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fomc | 1,995 | Mike, in Part II of the Greenbook, there is a reference to the prospect that manufacturing capacity growth is going to be revised up in light of some surveys in 1993 and 1994 and also the new investment that has occurred in 1995. I wonder how much of an effect these pending revisions will have in terms of the staff's a... | 95 |
fomc | 1,995 | At this point we don't see anything in the cards that is going to change the picture materially. We have had relatively rapid expansion of capacity in our forecast, and the incoming data in the updated survey on investment have supported that. We will be revising our numbers on production and capacity utilization, but ... | 122 |
fomc | 1,995 | On the CPI, what do the numbers look like with an additional decimal point? | 16 |
fomc | 1,995 | I don't know that. I just looked at the rounded data here which show a core CPI increase last month of exactly .3 percent, but I don't have the data with the Board staff's estimate. | 40 |
fomc | 1,995 | They are short on staff up there; they can't give you two decimal places! | 16 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | Mike, I have a couple of largely unrelated questions. I will take them one at a time. Your projections in the Greenbook of nominal GDP for 1996 and 1997 have been revised up from the previous Greenbook. Nevertheless, nominal spending growth, after accelerating a bit to a little over 5 percent in the third quarter, is o... | 360 |
fomc | 1,995 | We have discussed this in the past, and as I said, we pondered this question of whether having nominal interest rates running higher than nominal GDP growth over time is an unnatural relationship. It strikes one as being something that is unsustainable. We think of this, in terms of government budget positions and so o... | 252 |
fomc | 1,995 | Right. It implies de facto a progressively more restrictive policy stance. | 13 |
fomc | 1,995 | We have intermediate- and long-term rates rising in nominal terms, but we see no reason to think that inflation expectations for the intermediate to long run will change materially. The 3 percent inflation that we are forecasting is very much in line with what private forecasters are expecting. I think the survey evide... | 143 |
fomc | 1,995 | My other question relates to productivity. I very much welcome the discussion of higher productivity growth that was in the Greenbook--a sort of level effect and rate of change effect, the way I read it--as far as it went. But it didn't go so far as to change the perceived output capacity situation versus the inflation... | 379 |
fomc | 1,995 | Let me make several comments. I probably won't be able to achieve absolute coherence here. In a sense, we have introduced a supply shock into this forecast to the extent that we have lowered our NAIRU and in essence have raised the potential output ceiling. On the trend of potential output growth, the analysis that we ... | 420 |
fomc | 1,995 | But they aren't the only ones who care! [Laughter] | 13 |
fomc | 1,995 | Furthermore, a lot of this training is remedial. Many of you have reported what directors and other contacts have told you about how it's really hard to find workers who are literate or numerate. A question might be raised as to whether they have to spend more and more money just to maintain the quality of labor input ... | 281 |
fomc | 1,995 | Just one follow-up thought: You remarked that training is a cost that needs to be passed through to prices. This is not the case if it really is improving the value of what workers do. Even if it is remedial, to the extent that the value of the marginal product of the work--that's what I meant about the horizontal axis... | 124 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Actually I have two questions about this path, particularly of household durables spending. The fourth quarter of 1995 number seems high. Is that a growth rate of 11.3 percent? Is that a misprint? | 45 |
fomc | 1,995 | Isn't it mainly computers? | 6 |
fomc | 1,995 | This is consumer durables spending excluding motor vehicles in our forecast, As we have suggested, we think there will probably be some improvement in sales of appliances and home furnishings in connection with the surge in home sales that we saw over the summer; reports seem reasonably favorable into early fall. Secon... | 82 |
fomc | 1,995 | Is it basically a Christmas phenomenon and then it falls off next year? | 14 |
fomc | 1,995 | Obviously, the housing element flattens out. We have a weaker motor vehicle contribution in the first quarter. Yes, this is a big Christmas for computer buying in our thinking. I don't want to get too fancy about this. Obviously, whether the sales occur in December or in January isn't of great moment for the GDP foreca... | 83 |
