Article: National Economic Conditions - 1st Quarter 2011

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For the seventh consecutive quarter the U.S. Economy showed positive growth. In an April 2011 press release, the Federal Open Market Committee (“FOMC”) indicated that the economic recovery is“proceeding at a moderate pace and overall conditions in the labor market are improving gradually”.[1]Several perceived negative economic indicators were cited by the FOMC to explain the slow growth experienced during the first quarter of 2011, including:

• A generally depressed housing sector and a continued high unemployment rate,
• A significant rise in commodity prices since the summer of 2010, including widespread concern about the global supplies of crude oil that has led to increased oil prices, and
• An uptick in inflation in recent months sparked by the aforementioned increases in energy and other commodity prices.

The FOMC is expected to continue purchasing Treasury securities and is not expected to increase the federal funds rate:

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter…The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.[2]

Although an elevated unemployment rate represents a primary concern of the general public and an additional hurdle for the FOMC, in its March 2011 meeting the FOMC indicated the labor market was demonstrating signs of strengthening as “private nonfarm payroll employment rose noticeably in February after a small increase in January.”[3]

Gross Domestic Product

The most commonly cited measure of general economic conditions is growth in real GDP. Real GDP is the real (adjusted for inflation)dollar value of all goods and services produced within the country in a given period. The Bureau of Economic Analysis (“BEA”) quarterly measure of real GDP is seasonally adjusted at annual rates (SAAR), which means that the figure has been annualized with seasonal effects removed.

Real GDP increased 1.8% (SAAR) in the first quarter of 2011from $13,380.70 billion to $13,438.80 billion after changes of 1.7%, 2.6%, and3.1% during the second, third, and fourth quarters of 2010, respectively. Real GDP increased 2.9% in 2010, after changes of 1.9%, 0.0%, and -2.6% in 2007,2008, and 2009 respectively.[4]

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which area subtraction in the calculation of GDP, increased.[5]

In January 2011, the FOMC predicted that real GDP growth would have a central tendency between 3.4% and 3.9%, between 3.5% and 4.4%, and between 3.7% and 4.6% during 2011, 2012, and 2013, respectively. In its longer-run projection,[6]the FOMC maintained that real GDP growth would have a central tendency between2.5% and 2.8% (consistent with its previous longer-run projection).[7]

The first quarter Philadelphia Federal Reserve Survey of Professional Forecasters (the“Philly Survey”) predicts real GDP growth of 3.5%, 3.1%, 3.4%, and 3.1% (SAAR) for the second, third, and fourth quarters of 2011 and the first quarter of 2012,respectively. The Philly Survey further predicts annual GDP growth of 3.2%, 3.1%,3.0%, and 3.4% during 2011, 2012, 2013, and 2014, respectively.[8]

The March Wall Street Journal Survey of Economic Forecasters (the “WSJ Survey”) estimates that real GDP grew at an annualized rate of approximately 3.4% in the first quarter of2011. In addition, the WSJ Survey predicts growth rates of 3.4%, 3.3%, and 3.5%(SAAR), for the second, third, and fourth quarters of 2011, respectively. The WSJ Survey also predicts an annual growth rate of 3.4% for 2011.[9]

According to an article accompanying the WSJ Survey, the economic recovery is expected to quicken its pace later in 2011 despite a “sharp pullback in growth” experienced during the first quarter.[10]

On average, the 56 economists polled downgraded their estimate of first-quarter growth in gross domestic product to 2.7% at a seasonally adjusted annual rate. That is down from an average first-quarter forecast of 3.6% just two months ago. The economy grew at a 3.1% rate in the fourth quarter.

…But the economists expect the problems in the first quarter to be transitory. "None of these things will derail the steadily strengthening expansion," said Parsec Financial Management's James F.Smith. Indeed, they forecast growth to pick up to 3.6% by the fourth quarter of the year and predict oil prices will fall back below $100 a barrel by the end of 2011.[11]

WSJ economists cited a continued slump in the housing market, inclement weather, decreasing consumer confidence, and the earthquake and tsunami that struck Japan as factors resulting in slower growth during the first quarter. The majority of economists referred to the steady increase in the price of oil (as a result of continued unrest in the Mideast) as the single most dominant factor that has caused the economy’s growth to slow.[12]

[13]

Prices and Inflation

Inflation is the increase in the general price level of goods and services in an economy. The Consumer Price Index (CPI) is the most commonly cited measure of inflation. The CPI measures the price of a standard market basket of goods designed to be representative of the items purchased by a typical urban consumer.

