Fed Watch

The Federal Open market committee concluded its meeting today without any change in policy. They recognize that the recovery is too slow and will continue their recent actions to keep the federal funds rate near zero and to gradually extend the maturity of the government securities they hold. As short term securities mature, they replace them with purchases of longer term securities.

The FOMC sees the economy expanding moderately with a gradual decrease in unemployment. However, they see a major downside risk with the European financial uncertainty.

The only dissenting vote on the FOMC was a Federal Reserve Bank President who wants greater ease.

December St. Croix Valley Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with St. Croix Economic Development Corporation (SCEDC) has released the December 2011 edition of the St. Croix Valley Economic Dashboard. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the three county St. Croix Valley. It presents the latest available data* in one convenient package and can be viewed on the CER's website at www.uwrf.edu/cer.

State and National Indicators

Nationally, the economy grew at a seasonally adjusted annually rate of 2.00 percent during the third quarter of 2011, up from the previous quarter. The unemployment rate decreased slightly in November to 8.6 percent. While the national growth rate has increased, it is still short of minimum three percent growth most economists agree is needed to see noticeable labor market recovery.

Wisconsin’s unemployment rate was down slightly to 7.7 percent, in October, caused by a slight increase in total employment and a slight decrease in labor force, according to the BLS survey of households. However, the BLS survey of employers finds that Wisconsin lost 9,700 jobs. It is not uncommon for theses two surveys to conflict slightly because they are measuring different aspects of the economy. The household survey focuses on people living in the state, thus for calculating the unemployment rate we use household survey data. The employer survey focuses on people working in the state, thus we use employer survey data to calculate job creation. 

The Philadelphia Fed’s Coincident Index of economic activity indicated the state economy contracted at a seasonally adjusted annual rate of 2.93 percent, and the Philadelphia Fed’s Leading Index is predicting a negative 0.67 percent growth rate over the next year.  The Coincident and Leading indices peeked in March ’11 and January ’11, respectively. If this trend of contraction continues, it may cause labor market conditions to worsen over the coming year. 

Labor Market

The national labor markets exhibited private sector job gains and public sector job losses.  Total nonfarm payroll employment increased by 120,000 in November.  The public sector continued its downward tend, losing 20,000 jobs in November, while the private sector preformed slightly better than last month gaining 140,000 jobs.  The economy is still just keeping up with new entrances into the labor force. Thus, the unemployment rate changed little. 

The Wisconsin economy lost 9,700 jobs on net in October, and has gained only 6,000 jobs over the last year.  Job losses occurred in nearly every category, with key losses coming in high paying job categories. The public sector lost an additional 400 jobs, manufacturing lost 3,400 jobs, and health and education services sector lost 1,800 jobs. The sectors exhibiting increases in employment were the leisure and hospitability sector, which gained 3,500 jobs, the mining and logging sector, which gained 1,000 jobs, and the information sectors, which gained 1,000 jobs.  Overall the private sector lost 9300 jobs and the public sector lost 400 jobs.

The state unemployment rate decreased slightly to 7.7 percent in October, which is the same as one year previous. Conditions in the regional labor market are fairing better than the state average. The regional unemployment rate held steady in October at 5.6 percent. The region's unemployment rate is lower than the state average and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 5.4 percent.  Signs seem to point that Minnesota economy is fairing better than its Wisconsin neighbors.  The close proximity of the St. Croix Valley to Minnesota is probably connected to the region having a better economic outlook than majority of the state.  

Housing Market

The Case-Shiller Home Price index for Minneapolis, Chicago and nationally all decreased for the month of September.  Median home price and number of homes sold in the Valley both decreased for the month of November.  Number of homes sold was 3.7 percent higher than one year ago.  The housing market looks to continue its late fall and winter slumber as the weather gets colder.

