Fed Watch

The Federal Open Market Committee concluded its meeting Wednesday August 1 with no change in its policy. They stated the following.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. . . . The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.¹

The Federal Reserve System has a responsibility to conduct policy to achieve maximum sustainable output and employment and to promote "stable" prices. These goals are prescribed in a 1977 amendment to the Federal Reserve Act.²

This dual goal is seen by some as contradictory. They believe that unemployment and inflation tend to move in opposite directions. A contradictory and commonly held belief is that the inverse relationship is at best temporary. The real impact of monetary policy is on inflation and the impact on output and employment is at best temporary.

If you believe the inverse relationship exists, then the lack of current inflation leads you to believe the Fed should be doing more to spur the economy and reduce unemployment. If you believe the impact of inflation is important and the impact on production is temporary, you are concerned that the Fed’s recent actions will eventually lead to inflation. July 31 marked the 100^th birthday of Milton Friedman. He died in 2006. Friedman’s research led him to believe that inflation is determined by the actions of the Fed and that the Fed has very limited ability to stimulate production and reduce unemployment.

The current Fed seems to be trying to have it both ways. Since inflation is low, they are pursuing an expansionary policy and are prepared to make it more expansionary. While at the same time they say, “Don’t worry, we can reverse the policy actions quickly if inflation becomes a problem.” This is exactly the sort of belief that Milton Friedman argued against. If he is right, we are eventually headed for trouble.

1. FOMC policy statement http://www.federalreserve.gov/newsevents/press/monetary/20120801a.htm

2. Fed policy targets http://www.frbsf.org/publications/federalreserve/monetary/goals.html

Fed Watch

The FOMC held a two-day day meeting. April 24-25, to discuss the state of the economy and monetary policy and with only a slightly more optimistic view of the future, did not change policy. A number of the members of the committee believe unemployment will fall lower than they had predicted earlier in the year, despite the continued slow economic recovery. Despite this belief, the FOMC did not change its policy stance. Short term interest rates will continue at about zero. The committee reiterated their previous statement that the low interest rate policy will not change until late 2014.

The FOMC projects unemployment at about 8% at year end and they continue to believe that inflation will stay below 2%. Their position on interest rates has not changed since their March meeting. I have reproduced some of the statements from that meeting below. The FOMC is committed to keeping short and long term interest rates at record low level, despite increased criticism from Congress. There have always been members of Congress ready to criticize the Fed, but this criticism seems to be stronger in recent months. This story continues to develop.

From March 13, 2012 meeting:

The FOMC has recently clarified its position on inflation and Operation Twist. In its February 29, 2012 Semi-annual Monetary Policy Report, they reiterated that the “security lengthening” known as operation twist which began in September will continue through the spring. Comparing 2007 to 2012, the Fed’s Treasury security portfolio has changed significantly. This is Operation Twist; the Fed is holding a much larger share of longer term securities and much smaller share of short term securities. It is scheduled to end in June. The effect of operation twist has been a significant reduction in long term interest rates, such as the mortgage rate being below 4%.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

April 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 April 2012 edition of the St. Croix Valley Economic Dashboard 2.0. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the six county St. Croix Valley, which now includes the Wisconsin counties St. Croix, Pierce and Polk, as well as the Minnesota counties Chisago, Ramsey and Washington. 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 3.0 percent during the fourth quarter of 2011, up 0.61 percentage points from the previous quarter. Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate, at 8.2 percent, is 0.7 percentage points below the March 2011 rate. Job gains occurred in manufacturing, financial activities, professional and business services, education and health services, and leisure and hospitality, but there were job losses in retail trade. The public sector was relatively unchanged posting a loss of about 1,000 jobs.

Wisconsin’s unemployment rate was unchanged at 6.9 percent, in February, which was caused by a 0.2 percent increase in employment and 0.2 percent increase in labor force, according to the BLS survey of households. However, the BLS survey of employers finds that Wisconsin lost 16,900 jobs over the last year. This indicates that while the labor market conditions have improved in Wisconsin, that improvement has been driven by growth in neighboring states.

Minnesota’s unemployment rate was up slightly to 5.7 percent, in February, which was lead by a 0.2 percent decrease in employment and a 0.1 percent decrease in labor force, according to the BLS survey of households. Minnesota has gained 35,500 jobs over the last year, according to the establishments survey.