The CPI increased at an annualized rate of approximately 1.5% during the first quarter of 2011, from 220.2 in the fourth quarter of 2010 to 223.5 (1982-1984=100, seasonally adjusted). The first quarter increase came after growth rates of -0.3%, 0.7%, and 0.8% for the second,third, and fourth quarters of 2010, respectively. Additionally, the CPI increased approximately 2.7% in the last twelve months (from March 2010 to March2011), compared to annual growth rates in the CPI (NSA) of 2.8%, 3.8%, -0.4%,and 1.6% during 2007, 2008, 2009, and 2010, respectively.[14]

The Philly Survey anticipates annualized growth in the CPI of1.3%, 1.8%, 1.8%, and 2.0% (SAAR) for the second, third, and fourth quarters of2011 and the first quarter of 2012, respectively. Furthermore, the Philly Survey predicts annual (quarter four over quarter four) CPI growth of 1.7%, 2.0%,and 2.1% for 2011, 2012, and 2013, respectively.[15]

The WSJ Survey predicts the CPI will grow 2.5% for both the last twelve months ended June 2011 and December 2011.[16]

Economists at Bank of America/Merrill Lynch (“BAC economists”) expect the CPI to increase 4.7%, 2.2%, and 1.2% (SAAR) during the second, third, and fourth quarters of 2011, respectively. In addition, BAC economists project annual CPI growth rates of 3.2% and 1.7% for 2011 and 2012,respectively.[17]

The CPI for food increased 1.8% in the first quarter of 2011 from 221.2 in fourth quarter of 2010 to 225.2 (1982-1984=100). The first quarter increase followed changes of 0.2%, 0.4%, and 0.4% in the second, third, and fourth quarters of 2010,respectively. The CPI for food increased 2.9% in the last twelve months (from March2010 to March 2011). In comparison, the CPI for food (NSA) had annual growth rates of 4.0%, 5.5%, 1.8%, and 0.8% during 2007, 2008, 2009, and 2010,respectively.[18]

The CPI for energy increased 9.2% in the first quarter of 2011 from 225.2 in the fourth quarter of 2010 to 245.9 (1982-1984=100). The first quarter increase followed changes of -6.6%, 6.0%, and 6.7% in the second, third, and fourth quarters of2010, respectively. The CPI for energy increased approximately 15.5% in the last twelve months (from March 2010 to March 2011). In comparison, the CPI for energy (NSA) experienced annual growth rates of 5.5%, 13.9%, -18.4%, and 9.5%in 2007, 2008, 2009, and 2010, respectively.[19]

[20]

During the March 2011 meeting, the FOMC announced that it was revising its projection for consumer price inflation upward as a result of“the recent increases in the prices of energy and food”.[21] However,the FOMC foresees that the effects of the recent increases in oil and other commodity prices on inflation will prove to be transitory, as their tentative expectation is that longer-term inflation will remain stable.

…participants observed that rapidly rising commodity prices posed upside risks to the stability of longer-term inflation expectations, and thus to the outlook for inflation, even as they posed downside risks to the outlook for growth in consumer spending and business investment. In addition, participants noted that unfolding events in the Middle East and North Africa, along with the recent earthquake, tsunami, and subsequent developments in Japan, had further increased uncertainty about the economic outlook.[22]

The Producer Price Index (PPI) is another commonly cited measure of inflation. The PPI measures the price of a standard market basket of goods designed to be representative of the items purchased by atypical producer. The PPI for all finished goods increased 3.1% in the first quarter of 2011 from 184.1 in the fourth quarter of 2010 to 189.8 (1982=100).The first quarter increase followed changes of -0.6%, 1.0%, and 2.2% in the second, third, and fourth quarters of 2010, respectively. The PPI for all finished goods increased 5.7% in the last twelve months (from March 2010 to March2011). In comparison, the PPI for all finished goods (NSA) experienced annual changes of 3.9%, 6.3%, -2.6%, and 4.3% during 2007, 2008, 2009, and 2010, respectively.[23]

[24]

