The regional economy continued to slow in April and May, although data were mixed and there were many pockets of strength. Economic growth in the region continued to outpace the nation, due in large part to rapidly growing energy and export sectors.

Texas manufacturing activity weakened in June, according to the 108 business executives responding to the Texas Manufacturing Outlook Survey. Several indicators for current conditions declined from May levels and turned negative. Despite June's slowdown, more than a third of manufacturers responding to the survey expect increases in production and volume of new orders six months from now.

On June 30, 2008, the Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility. Additional information regarding the auction is listed.

The trimmed mean PCE inflation rate for May was an annualized 2.4 percent. According to the BEA, the overall PCE inflation rate for May was 5.0 percent, annualized, while the inflation rate for PCE excluding food and energy was 1.4 percent.

A Regional Perspective on the 'Great Moderation'—Job growth stabilized quickly across nearly all of the country in the mid-1980s; however, Texas' transition to more-stable job growth was delayed by fallout from the 1986 oil bust.

Mexican Migrants Stay in Border Comfort Zone—finds that many Mexican migrants prefer staying close to home despite lower wages found along the border.

Putting People into Economic Policy—In an "On the Record" conversation, Dallas Fed consultant Finn Kydland discusses the groundbreaking research that won him the Nobel Prize for economics in 2004.

Regional Update finds Texas economic growth may remain tepid until 2009.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent. Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

Global Inflation Increases—The current international situation is best characterized as slow economic growth and higher inflation among the advanced economies and steady growth with higher inflation among the emerging market economies.

"The Federal Reserve System today launched Partnership for Progress, an outreach and technical assistance program for minority-owned and de novo institutions. The banks can access these resources by visiting a newly developed website that supports the program."

On June 16, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. The results of the auction are listed on the Board's website.

"At some point, health-care spending as a share of GDP will stop rising, but it is difficult to guess when that will be, and there is little sign of it yet."

The Federal Reserve System's latest Beige Book survey has been released. The Dallas Beige Book, along with a link to the national summary and reports from other Federal Reserve Districts, is available online.

"The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations. The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation."

Texas State and Metro Economic Indicators: The Texas economy expanded at a moderate pace in April. The Dallas Fed’s Texas Business-Cycle Index, a gauge of the region’s current economic conditions, increased an annualized 3.3 percent, a deceleration from the 4 percent growth recorded in 2007.

Texas Exports: Real Texas exports saw a turnaround in the first quarter of 2008, rising 3.9 percent, following a 0.4 percent decline in the previous quarter. Texas exports are up a solid 10.4 percent from year-ago levels.

Fourth quarter 2007 payroll employment growth is now estimated to be at an annual rate of 3.6 percent. The initial unbenchmarked growth rate was 2.9 percent. The FRB Dallas benchmarking program has resulted in an average upward revision of 1.2 percentage points over the past 13 quarters.

The Effect of Trade with Low-Income Countries on U.S. Industry—When labor-abundant nations grow, their exports increase more in labor-intensive sectors than in capital-intensive sectors. We utilize this sectoral difference in how exports are affected by growth to identify the causal effect of trade with low-income countries on U.S. industry.

"Globalisation, Domestic Inflation and Global Output Gaps: Evidence from the Euro Area" tests whether the proposition that globalisation has led to greater sensitivity of domestic inflation to the global output gap (the "global output gap hypothesis") holds for the euro area.

"We see little indication today of the beginnings of a 1970s-style wage-price spiral, in which wages and prices chased each other ever upward."

The International Product Cycle and Globalization of Production—This paper develops a growth model aimed at understanding the potential effects of globalization of production on rate of innovation, distribution of skilled labor income between the North and South, and welfare of skilled workers in both regions.

The External Finance Premium and the Macroeconomy: US Post–WWII Evidence—The central variable of theories of financial frictions—the external finance premium—is unobservable. This paper distils the external finance premium from a DSGE model estimated on U.S. macroeconomic data.

