Many on FOMC said more progress needed before slowing QE pace

‘Getting Better’

Kansas City Fed President Esther George said May 10 the “employment picture is getting better,” with monthly payroll growth averaging about 200,000 “a positive sign.” George, who has dissented this year against FOMC decisions, also said the central bank’s unprecedented stimulus threatens to eventually push up long-term inflation expectations.

While the jobless rate has moved toward the Fed’s goal of 5.2% to 6%, inflation has fallen further from the long-run target of 2%, dropping in March to 1% from a year earlier, the slowest since 2009, according to the Fed’s preferred inflation gauge.

The world’s largest economy expanded at a 2.5% annualized rate in the first quarter, the Commerce Department said last month. The gain followed a 0.4% fourth-quarter advance, the slowest since the first quarter of 2011. The economy will grow 2% this year, according to the average of 81 estimates in a May 3-8 Bloomberg survey of economists.

Consumer Confidence

Rising home prices are boosting consumer confidence and helping prop up spending. The S&P/Case-Shiller index of property values in 20 cities rose 9.3% in February from a year earlier for the biggest surge since May 2006.

Growth continues even as government budget cuts restrain the expansion. The $85 billion in across-the-board spending cuts known as sequestration commenced on March 1 and will probably cut U.S. gross domestic product by 0.6 percentage point this year, according to a Congressional Budget Office estimate. The Pentagon will impose furloughs starting July 8 on as many as 680,000 civilian employees.

Government outlays have declined in 10 of the past 11 quarters, while defense spending dropped at an 11.5% annualized pace in the first quarter following a 22.1% plunge in the last three months of 2012. That was the biggest back-to-back decline on average since 1954, when the military demobilized after the Korean War.

Grocery Chain

Kroger Co., the largest U.S. grocery-store chain, expects the economy to improve gradually as consumers remain reluctant to increase their spending amid an uncertain job market.

“It’s still an environment where the economy is going to improve very slowly over time,” Mike Schlotman, the Cincinnati- based grocer’s chief financial officer, said in an April 30 investor conference. “If you look beneath unemployment figures, you have those people who have left the workforce entirely or they’ve just stopped looking. And you have people who have taken a job or they’re underemployed.”

A Labor Department gauge of unemployment that includes marginally attached workers -- those available for work who haven’t searched in a year -- as well as those forced to work part-time because of the sluggish economy, was 13.9% last month, near the same level as December 2008, during the longest and deepest economic contraction since the Great Depression of the 1930s.

Bloomberg News

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