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FOMC Meeting date: NEXT MEETING: NOVEMBER 6TH.
2001
MEETING
OUTCOME
-
LATEST
NEWS: The Federal Reserve FOMC and the Board
of Governors on Tuesday November 6th. cut
the Federal Funds Rate, the interest rate
banks charge each other for overnight loans,
by 50 basis points (0.50%) to 2.0%, and the
Federal Discount Rate, the interest rate the
Federal Reserve charges banks on loans, was
cut by 50 basis points (0.50%) to 1.5% so
as to boost a struggling US and world economies.
Interest rates are now at their lowest levels
in 40 years, and this is the 10th cut this
year. The Feds is concerned about the continuing
US and global economic weaknesses.
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ARCHIVES for previous issues.
MEETING AGENDA:
- The
Federal Reserve Bank FOMC will consider LOWERING
interest rates as the US and world economy
continues deteriorate, especially after the
September 11th. US terrorist attacks. The
FOMC have cut interest rates a whopping 9
times in 2001 alone, but to no avail.
BOARD MEMBERS' RECENT COMMENTS
- Federal
Reserve Bank of Dallas President, and a non-voting
FOMC member, Robert McTeer told the Forth
Worth Downtown Rotary Club on October 26th.
that the September 11th. terrorist attacks
will likely tip the US economy into a recession
in the second half of 2001 ". Speaking
about third quarter growth, he said it will
be "slightly below zero and I wouldn't
be surprised if the fourth quarter isn't a
little bit under zero as gradually it will
be designated a recession". President
McTeer noted that the Fed monetary policy,
the current fiscal policy in congress, and
lower oil prices are "three things in
place that should give us some hope".
About the fiscal package, he stated "whatever
is in that package I hope it is supply side
tax cuts and not much pork-barrel type spending".
- Federal
Reserve Bank of Chicago President, and a voting
FOMC member, Michael Moskow stated in a speech
to Bankers Association for Finance and Trade
late October 25th. that the US economy will
improve in 2002. "The economic recovery
originally expected to begin later this year
will be delayed, and although it is unlikely
that the economy will improve next year, the
timing is uncertain". President Moskow
also noted that the increased spending on
security will increase the cost of doing business
such that if it persists overtime, could lower
the rate of productivity growth. He also noted
that when the economy adjusts to the higher
levels of perceived risks, "productivity
growth should pick up", and he expects
the economy to head back to levels that "prevailed
in the quarter century preceding 1995".
- Federal
Reserve Bank of Dallas President, and a non-voting
FOMC member, Robert McTeer stated at the Cato
Monetary Conference in Mexico City on October
24th. that, monetary policy was still effective
in controlling economic slowdowns, even though
"it has not been effective enough to
prevent the slowdown or offset" the recent
economic slide. President McTeer continued
that this time around, monetary policy "wasn't
effective enough to please us, but I don't
think that means it is ineffective".
- Federal
Reserve Bank of St. Louis President, and a
voting member of the FOMC, William Poole,
stated in a speech at the University of California
Davis on October 19th that, the September
11th. terrorist attacks on the US have hurt
the economy in the short term "without
question, the terrorist attacks have hurt
the aggregate economy over the near term".
President Poole added that a recession doesn't
necessarily be the outcome: "if necessary,
more monetary policy ease will be put in place"
if the data supports it. He also mentioned
that the Federal Reserve will work monetary
policy around "whatever fiscal package
we get".
- Federal
Reserve Board of Governors Chairman, Alan
Greenspan, testified before congress on October
17th. (see below).
- Federal
Reserve Board of Governors Vice Chairman,
and a voting FOMC member, Roger Ferguson,
told a Bond Market Association conference
in New York on October 16th that, despite
the September 11th. attacks, the "long
term prospects of the US economy remain sound",
and that the attacks' "initial disruptions
proved to be short lived".
- The
Federal Reserve Bank of Richmond President,
Alfred Broaddus, stated at a local business
leaders talk in Hickory, North Carolina on
October 16th that the September 11th. terrorist
attacks gave the US economy a "significant
blow", but he expects the economy to
recover, especially since the conditions that
foster long term economic growth are "still
in place after September 11". President
Broaddus also made known that although the
Central Bank has cut interest rates aggressively
in the last 8 months, the effects will show
slowly due to time lags, and that interest
rate cuts alone might not be enough to help
the economy weather this storm (HINT: More
fiscal stimulus is needed).