"Broadly speaking, the functioning of financial markets has improved of late, but conditions remain strained and some key funding and securitization markets have shown only tentative signs of recovery."

On June 2, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. The results of the auction are listed on the Board's website.

This issue of e-Perspectives presents mortgage performance data available to help understand foreclosure patterns and mitigate foreclosure losses to individuals and communities. San Antonio's efforts in homeownership preservation are also highlighted.

On June 2, 2008, the Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility. Additional information regarding the auction is listed on the Board's website.

The trimmed mean PCE inflation rate for April was an annualized 2.1 percent. According to the BEA, the overall PCE inflation rate for April was 2.8 percent, annualized, while the inflation rate for PCE excluding food and energy was 1.7 percent.

"Crude Awakening: Behind the Surge in Oil Prices" attributes the recent surge in oil prices to four factors—global demand, expectations about future market tightness, the value of the dollar and fear of supply interruptions.

The Federal Reserve will conduct three auctions of 28-day credit through its Term Auction Facility (TAF) in June. Information on the actions is listed on the Board's website.

"Even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens, should it take root, is a paramount risk to the long-term welfare of the U.S. economy. The Federal Reserve will never let this happen. It is not an option. Ever. Period."

Texas manufacturing activity remained sluggish amid some hints of reviving optimism in May, according to the 108 business executives who responded to the Texas Manufacturing Outlook Survey.

On the Effectiveness of the Federal Reserve's New Liquidity Facilities—This paper examines the effectiveness of the new liquidity facilities that the Federal Reserve established in response to the recent financial crisis.

Financial Globalization, Governance, and the Evolution of the Home Bias—Standard portfolio theories of the home bias are disconnected from corporate finance theories of insider ownership. In this paper, the authors merge the two into what they call the optimal ownership theory of the home bias.

Regulation and the Neo-Wicksellian Approach to Monetary Policy—Laubach and Williams employ a Kalman filter approach to jointly estimate the neutral real federal funds rate and trend output growth using an IS relationship and an output gap based inflation equation. They find a positive link between these two variables, but also much error surrounding neutral real rate estimates. In this paper, the authors modify this approach by including variables for regulations on deposit interest rates and on wages and prices.

On May 19, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. Results of the auction are listed on the Board's website.

"The turmoil in credit markets underscores some important principles for bank risk management.... With renewed attention to these principles and the restoration of strong incentives for sound risk management, institutions should be able to overcome the difficulties we have seen in the recent application of the originate-to-distribute model and begin to use it successfully again."

The latest issue of Staff Papers summarizes papers on core inflation presented at the May 2007 conference "Price Measurement for Monetary Policy," organized by the Dallas Fed and the Federal Reserve Bank of Cleveland.

The Effect of Minimum Wages on Immigrants' Employment and Earnings—This study examines how minimum wage laws affect the employment and earnings of low-skilled immigrants and natives in the U.S.

The first quarter 2008 survey suggested cautious optimism in the Eleventh District agricultural community. Rising fuel, feed and fertilizer costs have strained operating margins, but lower interest rates are helping offset some of the increased financial strain.

Financial Market Tremors: Causes and Responses—This issue features Dallas Fed President and CEO Richard W. Fisher's views on current financial market strains coming from excesses in mortgage lending.

"Will New Business Tax Dull Texas' Competitive Edge?" examines the newly revised franchise tax and its implications for the state business climate.

According to "Is Texas Overbanked?" Texas isn't among the states with the most intense competition for banking services

In this month's "On The Record" conversation, Dallas Fed Research Director Harvey Rosenblum says that the Great Moderation fed the complacency in financial markets that led to the credit crisis.

"Permian Basin Cities Ride Oil Boom Again" examines the economic benefits the West Texas region is enjoying with rising oil prices.

On May 5, 2008, the Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility. Additional information regarding the auction is listed on the Board's website.

The Federal Reserve Board on Friday proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

Central banks have continued to work together and to consult regularly on liquidity conditions in financial markets. In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing an expansion of their liquidity measures.