Wisconsin's St. Croix Valley is comprised of St. Croix, Polk, and Pierce counties. All three counties are located along the Wisconsin-Minnesota border. Two of the three counties, St. Croix and Pierce, are included in the Minneapolis-St. Paul-Bloomington MN-WI metropolitan area, a 13-county region with of population of 3.25 million residents. For additional information on the December edition of the St. Croix Valley Economic Dashboard, contact Dr. Logan Kelly at cer@uwrf.edu or (715) 425-4993 or William Rubin at bill@stcroixedc.com or (715) 381-4383.

*Please note that most regional data is available with between a one and two month delay, thus the current month's dashboard will have data from previous months.

November St. Croix Valley Dashboard Released

The UW- River Falls Center for Economic Research (CER), in partnership with St. Croix Economic Development Corporation (SCEDC), has released the November 2011 edition of the St. Croix Valley Economic Dashboard. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the three county St. Croix Valley. It presents the latest available data* in one convenient package and can be viewed on the CER's website at www.uwrf.edu/cer.

State and National Indicators

Nationally, the economy grew at a seasonally adjusted annual rate of 2.46 percent during the third quarter of 2011, up 1.46 percentage points from the previous quarter. The unemployment rate decreased slightly in October to 9 percent. While the national growth rate has increased, it is still short of the minimum three percent growth most economists agree is needed to see noticeable labor market recovery.

Wisconsin’s unemployment rate was down slightly to 7.8 percent in September and both total employment and labor force increased slightly, according to the BLS survey of households. However, the BLS survey of employers finds that Wisconsin lost 12,400 jobs. It is not uncommon for theses two surveys to conflict slightly because they are measuring different aspects of the economy. The household survey focuses on people living in the state, thus for calculating the unemployment rate we use household survey data. The employer survey focuses on people working in the state, thus we use employer survey data to calculate job creation. 

The Philadelphia Fed’s Coincident Index of economic activity indicated the state economy contracted at a seasonally adjusted annual rate of 1.3 percent in September, and the Philadelphia Fed’s  Leading Index is predicting a negative 0.3 percent growth rate over the next year.  The Coincident and Leading indices peaked in March ’11 and January ’11, respectively. This negative growth trajectory indicated by both statistics is quite concerning, and may be cause to expect worsening labor market conditions over the next year. 

 

Labor Market

While the national jobs report could have been better, there was some encouraging news.  Total non-farm payroll employment rose by 80,000 in October.  The public sector continues to lose jobs, losing 24,000 jobs in October.  The private sector performed better gaining 104,000 jobs in October.  The economy created slightly more jobs than needed to keep pace with new entrants to the labor force, causing the unemployment rate to decrease slightly to 9 percent last month.  With the postal service restructuring taking place and other public sector budget cuts predicted, the public sector is expected to continue losing jobs in coming months.

The Wisconsin economy lost 12,400 jobs on net in September and has gained only 21,200 jobs over the last year. The September losses where in a few key areas. The public sector lost an additional 11,500 jobs, Manufacturing lost 3,000 jobs, and Professional and Business Services lost 1,300 jobs. The largest increase came from the Health and Education Services sector gaining 2,700 jobs; the Construction sector also made solid gains with 1,500 jobs created.  Overall the private sector lost 900 jobs and the public sector lost 11,500 jobs.

The state unemployment rate decreased slightly to 7.8 percent in September, which is 0.1 percentage points lower than one year previous. Conditions in the regional labor market are still slightly better than the state average. The regional unemployment rate decreased in September by 0.49 percentage points to 5.6 percent. This change was driven by total employment remaining the same and a 0.7 year over year percentage decrease in the labor force. The region's unemployment rate is lower than the state average of 7.8 percent and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.0 percent.

Housing Market

The Case-Shiller Home Price index for Minneapolis and Chicago, have shown slight increases in June, July, and August but the index still shows home values are considerably below levels from one year ago.  The Case-Shiller Home Price index nationally decreased slightly in the month of August.  Median home price in the Valley is also below levels from one year ago, but the number of homes sold increased from one year ago.

