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n
Economic
kssslil
Review
FEDERAL RESERVE BANK O F ATLANTA
S E P T E M B E R / O C T O B E R 1987
EXCHANGE RATES
The Pressing Trade Balance Problem
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10,
JBBARY
5
MONETARY POLI
Liquidity Effect Measurement
COMMERCIAL BANKS
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1988
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ISSN 0732-1813
V O L U M E LXXIl, NO. 5, S E P T E M B E R / O C T O B E R 1987, E C O N O M I C R E V I E W
The Dollar: How Much Further
Depreciation Do We Need?
Rudiger W. Dornbusch
14
Observations about Observations
about Liquidity Effects:
The Difficulties of
Exploring a Simple Idea
Based on an Atlanta Fed Distinguished
Lecturer Series presentation, this article
urges a sizable drop in the dollar's
exchange rate.
Money and interest rates are linked
in ways that can defy measurement,
as this inquiry demonstrates.
Thomas J. Cunningham
23
36
45
F.Y.I.
Going Off the Balance Sheet
Sylvester Johnson and Amelia A. Murphy
Book Review
Jerry J. Donovan
Statistical Pages
Finance, Employment, General,
Construction
FEDERAL RESERVE BANK OF ATLANTA 3
Reference Works in Business
and Economics
There are serious problems with the dollar's
exchange rate and our Treasury Department,
the Federal Reserve System nothwithstanding.
Correcting this imbalance will, in my view,
require another 30 percent depreciation.
The real exchange rate of the dollar adjusts
for inflation differentials overtime to tell us how
competitive the United States is relative to our
trading partners (see Chart 1). When the real
exchange rate goes up, we lose competitiveness; when it goes down, we get half our competitiveness back. Over the past five years, our
nation's economic experience, as embodied in
the real exchange rate index, has nearly paralRudiger
Dornbusch
is Ford International
nomics at the Massachusetts
Institute
Professor
best known for his pathbreaking
model
overshooting
of flexible
regimes.
several
and other analyses
In addition,
widely-used
Professor
He is
of exchange
Dornbusch
books, including
of Eco-
of Technology.
exchange
has
rate
rate
written
O p e n Economy Mac-
roeconomics. This article was based on his lecture on September
Lecturer
2
25, 1987, third in the Atlanta
Series.
Fed's
Distinguished
leled that of Argentina, Mexico, Chile, and Peru.
Like those Latin American countries, we have
undergone a vast overvaluation of the currency,
a dramatic loss of competitiveness, and an
incredible trade deficit sustained by an irresponsibly large budget deficit and external
borrowing. The difference is that because of our
good credit standing, the U.S. figures are much
larger than for those other nations. At its height,
overvaluation of the U.S. dollar reached 50
percent—an extraordinary level. It is as though
while one dealer offers cars at half-price, another
sells them for double the price. Playing the latter role in the world market, the United States
has yielded most of the business to the halfprice vendors.
Understandably, the number of customers
worldwide has been shrinking, and more and
more foreign firms have been able to outperform us in third markets as well as in the U.S.
market. Since 1985, our competitive position
has taken a turn for the better: the dollar has
depreciated 50 percent or more relative to
other major currencies, and with inflation rates
not much different among the leading developed
countries, that means we have recovered competitiveness. Nonetheless, even after the significant depreciation over the past two years, we
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
The Dollar: How Much Further
Depreciation Do We Need?
Rudiger W. Dornbusch
Staggering deficits in our trade account and domestic budget can be addressed through
substantial exchange rate adjustments. International economist Rudiger W. Dornbusch cautions
that such adjustments must occur soon if the United States is to avoid the fate of many Latin
American debtor nations.
have not regained our 1980 real exchange rate
level.
The question of dollar depreciation can be
posed in two ways. First, supposing the dollar
were to fall to its 1980 level, would that b e
enough? There are a number of reasons why that
might be sufficient, or, if it is not, at least why we
should not worry about it. I want to explore
those reasons first—and then argue that they are
totally unpersuasive. I'll next marshall twice the
number of reasons why we should worry, offering credible evidence to support this view. We
finally arrive at the second question: If it is so
obvious that the dollar must decline further,
why is it not doing so?
Let us ask first why we should persuade ourselves that the 1980 exchange rate level is
enough. The immediate answer is that in that
year the U.S. external trade balance was basically in equilibrium. If today's exchange rate
reverts to the earlier level, then sooner or later
the trade flows will adjust and we should see
approximately what we had in 1980. That argument is very strong because we know that there
are significant lags in the adjustment of trade
flows to the exchange rate. If the dollar goes
down today, the people who just bought abroad
certainly cannot cancel all their orders. Next
FEDERAL RESERVE BANK OF ATLANTA
time, however, they may prefer to go shopping
in Atlanta. Likewise, those who were unprepared
to sell in the world market this season will surely
compete there next season. Since substantial
evidence exists for long and large lags, it would
be irresponsible to urge further depreciation
simply on the basis of the latest trade numbers.
I will argue later that while this view has merit, it
is not sufficient.
A different school of thought says, "Don't
worry about the exchange rate. Markets are
there to look after things; they put the right
prices on currencies as they do on any other
asset." According to this logic, if enough people
are willing to buy the dollar at the current price,
then that is the right price. Consequently, there
is no reason why exchange rates should be linked
to a level where trade flows balance. If the rest of
the world is eager to lend to America, then we
should borrow, using the resources to invest
domestically, or to consume, or to d o whatever
people wish at the prevail ing interest rates. Proponents of this view would further argue that
just as the federal government does not interfere in the stock market, it should stay out of the
foreign exchange market. Though unsatisfactory,
the argument is a powerful one if you do not
know better.
3
Chart 1.
The Real Exchange Rate for the U.S. Dollar
S o u r c e : M o r g a n Guaranty Trust, World Financial
Markets.
There is a more cynical position. It holds that
while the dollar is quite clearly and totally overvalued, we should permit this situation to continue because the rest of the world is eagerly
buying U.S. Treasury bills. Essentially, global
creditors are making unwise loans, just as when
they lent to Mexico, Argentina, Bolivia, and Brazil.
When the United States has borrowed enough,
we will say, "Big mistake! You borrowed in
dollars, and here comes the major inflation." We
will wipe out those debts, and, in the end, all the
debt service that is now piling up and aggravating the current account deficit will never in fact
materialize. Thus, the only difference between
our nation and Argentina will be that Argentina
could not get rid of its dollar-denominated
debts, but we can. We have the printing press.
4
Is that a persuasive argument? I doubt that
U.S. policymakers, much less U.S. politicians,
are willing to accept a big inflation in order to
wipe out a domestic or external debt. There is
some weight to the argument, though, for we
surely will see real interest rates approaching
closer to zero, even flirting with the negative.
Decreased rates would solve some of the problems entailed in our increasing domestic public
debt, but I do not envision a massive liquidation
of our debt. Hence, I believe that the trade
problem and the exchange rate problem demand more serious scrutiny.
Among the arguments reviewed, the only
really respectable one is that which points to
important lags in the adjustment of trade flows.
We should therefore find out in a more sysSEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Table 2.
U.S. Trade with Developing Countries
(Billion $)
Manufactures
All Goods
1980
1981
1982
1983
1984
1985
1986
Imports
Exports
Balance
Imports
Exports
Balance
122.6
121.3
103.7
107.4
125.9
122.2
124.8
79.6
87.4
80.7
71.0
72.7
69.7
68.3
-43.0
-33.9
-23.0
-54.7
-53.2
-52.5
-56.5
29.5
35.1
37.0
45.9
61.8
65.5
77.3
55.6
61.5
55.5
45.7
47.5
46.0
49.4
26.1
26.4
18.5
-0.2
-14.3
-19.5
-27.9
Source: GATT and U.S. Department of Commerce.
tematic way what is likely to happen over the
next year or two as the result of currency alignments that have already occurred over the preceding years. Some good news will be forthcoming, albeit hesitatingly. Even if one challenged the significance of the lags or knew
exactly what they were, the same hopeful conclusion would be reached. In either case we may
ask the same question: If the 1980 exchange rate
prevailed today, would it still b e accompanied
by balanced trade?
The answer is no, for at least six reasons. The
first and most obvious is the debt crisis. In 1980,
any self-respecting Latin American country had
a grossly overvalued exchange rate, a recklessly
large budget deficit, an enormous trade deficit,
and unbelievable capital flight. The United
States was on the other side, as the beneficiary,
exporting to Latin America on a massive scale.
Today, however, the situation is exactly the
reverse. Every Latin American country has had a
50 percent real depreciation of its currency,
budgets have been trimmed, and Latin American
nations all run trade surpluses, primarily with
respect to the United States. Thus, the big difference between 1980 and 1987 is that countries
which formerly were buying our goods now are
exporting to us. Since that difference is largely
unrelated to the value of the dollar in world
currency markets, it has to be corrected by
either a change in the currency or changes in
policies here and abroad.
How much of our trade deficit can be attributed to the Latin debt crisis? The total effect is
hard to identify exactly, because for several
FEDERAL RESERVE BANK OF ATLANTA
reasons the United States would have increasing imports from Latin America anyway. Even so,
if you advanced a number like $25 billion
deterioration on our trade balance, that certainly would not b e far off the mark. Of course,
that figure is only a small fraction of our $ 150
billion deficit. All the same, it constitutes the
first substantial difference between 1980 and
1987.
The second difference between those two
years comes from the same neighborhood. Over
the past decade, newly industrializing countries
(NICs) have been investing at significant rates in
their export sectors. Perhaps the most striking
example is Korea, which annually invests 33 percent of its output. Most of the investment is in
manufacturing, and much of that is in the export
sector. Over time these investments inevitably
come on line and start producing goods that go
one way—to the United States. For example, ten
years ago we sold capital goods to Korea, and as
late as 1980 we sold them equipment. Today,
these capital goods are producing Hyundai cars
sold in America.
Our nation has experienced a complete reversal in our trade with newly industrializing countries in two respects. As a result of their development, NICs are becoming net exporters,
rather than net importers, of the kind of goods
the United States produces; and during the
period of dollar overvaluation, NICs have shifted
to Japan for buying their machines and to the
United States for selling what those machines
produce. Within that triangle, this country has
been the decided loser since 1980. Year after
5
year, these newly industrializing countries are
increasingly becoming net exporters, meaning
that we see a trend deterioration in the U.S.
external balance. Over a four- or five-year period,
we can estimate those effects at 1 percent of our
gross domestic product (GDP). Over a sevenyear period, the effect is clearly sizable. In respect to newly industrializing countries, today
we are no longer where we were in 1980; seven
years of bad news have intervened. Just to fasten
on one number to characterize our dramatic loss
of competitive advantage, since the start of the
eighties a $50 billion shift has occurred in our
manufacturing balance vis-a-vis developing
countries (see Table 1)—from a surplus of $25
billion to a deficit of $25 billion.
For the third difference, let us go to factors
more specific to industrialized countries. The
United States has had large real appreciations
of its currency and then several real depreciations. Although some imagine that all is well
once the level is back down, that simply is not
true. During the period of overvaluation foreign
firms have established themselves in the U.S.
market, incurring the considerable fixed costs of
establishing distribution networks and brand
names. Now, with the dollar down, those firms
are competing well and are very willing to trim
their profit margins to stay in business. On the
other hand, many U.S. firms that struggled from
1981 through 1983 to preserve their share in
foreign markets finally withdrew in 1984-85 to
cut their losses. Thus, when the dollar went back
down, the old trade pattern could not automatically reestablish itself. As a result, today
more foreign firms are selling in the United
States while American firms abroad are selling
much less. A further, much larger real depreciation would be required before U.S. firms could
profitably resume their foreign operations.
Likewise, only a substantial real depreciation of
the dollar could exterminate foreign firms that
have established themselves here. We are far
from making it so badly unprofitable that they
fold up and run; in fact, we are not even quite
back to the 1980 exchange rate level.
The fourth difference distinguishing 1980 from
1987 is disparities in growth performance between Europe and japan on one side and the
United States on the other. Since 1980, when our
nation had balanced trade, U.S. expenditure
growth has exceeded that in Europe and Japan
6
by a cumulative 12 percentage points. Consequently, the level to which our imports have
grown is much higher than the corresponding
level for our exports, not even taking into
account exchange rate movement. This growth
gap is reflected in our large trade deficit. To
bridge that growth gap, either the rest of the
world must start growing very rapidly relative to
this country or the dollar must make the adjustment. Because the 12 percentage point growth
gap is so immense and because trade flows are
highly responsive to expenditure growth, a large
part of our deficit even today embodies that
cumulative differential in growth rate.
External debt accounts for the fifth major difference between 1980 and the present. The
United States is experiencing something very
Latin American: we run large current account
deficits and borrow abroad, thereby building up
interest obligations. In 1980 this nation was a net
creditor in global capital markets, able to
finance trade deficits with the receipt of earnings from our investments abroad. Today we are
about to become the biggest net debtor in the
world. Our net external assets, which are something between $250 billion and $400 billion in
deficit, are deteriorating rapidly, as we have the
interest plus the current account deficit, now at
$ 150 billion, to add to it each year (see Table 2).
Anyone looking ahead to 1995 can easily foresee
an external debt of a trillion dollars.
Whereas in 1980 a trade balance or small
deficit was acceptable, in the future the United
States will need a trade surplus to service our
ever-accumulating debt. This surplus has to
come either from changes in policy or from a different exchange rate. Faced with overwhelming
net external debts and mushrooming interest
obligations, Latin American nations greatly depreciated their currencies and tightened their
belts over the last four years. These measures
have produced trade surpluses with which those
countries can earn dollars to service their debts.
Since the United States appears to be following
the pattern set by Latin American nations in the
latter part of the seventies—borrowing to finance
deficits—we, too, will eventually have to generate a trade surplus so that we can service the
inevitable debt that lies ahead.
Finally, the sixth argument against the return
and sufficiency of balanced trade with a 1980
exchange rate concentrates on what is likely to
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Table 2.
The U.S. External Balance and Net Investment Position
(Billion
International Investment Position
Current Account
Total
Non-Interest
(Percent of G N P )
Budget Deficit (Percent of G N P )
$ except
as
noted)
1982
1983
1984
1985
1986
136.2
88.5
4.4
-107.4
-238.0
"9.2
-28.1
-0.9
-45.6
-37.0
-1.1
-112.5
-131.3
-3.5
-124.4
-149.6
-3.7
-147.7
-170.6
-4.1
-4.1
-5.6
-4.9
-5.1
-4.6
Source: U.S. Department of Commerce, Federal Reserve System, and International Monetary Fund.
happen in the U.S. macroeconomy over the next
ten years. At some point, our domestic budget
deficit will be corrected, for it is too large to continue at the current rate. The budget deficit
builds up debt service at home, which ultimately must be addressed. Expenditure cuts
cannot go far toward balancing the budget, and
so most of the remedy will have to derive from
tax increases. Although these tax hikes must
await a politically convenient time, they will
surely come.
With tax increases, the consumer's disposable income will shrink, resulting in lower consumer spending and reduced demand for U.S.produced goods and services. Thus, the United
States will experience a recession. The Federal
Reserve inevitably will ease monetary conditions in order to stimulate a recovery, or at
least to alleviate the recession, and consequently the dollar will go down.
Because U.S. deficits are so large—3 percent
of GNP— the commensurate budget correction
will deal a forceful blow to the macroeconomy.
Essentially, the correction will entail shifting our
employment abroad: people who before worked
for the U.S. consumer now will start to work for
exports or to replace imports. This shift will
mean a very sizable transfer of resources from
the home economy to the export sector and to
import competition. At constant relative prices,
however, that straightforward reshaping of the
labor force will not occur. It simply is not true
that cutting the budget will by itself improve the
trade balance without any adverse impact on
employment. Our service sector, which has
expanded significantly in the last seven years,
FEDERAL
RESERVE BANK OF ATLANTA
no d o u b t will b e the first victim of such a
downward correction, since demand for U.S.produced goods and services in the h o m e
economy will diminish.
Every one of the six reasons I have set forth to
explain how 1980 differs from 1987 implies that
the current level of the exchange rate no longer
will do. This is so either because we are looking
ahead to budget corrections that will create
unemployment and the need for some alternative use of American resources, forcing us to
become more competitive to sell abroad; or
because we will eventually require a trade surplus in order to service our external debt; or
because our customers have disappeared as a
result of the debt crisis; or because the United
States has been so good at transferring technology abroad that today everybody else makes
better and cheaper what we used to make; or
because the long overvaluation of our currency
made our customers go elsewhere, not to return
without an extra incentive.
All these reasons make a good case for why
the 1980 value of the dollar is insufficient.
Indeed, these factors account for about $100
billion of our current $ 150 billion trade deficit. If
further proof is required, we need only consider
U.S. net exports, which is exports minus imports,
as a fraction of GDP (see Chart 2). From 1980 to
1986, net exports fell from a surplus to a deficit
of 2.5 percent of GDP. For a "No Further Change"
scenario, which takes the current level of the
dollar and assumes that over the next five years
Europe, Japan, and the United States continue
to grow at the same rate, we can estimate an
equation to predict what will happen to net
7
exports. What that equation reveals is that we
will see a significant improvement in our external balance, meaning that those who emphasize
lags in adjustment are quite right. The next two
years will deliver the further improvements in
net exports that are now in the pipeline.
While that is true, we are nonetheless left with
a $100 billion deficit from the original $150
billion. Moreover, while we are sleeping, the
Koreans are busily at work, expanding their
export sector and discovering new opportunities. Thus, over time U.S. net exports will
actually be deteriorating as we import more and
more from southeast Asia, northern Mexico, and
Brazil. That deterioration is shown by the
gradual downturn following the initial improvement in the "No Further Change" scenario. The
conclusion from econometric estimates not only
from these but from any U.S. econometric model
is that, with growth rates of spending the same
here and abroad and with no further change in
the dollar, trade will improve somewhat. By
1990, however, the deficit will still reach $100
billion, a level that, forever rising, is too high to
sustain. Therefore, saying the dollar will not
have to move is almost certainly wrong.
1 say "almost certainly" because one other
important possibility remains. In talking earlier
about the growth gap, 1 noted that in the last
seven years U.S. growth in spending has far
exceeded that in Europe and in Japan. The
"Higher Growth Abroad" scenario reverses that
situation. Suppose that Europe and Japan
dramatically increase their spending rates by
2.5 percentage points over and above those in
the United States for a three-year period. That
spurt would be enough to wipe out our deficit,
thus making the point that much of the U.S.
deficit today is a consequence of our running
ahead of the rest of the world and not of the
dollar. Obviously, though, we do not believe
that Europe and Japan are actually about to
engage in that kind of growth. They have a hard
time keeping pace at today's rates; in fact, our
problems are getting worse because we are
always growing faster than Europe and sometimes even Japan. Sofornowthe "HigherGrowth
Abroad" scenario is at best wishful thinking.
This elusive dream is perpetuated by summit
meetings among the G-5 countries, but it will not
emerge from promise to reality until more than
moral suasion is applied by the United States.
8
If the growth gap reversal will not occur, then
the dollar must b e the adjustment for our
deficit. According to the model used here, it will
take about a further 30 percent U.S. real currency
depreciation to bring us within comfortable
reach of external balance. (We certainly do not
need a balanced current account.) Now, the 30
percent figure comes as a rude shock to some
people, as the dollar has already plunged 50
percent and the yen has moved from 250 to 140.
Do I really mean that the yen has to go to 100? I
firmly believe that it does.
Let us first look at the costs and benefits to
our nation of such a dollar depreciation and
then consider its impact on the rest of the world.
On the cost side, inflation is the issue; on the
benefits side, the sooner we correct our budget
and our external balance, the lower the ultimate
cost to our standard of living.
Currently, depreciation is inevitably linked to
the inflation rate because currency realignment
is the means by which we are trying to correct our
external balance. A weaker dollar raises import
prices, causing people to shift away from imports
and toward domestically produced goods. In
terms of foreign currency, depreciation strengthens our competitive position and thus leads to
greater exports because U.S. firms have better
opportunities for selling abroad. At home,
however, prices will tend to rise. We see that
most obviously in primary commodities: if the
dollar goes down, agricultural prices are likely to
go up, as will wood and pulp, oil, gold, and a host
of other items.
