Fed Minutes: [Full Transcript]

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reviewed for the December 17-18 meeting indicated that economic activity was expanding at a moderate pace. Total payroll employment increased further, and the unemployment rate declined but remained elevated. Consumer price inflation continued to run below the Committee’s objective, although measures of longer-run inflation expectations remained stable.

Total nonfarm payroll employment rose in October and November at a faster monthly pace than in the previous two quarters. The unemployment rate declined, on net, from 7.2 percent in September to 7.0 percent in November. The labor force participation rate also decreased, on balance, and the employment-to-population ratio in November was the same as in September. The share of workers employed part time for economic reasons declined slightly while the rate of long-duration unemployment was little changed, but both measures were still high. Other indicators were generally consistent with gradually improving conditions in the labor market. The rate of job openings edged up in recent months, the share of small businesses reporting that they had hard-to-fill positions increased, and the four-week moving average of initial claims for unemployment insurance trended down, on net, over the intermeeting period, although the rate of gross private-sector hiring was still somewhat low. Measures of firms’ hiring plans remained higher than a year earlier, and household expectations of the labor market situation improved in early December.

Manufacturing production accelerated briskly in October and November after increasing at a subdued pace in the third quarter, and the gains were broad based across industries. Automakers’ schedules indicated that the pace of light motor vehicle assemblies would rise in December, and broader indicators of manufacturing production, such as the readings on new orders from the national and regional manufacturing surveys, were consistent with a further expansion in factory output in the coming months.

Real personal consumption expenditures (PCE) increased modestly in the third quarter but rose at a faster pace in September and October. The components of the nominal retail sales data used by the Bureau of Economic Analysis to construct its estimate of PCE increased at a strong pace in November, and light motor vehicle sales moved up significantly. Moreover, recent information for key factors that support household spending was consistent with further solid gains in PCE in the coming months. Households’ net worth likely expanded as equity values and home prices increased further in recent months; real disposable income rose, on net, in September and October; and consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers improved significantly in early December.

The pace of activity in the housing sector appeared to continue to slow somewhat, likely reflecting the higher level of mortgage rates since the spring. Starts for both new single-family homes and multifamily units increased, on balance, from August to November, but permits–which are typically a better indicator of the underlying pace of construction–rose more gradually than starts over the same period. Sales of existing homes and pending home sales decreased further in October, although new home sales rose in October after falling markedly in the third quarter.

Growth in real private expenditures for business equipment and intellectual property products was subdued in the third quarter. In October, nominal shipments of nondefense capital goods excluding aircraft edged down. However, nominal new orders for these capital goods remained above the level of shipments, pointing to increases in shipments in subsequent months, and other forward-looking indicators, such as surveys of business conditions, were generally consistent with moderate gains in business equipment spending in the near term. Real business spending for nonresidential structures rose substantially in the third quarter, but nominal expenditures for new business buildings declined slightly in October. Real nonfarm inventory investment increased noticeably in the third quarter, but recent book-value data for inventory-to-sales ratios, along with readings on inventories from national and regional manufacturing surveys, did not point to significant inventory imbalances in most industries.

Real federal government purchases declined somewhat in the third quarter but appeared likely to decrease more substantially in the fourth quarter, reflecting the effect of the temporary partial government shutdown in October and further cuts in defense spending in October and November. Real state and local government purchases rose markedly in the third quarter. Moreover, the payrolls of these governments continued to expand, on net, in October and November, and nominal state and local construction expenditures increased in October.

The U.S. international trade deficit narrowed in October as exports rose more than imports. The gains in exports were fairly widespread across categories and were led by sales of consumer goods, industrial supplies, and agricultural products. The higher value of imports reflected increases in services, consumer goods, and petroleum products that more than offset lower purchases of computers, semiconductors, and automotive products.

Total U.S. consumer price inflation, as measured by the PCE price index, was less than 1 percent over the 12 months ending in October, in part because consumer energy prices declined over the same 12-month period. In addition, core PCE price inflation–which excludes consumer energy and food prices–was only a little above 1 percent, partly reflecting subdued increases in medical services prices and recent declines in the prices of many nonfuel imported goods. In November, the consumer price index (CPI) was flat, and core CPI prices rose slightly faster than in the preceding few months. Both near-term and longer-term

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