 The
Beige Book: Signs of Recovery
"Reports from the twelve Federal Reserve
districts indicate that the economy continued to improve in July and
August. Eleven districts say that activity levels increased during the
summer. In some districts, improvement occurred in selected sectors,
and in others, it was broad-based. Even in the Dallas district, where
activity remains generally weak, contacts are said to be more
optimistic."Consumer
activity showed improvement in most districts. But Kansas City,
Philadelphia, and Boston noted that the increases in retail sales were
slight or modest, and New York indicated retail results were better in
July than August (partly on account of the August blackout). And
retail sales were weak or softening according to respondents in the
Cleveland and St. Louis districts.
"Ten districts report
increases in manufacturing activity. The exceptions were Dallas, where
there was little change, and Richmond, which reports that
manufacturing weakened. District reports on nonfinancial services
firms--temp agencies, software and IT companies, or trucking and
shipping--mostly indicate activity increased during the summer months.
Among districts reporting on bank lending, a majority cite increases.
Most districts report strong housing markets and weak commercial real
estate markets, with the latter showing scattered signs of
improvement.
"Business reports from the
New York, Cleveland, Atlanta, Chicago, and Dallas districts mention
the mid-August blackout. While respondents note a comprehensive
assessment is premature in this round of information-gathering, the
effects were generally small. Even where firms were closed for several
days, affected contacts suggest they are not anticipating difficulties
in making up for lost production or shipments. "
[Source:
The Beige Book. Federal Reserve Board. September 3, 2002.] |
|
The Recession Recovery
Wall Street Journal reporter Jon E. Hilsenrath
describes the puzzling and alarming nature of the current recovery,
characterized by slow growth in GDP and income accompanied by continuing job
losses in manufacturing and many other industries:
[WSJ Online
5/29/03 p. 1, c.5. In The
Wall Street Journal
UF+ & Factiva
UF+]
Economist Robert Hall has been puzzling over a thorny question
for nearly a year: What do you call an economy that has started expanding again
but keeps destroying jobs?
Mr. Hall heads a committee at the National Bureau of Economic
Research, an academic group in Cambridge, Mass., that declares when U.S.
recessions begin and end. In May of last year, Mr. Hall and his colleagues
believed the latest recession might be over. Consumers were spending more and
economic output was rising. All that the committee members needed to see was a
few months of uninterrupted job growth to announce the end of the recession. "It
seemed like the timing was imminent," he says.
But Mr. Hall is still waiting. Instead of expanding employment,
companies are continuing to shed jobs at a furious pace -- 525,000 nonfarm
payroll positions in the past three months alone. Since March 2001, when the
recession began, the U.S. economy has lost 2.1 million jobs. The total number of
people unemployed -- including discouraged workers who would prefer to work but
have stopped looking -- is about 9.2 million. And the number of people who are
working part time because they can't find full-time work is 4.8 million, up 46%
since 2001, according to the Bureau of Labor Statistics.
In short, the U.S. is experiencing the most protracted
job-market downturn since the Great Depression. It has left behind a remarkably
broad swath of workers -- from young to old, and from high-school dropouts to
the highly educated -- even as the economy has started growing again.
Why is this happening? The labor market is in the midst of
structural change, with numerous industries, from manufacturers to brokerage
firms and airlines to hotels, adjusting to a new economic order after the boom
of the late 1990s. Intensifying competition from abroad, slow growth at home and
a relentless push for productivity are driving this change. What has surprised
economists is not so much how harsh the adjustment has been -- after all, the
unemployment rate remains relatively low at 6% -- but how long it is taking to
play out and how broadbased it has become.
Erica Groshen, a labor economist with the Federal Reserve Bank
of New York, recently studied employment trends in 70 industries over the past
30 years. She found that the structural change is vast. "Before in a recession
you had a lot of companies giving people temporary layoffs, saying, 'We'll call
you back when we need you,' " she says. "That is not what firms do anymore."
During recessions in the 1970s and 1980s, about half of all
jobs were in industries that tended to go through cyclical swings, Ms. Groshen
says -- meaning laid-off workers would be called back. The other half
experienced structural changes -- meaning jobs that were eliminated were never
meant to come back. Ms. Groshen says this started to change in the 1990
recession and has intensified in this downturn. Today, she says, 75% of jobs are
in industries going through structural change.
