| May 31, 2004 -- As we
roll into summer, the U.S. economy seems poised for a solid recovery. The
Fed has indicated that with the economy gaining traction and inflation
beginning to rise, a gradual hike in the federal funds rate may be just
around the corner. And the employment situation is finally catching up
with the rest of the economy, with new jobs numbering more than a quarter
million in April. Manufacturing is gaining momentum, adding revenues and
jobs. Confidence is up, although global security threats and a shaky stock
market could adversely affect this in the future. To learn more about
these and other economic roadsigns, scroll through this month's Economic
Indicators e-newsletter.
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| Federal Funds Rate:
1.0%, unchanged since June 2003
At its May 4 meeting, the Federal Open Market Committee (FOMC) announced that the federal funds rate would remain at one percent, its lowest level in 40 years, but there were some telling differences in the FOMC's policy statement. Most notably, the Fed no longer said it would be "patient" in removing its accomodative monetary policy, spurring speculation that rates may begin rising as early as June. Economists have held to an August rise in rates. The Fed also changed its stance on the risk of inflation, indicating that the recent increase in prices would also support tightening monetary policy. The next Beige Book will be released on June 16. To view the most recent report from April 21, go to: http://www.federalreserve.gov/fomc/beigebook/2004/20040421/default.htm. The 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 |
| Real Gross Domestic
Product (GDP): Growth rate of 4.4% for 2004Q1, preliminary (4.1% in
2003Q4)
Gross domestic product for the first quarter grew at a faster pace than reported in the advance report but was slightly slower than expected. Major contributors to growth during this period were personal consumption (up 0.7% to 3.9%), equipment and software (down 5.1% to 9.8%), private inventory investment (down 4.1% to 3.8%), federal government spending (up from 0.7% to 9.2%, boosted by defense spending clocking in at 13.2%), and exports (down 15.6% to 4.9%). Real final sales of domestic product, which some argue is a better gauge of domestic growth, grew at a rate of 3.7% versus 3.4% in the last quarter of 2003. 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 |
| Personal
Consumption Expenditures: Growth rate of 3.9% for 2004Q1, preliminary
(3.2% in 2003Q4)
Durable goods spending was still the weak link in May's read on consumer spending but showed improvement over the advance report. Durable goods spending dropped 4.9% to -4.2% in 04Q1, while nondurable goods added 1.2% to reach 6.6% and services increased 1.4% to 4.2%. Among durables, furniture and household equipment added the most to the total ($10.2 billion) while autos provided the largest drag (-$21.3 billion). Nondurables were led by food ($19.9 billion) and clothing/shoes ($11.7 billion), while services were boosted by "other" (adding $16.9 billion) and medical care (adding $13.4 billion). Personal Consumption Expenditures (PCE) measures consumer-spending activity. (Bureau of Economic Analysis) Click here for more information |
| Industrial
Production: 115.4% (of 1997 average), up 0.8% in April
Industrial production grew at its fastest pace this year, beating expectations and offering a solid reply to April's negative performance. Final products grew by 0.5%, nonindustrial supplies by 1.0% and materials by 1.0%. Among the major industry groups, manufacturing grew 0.7%, mining 0.8% and utilities 1.5%. Capacity utilization was up 0.3% to 76.9%. Year-over-year, industrial production was up 4.8%. 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 |
| Manufacturing ISM
Report on Business: 62.4%, down 0.1% in April
The manufacturing sector has now improved for 11 consecutive months (with six months above the 60 point mark) and performance of this index was in line with expectations for April. All segments were above the critical 50% mark except inventories (down 3.5% to 44.8%). New orders grew at a rate of 65.0% (down 0.7%), while production jumped 1.5% to 67.0% and the backlog of orders increased 4.0% to 66.5%. Supplier deliveries shrank 0.8% to 67.1% while employment moved the same amount in the opposite direction, growing to 57.8%. As with the last two months, all of the 20 industry sectors reported growth. 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 |
| Non-Manufacturing
ISM Report on Business: 68.4%, up 2.6% in April
After a sharp drop in February, the non-manufacturing index beat expectations for a small decline and is now at a record high. Almost all segments reported increased activity, with new export orders leading the charge by jumping 10.5% to 62.0%. New orders gained 2.8% to reach 65.6%, supplier deliveries rose 3.0% to 58.0% and inventories rose 5.0% to 56.5%. The backlog of orders and employment saw more modest gains, growing 1.0% to 53.5% and 0.6% to 54.5%, respectively. Industries reporting the highest rates of growth include: mining; finance and banking; transportation; entertainment; and retail trade. 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 |