The average price per barrel of oil increased 15.4% in the first quarter of 2011 from an average of $89.15 in December 2010 to an average of $102.86 in March 2010. The price per barrel of oil increased 26.7% in the last twelve months (from March 2010 to March 2011). In comparison, the average price per barrel of oil had an annual growth rate of 9.5%, 37.8%,-37.8%, and 28.3% in 2007, 2008, 2009, and 2010, respectively.[25]

The WSJ Survey projects the price per barrel of oil will be $98.67 by June 30, 2011 and $94.97 by December 31, 2011.[26]

IBISWorld estimates that the price per barrel of oil increased 27.9% in 2010, and predicts the price per barrel of oil will experience annual growth rates of 17.5%, 4.6%, and -1.6% in 2011, 2012, and2013, respectively. Furthermore, IBISWorld predicts that the price per barrel of oil will grow at an average annualized rate of approximately 3.2% in the five years to 2016.[27]

[28]

Trade Deficit

Real net exports decreased from a fourth quarter total of -$397.7 billion (SAAR) to -$399.7 billion in the first quarter of 2011. The 2010 fourth quarter level of real net exports was preceded by real net exports of -$338.4 billion, -$449.0 billion, and -$505.0billion in the first, second, and third quarters of 2010, respectively. Prior to the completion of 2010, real net exports had consistently increased (become less negative) as the recent annual levels of -$654.9 billion, -$504.1 billion,and -$363.0 billion were posted in 2007, 2008, and 2009, respectively. However,the prevailing trend reversed in 2010 and real net exports decreased to -$442.5billion.[29]

The Philly Survey predicts real net exports will be -$407.7 billion, -$411.7 billion, -$421.2 billion, and-$424.3 billion in the first through fourth quarters of 2011, respectively. On an annual basis, the Philly Survey projects real net exports will increase from an actual 2010 estimate of -$421.2 billion to -$415.6 billion in 2011. However,in 2012, the Philly Survey expects real net exports to decrease to -$425.3billion.[30]

BAC economists project that real net exports will reach -$397.0 billion and -$404.0 billion during 2011 and2012, respectively.[31]

[32]

Interest Rates

Interest rates remained stable or decreased slightly during the first quarter of 2011. The discount window rate remained constant at 0.75%during the first quarter of 2011, as it had for the majority of 2010. The 0.75%rate is an increase from the rate of interest prevalent throughout 2009 (0.50%),a historically low rate that was the result of a downward trend that began in July 2007 (6.25%).[33]

The federal funds rate decreased 4 basis points in the first quarter of 2011 from 0.18% in fourth quarter of 2010 to 0.14%. The current rate represents a decrease of 2 basis points in the last twelve months (from March 2010 to March 2011).[34] At the March 2011 meeting the FOMC agreed that no changes to the federal funds rate (the rate agreed upon during the January meeting) were necessary. Thus, the Committee maintained its target for the federal funds rate between 0.00% and 0.25%. The Committee’s decision was based largely on the following:

The information received over the intermeeting period indicated that the economic recovery was on a firmer footing and that overall conditions in the labor market were gradually improving. Although the unemployment rate had declined in recent months, it remained elevated relative to levels that the Committee judged to be consistent, over the longer run, with its statutory mandate to foster maximum employment and price stability. Similarly, measures of underlying inflation continued to be somewhat low relative to levels seen as consistent with the dual mandate over the longer run.[35]

According to the Wall Street Journal, more optimistic economists are pushing up their projections for when the Fed will begin raising interest rates as aresult of a healthier economic outlook slowly coming into focus.

An increasingly intense debate has broken out within the U.S. central bank about when to raise rates, which currently stand near zero. If the unemployment rate continues to move down and inflation accelerates as economists expect, the Fed will likely be more inclined to act.[36]

Nearly a third of the economists polled in the Wall Street Journal Economic Forecasting Survey believe the Fed will raise interest rates prior to the end of 2011, and an even greater percentage believe the Fed will raise interest rates in the first quarter of 2012.