Depreciation's inflationary impact may b e
dramatic, as it was in 1978-80 when the dollar
decline was accompanied by a sharp increase in
commodities and in oil, or it may be very moderate. In large part, the impact depends on how
wages respond to the depreciation. If the increased cost of living ushered in by higher
import prices spills over into stepped-up wage
demands, the result will be greater costs for
firms. Inevitably, these increases will generate
price hikes, which in turn will exert upward pressure on wages, thus taking us far up in inflation.
Conversely, if wages hardly respond because we
are a relatively closed economy—even 10 percent depreciation of the exchange rate barely
changes the cost of living—then depreciation
offers a very effective way of cutting our wage in
terms of buying power in deutsche marks or yen
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Chart 2.
U.S. Net Exports
(Percent
Percent
.
GDP)
ACTUAL
FORECAST
/
/
—
1983
of
r
T
1984
1985
1
1986
Higher Growth
No Further
1987
1988
1989
1990
1991
1992
Source: Rudiger Dornbusch, "External Balance Correction: Depreciation or Protection?" Brookings Papers on Economic
Activity, 1 (1987), p. 258.
without at the same time setting off inflation
here. When Mexico depreciates, the inflation
impact is violent; when the United States depreciates, the inflation impact has so far been
extremely moderate. For example, our 50 percent
depreciation over the last two years has produced
an effect that is best embodied by the disparity
between inflation rates in consumer and producer
prices. The former are hovering somewhere
about 4 percent, while the latter are below 3
percent; the difference is the impact of oil price
increases and the exchange depreciation.
A very important difference exists between
early, dramatic depreciation of the dollar and
lengthy postponement. For every year of extra
budget deficit, someone will have to pay the
taxes to service the domestic debt, or else
someone will suffer the inflation that wiped the
debt out. As for our external debt, the situation
is much the same and in an obvious way. A country that overborrows ultimately must have a
massive real depreciation in order to produce
the staggering trade surpluses required to pay
the built-up interest. That is the scenario being
played out in Mexico today. The United States is
FEDERAL
RESERVE BANK OF ATLANTA
in for exactly the same fate if we allow an overvalued dollar to stay with us too long.
A look at the costs and benefits clearly shows
that early, large real depreciation is desirable—
and the faster and bigger, the better. A rapid,
sizable depreciation will encourage any U.S.
firm that considers going into exporting to do so
much earlier, just as it will more decisively drive
out any foreign firm that is trying to hang in the
U.S. market. Adjusting the dollar's value over a
couple of years cannot have the same forceful
effect.
These issues of timing are important, for we
know that major japanese corporations today
are budgeting the yen at 100 to the dollar and
are finding it profitable. Thus, they have in fact
already adjusted significantly, a process that
might have been impossible if the dollar had
fallen even faster.
When urging a faster dip in our currency, we
must consider inflation once again. Taking the
dollar down more gradually may create less of
an inflation atmosphere in commodity markets,
and hence may slow its inroads on wages. If we
had a precipitous decline in the dollar and an
9
upsurge in commodity prices and gold, the
Federal Reserve might feel obliged to temper
the inflation with a steep increase in interest
rates. If the dollar can b e eased downward
gradually and avert inflation, one might have the
best of all worlds.
Having concluded that the dollar must drop
30 percent, we must next puzzle out why that has
not yet occurred. Why have the markets not gone
short on dollar-denominated assets and long on
deutsche mark—and yen—bonds to take advantage of this coming collapse of the dollar? For
the explanation, we must look to the Federal
Reserve's policies. In the first half of 1987, our
current account deficit of $75 billion was exclusively financed by foreign central banks, not
by foreign private savers. Although the latter
had already begun to stay away from what is an
obviously overvalued currency, they have been
shy about taking the dollar to the brink. Every
other day the dollar goes up a 1 ittle bit and every
other day it notches down, producing an overall
trend that has been down 50 percent for the last
two years.
We can view market participants' hesitating
withdrawal from the dollar in two ways. In hindsight, the depreciation in the U.S. dollar looks
extraordinary. With the dollar's quiet descent,
foreign investors experienced some brutal capital loss. Had investors anticipated this drop,
they certainly would not have held dollars
without the inducement of astronomical interest
rates. Nonetheless, even faced with the likelihood that the dollar will fall by 30 percent, they
are now letting their central banks finance our
current account deficit for the next five years.
Furthermore, foreign investors are holding onto
rather than selling their dollars. U.S. financial
institutions, for example, are subject to regulatory constraints, in particular the need to
report their losses to the Securities and Exchange Commission every three months. Although
they may feel certain that over two years the
dollar will be down significantly, their horizon is
much shorter. Investors really cannot afford to
speculate in the current atmosphere of uncertainty, for they know that every time it gets
"warm,"the Federal Reservemightletthedollar
appreciate, and investors will suffer terrible
losses. Then, when those investors get out, the
Fed permits the dollar to drop, belatedly proving that the foreign firms were right.
10
I believe that the Fed's management of the
exchange rate over 1987 has exactly followed
this pattern. Its policy has been to discourage
massive short-term speculation, which would
take the dollar down too fast, while at the same
time fostering seeming ambiguity in the dollar's
movement. Such an approach is attractive in
that it wards off the big stampede out of dollars
that would engender a currency collapse, a
sharp increase in commodity prices, and, hence,
a 1978/80-styIe inflationary surge which would
force the Federal Reserve into a high interest
rate policy.
So the impossible is being done: an obvious
and large depreciation of the currency has taken
place without being reflected in interest rates.
But how long can this masterpiece in engineering last? To date it has held up very successfully,
"Having concluded that the dollar
must drop 30 percent, we must next
puzzle out why... the markets [haveJ
not gone short on dollar-denominated
assets... to take advantage of this
coming collapse of the dollar."
since rates have risen minimally even as the
dollar keeps going down. Looking ahead, there
will be days when the dollar goes up, even a lot,
and that is exactly what burns the little fingers
and keeps the speculators away. That tactic is
what keeps the affair manageable—as well as
the fact that central banks have already put u p
$90 billion to defend the dollar this year. Over
the next two years, however, the dollar cannot
continue to ratchet downward day by day, as the
course would become too obvious.
Having looked at the costs and benefits to the
United States of a 30 percent dollar depreciation, let us briefly assess what will happen in
Europe and Japan. Europe has been stagnating
economically for the last seven years. Its average
growth rate of capital income for the period is
-0.8, which is a terrible performance compared
with that of the United States. Europe fears that
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
there are extremely tight limits on the extent of
possible expansion, and that any attempt by
governments to expand their economies through
easier money would very rapidly result in inflation rather than in output growth. Because of
this belief, governments d o not act, and in turn
firms do not expand because they know that
their governments' willingness to stimulate the
economy is constrained by fears of inflation.
Europe is clearly stuck.
Japan is stuck also because it has found it far
easier to announce policy and then to ignore it
than actually to do something. Imagine, though,
what would happen with a further 30 percent
decline of the dollar, taking the yen beyond the
100 level at which japan is comfortable today,
japan has been a b l e to maintain its costcompetitiveness despite the dollar's slide in
"If the alternative Is are/ ...to keep the
overvalued dollar at the current level
or to have a dramatic fall, 1much prefer
the latter. The dollar is overvalued and
hence one day must drop."
part by skipping wage bonuses, hence reducing
unit costs, and in part by shifting its sourcing to
Korea, Taiwan, and Singapore, thereby dramatically reducing the cost of intermediate imports.
As there is very little Japan can d o in terms of
further cost reductions, another round of dollar
depreciation actually would scratch the nerve as
well as the cavity, compelling Japan to form a
policy response.
The same is true of Europe, where Germany
has stood in the way of more expansionary
monetary policies. With further dollar depreciation, the European Monetary System (EMS)
might break up. With a 30 percent dollar push,
Italy would likely decide to stay with the dollar,
which would in turn make the deutsche mark
appreciate relative to European currency. In
terms of Germany's trade, that development
would be extremely costly, as Germany trades
FEDERAL RESERVE BANK OF ATLANTA 13
primarily with Western Europe. So there, too, we
would b e touching a nerve.
Notwithstanding the pain, I believe that
dollar depreciation is the best way to get
improved policy performance out of Japan and
Germany. When the dollar falls, Germany and
Japan have only one means to stop its declinedramatically lowering their interest rates and
expanding their budgets. These measures will
not be taken until the push comes. As we have
already seen in the first round of depreciation,
support from our trade partners has tended to
disappear. For the United States, it all adds u p
to a very large deficit while our partners enjoy a
comfortable surplus.
1 conclude, then, that the dollar must go down
and that the Federal Reserve's accomplishment
of lowering the dollar gradually and firmly by 50
percent over two years is wonderful. Another 30
percent in a year-and-a-half would b e utterly
satisfactory. If the Fed can achieve this slowly,
kudos to them. If the alternative, though, is to
keep the overvalued dollar at the current level
or to have a dramatic fall, I much prefer the latter. The dollar is overvalued and hence one day
must drop. If it is locked in at its present rate, we
shall have to pay for a much larger and steeper
plunge some time later.
Let me talk about a closely related issue
before I conclude my remarks on dollar depreciation. It would be a serious mistake to abandon flexible exchange rates in favor of target
zones within which rates are fixed. According to
this plan, the government would tighten monetary policy whenever the currency depreciates
and relax it whenever it appreciates. Thus,
monetary policy would be oriented toward the
exchange rate. Our experience with a fixed
exchange rate came to a halt in the 1960s when
the United States' expansionary monetary policy
conflicted with Germany's preference for low
inflation and positive real interest rates. Since
then, the world has not changed one bit. If we
attempted to return to a fixed exchange rate, we
would have to decide whether our 4 percent or
Germany's I percent rate is the right inflation
rate. Obviously, it would be only a question of
time before we were once more at loggerheads
and the deutsche mark started to rise. By adopting target zones we would lose the freedom to
sustain a strong expansion, as we have done
over the last five years in the U.S. economy. The
Table 3.
Foreign Direct Investment Flows to the United States
(Billion $)
Total
Classified by Industry
Manufacturing
Retail and Wholesale Trade
Banking, Insurance, and Finance
Real Estate
Classified by Country
Japan
Europe
Canada
Middle East
1981
1982
1983
1984
1985
1986*
23.2
10.8
8.1
15.2
23.1
31.5
8.1
0.9
2.2
3.7
2.4
1.1
1.7
3.3
3.1
0.3
0.7
2.7
3.1
2.0
1.9
2.2
12.1
2.0
1.7
1.9
13.7
5.8
3.3
4.0
0.6
10.6
6.1
3.4
0.6
6.4
1.2
0.9
0.4
4.9
1.1
0.7
1.8
6.5
2.6
0.9
1.2
15.4
2.9
1.0
4.7
17.1
5.2
0.5
* Preliminary data.
Source: U.S. Department of Commerce.
growth that flexible rates have accommodated
has been accompanied by relative price stability. All we must be careful to do is clean up the
cost of that expansion before we actually have to
pay a far heavier toll.
The second issue is foreign direct investment,
which has been pouring into the United States
at very noticeable rates (see Table 3). Those who
are alarmed about this influx have fears such as
that for every Japanese car producer that opens
in this country a U.S. producer is closing down.
Studies show that a domestic firm produces
12,000 more jobs than does the Japanese firm.
This disparity is attributable partly to the
Japanese firm's greater efficiency, but mostly to
the fact that the Japanese firm buys a majority of
its parts and suppl ies from Japan or Korea rather
than from U.S. suppliers.
So here we seem to have an intriguing point. If
foreign firms do not create as much employment as the displaced U.S. firms, on balance the
latter may seem preferable. However, that
thinking would be fallacious, because we have
to take a comparative stance. When we consider
a situation where our borders are closed to keep
out everybody, no doubt U.S. firms produce
more jobs. But if the alternative is that the
Japanese producer exports a whole car to the
United States, of course the firm's having been
located here creates some domestic value added.
Foreign direct investment also brings other
12
advantages to the host country, such as superior
management skills, advanced technology, and
growing capital—all of which Mexico, for example, welcomes with U.S. investment in that country. In that respect, therefore, 1 think that foreign
direct investment in the United States should
be openly and happily embraced.
For the time being, foreign direct investment
in the United States is negligible. Foreign firms
located here employ less than 1 percent of the
labor force; their real estate holdings are less
than what we have in military air fields; and they
account for less than 3 percent of total U.S. productive efforts. In fact, foreign direct investment
in this country is only a very small fraction of
foreign bank deposits in the United States. We
are likely to see a lot more foreign investment
over the next year because of spreading trade
restrictions. The United States would do well
actively to encourage such investment, for it
enables us to share in cheap foreign labor
without running the risk of protectionism.
Let me summarize what 1 have tried to say. In
the last five years the United States has experienced very strong growth. Unemployment
has dropped to the level of the late 1960s, and
inflation had earlier subsided to almost nothing. Even today, we can hardly feel that inflation
has edged back up around 4 percent. The party
is not over—in fact, we could stay until daylight—
but it is wise to bring it to a halt. Fed Chairman
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
William McChesney Martin used to say that the
Federal Reserve is like the matron who removes
the punch bowl just as the party gets going. This
year and the next probably are the time to make
major adjustments so as to lock in our extraordinary five-year expansion and look toward
restoring manufacturing to a firm position in the
U.S. economy. The effective way to make the correction is via a massive depreciation of the
dollar, which would make our costs more realistic by world standards. Among the major macroeconomic issues involved in that adjustment,
the most significant is the impact that the resultant inflation would have on monetary policy
and interest rates. Notwithstanding these concerns, the adjustment must b e made, and
budget correction is the way to avoid inflation
and crowding out.
FEDERAL R E S E R V E BANK OF ATLANTA
The United States' current plight is infinitely
far away from that of Mexico, Argentina, and
Brazil. Not only can these countries no longer
borrow, but they also must undergo dramatic
and costly adjustments to compensate for their
past overborrowing. We can avoid that dire
situation, in part because the U.S. economy is
much more closed and hence exchange rate
adjustment offers a powerful means for getting
better trade flows without cutting the standard
of living. We can only rely on this approach,
though, if we devalue the dollar soon enough
and with great care. If we allow the dollar to
remain overvalued, perhaps because of some
misperception about purchasing power parity,
then in the end the United States will be more
nearly like Mexico.
13
Observations about
Observations about
Liquidity Effects:
The Difficulties of Exploring
a Simple Idea
The relationship between changes in the
money supply and interest rates is one of the
most basic and yet problematic areas of mainstream monetary thought. While standard macroeconomic theory suggests a number of reasons
why changes in the quantity of money should b e
The author, a specialist
in macroeconomics
and
theory, is an economist
in the macropolicy
section
Atlanta
14
Fed's Research
Department.
monetary
of the
inversely related to changes in interest rates,
empirical support for this so-called liquidity
effect is, at best, mixed. In fact, the relationship
implied by the liquidity effect is often refuted in
empirical work.
The point of this article is to examine some
empirical issues surrounding the liquidity effect
and to discuss several recent findings that may
elucidate the relationship of money and interest
rates. Along the way, it should become apparent
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Thomas J. Cunningham
Investigation of the "liquidity effect," which postulates that an
increase in the money supply leads to lower interest rates, is
confounded by several econometric problems. The author
concludes that, for the liquidity effect, answers arrived at
through econometric analysis may bear more closely on
questions that the typical researcher leaves unasked.
that the answer to a relatively simple empirical
question can depend very heavily upon choices
the investigator makes—for example, the selection of time period—that may seem to have little
bearing on the question asked.1
Defining the Liquidity Effect
The liquidity effect is a specific mechanism
that, when at work, will produce an inverse
relationship between a change in the money
supply and a change in interest rates. That is, if
the money supply goes up and interest rates go
down, this movement may be the liquidity effect
at work.
A quick, simple appreciation of this effect can
be had by considering the rate of interest as the
"rental rate" of money. If economic agents (businesses, households, and so on) wish to hold
their wealth in the most liquid form possiblemoney—they will be "paying" a premium for
that liquidity by forgoing the interest they could
have earned on alternative, less liquid forms
of wealth.2
Stated in simple supply-and-demand terms,
the liquidity effect argument is that as the quantity of money increases, its "price," defined as
FEDERAL R E S E R V E BANK OF ATLANTA
the rate of interest, falls. Some economists pursue this argument at one remove. Following the
work of Knut Wicksell, they use a supply and
demand for loanable funds framework. Thus, an
increase in money augments the supply of
funds, and their price, or the rate of interest,
falls. Other economists, in keeping with the
work of lohn Maynard Keynes and James Tobin,
assert a "liquidity preference" on the part of
agents in the economy. According to this view,
agents prefer to hold wealth in a relatively liquid
form, and so must b e compensated if they are to
give up their liquid assets. As a result, when
money becomes more plentiful, the compensation for not holding this most liquid of all assets
should fall. While the emphasis in each of these
cases is somewhat different, the story they tell is
essentially the same: changes in the supply of
money should b e inversely correlated with
changes in interest rates.
The Gibson Paradox
and the Fisher Effect
The first challenge to the 1 iquidity effect came
from the writing of A.H. Gibson, who observed
that the liquidity effect just did not work.3 Quite
15
the contrary: there seemed to be a tight positive correlation between money supply growth
rates and interest rates, such that when the
money supply grew very rapidly, interest rates
rose. For his direct contradiction of the liquidity
effect, Gibson was given a place of immortality
in the economics literature by (ohn Maynard
Keynes. The fact that interest rates frequently
went up with an increase in the growth rate of
the money supply became known as the Gibson
paradox.
The Gibson paradox was resolved when Irving
Fisher suggested that what Gibson observed
was related to another consequence of a rising
money supply: expected inflation. If the increase in the money supply signaled higher
future rates of inflation, Fisher argued, then
lenders would want to protect their real rate of
return by demanding that interest rates be
adjusted for the expected inflation. Thus, nominal
(observed) interest rates should be the sum of
the real rate of return plus the anticipated rate
of inflation. 4 The upward force that inflation
expectations exert on nominal interest became
known as the Fisher effect.5 Though it offered an
explanation of the Gibson paradox, the Fisher
effect, too, has received less than complete
empirical support.
An important point is that the Fisher effect
does not necessarily preclude a liquidity effect.
It is possible—and consistent with empirical
work on the Fisher effect—that while anticipated inflation is priced into nominal interest
rates, these rates may nonetheless be lower
than they would have been had a liquidity effect
not been at work. Similarly, other factors, most
notably changes in income and in risk, may mask
liquidity effects. All of these complications are
discussed below.
Liquidity Effect Empirics
Rational Expectations Theory. The advent of
rational expectations theory in I960 and some
of its early implications renewed empirical
interest in the effect of money on the economy. 6
Within a rational expectations framework, agents
are viewed as incorporating all available information in some model of the economy (frequently assumed to be correct) in order to form their
economic forecasts and expectations.
16
Thomas Sargent and Neil Wallace, in particular, can be singled out for the "policy ineffectiveness" results their rational expectations
models produced. 7 The policy ineffectiveness
literature postulates that agents form their
expectations of the general price level by using,
among other pieces of information, announcements of monetary pol icy and money growth. By
correctly anticipating general changes in the
price level, agents can distinguish relative
changes in prices. This foresight also enables
agents to adjust interest rates such that real
rates of interest remain unchanged. Thus, since
monetary policy may influence the general price
level but holds no sway over relative prices or
real interest rates, agents will not be fooled into
changing their behavior in response to purely
nominal policy changes. Monetary policy there-
"Once some rate of inflation becomes
fully anticipated...
agents can see
beyond general movements in the level
of prices to the relative changes and
can adjust real rates of interest accordingly. "
fore becomes an ineffective tool for influencing
economic activity.
Few economists dispute the argument that
fully anticipated monetary policy has little longrun effect on real economic activity. For example, the Phillips curve, which formerly purported
to embody a relationship between inflation and
output/employment, now is modified to show a
tradeoff only between the unexpected portion
of inflation and output. Once some rate of inflation becomes fully anticipated, it no longer
results in the output gains it did when the inflation came as a surprise. Agents can see beyond
general movements in the level of prices to the
relative changes and can adjust real rates of
interest accordingly. Thus, in a rational expectations world, where shifts in the inflation rate can
be correctly foreseen, a policy of higher or lower
inflation has no real impact on the economy.
