Economy at a Glance :: Federal Reserve Bank of Cleveland

Economy at a Glance

Executive Summary

Recent economic data have been far from supportive of a “robust” recovery, fueling speculation of a “double-dip” recession and calling into question fears over the possibility of deflation.
Those expecting a bad outcome over the next few quarters can point to abysmal …  Executive Summary
Recent economic data have been far from supportive of a “robust” recovery, fueling speculation of a “double-dip” recession and calling into question fears over the possibility of deflation.
Those expecting a bad outcome over the next few quarters can point to abysmal home sales data in the wake of the expiration of the home-buyers tax credit, the especially poor July report on durable goods, and a slowdown in GDP growth over the past few quarters (complete with a second-quarter downward revision from 2.4 percent to 1.6 percent, according to the second estimate). Those on the other side of the discussion are likely to point out that the housing data have been especially noisy because of the tax incentives and any trend interpreted from those data should be taken with more than a few grains of salt. Moreover, the second-quarter GDP revision had a couple positives sprinkled in. First, personal consumption was revised up to 2.0 percent from 1.6 percent in the second quarter, pushing its year-over-year growth rate up from 0.8 percent to 1.7 percent. Even with relatively low capacity utilization levels, private investment in equipment and software rose 24.9 percent in the second quarter (its strongest quarterly growth rate since the mid-1980s). Also, Real Gross Domestic Income (GDI)—an alternative measure of economic performance—is trending at 3.2 percent on a year-over-year basis, after a 2.3 percent gain in the second quarter.
Still, the employment situation looks dour, with initial claims hanging up at uncomfortably high levels and an average gain in private payrolls over the last three months of 51,000, hardly enough to eat into the already large amount of labor market slack.
That large level of slack continues to exert downward pressure on wages and prices, which are at already low growth rates. Long-term inflation expectations remain relatively stable though and we have yet to see widespread decreases in wages, keeping underlying inflation trends from turning negative.  [2010-08-27]  Executive Summary

Inflation and Prices   

Indicators of underlying or “core” inflation (the median CPI, 16 percent trimmed-mean CPI, and the core CPI) have all been relatively subdued lately, with 12-month growth rates all below 1.0 percent (roughly 45-year lows). However, over the past few months the core CPI has been running …  Inflation and Prices
Indicators of underlying or “core” inflation (the median CPI, 16 percent trimmed-mean CPI, and the core CPI) have all been relatively subdued lately, with 12-month growth rates all below 1.0 percent (roughly 45-year lows). However, over the past few months the core CPI has been running at a slightly higher rate than 1.0 percent. Nevertheless, an new indicator more closely associated with future inflation—the sticky-price CPI—rose just 0.9 percent in July, in line with its 12-month growth rate of 0.8 percent. Also, core services prices—services less energy services—rose 1.2 percent in July, somewhat softer than their three-month annualized growth rate of 1.6 percent. On the other hand, core goods prices (commodities less food and energy), which are only up 1.0 percent over the past 12 months, jumped up 2.5 percent during the month.
Importantly, (especially given how sluggish the overall economy seems to be at the moment), consumer expectations for future inflation have been reasonably well-anchored; longer-term (5-10 year-ahead) average expectations were 3.1 percent in the August survey, close to their 10-year average of 3.3 percent.   [2010-08-27]  Inflation and Prices
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Economic Trends:  Recent Developments in Prices and Inflation Expectations Inflation: Soft but Stable?

Growth and Production   

The BEA revised down its estimates of real GDP over the past three years: by 0.1 percent in 2007, by 0.5 percent in 2008, and by 1 percent in 2009. Real GDP is now estimated to have declined 4.1 percent over the course of the recession (2007:Q4 to 2009:Q2), the largest decline since 1948. National …  Growth and Production
The BEA revised down its estimates of real GDP over the past three years: by 0.1 percent in 2007, by 0.5 percent in 2008, and by 1 percent in 2009. Real GDP is now estimated to have declined 4.1 percent over the course of the recession (2007:Q4 to 2009:Q2), the largest decline since 1948. National income and corporate profits were revised down as well, while disposable personal income was revised up. The personal saving rate (personal saving as a percentage of disposable personal income) was revised up from 4.2 percent to 5.9 percent for 2009.
According to the advance estimate, real GDP increased at an annual rate of 2.4 percent in the second quarter of 2010. This is substantially lower than the 3.7 percent rate recorded in the first quarter. The deceleration in real GDP in the second quarter is mainly the result of a smaller contribution of inventories and an acceleration of imports, only partly offset by larger contributions of fixed investment and government spending. The personal saving rate was 6.2 percent in the second quarter, compared with 5.5 percent in the first.
Industrial production increased at an annualized rate of 0.9 percent in June, the result of a large increase in utilities output and a small increase of mining activity, only partly offset by a small decrease of manufacturing output.   [2010-08-10]  Growth and Production
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Households and Consumers   

