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.

Insight on the Fed’s View of Economic Conditions

Chairman Bernanke at the Jackson Hole conference offered some insight on the Fed’s view of economic conditions and policy on Friday August 26. He believes that coming out of the most severe financial crisis since the Great Depression has been difficult, slow but we have seen significant positive developments. Globally, economic growth ed by emerging economies has been strong, but the US economic recovery has been slower than desired. The financial system has recovered nicely and is strong today as a result of important and necessary changes to regulation of risk taking. Lending to small and medium size business has been tight. Manufacturing production has risen sharply. The recovery has been too slow to bring unemployment down; in particular the housing industry that often recovers quickly from a recession has been slow due to the hangover of foreclosed homes. The significant decline in home prices has been a large drop in consumer wealth and this has depressed consumer spending.

Looking forward, the Fed believes the recovery will continue at a slow pace and inflation will stay below 2%. In response, the Fed will act to keep short term interest rates very low for the next two years. In the longer run analysis, the Fed believes its policy has its greatest impact on inflation. As a result the Fed will monitor economic conditions, attempt to stimulate short term expansion, but it recognizes this expansionary policy can not be maintained without a threat to longer term inflation.

August Momentum West Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with Momentum West has released the July 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.

Download the Dashboard

The dashboard includes two new indicators this month: the Philadelphia Fed’s Leading and Coincident Indices of economic activity. The Coincident Index of economic activity provides an estimate of Wisconsin’s economic growth rate expressed as a seasonally adjusted annual rate, and the Leading Index of economic activity forecasts economic growth for Wisconsin over the next six months. These two indices provide information about the over all health of the state economy and give an indication of future economic performance. Both the Leading and Coincident Indices indicate that the state economy is growing annually by about 3.0 percent.

The Labor Market

The state unemployment rate increased slightly to 7.6 percent in June '11, which is 0.7 percentage points lower than June '10. Conditions in the regional labor market are are similar to the state average. The regional unemployment rate decreased in June '11 by 0.12 percentage points to 7.5 percent. This change was driven by a 0.3 year over year percentage decrease in total employment and a 0.5 year over year percentage decrease in the labor force. The region's unemployment rate is comparable to the state average of 7.6 percent and higher than the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.9 percent.

The Wisconsin economy created 9,500 jobs on net in June, but lost jobs in several key areas. Particularly, the public sector has lost an additional 3,400 jobs marking the third straight month of declines and a total loss of 4,700 jobs since June 2011. One the other hand, the largest increase came from the leisure and hospitality sector where 6,200 jobs were created. Leisure and hospitality sector tends to be composed of lower paid jobs then then the public sector, which highlights the importance of looking beyond the net jobs created when evaluating economic growth.

The Housing Market

The region saw a monthly decrease in median home price, but nether median home price nor the number of homes sold are seasonally adjusted, thus year over year change is a better measure. Median home price in the region declined for all but two counties, St. Croix and Dunn. However, home prices in the region were up from one year ago. The median home price for the ten county region in July '11 was approximately $162,848 which is 5.5 percent above July '10, and the Case-Shiller Home Price index for Minneapolis and Chicago did show monthly increases in May '11. The number of homes sold in the region increased year over year by 27.4 percent to 521.

For additional information on the August 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.

August 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 August 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.

Download the August Dashboard

The dashboard includes two new indicators this month: the Philadelphia Fed’s Leading and Coincident Indices of economic activity. The Coincident Index of economic activity provides an estimate of Wisconsin’s economic growth rate expressed as a seasonally adjusted annual rate, and the Leading Index of economic activity forecasts economic growth for Wisconsin over the next six months.  These two indices provide information about the over all health of the state economy and give an indication of future economic performance. Both the Leading and Coincident Indices indicate that the state economy is growing annually by about 3.0 percent.

The Labor Market

While the national jobs report was far from stellar, Total nonfarm payroll employment rose 117,000 in July, the general consensus is that the July jobs report is much better than many economist feared. The economy created just enough jobs to keep pace with new entrance to the labor force, and as a result, the unemployment rate was little changed at 9.1 percent last month. Moreover, job creation for June was revised up to 46,000 and job creation for May was revised up to 53,000. While this news is welcome, the fiscal condition of the public sector continues to way on the economy. The public sector lost 37,000 jobs in July, which marks the ninth straight month of public sector job loss. 

At the state-level the story in June was mixed. The Wisconsin economy created 9,500 jobs on net, but lost jobs in several key areas. Particularly, the public sector lost an additional 3,400 jobs marking the third straight month of declines and a total loss of 4,700 jobs since June 2011. One the other hand, the largest increase came from the leisure and hospitality sector where 6,200 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. While there was net job creation in June, over all income may be diminishing.

The state unemployment rate increased slightly to 7.6 percent in June '11, which is 0.7 percentage points lower than June '10. Conditions in the regional labor market are still slightly better than the state average. The regional unemployment rate increased in June '11  by 0.6 percentage points to 7.0 percent. This change was driven by a 0.5 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 7.6 percent and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.9 percent. 

The Housing Market

The housing market story is similar to last month. The region saw another monthly increase in median home price, but nether median home price nor the number of homes sold are seasonally adjusted, thus year over year change is a better measure. Median home price in the Valley declined in July ’11 by 4.0 percent from July '10 to $137,750. However, the Case-Shiller Home Price index for Minneapolis and Chicago did show monthly increases in May '11. The number of homes sold in the St. Croix Valley increased year over year by 11.5 percent to 174.