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
If expected inflation wields minimal influence
on economic activity, then some sort of liquidity
effect offers the remaining channel by which
monetary policy can systematically influence
economic performance. This conclusion gives
reason to theempirical huntfora liquidity effect
within a rational expectations paradigm.
Problems with Rational Expectations Theory.
Two related problems with rational expectations are worth discussing here, the first of
which is conceptual: people do not, prima facie,
behave in the way assumed by the rational
expectations literature. That is, they apparently
lack full and near-perfect models of the macroeconomy and thus cannot methodically use
new information to update their forecasts. While
cogent, this argument against a rational expectations approach is nonetheless a qualified one.
The second problem is a practical matter of
econometrics, that is, applying statistical techniques to test economic theory. Whereas agents
may sufficiently understand markets that impinge upon their daily lives and may thus form
expectations that produce an economy that
behaves in a manner consistent with the rational expectations paradigm, there is quite a large
step from this observation to a tractable econometric model that actually describes how this
process works. As a consequence, while rational
expectations may be a reasonable theoretical
construct, its accompanying econometrics may
b e far from simple. As a result, the empirical
investigation into possible liquidity effects is
beset by econometric problems. Because the
way in which these are addressed tends to
shape the investigation's results, three of these
problems are specifically discussed here:
simultaneity, difficulties related to the econometric implementation of rational expectations
models, and temporal aggregation.
"If expected inflation wields minimal
influence on economic activity; then
some sort of liquidity effect offers the
remaining channel by which monetary
policy can systematically
influence
economic performance. "
Simultaneity. The present inquiry looks at the
effect on interest rates of adding further liquidity/ money to the economy. To achieve this
end, econometricians must try to isolate the
effect of changes in the money supply from all
other economic occurrences that may impinge
upon interest rates. The process of controlling
for the effect of other variables, which is common to all econometric work, is well understood. In this case, the control process requires
gathering data pertaining to variables possibly
relevant to changes in interest rates, and it is
within these data on possible explanatory factors that the first problem for discussion lies.
It is reasonable to believe that agents have a
fair understanding of their "local" economy,
meaning markets close to them both geographically and temporally. More important, they
clearly heed new information that they feel is
key to understanding changes in these markets.
For example, shrimp fishermen along the Gulf
Coast may comprehend the impact of water
temperature changes on the price of shrimp
more fully than do bond traders in New York
City. Likewise, bond traders may better appreciate how the latest money supply numbers
affect bond prices. In either case, news germane
to some market will be understood by the participants in that market. For all practical purposes, therefore, the expectations-formation
criteria of the rational expectations theory may
be viewed as a reasonable description of
reality.
FEDERAL R E S E R V E BANK OF ATLANTA
The money supply is continuously changing,
as are interest rates and other variables, interest rates are determined in financial markets,
which lend themselves to essentially continuous observations. The quantity of money in
the economy is more difficult to observe, although on a weekly basis the Federal Reserve
announces narrow measures of monetary aggregates.
The problem of simultaneity arises from the
fact that for equilibrium to exist in the money
market, the quantity of money supplied must
always equal the quantity of money demanded.
However, money demand is, itself, a function of
the relevant rate of interest, which, in terms of
this inquiry, represents the "price" of forgoing
17
liquidity. At least theoretically, money demand
is understood to b e primarily a function of
interest rates, as well as of the level of income.
As interest rates move upward, less liquid forms
of holding wealth become more attractive, decreasing the quantity of money d e m a n d e d .
Thus, the two, money and interest rates, are
determined simultaneously.
In the simple case of exploring money demand, simultaneity is usually not a problem, for
the quantity of money supplied is generally
taken to be controlled by the Fed, independently
of interest rates. When liquidity effects are the
subject of investigation, however, simultaneity
becomes an important empirical question.
Theoretically, the most appealing means of
controlling for changes in the level of income is
to rely on gross national product (GNP) figures.
These data are gathered only on a quarterly
basis, as are those for a number of other useful
economic data series; for example, the threemonth Treasury bill rate is an attractive and
obvious candidate as the relevant interest rate
for this inquiry. As a consequence of data
availability constraints, quarterly changes in
money and interest rates are frequently employed in the search for a liquidity effect. Use of
quarterly data, though, may involve simultaneity
between money and interest rates. Simultaneity
would bias our results, thereby masking the
effect we wish to observe.
Consider the following example. Suppose
that an increase in the money supply works its
effect out on interest rates within, say, one
month. (In macroeconometric work, simultaneous is not to be confused with instantaneous.)
Suppose further that an upward blip in the
money supply is accompanied by a strong liquidity effect, leading to an unambiguous decline in interest rates within our assumed time
lag of one month. This decline, in turn, influences money demand and thus money market
equilibrium. An econometrician seeking a liquidity effect by using quarterly data on levels
of money and interest rates may miss the result.
Both interest rates and the money supply adjust
to one another in a way that would appear
simultaneous, at least over the quarter, thus
clouding the initial liquidity effect.8
In this case, the easiest way possibly to circumvent simultaneity is to employ data gathered frequently enough to render a true picture
18
of the adjustment process. This solution, however, poses two new problems.
First, unfortunately, such data simply do not
exist. Many data series, particularly those dealing with non-financial macroeconomic performance, are gathered on a monthly and, quite
often, a quarterly basis. GNP is the major case in
point. Coping with data-frequency problems
forces econometricians to use proxy variables
for the n e e d e d information. Sometimes the
proxies work well, and sometimes they do not.
A second difficulty with shortening the time
interval to address simultaneity is "noise" in the
series. Generally, the macroeconomy is regarded as being quite stable, but this perceived
stability is the result of looking at something
quite large move over a fairly long period of
time. Within a short enough time frame, nu-
"Discovering a liquidity effect at work
in a world of rational
expectations
would imply that systematic influence
over the economy is not beyond the
scope of monetary policy. "
merous short-lived disturbances occur. For
example, weekly unemployment claims can be
substantially influenced by severe weather.
Certainly, no one thinks that the underlying
level of unemployment is jolted by such an
explicitly temporary event as a snowstorm, but
on a weekly basis the data may be quite volatile.
Even though the volatility may be nothing more
than noise, this noise will nonetheless tend to
mask the underlying signal in the series. The
investigatory process will suffer as a result.
Implementing Rational Expectations. Discovering a liquidity effect at work in a world of
rational expectations would imply that systematic influence over the economy is not beyond
the scope of monetary policy. Thus, although
implementing a rational expectations model is
fraught with obstacles, the potential results are
well worth pursuing. The major conceptual and
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
practical difficulty with the econometric implementation of rational expectations models is
actually specifying the expectations held by the
economy. In the parlance of the economics profession, "rational" expectations are based on
the appropriate and full use of all relevant information in some sort of model, presumed and
hoped to be the economist's own. Not surprisingly, measures of such expectations are
hard to come by. The two measurement alternatives are survey results and model-generated
forecasts.
A major drawback inheres in relying on a survey of what agents in the economy actually
expect to happen and then using those findings
as the expectations variable in a rational expectations econometric model. The drawback is
that very few surveys have been conducted con-
"The major... difficulty with the econometric implementation
of rational
expectations models is actually specifying the expectations
held by the
economy.... [Mleasures of such expectations are hard to come by."
tinually and for a long enough time period to
provide a large amount of information at a fairly
frequent time interval. The extant surveys tend
to ask very general questions at a fairly low frequency. Those surveys that convey a great deal
of information about what the surveyed parties
expect are expensive undertakings, which probably explains the short lifespan of such potentially useful surveys.
The alternative to employing survey data is to
build a model that generates expectations in
the form of forecasts. Provided with forecasts of
whatever variable is of interest at a time interval
convenient to the question, econometric practitioners then simply assume that economic
agents d o in fact hold these model-generated
expectations. Such an approach may be loosely
consistent with the concept of rational expectations, yet it is hard to believe that everyone in
FEDERAL RESERVE BANK OF ATLANTA
the economy generates expectations in exactly
the same fashion or that deviations from the
average expectation d o not matter. (Indeed, the
stock market functions precisely because some
traders hold diametrically opposite opinions
about the future course of a stock's price.) It
further taxes trust to accept that the econometrician has happened upon the single equation
that accurately represents the way the economy
forms its expectations. The procedure of gauging expectations via model-generated forecasts
is, in a very literal sense, incredible.
Making use of forecasts derived from a model
does, however, offer two distinct advantages.
First, the expectations variables can be generated from available data at whatever time interval is appropriate, thus providing a convenient
source of data. Second, expectations variables
can b e produced for almost any variable.
In summary, model-based expectations may
be substituted for survey data for a series of
good, though largely practical, reasons. With the
survey-data approach, one must be willing to
ask only those questions that can b e answered
by the available survey information. If you are
interested in problems that involve variables for
which no survey data exist, you have little alternative but to use model-based forecasts. Simple forecasts derived from models may not
necessarily differ much from expectations that
would be expressed through surveys. The opinions gathered in surveys are those of market
participants; therefore, using market results to
infer participants' expectations, as the modelbased approach does, may not render dissimilar results.
Temporal Aggregation. The final problem to
be addressed here is that of temporal aggregation, which is simply a matter of characterizing
the data through time. Rates of change can b e
calculated by using differences between either
end-of-period data or average-of-period data.
In principle, at least, one would suppose that
the choice should not matter, particularly if the
econometrician looks at a long enough period of
time. Seemingly, whatever discrepancies there
are between end-of-period and average-ofperiod data ultimately should wash themselves
out. Such, however, is not the case.
In the empirical hunt for the liquidity effect,
temporal aggregation matters substantially,
though the differences in the results may be
19
clouded by problems of simultaneity. Research
employing quarterly average-of-period data
both for interest rates and for money tends to
find significant though small liquidity effects. By
contrast, work using semiannual average-ofperiod interest rates but end-of-period money
often reveals no liquidity effect. Finally, when
quarterly end-of-period money and interest
rates are employed, just the opposite of a
liquidity effect frequently emerges: unanticipated changes in money and interest rates
are positively associated with one another. 9
Addressing the Problems
In a recent working paper, whose results are
summarized below, my coauthor and 1 sought
out liquidity effects, quite mindful of the many
associated problems that have been discussed
here.10 Our method was to estimate a series of
equations reduced from a rational expectations, money supply/money demand framework." To deal with problems of simultaneity,
we used various unit time intervals, starting with
thirteen weeks (that is, one quarter, to correspond to most of the literature in the area) and
then shortened the interval to six and finally
three weeks. To investigate temporal aggregation issues, we estimated our equations using
end-of-period and average-of-period data for
comparison. Finally, we relied on model-based
expectations, as survey data are not available
for these different unit time intervals.
In each estimation equation, we looked at the
association between unanticipated changes in
interest rates, as measured by deviations in
interest rates from those rates previously implied
by the yield curve, and the following independent variables: unexpected changes in money
(that is, the liquidity effect), unexpected changes
in prices (the Fisher effect), unexpected changes
in income (an income effect), and a measure of
risk involved in the investment (a risk premium).
In the case of money, we tried three different
definitions, the first of which is the adjusted
monetary base as reported by the Federal
Reserve Bank of St. Louis. Results from this
definition are not discussed further because
they do not d iffer meaningfully from results produced by the other two definitions employed:
Ml as reported in its finally revised, "true" form
20
and Ml as first announced. The difference between these latter two definitions is significant,
particularly in a rational expectations world. It
may be that the "true" Ml numbers are what is
ultimately responsible for any relationship between money and other economic variables.
Nevertheless, every Thursday afternoon the
Federal Reserve announces an estimate of
weekly Ml, and financial market participants
react to that preliminary figure. The final revision to the M1 series may occur quite some time
in the future. Thus, it may be more appropriate
to use the information to which the markets are
reacting, rather than some number that actually
proves to b e "correct" but in an untimely
fashion. The choice of announced MI is especially
suitable in this case, where reaction to numbers
that are larger or smaller than anticipated is an
'7Expectations of slower money growth
and higher interest rates in the future
usher in higher interest rates now.
Thus, the expected liquidity effect
directly collides with the standard
liquidity effect, creating an ambiguous
result"
elemental feature of the model.
In modeling price expectations, we looked to
changes in the Bureau of Labor Statistics'
22-Commodity Spot Price Index as a proxy for
changes in the price level. Of all our proxies, this
is probably the weakest, for movements in commodity prices reflect far more than simply
movements in the general level of prices. Were a
better proxy available at a weekly frequency, we
would have used it. As a proxy for income, we
used unemployment claims, since national
income and unemployment claims may b e
thought of largely as the inverse of one another.
Finally, we n e e d e d a measure of risk, as
bondholders must b e compensated for the
relative degree of risk associated with holding
their particular asset. The proxy in this instance
was a moving variance of their return over the
previous 26 weeks.
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Results. To sum: we did not actually find any
direct evidence of a liquidity effect, but we think
we have a reason.
In varying our time interval to deal with simultaneity, we discovered our most interesting
results with respect to liquidity effects. There
was a significant positive relationship between
unexpected changes in money and interest
rates in the case of the thirteen-week unit interval, and similar, somewhat stronger results in
the six-week case. Further shortening the unit
interval to three weeks, however, substantially
weakened the result in a statistical sense. This
loss of significance may b e attributable to an
"expected liquidity effect," an argument which
holds that an unexpectedly large present increase in the money supply is likely to lead to
smaller future increases, and consequently to
"(Tjhere obviously exists between
money and interest rates some relationship that changes with the unit time
interval. What that relationship fundamentally is, however; remains unclear.''
higher interest rates, as the Federal Reserve
tries to regain its target level formoneygrowth. 12
Market participants' expectations of slower
money growth and higher interest rates in the
future usher in higher interest rates now. Thus,
the expected liquidity effect directly collides
with the standard liquidity effect, creating an
ambiguous result. Clearly, the issues of the
appropriate unit time interval and associated
simultaneity problems are of consequence in
grappling with problems of money and interest rates.
interpretation of our other results is far more
straightforward. We found a statistically significant, but economically small, income effect,
signifying that money demand does seem to
respond in a theoretically "correct" way to
changes in income. Indeed, our income variable
was the most consistent statistically significant
FEDERAL R E S E R V E BANK OF ATLANTA
variable found in the course of our work. On the
other hand, we discovered no evidence of
interest rates' responding to inflation news (a
Fisher effect), but that may be owing to the
inadequacy of our proxy for the general price
level. Our research also revealed the existence
of a significant time-varying risk premium, consistent with theoretical expectations.
Our data set ran from 1974 for Ml and from
1972 for the monetary base measures through
mid-1984. When we broke the sample up into
the period before and after the October 1979
change in Federal Reserve operating procedures, we found substantial evidence of
parameter instability in our equations. That is,
the parameters associated with the variables we
were testing changed, as anticipated, but the
fundamental relationships did not. This finding
is consistent both with theoretical expectations
and with other empirical work in this area, and
thus tends to strengthen confidence in our
model.
Finally, our research showed that temporal
aggregation, which seemingly is a peripheral
concern to investigation of the liquidity effect,
actually matters quite a lot. Use of the averaged
data consistently improved the regression fit,
and the coefficients estimated were much more
frequently significant than when end-of-period
data were used. The fact that averaged data
attenuates noise in the series may account for
this difference. But while the size of the coefficient changed, its sign never did.
Conclusion
Rational expectations econometrics is still
quite young. The problems facing econometricians working in this area, some of which have
been described, are sizable, and their solutions
are frequently elusive. Temporal aggregation
and choice of the unit time interval, for example,
can significantly affect the outcome of hypothesis tests, but the "correct" approach is not
evident.
In the relatively straightforward and elemental case examined here, there obviously exists
between money and interest rates some relationship that changes with the unit time interval.
What that relationship fundamentally is, however, remains unclear. One explanation that has
21
been advanced here, the expected liquidity
effect, is consistent both with the existence of a
liquidity effect and with results showing no sign
of the negative relationship the liquidity effect
hypothesizes.
Regardless of the outcome of the tests presented vis-a-vis the liquidity effect, the issues
that have been addressed are clearly of empiri-
cal significance. Answers to questions asked of
the data seem to depend heavily upon choices
the econometrician makes that are not patently
related to the questions. In other words, one
must b e careful in interpreting econometric
work, for the answers derived may have more to
do with the questions not asked than with those
that are.
NOTES
'This discussion is b a s e d on Thomas ). Cunningham a n d
Gikas A. Hardouvelis, "Temporal Aggregation, Monetary
Policy, a n d Interest R a t e s , " F e d e r a l R e s e r v e B a n k of
Atlanta Working Paper 87-04 (May 1987).
2 Within
this arrangement, interest-bearing checking ac-
counts present a problem, for an agent can hold wealth in
this very liquid form and still earn interest on it. Nevertheless, an agent holding wealth in a less liquid form than
interest-bearingchecking accounts will generally receive a
higher rate of return. Thus, holding everything e l s e constant, s o m e i n v e r s e r e l a t i o n s h i p exists b e t w e e n t h e
liquidity of an asset and its return, a n d so t h e e s s e n c e of
t h e argument, though somewhat muted, is preserved.
3 |.M.
K e y n e s popularized G i b s o n ' s work, citing, in par-
ticular, articles written by him for Bankers
Magazine
in
lanuary 1925 a n d N o v e m b e r 1926.
4The
cross product of t h e two rates should also b e a d d e d in.
This latter is quite small a n d usually ignored.
5There
are y e t o t h e r e x p l a n a t i o n s for this result, most
notably t h e "Mundell-Tobin effect," w h e r e an increase in
the rate of inflation d e c r e a s e s t h e real rate of interest.
Nominal rates d o rise, but there is i n c o m p l e t e adjustment
c o m p a r e d with t h e Fisher scenario.
6
For a discussion of both the rational expectations idea a n d
s o m e of its more interesting implications, s e e R o d n e y
Maddock a n d Michael Carter, " A Child's G u i d e to Rational
22
Expectations," Journal of Economic
Literature,
20 {March
1982), pp. 39-51. They also stress that rational expectations
is a tool a n d not a paradigm.
7 Thomas
Sargent and Neil Wallace, "Rational Expectations,
the O p t i m a l Monetary Instrument, a n d the Optimal Money
S u p p l y R u l e , " journal
of Political
Economy,
83 (April
1975), pp. 241-54.
8The
p r o b l e m here is not wholly intractable, though it d o e s
require more information than s i m p l e average-of-period
data.
9For
example, s e e John Makin, " R e a l Interest, Money Sur-
prises, A n t i c i p a t e d Inflation, a n d Fiscal Deficits," The
Review of Economics
and Statistics,
65 ( S e p t e m b e r 1983),
pp. 374-84; lames Wilcox, " W h y Real Rates W e r e So Low in
the 1970s ".American
Economic
Review,
73 (March 1983),
pp. 44-53; a n d Frederic Mishkin, "Monetary Policy a n d
Short-Term Interest Rates: A n Efficient Markets-Rational
Expectations Approach," journal
of Finance,
35 (March
1982), pp. 63-72.
l0Thomas
j. Cunningham and Gikas A. Hardouvelis, "Tem-
poral Aggregation, Monetary Policy, and Interest Rates."
" S e e ibid, for details of the estimation procedure.
l2Gikas
A. H a r d o u v e l i s , " M a r k e t P e r c e p t i o n s of F e d e r a l
R e s e r v e Policy a n d t h e W e e k l y M o n e t a r y
ments," journal
of Monetary
Economics,
Announce-
14 ( S e p t e m b e r
1984), pp. 225-40.
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Going Off the Balance Sheet
Sylvester Johnson and Amelia A. Murphy
Banks' off-balance sheet activities have
emerged as a significant issue in recent years.
Concurrently, competitive pressures on commercial banks have intensified dramatically, as
nonbanking firms and foreign financial institutions alike have encroached on traditional U.S.
banking markets. While both banks and their
competitors may offer loans, which are entered
as assets on their balance sheets, U.S. banks
face more formal and higher requirements to
back up those loans with capital. Thus, in their
search for ways to expand earnings without tying
up capital in asset creation, this nation's banks
have increasingly turned to a broad array of offbalance sheet undertakings.
Some observers view this development warily,
believing that growing off-balance sheet activities pose a threat to the overall banking system.
For that reason this article, whose purpose is to
describe today's various off-balance sheet transactions, will also attempt to catalogue their
inherent risks. First, however, the competitive
Sylvester Johnson is an economic analyst in the financial section of the Atlanta
Fed's Research
Murphy is an examiner
Regulation
Department.