Board
Members Testimonies and Speeches page
THE GENERAL CONSENSUS ABOUT COMING MEETING:
- Most
economists now believe the Federal Reserve
will cut interest rates by at least 50 basis
points (0.50%) cut across the board due to
the dismal October employment data and mounting
deterioration of consumer confidence.
- OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
-
The
Mortgage Bankers Association (MBA) reported
that its MBA Mortgage Applications Survey
for week ending September 28th. rose 20.5%
to 771.1. The Purchase Index rose 8.9% to
308.8, and the Refinance Index rose 27.5%
to 3459.8.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending September 28th, US Crude Oil inventories
rose 1.6 million barrels and 3.42 million
barrels respectively, while Distillates rose
1 million barrels and 56,000 barrels respectively.
-
The
National Association of Purchasing managers
(NAPM) reported that, its NAPM Non-manufacturing
Index rose 4.7% in September to 50.2% - any
point above 50% means an expansion. All the
indices gained - the Export and Import indices
rose above the 50% mark.
-
US
Vehicle Sales declined by 600,000 units in
September - both Autos and Light Trucks declined.
GM saw an increase in sales; Nissan held steady
for the 3rd. straight month, while the rest
saw declines.
-
The
Chicago Fed National Activity Index (CFNAI),
a good measure of the economy's recession
risks, worsened to -1.37 in August, after
posting a modest -0.25 in July. the 3 month
moving average declined to -1.05%, all sure
signs that the recession risks are alive and
well.
-
US
Jobless Claims for week ending September 29th.
rose a whopping 71,000 to 528,000, while the
4 week moving average rose 30,000 to 454,000
- all at their highest levels since the 1990-1991
recessions.
-
US
Factory Orders were unchanged in August, which
was slightly better than what analysts expected.
-
US
Payroll Employment declined 199,000 in September,
twice what economists were expecting. The
US Unemployment Rate was unchanged at 4.9%,
while US Hourly earnings rose 0.2% since July.
The Caution here is, these figures do not
include the September 11th. terrorist attacks,
which are going to be reflected in the October
figures.
-
The
Economic Cycle Research Institute (ECRI) reported
that, its Future Inflation Gauge index (ECRI
FIG) held steady in September at 99.4.
-
The
Richmond Fed Manufacturing Survey held steady
in September, as the Shipment Index rose to
3, while New Orders Index improved from -1
to 1. The Backlog of Orders Index improved
6 points to -23, while the 6-Month Shipment
Index declined only 1 point to 26.
-
The
Kansas City Fed Manufacturing Survey for September
didn't come in as bad as economists expected.
The Production Index was 0, the Volume of
Shipments Index declined slightly more than
half to 6. The Volume of New Orders and Number
of Employees indices all declined to -11 and
-17 respectively.
-
The
Mortgage bankers Association (MBA) reported
that, its MBA Mortgage Applications Survey
for week ending October 5th. rose 11.5% to
860.1. The Purchase Index declined 12.2% to
271.2, while the Refinance Index rose a whopping
23.9% to 4285.7.
-
US
Wholesale Sales rose 0.6% in August. Inventories
declined 0.1% for the same period, thereby
pushing the Inventory-to-Sales Ratio down
from 1.31 to 1.30.
-
US
Jobless Claims for week ending October 6th.
declined 67,000 to 468,000. The 4-week moving
average rose 8,000 to 463,000. This data doesn't
mean that the job market is improving, but
rather that the decline was due to statistical
seasonal adjustments.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending October 5th, US Crude Oil inventories
decreased 100,000 barrels and 3.4 million
barrels respectively, while Distillates rose
1.9 million barrels and 1.134 million barrels
respectively.
-
US
Import Prices rose 0.3% in September, due
to Consumer Goods (excluding autos). Import
Prices of Capital goods declined 0.3%. US
Export Prices rose 0.1%, due to a strong rise
in Consumer goods prices (excluding auto).
Agricultural Commodities Export Prices declined.
-
US Producer Price Index (PPI), a good measure
of producer inflation, rose 0.4% in September,
about twice what economists were expecting.
The Core PPI, which excludes the volatile
energy and food sectors, rose 0.3%, its highest
monthly gain since April. This data reflects
the September 11th. terrorist attacks.
-
The
University of Michigan Consumer Sentiment
Survey for October improved 1.6 points to
83.4. The Expectations Index improved 4.4
points to 77.9, while the Present Conditions
Index declined 2.5 points to 92.1.
-
US
Retail Sales declined a strong 2.4% in September,
due to the US terrorist attacks on September
11. Food & Beverage Stores Sales rose
0.4%, the same level as last month, while
all of the other sectors saw declines.