fomc | 1,995 | Incidentally, is computer software a consumer durable good? | 11 |
fomc | 1,995 | Yes, and I think it gets counted with books and other things and in many cases probably is bought at the same outlets. That's one of the real problems in gauging the actual level of expenditures. | 40 |
fomc | 1,995 | What actually is being sold is a disk or something that is hard. | 14 |
fomc | 1,995 | The question is whether it lasts very long or whether you have to go out and buy a new one next year when you buy your replacement computer. That is where it's counted. | 35 |
fomc | 1,995 | Second part of the question. You've got PCE growing fast. | 13 |
fomc | 1,995 | Let me just say this. The incoming data have been weaker and that would be a component of this downgrading of the PCE that I suggested would be appropriate at this point. | 37 |
fomc | 1,995 | I have been trying to eyeball it. Is PCE generally growing a little more quickly than income? | 21 |
fomc | 1,995 | As you know, the personal saving rate is 4.4 percent in the forecast and it has been 4.4 percent. So, nominal expenditures are roughly keeping pace with nominal income. | 39 |
fomc | 1,995 | Then why does the forecast go off the cliff in the third quarter of 1997? | 18 |
fomc | 1,995 | Probably inadvertence in the forecasting process. Let's take a look again. The latter part of the year is weaker in 1997. The saving rate is down because of the intra-yearly tax pattern that we have and our assumptions about how people will spend their tax cuts. | 55 |
fomc | 1,995 | But you have consumption down and, in particular, durable purchases are down in the third quarter of 1997. | 23 |
fomc | 1,995 | We do have a deceleration going on at the end of 1997 in general. | 18 |
fomc | 1,995 | I see. | 3 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | Mike, what you are saying about productivity prompted a question that I didn't think of before. If you feed through the investment burst, so to speak, of the last three years into the capital stock and into a production function and it does nothing to total factory productivity, what should it do to labor productivity?... | 78 |
fomc | 1,995 | As you may recall, it wasn't until quite recently that levels of investment got to the point where we were really adding rapidly to the capital stock. My sense is that those people who would try to approach estimation of what labor productivity should be through a production function find some pretty substantial rates ... | 79 |
fomc | 1,995 | I would take your previous criticism as being valid. We probably ought to view those in 1994 dollars or chain weighted. Otherwise, we could get excited about something that is not there. | 38 |
fomc | 1,995 | Indeed, how strong investment has been is obviously important to the story. | 14 |
fomc | 1,995 | These numbers aren't in my head. But even though some of the chain-weighted numbers have been low, it is still the case that "K" has been growing significantly faster than "L." Labor productivity is still growing at 1 percent a year, right? | 53 |
fomc | 1,995 | Yes. | 2 |
fomc | 1,995 | "L" has been rising for three years, but I don't have the number in my head. Do you know how much it has increased? | 28 |
fomc | 1,995 | I don't have the number in my head for what you would derive from a production function approach. But I know from talking to people like Larry Meyer and from our own quarterly model work that one could argue for a somewhat higher number than we have embedded in our forecast. | 53 |
fomc | 1,995 | Net? | 2 |
fomc | 1,995 | Yes, net. | 4 |
fomc | 1,995 | That has been going up. | 6 |
fomc | 1,995 | That's all a matter of model estimation. There is still the question of what the actual experience has been. The simplest way of looking at this is, if you believe in Okun's law and, admittedly, it is not a precise relationship in every time period, that there is nothing in the behavior of the unemployment rate that wo... | 82 |
fomc | 1,995 | I agree with that. Suppose you did this calculation and it came out--I'll make up a number, because I don't know what it is--that it should add .4 percent on first principle to labor productivity. That means total factor productivity decelerated because the evidence is as you said; I'm not disputing that at all. | 67 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | For some time now, I have been asking people in Boston if we can learn anything about the current situation or be better informed about the current situation by looking at the late 1980s experience and seeing how long we were below our estimate of the NAIRU at that point before inflation started to accelerate. They kee... | 179 |
