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January 30, 2004 -- From most reports, 2003 closed out on a positive note.
Economic growth, production, manufacturing and retail sales all turned in
solid if not spectacular performances, giving the Fed little reason to
tinker with interest rates anytime soon. And consumer confidence is still
flying high. However, durable goods orders slipped unexpectedly and the
employment picture remains dark, with far fewer jobs created than a healthy
economy would indicate. Where the economy (especially employment) goes in
the next nine months will no doubt play an important role in the upcoming
presidential elections. Read this month's enewsletter to see how recent
economic activity may affect your business.
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Federal Funds Rate: 1.0%, unchanged since June 2003
The Federal Open Market Committee opened the new year with the decision to maintain its accomodative monetary policy, meaning rates will remain low to encourage increased business investment. Concerns about a lack of new jobs was the main reason cited, although the economy is steadily gaining traction. The Fed's January Beige Book reported that the economy has continued to improve since the last survey, although the St. Louis office indicated that conditions were mixed in its district. Other news from the Eighth District, of which Louisville is a part, included higher retail and auto sales over a year ago, a strong housing market but slack commercial real estate activity. To view the 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 4.0% for 2003Q4, advance
(8.2% in 2003Q3)
The economy grew at a solid pace in the last quarter of last year, although the steep slide from the third quarter high put growth even lower than expected. Still, fourth quarter performance beat the historic trend for 3.0% to 3.5% growth. Major contributors to growth in the fourth quarter include: personal consumption (2.6% from 6.9% in Q3), exports (19.1% versus 9.9% in Q3), equipment and software (10.0% from 17.6% in Q3), inventory (a 61% from -.13% in Q3 contribution to GDP percent change), and residential fixed investment (10.6% versus 21.9% in Q3). Business growth was positive although below expectations (6.9% from 12.8% in Q3) and there is some concern that the numbers reflect a short-term up-tick due to IT equipment replacement activity. Real final sales of domestic product grew 4.6% after growing 10.1% the previous quarter. For 2003, overall growth was at a respectable 3.1% rate. 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 2.6% for 2003Q4, advance
(6.9% in 2003Q3)
Personal consumption dropped sharply after the tax rebate and auto incentive effects faded near the end of the year and yet, consumers continue to keep the economy moving. Durable goods spending rose a mere 0.9% (28.0% in Q3), while nondurable goods picked up some of the slack by growing 4.4% (7.3% in Q3) and services increased 2.1% (2.8% in Q3). Among durable goods, motor vehicle sales slid $12.6 billion while furniture and household equipment added $11.6 billion. Food sales (up $7.9 billion) led positive growth across the nondurables segment while medical care spending ($13.3 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: 113.2% (of 1997 average), up 0.1% in December
Industrial production growth was weaker in December, below expectations for moderate growth. However, given November's strong performance, this index's modest showing this past month is not causing much concern. Products shrank 0.2% (versus 1.0% previously), as did non-industrial supplies (versus 1.0% previously). Only materials grew, by 0.4% (from 1.0% in November). Of the major industry groups, manufacturing edged up by 0.3%, mining remained level, and utilities shrank 1.4%. Capacity utilization was unchanged at 75.8%. Year-over-year, industrial production was up 2.3%. 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: 66.2%, up 3.4% in December
December was the sixth consecutive month of growth for this index which came in well above expectations. New orders (77.6%, up 3.9%) and production (73.0%, up 4.7%) were the largest boosters to this index. The backlog of orders grew 2.0% to 61.0% while employment jumped 4.5% to 55.5%. New export orders also rose, by 2.5% to 60.4%. Inventories fell back 2.7% to 47.3%. Seventeen of the 20 industry sectors reported growth, including: instruments and photographic equipment; leather; furniture; miscellaneous; apparel; electronic components and equipment; transportation and equipment; tobacco; textiles; industrial and commercial equipment and computers; primary metals; printing and publishing; fabricated metals; food; wood and wood products; glass, stone, and aggregate; 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: 58.6%, down 1.5% in December