Wisconsin's St. Croix Valley is comprised of St. Croix, Polk, and Pierce counties. All three counties are located along the Wisconsin-Minnesota border. Two of the three counties, St. Croix and Pierce, are included in the Minneapolis-St. Paul-Bloomington MN-WI metropolitan area, a 13-county region with of population of 3.25 million residents. For additional information on the November edition of the St. Croix Valley Economic Dashboard, contact Dr. Logan Kelly at cer@uwrf.edu or (715) 425-4993 or William Rubin at bill@stcroixedc.com or (715) 381-4383.

*Please note that most regional data is available with between a one and two month delay, thus the current month's dashboard will have data from previous months.

Fed Watch

It seems that the Federal Reserve has officially recognized what seems clear to everyone watching economic developments. The recovery is slower than expected and it will take some time for us to return to healthy economic growth and more acceptable unemployment.

The Fed has revised downward its projections for GDP growth and unemployment

In fresh quarterly projections, the Fed lowered forecasts for growth and raised forecasts for unemployment for this year, 2012 and 2013. Policymakers do not see the jobless rate, now at 9.1 percent, falling to a level they consider consistent with full employment even by the outer edge of their forecasting horizon, the final quarter of 2014.

Officials now expect the economy to grow by 2.5 percent to 2.9 percent next year, down from 3.3 percent to 3.7 percent they were expecting in June, with inflation muted over the forecast horizon.

They see the unemployment rate going no lower than 8.5 percent to 8.7 percent by the end of 2012, up from the 7.8 percent to 8.2 percent range envisioned in June.

In response to this negative forecast, the Fed plans to continue its relatively easy money policy.

At its meeting ending November 2, the Federal Reserve the Committee decided to continue its program to extend the average maturity of its holdings of securities as announced in September. This is the Operation Twist where the Fed replaces short term securities in its portfolio with longer teem securities. The purpose is to continue the downward pressure on long term interest rates, including mortgage rates.

Sort term rate policy is unchanged as well, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent.

October Momentum West Economic Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with Momentum West has released the October edition of the Momentum West Economic Dashboard. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the 10 county Momentum West Economic Development Region. It presents the latest available data* in one convenient package and can be viewed on the CER's website at www.uwrf.edu/cer.

Labor Market and Spending

The state unemployment rate increased slightly to 7.9 percent in August, which is 0.1 percentage points lower than one year previous.  Conditions in the regional labor market are still slightly better than the state average.  The regional unemployment rate decreased in August by .40 percentage points to 6.7 percent.  The change was driven by a .3 year over year percentage increase in total employment and a .2 year over year percentage decrease in labor force. 

Spending in the Momentum West has continued to remain strong since July, as measured by county sales tax revenue.  For the month of September county sales tax revenue increased by 5.2 percent.  Another promising numbers for the region is increases in new vehicle registration by 2.9 percent for the month of September and 21.3 percent from one year previous.

The Housing Market

The Case-Shiller Home Price index for Minneapolis and Chicago, as well as, nationally have shown slight increases in May, June and July, but the index still shows home values are considerably below one year ago.  Median home price in the Momentum West for September is lower than it was a year ago, but the number of homes sold has increased by 33.2 percent from one year ago.

For additional information on the October edition of the Momentum West Economic Dashboard, contact Dr. Logan Kelly at cer@uwrf.edu or (715) 425-4993 or Noel Eggebraaten at neggebraaten@cvtc.edu or (715) 874-4673.

*Please note that most regional data is available with between a one and two month delay, thus the current month's dashboard will have data from previous months.

October St. Croix Valley Economic Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with St. Croix Economic Development Corporation (SCEDC) has released the October 2011 edition of the St. Croix Valley Economic Dashboard. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the three county St. Croix Valley. It presents the latest available data* in one convenient package and can be viewed on the CER's website at www.uwrf.edu/cer.