Payrolls in the electronics sector, and for producers of
industrial equipment, have declined for 28 straight months. In communications,
payrolls have fallen for 24 months. In the securities and airline industries,
they have fallen in 16 of the past 24 months... (Wall
Street Journal Online [Subscription Required]).
[Source: "Why For Many This Recovery Feels
More Like a Recession." By Jon E. Hilsenrath. The Wall Street Journal p.
A1, C5. May 29, 2003. In The
Wall Street Journal
UF+ & Factiva
UF+]
Economy Remains
"Lackluster"
"WASHINGTON (AP) -- The
U.S. economy remained ``lackluster'' in March and early April as the
war in Iraq dampened consumer spending and a mysterious Asian virus
cut into international airline travel, the Federal Reserve reported
Wednesday.
"The central bank's latest
nationwide survey of business conditions depicted an economy still
struggling to emerge from a pronounced slowdown that began late last
year.
"The Fed said there had
been only scattered signs of improvement with most of its regions
reporting that ``the pace of economic activity continued to be
lackluster during March and the first two weeks of April.''
"The survey, known as the
``Beige Book'' for the color of its cover, will be used by
policymakers when they next meet to set interest rates on May 6.
Analysts say if the economy shows no further pick-up by that time,
there is a strong likelihood that the central bank will trim interest
rates again."
[Source:
New York Times on the Web. April
23, 2003]
Fed Likely To
Ease Again
"In retrospect, the fed's
action at the August 13 FOMC meeting was masterful. By keeping rates
steady but adopting an easing bias, the Fed engineered a sharp
decline in long-term rates, with the 10-year Treasury at the lowest
yield in 39 years, without doing the equity market any lasting harm.
Because the Fed lowered the bar for further easing, we now look for
the Fed to follow through with a 25 basis point cut in the funds
rate to 1.5% at the September 24 FOMC. But that is no sure thing,
and is dependent on financial conditions and forthcoming economic
data."
[Source: Weekly
Economic & Financial Commentary. By Bruce Steinberg,
Chief Economist. Merrill Lynch. August 16, 2002]
The W Scenario
"Celebrating victory well in advance seems to
be the style lately. And that includes the economic front. Both the
administration and many business leaders have taken a modest
improvement in economic indicators as proof that the economy is
poised for full recovery. They could be right - but don't count on
it.
"The good news to date consists mainly of
evidence not that things are getting better but that they are
getting worse more slowly. New claims for unemployment insurance
have fallen; that means fewer people are being laid off, but not
that laid-off workers are finding new jobs. Industrial production
has stabilized; that means that companies have worked off the excess
inventory that led them to slash production in 2001, but not that
demand for their products has increased.
"We won't have a serious recovery until what
economists call 'final demand' shows substantial increases, and
workers start being rehired. Where will that recovery come
from?"
[Source: "The W Scenario." By Paul
Krugman. The New York Times February 22, 2002 Section A;
p.25, col.1. In Lexis-Nexis.]
The Federal Reserve's Beige
Book
"District
reports suggest that the economy expanded modestly in recent weeks,
with an uneven performance across sectors. Boston, New York,
Atlanta, and Dallas noted some tapering off in economic growth,
while Cleveland and St. Louis indicated some improvement. Reports
from the rest of the Districts point to continued moderate growth.
Overall, prices of finished goods and services remained stable,
though there were scattered reports of price pressures.
"Retail
sales were mixed, with four Districts indicating some weakening, but
five reporting a pickup, partly weather-related. Retail inventories
were said to be in good shape, and many retailers expressed optimism
about the near-term sales outlook. Vehicle sales were seen as weak
in June but were boosted by incentive programs in early July.
Manufacturing activity, though mixed across Districts and
industries, appears to have improved, on balance.
"Residential
real estate and construction activity was widely described as
strong, though some softness was reported in the rental segment. In
contrast, commercial real estate was almost universally described as
weak, though stable in some cases. Travel and tourism activity was
reported to be little changed overall, with the Western Districts
tending to fare somewhat better than those on the East Coast.
Reports from other service industries mostly pointed to stable
activity. Banks reported strong demand for residential mortgages,
steady demand for consumer loans, and weak, but in some cases
improving, demand for commercial loans. Credit quality was still
described as good, with no significant increases reported in
delinquency rates. Agricultural conditions were described as poor in
a number of Districts.
