Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Thank you, Mr. Chairman. I am not sure how I got to be first here, but I guess I was being unusually agreeable when Debbie asked me. [Laughter] The general tenor of comments that I hear from our directors and people around the Eighth Federal Reserve District— these are the community bankers and smaller firms—is that things are slow but not disastrously slow. The comments that I hear from a series of phone calls to much larger national companies are decidedly more pessimistic, with one exception that I will talk about in a moment. My contact at a large national trucking firm says that they are in a 20-month recession in transportation. They are cutting their capacity, cutting the number of trucks, and I think the numbers on their cap-ex illustrate the situation: for 2006, $410 million; for 2007, $336 million; and their plan for 2008 is $200 million. That is down a little more than 50 percent in two years, so they are really cutting back. I also called friends at UPS and FedEx, and generally things are not a whole lot different but a little weaker than they have been. Neither firm has any particular issues with labor supply. Domestic express business is flat, and customers are switching to the lower-priced services instead of overnight delivery at the end of the afternoon, shifting to ground services, and that sort of thing. On international business, U.S.-outbound volume for FedEx is up 6 percent. That would be consistent with the export increases that we have seen. Reports are that Asia is a bit slower but is still growing very rapidly. Asia to the United States is up 80 percent, 20 percent to Europe and Latin America. The freight market is dead—that is the way my contact put it—down 5 percent year over year. That is consistent with my trucking industry contact—and pretty much the same with UPS. My contact with the fast food industry—the quick-serve restaurant, or QSR, business—says the demand there is definitely weak. They are coming in roughly flat, I guess, or actually down so far this year. Prices are up because of the increase in food costs. The casual dining industry is in worse shape than the fast food industry. My contact also follows retail in general pretty closely and finds that retail business in general is weak. That is consistent with a lot of the reports that we have been receiving.

A major exception is in the IT area—software. I have contact with a large software company, and the contact noted that, as announced, Microsoft had a fantastic quarter. The earnings were up sharply. PC hardware sales are growing at a rate of 11 to 13 percent expected in the first half of this year, so we see strong growth in the PC market. Consumer demand is stronger than business demand. Both, however, are pretty strong. The international business is doing better, in part because the industry is having some success in reducing the amount of software piracy. The biggest problem is finding software engineers. This particular company is running 8 percent behind its hiring forecast and cannot find software engineers. Positive for us old guys; some of the retirees are coming back to write code. [Laughter] Thank you. That is all I have.

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