fomc | 1,995 | I think some would argue that what we are seeing that is reminiscent of the late 1980s is this undaunted optimism on my part. [Laughter] There is a distinct chance that this will be declared Prell's second folly and that we inched toward a somewhat greater degree of optimism on how low the NAIRU might be just when thin... | 78 |
fomc | 1,995 | You have! | 3 |
fomc | 1,995 | We were somewhat seduced at that time by the run of good experience after we had hit what we thought was probable NAIRU territory. As we saw the unemployment rate moving in the 5 to 5-1/2 percent zone, we got a little more optimistic than in retrospect we should have and there is the risk that that is also the case at ... | 432 |
fomc | 1,995 | Governor Blinder raised the question before the meeting as to which week the unemployment rate survey will be taking place. Since the 12th is on a Sunday, do they look at the previous week or this week? | 43 |
fomc | 1,995 | My understanding, Mr. Chairman, is that if the government shutdown extends beyond this week, they will not be in the field next week with the household survey. This week is the reference week and next week they will be out in the field actually doing the survey. | 53 |
fomc | 1,995 | There is also possible irreparable damage to the November CPI estimate because they normally have people out in the field all month getting quotes. Those people presumably are not out in the field now. If they get back soon, this may not lead to any major miscues in the estimates, but there is still a potential problem... | 67 |
fomc | 1,995 | Any further questions from anyone? If not, who would like to start the roundtable? President Hoenig. | 22 |
fomc | 1,995 | Mr. Chairman, the Tenth Federal Reserve District continues to be relatively strong. Since the last meeting, for example, payroll employment in our District continued to grow faster than the national average. District manufacturers continue to operate at or near full capacity. In recent surveys, many of them suggest tha... | 525 |
fomc | 1,995 | President Forrestal. | 4 |
fomc | 1,995 | Thank you, Mr. Chairman. Conditions in the Southeast, in the Sixth District, have not changed very much since the last meeting. We continue to enjoy moderate economic growth in most sectors and relatively low inflation. It is interesting to note that the economy in the Southeast, and I think this is generally true of t... | 585 |
fomc | 1,995 | President Parry. | 4 |
fomc | 1,995 | Mr. Chairman, economic growth in the Twelfth Federal Reserve District has accelerated through September. Recent California employment growth has been significantly faster than for the United States as a whole. Very rapid growth has continued in Utah and Oregon. Although Nevada and Arizona show signs of cooling, they ar... | 748 |
fomc | 1,995 | President Jordan. | 3 |
fomc | 1,995 | Sometimes the District reports make me think about 12 pistons in a reciprocating engine, with some rising and some falling. It's hard to cut through it and know whether the engine is well tuned and humming along or not. The Fourth District is definitely a piston that is coming down. I've been struck by how consistently... | 669 |
fomc | 1,995 | President Boehne. | 5 |
fomc | 1,995 | The regional economy in the Philadelphia District is mixed. It is performing in the range of steady to improving slightly. Manufacturing continues to grow, although the pace appears to be waning. Retailers are disappointed with sales and concerned about the outlook for holiday sales. Even discount stores are now seeing... | 394 |
fomc | 1,995 | President Moskow. | 4 |
fomc | 1,995 | Mr. Chairman, on balance, the Seventh District's economy is performing at a very high level, generally stronger than the national economy and with some sectors or industries at or near capacity. The District's manufacturing sector expanded in October, while manufacturing contracted nationally. The purchasing managers' ... | 876 |
fomc | 1,995 | President Stern. | 3 |
fomc | 1,995 | Thank you. We recently have had meetings with our directors and our advisory council, and several themes emerged from those discussions. Many of them are not new, but I think they are worth emphasizing because they were universal. The first of these themes was that labor markets are very, very tight across the District... | 522 |
fomc | 1,995 | President Minehan. | 4 |
fomc | 1,995 | Mr. Chairman, New England continues its gradual expansion from the trough of the recession, but recent data suggest that even the moderate growth pace of earlier this year has slowed a bit. As usual there is good news and bad news--or at least downbeat news. Let me cover the downbeat first and finish on a more hopeful ... | 956 |
fomc | 1,995 | Mr. Chairman, may I interrupt a second? Secretary Rubin announced a little less than a half hour ago that he is disinvesting trust funds, in particular the Civil Service Retirement Fund as well as the G-fund, by enough to permit the Treasury to raise some $60 billion in the market. This now gets them up to the last bus... | 74 |