The yield to maturity on 20-year U.S. Treasury bonds increased10 basis points in the first quarter of 2011 from 4.17% in the fourth quarter of 2010 to 4.27%. The yield decreased 22 basis points during the last twelvemonths (from March 2010 to March 2011).[37] The average yield to maturity on Aaa rated (Moody’s) corporate bonds increased 11basis points from 5.02% in December 2010 to 5.13%. The yield decreased 14 basis points during the last twelve months.[38]

[39]

Financial Markets

The Dow Jones Industrial Average (DJIA) increased 6.4% in the first quarter of 2011 from 11,577.51 on December 31, 2010 to 12,319.73 on March 31, 2011. The first quarter increase followed changes of -10.0%, 10.4%,and 7.3% in the second, third, and fourth quarters of 2010, respectively. The DJIA increased 13.5% in the last twelve months (from March 31, 2010 to March 31,2011). In comparison, the DJIA had annual (December to December) growth rates of 6.4%, -33.8%, 18.8%, and 11.0% during 2007, 2008, 2009, and 2010,respectively. The DJIA peaked on October 11, 2007 at 14,279.96 and then reached a recent low of 6,440.08 on March 9, 2009.[40]

The S&P 500 increased 5.4% from 1,257.64 on December 31,2010 to 1,325.83 on March 31, 2011. The first quarter increase in the S&P followed changes of -11.9%, 10.7%, and 10.2% during the second, third, and fourth quarters of 2010, respectively. The index increased 13.4% in the last twelvemonths (from March 31, 2010 to March 31, 2011). Historically, the index had annual changes of 3.5%, -38.5%, 23.5%, and 12.8% in 2007, 2008, 2009, and 2010,respectively. The S&P 500 hit its recent high of 1,576.09 on October 11,2007, and its recent low of 666.79 on March 6, 2009.[41]

The NASDAQ Composite Index increased 4.8% from 2,652.87 on December 31, 2010 to 2,781.07 on March 31, 2011.The first quarter increase followed changes of -12.0%, 12.3%, and 12.0% in the second,third, and fourth quarters of 2010, respectively. The index increased 16.0% in the last twelve months (from March 31, 2010 to March 31, 2011). In comparison, the NASDAQ had annual changes of 9.8%, -40.5%, 43.9%, and 16.9% in 2007, 2008,2009, and 2010, respectively. The NASDAQ reached its recent high of 2,861.51 on October 31, 2007 and its recent low of 1,265.52 on March 9, 2009.[42]

[43]

Housing, Construction, and Real Estate

Average mortgage rates for 30-year fixed mortgages increased 13 basis points in the first quarter of 2011, from 4.71%(the average rate for December 2010) to 4.84% (the average rate for March 2011).However, average mortgage rates decreased 13 basis points during the last twelve months (from March 2010 to March 2011).[44] According to IBISWorld, the average annual 30-year conventional mortgage rates during 2009and 2010 were approximately 5.04% and 4.90%, respectively. In addition,IBISWorld projects average annual 30-year mortgage rates of 4.51%, 5.02%, 5.39%,5.81%, and 6.27% during the years 2011 through 2015, respectively.[45]

[46]

In spite of the low cost of financing, the housing market continued to remain generally depressed during the first quarter of 2011. Housing starts increased5.2% by the end of the first quarter of 2011, from 522,000 starts (SAAR) in December 2010 to 549,000 starts in March 2011. The first quarter increase followed changes of -15.0%, 11.5%, and-13.1% during the second, third, and fourth quarters of 2010, respectively. Annual housing starts decreased 13.4% over the last 12 months (from March 2010 to March 2011). In comparison, housing starts experienced annual (NSA) rates of growth of -24.8%, -33.2%, -38.8%, and 5.9% during 2007, 2008, 2009, and 2010, respectively.[47]

The Philly Survey projects total housing starts will reach an annual rate of approximately 570,000 and 620,000 the first and second quarters of 2011, respectively, with an increase to 760,000 starts the first quarter of 2012. The Philly Survey estimates that in 2010 there were approximately590 thousand housing starts. Moreover, the Philly Survey predicts annual housing starts will total 640,000 and 830,000 in 2011 and 2012, respectively.Housing starts hit a recent peak of 2.3 million in January 2006.[48]  

As of March, the WSJ Survey predicts that annual housing starts will reach 680,000 and 890,000 in 2011 and 2012, respectively.[49] BAC economists predict annual housing starts will reach 576,000 by 2011 and 737,000by 2012.[50]

Houses sold decreased by 10.2% by the end of the first quarter of 2011, from 334,000 (SAAR) houses sold in December 2010 to 300,000 in March 2011. This increase came after changes of -19.3%, 2.3%, and 5.4% during the second, third, and fourth quarters of 2010, respectively. The February 2011rate of 270 thousand houses sold was the lowest in recorded history (with data dating back to January 1959). Houses sold (NSA) decreased 13.9% in 2010, compared to decreases of 26.2%, 37.5%, and 22.7% during 2007, 2008, and 2009, respectively.[51]