Broad-Based Softness in Early 2008—Recent reports reflect a fragile national economy. The economy grew slowly again in first quarter 2008, and more recent indicators suggest that economic activity has weakened in the second quarter amid increased upward pressures on food and energy prices that are causing inflationary pressures to edge up.

The trimmed mean PCE inflation rate for March was an annualized 2.4 percent. According to the BEA, the overall PCE inflation rate for March was 3.7 percent, annualized, while the inflation rate for PCE excluding food and energy was 2.0 percent.

Weakening Global Growth, Increasing Inflationary Pressures—The International Monetary Fund's baseline projection of global growth for 2008 is 3.7 percent, down from 4.9 percent in 2007. Other analysts also forecast sluggish growth in the advanced economies in 2008 and 2009. The rapid expansion in the developing world, led by China and India, is expected to soften, but the pace will continue to be strong.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Oil prices continued rising, with the benchmark West Texas Intermediate (WTI) crude oil setting new records week after week and strengthening by about 20 percent in April alone. On Tuesday, April 23, WTI surged to nearly $120 per barrel, eclipsing the previous inflation-adjusted high of $104.10 set in April 1980.

Texas manufacturing activity remained sluggish in April, according to the 112 business executives who responded to the Texas Manufacturing Outlook Survey. Indicators for current conditions were little changed from last month. The company outlook index improved, but the index for general business conditions moved slightly lower.

The Texas economy expanded moderately in February. The Dallas Fed's Texas Business-Cycle Index, a gauge of the region's current economic conditions, increased at a 3.1 percent annualized rate during the month. The current rate is somewhat slower than the 3.7 percent pace recorded in 2007.

On March 6, the Texas Workforce Commission released its annual revision to its Texas payroll employment estimates. The new data incorporate information from the broader (but delayed) Covered Employment and Wages survey into the payroll data.

On April 21, 2008, the Federal Reserve conducted an auction of $50 billion in 28-day credit through its Term Auction Facility. The results of the auction are on the Board website.

"Globalization and Monetary Policy: An Introduction"—Greater openness has become an almost universal feature of modern, developed economies. This paper develops a workhorse international model and explores the role of standard monetary policy rules applied to an open economy.

On April 21, 2008, the Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility. Additional information regarding the auction is listed on the Board website.

Two of the most important underpinnings of Houston’s economy, national and global growth, have both pulled back significantly. Evidence is mixed on whether Houston has also slowed.

Opportunity Knocks: Selling Our Services to the World—Americans can maintain good jobs and high living standards by exporting their services to the world, according to the Federal Reserve Bank of Dallas' 2007 annual report essay.

"The United States, like Chicago, can continue to prosper only if it faces economic change head-on, choosing to compete rather than retreat, seeking out new opportunities in a globalizing economy, where goods, services, money and ideas flow freely across international borders."

Dallas Fed President and CEO Richard W. Fisher and Senior Vice President and Chief Economist W. Michael Cox discuss the service economy.

The Federal Reserve System's latest Beige Book survey has been released. The Dallas Beige Book, along with a link to the national summary and reports from other Federal Reserve Districts, is available online.

Vehicle Currency—Explores the nature of the efficiency gains arising from a vehicle currency and shows how this depends on the total number of currencies in existence, the size of the vehicle currency economy and the monetary policy followed by the vehicle currency's government.

Country Portfolios in Open Economy Macro Models—This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models.

"The Dynamics of Economic Functions: Modelling and Forecasting the Yield Curve"—The class of Functional Signal plus Noise models is introduced that provides a new, general method for modelling and forecasting time series of economic functions.

How Should Central Banks Define Price Stability?—Considers whether central banks should target broad or narrow measures of inflation and whether they should target headline or core measure of inflation. It also addresses whether central banks should define price stability as prevailing at some positive measured rate of inflation.

Accounting for Persistence and Volatility of Good-level Real Exchange Rates: The Role of Sticky Information—Volatile and persistent real exchange rates are observed not only in aggregate series but also on the individual good level data.

