and photographic equipment; transportation and equipment; printing and publishing; miscellaneous; and paper. (Institute for Supply Management) Click here for more information |
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Non-Manufacturing ISM Report on Business: 54.5%, up 3.8% in May
The Non-Manufacturing Business Activity Index is based on the results of a monthly survey of 370 purchasing and supply executives in 62 different industries. Percentages above 50 generally indicate an expanding economy, while those below 50 indicate an economic decline. May’s index beat expectations and is the strongest showing since January. New orders jumped 4.1% to 54.7%, the backlog of orders grew 5.0% to 51.0% and imports rose 8.5% to 58.5%. New export orders shrank by 3.5% to 49.0% while prices dropped 7.1% to 49.6%. Those sectors reporting the highest growth include: transportation; utilities; construction; finance and banking; and mining. (Institute for Supply Management) Click here for more information |
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Durable Goods Orders: $168.3 billion, down 0.3% in May
The Census Bureau measures the dollar amount of new factory orders received by U.S. manufacturers. Durable goods are industrial products expected to last more than one year, such as steel, lumber, electronic components, finished industrial machinery and equipment, and finished consumer durable goods. This month’s decline was unexpected and was led by declining transportation orders (down 1.6% to $49.2 billion). Shipments of durable goods fell 0.3% to $169.0 billion and inventories fell again, down 0.2% to $262.7 billion. Nondefense capital goods orders dropped 0.9% to $55.4 billion, while defense orders tumbled 13.8% to $7.8 billion. Year-over-year, orders for durable goods were down 0.3%. (U.S. Census Bureau) Click here for more information |
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Producer Price Index (PPI): 150.2, down 0.3% in May
The Bureau of Labor Statistics takes a random sampling of various industries in the mining, manufacturing, agriculture, fishing, forestry, services and utility sectors to measure the average change in selling prices for domestically produced good and services. Excluding food and energy, prices actually rose 0.1% (food prices increased 0.1% while energy prices fell by 2.6%). Crude goods prices grew 1.7% after dropping 16.3% the previous month, while intermediate goods fell 0.8% versus a decline of 2.2% in April. Year-over-year figures show growth of 2.5%. (Bureau of Labor Statistics) Click here for more information |
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Consumer Price Index (CPI): 183.5 (SA), no change in May
The Consumer Price Index (CPI-U) is a measurement of the average change over time in the prices paid by all urban consumers for specific consumer goods and services, commonly referred to as the rate of inflation. After falling 0.3% in April, May’s figure indicates no growth. Food and beverage, housing, medical care and recreation all grew in May, while apparel, transportation, education and energy prices fell. Excluding food and energy, prices rose 0.3%. Year-over-year, inflation grew 2.1%. (Bureau of Labor Statistics) Click here for more information |
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Composite Index of Leading Economic Indicators: 111.6 (1996=100), up 1.0%
in May
The Composite Leading Index is constructed as a weighted average of ten key economic data series designed to predict economic conditions in the near term. The index generally turns down before a recession and turns up before an expansion. Since the beginning of the year, the index has been in decline or low growth mode, so May’s figure is a welcome improvement. The strongest components to May’s growth were stock prices, real money supply, and consumer expectations. The coincident index (current economic situation) increased 0.1% to 115.2 and the lagging indicator (past situation) fell by 0.1 to 98.8. (The Conference Board) Click here for more information |
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Consumer Confidence Index (1985=100, SA): 83.5, down 0.1 in June
The Consumer Confidence Survey measures consumer attitude about the performance of the economy using a monthly representative sample of 5,000 U.S. households. Confidence is gauged on respondents’ assessment of such key factors as the business, employment, inflation and income outlook. After a rough tumble last fall and again earlier this year, consumer confidence appeared poised for growth. June’s figure, however, remained flat. Those consumers rating the economy as “good” declined 1.2% to 14.9%, while those rating the economy as “bad” fell 0.7% to 27.7%. Fewer consumers report that jobs are harder to come by (32.0% versus 32.9% in May). The present situation index again dipped, from 67.3 to 64.9, while expectations climbed from 94.5 to 95.9. Compared to May, fewer consumers plan to purchase a home, auto, or a major appliance in the next six months. (The Conference Board) Click here for more information |
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Retail Sales: $308.8 billion, up 0.1% in May
Retail sales include merchandise sold (for cash or credit at retail or wholesale) by establishments primarily engaged in retail trade. Services that are incidental to the sale of merchandise, and excise taxes that are paid by the manufacturer or wholesaler and passed along to the retailer, are also included. Excluding autos and gas, core retail sales grew 0.6%. Big winners in May included electronic and appliance stores (2.9%), food and beverage stores (1.4%), furniture and home furnishing stores (1.1%), and clothing and clothing accessories (1.0%). On the losing end were gas stations (-4.3%) and food and beverage stores (-0.5%). Total year-over-year growth was up by 5.1%. (U.S. Census Bureau) Click here for more information |
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Employment Situation: 130.1 billion employed in May (Unemployment rate:
6.1%)
The Department of Labor conducts the Current Population Survey (CPS) to obtain information about the labor force, employment, and unemployment. The U.S. Census Bureau conducts the survey, which is a random sample of 60,000 households, for the Bureau of Labor Statistics. Beginning with this report, employment statistics are now reported using the 2002 North American Industrial Classification System (NAICS) codes, and historical figures using Standard Industrial Classification (SIC) definitions have now been revised. As a result, employment figures for this year are slightly better, with only 272,00 jobs lost versus 525,000 jobs. In May, the civilian labor force lost 200,000 jobs, while non-farm payroll shed 17,000 jobs (less than an expected 25,000 job loss). The unemployment rate grew by 0.1% to 6.1%, the highest level since July 1994. Manufacturing jobs fell again, by 53,000 jobs in May. Since July 2000, this sector has lost 2.6 million jobs, or 15% of its workforce. Meanwhile, financial services added 19,000 jobs, business services grew by 48,000 and education and health care added more workers. (U.S. Department of Labor) Click here for more information |
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New Home Sales: 1,157,000, up 12.5% in May
The U.S. Census Bureau and the Department of Housing and Urban Development (HUD) report monthly on the number of new single-family homes built to be sold. New home sales year-over-year are approximately 17.9% higher than last May’s estimate of 981,000. Homes sales surged in the West (19.7%) and South (15.9%), with moderate growth in the Midwest (1.6%) and another decline in the Northeast (-9.0%). The average sales price was $242,500 and there is an estimated supply of new homes for 3.5 months. Both new and existing home sales have remained resilient due to decade-low mortgage rates and are expected to stay strong as long as interest rates keep below 6.5%. (U.S. Census Bureau) Click here for more information |
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For more information about Greater Louisville, go to: http://www.greaterlouisville.com/economic/default.htm Contact Lisa Itamura with comments or suggestions.
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