Non-manufacturing activity is still going strong but was below December expectations. New orders rose 1.1% to 31.2%, the backlog of orders grew 3.0% to 55.5% and export orders also gained 3.0% to reach 57.5%. Meanwhile, employment receeded by 0.9% to 54.0% and supplier deliveries slipped 1.0% to 52.0%. Inventories edged up 0.5% to 51.5%. Still, all of the components in this Index show that non-manufacturing is expanding. 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: $181.4 billion, down $0.1 billion in December
December durable goods orders registered another disappointing decline and were below expectations for growth. Excluding transportation, durable goods orders shrank by an even larger 0.7%. Computers and electronic products contributed with a 2.7% decline, the largest factor being a down market for communications equipment. Defense orders grew 0.1% while nonfedense orders edged up 0.2%. Shipments were up 0.6% to $185.4 billion and inventories grew 0.2% to $262.0 billion. Year-over-year, orders for durable goods were up 2.8%. 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 0.3% in December
Producer prices rose slightly faster than anticipated due largely to increased energy costs. Excluding food and energy, prices actually fell 0.1%. Food prices increased by 0.2% while energy prices rose 1.8% (gasoline prices reversed directions from November, gaining 5.1% after falling 4.8%). Prices for intermediate goods grew 0.5% while crude goods prices jumped 2.0%. Year-over-year growth is 4.0%. 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): up 0.2% in December (SA)
After November's decline, the CPI rose in-line with expectations last month. Excluding food and energy, the index edged up 0.1%. Items with the largest increases included food and beverages (0.6%), medical care (0.6%) and education and communication (0.4%). Among the special Indexes, energy rose 0.2% while food grew 0.6%. Year-over-year, inflation grew 1.9%, with the core rate of inflation (excluding food and energy) rising a modest 1.1%, its lowest rate in 38 years. 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: 114.3 (1996=100), up 0.2%
in December
The index met expectations in December but was revised downwards for November. Seven of the ten indicators for this index were positive, including: vendor performance, stock prices, building permits, average weekly initial claims for unemployment insurance (inverted), index of consumer expectations, manufacturers’ new orders for nondefense capital goods, and manufacturers’ new orders for consumer goods and materials. Both rising 0.1%, the coincident index (current economic situation) now stands at 115.7 and the lagging indicator (past situation) reached 98.9. 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): 96.8%, up 5.1% in January
This month's growth was better than anticipated and places the Index at its highest level in 18 months. Those consumers rating the economy as “good” grew 3.4% to 22.0%, while those rating the economy as “bad” fell 1.7% to 22.8%. The present situation index rose 5.7% to 80.0% and expectations rose 4.8% to 108.1%. Consumers' outlook for the next six months was generally positive, with more people in January expecting more jobs to be available and business to improve. However, fewer plan to purchase a home, auto, or major appliance in the next six months. 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: $325.0 billion, up 0.5% in December
December sales were below expectations and, excluding autos, were an even less impressive 0.1%. Nonstore retail led growth with a 2.1% increase, followed by motor vehicle and parts sales (1.6%) and sporting goods, hobby, books and music sales (0.8%). Total year-over-year growth was up by 6.7%. 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: 130.0 billion employed in December (Unemployment
rate: 5.7%)
Job creation was almost nonexistent in December, with the expected addition of 120,000-plus jobs far exceeding the actual increase of 1,000 (150,000 new jobs a month is considered the critical threshold to meet labor force growth and stem unemployment). Numbers for the two preceeding months were also revised downwards to 43,000 and 100,000, respectively. On the losing end of the equation were manufacturing (-26,000), retail trade (-38,000), leisure and hospitality (-4,000) and government (-4,000). Business and professional services added 45,000 new jobs and education and health services added 21,000 new jobs. The unemployment rate appeared to have improved due to fewer participants in the labor force. 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: 1,060,000, down 5.1% in December
Homes sales were higher in the Northeast (up 12.0%) and Midwest (up 9.0%) and lower in the West (down 11.0%) and South (down 8.0%) in December. The average sales price was $261,000 and there is an estimated supply of new homes for 4.3 months. As interest rates have decreased recently, new home sales may increase once more before faling back to a more sustainable level by the middle of the year. New home sales year-over-year are approximately 0.8% 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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