| Durable Goods
Orders: $191.3 billion, down 2.9% in April
Durable goods orders took a larger than expected tumble in April following two months of hot growth. Excluding transportation (down 4.7% to $54.5 bilion), growth was -2.1%. Defense orders fell 10.9% to $8.4 billion while non-defense orders (excluding aircraft) fell 3.5% to $60.2 billion. Shipments were down 0.8% to $195.3 billion, unfilled orders rose 0.6% to $520.4 billion, and inventories edged up 0.5% to $266.9 billion. Year-over-year, new orders were up a strong 12.4%. 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 |
| Producer Price
Index (PPI): up 0.7% in April
Prices for finished goods are getting higher, as inflation rose faster than expected. Excluding food and energy, inflation grew at a more modest 0.2%. Energy prices accelerated quickly, rising 1.6% (versus much slower growth earlier in the year and negative growth for most of last year) while food prices grew 1.4%. Prices also shot up for intermediate (doubling to 1.4%) and crude goods (jumping 2.3% to 3.0%), which could push the prices for finished goods higher in the near future. Year-over-year, finished goods prices rose 3.7% following last month's low of 1.4%. 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 |
| Consumer Price
Index (CPI): up 0.2% in April (SA)
Inflation for consumer goods remains moderate, with core inflation (excluding food and energy) a low 0.3%. Energy prices took a dip in April, only increasing 0.1%, while food prices grew 0.2%. The largest price increases were for housing and medical care, both rising 0.4%. Year-over-year, prices were up 2.3%. 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 |
| Composite Index of
Leading Economic Indicators: 115.9 (1996=100), up 0.1% in April
Although this index only edged up slightly, it is still a positive sign that the economy is moving onto solid ground. Only four of the ten indications were positive in April: interest rate spread (a big contributor to growth), real money supply, building permits, and stock prices. The coincident index (current economic situation) rose 0.3% to 116.8 and the lagging indicator (past situation) edged up 0.2% to 98.0. 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 |
| Consumer
Confidence Index (1985=100, SA): 93.2%, up 0.2% in May
Confidence remained relatively unchanged in May, with good news on the employment front mitigated by concerns about geopolitical stability. Those consumers rating the economy as “good” grew 0.6% to 22.3%, while those rating the economy as “bad” remained the same at 21.7%. Consumers were split on jobs, with more saying jobs were more plentiful (up 1.0% to 16.6%) and even more saying jobs were harder to get (up 2.6% to 30.6%). The present situation index declined a mere 01.% to 90.3% and expectations were up 0.4% to 95.2%. More consumers plan to purchase a home or major appliace in the next six months while fewer consumers plan to purchase an auto. 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 |
| Retail Sales:
$331.8 billion, down 0.5% in April
Retail sales took a hit in April, declining by a larger than expected margin due mainly to falling auto sales (down 1.8%). Excluding autos, sales were only down 0.1%. Among the other big loser were clothing and accessories (-2.0%), general merchandise (-0.8%) and building materials (-0.7%). Winners included sporting goods, hobby, books and music (up 1.1%) and nonstore retailers such as catalogues (up 1.0%). Total year-over-year growth was up by 8.0%. 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 |
| Employment
Situation: 130.9 billion employed in April (Unemployment rate: 5.6%)
The April employment report surpassed expectations, with 288,000 new jobs added to the payrolls and March's figure revised upwards to 337,000. Manufacturers added 21,000 jobs but the largest increase was in the services sector, which expanded by 246,000 jobs. Half of those new jobs were in the professional and business services sector. The labor market is still 1.6 millions jobs smaller than before the recession. Meanwhile, the unemployment rate dropped a tenth of a percentage point. 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 |
| New Home Sales:
1,093,000, down 11.8% in April
New home sales were down in April, the sharpest decline in more than 10 years. Only the Midwest experienced growth, with sales rising 10.8%. Sales in the South declined 22.0%, 9.4% in the West and 2.5% in the Northeast. The average sales price was $270,400 and there is an estimated supply of new homes for 4.3 months. New home sales year-over-year are approximately 6.4% 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. Click here to unsubscribe
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