Amelia
in the Atlanta Fed's Supervision
Department.
FEDERAL RESERVE BANK OF ATLANTA
A.
and
forces that have driven banks to go off the
balance sheet will be considered more fully.
Business Climate
Business cycles have a pronounced effect on
banking, as they do on many other sectors of the
economy. Economic conditions that favor business—low inflation, low interest rates, and rising
aggregate demand—are, in general, good for
banks, while adverse business conditions affect
banks negatively. Chart 1 shows how the return
on assets (ROA) for all commercial banks varies
over the business cycle. For example, during the
recessionary periods of 1980-82, ROA for all
banks declined, after having risen during the
preceding expansionary period of the late
seventies.
Steadily decreasing credit quality has dealt a
blow to bank profitability in this decade. Despite a five-year-old economic expansion, many
sectors of the U.S. economy, notably energy,
agriculture, and real estate, continue to experience depressed or negative conditions. The
persistent difficulties in these industries have
resulted in loan quality problems that have
eroded bank profitability.
23
Return
on A s s e t s
Chart 1.
Return on Assets for
All U.S. Commercial Banks, 1960-85
1965
1970
1975
1980
1985
Source: "Consolidated Reports of Income for Insured Commercial Banks, " Board of Governors of the Federal Reserve System.
Beyond conditions in the general economy, a
number of industry and regulatory trends have
squeezed bank profits. First and foremost is the
move by large commercial customers, who once
represented a sizable portion of prime banking
business, into the commercial paper market in
the seventies. The loss of these highly rated
borrowers has not only cut the volume of bank
lending but in some cases may also have reduced
the quality of loan portfolios, as banks replaced
better quality credits with loans to less stable
borrowers. A second industry trend assailing
profitability is the rise of U.S. nonbank firms and
foreign financial firms offering traditional banking services. Since these competitors can engage
in lending as well as deposit-taking, commercial
banks often must offer more favorable rates,
which can leave them with extremely narrow
interest rate spreads after adjusting for required
24
reserves, Federal Deposit Insurance Corporation (FDIC) premiums, and capital requirements,
none of which is uniformly mandated of their
competitors.
The more structured and stringent capital
requirements imposed on banks have significantly altered the incentives for off-balance
sheet activities, for such requirements act as a
tax on new assets.' The level of capital required
relates to the volume of a bank's assets, and so
most banks can expand assets only if they also
raise additional capital. Moreover, the current
movement toward risk-based capital requirements will demand even higher levels of capital
to offset riskier asset portfolios. Again, the
incentive to engage in off-balance sheet activities will be fortified.
Together, capital strains and lower profitability on traditional lines of business have
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
encouraged banks to seek new ways of maintaining or boosting their ROA. In an effort to
bolster return on equity (ROE), as well as ROA,
banks and nonbank financial firms have explored methods of moving profitable assets off
their balance sheets, thereby avoiding capital
requirements while at the same time earning
fee income from guaranteeing, originating, and
servicing loans. Especially for money-center
institutions, an increasing share of total profits
is being generated by non-lending-related
activities, such as loan servicing and credit
enhancement. 2 In fact, the ten largest banking
organizations in the United States earned 33
percent of reported 1985 net income from noninterest sources.3
Off-Balance Sheet Activities
Off-balance sheet activities are contingent
claims or contracts which usually generate fee
income for the bank. A contingent claim legally
binds a financial institution to lend or provide
funds should the contingency be realized. This
potential obligation does not affect a bank's
balance sheet, however, until the contingency is
realized and the loan actually made.
in today's rapidly changing financial services
environment, the types of off-balance sheet
transactions undertaken by commercial banks
are continually expanding. For the most part,
such transactions are used to provide backup
credit to customers, change interest rate risk
(that is, to modify exposure to an adverse turn in
interest rates), or alter exposure to currency
exchange rate movements. Whereas off-balance
sheet activities may effectively mitigate such
risks, at the same time they introduce balance
sheet or portfolio risk: if activated, the contingent claim creates an asset that must b e
funded. The following sections detail a number
of the morecommon off-balance sheet activities
and their associated risks. In addition to loan
commitments, standby letters of credit, interest
rate swaps, foreign currency swaps, and futures
and forward contracts, the emerging securitization phenomenon, another off-balance sheet
undertaking, will be discussed.
Loan Commitments. Loan commitments are
legally binding agreements to lend a borrower a
FEDERAL R E S E R V E BANK OF ATLANTA
specified amount, usually at a stipulated rate,
for a specific purpose. In effect, the bank agrees
to accept a cred it exposure at some future date.
The borrower uses the commitment to ensure
that funds will be forthcoming for working capital or to finance large projects should other
forms of borrowing become unavailable. The
commitment may be viewed as an insurance
contract wherein a borrower purchases protection against certain risks while the bank, in the
role of insurer, takes upon itself the risk associated with making the loan should the
potential borrower so request.
In a note issuance facility (NIF), which is one
popular form of a medium-term loan commitment, the bank advances funds only if direct
funding cannot be obtained. For some period of
time, generally three to seven years, the bank
agrees to purchase the short-term commercial
paper of a borrower or to provide credit if the
borrower cannot place his notes at an interest
cost below the rate at which the bank would provide financing. (Commercial paper is an unsecured obligation used by business and
financial firms to raise short-term funds in the
open market.) Under such an arrangement, the
borrower not only is assured of the funding that
might be needed to complete a project, but he
also gains flexibility as business conditions
change. By underwriting an NIF, the bank generates fee income and maintains a client relationship without actually extending funds.
Irrevocable commitments, such as lines of
credit and NIFs, expose a bank to credit risk
similarto that of commercial lending (that is, the
counterparty may default on the loan), but the
ultimate exposure depends on the likelihood
and extent to which the commitment is drawn
upon. For those commitments that are only partly drawn against, a bank's credit risk exposure is
usually lower than its risk on a corresponding
amount of commercial loans. However, under
some forms of commitment, especially an NIF,
the bank is likely to shoulder a credit risk that
has been priced out of the market. Furthermore,
an institution's liquidity may be strained should
several large loan commitments be activated at
one time.
Notwithstanding their potential risks, in their
various forms loan commitments have been basic
to banking for many years. Although they account
for over a quarter of off-balance sheet commit25
ments, recent growth in this area has been quite
modest relative to other contingent liabilities.4
Standby Letters of Credit. A standby letter of
credit (SLC) is a contractual agreement issued
by a bank in a customer's behalf. Unlike a loan
commitment, which involves only the bank and
its customer, an SLC entails the bank's commitment to a third party. If the bank customer cannot meet the terms and conditions of its
contractual agreement with the third party, the
issuing bank is obligated to do so as stipulated
by the terms of the SLC. Because the commitment is relied on chiefly for credit enhancement
or as an emergency source of funds, it is essentially a loan of a bank's credit rating rather than
of its funds. In return for providing the letter, a
bank receives a fee, as well as interest income
should credit actually be extended.
Traditionally, SLCs have been used as backup
lines of credit to support commercial paper
offerings, municipal borrowings, and construction lending. Newer applications, such as the
use of SLCs for mergers and acquisitions, are
emerging. To some extent, direct-finance markets have fostered the growth in SLCs (see Table I).
As third-party investors increasingly assume
credit risk, they may require SLCs so as to lessen
third-party exposure. At the same time, the
bank's customer can secure more favorable
interest rates when the credit standing of the
issuing bank guarantees its performance. The
issuing of standby letters of credit is a reasonable extension of commercial banks' lending
relationships and of their expertise in assessing
and diversifying credit risk. At relatively small
expense, banks can obtain from current loan
and deposit customers any additional information necessary for preparing an SLC.
Along with the advantages a bank can derive
from heavy SLC activity, it also can expose itself
to potentially significant increases in credit,
liquidity, and capital risks. Credit risk inheres in
the borrower's possible default or poor performance. Commercial banks attempt to protect
themselves from such risk by estimating the
likelihood of default (generally on the basis of
historical loss rates on similar loans), by holding
reserves to cover this risk, and by securing
collateral interests from the borrower. Although
historical loss ratios on SLCs are lower than
those on a typical commercial loan portfolio, the
fact that the majority of SLC contracts lack formal
26
collateral arrangements may point to a greater
credit risk. Further, the probability is higher that
an SLC will be called on for funds when the
markets for credit desert the borrower.
Since SLCs are not funded, risks to liquidity
and capital also are important factors for their
issuers. Losses could mount quickly, threatening the bank's capital base, should several SLC
borrowers default at the same time. 5 In addition, as with loan commitments, liquidity problems could result if several large SLCs were
activated at once.
Furthermore, it should b e noted that SLC
activity may concentrate risk in the banking system. Assuming that a bank is not the direct
investor; the system bears no risk when a bank
customer borrows from a third party. With an
SLC, however, at least part of the risk is transferred to the bank from the direct investor, as
the SLC commits the bank to support the
borrower. While this move reduces the risk of
default to the direct investor, the SLC compels
the issuing bank to adopt possible credit exposure. Large holdings of contingent claims like
loan commitments and SLCs present the most
serious funding risk. A bank with significant offbalance sheet risk of this kind could deteriorate
rapidly and unexpectedly, since the draw-down
rate on these instruments is unpredictable. In
addition, borrowers usually activate standby
letters of credit and loan commitments only
when adverse economic conditions prevent
them from meeting their obligations otherwise.
At such a time, the market is likely to be similarly
less receptive to the banks' needs for funds.
Moreover, if negative events force a large number of borrowers to have recourse to their SLCs,
the banking system as a whole may suffer. At a
minimum, such a development would generate
liquidity problems; at worst, it would lead to
bank failures that could be transmitted systemwide. Fortunately, the probability of such systemic failure is extremely small.
Lastly, SLCs and loan commitments present
an ill-defined legal risk to the bank. Few agreements related to off-balance sheet services
have been challenged in court. Of particular
concern is the fact that the legality of "material
adverse change" clauses have not been courttested. Technically, these clauses allow the
bank to withdraw its commitment to lend in the
face of material declines in the financial posiSEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Table 1.
Loan Commitments Off and On the Balance Sheet
for U.S. Commercial Banks
(Thousand $)
Off the Balance Sheet
United States
Year's
End
Standby
Letters
of
Credit
1980
48,562,371
1981
1982
1983
1984
1985
1986
Loan
Commitments
192,409,107
187,284,588
Standby
Letters
of
Credit
Loan
Commitments
55,559,101
429,407,071
493,244,304
540,224,683
568,130,305
B a n k s in Southeastern States 1
Standby
Letters
of
Credit
Loan
Commitments
1,489,441
35,987,717
75,864,400
108,347,768
128,791,927
159,845,636
15 Largest U.S. B a n k s
2,288,978
77,635,339
91,814,150
111,663,855
252,729,198
270,988,057
129,516,655
123,690,957
287,512,654
303,682,893
3,126,859
4,054,038
4,691,523
6,432,064
8,237,655
28,869,131
35,642,194
44,646,800
48,959,862
On the Balance Sheet
Total
Gross
Loans
Year's
End
1980
1981
1982
1983
1984
1985
1986
834,110,282
925,784,533
1,025,350,133
1,122,374,657
1,271,079,713
1,398,498,824
1,536,447,101
Total
Assets
Total
Gross
Loans
1,526,694,387
214,384,275
1,675,798,040
1,861,082,217
2,018,831,238
2,150,259,611
2,361,073,881
2,571,073,783
Total
Assets
251,066,165
288,335,353
299,894,491
283,773,309
293,614,984
331,483,502
380,606,806
412,955,716
471,097,861
480,221,026
472,134,306
501,457,046
533,954,759
Total
Gross
Loans
93,136,788
101,563,219
111,702,764
127,168,028
163,087,593
189,705,307
217,206,454
Total
Assets
177,545,861
195,739,869
221,284,401
249,148,772
277,377,129
316,472,026
361,940,167
1Southeastern
states are defined as Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina,
Tennessee, and Virginia.
Source: "Consolidated Reports of Income for Insured Commercial Banks, 1980-86," Board of Governors of the Federal Reserve System.
tion of the borrower. Until such contracts have
been approved by the legal system, however,
the duties, responsibilities, and liabilities of all
parties will remain somewhat cloudy.
Futures, Forward Rate Agreements, a n d
Standby Contracts. Futures contracts are commitments for delayed delivery of securities or
money market instruments. According to these
arrangements, the buyer agrees to purchase
and the seller agrees to deliver at some future
date a specific instrument at a mutually acceptable price or yield. These futures contracts on
interest rates are standardized and traded on
organized exchanges. Their market consists of
two major players, hedgers and speculators. A
hedger attempts to transfer risk in order to protect the value of his capital from adverse
changes in interest rates. A speculator, on the
FEDERAL R E S E R V E BANK OF ATLANTA
other hand, accepts risk as he attempts to
exploit any profit opportunities available in the
market. As a counterbalance, a hedger will
usually assume a position that is approximately
equal in size and on the opposite side of the
market to a related cash position. For example,
he may be long the cash instrument (that is, he
holds the cash instrument), and short the futures contract, by which he commits to sell the
cash instrument at some specified future date
at a price determined in the futures market in
orderto protect the value of thecash instrument
that he now holds.
In a forward rate agreement, which is closely
analogous to a financial interest rate futures
contract, two parties agree on the interest rate
to be paid on a nominal deposit of a specified
maturity at a particular future date. Settled in
27
cash, the contracts are arranged over the counter and their terms are not standardized; generaily they may be considered over-the-counter
financial futures. While the individually negotiated forward contracts can be simpler and
more flexible than futures, they are stricter in
that they can be terminated before expiration
only if both parties agree.
Standby contracts are optional forward arrangements in which the buyer purchases the
right, but not the obligation, either to buy some
financial instrument from or to sell the same to
the contract seller at an agreed-upon price. On
the other hand, the seller of the contract is
obligated to sell or purchase the stipulated
instrument under the same terms. The purchase
(a "put" option) or sale (a "call" option) is tied to
a future date requested by the buyer. One can
view an optional forward contract as an insurance policy; the buyer is the insurance purchaser, while the seller is the policy writer.
Since forward and futures contracts represent
a commitment to buy or sell a specific instrument in the future, the holder is exposed to all
changes in the market value of the underlying
instrument. The only way to terminate a forward
or futures contract before maturity is to close it
out or to hedge, that is, to take a position exactly
opposite the original position. For the institution hedging a cash position, the loss/profit is
offset to some degree by the profit/loss on the
cash instrument that is being hedged. Especially
for futures and forward contracts, the hedge
design is critical to offsetting market risk.
Financial institutions usually occupy the role
of hedgers in futures and forward contracts, attempting to cover the interest rate exposure of
their portfolios without altering their liquidity
profiles. In order to guarantee a successful
hedge, they exploit the strong correlation between changes in the futures instrument chosen
for the hedge and changes in the cash instrument. Considering the market risks accepted
and the sizable potential for loss, the job of
managing, hedging, and pricing futures and forward contracts demands significant expertise.
The counterparty risk associated with a forward contract derives from the fact that such
contracts are not traded on the organized
market but rather are two-party contracts. If the
party to the agreement fails, an institution is at
risk to the extent that it expects to receive a pay28
ment from the counterparty. One procedure for
limiting this exposure is to require advance payment of an initial margin, usually set at 5 percent
of the forward contract's value.
Unlike forward contracts, futures contracts
carry a liquidity risk, or potential cash strain. An
"open" position is marked to market daily, which
means that its value fluctuates and gains or losses
must be settled each day. If a large futures position is maintained, an adverse move in futures
prices could pose liquidity problems when a
contract holder tries to meet the required
margin call.
Risk distribution is asymmetrical in a standby
contract, for, according to what happens to the
market price, the buyer may reap unlimited gain
yet lose no more than the premium paid for the
agreement. As an example, suppose an investor
"Considering the market risks accepted and the sizable potential for loss,
the job of managing, hedging, and
pricing futures and forward contracts
demands significant expertise."
pays $1,000 for a call option to purchase U.S.
Treasury bonds at an agreed purchase price (or
"strike" price) of75. Ifthecurrentmarketpriceof
the bonds fall below 75 (say, to 70), the investor
will simply choose not to exercise his option. On
the other hand, if the market price rises above
75, the investor will likely pursue his ability to
buy the bonds below the going market price.
Conversely, the seller of the option stands to
gain only the $ 1,000 premium paid by the buyer
of the option contract. His potential loss, however, is boundless: no matter how high the
market price may rise, he is obi igated to sell the
bonds at 75. This situation creates counterparty
risk for the buyer of the option, who, throughout the
life of the contract, must shoulder the risk that the
seller will fail to meet his obligation. The seller, on
the other hand, runs no credit risk since the contract purchaser has no obligation to perform.
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Money-center and regional banks alike commonly use forward and futures contracts in connection with their foreign exchange transactions.
A bank customer with a future need for foreign
exchange offsets the risk of an unfavorable
exchange rate movement by entering into a forward contract with the bank. For a fee, the bank
essentially adopts the customer's risk, but at
the same time covers its own position via the
futures market. Banks are thus active in both the
forward and futures markets, which function in a
complementary way. As mentioned above, both
types of contracts specify deferred purchases or
sales of foreign exchange at a price determined
today. Futures are standardized in terms of
delivery date and denomination and are traded
on an exchange where a clearinghouse stands
between buyer and seller. These features make
"Futures are standardized in terms of
delivery date and denomination and
are traded on an exchange
[FJorward commitments are highly illiquid
and thus are held to maturity."
futures contracts highly liquid. Forward contracts, on the other hand, are tailor-made
arrangements between the bank offering the
contract and its customers, who seek flexibility
in terms of contract maturity and denomination.
Unlike futures contracts, forward commitments
are highly illiquid and thus are held to maturity.
Banks employ futures to hedge their net commitments in foreign exchange. At any time, a
financial institution will have offsetting long and
short (that is, buying and selling) commitments
in forward contracts arranged with their customers. The bank's net long or short forward
exposure can be hedged by taking an opposite
position in the foreign exchange futures market.
Generally, however, this hedge will not be perfect for a couple of reasons. First, the expiration
dates for the futures contracts—which fall in only
four months of the year—will not exactly coinFEDERAL RESERVE BANK OF ATLANTA
cide with those for the outstanding forward contracts. Thus, even if the net forward position is
matched exactly by an offsetting futures position, the value of these positions will not be perfectly negatively correlated over time. The bank
can only attempt to minimize the discrepancies.
A second reason that a bank cannot achieve a
perfect counterbalance to its forward exposure
is that the net forward position will vary over
time as the bank creates new forward contracts
and closes out old ones. The changes to the net
forward position will not be perfectly predictable, and adjustments to the hedging futures
position will not be perfectly offsetting. Altering
the futures position frequently runs up transactions costs and, in any case, the fixed denomination of the futures will also result in some small
net long or short exposures.
Aside from the virtual impossibility of achieving a perfect futures hedge, an additional risk
arises because of the interim cash flows that a
futures contract generates. While no money
changes hands until a forward contract expires,
a futures contract is marked to market, as was
noted above. If a bank, for example, has a short
futures position in Japanese yen and that currency is appreciating, the bank must meet variation margin calls, as it is losing money on its
futures position. Although the bank would b e
profiting on its net long forward position in yen,
it cannot realize that gain until the forward contracts expire. Therefore, such variation margin
calls may strain a bank's liquidity in crisis
situations, when reserves are demanded for other
contingencies.
Whereas the principal amount of futures contracts held by banks may be quite large, the
actual amount of risk exposure is fairly small. In a
counterparty default, for instance, the potential
loss is merely the cost of replacing the contract
at current rates. Furthermore, daily payment of
variation margin calls serves to reduce the
replacement cost of the contract to a small fraction of its notional amount. This type of risk
exposure is so minute that it has been excluded
from consideration in the risk-based capital
measures proposed jointly by the Board of
Governors of the Federal Reserve System and
the Bank of England. Spot foreign exchange contracts are excluded for the same reason.
Swaps. Generally, a swap is a financial transaction in which two parties agree to exchange
29
streams of payments over an agreed, and potentially unlimited, period of time, and these payment streams may extend over any time period. 6
It may be considered a special case of a forward
agreement, which can provide a one-time, longterm hedge. The two main types of swaps are
currency and interest rate swaps.