State and National Indicators

National the economy grew at a seasonally adjusted annually rate of 1% during the second quarter of 2011, and the unemployment rate in September was unchanged at 9.1%. Extremely low growth nationally provides some explanation as to why unemployment remains stubbornly high. In order to reduce the unemployment rate, most economist agree the economy needs to grow a pace of 3% or more. 

Wisconsin’s unemployment rate was up slightly, 0.1%, in August. This increase was the result of a decrease in total employment and a decrease in the labor force, providing further evidence that the economic recovery may be staling. The state grew a seasonally adjusted annual rate of 1.13% as measured by the Philadelphia Fed’s Coincident Index of economic activity, and the Leading Index is predicting less then 1% growth over the next six months. As with the national economy, this rate of growth is too slow to affect meaningful recovery in labor markets. Indeed, if the state economy continues to preform this sluggishly, we would expect to see the unemployment rate increase in the coming months.  

Labor Market

While the national jobs report could have been better, there was some encouraging news. First, the change in total nonfarm payroll employment for July was revised up from +85,000 jobs to +127,000 jobs, and the change for August was revised up from 0 jobs to +57,000 jobs. Total nonfarm payroll employment rose 103,000 in September; though, the increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. The economy created slightly more jobs than needed keep pace with new entrance to the labor force, but the unemployment rate was little changed at 9.1 percent last month. The fiscal condition of the public sector continues to way on the economy. The public sector lost 34,000 jobs in September. Moreover, concerns over low economic growth are growing.

The Wisconsin economy lost 2,300 jobs on net in August, and has gained only 24,700 jobs over the last year. The lost jobs where in several key areas in August. The public sector lost an additional 1,500 jobs; Professional and Business services lost 1,500 jobs; and Construction lost 3,000 jobs. One the other hand, the largest increase came from the leisure and hospitality sector where 2,000 jobs were created. Leisure and hospitality sector tends to be composed of lower paid jobs then the public sector, which highlights the importance of looking beyond net jobs created when evaluating economic growth. One a more positive note, Health and Education services and Manufacturing both saw increases in employment totaling about 2,000 jobs that may be higher paying.  

The state unemployment rate increased slightly to 7.9 percent in August, which is 0.1 percentage points lower than one year previous. Conditions in the regional labor market are still slightly better than the state average. The regional unemployment rate decreased in August by 0.55 percentage points to 6.3 percent. This change was driven by a 0.7 year over year percentage increase in total employment and a 0.1 year over year percentage increase in the labor force. The region's unemployment rate is lower than the state average of 7.9 percent and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.7 percent. 

One explanation economic performance of the St. Croix Valley relative to the rest of the state of Wisconsin is its proximity to Minnesota and the Twin Cities. Minnesota is exhibiting considerably faster growth than its upper Midwest neighbors.  

Housing Market

The Case-Shiller Home Price index for Minneapolis and Chicago, as well as, nationally have shown slight increases in May, June and July, but the index still shows home values are considerably below one year ago. Median home price in the Valley is also below one year ago, but the number of homes sold increased.

Wisconsin's St. Croix Valley is comprised of St. Croix, Polk, and Pierce counties. All three counties are located along the Wisconsin-Minnesota border. Two of the three counties, St. Croix and Pierce, are included in the Minneapolis-St. Paul-Bloomington MN-WI metropolitan area, a 13-county region with of population of 3.25 million residents. For additional information on the October edition of the St. Croix Valley Economic Dashboard, contact Dr. Logan Kelly at cer@uwrf.edu or (715) 425-4993 or William Rubin at bill@stcroixedc.com or (715) 381-4383.

*Please note that most regional data is available with between a one and two month delay, thus the current month's dashboard will have data from previous months.