"We do not have the luxury of waiting for markets to stabilize before we think about the future. Indeed, many of the necessary changes that have been identified, including increasing transparency, improving risk management, and attaining better coordination among regulators, could provide important support to the process of normalizing our financial markets."

"In building the bridge to restore financial order and efficiency, my primary interest is to do the minimum necessary to get the job done. And no more. In so doing, my hope is that we restore the long-term faith of the millions of risk takers who make our economy so mighty."

"In light of the problems that have arisen in the subprime mortgage market, we are reminded of how critically important it is for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace."

On April 7, 2008, the Federal Reserve conducted an auction of $50 billion in 28-day credit through its Term Auction Facility. The results of the auction are listed on the Board website.

On April 7, 2008, the Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility. Additional information regarding the auction is listed on the Board website.

Recent evidence suggests that the overall outlook for global growth has deteriorated. Activity in most economies is decelerating, and, at the same time, inflationary pressures are rising. The U.S. continues to face increased threats to growth, and other economies are not immune, especially the euro zone and the United Kingdom.

Weakening Real Economy, Moderating Inflation—Data released over the past few weeks are mixed. The national economy has weakened further, but inflationary pressures appear to be moderating.

It now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly.

The Texas economy continues to slow. Economic growth is still moderate, but there is more evidence that some business leaders are expecting further weakness and engaging in reinforcing actions, such as cutting capital spending, paring down inventories and reducing or freezing employment.

The Federal Reserve System has announced the availability of a set of dynamic maps and data that illustrate subprime and alt-A mortgage loan conditions across the United States. |

"Intellectual Property Protection in a Globalizing Era," reports that globalization may reduce incentives to enact strong patent laws in many countries, and international agreements may help achieve the right level of intellectual property protection.

Texas manufacturing activity remained sluggish in March, according to the 112 business executives who responded to the Texas Manufacturing Outlook Survey. Although indicators for current conditions improved modestly, they continued to be weak. Indexes for general business conditions worsened.

Texas manufacturing activity remained sluggish in March, according to the 112 business executives who responded to the Texas Manufacturing Outlook Survey. Although indicators for current conditions improved modestly, they continued to be weak. Indexes for general business conditions worsened.

The Texas economy expanded at a measured pace in January, following solid growth in 2007. The Dallas Fed’s Texas Business-Cycle Index—a gauge of the region’s current economic conditions—increased at a 3.2 percent annualized rate during the month, somewhat less than the 3.9 percent pace recorded in 2007.

The Federal Reserve will conduct two auctions of 28-day credit through its Term Auction Facility (TAF) in April. It will offer $50 billion in an auction to be held on Monday, April 7 and $50 billion in an auction to be held on Monday, April 21.

The trimmed mean PCE inflation rate for February was an annualized 1.2 percent. According to the BEA, the overall PCE inflation rate for February was 1.5 percent, annualized, while the inflation rate for PCE excluding food and energy was 1.3 percent.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Real Texas exports lost their positive momentum in the final quarter of 2007, edging down 0.4 percent, following two successive quarters of solid expansion. Despite the modest contraction, Texas exports are up 4 percent from year-ago levels.

The Federal Reserve has announced that the Term Auction Facility will be increased to $100 billion and that, beginning today, it will initiate a series of term repurchase transactions that are expected to cumulate to $100 billion.

The Federal Reserve System's latest Beige Book survey has been released. The Dallas Beige Book, along with a link to the national summary and reports from other Federal Reserve Districts, is available online.

"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods, and the nation as a whole. Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done."

The Texas economy enjoys advantages that will help it avoid a recession, according to "Texas Finds Cover from U.S. Economic Storm."

"Hot Housing Market Catching Cold in Texas" finds that a weakening Texas housing market still remains healthier than the national average.

In "Delving More Deeply into Globalization,"
vice president Mark A. Wynne, director of the Globalization and Monetary Policy Institute at the Dallas Fed, discusses the institute's goal of better understanding monetary policy in an open economy.