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November 30, 2003 -- The economy is growing at an ever rapid pace, as can
be seen from this month's mainly positive news. Gross domestic product has
been gaining momentum and will likely finish the year strongly while
industrial production, the manufacturing index and durable goods orders are
all pointing at an economic recovery. Even the lagging employment
situation is providing some welcome news, with job growth the last two
months in the mid-120,000s. Still, the Fed is likely to keep monetary
policy loose until it is certain that the economy is on a solid upwards
trajectory. Read this month's e-newsletter to learn more about where the
economy may be headed.
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Federal Funds Rate: 1.0%, unchanged since June 2003
The Federal Funds rate has remained unchanged since June of this year while the discount rate has remained at 2.0 percent. Monetary policy should remain accomodative for the foreseeable future to help with the improving economy. The Fed's November Beige Book delivered upbeat news about the continued growth of the economy, with the St. Louis office indicating that manufacturing activity is slowly improving, retail sales are up and the housing market is still going strong. On the downside, most districts reported concern among businesses about the rising cost of health care. To view the report, go to: http://www.federalreserve.gov/fomc/beigebook/2003/20031126/default.htm. 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. (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 8.2% for 2003Q3,
preliminary (3.3% in 2003Q2)
Preliminary estimates for the third quarter were above expectations and beat last month's advance reading of 7.2 percent. One of the key changes for the upwards revision this past month was an improvement in private inventories (0.16% versus -0.74% in Q2). Other major contributors to growth in the third quarter include: personal consumption (6.4% from 3.8% in Q2), equipment and software (18.4% from 8.3% in Q2), residential fixed investment (22.7% from 6.6% in Q2) and exports (11.0% from -1.0% in Q2). Growth was broad-based, with business spending up by 14.0.% (vs. 7.3% in Q2) and motor vehicle production contributing 1.19% (vs. -0.11% in Q2). Real final sales of domestic product grew 8.0% after growing 4.0% the previous quarter. Gross Domestic Product measures the total production and consumption of goods and services in the United States on a quarterly basis. (Bureau of Economic Analysis) Click here for more information |
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Personal Consumption Expenditures: Growth rate of 6.4% for 2003Q3,
preliminary (3.8% in 2003Q2)
Personal consumption continues to be a boon to national production, although most of the segments were revised downwards from last month's advance reading. Durable goods spending grew to 26.5% (24.3% in Q2), nondurable goods rallied by 7.6% (1.4% in Q2) and services increased 2.1% (1.4% in Q2). Among durable goods, motor vehicle sales grew $34.0 billion and furniture and household equipment gained $23.3 billion. Among nondurable goods, sales of food (up $15.4 billion) led positive growth across this segment. Services sector growth was again boosted primarily by medical care growth ($10.7 billion) and housing and housing operation (combined for $7.3 billion). Personal Consumption Expenditures (PCE) measures consumer-spending activity. (Bureau of Economic Analysis) Click here for more information |
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Industrial Production: 111.8% (of 1997 average), up 0.2% in October
This past month's growth was in line with expectations and follows September's revised 0.5% pace of growth. Products shrank 0.3% (versus 0.4% previously), while non-industrial supplies grew 1.0% (versus -0.1% previously). Materials grew 0.4%. Of the major industry groups, manufacturing edged up by 0.1% (weak due to a decline in motor vehicle production), mining fell 0.8%, and utilities increased 2.0%. Capacity utilization was slightly higher at 75.0%. Year-over-year, industrial production was up 0.6%. 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. (Federal Reserve Board) Click here for more information |
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Manufacturing ISM Report on Business: 57.0%, up 3.3% in October
October was the fourth consecutive month of growth for this index, although comments from supply managers indicates performance is lagging the data. New orders provided a big boost to this index (64.3%, up 3.9%), with production (62.2%, up 5.3%) and the backlog of orders (53.5%, up 1.0%) also adding to manufacturing growth. Inventories (44.5%, up 1.8%%) and employment (47.7%, up 2.0%) continue to contract but at a slower pace. Fourteen of the 20 industry sectors reported growth, including: leather; instruments and photographic equipment; food; glass, stone, and aggregate; tobacco; paper; fabricated metals; industrial and commercial equipment and computers; rubber and plastic products; chemicals; electronic components and equipment; primary metals; furniture; and transportation and equipment. 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. (Institute for Supply Management) Click here for more information |
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Non-Manufacturing ISM Report on Business: 64.7%, up 1.4% in October
This past month's index shows strong growth in the services sector and is close to the record high of 65.1% for non-manufacturing. The backlog of orders grew at a pace of 54.0%, slower by 3% than in the previous month. New orders grew 4.5% to 64.4%, inventories edged up 1.5% to 49.0%, and employment, previously contracting, increased 3.8% to 52.9%. New export orders and imports both grew, by 2.0% to 58.0% and 1.0% to 56.0%, respectively. 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. (Institute for Supply Management) Click here for more information |
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Durable Goods Orders: $184.5 billion, up 3.3% in October