With an interest rate swap, no principal is
transferred either initially or at maturity. Instead,
interest payment streams of differing character
are exchanged according to predetermined
rules. A notional principal amount serves only
for reference in calculating the amount of interest payment. By means of an interest rate
swap, two parties can exchange debt service
payments.
Of the three main types of interest rate swap,
the first is the coupon or "plain vanilla" swap.7
One party to the agreement provides fixed
interest rate payments in return for variable rate
payments from the other party; the amount of
indebtedness, the maturity, and the payment
date are the same for both. The second type of
swap, the basic swap, involves the exchange of
floating rate services based on different indices,
for example, prime and LIBOR (London Interbank Offer Rate).
The third type of interest rate swap, a "circus"
swap, is linked to a currency swap. A currency
swap is a transaction in which two parties
exchange specific amounts of two different currencies at the outset. They repay the resulting
debt according to a predetermined schedule
that reflects both interest payments and amortization of principal. Usually, fixed rates of interest are employed in each currency. For
example, a borrower may wish to obtain deutsche
marks to finance a venture in West Germany, but
may not be able to secure funds readily or at an
acceptable cost in Germany's capital markets.
Simultaneously, this borrower may have easy
access to U.S. capital markets and be able to
borrow there on relatively attractive terms. If a
counterparty who has a net asset position in
deutsche marks and a desire for low-cost dollar
funds can be identified, the opportunity for a
currency swap exists. The combined interest
rate and currency swap—a "circus" swap—calls
for fixed rate service in one currency to be
exchanged for floating rate service in another.
Interest rate swap volume rose to $57.4 billion
in the first quarter of 1987, up from $39.9 billion
30
during the corresponding quarter of 1986 and
$49.5 billion in the fourth quarter of that year.8 A
survey also showed that 2,428 contracts with an
average face value of $23.6 million were executed
in the first quarter of 1987.9
The increase in the variety of end users on
both sides of the swap market and a corresponding rise in credit risk has engendered
some concern about purely brokered swaps.
Because banks have a large customer base and
expertise in assuming long-term market and
credit risks, they can readily occupy the role of
intermediary by entering into two offsetting
swaps.10 Generally, though, their swap arrangements are intended to hedge other balance
sheet and off-balance sheet interest rate or
currency exposures. For banks, the main risk of
engaging in currency and interest rate swap
"Securitization...
allows hitherto relatively illiquid loans to be transformed
into risk-diversified, high-return vehicles
for intermediating funds."
activities is posed by the possibility of a counterparty's default. Should the counterparty fail
to meet his obligation, the bank can be left with
a large, unbalanced exposure. With an interest
rate swap, only the stream of payments is at risk;
however, with a currency swap, the principal
amount also may be jeopardized.
Securitization. A further advance in generating fee income and keeping assets off the
balance sheet is securitization. Like other offbalance sheet activities, however, securitization
may establish contingent claims on banks.
Securitization is the sale of securities representing an income flow backed by packaged
assets. It allows hitherto relatively illiquid loans
to be transformed into risk-diversified, highreturn vehicles for intermediating funds. One
method of securitization is to pool similar
assets and subsequently issue securities backed
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
by that pool. To date, securities backed by
mortgages, car loans, computer leases, credit
card receivables, service center receivables,
and truck leases have been issued.
Commercial bank securitization activity has
so far been limited, b u t a pattern of operation is
discernible. Most such cases involve four primary parties: the loan originator, the loan
purchaser (an affiliated trust), the loan packager
(underwriter of the securities), and a guarantor.
These securitizations operate in much the same
way as mortgage-backed securities issuance,
except that in the majority of the latter the
Government National Mortgage Association
("Ginnie Mae") or Federal Home Loan Mortgage
Corporation ("Freddie Mac") acts as the purchaser and packager, with the U.S. government
or a private corporation acting as guarantor.
'¡Securitization is not for everybody.
For the most part, relatively large asset
pools must be segregated to justify the
legal and investment banking costs of
effecting the transaction."
In the most common form of securitization,
the loan originator (bank) segregates the assets
in a subsidiary or separate trust, thus moving
them off its balance sheet as long as no recourse
to the bank is provided. For example, in the
Marine Midland/Salomon Brothers Certificates
for Automobile Receivables (CARs) deal, the
loans were sold to an affiliate of Salomon
Brothers, which in turn conveyed them to a
separate trust. The loan originator receives an
amount equal to the principal amount of the
loans securitized and any premiums the seller
of the package of loans can abstract.
Under the advice of the packager, usually an
investment bank, the trust issues securities that
represent fractional interests in its assets. The
securities are often wholly or partly insured by a
third-party guarantor, which may be one of a
small number of insurance firms specializing in
FEDERAL R E S E R V E BANK OF ATLANTA
financial guarantee insurance. The growth of
such insurance has mirrored the growth in the
commercial paper market, yet many financial
insurance firms are hesitant to accept any risk.
To date, these companies have required full
recourse, in the way of a bank letter of credit or
parent company guarantee, should a borrower
default. The implications of their reluctance will
b e discussed below.
As with the now familiar mortgage-backed
securities, the new issues pass ownership of the
original loans or receivables to buyers of the
securities. The loan originator generally retains
servicing obligations and fees for the assets, in
addition to origination fees and any premium
gained from their sale. In this way, the seller
earns fees both from making and servicing the
loan, and yet need not continue to fund the
asset and raise supporting capital. By retaining
servicing obligations, the originating bank also
retains its ability to realize the significant
economies of scale present in large loan servicing operations.
On the investor end, the securities present
small banks, thrifts, and institutional buyers
with a twofold advantage: these investors can
diversify into geographic and industry areas of
commercial lending outside their normal scope
and earn a rate of return above that associated
with commercial paper of similar risk. For example, a commercial loan typically earns a return of
100-200 basis points above commercial paper
rates for comparable maturities, and consumer
loan rates are much higher than those of commercial loans. Even after servicing fees, the
buyer of asset-backed securities tends to reap a
risk-adjusted return superior to that available
through other short-term investments. Furthermore, since the securities often entitle the
holder to an interest in the underlying assets,
the investor may be better collateralized than if
investing in unsecured loans or other assets.
While it may prove an important tool for some
institutions, securitization is not for everybody.
For the most part, relatively large asset pools
must be segregated to justify the legal and
investment banking costs of effecting the transaction. One investment banker estimated that a
bank must be able to issue securities backed by
$50 million in assets for a private placement and
$100 million for a public offering.11 Clearly,
mínimums such as these may deter smaller
31
banks from accelerating their securitization
activity.
Another important barrier to the wider practice of securitization is recourse. In deals that
include recourse, the buyer and seller agree
that if some of the securitized assets default, the
seller will absorb the losses. When a counterparty has recourse to a bank, regulators have
determined that the securitized assets should
remain on the bank's books. The result is that
when banks allow recourse, they must back the
securitized assets with capital. A case in point
occurred in 1984, when Citibank sold loan participations to Chatsworth, an independently
owned, special-purpose corporation. Chatsworth
then issued commercial paper based on the
loans and guaranteed by Travelers Insurance
Company. Under the sale and guarantee agreements, Travelers could look to Citibank if any of
the participations turned sour. In the eyes of
bank regulators, these "loans sold with recourse" represented bank borrowings, much
like repurchase agreements, and so they could
not b e removed from Citibank's books. The
Marine Midland and Valley National securitizations of car loans issued in early 1985 granted
the guarantor recourse not to the bank, but to
the bank holding company. Reluctantly, regulators allowed the selling banks to remove the
assets from their books.
In a twist that may bypass the issue of recourse, some companies have structured securitizations utilizing a "spread account," or
"overcollateralization." This account is funded
with excess interest generated by the difference
between the interest rate earned on the loan
portfolio and that paid on the securities. The
spread account is intended to absorb any future
losses on the loans securitized; the historical
default level of the securitized assets dictates
the account's size. If estimated losses exceed
actual losses, any funds left over once the
security has matured become the property of
the originating institution. On the other hand, if
losses surpass the level of the spread account,
investors are expected to absorb the difference.
Both the Comptroller of the Currency and the
Federal Deposit Insurance Corporation support
the notion of a spread account. They permit
those commercial banks using spread accounts
for recourse to remove the securitized assets
from their balance sheets. In essence, both
32
regulators view the transaction as a sale. The
Federal Reserve Board, however, considers
securitization a financing and not a sale. Even
with a spread account, the Board maintains that
the bank's future earnings may be at risk.
A regulator's concern is to ensure that securitization improves the financial and competitive position of banks without jeopardizing the
safety of the banking system. Securitizations of
pooled loans differ from traditional loan sales or
participations in that the securities issued are
backed by loans to a host of borrowers, rather
than by one or two individual credit extensions.
Pooling the assets lowers the overall risk of
default to a level below that of the individual
loans taken separately, while the partial ownership afforded by securitization spreads that risk
among many owners. In addition, the securities
are more fungible because the default risk of a
class of borrowing can be predicted with greater
accuracy than can that of a single borrower.
At the same time that it dilutes the risk,
however, pooling also clouds the buyer's credit
decision. Instead of evaluating one or two
borrowers, securities purchasers may need to
evaluate a portfolio of 100 borrowers. Smaller
banks and thrifts, possibly lacking the expertise
required to make such an assessment, might
therefore end up purchasing poor credits and
increasing their risk profiles unacceptably.
Furthermore, since providing full documentation to back the lending decision may not always
be feasible, especially in the securitization of a
very large portfol io, the investor must rely on the
integrity of the originator/packager.
On the originating end, there are additional
risks to consider. Once booked, an asset tends
to remain the responsibility of the originating
institution, even if no legal or financial liability is
imputed. A soured securitized pool could so
damage a bank's reputation—in an industry
where an immaculate reputation is critical—that
the event would sully the firm's future funding
prospects. Hence, the originating bank may be
subject to some serious credit risks even with a
clean securitization. On the other hand, regulators fear that the larger banks, which are more
active in employing loan sales, will bleed their
portfolios by selling off their highest quality
loans. On a non-risk-adjusted basis, such assets
tend to be lower-earning, and so the incentive
to remove them from the bank's books can be
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
quite strong. Obviously, though, no bank will be
able to pursue this course for long, as its own
credit standing will be downgraded as a result.
Pros and Cons of
Off-Balance Sheet Activities
Notwithstanding the unquantifiable risks
that have been touched on above, off-balance
sheet techniques can frequently be used to
limit known risks. In addition to the familiar
hedging capabilities of swaps, futures, and forward contracts, securitization—an increasingly
popular off-balance sheet activity-could enable community banks to diversify their loan
portfolios in new ways. This potential could
significantly strengthen the portfolios of many
small agricultural and oil-patch banks. The
benefits of judicious diversification could outweigh the risks, fortifying the banking system as
a consequence.
Still, in the aggregate, the risks inherent in offbalance sheet transactions pose a greater threat
FEDERAL RESERVE BANK OF ATLANTA
to the banking system than they have formerly.
The growth of contingent liabilities presents a
particular problem for capital regulation as
currently designed. Existing regulation assumes
that banks act privately to take on more risk than
is publ icly desirable. This logic argues for applying capital guidelines to off-balance sheet
activities as well, since they augment risk.
Extending capital requirements to include some
portion of off-balance sheet activities will force
banks to recognize their accompanying risk and
should tend to reduce unwarranted exposures.
The risk-adjusted capital proposals issued by
federal regulators in 1987 aim to bring capitalization policies more into line with the risks
posed by current banking operations. 12 The
proposals address off-balance sheet exposures
by including letters of credit and loan commitments in the determination of capital requirements. By raising the level of required capital,
these higher standards will not only mandate a
thickercapital cushion but will also augmentthe
influence of market discipline over prudent
bank operation.
33
NOTES
1
In traditional microeconomic theory, a tax on a good serves
to raise the price of the good relative to other goods. A s a
result, t h e price ratio is altered a n d agents will begin to
substitute non-taxed goods for the taxed good. T h e case
is analogous for activities that have capital requirements
and those without such requirements. In order to r e d u c e
costs, b u s i n e s s e s will a t t e m p t to r e d u c e their u s e of
capital-intensive activities a n d replace t h e m with services
that d o not have capital requirements.
2 Proctor
^Computed by Federal Reserve Bank of Atlanta from data
o b t a i n e d from t h e Federal Reserve Board of Governors'
t a p e s on Commercial Bank Call a n d Income Reports.
by t h e Federal Reserve Bank of Atlanta from
data o b t a i n e d from the Federal Reserve B o a r d of Governors' t a p e s on Commercial B a n k Call a n d Income Reports, S c h e d u l e RC-L: Commitments a n d Contingencies.
Figures are as of D e c e m b e r 31,1986.
5Bennett
6For
a recent article on t h e " p l a i n vanilla" swap a n d its
application as a means of financing, s e e Wall duly 1986).
^ h e s e figures are from a survey released by the International S w a p Dealers Association. S e e W e i n e r (1987).
^ h e figures t e n d to overstate the amount of risk to which
institutions are e x p o s e d with interest rate swaps. T h e s e
figures are b a s e d on notional amounts or principals which
are not exchanged in an interest rate swap. Thus, this
amount is not at risk. Only the differences in t h e streams of
interest payments are exchanged, a n d it is this amount
(1986), p. 242.
4Computed
7 For
that is at risk.
l0For
a discussion on commercial banks as intermediaries
for interest rate swaps, s e e Bank for International Settlements (April 1986), pp. 45-55.
" A r n o l d (1986).
12The
Federal Reserve Board's risk-adjusted proposals c a n
b e found in the Federal Register, March 24,1987, pp. 9304-12.
FDIC proposals a p p e a r in the Federal
Register,
April 9,
1987, pp. 11476-92. Proposals by the Comptroller of t h e
(1986), p. 25.
a discussion on the motivations for a swap, s e e Wall
a n d Pringle (1987).
Currency a p p e a r in t h e Federal
Register,
( u n e 17, 1987,
pp. 23045-54.
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Banker, October 29, 1986.
Salem, G e o r g e M. "Commercial Loans for S a l e : The Marriage
of Commercial Banking a n d Investment Banking." Banking, Donaldson, Lufkin & )enrette Securities Corporation, 1985.
FEDERAL RESERVE BANK OF ATLANTA
of a Con-
(April 23-25,
1984), pp. 432-60.
May 5, 1986.
1986.
Robinson, H o y l e L. Federal
(May 1985), pp. 198-202.
Sinkey, )oseph F. "Risk Regulation in t h e Banking Industry."
M o d e l with Uncertain Interest Rates." Federal Reserve
"Proposed Fed Rules May E a s e Way for Banks to Sell AssetRecent
American
Affairs. Comprehensive
Proctor, A l l e n ). " I d e n t i f y i n g t h e Profitable Activities of
in Commercial
February 28, 1986.
S t a m p e r , M i c h a e l , Patricia D o d s o n , a n d Rick W a t s o n .
Pavel, Christine. "Securitization." Federal Reserve Bank of
Chicago Economic
Banker,
" S a l o m o n to Offer Bank of America Car Loans to Public."
Shapiro, Harvey D. " T h e Securitization of Practically Every-
Ma isel, S h e r m a n ) . Risk and Capital Adequacy
of a Conference
" S a l o m o n Brothers to Sell D e b t B a c k e d by Card Receiv-
and John J. Pringle. "Alternative Explanations
of Interest Rate S w a p s . " Federal Reserve Bank of Atlanta
Working Paper 87-2, April 1987.
Walmsley, Julian. "U.S. D e b t Markets Ring the Changes." The
Banker, vol. 135 (August 1985), pp. 22-25.
Weiner, Lisabeth. "Interest Rate Volume Up in First Quarter." American
Banker,
Wiles, William W . Federal
August 18, 1987.
Register, vol. 52, no. 56 (March 24,
1987), pp. 9304-12.
Young, David. "Securitizing Commercial Bank Assets." Special advertising s u p p l e m e n t in American
Banker,
Decem-
ber 27, 1985.
35
Book Review
Reference Works in
Business and Economics
Jerry ). Donovan
The books reviewed here are new and recently published monographs (1984-87) that have
broad reference application in business and
economics. Included also, however, are two
rather specialized titles published by the International Monetary Fund, since these deal with
concepts coming to the fore as the importance
of international trade increases. Despite their
proven excellence, continuing serial publ ications
such as t h e a n n u a l Economic
Report of the Pres-
ident do not fall within the scope of this review.
Accounting, Banking,
Finance, and Economics
Barron's
Finance
and Investment
Handbook,
by
John Downes and )ordan Elliot G o o d m a n .
Woodbury, New York: Barron's Educational
Series, 1987. 994 pages. $18.95.
Designed as a desktop reference for investors
of all kinds, this handbook seems sophisticated
and comprehensive enough to suit the professional while being sufficiently basic and
accessible for the student or occasional inquirer.
The reviewer,
search
finance
associate
librarian
library, is a specialist
information.
36
of the Atlanta
in banking,
Fed's re-
economics,
and
The book focuses on the application of financial
and investment information, and so its format
incorporates a wealth of answers to timely questions. For instance, what d o futures contracts for
interest rates or for stock indexes involve? What
are mortgage-backed (pass-through) securities
and zero-coupon securities? A self-contained
dictionary of finance and investment (pp. 159541) covers these kinds of terms.
Exhaustive lists of agencies and other organizations useful to the investor make up another
section of the book. Included, for example, is a
hierarchical array of the Federal Reserve System
with the addresses and telephone numbers for
the Board, the District banks, and the Branch
banks. Elsewhere, a useful selection of historical data and charts illustrates the performance
of p h e n o m e n a like the Bond Buyer Index,
NASDAQ, and the Wilshire 5000 Equity Index. A
thoroughly constructed table of contents and indepth index permit ready access to points of
inquiry. Recommended as a handy, compact
reference book.
Dictionary
of International
Finance,
b y Julian
Walmsley. Second edition. New York:
Wiley & Sons, 1985. 222 pages. $39.95.
John
This edition of a well-respected work emphasizes international topics and introduces
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
f
coverage of terminology related to growing
areas like financial futures and options markets.
Most entries consist of a concise definition or
discussion of a term followed by a brief bibliography of further reference sources. Some
definitions are accompanied by diagrams, as
well.
"Balance of trade" is textually defined in
American English terminology, but the French,
U.K., and Continental idiomatic differences
fundamental to understanding this concept are
noted. "Futures" are discussed comprehensively not only in reference to commodities but
also to financial instruments such as stock index
futures. Additional terms of contemporary interest are "interest rate swaps" and "securitization." Names of foreign organizations appear in
the original language with their respective
acronyms: "Banco Centroamericano d e Intergracion Economica" and BCIE. The "Bank for
International Settlements (BIS)" entry exemplifies this dictionary's thorough scholarship: it
refers the user to the Basle Agreement, for comparison, and to the European Monetary Fund,
which the BIS administers. Recommended for
research/scholarly use.
Handbook
of United
States
Economic
and
Financial Indicators, by Frederick M. O'Hara, Jr.
and Robert Stignano. Westport, Connecticut:
Greenwood Press, 1985. 224 pages. $35.00.
i
Information about the most important U.S.
measures of economic activity is uniquely compiled in this handbook. More than 200 indicators,
drawn from 50 or more fully documented sources,
are encompassed. Indicators may take many
forms: volumes, ratios, indexes, composites,
and so on, and they may be viewed over the
short or the long term. The book is designed for
use by researchers who need quick answers
about various indicators, help in finding their
current and historical values, and the names
and addresses of their issuing agencies.
In addition to its inclusive treatment of serious
economic indicators, the book also explains
tongue-in-cheek "nonquantitative" measures
(for example, the Hemline Index, Superbowl
Predictor, and Drinking Couple Count) for the
edification and delight of readers who must
grapple with the often whimsical terminology of
Wall Street. Besides the body of main entries,
the work carries an alphabetical index and three
FEDERAL RESERVE BANK OF ATLANTA
appendixes (Nonquantitative Indicators, Abbreviations List and Guide to Sources, and List
of Compilers of Indicators). Recommended for
research/scholarly use.
The
Desktop
Encyclopedia
of
Corporate
Finance and Accounting, by Charles J. Woelfel.
Chicago: Probus Publishing, 1987. 518 pages.
$27.50.
Beyond its authoritative definitions, this
encyclopedia describes accounting and financial reporting theory, principles, and practices.