Housing market indicators have been abysmal directly following the expiration of the tax incentives for homebuyers. Notably, single-family home sales fell 12.4 percent to an annual sales pace of 276,000 units in July, setting a new record-low pace for the 47-year-old series. Also, existing …  Households and Consumers
Housing market indicators have been abysmal directly following the expiration of the tax incentives for homebuyers. Notably, single-family home sales fell 12.4 percent to an annual sales pace of 276,000 units in July, setting a new record-low pace for the 47-year-old series. Also, existing single-family-homes sales plummeted a record 27.1 percent in July, following declines of 1.6 percent in May and 5.6 percent in June. The massive retreat in sales was widespread across all regions of the U.S., lowering the annual sales pace to 3.37 million units, the slowest pace since May 1995. While trying to tease out a signal from July’s data may be futile, the sales path for housing surrounding the tax credits should go down as another example of people responding to incentives. On the bright side, mortgage rates have fallen to historic lows and housing prices have remained soft. These fundamentals should be supportive for buyers looking to enter the market.
While consumers certainty didn’t purchase many houses in July, it seems they didn’t purchase many retail goods either, as an indicator of the trend in retail sales—sales excluding autos, building supplies, and gas stations—fell 0.1 percent during the month and is virtually unchanged over the past three months, diverging from its 12-month growth rate of 4.0 percent. An interesting dynamic to watch over the coming year will be the path of consumption versus the personal savings rate. As individuals look to repair their balance sheets in the wake of such a large negative shock, savings rates are likely to continue to climb, which may put downward pressure on consumption.  [2010-08-27]  Households and Consumers
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Working Paper, FRB:  Endogenous Gentrification and Housing-Price Dynamics

Regional Economics   

Each state in the Fourth District has experienced substantial declines in tax revenue during the most recent recession. From the peak of the last expansion to the current trough, revenues fell 10.6 percent in West Virginia, 11 percent in Kentucky, 11.6 percent in Ohio, and 12.9 percent in …  Regional Economics
Each state in the Fourth District has experienced substantial declines in tax revenue during the most recent recession. From the peak of the last expansion to the current trough, revenues fell 10.6 percent in West Virginia, 11 percent in Kentucky, 11.6 percent in Ohio, and 12.9 percent in Pennsylvania. In real terms, collections grew or declined modestly in 2007 and 2008, and then dropped precipitously in 2009. The latest data, for the first quarter of 2010, show revenue 2.1 to 6.4 percent below the first quarter of 2009. The declines have slowed in some states, but not yet stopped.  [2010-08-12]  Regional Economics
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Labor Markets, Unemployment, and Wages   

The July 2010 employment report was disappointing, as private sector employment growth was relatively weak (+71,000) and the Census Bureau shed 143,000 jobs. The net result was a decline in payrolls of 131,000. The household survey also confirmed the weak employment situation. The unemployment rate …  Labor Markets, Unemployment, and Wages
The July 2010 employment report was disappointing, as private sector employment growth was relatively weak (+71,000) and the Census Bureau shed 143,000 jobs. The net result was a decline in payrolls of 131,000. The household survey also confirmed the weak employment situation. The unemployment rate was unchanged at 9.5 percent and the employment-to-population ratio and labor force participation rate remained near decade lows at 58.4 and 64.6 percent, respectively.
A striking feature of the unemployment statistics over the recent recession and recovery is the large pool of the long-term unemployed (6.6 million people), representing 44.9 percent of the unemployed workers. This reflects both the deep severity and the long length of the recession and raises a critical issue regarding the likelihood that we will see significant structural unemployment in the wake of this recession. Such a case may arise if the skills of the unemployed degrade as the duration of joblessness rises or if changes in the economy (post recession) result in a mismatch of skills between unemployed workers and firms beginning to hire. A surprising feature of recent data releases is that there has been a rise in job openings even in the face of a large pool of unemployed workers. Potential explanations for this pattern in the data are discussed in the Economic Trends article about the Beveridge Curve.
Another feature of the past recession is that men’s unemployment and job loss rate have been significantly higher than women’s during this recession. This is largely due to the fact that men’s employment is more concentrated in sectors that experienced sharp reductions in demand such as manufacturing and construction. Alternatively, education and health services have a high concentration of female workers and it is the only private sector of the economy that actually expanded employment during the recession. Indeed, women and men in the same industry actually experienced very similar rates of job loss. These trends are examined the Trends article, “Labor Market for Men and Women.”  [2010-08-10]  Labor Markets, Unemployment, and Wages
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