Text: FOMC Minutes

In the business sector, investment in equipment and software appeared to be contracting at a faster rate in the fourth quarter than during the third quarter. While the decline in the previous quarter was concentrated in computers and transportation equipment, declines in spending in the fourth quarter were more widespread. Shipments of nondefense capital goods excluding aircraft fell in October, and orders continued to decline sharply. Investment demand seemed to be weighed down by weak fundamentals and increased uncertainty about the state of the economy, while prospects for future investment activity reflected in surveys of business conditions and sentiment worsened in recent months. In addition, credit conditions remained tight. Real nonresidential investment declined in the third quarter after nearly three years of robust expansion, and nominal expenditures edged down further in October. Vacancy rates rose and property values fell in the first three quarters of the year.

Real nonfarm inventories (excluding motor vehicles), which had dropped noticeably in the second quarter, fell again in the third quarter. The book value of manufacturing and wholesale trade inventories (excluding motor vehicles) showed a further drawdown in October. However, the ratio of these inventories to sales increased noticeably in September and October. The purchasing managers survey for November indicated that many purchasing agents saw their customers' inventories as too high.

The U.S. international trade deficit widened in October, as a fall in imports was more than offset by a significant decline in exports. Much of the decline in exports was the result of drops in agricultural goods and industrial supplies, which largely reflected a decrease in the prices of these goods. The decline in imports was led by lower imports of non-oil industrial supplies, capital goods, and automotive products, although these declines were partly offset by an increase in the value of oil imports.

Economic activity in most advanced foreign economies contracted in the third quarter, driven by sharp declines in investment and by significant negative contributions of net exports, as the global recession took hold more strongly. Incoming data pointed to an even weaker pace of activity in the fourth quarter. In Canada, however, real gross domestic product (GDP) increased at a faster-than-expected pace in the third quarter, though consumption and investment continued to soften. In the euro area and the United Kingdom, purchasing managers indexes fell in November to levels associated with severe contractions in economic activity. Labor market conditions in the advanced economies deteriorated further, with most countries experiencing rising unemployment rates. In Japan, real GDP fell in the third quarter as domestic demand declined and private investment fell for the second consecutive quarter. After peaking in the third quarter, consumer price inflation moderated in all advanced foreign economies, primarily as a result of falling energy and food prices. Economic activity in most emerging market economies decelerated sharply in the third quarter, though a surge in agricultural output helped to support activity in Mexico, and the Brazilian economy continued to expand rapidly. In Asia, output decelerated significantly, as the pace of real activity moderated in China and several other economies saw declines in real GDP. Recent readings on production, sales, and exports suggest that emerging market economies weakened further in the current quarter. Headline inflation generally declined across emerging market economies, primarily because of lower food and energy prices and, in some cases, weaker economic activity.

In the United States, headline consumer prices declined in recent months while core consumer price inflation slowed further. With energy prices falling sharply and the rate of increase in food prices moderating, headline PCE prices fell in October, and data from the consumer price index (CPI) indicated that the decline extended into November. Core PCE prices were unchanged in October, and based on the CPI, appeared to have been unchanged again in November. The recent slowing in core consumer price inflation was widespread and likely reflected not only the weak pace of economic activity but also the easing of some earlier cost pressures as the prices of crude oil, gasoline, and other commodities declined. Excluding food and energy, producer prices rose modestly again in November, as prices at earlier stages of processing continued to retreat for the third consecutive month. Measures of inflation expectations continued to fall or hold steady during the intermeeting period. Measures of nominal hourly labor compensation continued to increase moderately in the third quarter.

CONTINUED

---

< Prev | 1 | 2 | 3 | 4 | 5 | 6 | Next >