It deals with conceptual foundations to provide
a solid understanding of financial statements.
Both a reference and a sourcebook, the work
contains more than 270 short articles on accounting and finance, accompanied by some
2,500 entries for definitions of related concepts.
The book was written with the cooperation of
the Financial Accounting Standards Board, whose
pronouncements are quoted throughout. The
encyclopedia is alphabetized and indexed for
easy access, and it offers over 75 exhibits to
illustrate complex concepts. Readers who wish
to explore topics further are assisted by extensive cross-referencing and bibliographies of
primary and secondary sources.
Typical of the helpful discussions and information are the "Beta Coefficient" to assess
market risk of stocks; the names of the current
"Big 8" accounting partnerships; "Foreign
Operations and Exchanges," which, for U.S. companies doing business abroad, describes the
considerations regarding foreign currency transactions and the translation of financial statements d e n o m i n a t e d in a foreign currency;
"Ratios," including such profitabilty measures
as return on total assets and return on invested
capital, with a three-page table spelling out
kinds of financial statement ratios and interpreting their usefulness; and the concept of the
"Value Added Statement" seen as the portion
of the selling price of a commodity or service
attributable to a stage of production. Recommended as a desk reference book, as well as for
research/scholarly use.
Glossary
of Financial
Services
Terminology.
Chicago: The Institute of Financial Education,
1987. 85 pages. $4.95.
This terse but inclusive glossary speaks to the
impact on vocabulary brought about by deregula37
tion, tax reform, and recently expanded menus
of financial products and services. Offered by
the Institute of Financial Education, a nationwide educational organization for personnel of
savings and loan associations and cooperative
banks, the book concisely defines the new
vocabulary with the savings institution professional in mind.
The alphabetically arranged entries convey
succinct working definitions of both old and new
concepts. The reader can, for instance, find the
terms ACH, ATM, ARM, and FPM; discussions of
Chapters 7, 11, and 13 bankruptcies; junk bonds;
and repurchase agreements ("repos"). Recomm e n d e d for thrift institution executives and
office personnel as well as for scholarly use.
Dictionary
of Banking
and Financial
Services,
by Jerry M. Rosenberg. Second edition. New York:
John Wiley & Sons, 1985. 708 pages. $34.95.
The expansion and deregulation of the financial services industries have brought about
enormous changes in the terminology used to
describe their growth and their testing of regulatory boundaries. While some researchers
may prefer F.L. Garcia's revision of Munn's
Encyclopedia
of Banking
and
Finance
(eighth
edition, 1983), this second edition of Rosenberg's
Dictionary
of Banking
and Finance
reflects in its
different title, and in its substance, the vast
changes that have occurred in financial services
since the onset of deregulation.
The totally new work incorporates into its text,
for instance, all the entries from the American
Bankers Association's prodigious Banking Terminology; picks up abbreviations like EFT,
ARM, ATM, and the venerable GIGO-for "garbage in, garbage out"; and scrutinizes the
shades of meaning for terms such as "arbitrage,"
giving an equal nod to the spellings "arbitrager
(arbitrageur)" to denote a practitioner. Alphabetically arranged and abundantly cross-referenced,
the book is recommended for research/scholarly use.
Dictionary
of Economics
and
Business,
by
S. E. Stiegler. Second edition. Aldershot, England,
and Brookfield, Vermont: Gower Publishing,
1985. 462 pages. $35.50.
This rigorous dictionary of economics will
facilitate the business person's search for a con38
cise definition of economic terms, or of concepts
from statistics, computing, government, and
industrial relations where these fields overlap
economics. As one would expect, some terms
are specific to the United Kingdom. The dictionary handily defines terms like "lagged
relationship" and discusses such economic
concepts as the Edgeworth-Bowley box diagram
(see Chart 1).
Working definitions are given for the E.C.U.
(European Currency Unit), the E.E.C. (European
Economic Community), and the E.M.A. (European Monetary Agreement), although, oddly,
LIBOR (London Inter-Bank Offer Rate) is omitted. The GATT is taken up, as are Keynesian
analysis and assorted current topics in the world
of communication (for example, L.A.N., or local
area network). Recommended for business people, particularly those doing business abroad,
and for research/scholarly use.
Dictionary
of Economics
and Financial
Mar-
kets, by Alan Gilpin. Fifth edition. London: Butterworths, 1986. 245 pages. $42.95.
Beyond its utility in the area of economic
definitions per se, this volume focuses on commodity, stock, financial, and futures markets for
the benefit of students of applied economics
and readers who wish to enhance their understanding of the financial press. An exposition of
"futures contract," for example, includes the
detailed elements of a typical futures transaction—information basic to understanding stock
index futures as well as portfolio insurance, two
phenomena receiving widespread attention since
October 19, 1987 ("Black Monday").
In another vein, the author has enjoyed the
cooperation of the Board of Governors of the
Federal Reserve System in his detailed exposition of the nature and activities of the central
bank of the United States. The entry illustrates
the impact that open market operations and the
regulation of deposits and loans have on spending, consumption, and investment, and, in turn,
on the determinants of production, employment, and prices in the United States.
Within the volume's scope are LIBOR, to
which interest rates on many variable-rate
securities are tied, as well as short position,
"stocks sold short and not covered as of a particular date." While much new material in this
work relates to the United States, Canada, AusSEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
t
Chart 1.
The Edgeworth-Bowley Box Diagram
SOUrCe:
^986^ p 9 'l 3 24 D , C Ì ' 0 n a ' y 0 f £ C 0 n 0 m , C S
a n d BuSineSS' 2 n d edition
tralia, and the European Economic Community,
the book remains heavily oriented toward the
economics and finance of Britain. Recommended
as a handy desk reference and for research/
scholarly use, especially for those interested in
business abroad.
Forecast and Historical
Statistical Data
Key Indicators
Households,
of County
Income,
Growth,
Population,
1970-2010:
Employment.
Washington, D.C.: NPA Data Services, 1987. 529
pages. $195.00.
This compendium of economic and demographic trends of the U.S. county economies
includes historical and projected county (or
equivalent) data for ten key indicators, including population, households, personal income,
and employment. Each indicator typically is
broken down into several facets; for example,
employment subdivides into full- and part-time
jobs as well as earnings per job. These data, presented systematically for four actual years and
four forecast years, constitute the 1986 Regional
Economic Projections Series (REPS) from NPA
FEDERAL RESERVE BANK OF ATLANTA
< A l d e r s h o t > England, and Brookfield, Vermont: Gower Publishing,
Data Services, Inc., an affiliate of the National
Planning Association. Neither organization's
forecasts are regarded as official, since the
statistical methodology employed reflects the
judgment of those private establishments.
Nevertheless, the basic time series data on
which their projections are based have been
obtained from the Bureau of the Census and are
official. Hence, the historical statistics exhibited
in the tables can be accepted as official.
The series contain "consistent historical data
for the period 1967-1986 . . . and projections for
the years 1987-2010, for 52 economic indicators
. . . and for 156 population series . . . and household indicators. The projection methods reflect
the national and international as well as the
regional and local economic growth trends, and
the current demographic patterns of births,
deaths, and regional population movements."
The volume opens with an overview of the
geographic structure and growth of the U.S.
county economies, illustrated by 12 maps showing county detail for the 48 contiguous states.
The overview is followed by an analysis of structural features based on 1985 data, and then an
analysis of growth trends with projected changes
over the period 1987-2010. The data section,
which comes next, presents the statistics in
39
all U.S. Census statistics on various industries.
Additionally, the codes have been taken up by
many nongovernment sources to organize data
in market guides, directories of companies, and
indexes (for example, in all Dun and Bradstreet
directories). Use of the SIC system promotes
comparability of statistical data describing
components of the U.S. economy down to the
level of the individual business establishment.
As currently revised, the SIC Manual reflects
three fundamental areas of change in the American economy over the last fifteen years: technological advances in manufacturing and serSince reliable, detailed economic and demovices;
deregulation of banking, communications,
graphic data at the county level frequently are
and
transportation
; and the tremendous expandifficult to locate, this book is a welcome arrival.
sion
of
services.
The
preface states that the
Whether or not a researcher embraces its forecast
1987
revision
has
sought
to improve "industry
methodology, the volume's historical data predetail,
coverage,
and
definitions,
and to clarify
sent an extremely handy and useful array.
classification
concepts
and
the
classification
of
Recommended for research/scholarly use.
individual activities.... Deleted industries are
merged into other industries, and new indusMain Economic Indicators: Historical
Statistics,
tries are created by subdividing or restructuring
1964-1983. Paris: Organisation for Economic Coexisting industries. Various industries have also
operation and Development, Department of Ecobeen changed by transfers of individual activnomics and Statistics, 1984. 656 pages. $35.00.
ities, primarily to increase the accuracy, consisMost of the time series published in Main
tency, and usefulness of the classifications."
Economic Indicators, the OECD's monthly
This fine-tuning is apparent in the revised codes
periodical, over the period 1964-83 are cumulated
for "Computer and Data Processing Services"
in this bilingual (English/French) reference
(see Chart 2).
work. For the organization's 25 member nations,
An appendix is devoted to two-way converthe tables provide data on national accounts,
sion tables for codes from 1972 and 1987. Prinindustrial production, stocks and orders, conciples and procedures for the review of the
struction activity, retail and wholesale trade,
Standard Industrial Classification constitute a
labor force, wages, prices, finance, foreign trade,
second appendix, and the third is a glossary
and balance of payments. Recommended for
of abbreviations.
research/scholarly use.
Aside from being indispensable for anyone
involved in tabulating or interpretating U.S.
industry statistics, the 1987 SIC Manual is an
important tool for capturing the impact of the
Statistical Data Definitions
basic shifts that have occurred in the domestic
and Concepts
economy since 1972.
tabular form, tagging them with appropriate
F1PS (Federal Information Processing Standards) Codes to identify uniquely the geographical entities tabulated. Tables are arranged
alphabetically by state, then county. (These
tables are also available in a PC-ready version
formatted for easy application in popular spreadsheet analysis software.) The concluding section
of the book comprises three appendixes: metropolitan statistical areas with County F1PS
Codes, states with County F1PS Codes, and state
maps with counties.
Standard
Industrial
Classification
Manual,
IMF Glossary;
English-French-Spanish,
1986.
1987. Washington, D.C.: Government Printing
Office for the Office of Management and Budget,
1987. 703 pages. $24.00.
Washington, D.C.: International Monetary Fund,
1986. 286 pages. $15.00.
This is the first major revision of the standard
industrial classification (SIC) scheme since 1972.
The system was adopted by the federal government in 1941 to facilitate the collection and presentation of statistical data for manufacturing
and nonmanufacturing industries. Since then,
SIC codes have been used in the arrangement of
While this authoritative work is entitled a
"glossary," it is more in the nature of a polyglot
thesaurus or dictionary of synonyms, since it
does not define the terms which it systematically lists in English, French, and Spanish. The substance of the book is the International Monetary
Fund's controlled vocabulary, that is, the words,
40
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
Chart 2.
Expanded Classification for "Computer and Data Processing Services,"
SIC Manual, 1972 vs. 1987
1972
737
7372
7374
7379
1987
737
Computer and
Data P r o c e s s i n g S e r v i c e s
Computer programming and
other software services
Data processing services
Computer related services, not
elsewhere classified
7371
7372
7373
7374
7375
7376
7377
7378
7379
Computer and
Data Processing S e r v i c e s
Computer programming services
Prepackaged software
Computer integrated systems design
Data processing and preparation
Information retrieval services
Computer facilities management
Computer rental and leasing
Computer maintenance and repair
Computer related services, nec
Source: Standard Industrial Classification Manual, 1972 (Washington, D.C.: Government Printing Office for the Office of Management and
Budget, 1972), p. 601; and ibid. (1987), p. 440.
Chart 3.
"Balance of Payments" Example from IMF Glossary
B-12
balance of payments assistance
B-13
Balance of Payments Division
[IMF-STA]
Balance of Payments Manual
[IMF]
B-14
B-15
balance of payments need
B-16
balance of payments position
B-17
balance of payments test [SDR]
B-18
balance of trade
trade balance
aide au titre de la balance des
paiements
concours (financiers) au titre de la
balance des paiements
Division de la balance des paiements
asistencia con fines de balanza de
pagos
Manuel de la balance des paiements
Manuel de Balanza de Pagos
besoin resultant (de la situation) de la
balance des paiements
position de balance des paiements
situation des paiements exterieurs
solde de paiements exterieurs
[parfois]
critère-test de la situation de la
balance des paiements
balance commerciale
necesidad de balanza de pagos
División de Balanza de Pagos
posición de balanza de pagos
situación de balanza de pagos
saldo de la balanza de pagos
[a veces]
prueba de la situación de la balanza
de pagos
balanza comercial
Source: IMF Glossary, 1986 (Washington, D.C.: International Monetary Fund, 1986), p. 13.
phrases, and institutional titles most commonly
encountered in IM F documents about money and
banking, public finance, balance of payments,
and economic growth. The English terms, with
French and Spanish equivalents, are arranged
alphabetically in the first section of the book
and are frequently cross-referenced to codes
denoting their source, subject field, or country
(see Chart 3).
Sections permitting alphabetical access by
French and by Spanish follow, along with a sec
FEDERAL
RESERVE BANK OF ATLANTA
tion that lists abbreviations and acronyms in
alphabetical order, regardless of language. Of
particular interest to persons concerned with
foreign currencies is the last section of the book,
which specifies currency units for all 141 member nations of the IMF.
While this book is primarily intended as an
aid for IMF language personnel, it clearly will be
useful to many researchers in banking, finance,
and economics whose work deals with areas of
the world where English, French, or Spanish is
41
Chart 4.
Descriptor
——
Language equivalents
Scope note
••
Synonym (used for)
Broader term
— —
VOCATIONAL TRAINING
FORMATION P R O F E S S I O N N E L L E /
m
FORMACION PROFESIONAL—06.03.07
ACTIVITIES AIMED AT PROVIDING THE SKILLS,
KNOWLEDGE, AND ATTITUDES REQUIRED FOR
EMPLOYMENT IN A PARTICUALR OCCUPATION
(OR A GROUP OF RELATED OCCUPATIONS).
UF: OCCUPATIONAL TRAINING
TT:
BT:
NT:
RT:
Related terms
Facet
TRAINING
TRAINING
AGRICULTURAL TRAINING
APPRENTICESHIP
BASIC TRAINING
FURTHER TRAINING
IN-SERVICE TRAINING
INDUSTRIAL TRAINING
MODULAR TRAINING
P E R S O N N E L TRAINING
PREVOCATIONAL TRAINING
RETRAINING
SANDWICH TRAINING
APPRENTICES
OCCUPATIONS
TRAINEES
• Top term
Narrower terms
TRAINING ALLOWANCES
TRAINING C E N T R E S
VOCATIONAL EDUCATION
OCCUPATIONAL TRAINING
Synonym
Descriptor
USE: VOCATIONAL TRAINING—06.03.07
Facet
Source: Macrothesaurus for Information Processing in the Field of Economic and Social Development (New York: United Natio
1985), p. xiv.
spoken or who are making subject presentations there.
Macrothesaurus
the Field
for Information
of Economic
and Social
Processing
in
Development,
prepared by Jean Viet. New York: United Nations,
1985. 347 pages. $35.00.
The introduction to this thesaurus states that
it forms a "common tool for indexing, processing
and retrieving of information contained in
documents issued by diverse specialized agencies, principally those of the United Nations system, and thereby promotes the mutual exchange
of data." The book is divided into four parts:
(l) an alphabetical list of terms in English,
accompanied by their French and Spanish
equivalents; (2) a display of subject headings, or
"descriptor groups," arranged by subject code
number; (3) a hierarchical index which presents
42
chains of descriptors that can be traced in the
thesaurus from broader terms, or "Top Terms"
(TT), down to the most specific terms; and (4) the
key-word-out-of-context index, wherein all significant words used to make up the descriptors
are arranged in alphabetical order (see Chart 4).
The first three hierarchical sections are particularly useful for determining precise components of the concepts employed in U.N.
documents on economics and social development. This revised edition strives for compatibility with other U.N. sectoral thesauruses
serving agriculture, industry, labor, education,
population, science, technology, culture, communication, health, and the environment. Recommended for research/scholarly use.
A Manual
on Government
Finance
Statistics.
Washington, D.C.: International Monetary Fund,
1986. 373 pages. $10.00.
SEPTEMBER/OCTOBER 1987, ECONOMIC REVIEW
The focus of this manual is on national government financial transactions—taxing, borrowing,
spending, and lending. It relates these, in a
definitional sense, to other data available for an
economy, to wit, sets of national accounts and
national accounting report systems. Emphasis
is placed on how to summarize and organize
FEDERAL RESERVE BANK OF ATLANTA
government financial statistics in formats appropriate for analysis, planning, and policy
determination. The volume features a glossary,
along with in-depth indexing. Helpful in understanding the theoretical underpinnings of
government finance reporting, the manual is
recommended for research/scholarly use.
43
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I M P O R T A N T MESSAGE F O E D A T A USEES
FINANCE
n r i r i r l
AUG
1987
In J u n e of e a c h y e a r , c h a n g e s are m a d e to the deposit a n d reserve r e q u i r e m e n t criteria used to select
institutions for inclusion in the s a m p l e o n w h i c h these data are b a s e d . A s of S e p t e m b e r 1 9 8 6 ,
current a n d previous m o n t h l y d a t a are f r o m institutions with over $26.8 million in deposits a n d $2.6
million of reserve r e q u i r e m e n t s . Previously, data w e r e based o n a different s a m p l e of institutions.
For publication purposes, m o n t h l y y e a r - a g o c o m p u t a t i o n s are m a d e o n the basis of these current reporting
criteria. T h e r e f o r e , they are not entirely c o m p a r a b l e to or consistent with previously published data
covering the past periods. M o r e o v e r , percent c h a n g e s s h o w n d o not control for the s a m p l e c h a n g e .
D a t a users n e e d i n g further detail should contact C h e r y l C o r n i s h , D a t a b a s e Coordinator, 4 0 4 - 5 2 1 - 8 8 1 6 .
