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July 31, 2003 -- With recent news showing stronger than expected
second-quarter GDP growth, industrial production and durable goods orders,
many economic observers are more confident that the economy is in recovery
mode. But with recently lower consumer confidence and unemployment at a
nine-year high, we are not out of the woods yet. Continued soft monetary
policy, increased consumer cash due to tax cuts and a more stable
geopolitical climate are expected to keep the economy on its current
positive course, but businesses and consumers are likely to remain
cautious. Read this month's e-newsletter for more detailed information on
where the economy is headed.
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Federal Funds Rate: 1.0%, unchanged in July
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. Last month, the Fed voted to lower the federal funds rate by a quarter point to 1.0%, its lowest level since 1958. The July 30 Beige Book indicated that the economy is starting to pick up steam. The St. Louis office (Louisville is part of the St. Louis district) was one of the few districts that reported continuingly sluggish activity, with plant closings and job layoffs among manufacturers commonplace. To view the entire or district reports, go to: http://www.federalreserve.gov/FOMC/BeigeBook/2003/20030730/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 2.4% for 2003Q2, advance
(1.4% in 2003Q1)
Gross Domestic Product measures the total production and consumption of goods and services in the United States on a quarterly basis. This month’s advance read on domestic output was much higher than expected and is one of the first broadly positive signs that the economy is moving towards a recovery. Major contributors to growth in the second quarter of 2003 included: personal consumption (3.3% from 2.0% previously), federal defense spending (44.1% from -3.5% previously), nonresidential fixed (business) investment (6.9% from -4.4% previously) and residential fixed investment (6.0% from 10.1% previously). Real final sales of domestic product grew 3.2% after growing 2.3% 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 3.3% for 2003Q2, advance
(2.0% in 2003Q1)
Personal Consumption Expenditures (PCE) measures consumer-spending activity. This month’s jump helped fuel an overall increase in GDP growth. Durable goods dominated growth, surging 22.6% after falling 2.0% last quarter. Nondurable goods expenditures grew slightly (0.1%) after last quarter's stronger 6.1%. Services grew 1.5% versus 0.9% in the first quarter. Among durable goods, motor vehicle sales posted huge gains, adding $27.9 billion after losing $7.9 billion the previous quarter. Among nondurable goods, sales of clothing and shoes ($4.6 billion from $2.2 billion in 2003Q1) and other goods ($2.4 billion from $7.0 billion in 2003Q1) were the only positives. Services sector growth was again fueled primarily by medical care growth ($8.1 billion versus $10.1 billion in 2003Q1) and housing ($3.9 billion versus $4.1 billion in 2003Q1). (Bureau of Economic Analysis) Click here for more information |
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Industrial Production: 109.7% (of 1997 average), up 0.1% in June
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. Once again, this past month’s figure was up slightly and beat expectations. Products grew 0.4% to 106.6, while non-industrial supplies slipped 0.4% to 112.9. Materials remained the same at 111.5. Of the major industry groups, manufacturing grew 0.4%, mining rose by 1.0%, and utilities again slid, this time by 3.5%. Consumer goods inched up 0.4% due to increased auto manufacturing. Capacity utilization again was 74.3% and is 1.1% higher than it was a year ago. Year-over-year production overall was lower by 1.0%. (Federal Reserve Board) Click here for more information |
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Manufacturing ISM Report on Business: 49.8%, up 0.4% in June
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 manufacturing economy, while values below 50 indicate manufacturing contraction. The index has been below the critical 50 percent mark since this March and missed consensus expectations for higher growth. The slight improvement in June was due mostly to an increase in new orders, which grew 0.3% to 52.2%, the production index, which rose 1.4% to 52.9% and new export orders, which rose 3.6% to 54.4%. Employment and inventories continued to contract, to 46.2% and 41.3%, respectively. Nine of the 20 industries within the Index reported growth: leather; instruments and photographic equipment; electronic components and equipment; fabricated metals; food; paper; chemicals; transportation and equipment; and miscellaneous. (Institute for Supply Management) Click here for more information |
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Non-Manufacturing ISM Report on Business: 60.6%, up 6.1% in June
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 non-manufacturing economy, while those below 50 indicate a non-manufacturing decline. The Index jumped in June, beating expectations and growing to its highest point since September 2000. New orders grew 2.8% to 57.5%, employment improved 1.6% to 50.3%, the backlog of orders grew 0.5% to 51.5% and new export orders rose 0.5% to 49.5%. Inventories and imports both declined, to 47.0% and 50.5%, respectively. While no sector reported contraction, those sectors reporting the highest growth included: real estate; transportation; mining; construction; and retail trade (Institute for Supply Management) Click here for more information |