Spending

Spending in the Valley, as measured by sales tax revenue, decreased in July ’11 by 14.7% from July ’10, and new vehicle registrations in July ’11 increased by 20.1% from July ’10. Diminished spending is troubling, but increased registrations still indicates continued, al be it fragile, economic growth.

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 August 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.

July Momentum West Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with Momentum West has released the July edition of the Momentum West Economic Dashboard. The dashboard is a snapshot of the economic condition of the labor 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.

The Labor Market

The regional labor market showed a lackluster performance in May. The unemployment rate declined in May by 0.6 percentage points from one year previous to 6.8 percent. This change was driven by a 0.3 year over year percentage increase in total employment and 0.3 year over year percentage decrease in labor force. While the increase in employment, and resulting decline in the unemployment rate, are welcome, the decrease in the labor force is troubling. The region's unemployment rate is lower than the state average of 7.4 percent, but higher than the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.3 percent.

Nationally, layoffs are picking up. Cisco Systems, Goldman Sachs Group and Lockheed-Martin have all announced significant layoffs, and the chain bookseller, Borders, announced it will be going out of business.  Indeed many companies, Nationwide Insurance is one example, are looking to cut costs. The data supports a similar conclusion that the short run risk of recession is growing and may, at present, outweigh long run concerns over the budget deficit. Total number of layoffs increased from April to May by 172,000 people. This is the largest monthly increase year to date.

Total Layoffs and Discharges

Moreover, the number of persons unemployed less than five weeks, which is often used as a proxy for total layoffs, has increased three of the last four months.

Number Unemployed Less then Five Weeks

Though the Wisconsin economy appears to be preforming slightly better than the national economy, the national picture certainly indicates that road to recovery may be less certain than we would like.

The Housing Market

The housing market may be showing some summer strengthening, but year over year comparisons still indicate a grim reality. The region saw another monthly increase in median home price and number of homes sold. While this is encouraging, nether median home price nor number of homes sold are seasonally adjusted, thus the recent strengthening may be merely the summer home buying market increase. However, the Case-Shiller Home Price index for Minneapolis did show its first positive year over year change in April since June '10.

Home prices in the region remain significantly lower than one year ago. The median home price for the ten-county region in June '11 was approximately $191,000, which is 23 percent bellow June '10.

For additional information on the July 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) 874-4683.

*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.

July 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 July 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.

Download the latest dashboard

The dashboard includes several new features this month. First, unemployment rate, total employment and labor force data has been added for both the St. Croix Valley region as a whole and the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area. The Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area includes much of the three county St. Croix Valley and economic conditions in this MSA are an important indicator of current and future conditions in the St. Croix Valley. Second, the prices received by producers of the key agricultural commodities have been included. These prices are the average price received from the sale of corn, milk and soybeans to their first buyers.

The Labor Market

Conditions indicate continuing, slow recovery in the regional labor market. The unemployment rate declined in May by one percentage point from one-year-previous to 6.4 percent. This change was driven by a 0.4 year over year percentage increase in total employment and essentially unchanged labor force. The region's unemployment rate is lower than the state average of 7.4 percent and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.3 percent.

Nationally, the data indicates that the short run risk of recession is still persists and may at present outweigh long run concerns over the budget deficit. The economy added 18,000 jobs in June, which is statistically indistinguishable from zero. Moreover, job creation statistics for both April and May were both revised down. The change in total employment for April was revised from 232,000 jobs created to 217,000 jobs created, and the change for May was revised from 54,000 jobs created to 25,000 jobs created. The unemployment rate was likewise unchanged at 9.2 percent.

A significant driver of the national economy's inability to create new jobs has been the loss of public sector jobs. While the private sector created 57,000 jobs nationally in June, government employment fell by 39,000 jobs (Wisconsin has lost approximately 6,000 public sector jobs between May '11 and May '10).  This continues a trend of declining public sector employment spanning back to 2008, and the public sector remains the only major sector of the economy to continue to exhibit consistently falling employment.

Decreasing government payrolls is a serious challenge to the labor market recovery because one public sector job lost can lead to additional private sector job losses or inhibit the private sector from creating jobs. This phenomenon is known as the multiplier effect. Because public sector jobs are often higher skilled, higher paid jobs, their loss causes a significant loss in aggregate income and thus spending. This spending provides income to businesses producing a wide variety of goods and services, and the loss of that income can contributing to many businesses' reluctance to hire new workers.

The Housing Market

The housing market may be showing some summer strengthening, but year over year comparisons still indicate a grim reality. The region saw another monthly increase in median home price and number of homes sold. While this is encouraging, nether median home price nor the number of homes sold are seasonally adjusted, thus the recent strengthening may be merely the summer home buying market increase. However, the Case-Shiller Home Price index for Minneapolis did show its first positive year over year change in April since June '10.

Home prices in the St. Croix Valley remain significantly lower than one year ago. The median home price for the three county region in June '11 was approximately $132,000, which is nearly 15 percent bellow June '10.

Spending

Spending in the Valley, as measured by sales tax revenue, increased in June ’11 by 4.9% from June ’10, and new vehicle registrations in May ’11 increased by 13.4% from May ’10. Both of these metrics indicate continued economic growth despite a stubbornly slow labor market recovery and a tepid housing market. 

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 July 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.