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February 29, 2004 -- The economy overall appears to be improving, although
there are several areas of concern as we begin to look at this year's
performace. January results for durable goods orders, consumer confidence
and employment show declines that could drag on the economy going forward.
Employment in particular remains a sore spot, with business seemingly
reluctant to expand the ranks. Read this month's enewsletter to see how
recent economic activity may affect your business.
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%, unchanged since June 2003
The Federal Open Market Committee will meet again on March 16. Although the Fed softened its stance at the January meeting, indicating that a tightening of monetary policy may happen in the foreseeable future, target rates are not expected to change in the next several months. The next Beige Book will be released on March 3. To view the January 2004 report, go to: http://www.federalreserve.gov/fomc/beigebook/2004/20040114/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 4.1% for 2003Q4,
preliminary (8.2% in 2003Q3)
Initial estimates of domestic output from the final quarter of last year were revised upwards in February and beat expectations. Major contributors to growth in the fourth quarter include: personal consumption (2.7% from 6.9% in Q3), exports (21.0% versus 9.9% in Q3), equipment and software (15.1% from 17.6% in Q3), inventory (a 0.92% from -.13% in Q3 contribution to GDP percent change), and residential fixed investment (8.6% versus 21.9% in Q3). Business growth was revised upwards (9.6% from 12.8% in Q3) but was still heavily dependent on IT replacement spending. Real final sales of domestic product grew 3.2% after growing 8.3% 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 2.7% for 2003Q4,
preliminary (6.9% in 2003Q3)
Personal consumption continued to boost fourth quarter output, providing a respectable level of growth in consumer spending over the holidays. Revised durable goods spending actually showed a slide of -0.1% (28.0% in Q3), while nondurable goods did even better in preliminary estimates by growing 5.2% (7.3% in Q3). Services increased 2.2% (2.8% in Q3). In updated durable goods sales, motor vehicle sales only slid $11.8 billion but furniture and household equipment growth was lower than in the advance read, adding only $9.8 billion. Food sales (up $9.3 billion) were still the largest contributor to nondurables and medical care spending ($14.6 billion) was the largest contributor by far to services growth. Personal Consumption Expenditures (PCE) measures consumer-spending activity. (Bureau of Economic Analysis) Click here for more information |
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Industrial Production: 113.8% (of 1997 average), up 0.8% in January
Industrial production growth in January was slightly better than anticipated while December's numbers were revised downwards to reflect no growth. Products grew 0.6%% (versus a 0.3% loss previously), while non-industrial supplies (which shrank 0.2% in December) and materials both rose 0.9% (versus a 0.4% gain previously). Of the major industry groups, utilities led growth with a 5.2% jump after loosing ground in December. Manufacturing rose 0.3% and Mining 0.1%. Capacity utilization increased to 76.2%, its highest level in almost a year and a half. Year-over-year, industrial production was up 2.4%. 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: 63.6%, up 0.2% in January
The Manufacturing report continues to bear good news about the economic recovery, with January's numbers lower than expected but still well above the benchmark for growth. Production and New Orders both were at 71.1% (versus 69.2% and 73.1% in December, respectively). The backlog of orders shrank 0.5% to 60.5%, employment declined 0.6% to 52.9%, and new export orders fell 2.5% to 67.5%. Inventories rose 2.6% to 48.9%. Seventeen of the 20 industry sectors reported growth, including: apparel; textiles; miscellaneous; chemicals; petroleum; instruments and photographic equipment; transportation and equipment; industrial and commercial equipment and computers; fabricated metals; primary metals; glass, stone, and aggregate; electronic components and equipment; paper; furniture; printing and publishing; food; and rubber and plastic products. 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: 65.7%, up 7.7% in January
Non-manufacturing activity set a new record for this index in January, beating expectations. New orders rose 5.4% to 64.9% and supplier deliveries rose 4.5% to 56.5%. All other indices were lower in January, but all (except inventories) showed activity is still increasing, including: the backlog of orders was 53.5%, export orders 51.0%, and employment 53.4%. Thirteen of the 20 sectors reported growth, including legal services, agriculture, entertainment, wholesale trade, and mining. Construction was the only sector to report a decline. 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: $181.0 billion, down 1.8% in January
The year did not start off well for durable goods orders, which missed expectations for modest growth due in part to a large revision upwards for December orders. The net effect is little growth since November. Excluding transportation, durable goods orders actually grew 2.0%. This was one of the worst months for transportation orders in over a year, with orders falling 10.4%. Defense orders slid 13.7% while non-defense orders rose 1.5%. Shipments were down $0.1 billion to $188.1 billion, unfilled orders were down $0.7 billion to $505.2 billion, and inventories rose $0.2 billion to $263.0 billion. 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): January data delayed
Due to the conversion of PPI data from Standard Industrial Classification (SIC) codes to the North American Industry Classification System (NAICS), the release of the PPI report for January has been delayed until further notice. 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) |
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Consumer Price Index (CPI): up 0.5% in January (SA)
The CPI rose at a higher than anticipated rate in January, but year-over-year inflation is still relatively low at 1.9%. Excluding food and energy, the (core) index was up 0.2% in January and is still at the historically low level of 1.1%. Transportation prices led growth, rising 1.7%. Among the special Indexes, energy jumped 4.7% while food prices were flat. 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: 115.0 (1996=100), up 0.5%
in January
The index again was in line with expectations for modest growth. Only five of the ten indicators for this index were positive, including: consumer expectations, stock prices, average weekly manufacturing hours, vendor performance and average weekly initial claims for unemployment insurance (inverted). The coincident index (current economic situation) rose 0.3% and now stands at 115.8 while the lagging indicator (past situation) remained at 98.2. 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): 87.3%, down 9.1% in February
Confidence took a larger than expected tumble in February due in large part to lowered expectations, which dropped 11.0% to 96.8%. Those consumers rating the economy as “good” declined 2.6% to 19.3%, while those rating the economy as “bad” grew 2.2% to 25.1%. The present situation index fell 6.3% to 73.1%. Consumers' 6-month outlook regarding jobs was bleaker in February, with more expecting fewer jobs will be available (up 3.1% to 18.1%), and in general, more consumers expecting business conditions to worsen (up 2.0% to 8.7%). 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: $322.9 billion, down 0.3% in January
January sales were a disappointment, coming in below expectations for moderate growth. The decline was attributed mainly to weak auto sales (-3.9%); excluding autos, retail sales were up 0.9%. Leading this advance in non-auto sales were clothing and accessories stores (2.9%), food and beverage stores (1.8%), gas stations (1.7%) and food services and drinking places (1.1%). Total year-over-year growth was up by 5.0%. 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: 130.15 billion employed in January (Unemployment
rate: 5.6%)
Nonfarm job creation was lower than expected at 112,000 but still better than December's revised addition of 16,000 jobs. One reason for the increase in January was a lower rate of retail hires over the holidays, impacting seasonal adjustments thereby boosting job results. Meanwhile, manufacturing lost 11,000 jobs while professional and business services shrank by 22,000. On the plus side, retail grew by 75,700 jobs, education and health services added 22,000 jobs, and leisure and hospitality rose by 21,000 jobs. The unemployment rate unexpectedly edged 0.1% lower. 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: 1,106,000, down 1.7% in January
December new home sales were revised upwards to 1,125,000, so January results were better than expected. Only the Midwest had higher home sales, up 5.6%, versus losses in the Northeast (down 5.0%), the South (down 2.1%) and West (down 3.9%). The average sales price was $258,600 and there is an estimated supply of new homes for 4.1 months. New home sales year-over-year are approximately 9.6% 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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