-
US
Business Inventories declined 0.1% in August,
while Sales grew 0.1% in the same period,
thus helping the Inventory-to-Sales Ratio
to close at 1.42 for the second month in a
row.
-
The National Association of Home Builders
(NAHB) reported that, its NAHB Housing Market
Index declined 8 points in October to 48,
the largest monthly point drop since they
started keeping the data in 1985. The Current
Single Family Home Sales, Expectations in
the next 6 months, and the Traffic of Potential
Buyers indices all declined.
-
US
Industrial Production declined 1% in September,
the 12th. consecutive monthly decline in a
row. Auto Production declined 3.4%, and Capacity
utilization declined to 75.5%.
-
The
Mortgage Bankers Association (MBA) reported
that for week ending October 12th, its MBA
Mortgage Applications Survey rose 18.1% to
1015.4. The Purchase Index rose 5.8% to 286.9,
while the Refinance Index rose 22.6% to 5252.6.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending October 12th, US Crude Oil inventories
declined 4.4 million barrels and 7.02 million
barrels respectively, while Distillates gained
2 million barrels and 2.77 million barrels
respectively.
-
US
New Residential Housing Starts rose 1.7% in
September to 1.57 million units. Building
Permits and New Private Home Completions declined
for the period. The South and Western US accounted
for the increase.
-
US
Initial Jobless Claims for week ending October
13th. rose 6,000 to 490,000, while the figures
for the week before were revised upwards by
16,000 to 484,000. The 4-week moving average
rose 24,000 to 491,000.
-
The
Philadelphia Fed Survey declined in September,
as the Business Activity Index moved from
-7.3 to -27.4. All the indices closed lower
except the 6-Month Outlook Index, which gained.
-
US
Consumer Price Index (CPI), a good measure
of consumer inflation, rose 0.4% in September,
twice what economists were expecting. The
Core CPI, which excludes volatile energy and
food sectors, rose in line with expectations
at 0.2%.
-
US August Trade Deficit declined by $1.9 billion
to $27.1 billion. Total Exports rose $0.9
billion to $84.5 billion, while total Imports
declined $0.8 billion to $111.6 billion.
-
The Conference Board reported that the US
Index of Leading Economic Indicators declined
0.50% in September, the largest single month
decline since January 1996. The Coincident
Index declined 0.1%, while the Lagging Index
declined 0.2%.
-
US Semiconductor Equipment Shipments declined
13% in September to $993.4 million - slightly
better than expected, while Bookings declined
11% to $644.3 million. The Semiconductor Book-to-Bill
ratio rose slightly to 0.65.
-
The
Mortgage Bankers Association (MBA) reported
that, its MBA Mortgage Applications Survey
for week ending October 19th. declined 11.6%
to 897.3. The Purchase Index declined 7.9%
to 264.1. The Refinance Index declined 12.8%
to 4580.3.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending October 19th, US crude oil inventories
rose 2.8 million barrels and 4.91 million
barrels respectively, while distillates rose
900,000 barrels and 556,000 barrels respectively.
-
US
Jobless Claims for the week ending October
20th. rose 8,000 to 504,000. The 4-week moving
average rose 12,000 to 505,000.
-
US
Employment Cost Index (ECI) rose a stronger
than forecasted 1.0% in Q3 2001, due to a
strong rise in blue collar benefit compensations
like medical insurance.
-
US
Existing Home Sales in September declined
a strong 11.7% to 4.89 million units sold.
Economists are expecting further declines
due to the September 11th. terrorist attacks.
-
The
Conference Board reported that US Help Wanted
Index, a good measure of blue collar employee
demand, declined by 1 point to 52 in September.
The East South Central, East North Central,
and the South Atlantic saw an increase in
demand. The Mid-Atlantic was unchanged, while
the other regions saw declines.
-
US
Durable Goods Orders declined 8.5% in September
to $165.4 billion. Telecommunications, Aircraft
and Motor Vehicles, and non-defense capital
goods led the decline. Shipments of Durable
Goods also declined for the period.
-
US
New Home Sales declined 1% in September to
864,000 units sold. The Northeast, South and
West accounted for the decline, while the
Midwest saw an increase in sales. The Fixed
Mortgage Rate declined to 6.82%.
-
The
University of Michigan Consumer Sentiment
Survey improved in October to 82.7. The Expectations
Index improved to 75.5, while the Present
Conditions Index declined slightly to 94.0.
-
The
Conference Board reported that US Consumer
Confidence declined drastically in October
to 85.5%, its lowest levels since 1994. The
Expectations Index declined 7 points.
