FOMC Minutes – Key takeaways (Part 7 of 10)
The FOMC’s take on the US economic outlook
The economic outlook for the U.S. also came under review when the FOMC meeting minutes were released on Wednesday, April 9.
In their discussion of the economic situation and the outlook, participants generally noted that data released since their January meeting had indicated somewhat slower-than-expected growth in economic activity during the winter months, in part reflecting adverse weather conditions. Business contacts in various parts of the country reported a number of weather-induced disruptions, including reduced manufacturing activity due to lost workdays, interruptions to supply chains of inputs and delivery of final products, and lower-than-expected retail sales.
Over the intermeeting period, housing activity remained slow. This was partly attributed to unfavorable weather, and partly due to other factors including last year’s rise in mortgage interest rates, the return of house prices to more-normal levels, and slackening demand from institutional investors. A few participants, however, highlighted factors other than weather that had likely contributed to the slowdown during the first quarter, including slower growth in net exports following its unusually large positive contribution to growth in the fourth quarter of 2013.
In their discussion of labor market developments, participants noted further improvement in labor market conditions. The unemployment rate had moved down in recent months, as had broader measures of unemployment and underemployment. Other labor market indicators, such as payrolls and hiring and quit rates, while not all showing the same extent of improvement, also pointed to ongoing gains in labor markets.
Industrial development is a key contributor to the labor market. The performance of ETFs like the SPDR Industrial Select Sector Fund (XLI), which has companies like General Electric (GE) and Boeing Company (BA) in its portfolio, the Vanguard Industrials Index Fund (VIS), and the iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ), also serve as good indicators with respect to the industrial sector.
Going forward, participants continue to expect a gradual decline in the unemployment rate over the medium term. There was general agreement among the participants that slack remains in the labor market. However, they did differ in suggesting how well the unemployment rate performs as a summary indicator of labor market conditions. The low labor force participation, low nominal wage growth, the high rates of longer-duration unemployment and of workers employed part-time for economic reasons were cited by some participants as reasons for suggesting that there might be considerably more labor market slack than indicated by the unemployment rate alone. Others saw reasons to believe that the slack was more limited, viewing the decline in the participation rate as primarily reflecting demographic trends with little role for cyclical factors.
The participants expressed their views on inflation as well.
Browse this series on Market Realist: