Fed’s Minutes

The Fed released the minutes from their March 20-21 meeting. Here are some key bits.

The information reviewed for the March 20-21 meeting indicated that labor market conditions continued to strengthen through February and suggested that real gross domestic product (GDP) was rising at a moderate pace in the first quarter. Consumer price inflation, as measured by the 12‑month percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in January. Survey‑based measures of longer-run inflation expectations were little changed on balance.

Gains in total nonfarm payroll employment were strong over the two months ending in February. The labor force participation rate held steady in January and then stepped up markedly in February, with the participation rates for prime-age (defined as ages 25 to 54) women and men moving up on net. The national unemployment rate remained at 4.1 percent. Similarly, the unemployment rates for African Americans, Asians, and Hispanics were roughly flat, on balance, in recent months. The share of workers employed part time for economic reasons edged up but remained close to its pre-recession levels. The rates of private-sector job openings and quits increased slightly, on net, over the two months ending in January, and the four-week moving average of initial claims for unemployment insurance benefits continued to be low in early March. Recent readings showed that increases in labor compensation remained modest. Compensation per hour in the nonfarm business sector advanced 2-3/4 percent over the four quarters of last year, and average hourly earnings for all employees rose 2-1/2 percent over the 12 months ending in February.

Total industrial production expanded, on net, in January and February, with gains in both manufacturing and mining. Automakers’ schedules indicated that assemblies of light motor vehicles would likely edge down in coming months. However, broader indicators of manufacturing production, such as the new orders indexes from national and regional manufacturing surveys, pointed to further solid increases in factory output in the near term.

Consumer expenditures appeared likely to rise at a modest pace in the first quarter following a strong gain in the preceding quarter. Real PCE edged down in January, and the components of the nominal retail sales data used by the Bureau of Economic Analysis to construct its estimate of PCE rose somewhat in February while the pace of light motor vehicle sales declined slightly. However, household spending was probably held back somewhat in February because of a delay in many federal tax refunds, and the subsequent delivery of those refunds would likely contribute to an increase in consumer spending in March. Moreover, the lower tax withholding resulting from the tax cuts enacted late last year, which was beginning to show through in consumers’ paychecks, would likely provide some impetus to spending in coming months. More broadly, recent readings on key factors that influence consumer spending–including gains in employment and real disposable personal income, along with households’ elevated net worth–continued to be supportive of solid real PCE growth in the near term. In addition, consumer sentiment in early March, as measured by the University of Michigan Surveys of Consumers, was at its highest level since 2004.

Real residential investment looked to be slowing in the first quarter after rising briskly in the fourth quarter. Starts of new single-family homes increased in January and February, al­though building permit issuance moved down somewhat. Starts of multifamily units jumped in January but fell back in February. Sales of both new and existing homes declined in January.

Growth in real private expenditures for business equipment and intellectual property appeared to be moderating in the first quarter after increasing at a solid pace in the preceding quarter. Nominal shipments of nondefense capital goods excluding aircraft edged down in January. However, recent forward-looking indicators of business equipment spending–such as the backlog of unfilled capital goods orders, along with upbeat readings on business sentiment from national and regional surveys–pointed to further solid gains in equipment spending in the near term. Firms’ nominal spending for nonresidential structures outside of the drilling and mining sector declined in January. In contrast, the number of crude oil and natural gas rigs in operation–an indicator of business spending for structures in the drilling and mining sector–continued to move up through mid-March.

Total real government purchases seemed to be flattening out, on balance, in the first quarter after rising solidly in the fourth quarter. Nominal defense spending in January and February was consistent with a decline in real federal purchases. In contrast, real purchases by state and local governments looked to be rising, as the payrolls of these governments increased in January and February and nominal state and local construction spending advanced somewhat in January.

The change in net exports was a significant drag on real GDP growth in the fourth quarter of 2017, as imports grew rapidly. The nominal U.S. international trade deficit widened in January; exports declined, led by lower exports of capital goods and industrial supplies, while imports were about flat. The slowing of real import growth following the rapid increase in the fourth quarter suggested that the drag on real GDP growth from net exports would lessen in the first quarter.

Total U.S. consumer prices, as measured by the PCE price index, increased 1-3/4 percent over the 12 months ending in January. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1-1/2 percent over that same period. The consumer price index (CPI) rose 2-1/4 percent over the 12 months ending in February, while core CPI inflation was 1-3/4 percent. Recent readings on survey-based measures of longer-run inflation expectations–including those from the Michigan survey, the Survey of Professional Forecasters, and the Desk’s Survey of Primary Dealers and Survey of Market Participants–were little changed on balance.

Foreign economic activity expanded at a moderate pace in the fourth quarter. Real GDP growth picked up in Mexico but slowed a bit in some advanced foreign economies (AFEs) and in emerging Asia. Recent indicators pointed to solid economic growth abroad in the first quarter of this year. Inflation abroad continued to be boosted by the pass-through to consumer prices of past increases in oil prices. However, excluding food and energy prices, inflation remained subdued in many foreign economies, including the euro area and Japan.