-
The
Mortgage Bankers Association (MBA) reported
that, its MBA Mortgage Applications Survey
for week ending October 26th. declined 6,000
to 843.5. The Purchase Index gained 700 to
265.9, while the Refinance Index declined
8,200 to 4203.5.
-
The
US Gross Domestic Product (GDP) for the Third
Quarter (Q3) declined only 0.4% to $9.333
Trillion, well below what economists were
expecting. Q3 Consumption rose 1.2%, Business
Spending on equipment and software declined
13.4%. Government Spending declined declined
to an annualized rate of 1.8%. Net Exports
improved by $50 billion from quarter before,
as Inventories also improved. The Implicit
Price Deflator rose a surprising 2.1%.
-
The
Energy Information Agency (EIA) and the American
Petroleum Institute (API) reported that for
week ending October 26th, US crude oil inventory
increased 600,000 barrels and 884,000 barrels
respectively. The EIA reported that Distillates
increased by 400,000 barrels, while API saw
a decline of 262,000 barrels.
-
The
Chicago Purchasing Managers Association reported
that its Chicago PMI, a good measure of manufacturing
activity in the Chicago area, declined slightly
by 4 basis points to 46.2% - any point below
50% is a contraction. The Production Index
declined, but closed at 50.8%, while the other
indices declined and closed below the 50%
mark.
-
The
National Association of Purchasing Managers
(NAPM) reported that its NAPM Index, a good
measure of manufacturing activity in the country,
declined to 39.8% in October - any point below
50% is a contraction. The Supplier Deliveries
Index declined to 49.2%, while the other indices
declined and all closed well below 50%.
-
US
Jobless Claims for week ending October 27th.
declined 10,000 to 499,000. The 4-week moving
average declined 9,000 to 497,000.
-
US
Personal Income growth was statistically unchanged
in September, due to a less than 0.1% growth.
US Personal Consumption declined 1.8%, while
the Savings Rate rose 6 basis points (0.60%)
to 4.7%. The PCE Deflator declined 0.6%, its
largest drop this year. Wages and Salaries
were unchanged for the period.
-
US
Construction Spending declined 0.4%, or $3
billion in September. Private Residential
and Non-residential construction accounted
for the decline. Public Building construction
rose 1.2% for the month, due primarily to
the 5.1% increase in Educational Construction
projects.
-
US
Non-farm Payrolls declined a whopping 415,000
in October, the largest decline in 2 decades.
The Unemployment Rate rose 50 basis points
(0.50%) to 5.4%. The Average Workweek, Manufacturing
workweek and overtime all declined.
-
The
Economic Cycle Research Institute (ECRI) reported
that, its Future Inflation Gauge (ECRI FIG)
for October declined to 96.0, its lowest level
in 26 years.
-
US
Factory Orders declined 5.8% in September.
Shipments declined 4.25%. Inventories declined
0.87%. Semiconductors and related devices
orders rose 16.71%, the second consecutive
month of strong gains. Communications Equipment
Orders declined 39.77%.
-
Worldwide
Semiconductor Sales declined 2.5% in September.
Asia pacific saw an increase of 2.6%, while
the Americas, Europe and Japan had declines.
-
The
National Association of Purchasing Managers
(NAPM) reported that, its Non-Manufacturing
PMI Index declined from 50.2% seen in September
to 40.6% in October - any point below 50%
is a contraction. The Inventory Index rose
from 44.5% to 48.0%, while all the other indices
declined and were below 50%.
-
The
Chicago Fed National Activity Index (CFNAI)
improved from -1.30 seen in August to -1.28
seen in September. The 3 month moving average
improved from -1.02 seen in August to -0.95
seen in September.
BEIGE BOOK (12 DISTRICTS) REPORT
OF OCTOBER 24TH. 2001
- The
US economy hasn't recovered from the September
11th. terrorist attacks.
- New
England Districts (First & Second Districts)
The First District (Boston) reported that
building materials and hardware sales were
strong, while general sales, although recovering
from the September 11th. attacks, are still
sluggish. Manufacturing continues to be weak,
as some employers are cutting cost through
labor reductions and curtailing capital spending.
Real Estate sales is stronger than anticipated,
and insurance expects an uptick in business.
The Second district (New York) reported that
home sales around New York City area are slow,
Manhattan office spaces were available than
expected, and consumers are not spending,
except for entertainment electronics like
DVDs and home security systems. Tourism is
down, office leasing in New York City (excluding
Manhattan) and New Jersey is up, while construction
is still weak. Demand for loans and loan defaults
are up. Legal services sector is strong.
