Economic Week in Review: January 29-February 2, 2001
The most recent Economic Week in Review can be found below. The report
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10-point Courier.
The Federal Reserve Board's Open Market Committee dropped its
target for short-term interest rates by a half a percentage point on
Wednesday, bringing its total cut in short-term rates during January to
a full percentage point--the most aggressive easing in nearly 20
years. While the rate cut is good news for consumers and businesses, it
was prompted by some bad news about the U.S. economy. The Fed said its
action was a "rapid and forceful response" to growing signs
of weakness in the economy. Indeed, markedly lower growth in fourth-
quarter gross domestic product and sharp drops in consumer confidence
and a closely watched manufacturing index drove the point home. In the
financial markets, the S&P 500 (r) Index fell 0.4% for the week to
1,350. The price of the 10-year U.S. Treasury note declined, as its
yield fell 13 basis points to 5.14% (as of 4:30 p.m. Friday).
The Fed's newly announced targets of 5.5% for the federal funds
rate (the rate banks charge each other on overnight loans) and 5.0%
for the discount rate (the rate the central bank charges commercial
banks for short-term borrowing) are expected to spur spending by
consumers and businesses, providing a boost to the economy.
The economy grew at its slowest pace in five years in the fourth
quarter, with real (inflation adjusted) GDP increasing at an annual
rate of 1.4%. However, the 5.0% increase in the GDP growth rate for all
of 2000 was the highest since 1984. Consumer spending increased at a
2.9% annual rate in the fourth quarter, considerably lower than its
4.5% third-quarter increase.
On Tuesday, the Conference Board reported that its index of consumer
confidence took a nosedive in January to a reading of 114.4 from 128.6 in
December. This was the index's fourth consecutive monthly decline,
and it is now at its lowest level since 1996.
Manufacturing activity also slowed in January, with the NAPM Index
coming in at a weaker-than-expected 41.2, according to the National
Association of Purchasing Management. The index is at its lowest point
since April 1991. (A reading below 50 indicates a contraction in
manufacturing activity; a reading above 50 suggests an expansion.) On
the other hand, factory orders increased 1.1% in December, with orders
for aircraft and electronic components leading the rise.
Friday's January employment report showed the jobless rate rising
to 4.2%, its highest level since September 1999. The surprising news
was that 268,000 nonfarm jobs were added to the economy, significantly
more than the 80,000 predicted. More than half of these jobs were in
the construction sector, which analysts said had benefited from
milder weather during the month. December's job gain, however, was
scaled back to 19,000 from the initial report of 105,000.
Personal income--the money that households receive from wages,
dividends, interest, and Social Security benefits--rose 0.4% in
December, the Commerce Department reported on Thursday. Growth in
personal spending slowed slightly to 0.3%, and the personal savings
rate remained negative at -0.8%. The negative savings rate
indicates that consumers are financing some of their purchases by
borrowing money, drawing on past savings, or selling assets. On the
plus side, though, this was a slight increase in the savings rate, the
first time since September that it has risen.
New-home sales came in at an annual rate of 975,000 for December, up
12% from November's figure of 860,000. For the year, new-home
sales totaled 900,000. Analysts said the strong performance of the
housing market was partly attributable to the decline in mortgage loan
rates, with 30-year fixed-rate mortgages averaging about 7%, down from
8.5% a year ago, according to the Federal Home Loan Mortgage
Corporation. On a related note, construction spending increased by 0.6%
in December.
Next week's schedule of economic reports is light, with releases
on consumer credit and productivity and costs (both due on Wednesday).
Summary of Major Economic Reports: January 29-February 2, 2001
-----------------------------------------------------------------------
|Date Report Actual Expected 10-Year S&P 500 |
| Value Value Note Yield Index |
|---------------------------------------------------------------------|
|January 29 +3 bp +0.7% |
|---------------------------------------------------------------------|
|January 30 Consumer 114.4 127.0 -8 bp +0.7% |
| Confidence |
| (January) |
|---------------------------------------------------------------------|
|January 31 FOMC lowers |
| short-term |
| interest |
| rates by |
| 0.50 percentage |
| point |
|---------------------------------------------------------------------|
| Real Gross +1.4% +2.3% |
| Domestic |
| Product (4Q, |
| annual rate) |
| |
|---------------------------------------------------------------------|
| New-Home 975,000 900,000 -8 bp -0.6% |
| Sales |
| (December, |
| annualized) |
| |
|---------------------------------------------------------------------|
|February 1 Initial Jobless 346,000 320,000 |
| Claims (1/27) |
|---------------------------------------------------------------------|
| Personal +0.4% +0.2% |
| Income (December) |
|---------------------------------------------------------------------|
| Personal +0.3% +0.2% |
| Spending |
| (December) |
|---------------------------------------------------------------------|
| NAPM Index 41.2 43.5 |
| (January) |
| |
|---------------------------------------------------------------------|
| Construction +0.6% -0.3% -7 bp +0.6% |
| Spending |
| (December) |
| |
|---------------------------------------------------------------------|
|February 2 Factory Orders +1.1% -0.5% |
| (December) |
| |
|---------------------------------------------------------------------|
| Nonfarm +268,000 +80,000 |
| Payrolls |
| (January) |
|---------------------------------------------------------------------|
| Unemployment 4.2% 4.0% +7 bp -1.8% |
| Rate (January) |
| |
|---------------------------------------------------------------------|
| Weekly -13 bp -0.4% |
| Change |
-----------------------------------------------------------------------
bp = basis points.
Note: The economic statistics presented in this report are subject to
revision by the agencies that issue them.
"Standard & Poor's(r)," "S&P(r)," "S&P 500(r)," "Standard & Poor's
500," and "500" are trademarks of The McGraw-Hill Companies, Inc.
(c) 2001 Vanguard Marketing Corporation, Distributor |
