SF FedViews

The economy has shown more signs that recovery is proceeding at a moderate pace. Real consumer spending rose solidly in the last three months of 2010, although it dipped slightly in January due partly to weather. Vehicles sales have been increasing steadily over the past year and rose strongly in February, up 27% from the year before. Escalating gasoline prices represent a headwind on consumption by draining purchasing power and undermining consumer confidence. Industrial production, which includes utilities and mining, declined in January, but this was attributable to a large drop in utilities output as temperatures in some parts of the […]

The economic recovery has strengthened, with a self-sustaining private-sector dynamic taking hold in which increased spending leads to greater production and income and vice versa. Greater confidence is apparent in stock prices, which have posted steady gains since the middle of last year. However, financial institution valuations are less than 60% and homebuilder valuations are about 20% of their early 2006 levels. Gains in stock market wealth have helped put household balance sheets on a firmer footing. In response to rising wealth, improved sentiment, and some easing in access to credit, consumers are spending more. Auto and light truck sales in […]

Looking back, our 2010 economic forecast issued a year ago of moderate growth and low inflation proved relatively accurate. We predicted that real GDP would grow 3.4% last year. Based on data available today, growth appears to have been a bit below 3%. The slightly slower-than-expected growth reflects the soft patch the economy went through during the middle part of the year following the outbreak of the European fiscal crisis. Despite slight overoptimism on growth, our forecast of a 9.5% unemployment rate in the fourth quarter of 2010 missed by only 0.1 percentage point. Both core and overall inflation rates appear […]

Financial market concerns about Europe reemerged over the past few weeks. In the spring, markets focused primarily on the unsustainable fiscal trajectory in Greece. Those concerns subsided in late spring when the European Union and the International Monetary Fund announced a special package of loans for Greece conditional on severe fiscal cutbacks, which the Greek parliament subsequently approved. Despite this package, market concerns about Greek debt remain, as evidenced by the large spreads between Greek bond yields and those of Germany and France. These bonds are all denominated in the same currency, so the 9% annual premium on Greek debt reflects […]

The Federal Open Market Committee decided on November 3 to expand the Federal Reserve’s holdings of securities to provide additional support for the economy. In addition to maintaining its existing policy of reinvesting principal payments from its securities holdings, the FOMC authorized purchases of a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Open Market Trading Desk at the New York Fed estimated the principal payments from agency debt and agency mortgage-backed securities will be around $250 billion to $300 billion over the same period. Taken together, the Desk anticipated that it […]

On September 20, the National Bureau of Economic Research’s Business Cycle Dating Committee officially called an end to the recession. It will go into the history books as the longest and deepest downturn since the Great Depression. The recession officially lasted 18 months from December 2007 to June 2009. Over that time, the U.S. economy shed 7.3 million jobs, GDP fell by 4.1%, and household net worth declined by 21%. Despite the official announcement, the public thinks the recession is ongoing. According to a CNN/Opinion Research Corporation Poll in September, more than 70% of those surveyed thought the U.S. economy was […]

The economic recovery has lost some momentum in recent months. Not counting the effects of hiring for the 2010 census, employment was rising by several hundred thousand jobs per month earlier in the year. Since May, these gains have averaged only 55,000 jobs per month. Consumer spending continues to grow, but at a fairly modest and uneven pace. Purchases of durable goods, nondurable goods, and services all remain below their pre-recession peaks. In recent months, services have picked up, durables have moved sideways, and nondurables have ticked down. Consumers remain very cautious. Income growth has been subdued and unemployment remains high. […]

Some recent data have been below expectations, but the overall economic picture remains one of continued growth at a moderate pace. Some downside risks to the outlook are apparent, including weakness in consumer confidence, the labor market, and the real estate sector, as well as the economic situation in Europe. Real GDP increased at an annual rate of 2.7% in the first quarter of 2010, well below the 5.6% rate recorded in the fourth quarter of 2009. The reduced first-quarter figure primarily reflects a slowdown in inventory investment. At the same time, exports decelerated, residential housing investment turned down, and the […]

Despite concerns raised by the crisis in Europe and some recent data that came in below expectations, we continue to project a moderate recovery. Manufacturing continues to do well. Production jumped by 1 percent in April and is up 6 percent over the past 12 months. The latest employment report showed that manufacturers hired 29,000 workers last month and 126,000 since the beginning of the year. Real personal consumption expenditures were unchanged in April, following two months of growth at a 6 percent annual rate. The latest consumer confidence surveys, as well as vehicle sales data for May, suggest that consumption […]

As the Greek debt crisis intensified and panic began spreading to other parts of the European periphery, the European Union (EU), the International Monetary Fund (IMF), and the European Central Bank (ECB) took aggressive steps to provide support for Greece and to protect against contagion to other countries. These actions included $140 billion of loans to Greece and the establishment of a nearly $1 trillion fund to support Greece and other EU countries as necessary. Moreover, the ECB has started to purchase private and public debt in dysfunctional markets. As a result of these bold actions, interest rates on government debt […]