- Third
district (Philadelphia) reported that manufacturing
is expecting orders to pick up in the next
9 months, while retail sales, which has picked
up slightly in recent weeks however, expect
the holiday months to either be as bad as
last year, or worst. Lending improved slightly.
Travel and transportation has picked up lately,
but is still below pre-attacks levels, and
lower than the year before.
- Fourth
district (Cleveland) reported that the terrorist
attacks have led to major job cuts in the
Airline, Hotel, Aerospace and Restaurant sectors.
Manufacturing have revised its profits and
growth outlooks lower, as more job cuts and
order cancellations are expected. The Southern
part of the district have been seen an increased
demand for temporary workers, while the Northern
part unions reported improved compensations
like healthcare, but job security is still
concern. Air freight volume continues to pick
up, but trucking and shipping haven't seen
the usual September seasonal increase.
- The
Mid-Atlantic Fifth District (Richmond) reported
that manufacturing shipments and new orders
were mostly steady, but Travel, Hotels, and
Airlines had sharp drops in revenue due to
the terrorist attacks. Retail sales recovered
a little in October, but big item sales haven't.
Made in America products are enjoying a small
boom - automobiles, which declined as much
as 50% immediately after the attacks, are
also recovering. On the upside, the cool dry
weather is good for corn and soybean harvesting,
which are ahead of schedule.
- Southeastern
Sixth District (Atlanta) reported that despite
zero percent financing, automobile sales are
still struggling below last year's levels.
Retailers don't expect much improvement as
we head in the holiday season, if "early
bird" shoppers are used as an indicator.
Manufacturing, Travel, Hotels, and Restaurants
are yet to be on the road to recovery after
the September 11th. terrorist attacks. Some
inflation was reported due to higher liability
insurance since the September attacks. The
cool dry weather condition was favorable for
agricultural products except the cotton crop
in Mississippi and Louisiana.
- The
Seventh (Chicago) reported that most business
activity recovered somewhat immediately after
the attacks. Residential construction and
real estate sales slowed, but the low interest
rates are still keeping the sectors moving.
Retail sales are lower, due primarily to the
poor non-durable goods market. Price pressures
were not reported. Lending activity was mixed
as business lending declined. Agricultural
production was okay in most parts of the districts
expect the North and the West.
-
The Eighth district (St Louis) reported that
Automobile sales is recovering lately due
to low interest rates. Manufacturing is still
slumping, and so has the real estate market.
The lending market was still weak, and strict
lending conditions seem to be declining. On
the upside, residential construction is still
strong. Agriculture and Natural resources
production was mixed due to scattered rainfall.
-
The Ninth District (Minneapolis) reported
that retail sales and tourism were returning
to normal in October (no convention canceled
in October). Sale of luxury items is up as
consumers continue to spend. The energy sector
is about the same level as last year's, while
Manufacturing declined slightly from a quarter
ago. Construction is down, but residential
real estate activity is at the same level
as last year's. Agricultural conditions have
deteriorated around the district.
- Tenth
District (Kansas City) reported that retail
prices and prices for building and manufacturing
materials were mostly stable. Retail sales,
manufacturing, construction and real estate
activities however, declined. Banking deposits
increased, while loans decreased, as mounting
job cuts have everyone preparing for the worst.
Agricultural conditions were mixed, while
manufacturers expect a rise in input and output
prices in the coming months.
- The
Eleventh District (Dallas) reported that the
decline in manufacturing and energy sectors
have accelerated since the September 11th.
terrorist attacks. Retail sales, construction,
real estate, finance and agricultural conditions
have all declined. Travel and tourism are
leading in job cuts. High-tech manufacturers
are seen more clients cancel or delay orders.
- The
Twelfth District (San Francisco) reported
that price declines and/or discounts were
seen in Travel, petroleum, and some retail
goods. Agricultural products were abundant
and at discount prices. Business loans were
down. Construction and real estate were, with
some projects facing financing and insurance
obstacles. Firms held back on capital investments,
especially in the manufacturing sector. Consumer
spending, although recovered somewhat after
the September 11th. terrorist attacks, it
is still below the pre-attacks levels.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF OCTOBER 17th. 2001
- The
US Economy recovered somewhat from the September
11th. terrorist attacks, but the recovery
is uneven.
- The
long term economic and productivity growths
are still on course.
- The
economy is still biased towards weakness in
the short term.
- Risk
premiums will increase in the long run due
to the attacks.
- Greenspan
avoided to take sides on the stimulus package
now working its way in congress.
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