JUL
1987
AUG
1986
ANN
%
CHG
AUG
JUL
1987
AUG
1986
ANN
%
CHG
$ millions
UNITED STATES
Commercial Bank
Demand
NOW
Savings
Time
Deposits
1,710,703
358,327
156,004
516,114
717,077
Deposits
203,632
39,962
21,618
57,938
88,069
203,673
41,289
21,969
57,855
86,330
C o m m e r c i a l Bank
Demand
NOW
Savings
Time
Deposits
20,730
4,014
2,180
4,691
10,217
Commercial Bank
Demand
NOW
Savings
Time
Deposits
Commercial Bank
Demand
NOW
Savings
Time
Commercial Bank
Demand
NOW
Savings
Time
SOUTHEAST
Commercial Bank
Demand
NOW
Savings
Time
Commercial Bank
Demand
NOW
Savings
Time
Commercial Bank
Demand
NOW
Savings
Time
+ 7
+ 1
+25
+10
+ 4
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
676,799
33,488
159,109
481,310
66,195
8,940
55,973
676,830
34,478
161,536
478,463
66,396
9,357
56,212
621,394
27,882
143,812
447,119
47,671
6,842
39,741
+ 9
+20
+11
+ 8
+39
+31
+41
186,785
38,828
16,820
52,642
82,876
+ 9
+ 3
+29
+10
+ 6
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
86,013
5,317
19,698
60,407
7,418
871
6,284
86,423
5,524
20,023
60,246
7,435
922
6,223
80,862
4,406
18,376
57,567
5,617
679
4,684
+ 6
+21
+ 7
+ 5
+32
+28
+34
20,808
4,117
2,184
4,688
10,197
18,694
4,046
1,619
3,995
9,532
+11
- 1
+35
+17
+ 7
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
4,263
248
775
3,297
997
142
809
4,301
260
784
3,307
983
148
808
4,860
267
948
3,663
834
158
695
-12
- 7
-18
-10
+20
-10
+16
79,248
15,274
9,687
27,326
28,499
78,774
15,994
9,853
27,033
27,446
70,652
14,492
7,288
24,064
26,491
+12
+ 5
+33
+14
+ 8
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
55,989
3,332
13,625
38,418
3,858
450
3,117
56,210
3,476
13,852
38,245
3,888
481
3,142
55,985
2,907
13,266
39,274
2,912
336
2,316
+ 0
+15
+ 3
- 2
+32
+34
+35
Deposits
32,614
8,547
3,072
8,882
13,588
32,751
8,626
3,129
8,939
13,443
29,852
8,138
2,352
8,649
12,134
+ 9
+ 5
+31
+ 3
+12
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
7,426
878
1,593
4,989
1,418
159
1,238
7,510
903
1,626
5,013
1,426
164
1,244
6,328
586
1,381
4,410
1,006
98
900
+17
+50
+15
+13
+41
+62
+38
Deposits
27,910
4,893
2,229
8,080
13,120
28,129
5,109
2,270
8,112
13,048
27,874
5,068
1,893
7,621
13,725
+ 0
- 3
+18
+ 6
- 4
S & L s Total D e p o s i t s
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savinqs & Time
9,880
389
2,117
7,373
9,919
403
2,146
7,374
6,741
298
1,513
4,935
+47
+31
+40
+49
*
*
*
*
*
*
*
*
*
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
1,798
93
274
1,349
1,805
98
272
1,343
1,178
77
170
870
*
*
*
*
*
*
*
*
S & L s Total D e p o s i t s
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
6,657
377
1,314
4,981
1,145
120
1,120
6,678
384
1,343
4,964
1,138
129
1,029
5,770
271
1,098
4,417
865
87
773
Deposits
Deposits
14,110
2,292
1,418
3,024
7,610
29,020
4,942
3,032
5,935
15,035
1 , 7 2 7 , 4 6 8 ].,592,789
372,950
353,322
157,834
124,925
518,079
467,756
688,537
711,213
14,102
2,355
1,421
3,042
7,512
29,109
5,088
3,112
6,041
14,684
13,244
2,375
1,136
2,770
7,257
26,469
4,709
2,532
5,543
13,737
+ 7
- 3
+25
+ 9
+ 5
+10
+ 5
+20
+ 7
+ 9
+53
+21
+61
+55
*
+15
+39
+20
+13
+32
+38
+45
N o t e s : A l l d e p o s i t d a t a are e x t r a c t e d f r o m the F e d e r a l R e s e r v e R e p o r t of T r a n s a c t i o n A c c o u n t s , o t h e r D e p o s i t s and V a u l t C a s h ( F R 2 9 0 0 ) ,
and are r e p o r t e d f o r t h e a v e r a g e o f t h e w e e k e n d i n g the 1 s t M o n d a y of t h e m o n t h . M o s t r e c e n t d a t a , r e p o r t e d b y i n s t i t u t i o n s w i t h o v e r
$ 2 6 . 8 m i l l i o n in d e p o s i t s a n d $ 2 . 6 m i l l i o n of r e s e r v e r e q u i r e m e n t s as of J u n e 1 9 8 6 , r e p r e s e n t s 9 5 % o f d e p o s i t s in t h e six s t a t e a r e a .
T h e m a j o r d i f f e r e n c e s b e t w e e n t h i s r e p o r t and the "call r e p o r t " are s i z e , the t r e a t m e n t o f i n t e r b a n k d e p o s i t s , and the t r e a t m e n t of f l o a t .
T h e total d e p o s i t d a t a g e n e r a t e d f r o m t h e R e p o r t o f T r a n s a c t i o n A c c o u n t s e l i m i n a t e s i n t e r b a n k d e p o s i t s b y r e p o r t i n g t h e n e t of d e p o s i t s
" d u e t o " and " d u e f r o m " o t h e r d e p o s i t o r y i n s t i t u t i o n s . T h e R e p o r t of T r a n s a c t i o n A c c o u n t s s u b t r a c t s c a s h in p r o c e s s o f c o l l e c t i o n f r o m
d e m a n d d e p o s i t s , w h i l e t h e call r e p o r t d o e s n o t . T h e S o u t h e a s t d a t a r e p r e s e n t t h e total o f t h e six s t a t e s . S u b c a t e g o r i e s w e r e c h o s e n
o n a s e l e c t i v e b a s i s and d o n o t a d d t o t o t a l .
* = fewer than four institutions reporting.
FED
E RFRASER
A L R E S E R V E B A N K O F ATLANTA
Digitized
for
45
I M P O R T A N T MESSAGE F O E D A T A USEES
HNANCE
SEP
1987
In J u n e o f e a c h y e a r , c h a n g e s are m a d e to the deposit a n d reserve r e q u i r e m e n t criteria used to select
institutions for inclusion in the s a m p l e o n w h i c h these data are b a s e d . A s of S e p t e m b e r 1 9 8 6 ,
current a n d previous m o n t h l y d a t a are f r o m institutions with over $26.8 million in deposits a n d $2.6
million of reserve r e q u i r e m e n t s . Previously, d a t a w e r e b a s e d o n a different s a m p l e of institutions.
For publication purposes, m o n t h l y y e a r - a g o c o m p u t a t i o n s are m a d e o n the basis of these current reporting
c r i t e r i a . T h e r e f o r e , they are n o t entirely c o m p a r a b l e to or consistent with previously published data
covering the past periods. M o r e o v e r , percent c h a n g e s s h o w n d o n o t control for the s a m p l e c h a n g e .
D a t a users n e e d i n g further detail should c o n t a c t C h e r y l C o r n i s h , D a t a b a s e C o o r d i n a t o r , 4 0 4 - 5 2 1 - 8 8 1 6 .
AUG
1987
SEP
1986
ANN
%
CH6
SEP
1987
AUG
1987
SEP
1986
ANN
%
CHG
$ millions
+ 8
+ 3
+27
+ 9
+ 4
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
678,574
34,488
156,617
484,845
66,296
9,127
56,014
676,628
33,490
158,931
481,328
66,196
8,941
55,971
6 2 4 ,761
2/.,88b
144 ,259
449 ,438
4 8 ,306
b ,752
4 0 ,351
+ 9
+24
+ 9
+ 8
+37
+35
+39
1 8 6 .,931
3 7 .,791
1 7 ,,142
5 2 .,965
8 3 ,,024
+10
+ 6
+30
+ 9
+ 8
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
86,380
5,476
19,372
60,884
7,409
876
6,196
86,229
5,326
19,710
60,596
7,418
871
6,184
81,280
4,353
18,509
57,782
5,680
667
4,744
+ 6
+26
+ 5
+ 5
+30
+31
+31
20,729
4,014
2,180
4,692
10,217
1 8 .,683
3.,915
1,,641
4 ,,008
9 ,,597
+12
+ 4
+36
+17
+ 9
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
4,255
256
760
3,284
986
144
814
4,273
249
775
3,297
997
142
809
4,853
266
961
3,623
845
142
707
-12
- 4
-21
- 9
+17
+ 1
+15
79,910
15,354
10,033
27,208
28,924
79,252
15,224
9,729
27,332
28,500
70.,858
14..118
7.,351
24,298
26 ,567
+13
+ 9
+36
+12
+ 9
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
56,015
3,453
13,362
38,576
3,853
453
3,115
55,989
3,332
13,565
38,478
3,858
450
3,117
55,886
2,836
13,290
39,166
2,992
338
2,371
+ 0
+22
+ 1
- 2
+29
+34
+31
Deposits
33,074
8,403
3,221
8,827
13,994
32,614
8,547
3,072
8,882
13,589
29,508
7,880
2,434
8,569
11,996
+12
+ 7
+32
+ 3
+17
S & L s Total D e p o s i t s
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
7,307
878
1,518
4,943
1,424
156
1,248
7,385
878
1,571
4,971
1,418
159
1,238
6,488
610
1,408
4,506
1,052
105
942
+13
+44
+ 8
+10
+35
+49
+32
Deposits
27,938
5,002
2,276
8,079
13,084
27,886
4,865
2,229
8,078
13,122
27,884
5,000
1,928
7,713
13,700
+ 0
+ 0
+18
+ 5
- 4
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
10,290
406
2,162
7,709
10,127
397
2,211
7,520
7,391
305
1,615
5,478
+39
+33
+34
+41
1 , 7 2 1 .,352 1 ,710.,764 1 , 6 0 0 .,243
3 5 8 .,299
347.,216
3 5 8 ,,909
156.,077
1 2 6 .,830
1 6 1 .,629
5 1 6 ,126
4 7 4 ,,141
5 1 6 .,407
6 9 0 ,,673
7 1 7 .,121
7 2 1 .,255
Commercial Bank
Demand
NOW
Savings
Time
Deposits
C o m m e r c i a l Bank
Demand
NOW
Savings
Time
Deposits
205,285
40,159
22,346
57,693
89,383
203,612
39,884
21,660
57,938
88,073
Commercial Bank
Demand
NOW
Savings
Time
Deposits
20,912
4,068
2,232
4,702
10,424
Commercial Bank
Demand
NOW
Savings
Time
Deposits
C o m m e r c i a l Bank
Demand
NOW
Savings
Time
Commercial Bank
Demand
NOW
Savings
Time
*
*
*
*
*
*
*
*
*
• H H
¡¡ggggpg
¡ » s i 1
1,793
990
+83
93
75
+28
274
141
+91
+96
1,349
691
iffmWMta^msasiffaäati.
C o m m e r c i a l Bank
Demand
NOW
Savings
Time
Commercial Bank
Demand
NOW
Savings
Time
Deposits
Deposits
14,195
2,293
1,451
2,982
7,753
29,256
5,039
3,133
5,895
15,204
14,110
2,292
1,418
3,024
7,610
29,021
4,942
3,032
5,930
15,035
13,414
2,302
1,206
2,814
7,312
26,584
4,576
2,582
5,563
13,852
+ 6
- 0
+20
+ 6
+ 6
+10
+10
+21
+ 6
+10
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
1,810
96
269
1,351
S&Ls Total Deposits
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
6,703
387
1,301
5,021
1,146
123
1,019
*
*
*
*
*
*
*
6,657
377
1,314
4,981
1,145
120
1,020
5,672
261
1,094
4,318
791
82
724
*
*
H i
+18
+48
+19
+16
+45
+50
+41
Notes:
A l l d e p o s i t d a t a are e x t r a c t e d f r o m t h e F e d e r a l R e s e r v e R e p o r t o f T r a n s a c t i o n A c c o u n t s , o t h e r D e p o s i t s and V a u l t C a s h ( F R 2 9 0 0 ) ,
and are r e p o r t e d f o r the a v e r a g e o f t h e w e e k e n d i n g the 1 s t M o n d a y o f the m o n t h . M o s t r e c e n t d a t a , r e p o r t e d b y i n s t i t u t i o n s w i t h o v e r
$ 2 6 . 8 m i l l i o n in d e p o s i t s and $ 2 . 6 m i l l i o n o f r e s e r v e r e q u i r e m e n t s a s of J u n e 1 9 8 6 , r e p r e s e n t s 95% of d e p o s i t s in t h e six s t a t e a r e a .
T h e m a j o r d i f f e r e n c e s b e t w e e n t h i s r e p o r t and the "call r e p o r t " are s i z e , the t r e a t m e n t of i n t e r b a n k d e p o s i t s , and the t r e a t m e n t of f l o a t .
T h e total d e p o s i t d a t a g e n e r a t e d f r o m t h e R e p o r t o f T r a n s a c t i o n A c c o u n t s e l i m i n a t e s i n t e r b a n k d e p o s i t s b y r e p o r t i n g t h e n e t of d e p o s i t s
" d u e to" and " d u e f r o m " o t h e r d e p o s i t o r y i n s t i t u t i o n s . T h e R e p o r t o f T r a n s a c t i o n A c c o u n t s s u b t r a c t s c a s h in p r o c e s s of c o l l e c t i o n f r o m
d e m a n d d e p o s i t s , w h i l e t h e call r e p o r t d o e s n o t . T h e S o u t h e a s t d a t a r e p r e s e n t t h e total o f t h e six s t a t e s . S u b c a t e g o r i e s w e r e c h o s e n
on a s e l e c t i v e b a s i s and d o n o t add to t o t a l .
* = f e w e r than f o u r i n s t i t u t i o n s r e p o r t i n g .
Digitized for46
FRASER
SEPTEMBER/OCTOBER
1987, E C O N O M I C R E V I E W
EMPLOYMENT
ANN
X
CHG
SEP
1987
AUG
1987
SEP
1986
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . W k l y . Hours
Mfg. A v g . W k l y . E a r n . - $
119,861
114,527
6,857
5.9
N.A.
N.A.
40.6
407
120,302
113,027
7,088
6
N.A.
N.A.
40.9
403
118,272
110,229
8,015
7
N.A.
N.A.
41.0
399
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. A v g . W k l y . E a r n . - $
16,416
15,369
1,048
6.6
N.A.
N.A.
41.1
364
16,368
15,265
1,103
6.9
N.A.
N.A.
41.2
359
16,094
14,814
1,271
8.1
N.A.
N.A.
41.4
358
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $
1,921
1,787
134
7.6
N.A.
N.A.
41.5
367
1,904
1,766
138
7.5
N.A.
N.A.
41.4
362
1,902
1,718
184
9.7
N.A.
N.A.
41.6
359
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
5,902
5,592
311
5
N.A.
N.A.
39.9
329
5,925
5,589
336
5.7
N.A.
N.A.
40.3
328
5,603
5,251
352
6.1
N.A.
N.A.
40.8
330
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $
3,067
2,913
153
5.2
N.A.
N.A.
41.3
353
3,084
2,928
156
5.2
N.A.
N.A.
41.8
346
3,081
2,907
174
5.8
N.A.
N.A.
41.5
347
-0
+0
-12
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
1,991
1,793
198
10.3
N.A.
N.A.
41.8
464
1,966
1,761
205
10.5
N.A.
N.A.
41.5
448
2,004
1,735
269
12.6
N.A.
N.A.
42.4
450
-1
+3
-26
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
1,178
1,073
105
9.8
N.A.
N.A.
40.7
312
1,160
1,046
113
9.8
N.A.
N.A.
40.4
306
1,181
1,051
131
12.2
N.A.
N.A.
40.9
309
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . W k l y . Hours
Mfg. A v g . W k l y . E a r n . - $
2,358
2,211
147
7
N.A.
N.A.
40.7
360
2,329
2,174
155
7.5
N.A.
N.A.
41.3
362
2,323
2,151
162
7.9
N.A.
N.A.
41.1
354
SEP
1987
AUG
1987
SEP
1986
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & R e a l . Est.
T r a n s . , Com. & P u b . U t i l .
102,925
19,357
5,287
24,244
16,771
24,433
6,642
5,434
102,154
19,221
5,367
24,218
16,051
24,447
6,708
5,386
100.,549
19.,113
5.,258
23.,798
16.,524
23.,428
6.,387
5,,301
+2
+1
+1
+2
+1
+4
+4
+3
-1
+2
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . , C o m . & P u b . Util.
13,459
2,357
801
3,367
2,328
2,958
799
744
13,322
2,346
806
3,357
2,221
2,945
802
741
13,090
2,322
800
3,266
2,261
2,836
776
724
+3
+2
+0
+3
+3
+4
+3
+3
-0
+2
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real. Est.
T r a n s . , Com. & P u b . Util.
1,493
363
77
331
295
272
71
72
1,491
362
78
330
295
271
71
72
1,462
357
77
325
289
261
70
71
+2
+2
0
+2
+2
+4
+1
+1
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . , Com. & P u b . Util.
4,795
525
344
1,307
728
1,273
357
251
4,735
523
343
1,301
678
1,272
357
250
4,587
515
343
1,236
692
1,204
342
245
+5
+2
+0
+6
+5
+6
+4
+2
Nonfarm Employment - t h o u s .
Manufacturing
Construction
Trade
Government
Services
Fin., Ins. & R e a l . E s t .
T r a n s . , C o m . & P u b . Util.
2,762
572
157
697
464
540
151
173
2,753
570
160
696
458
537
152
171
2,712
570
162
680
449
520
149
168
+2
+0
-3
+2
+3
+4
+1
+3
-1
+3
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . , Com. & P u b . U t i l .
1,497
170
85
360
311
318
84
108
1,484
168
85
359
304
315
84
107
1,509
166
90
366
319
317
86
106
-1
+2
-6
-2
-3
+0
-2
+2
-0
+1
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . , Com. & P u b . Util.
875
227
37
189
197
139
39
40
853
225
36
189
180
137
39
40
856
224
37
184
193
135
38
40
+2
+1
-1
+3
+2
+3
+3
+1
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . , C o m . & P u b . Util.
2,036
501
102
482
332
415
97
100
2,007
498
103
481
307
413
98
100
1,965
490
89
475
320
400
91
93
+4
+2
+14
+1
+4
+4
+6
+8
+2
+4
-18
-0
+2
+2
+3
-9
-1
+2
NOTES: All labor force data are from Bureau of Labor Statistics reports supplied by state agencies.
Only the unemployment rate data are seasonally adjusted.
The Southeast data represent the total of the six states.
FEDERAL R E S E R V E B A N K O F ATLANTA
ANN
X
CHG
47
EMPLOYMENT
ANN
X
CHG
OCT
1987
SEP
1987
OCT
1986
ANN
t
CHG
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real. E s t .
T r a n s . C o m . & P u b . Util.
103.,749
19.,34b
b.,28b
24.,298
1/.,44b
24.,522
b,,619
b,,4/1
102.,913
19.,349
b.,292
24.,246
16.,//4
24.,39b
6.,642
5.,456
100.,984
19.,041
5.,204
23.,793
17.,066
23.,464
6.,383
5,,366
+3
+2
+2
+2
+2
+5
+4
+2
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real. E s t .
T r a n s . Com. & P u b . Util.
13.,545
2 ,36/
809
3.,383
2.,3/1
2.,96/
/99
Z46
13 ,465
2 ,358
805
3 ,365
2.,329
2.,960
799
Z43
13 ,186
? ,323
804
3.,289
? ,105
2 ,854
///
+3
+2
+1
+3
+3
+4
+3
+3
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . Com. & P u b . U t i l .
1,502
365
11
333
301
2/1
70
72
1,495
364
11
331
296
2/2
/I
72
1,472
359
77
327
296
261
10
12
+2
+2
0
+2
+2
+4
+1
+1
-1
-0
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . Com. & P u b . Util.
4,839
52/
346
1,319
750
1,277
358
253
4,800
525
344
1,306
733
1,2/5
35/
250
4,635
51/
344
1,250
/12
1,211
345
246
+4
+2
+1
+6
+5
+5
+4
+3
+1
+2
-9
Nonfarm Employment - thous
Manufacturing
Construction
+4
+6
F i n . , Ins. & R e a l . E s t .
Trans. C o m . & P u b . Util.
2,115
5/3
161
700
471
540
150
1/2
2,762
572
159
697
463
539
151
173
2,728
568
165
686
455
522
149
169
+2
+1
-2
+2
+4
+3
+1
+2
1,997
1,731
266
12.8
N.A.
N.A.
42.0
442
-II
+4
-24
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real. E s t .
T r a n s . Com. & P u b . Util.
1,508
1/1
86
360
318
322
84
108
1,499
1/0
86
360
312
319
84
10/
1,515
16/
90
366
323
319
85
106
-0
+2
-4
-2
-2
+1
-2
+2
1,177
1,072
105
9.8
N.A.
N.A.
40./
312
1,179
1,051
128
12.2
N.A.
N.A.
40.4
302
+0
+2
-16
8/8
2 21
36
188
199
141
39
41
875
227
37
189
197
139
39
40
860
224
3/
184
194
136
38
41
+2
+1
-2
+2
+3
+4
+3
+1
2,357
2,210
148
7.2
N.A.
N.A.
40.6
359
2,335
2,168
168
Z.8
N.A.
N.A.
42.3
321
+0
+3
-18
2,044
505
102
483
334
416
98
100
2,035
501
103
482
328
416
9/
100
1,9//
489
91
4/5
325
405
91
94
+3
+3
+1?
+2
+3
+3
+8
+7
OCT
1987
SEP
1987
OCT
1986
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . Wkly. Hours
M f g . A v g . Wkly. E a r n . - $
120,744
113,898
6,845
6
N.A.
N.A.
41.1
409
119,884
113,027
6,857
5.9
N.A.
N.A.
40.6
405
118,699
110,857
7,842
6.9
N.A.
N.A.