Houses for sale decreased 2.7% by the end of the first quarter of 2011, from 188,000 houses for sale in December 2010 to 183,000 in March 2011. The first quarter drop in houses for sale followed decreases of7.5%, 4.3% and 6.9% in the second, third, and fourth quarters of 2010,respectively. The total number of houses for sale at the conclusion of the first quarter of 2011 (183,000) is the lowest total number since August 1967(181,000). Houses for sale (NSA) decreased 19.0% during 2010, following annual changes of -7.6%, -29.0%, and ‑34.1% in 2007, 2008, and 2009, respectively.[52]

The months’ supply of houses represents the number of months it would take to sell all of the houses currently for sale at the current sales rate (seasonally adjusted). The months of supply of houses for sale increased from 6.8 in December 2010 to 7.3 in March 2011.[53]The months of supply of houses for sale decreased 12.8% in 2010,[54]compared to annual rates of change of 47.7%, 16.7%, and -30.4% (December to December) for the years 2007 through 2009, respectively.[55]

[56]

Unemployment

The average unemployment rate decreased 70 basis points to 8.9%by the end of the first quarter of 2011. This decrease came after basis point changes of -10, 0, and 0 in the second, third, and fourth quarters of 2010,respectively. In addition, the average unemployment rate decreased 80 basis points in the last twelve months (from March 2010 to March 2011). The average annual unemployment rate (NSA) had basis point changes of 0, 120, 350, and 30 in the years 2007 through 2010, respectively.[57]In January 2011, the FOMC announced that the unemployment rate would have central tendencies between 8.8% and 9.0%, between 7.6% and 8.1%, and between 6.8%and 7.2% during 2011, 2012, and 2013, respectively. The projected longer-run central tendency for the unemployment rate was announced by the FOMC to be between 5.0%and 6.0%.[58]

The Philly Survey projects unemployment rates will be 9.1%,8.5%, 7.8%, and 7.3% for the years 2011 through 2014, respectively.[59]

The WSJ Survey predicts the unemployment rate will be 8.8% on June 1, 2011, with the rate declining over the course of the year to 8.4% on December1, 2011.[60]BAC economists project the unemployment rate will be 8.6% and 7.8% in 2011 and 2012, respectively.[61]

A recent Wall Street Journal article is more pessimistic:

“They’ve had an excuse for every single number,” said Stephen Ricchiuto, chief economist of Mizuho Securities. “What the data is telling you is that there is more stress in the labor market than people think.

John Ryding of RDQ Economics said [jobless benefits] claims should fall in the near future if the special factors cited by the Labor Department account for most of the recent increase…“If initial claims don’t fall, then the Labor Department’s explanations for the rise in claims will look questionable,” he said.

… [However,] the U.S. government’s official employment report for April is expected to show slower job growth when the data are released Friday. Economists surveyed by MarketWatch forecast net hiring of 175,000 in April, down from 216,000 in March.

The U.S. has to add at least 125,000 jobs a month to absorb the natural increase in the labor force, but hiring would have to average about 300,000 a month over an extended period to sharply reduce the8.8% U.S. unemployment rate, economist calculate.[62]

[63]

Forward Looking Indicators

The Index of Consumer Sentiment (ICS) is a measure of overall consumer expectations and a predictor of consumer spending and economic conditions. A higher ICS indicates that consumers have higher confidence in the economy and are consequently more likely to spend. The ICS was 67.5 (1966=100)in March 2011, a 9.4% decrease from the December 2010 ICS of 74.5. The first quarter decrease in consumer sentiment noted above followed changes of 3.3%, -10.3%,and 9.2% in the second, third, and fourth quarters of 2010, respectively. In the twelve months ending March 2011, the ICS decreased 8.3%. In comparison, the ICS experienced annual growth rates of -17.7%, -20.4%, 20.6%, and 2.8% in 2007,2008, 2009, and 2010, respectively.[64]

[65]

Regarding the 9.4% first quarter (2011) drop in consumer sentiment, Richard Curtin, the Survey of Consumers chief economist, offered the following:

