The Federal Reserve
Board lowered its target
for the federal funds
rate by a quarter-point
to 2.00% and gave clues
that it may take a
wait-and-see approach
for additional actions
in the short term.
Otherwise, it was a week
of mixed economic news
that rang a "down but
not out" theme. Gross
domestic product
remained in positive
territory, and the
employment picture,
while weak, could have
been worse. Consumers
continued to spend, but
their confidence levels
deteriorated. The
manufacturing sector
cooled, but factory
orders increased.
Residential construction
was weak, but
nonresidential
construction remained
strong. For the week,
the S&P 500 Index rose
1.1% to 1,414 (for a
year-to-date total
return of –3.1%). The
yield of the 10-year
U.S. Treasury note fell
2 basis points to 3.85%.
Fed lowered key rate again
The Federal Reserve Board's 0.25% rate cut on Wednesday marked the seventh time the Open Market Committee (FOMC) lowered the federal funds rate target since September. The rate now stands at 2.00%, down from 5.25% at the start of the rate-easing campaign. The FOMC action was spurred by weak economic activity, including weak consumer and business spending, a softening job market, and continuing concerns about the housing and financial markets.
Still, the FOMC hinted that it may take a break from additional rate cuts in the near term. In its accompanying statement, the FOMC noted that the measures they've recently taken "should help to promote moderate growth over time and to mitigate risks to economic activity," though they noted they will continue to act "as needed to promote sustainable economic growth and price stability."
Economy inched forward in first quarter
The U.S. economy expanded in the first three months of 2008—but just barely. First-quarter real gross domestic product (GDP) grew 0.6% at an annual rate, according to an "advance" estimate from the Commerce Department. This matched the 0.6% pace in the fourth quarter of 2007. GDP has been in positive territory since the fourth quarter of 2001. Many economists predict that the economy is likely to contract in the coming months.
Jobless rate better than expected
The U.S. economy shed 20,000 jobs in April. This was far fewer than expected by analysts, whose predictions were more in line with job losses so far this year: Employers cut an average 80,000 jobs per month in the first three months of 2008. Unemployment fell slightly to 5.0% (and has ranged between 4.5% and 5.1% over the past year). The construction, manufacturing, and retail sectors suffered declines, while health care and professional and technical services added jobs. For workers in nonsupervisory roles, average hourly earnings edged up 0.1%, to $17.88.
Labor costs tame in first quarter
The employment cost index, which tracks what businesses spend on employee wages, salaries, and benefits, increased 0.7% in the first quarter. The reading, which was slightly below expectations, reflects a 0.8% increase in salaries and wages, and a 0.6% rise in benefits. Inflation-watchers viewed the report as a signal that wage pressures were contained.
Consumers continued to spend
Personal spending rose a higher-than-expected 0.4% in March, suggesting a level of consumer resiliency in the face of economic headwinds. Personal income rose 0.3%, though it was below February's 0.5% level; the personal savings rate was 0.2% in March, also off the previous month's rate.
Consumer confidence sagging
Consumer confidence slipped in April to the lowest level since the start of the Iraq war in March 2003, and the second-lowest level since 1993. The Conference Board Consumer Confidence Index fell to 62.3, from 65.9 in March, marking the fourth consecutive monthly decline. Concerns about inflation, the labor market, and business conditions all drove negative sentiment for the month. Consumer plans to purchase a home or take a vacation fell to multidecade lows.
Factory orders ticked upward in March. . .
Demand for manufactured goods increased a surprising 1.4% in March, following declines in the first two months of the year. A 2.6% rise in new orders for nondurable goods drove the increase. Orders for durable goods rose a tepid 0.1%.
. . . but manufacturing sector cooled in April
The economy's manufacturing sector contracted slightly in April, according to the Institute for Supply Management (ISM). The ISM Index stood at 48.6 for the second straight month—the third month in a row that the index fell below 50 (readings below 50 indicate the manufacturing sector is contracting). Demand and productivity were weak, while prices continued to rise. Industries reporting growth included computer and electronic products, printing, and paper products. Meanwhile, wood products, textile mills, and apparel products were among the industries that contracted.
