Today, the Federal Open Market Committee released a report on the state of the economy. Here is an excerpt:
The information reviewed at the September meeting indicated that economic activity decelerated considerably in recent months. The labor market deteriorated further in August as private payrolls declined and the unemployment rate moved markedly higher. Industrial output was little changed in July, but fell sharply in August. Consumer spending weakened noticeably in recent months. Meanwhile, residential investment continued to decline steeply through midyear. In contrast, business investment in equipment and structures generally held up through July. On the inflation front, overall consumer prices rose rapidly for a third straight month in July but then edged down in August, because of a sharp drop in energy prices. Core consumer price inflation remained elevated in July and eased somewhat in August.
The labor market continued to weaken. According to the August employment report, private payroll employment fell by a bit more than the average seen earlier this year. Most major industry groups shed jobs; manufacturing posted a particularly noticeable loss. Job losses in the construction industry diminished over July and August despite the ongoing contraction in residential investment. Hiring in nonbusiness services, which include the education and health industries, and in natural resources and mining increased in line with recent trends. The average workweek held steady and aggregate hours edged lower. The unemployment rate jumped 0.4 percentage point, to 6.1 percent, in August, while the labor force participation rate held steady.
Industrial production fell sharply in August after edging up in July. Motor vehicle assemblies dropped in August as automakers scaled back production following a sharp decline in vehicle sales in July. The output of high-tech equipment rose at a moderate rate in the first half of the year, but indicators of production gains in the high-tech sector pointed toward relatively subdued growth in the third quarter. The output of other manufacturing sectors declined for a third consecutive month in August, and indicators of near-term production suggested that the industrial sector was likely to remain soft over the next few months. For most major industry groups, factory utilization rates in August remained below their long-run averages.
Real personal consumption expenditures (PCE) turned down in June and declined more noticeably in July; over the two months, outlays for motor vehicles dropped markedly and spending on other goods weakened substantially. The recent weakness in consumer spending on goods excluding motor vehicles contrasted sharply with solid growth in the spring. Outlays for services were reported to have increased modestly in June and July. Total nominal retail sales decreased in August. Real disposable income was boosted significantly by the tax rebates in the second quarter; excluding the temporary rebates, real disposable income fell in that quarter and continued to move lower in July. Early September readings on consumer sentiment rose from the low levels recorded over the past several months.
Residential construction activity continued to decline steeply through midyear. In July, both single-family housing starts and permit issuance fell further. In the multifamily sector, starts dropped back in July to a rate more in line with its historical range. June’s spike in multifamily starts was related to more-stringent building codes that took effect in New York City on July 1, which apparently led developers to pull forward the start date of some planned apartment projects. Recent cutbacks in new residential construction reduced the level of new home inventories, and the relative stability in sales of new homes allowed those inventory reductions to begin to bring down the months’ supply of new homes for sale. Even so, the months’ supply of new homes for sale remained extremely elevated relative to the level that prevailed before the downturn in the housing market. Sales of existing single-family homes were relatively flat since the end of last year. Tight conditions in mortgage markets over the summer continued to restrain housing demand, especially for borrowers seeking nonconforming mortgages. Several indexes indicated that house prices had declined substantially over the past 12 months, and these prices appeared to remain on a downward trajectory.
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