The Fed to implement “Operation Twist”

The Federal Open Market Committee concluded its meeting Wednesday, September 21, 2011, with no change in its traditional policy instrument, the federal funds rate. This interest rate is the rate at which banks borrow from each other. The Fed believes that the factors affecting the economy in a negative way are temporary. No change in short term interest rate policy is warranted.

Economic growth remains slow, employment is not increasing fast enough to lower the unemployment rate, but inflation is moderating.

However, the Federal Reserve System has decided to implement “Operation Twist”. This action is to gradually increase the average maturity of the securities that the Federal reserve own. The table shows the current distribution of securities owned by the Fed.

Current Distribution 0f Securities Owned by the Fed as of September 2011
Treasury Bills (less than 1 year)	$18,423 million
Notes & Bonds (2 year – 20 year)	$1,631,024 million
Mortgage back securities (acquired to support banks during the financial crisis)	$884,945 million

Operation twist would result in the Fed selling short term securities (3 year maturity or less) and buying equal numbers of longer term maturities (6 years – 30 years) and to replace the mortgage backed securities as they mature.

The purpose of this action is to put downward pressure on longer term interest rates, including mortgages and corporate bonds. This should increase borrowing for home purchases and capital expansion by business.

A major concern of the Fed and a reason for the continuing slow recovery is that while banks have money to lend, they are simply holding these as excess reserves.

Bank Reserves as of September 2011
Bank Total Reserves	$1,660,440 million
Bank Excess Reserves (94.5% of total)	$1,568,590 million
Bank Required Reserves	$91,850 million

In normal times, banks hold few excess reserves.  Prior to the financial crisis in August 2008, bank excess reserves were 4% of total reserves compared to 94.5% in September 2011. Today, banks are holding vast amounts of excess reserves. We will not see a normal recovery from the recession until banks start lending their excess reserves. Operation Twist is designed to increase demand for these funds.

September St. Croix Valley Economic Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with St. Croix Economic Development Corporation (SCEDC) has released the September 2011 edition of the St. Croix Valley Economic Dashboard. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the three county St. Croix Valley. It presents the latest available data* in one convenient package and can be viewed on the CER's website at www.uwrf.edu/cer.

The economic recovery seems to be stumbling. The national economy created zero net new jobs in August ’11, but the unemployment rate held at 9.1%.  At the state level in Wisconsin, the unemployment rate for July ’11 was 7.8% up 0.2 percentage points from June ’11 but down 0.4 percentage points from one year previous. More troubling than the increase in the unemployment rate is the loss of 8,200 jobs in July and the downward revision of the number of jobs created in June by 1,500. On top of that, the Philadelphia Fed’s Leading Indicator is current projecting that the Wisconsin Economy will grow by less than one present over the next six months. Overall, the September dashboard is indicating that we may be entering a new recession. 

The unemployment rate in the St. Croix Valley continues to be below the average unemployment rate in the state. July ’11 unemployment rate is 6.9 percent, which is down slightly from one year previous. However, both total employment and labor force decreased during July suggesting renewed weakness in the local labor market.

Spending in the Valley, as measured by sales tax revenue, remained strong though. Sales tax revenue collected in August increased by 15.6% from one year previous, and new vehicle registrations increased by 20.1% from for one year ago. These metrics represent the most optimistic indicators this month. The housing market is still showing significant weakness.  Median home price is still below median price this time last year.

Wisconsin's St. Croix Valley is comprised of St. Croix, Polk, and Pierce counties. All three counties are located along the Wisconsin-Minnesota border. Two of the three counties, St. Croix and Pierce, are included in the Minneapolis-St. Paul-Bloomington MN-WI metropolitan area, a 13-county region with of population of 3.25 million residents. For additional information on the September edition of the St. Croix Valley Economic Dashboard, contact Dr. Logan Kelly at cer@uwrf.edu or (715) 425-4993 or William Rubin at bill@stcroixedc.com or (715) 381-4383.

*Please note that most regional data is available with between a one and two month delay, thus the current month's dashboard will have data from previous months.