The Philadelphia Fed’s Coincident Index of economic activity indicated the Wisconsin economy grew at a seasonally adjusted annual rate of 3.38 percent in February ‘12, and Leading Index is predicting a positive annual growth rate of 1.51 percent over next the six months, which is still too low to expect meaningful labor market recovery. The Minnesota economy grew at a seasonally adjusted annual rate of 7.66 percent, and the Leading Index is predicting a positive annual growth rate of 1.89 percent over next the six months.

Labor Market

The Wisconsin economy gained 1,000 jobs on net in the month of February but has lost 16,900 jobs since February ’11. The Minnesota economy gained 6,200 jobs on net in February and has gained 35,500 over the last year.

The month of February had very minor job losses or gains in almost all sectors. Wisconsin had job losses in the public sector of 1,100 jobs in February and has lost 17,400 jobs over the last year. Minnesota had job gains in the public sector of 2,500 jobs, but has also lost some 6,200 jobs over the last year.

In Wisconsin, there were gains in construction, manufacturing, information, financial activities, professional and business services, education and health services and other services. The largest gains for Wisconsin came in construction which added 2,300 jobs and education and health services which added 2,600 jobs.

In Minnesota there were gains in mining and logging, construction, information, education and health services, leisure and hospitality and other services. The largest job gains were in education and health services which added 5,100 jobs, also leisure and hospitality, and construction both added 1,300 jobs.

Conditions in the regional labor market are fairing better than the state average. The regional unemployment rate rose in February by 0.3 percentage point to 6.5 percent, lower than the state average in Wisconsin of 6.9 percent, greater than the Minnesota average of 5.7, and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 6.2 percent. The data suggests that the St. Croix Valley’s relative economic strength due to proximity to the twin cities.

Housing Market

The Case-Shiller Home Price index for Chicago and nationally decreased for the month of January but increased for Minneapolis. Nationally the home price index has decreased every one of the past nine months. Median home price and number of homes sold both increased for the month of March. Over the last year median home price and number of homes sold have increased by 0.7 percent and 17.9 percent respectively.

The Wisconsin/Minnesota St. Croix Valley is comprised of St. Croix, Polk, and Pierce counties in Wisconsin and Chisago, Ramsey and Washington counties in Minnesota. All six counties are located along the Wisconsin-Minnesota border. Four of the six counties, St. Croix , Pierce, Ramsey and Washington, 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 April 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.

March 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 March 2012 edition of the St. Croix Valley Economic Dashboard 2.0. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the six county St. Croix Valley, which now includes the Wisconsin counties St. Croix, Pierce and Polk, as well as the Minnesota counties Chisago, Ramsey and Washington. 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 3.0 percent during the fourth quarter of 2011, up 0.63 percentage points from the previous quarter. Nonfarm payroll employment rose by 227,000 in February, and the unemployment rate, at 8.3 percent, is 0.7 percentage points below the February 2011 rate. Job gains occurred in professional and businesses services, health care and social assistance, leisure and hospitality, manufacturing, and mining. The public sector remained unchanged in February, although the public sector in 2011 lost an average of 22,000 jobs per month.

Wisconsin’s unemployment rate was down slightly to 6.9 percent, in January, which was lead by a 0.1 percent increase in employment and 0.1 percent decrease in labor force, according to the BLS survey of households. However, Wisconsin lost 12,500 jobs during the year of 2011. This indicates that while the labor market conditions have improved in Wisconsin, that improvement has been driven by growth in neighboring states.

Minnesota’s unemployment rate was also down slightly to 5.6 percent, in January, which was lead by a minor decrease in employment and a 0.2 present decrease in labor force, according to the BLS survey of households. Minnesota gained 15,500 jobs, according to the establishments survey.

The Philadelphia Fed’s Coincident Index of economic activity indicated the Wisconsin economy contracted at a seasonally adjusted annual rate of 1.6 percent in January ‘12, and Leading Index is predicting a positive annual growth rate of 1.95 percent over next the six months, which is too low to expect meaningful labor market recovery. The Minnesota economy contracted at a seasonally adjusted annual rate of 0.88 percent, and the Leading Index is predicting a negative annual growth rate of 0.88 percent over next the six months.