The proximate cause of the sharp drop in confidence was the rise in gas and food prices. The more damaging cause, however, was that the fewest consumers in more than a half century expected income increases, and many fewer anticipated gains in their inflation-adjusted incomes. The data clearly indicate that the rate of real consumer spending will diminish, but the data do not indicate a renewed downturn is now on the horizon. Continued job gains are essential as even modest job losses could quickly shift consumers toward retrenchment. For now,consumers find discounts attractive, and remain willing to modestly increase their spending.[66]

In a recent CNNMoney article,Jharonne Martis, director of consumer research at Thomas Reuters, explains that some industries (including retail) have experienced noticeable growth in revenue (despite increases in oil and other commodity prices):

There has been a lot of concern about gasoline prices, but consumer income has been on the rise, and that has a stronger correlation with consumer spending -- so people are still spending.[67]

The Conference Board Leading Economic Index (LEI) is a signalling measure of the business cycle in which cyclical turning points of the LEI have historically taken place “before those in aggregate economic activity.” The LEI is an average of ten “leading” indicators.[68]The LEI increased 1.6% by the end of the first quarter of 2011, from 112.3 in December 2010 to 114.1(2004=100) in March 2011. The first quarter increase followed changes of -0.6%, 1.0%, and 2.2% during the second, third, and fourth quarters of 2010, respectively. The LEI increased 4.2% during the last twelve months (from March 2010 to March 2011).[69]

[70]

The following excerpt regarding the release of March’s LEI were offered by Ataman Ozyildirim, an economist at The Conference Board:

…The U.S. LEI continued to increase in March, pointing to strengthening business conditions in the near term. The March increase was led by the interest rate spread and housing permits components, while consumer expectations dropped. The U.S. CEI, a monthly measure of current economic conditions, also continued to rise, led by gains in industrial production and employment.

Ken Goldstein, another economist with The Conference Board, added the following:

…The U.S. LEI continues to point to sustained economic growth through year end. Global disruptions, including unrest in the Middle East, rising oil prices and the Japan earthquake, may have some repercussions. However, it remains to be seen what the impact of these shocks will be on the United States and the broader global economy.[71]

Industrial Production

The Total Industrial Production Index (a measure of total output from industrial companies)) increased 1.5% in the first quarter of 2011,from 91.74 during the fourth quarter of 2010 to 93.07 (2007=100, seasonally adjusted). The first quarter increase in Industrial Production followed changes of 1.7%, 1.6%, and 0.8% in the second, third, and fourth quarters of 2010,respectively. The index increased 5.7% in the last twelve months (from the first quarter of 2010 to the first quarter of 2011). Comparatively, the index had annual growth rates (NSA) of 2.7%, -3.7%, -11.2, and 5.3% in 2007, 2008, 2009,and 2010, respectively.[72]

The Philly Survey predicts the index will increase 4.2%,4.4%, 4.3%, and 3.7% in the second, third, and fourth quarters of 2011 and the first quarter of 2012, respectively. Furthermore, the Philly Survey projects the index to grow at an annual rate of 4.2% during 2011.[73]

BAC economists predict the index will have changes of 4.7%and 3.9% in 2011 and 2012, respectively.[74]

The Capacity Utilization Rate measures the usage of the total production capacity for 89 detailed U.S. industries (71 in manufacturing,16 in mining, and 2 in utilities). The capacity utilization rate is calculated by dividing the seasonally adjusted output index by the capacity index of these industries.[75]

The capacity utilization rate increased 93 basis points in the first quarter of 2011 (to 77.1%), up from approximately 76.1% in the fourth quarter of 2010. The first quarter raise came after basis point increases of 173, 149, and 63 in the second, third, and fourth quarters of 2010, respectively. The capacity utilization rate increased 478 basis points in the last twelve months (from March 2010 to March 2011). Historically, the rate had annual basis point changes of 60, -321, -860, and 531 in the years2007 through 2010, respectively.[76]

BAC economists predict that the capacity utilization rate will grow to 78.0%, and 80.8% in 2011 and 2012, respectively.[77]

[78]

This Decosimo Advisory Services National Economic Conditions report summarizes general economic conditions as of March 31, 2011. It was prepared as of May 5, 2011. Information was gathered from sources we believed to be reliable using data available as of the date shown in the respective footnote. DAS accepts no responsibility for the accuracy of information provided in this summary. No statement in this report is to be considered advice for any purpose. It is the responsibility of the user of this report to verify the accuracy of the information herein and to relate the information contained herein to the particular application of its use. Tables of Data referenced in footnotes are available on request from Decosimo Advisory Services.