Residential construction: glum
Overall construction spending fell 1.1% in March, weighed down by a 4.6% drop in residential construction, which was down 19.7% from the year-ago level. Spending on nonresidential construction projects increased 1.3% in March and 11.8% from a year ago, driven in part by outlays for office buildings, hotels and motels, hospitals and medical buildings, and communications towers and buildings.
The economic week ahead
Economic news on tap for next week includes reports on activity in the service sector (Monday), nonfarm productivity and consumer credit (Wednesday), and the U.S. trade balance (Friday).
Fed lowered key rate again
The Federal Reserve Board's 0.25% rate cut on Wednesday marked the seventh time the Open Market Committee (FOMC) lowered the federal funds rate target since September. The rate now stands at 2.00%, down from 5.25% at the start of the rate-easing campaign. The FOMC action was spurred by weak economic activity, including weak consumer and business spending, a softening job market, and continuing concerns about the housing and financial markets.
Still, the FOMC hinted that it may take a break from additional rate cuts in the near term. In its accompanying statement, the FOMC noted that the measures they've recently taken "should help to promote moderate growth over time and to mitigate risks to economic activity," though they noted they will continue to act "as needed to promote sustainable economic growth and price stability."
Economy inched forward in first quarter
The U.S. economy expanded in the first three months of 2008—but just barely. First-quarter real gross domestic product (GDP) grew 0.6% at an annual rate, according to an "advance" estimate from the Commerce Department. This matched the 0.6% pace in the fourth quarter of 2007. GDP has been in positive territory since the fourth quarter of 2001. Many economists predict that the economy is likely to contract in the coming months.
Jobless rate better than expected
The U.S. economy shed 20,000 jobs in April. This was far fewer than expected by analysts, whose predictions were more in line with job losses so far this year: Employers cut an average 80,000 jobs per month in the first three months of 2008. Unemployment fell slightly to 5.0% (and has ranged between 4.5% and 5.1% over the past year). The construction, manufacturing, and retail sectors suffered declines, while health care and professional and technical services added jobs. For workers in nonsupervisory roles, average hourly earnings edged up 0.1%, to $17.88.
Labor costs tame in first quarter
The employment cost index, which tracks what businesses spend on employee wages, salaries, and benefits, increased 0.7% in the first quarter. The reading, which was slightly below expectations, reflects a 0.8% increase in salaries and wages, and a 0.6% rise in benefits. Inflation-watchers viewed the report as a signal that wage pressures were contained.
Consumers continued to spend
Personal spending rose a higher-than-expected 0.4% in March, suggesting a level of consumer resiliency in the face of economic headwinds. Personal income rose 0.3%, though it was below February's 0.5% level; the personal savings rate was 0.2% in March, also off the previous month's rate.
Consumer confidence sagging
Consumer confidence slipped in April to the lowest level since the start of the Iraq war in March 2003, and the second-lowest level since 1993. The Conference Board Consumer Confidence Index fell to 62.3, from 65.9 in March, marking the fourth consecutive monthly decline. Concerns about inflation, the labor market, and business conditions all drove negative sentiment for the month. Consumer plans to purchase a home or take a vacation fell to multidecade lows.
Factory orders ticked upward in March. . .
Demand for manufactured goods increased a surprising 1.4% in March, following declines in the first two months of the year. A 2.6% rise in new orders for nondurable goods drove the increase. Orders for durable goods rose a tepid 0.1%.
. . . but manufacturing sector cooled in April
The economy's manufacturing sector contracted slightly in April, according to the Institute for Supply Management (ISM). The ISM Index stood at 48.6 for the second straight month—the third month in a row that the index fell below 50 (readings below 50 indicate the manufacturing sector is contracting). Demand and productivity were weak, while prices continued to rise. Industries reporting growth included computer and electronic products, printing, and paper products. Meanwhile, wood products, textile mills, and apparel products were among the industries that contracted.
Residential construction: glum
Overall construction spending fell 1.1% in March, weighed down by a 4.6% drop in residential construction, which was down 19.7% from the year-ago level. Spending on nonresidential construction projects increased 1.3% in March and 11.8% from a year ago, driven in part by outlays for office buildings, hotels and motels, hospitals and medical buildings, and communications towers and buildings.
The economic week ahead
Economic news on tap for next week includes reports on activity in the service sector (Monday), nonfarm productivity and consumer credit (Wednesday), and the U.S. trade balance (Friday).