fomc | 1,995 | Did he say that or is it our estimate? | 10 |
fomc | 1,995 | I believe he said the $60 billion would get the Treasury through December 30. He did it by using the $21-1/2 billion in the G-fund as everybody expected. But apparently he must have made a finding that this crisis, or this debt limitation problem, could go on long enough to enable him to disinvest about $39 billion of ... | 94 |
fomc | 1,995 | Couldn't that announcement in itself have the impact of slowing down progress in resolving the budget problem? | 18 |
fomc | 1,995 | In the last few days, attention appears to have shifted to the appropriations process and the debt ceiling issue has come off the table. There was some presumption that the Secretary had enough tricks in his bag to keep it off the table for a while. | 51 |
fomc | 1,995 | President Broaddus. | 5 |
fomc | 1,995 | Mr. Chairman, Part II of the Greenbook starts out with the statement that the recent news on the national economy is unusually "conflictive." I wasn't sure that was a word, so I looked it up and as always the staff was right. It is a word and it is a good word! [Laughter] It is a good word to describe conditions in our... | 1,040 |
fomc | 1,995 | Governor Lindsey. | 3 |
fomc | 1,995 | Mike, I was interested in your comment that the current situation reminded you most of developments in the late 1980s. I wasn't here then. What I remember about 1988-89 is the cover of Business Week that asked "Have we repealed the business cycle?" If I were to put a cover on this Greenbook, I too would say "Have we re... | 1,892 |
fomc | 1,995 | President Melzer. | 4 |
fomc | 1,995 | Thanks, Alan. The good news is that this year's CPI inflation likely will be less than the members of the FOMC forecast in July. The acceleration that was widely expected at the beginning of the year has not materialized. Although the staff analysis cites temporary decreases in energy prices and a deceleration in medic... | 935 |
fomc | 1,995 | President McTeer. | 5 |
fomc | 1,995 | Not very much has changed in the Eleventh District since the last FOMC meeting. Employment growth remains strong; it is weaker than it was in 1994, but it is stronger than that of the nation. At the margin, the expansion of high-tech industries is accounting for a large portion of our employment growth. To give you som... | 563 |
fomc | 1,995 | Vice Chairman. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. The private sector economy of the Second District grew moderately in recent weeks. In September, private payroll employment rose at an annual rate of 1.2 percent in New York and 0.9 percent in New Jersey. In October, the unemployment rate fell from 6.8 to 6.3 percent in New York State and was u... | 1,077 |
fomc | 1,995 | Governor Kelley. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. I must say that I welcome the more optimistic projection in the Greenbook this time. For what it is worth, my judgment would be right with the staff. Despite the long-in-the-tooth expansion that we have had, I have believed and continue to believe that there is more potential for upside surpris... | 630 |
fomc | 1,995 | Governor Phillips. | 3 |
fomc | 1,995 | Thank you, Mr. Chairman. At our last meeting we said that we would know more at this meeting, and now we are all scratching our heads. We do know more, but now we are trying to figure out what it means. We may well be in another fourth-down situation. I agree with Mike Prell that forecasting is a truly humbling profess... | 709 |
fomc | 1,995 | Governor Blinder. | 4 |
fomc | 1,995 | I am not going to say anything about my District economy because you do not want to hear about it! My one anecdote would be that the traffic was unusually light driving in this morning. I will leave it at that. I was very comfortable with the September Greenbook forecast. Like Al Broaddus, I was struck by the large siz... | 304 |
fomc | 1,995 | In 1987 dollars? | 6 |
fomc | 1,995 | In 1987 dollars, yes. | 8 |
fomc | 1,995 | The transcript will be visible five years from now. | 10 |
fomc | 1,995 | Yes. [Laughter] I know it is on the transcript, but fortunately no one will know I said that for five years. I don't have to say it publicly. | 35 |
fomc | 1,995 | In fact, we may not publish another number in 1987 dollars! [Laughter] | 19 |
fomc | 1,995 | You are saved! | 4 |
fomc | 1,995 | That is a very good point. I would have been inclined to boost the forecast between September and now by less. Now, I don't want to overstate that point. Adding .7 percentage point to GDP in a two-year period is well below the ability of anybody to forecast, but one does have to make a point estimate somewhere. So, I'm... | 93 |
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