October's durable goods orders were well above expectations and is the fifth time in six months that orders have increased. Transportation orders increased by the largest margin, increasing $2.8 billion to reach $54.2 billion (excluding transportation, durable goods orders only grew 2.4%). Computers and electronic products grew at a slower pace of 4.0% (communications equipment saw the largest gain, soaring 25.0%), while electrical equipment, appliances and components slid 0.2%. Defense orders continued to see-saw, in October gaining 22.1% after losing 25.4% in September. Shipments were up 0.6% to $183.3 billion and inventories edged up 0.2% to $262.4 billion. Year-over-year, orders for durable goods were up 1.6%. 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. (U.S. Census Bureau) Click here for more information |
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Producer Price Index (PPI): up 0.8% in October
The increase in producer prices was higher than anticipated and was due largely to higher beef and auto prices. Excluding food and energy, prices only rose 0.5% (versus zero growth in September). Food prices rose 2.2% while energy prices fell 0.1%. Prices for intermediate goods grew 0.4% while crude goods prices increased by 2.6%. Year-over-year growth is 3.4%. 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. (Bureau of Labor Statistics) Click here for more information |
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Consumer Price Index (CPI): 185.0 SA, unchanged in October
After growing for two months in a row, October's rate of inflation remained steady as expected. Excluding food and energy, the index still only rose 0.2%. Items with the largest increases included food and beverages (0.6%), housing (0.3%) and medical care (0.3%). Among the special Indexes, Energy fell 3.9% while Food grew 0.6%. Year-over-year, inflation grew 2.0%, with the core rate of inflation (excluding food and energy) rising a modest 1.3% since October 2002. The core rate had previously been at a 38-year low. 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. (Bureau of Labor Statistics) Click here for more information |
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Composite Index of Leading Economic Indicators: 113.4 (1996=100), up 0.4%
in October
The index beat expectations in October, and September's results were revised upwards to show no change from a previously reported decline. Six of the ten indicators for this index were positive, including: average weekly initial claims for unemployment insurance (inverted), building permits, vendor performance, stock prices, index of consumer expectations, and interest rate spread. The coincident index (current economic situation) added 0.2% and now stands at 116.0 and the lagging indicator (past situation) also edged up 0.2% to reach 97.5. 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. (The Conference Board) Click here for more information |
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Consumer Confidence Index (1985=100, SA): 91.7%, up 10.0% in November
This month's double-digit rise was much greater than anticipated and brings the index to a 13-month high. Those consumers rating the economy as “good” grew 2.8% to 19.9%, while those rating the economy as “bad” fell 4.1% to 24.0%. The present situation index rose 13.1% to 80.1% and expectations rose 7.9% to 99.4%. Consumers' outlook for the next six months was mixed, with fewer people expecting more jobs to be available but fewer also expecting the employment picture to worsen, and with fewer planning to purchase a home or auto, but more planning to purchase a major appliance. 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. (The Conference Board) Click here for more information |
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Retail Sales: $318.5 billion, down 0.3% in October
As with September's retail results, October's expected sales decline was due primarily to lagging auto sales, as sales totals without autos actually grew 0.2%. Auto sales fell 1.9%, food and beverages store sales shrank 0.9% and gasoline stations slid 1.6%. On the plus side, food services and drinking places grew 1.9%, building material dealers added 1.6% and furniture and home furnishing sales rose 1.0%. Total year-over-year growth was up by 6.1%. 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. (U.S. Census Bureau) Click here for more information |
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Employment Situation: 130.1 billion employed in October (Unemployment rate:
6.0%)
The employment situation is looking much better, with 126,000 jobs gained in October (much higher than anticipated) and September job gains revised upwards to 125,000. The largest gains were in the services sector, including education and health services (56,000), professional and business services (43,000), retail trade (30,300) and leisure and hospitality services (23,000). Manufacturing continues to lose jobs (-24,000) but at a slower pace. The critical number for job creation is 150,000, which is the rate of creation that is needed to meet labor force growth and stem unemployment. 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. (U.S. Department of Labor) Click here for more information |
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New Home Sales: 1,105,000, down 3.5% in October
Homes sales were down across the country, with the West seeing the steepest decline by about 9%. The average sales price was $250,200 and there is an estimated supply of new homes for 4.0 months. New home sales are continuing a downward trend due to rising mortgage rates and little pent-up demand (as evinced by a higher than recent average supply of homes) but are expected to remain solid through the beginning of next year. New home sales year-over-year are approximately 10.0% higher. 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. (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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