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Durable Goods Orders: $172.5 billion, up 2.1% in June
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 increase was greater than anticipated and May's results were also revised upwards to reflect a modest gain. Shipments of durable goods grew 1.3% to $171.9 billion and unfilled orders crept upwards by 0.1% to $477.2 billion while inventories fell again, down 0.6% to $261.0 billion. Nondefense capital goods orders improved 2.0% to $57.0 billion, while defense orders jumped 15.5% to $8.1 billion after a double-digit decline in May. Year-over-year, orders for durable goods were up 0.7%. (U.S. Census Bureau) Click here for more information |
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Producer Price Index (PPI): 150.0, up 0.5% in June
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 goods and services. Excluding food and energy, prices actually declined 0.1% in June (food prices increased 0.4% while energy prices advanced 3.4%). Crude goods prices grew 4.5% and intermediate goods rose 0.5%. Year-over-year figures show growth of 2.9%. (Bureau of Labor Statistics) Click here for more information |
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Consumer Price Index (CPI): 183.7 (SA), up 0.2% in June
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. June's results are in line with expectations and follow May's no growth performance. Excluding food and energy, prices remained steady. Among the special Indexes, Energy rose 0.8% while Food grew 0.4%. 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: 111.8 (1996=100), up 0.1%
in June
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. June's index was not surprising and continues the upward trend for this index. The strongest components to June’s growth were real money supply, stock prices, average weekly initial claims for unemployment insurance (inverted), and building permits. The coincident index (current economic situation) increased 0.1% to 115.2 and the lagging indicator (past situation) fell by 0.5 to 98.4. (The Conference Board) Click here for more information |
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Consumer Confidence Index (1985=100, SA): 76.6%, down 6.9% in July
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. Consumer confidence took an unexpected tumble this month, despite expectations for moderate growth. Those consumers rating the economy as “good” increased to 16.3% from 14.9%, while those rating the economy as “bad” also grew to 30.4% from 28.1%. In line with the higher unemployment rate, more consumers report that jobs are harder to come by (33.1% versus 31.9% in June). The present situation index again dipped, from 64.2% to 61.9%, and expectations fell 10 points to 86.4%. Compared to June, more 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: $310.4 billion, up 0.5% in June
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 0.7%. Recently implemented tax cuts are expected to spur consumer spending and, combined with other sources of increased cash flow, will likely continue to boost this index in coming months. Big winners in June included sporting goods, hobby, book and music store sales (3.0%), building material and garden equipment and supply dealers (2.6%), gasoline stations (1.3%), and clothing and clothing accessories stores (1.3%). Meanwhile, miscellaneous product retail sales shrank 1.3% while motor vehicle and electronics/appliance sales both fell by 0.1%. Total year-over-year growth was up by 4.2%. (U.S. Census Bureau) Click here for more information |
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Employment Situation: 130 billion employed in June (Unemployment rate: 6.4%)
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. 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. The civilian labor force gained 251,000 jobs, while non-farm payroll shed 30,000 jobs, far more than anticipated. The unemployment rate rose 0.3% to its highest level since April 1994. Manufacturing jobs fell again, by 55,000 jobs in June. Meanwhile, the construction industry added 16,000 workers, health services added 23,000 jobs and leisure and hospitality grew by 22,000 jobs. Transportation and warehousing jobs remained steady, although losses since March 2001 have totalled 123,000. (U.S. Department of Labor) Click here for more information |
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New Home Sales: 1,160,000, up 4.7% in June
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 21.0% higher than last June’s estimate of 959,000. Homes sales were up across the country, with the Northeast gaining 32.3%, the Midwest 9.8%, the West 2.7% and the South 0.9%. The average sales price was $243,500 and there is an estimated supply of new homes for 3.6 months. Sales of existing homes have cooled slightly, with sales down 0.3% but still at record levels. There is currently a 5.1 month supply of existing homes. (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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