"Labor
markets were characterized as slack but relatively stable in most
Districts; New York and Kansas City indicated some softening, but
Richmond noted modest improvement. The pace of wage increases
generally remained subdued, but many Districts noted continued
escalation of non-wage benefit costs, most notably health insurance.
Prices of raw materials were generally stable, though prices of
steel, plastics, and lumber have risen noticeably. Prices of
finished goods and services were generally flat."
[Source:
The
Beige Book. July 31, 2002. The
Federal Reserve Board.]
Commentary
from the Economist Intelligence Unit
"Earlier
this year most economists had expected the Fed to raise interest
rates during 2002. Now many predict that rates will be cut before
the year is out. In the past few weeks the recovery has started to
look shaky. For a start, GDP growth in the second quarter slowed to
only 1.1% at an annual rate. In July, the purchasing managers'
indices of activity in both manufacturing and services fell sharply;
total hours worked also declined. Retail sales rose by a robust 1.2%
in July, yet this was due mainly to car firms offering interest-free
loans. Not counting cars and petrol, retail sales were flat.
Ominously, consumer confidence fell sharply."
"The
slide in confidence partly reflects the slump in equities. Share
prices have picked up a little from their late-July lows, yet
America's stockmarket is still worth about $7 trillion less than at
its peak in early 2000. The loss has partly been offset by a rise in
house prices, but the latest figures suggest that the housing market
may now be cooling. For the third year in a row, households are
likely to see their net wealth shrink. Savings rates are still
historically low, so unless share prices rebound, households will
probably have to start saving more and spending less."
[Source: The Economist.
Economist Intelligence Unit. August 23, 2002. EIU
Viewswire.]
Profile of the US Economy
"The US
has one of the most advanced economies in the world, and leads the
way in the information technology revolution and in many other
areas of technical innovation. Its manufacturing base accounted
for 16% of GDP in 1999, while its agricultural sector is very
small but also very productive. (See Reference table 10 for the
sectoral breakdown of GDP.) The US is by far the world's leading
economic power. Its GDP totalled almost US$10trn in 2000; assuming
international purchasing power parity, this was three times the
size of Japan's output, almost five times the size of Germany's
and more than seven times the size of the UK's. Although the
volume of its exports and imports exceeds that of any other
country, the value of the US's external sector as a percentage of
its GDP is comparatively low. Exports of goods and services
accounted for less than 11% of GDP in 2000.
"The US has an
exceptionally diverse economy and is self-sufficient in most raw
materials. Leading industries include steel, motor vehicles,
aerospace, telecommunications, chemicals, electronics and
computers. During the 1970s and early 1980s many of the leading
industrial sectors were thought to be in decline, largely because
of the proliferation of superior production techniques in East
Asia. The US auto and steel sectors were particularly hard hit
during that period. In the 1990s, however, these traditional
manufacturing sectors showed adaptability and largely recovered by
embracing new technology and increasing labour productivity.
"Services, widely
defined, accounted for over 80% of GDP in 1999, with distributive
trades, real estate, transport, finance, healthcare and business
services being the most important. The impact of new technology
has also been felt in the services sector, especially in the
delivery of many services over the Internet."
[Source: "Economy:
Economic Structure." Country Profile: United States.
Economist Intelligence Unit. 2000. In EIU.com.]
Business Cycles, Economic
Growth and Growth Cycles
"Business
cycles are the recurring rises and falls in the overall economy as
reflected in production, employment, profits, and prices. They are
associated with capitalistic societies in which production,
employment, prices, wages, and interest rates are largely determined
in the marketplace. They are primarily associated with industrially
advanced nations that have highly developed business and financial
structures, in contrast to developing nations that have a large
agricultural component that is subject to the vagaries of weather
and the consequent abundant or poor harvests. Business cycles
reflect the inability of the marketplace to accommodate smoothly
such factors as new technologies, shifting markets for new and
substitute products, uncertainties and risks in business
investments, intensified worldwide competition, and shortages and
gluts created by wars, weather-dependent harvests, and cartels."
[Source: Tracking
America's Economy. By Norman Fumkin. 3rd ed. Armonk, NY:
M.E. Sharpe, Inc. 1998. p. 3. In netLibrary.]
