Academic journal article Federal Reserve Bulletin

Record of Policy Actions of the Federal Open Market Committee

Academic journal article Federal Reserve Bulletin

Record of Policy Actions of the Federal Open Market Committee

Article excerpt

MEETING HELD ON JULY 2-3,1991

Domestic Policy Directive The information reviewed at this meeting suggested that an upturn in economic activity had begun in recent months. Sizable gains in consumer spending and small increases in expenditures on residential construction appeared to be fueling a moderate rise in domestic final demand. Although inventories were still being liquidated, data for industrial production and labor markets indicated that output was being stepped up to meet that demand. Excluding food and energy items, increases in consumer prices had been small in recent months.

Total nonfarm payroll employment edged up in May, following nearly a year of uninterrupted declines, and the average workweek posted a sizable gain. The turnaround in employment was fairly broad-based. In manufacturing, recalls of workers in the motor vehicles industry more than accounted for the overall increase, but most other manufacturing industries registered either small job gains or greatly moderated job losses. Employment also turned up in the construction sector and in private service-producing industries. The unemployment rate rose to 6.9 percent in May but, averaged over April and May, the unemployment rate was little changed from its March level.

Industrial production rose in April and May, after declining sharply earlier in the year; the limited product data available for. June pointed toward another gain. Perhaps reflecting the pickup in housing starts in recent months, production of construction supplies turned up in April and May. Further advances in assemblies of motor vehicles contributed to a slight rise in manufacturing output over the two months; in spite of the overall increase in activity, though, the operating rate in manufacturing edged lower in May and remained well below its level of a year earlier.

Real personal consumption expenditures rebounded in May from an April decline; over the March-to-May period, the rise in outlays outpaced gains in personal income. In May, a sizable increase in spending for durable goods reflected stronger outlays for motor vehicles and higher expenditures for most major categories of nondurable goods. Excluding outlays for electricity associated with unusually warm weather, spending for services increased only modestly in May. Continuing a pattern of gradual recovery recorded in earlier months, housing starts rose over April and May. In these two months, single-family starts strengthened further but, with apartment vacancy rates continuing high, multifamily construction remained quite weak.

After declining in the first quarter of the year, shipments of nondefense capital goods increased in both April and May. The turnaround resulted mostly from larger shipments of aircraft; shipments of other types of business equipment increased slightly over the two months. Recent data on orders pointed to some firming in the demand for business equipment. Near-record vacancy rates for office buildings and above-average vacancy rates for industrial buildings suggested continuing weakness in nonresidential construction, although a small increase was recorded in April. The pace of liquidation of manufacturing and trade inventories slowed in April from the very rapid March rate, largely reflecting a slower rate of reduction in stocks at auto dealers. In May, manufacturing inventories fell appreciably further, with drawdowns occurring in most durable and nondurable categories. For most industries, the sharp inventory corrections of recent months along with a pickup in sales have reduced inventory-to-sales ratios substantially.

In April, the preliminary nominal U. S. merchandise trade deficit widened slightly from the revised March level; however, the April deficit was somewhat smaller than the average for the first quarter, which itself had registered a sizable decrease. The value of both exports and imports rose in April. For exports, the increase occurred primarily in capital goods and automotive products, but gains also were indicated for a broad range of industrial supplies. …

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