Labor Market

The Wisconsin economy gained 12,500 jobs on net in the month of January but lost 12,500 jobs over 2011. The Minnesota economy gained 15,500 jobs on net in January and gained 35,800 over the last year.

Job losses occurred in a few areas, but overall most sectors grew during the month of January. Wisconsin and Minnesota both had job losses in the public sector of 3,200 and 1,700 respectively.

 

In Wisconsin, there were gains in mining and logging, construction, manufacturing, trade, transportation and utilities, professional and business services, and leisure and hospitability. The largest gains for Wisconsin came in construction which added 4,200 jobs and trade transportation and utilities which added 3,700 jobs.

In Minnesota there were gains in mining and logging, construction, manufacturing, information, professional and business services, education and health services and other services. The largest job gains were in professional and business services which added 5,600 jobs and construction which added 4,200 jobs.

Conditions in the new regional labor market are fairing better than the state average. The regional unemployment rate rose in December by 0.25 percentage point to 5.6 percent, lower than the state average in Wisconsin of 7.0 percent, and comparable the Minnesota average of 5.7, and Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 5.2 percent. The St. Croix Valley’s relative economic strength, as compared to the rest of the state, appears to be driven by close proximity to the twin cities. 

Housing Market

The Case-Shiller Home Price index for Chicago and nationally decreased for the month of November but increased for Minneapolis. for the first time in four months. Nationally the home price index has decreased every one of the past eight months. Median home price decreased in the region for the month of February and number of homes sold increased in the region for the month of February. Number of homes sold was 19.5 percent higher than one year ago and Median home price is 4.1 percent lower than one year ago. 

The Wisconsin/Minnesota St. Croix Valley is comprised of St. Croix, Polk, and Pierce counties in Wisconsin and Chisago, Ramsey and Washington counties in Minnesota. All six counties are located along the Wisconsin-Minnesota border. Four of the six counties, St. Croix , Pierce, Ramsey and Washington, 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 March 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.

February 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 February 2012 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 2.8 percent during the fourth quarter of 2011, up 0.40 percentage points from the previous quarter. Nonfarm payroll employment rose by 243,000 in January, and the unemployment rate, at 8.3 percent, continued to trend down. Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining. The public sector, though, continued its downward tend, losing 14,000 jobs in January, and public sector job losses remain a significant short-run threat to continued recovery.

Wisconsin’s unemployment rate was down slightly to 7.1 percent, in December, which was lead by a 0.2 percent increase in employment and a very minor decrease in labor force, according to the BLS survey of households. However, the BLS survey of employers finds that Wisconsin lost 1,700 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 2.43 percent, and the Philadelphia Fed’s Leading Index is predicting a negative .51 percent growth rate over the next year. The Coincident and Leading indices peeked in March ’11 and January ’11, respectively.

Labor Market

The Wisconsin economy lost 1,700 jobs on net in December, and has gained only 3,200 jobs over the last year.

Job losses occurred in many sectors, but a few sectors saw strong growth. The public sector gained 2,200 jobs, the first gain in 5 months. Manufacturing also grew by 3,300 jobs, along with trade, transportation & utilities sector gaining 2,700 jobs, and construction gaining 1,900 jobs. All other sectors of the economy lost jobs with the leisure and hospitality sector losing the most at 6,100 jobs. Overall the private sector lost 3,900 jobs and the public sector gained 2,200 jobs.

Conditions in the regional labor market are fairing better than the state average. The regional unemployment rate rose in December by 0.37 percentage point to 5.9 percent, lower than the state average of 7.1 percent and comparable to the Minneapolis-St. Paul-Bloomington Metropolitan Statistical Area (MSA) unemployment rate of 5.5 percent. The St. Croix Valley’s relative economic strength, as compared to the rest of the state, appears to be driven by close proximity to the twin cities.

Housing Market

The Case-Shiller Home Price index for Chicago and nationally decreased for the month of November. The Case-Shiller Home Price index for Minneapolis increased for the month of November for the first time in four months. Nationally the home price index has decreased every one of the past seven months. Median home price increased and number of homes sold decreased in the region for the month of January. Number of homes sold was 6.7 percent lower than one year ago and Median home price is 8.7 percent higher than 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 February 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.