40.7
396
+2
+3
-13
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $
16,48/
15,493
1,034
6.4
N.A.
N.A.
41.5
365
16,415
15,364
1,051
6.6
N.A.
N.A.
41.1
363
16,124
14,881
1,244
7.8
N.A.
N.A.
41.2
348
+2
+4
-1/
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . W k l y . Hours
Mfg. A v g . W k l y . E a r n . - $
1,932
1,798
134
1,90/
+1
+4
-26
N.A.
N.A.
41.7
367
1,920
1,786
134
7.6
N.A.
N.A.
41.8
371
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . W k l y . Hours
Mfg. A v g . W k l y . E a r n . - $
5,962
5,666
296
4.7
N.A.
N.A.
40.2
327
5,902
5,592
311
5
N.A.
N.A.
40.1
330
5,66/
5,336
331
5.4
N.A.
N.A.
40.7
328
+5
+6
-11
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
Mfg. A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $
3,083
2,92/
156
5.4
N.A.
N.A.
42.6
361
3,06/
2,913
154
5.2
N.A.
N.A.
41.3
354
3,040
2,868
1/2
6
N.A.
N.A.
41.0
342
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . Wkly. Hours
M f g . A v g . Wkly. E a r n . - $
1,994
1,792
202
9.6
N.A.
N.A.
42.2
465
1,991
1,792
199
10.3
N.A.
N.A.
41.8
454
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $
1,180
1,072
108
10.2
N.A.
N.A.
40.6
307
civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unemploy. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $
2,337
2,239
138
6.6
N.A.
N.A.
41.8
364
1.2
1,111
180
9.8
N.A.
N.A.
41.0
354
+1
+3
+1
+5
+2
+4
+0
+5
+0
+2
-1
+13
Nonfarm Employment - thous
Manufacturing
Trade
Government
Services
F i n . , Ins. & R e a l . Est.
Trans. Com. & P u b . U t i l .
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
T r a n s . Com. & P u b . U t i l .
111
NOTES: All labor force data are from Bureau of Labor Statistics reports supplied by state agencies.
Only the unemployment rate data are seasonally adjusted.
The Southeast data represent the total of the six states.
48
S E P T E M B E R / O C T O B E R 1987, E C O N O M I C R E V I E W
GENERAL
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.,
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ b i l .
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1977=100
MIAMI
Kilowatt Hours - m i l s .
Personal Income
($ b i l . - SAAR)
Taxable Sales - $ b i l .
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ b i l . - SAAR)
Taxable Sales - $ b i l .
Plane P a s s . A r r . (thous.;
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
ANN
%
CHG
LATEST CURR
DATA PERIOD
PREV.
PERIOD
YEAR
AGO
3,529.7
N.A.
N.A.
8,358.9
3403.6
N.A.
N.A.
8,809.9
+ 5
JUL
3,589.7
N.A.
N.A.
8,203.5
AUG
JUN
342.7
207.8
340.8
188.9
328.6
196.0
+ 5
+ 6
428.9
N.A.
5,715.9
1,423.0
419.2
N.A.
5,561.7
1,412.0
+ 4
JUL
JUL
436.8
N.A.
6,115.9
1,421.0
JUN
N.A.
35.1
N.A.
31.4
N.A.
34.2
JUL
JUL
45.9
N.A.
195.2
56.0
45.2
N.A.
175.8
56.0
44.8
N.A.
159.0
59.0
+23
- 5
JUN
N.A.
4.9
N.A.
4.5
N.A.
4.5
+ 9
171.6
169.2
163.6
+ 5
2,929.8
22.0
JUL
180.5
10.9
2,639.6
22.0
MAY
179.1
9.3
2,677.6
29.0
JUL
171.2
10.1
+ 9
-24
82.2
N.A.
2,177.7
N.A.
79.4
N.A.
2,086.8
N.A.
+ 5
JUL
83.6
N.A.
2,229.8
N.A.
JUN
N.A.
6.3
N.A.
5.6
N.A.
6.2
JUL
JUL
50.3
N.A.
329.4
1,265.0
49.4
N.A.
304.3
1,267.0
50.8
N.A.
309.0
1,240.0
+ 7
+ 2
JUN
N.A.
5.4
N.A.
4.7
N.A.
5.4
0
JUL
JUL
26.0
N.A.
50.7
78.0
25.0
N.A.
47.3
78.0
24.9
N.A.
43.4
84.0
JUN
N.A.
2.4
N.A.
2.1
N.A.
2.4
59.4
N.A.
381.0
N.A.
57.9
N.A.
371.2
N.A.
55.7
N.A.
286.0
N.A.
N.A.
5.2
N.A.
5.2
N.A.
5.6
01
Q1
01
Q1
JUL
JUL
JUN
Q1
01
01
Q1
JUL
JUN
- 7
+10
+ 1
+ 3
+ P
+ 5
+ 8
+ 7
+ 2
- 1
+ 4
+17
- 7
0
+ 7
+33
- 7
AUG
1987
JULY(R)
1987
ANN
AUG
%
1986 CHG
Agriculture
Prices Rec'd by Farmers
Index (1977=100)
125
Broiler Placements (thous.)
88,006
Calf Prices ($ per cwt.)
81.60
Broiler Prices ( t per lb.)
31.60
Soybean Prices ($ per bu.)
4.95
Broiler Feed Cost ($ per ton) (Q3)193
(Q3)193
128
89,586
80.30
28.10
5.25
(Q2)183
125
81,213
61.10
45.90
4.98
(Q3)190
0
+ 8
+34
-31
- 1
+ 2
Agriculture
Prices Rec'd by Farmers
Index (1977=100)
115
Broiler Placements (thous.)
36,789
Calf Prices ($ per cwt.)
81.30
Broiler Prices (t per lb.)
30.31
Soybean Prices ($ per bu.)
5.12
Broiler Feed Cost ($ per ton) (Q3)181
114
37,388
79.28
26.28
5.33
(Q2)173
122
34,450
59.04
45.13
5.13
(Q3)184
- 6
+ 7
+38
-37
- 0
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U N . , JUN.
832
Broiler Placements (thous.)
12,802
Calf Prices ($ per cwt.)
77.60
Broiler Prices (t per lb.)
31.00
Soybean Prices ($ per bu.)
5.05
Broiler Feed Cost ($ per ton) (Q3)185
(Q3)185
13,024
78.00
25.00
5.29
(Q2)177
854
11,911
57.70
43.00
5.17
(Q3)189
- 3
+ 7
+34
-28
3,298
2,233
86.40
30.00
5.05
185
2,430
83.70
25.50
5.29
177
3,092
2,139
61.40
46.00
5.17
189
+ 7
+ 4
+41
-35
- ?
- 2
Agriculture
Farm Cash Receipts - S m i l .
Dates:JUN., J U N .
1,133
Broiler Placements (thous.)
14,800
Calf Prices ($ per cwt.)
79.00
Broiler Prices ( t per lb.)
29.00
Soybean Prices ($ per bu.)
4.97
Broiler Feed Cost ($ per ton)
185
14,951
76.90
25.50
5.15
177
1,223
13,854
57.20
46.00
5.11
189
- 7
+ 7
+38
-37
- 3
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U N . , JUN.
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
-
?
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U N . , JUN.
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
422
N.A.
84.00
31.50
5.18
165
82.20
29.30
5.49
159
483
N.A.
61.40
47.00
5.32
169
+37
-33
- 3
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates:JUN., JUN.
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
562
6,951
81.20
31.50
5.09
165
6,982
80.60
29.30
5.24
159
704
6,547
60.40
46.30
4.89
169
-?n
+ 6
+34
-32
+ 4
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates:JUN., J U N .
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
772
N.A.
79.70
30.00
5.24
208
753
N.A.
56.50
44.50
5.24
205
+ 3
74.90
26.80
5.42
205
-13
+41
-33
0
+ 1
:ES:
Personal Income data supplied by U. S . Department of Commerce. Taxable Sales are reported as a 12-month cumulative total
Plane
Passenger Arrivals are collected from 26 airports. Petroleum Production data supplied by U. S . Bureau of Mines. Consumer Price Index data
supplied by Bureau of Labor Statistics. Agriculture data supplied by U . S . Department of Agriculture. Farm Cash Receipts data are reported
as cumulative for the calendar year through the month shown. Broiler placements are an average weekly r a t e . The Southeast data represent
the total of the six states. N . A . = not available. The annual percent change calculation is based on most recent data over prior y e a r .
FEDERAL R E S E R V E B A N K O F ATLANTA
49
M
GENERAL
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . Arr. (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ b i l . - SAAR)
Taxable Sales - $ b i l .
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1977=100
MIAMI
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ bil. - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
Personal Income
($ b i l . - SAAR)
Taxable Sales - $ bil.
Plane P a s s . A r r . (thous.)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .
ANN
%
SEPT
1987
PREV
PERIOD
YEAR
AGO
3,589.7
N.A.
N.A.
8,155.3
3,529.7
N.A.
N.A.
8,203.5
3,430.6
N.A.
N.A.
8,653.1
+ 5
344.4
231.3
342.7
207.8
330.2
217.8
+ 4
+ 6
428.9
N.A.
6,115.9
1,421.0
419.2
N.A.
5,805.3
1,427.0
+ 4
AUG
AUG
436.8
N.A.
5,979.8
1,411.0
JUL
N.A.
40.2
N.A.
35.1
N.A.
38.2
AUG
AUG
45.9
N.A.
186.5
56.0
45.2
N.A.
195.2
56.0
44.8
N.A.
159.9
59.0
JUL
N.A.
5.5
N.A.
4.9
N.A.
5.1
+ 8
Q1
171.6
169.2
163.6
+ 5
2,940.3
22.0
SEPT
181.3
12.4
2,929.9
22.0
JUL
180.5
10.9
2,806.4
29.0
SEPT
174.3
10.9
+ 5
-24
83.6
N.A.
2,092.5
N.A.
82.2
N.A.
2,229.8
N.A.
79.4
N.A.
2,182.5
N.A.
+ b
N.A.
7.1
N.A.
6.3
N.A.
7.0
AUG
AUG
50.3
N.A.
342.1
1,255.0
49.4
N.A.
329.3
1,265.0
50.8
N.A.
304.0
1,255.0
+13
0
JUL
N.A.
5.9
N.A.
5.4
N.A.
5.9
0
AUG
AUG
26.0
N.A.
47.8
78.0
25.0
N.A.
50.8
78.0
24.9
N.A.
46.1
84.0
JUL
N.A.
2.8
N.A.
2.4
N.A.
2.8
59.4
N.A.
370.6
N.A.
57.9
N.A.
380.9
N.A.
55.7
N.A.
306.4
N.A.
N.A.
6.5
N.A.
5.2
N.A.
6.5
LATEST CURR
DATA PERIOD
Q1
AUG
SEPT
JUL
Q1
Q1
AUG
AUG
JUL
01
AUG
JUL
Q1
Q1
Q1
AUG
JUL
CHG
- 6
+ 3
- 1
+ 5
+ 2
+1/
- 4
- 4
+ 1
- 1
+ 4
+ 4
-
/
0
+ 7
+21
0
ANN
%
SEPT
1986 CHG
Agriculture
Prices Rec'd by Farmers
129
Index (1977=100)
86,469
Broiler Placements (thous.)
86.00
Calf Prices ($ per cwt.)
28.50
Broiler Prices (t per lb.)
5.00
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton) (Q3)193
127
88,006
82.30
31.60
5.02
(Q2)183
122
80,839
64.10
37.80
4.74
(Q3)190
+ 6
+ 7
+34
-25
+ 5
+ 2
Agriculture
Prices Rec'd by Farmers
120
Index (1977=100)
36,117
Broiler Placements (thous.)
84.50
Calf Prices ($ per cwt.)
27.27
Broiler Prices (e per lb.)
5.21
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)(Q3)181
115
36,789
81.39
30.30
5.28
(Q2)173
118
34,639
61.16
36.78
4.76
(Q3)184
+ 2
+ 4
+38
-26
+ 9
- 2
Agriculture
Farm Cash Receipts - $ m i l .
972
Dates: J U L Y , JULY
12,260
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
83.10
Broiler Prices (t per lb.)
26.50
Soybean Prices ($ per bu.)
5.24
Broiler Feed Cost ($ per ton)
185
12,802
79.40
31.00
5.38
177
1,005
12,196
60.30
35.00
5.02
189
- 3
+ 1
+38
-24
+ 4
- 2
3,312
2,296
84.90
27.50
5.05
185
2,233
84.70
30.50
5.05
177
3,339
2,041
64.10
37.00
5.02
189
- 1
+ 12
+32
-2b
+ U
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U L Y , JULY
1,308
Broiler Placements (thous.)
14,686
Calf Prices ($ per cwt.)
81.30
Broiler Prices (t per lb.)
27.00
Soybean Prices ($ per bu.)
5.05
Broiler Feed Cost (S per ton)
185
14,800
77.30
29.00
4.92
177
1,453
13,969
58.00
36.00
4.81
189
-10
+ 5
+40
-25
+ 5
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U L Y , JULY
480
Broiler Placements (thous.)
N.A.
Calf Prices ($ per cwt.)
87.50
Broiler Prices (t per lb.)
27.50
Soybean Prices ($ per bu.)
5.31
Broiler Feed Cost ($ per ton)
165
542
N.A.
61.70
37.00
4.46
169
-11
N.A.
83.40
30.50
5.49
159
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U L Y , JULY
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (< per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
644
6,876
88.00
28.90
5.21
165
6,951
84.60
31.50
5.31
159
780
6,433
63.10
41.30
4.82
169
-17
+ /
+39
-30
+ 8
- 2
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U L Y , JULY
Broiler Placements (thous.)
Calf Prices (S per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
908
N.A.
82.40
27.50
5.17
208
862
N.A.
59.20
35.50
4.79
205
+ 5
N.A.
78.60
30.50
5.18
205
Agriculture
Farm Cash Receipts - $ m i l .
Dates: J U L Y , JULY
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)
+ 4
+14
AUG (Pi
1987
+42
-26
+19
- 2
+39
-23
+ 8
+ 1
NOTES:
Personal Income data supplied by U . S . Department of Commerce. Taxable Sales are reported as a 12-month cumulative total. Plane
Passenger Arrivals are collected from 26 airports. Petroleum Production data supplied by U. S . Bureau of Mines. Consumer Price Index data
supplied by Bureau of Labor Statistics. Agriculture data supplied by U . S . Department of Agriculture. Farm Cash Receipts data are reported
as cumulative for the calendar year through the month shown. Broiler placements are an average weekly rate. The Southeast data represent
the total of the six states. N . A . = not available. The annual percent change calculation is based on m o s t recent data over prior y e a r .
R = revised.
S E P T E M B E R / O C T O B E R 1987, E C O N O M I C R E V I E W
CONSTRUCTION
SEP
1987
AUG
1987
SEP
1986
ANN
X
CHG
Nonresidential Building Permits - $ Mil.
Total Nonresidential
47,458
Industrial Bldgs.
7,828
Offices
13,883
Stores
12,565
Hospitals
2,424
Schools
1,053
47,265
8,032
13,715
12,450
2,425
1,070
53,213
8,696
14,955
11,939
2,478
1,171
-11
-10
-7
+5
-2
-10
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits - $ Mil.
Total Nonresidential
7,705
Industrial B l d g s .
968
Offices
1,883
Stores
2,477
Hospitals
412
Schools
171
7,722
993
1,871
2,474
397
174
8,596
1,105
2,172
2,304
396
145
-10
-1?
-13
+8
+4
+18
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
Nonresidential Building Permits - $ M i l .
Total Nonresidential
525
Industrial B l d g s .
50
Offices
161
Stores
186
Hospitals
13
Schools
19
545
52
164
180
16
26
574
62
142
158
24
20
-9
-20
+13
+18
-47
-2
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
Nonresidential Building Permits - $ Mil.
Total Nonresidential
3,777
Industrial Bldgs.
392
Offices
847
Stores
1,156
Hospitals
296
Schools
39
3,740
399
837
1,147
289
39
4,314
453
1,093
1,195
218
40
-1?
-13
-23
-3
+36
-3
Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
Nonresidential Building Permits - $ Mil.
Total Nonresidential
1,747
Industrial B l d g s .
251
Offices
505
Stores
579
Hospitals
17
Schools
69
1,748
267
496
568
17
65
1,816
355
387
455
38
37
-4
-29
+30
+27
-56
+87
Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
$ Mil.
440
36
96
169
21
25
465
40
94
179
16
26
648
26
210
165
41
31
-3?
+35
-54
+?
-50
-20
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
Nonresidential Building Permits - $ Mil.
Total Nonresidential
234
Industrial B l d g s .
29
Offices
56
Stores
76
Hospitals
17
Schools
7
238
28.6
61
75
17
7
258
25.3
75
79
12
6
-9
+15
-25
-5
+48
+13
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
986
209
219
325
42
11
986
184
264
252
62
11
+0
+14
-18
+24
-23
+10
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
SEP
1987
AUG
1987
ANN
SEP
X
1986 CHG
12-month cumulative rate
Nonresidential Building Permits
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
Nonresidential Building Permits Total Nonresidential
Industrial B l d g s .
Offices
Stores
Hospitals
Schools
Mil.
982
210
217
312
48
12
96,311
96,711
92,398
+4
1,051.0
540.0
1,057.2
543.2
1,052.0
711.6
-0
-24
143,770
143,976
145,611
-1
15,962
15,909
15,823
+1
206.2
115.6
206.2
116.7
205.8
150.4
+0
-23
23,666
23,631
24,419
-3
645
656
663
-3
10.8
4.2
10.9
4.5
10.8
8.7
0
-52
1,170
1,200
1,237
-5
9,141
9,073
8,687
+5
111.6
80.1
111.6
80.2
106.0
93.4
+fi
-14
12,918
12,813
13,001
-1
3,583
3,573
3,722
-4
48.5
18.9
48.3
19.0
51.7
26.4
-6
-28
5,330
5,321
5,539
-4
434
454
623
-30
6.9
0.7
7.0
1.4
9.4
3.2
-27
-78
874
920
1,271
-31
302
308
366
-17
5.1
5.1
1.2
5.8
3.0
-12
536
546
624
-14
1,856
1,845
1,761
+5
23.3
10.6
23.3
10.4
22.2
15.7
+5
-32
2,837
2,831
2,748
+3
1.1
NOTES: Data supplied by the U . S . Bureau of the Census, Housing Units Authorized by Building Permits and Public Contracts, C-40.
Nonresidential data excludes the cost of construction for publicly owned buildings.
The southeast data represents the total of the six states.
F E D E R A L R E S E R V E BANK O F ATLANTA
51
-63
— J
CONSTRUCTION
—I
OCT
1987
SEP
1987
OCT
1986
ANN
X
CHG
50,873
7,650
13,863
12,664
2,423
1,033
47,458
7,828
13,883
12,565
2,424
1,053
50,844
8,572
14,631
12,007
2,542
1,227
+0
-11
-5
+5
-5
-16
Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.
7,705
968
1,883
2,477
412
171
8,215
1,095
2,014
2,327
394
158
-5
-16
-9
-1
+48
+68
Residential Building Permits
Value - $ Mil.
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
532
40.7
182
174
14
22
525
49.7
161
186
13
19
564
66.3
136
170
23
19
-6
-39
+34
+2
-39
+15
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
Nonresidential Building Permits - $ M i l .
Total Nonresidential
3,792
Industrial Bldgs.
382
Offices
782
Stores
1,083
Hospitals
301
97
Schools
3,777
392
847
1,156
296
39
4,065
425
1,005
1,154
224
43
-7
-10
-22
-6
+34
+125
Residential Building Permits
Value - $ Mil.
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
Nonresidential Building Permits - $ M i l .
Total Nonresidential
1,785
Industrial B l d g s .
251
Offices
496
Stores
529
Hospitals
122
Schools
98
1,747
251
505
579
17
69
1,788
341
394
484
32
41
-0
-26
+26
+9
+286
+137
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
OCT
1987
SEP
1987
OCT
1986
ANN.
X
CHG
12-month cumulative rate
Total Nonresidential
Industrial B l d g s .
Offices
Stores
Hospitals
Schools
Nonresidential Building Permits - $ M i l .
Total Nonresidential
7,766
Industrial B l d g s .
925
Offices
1,833
Stores
2,311
Hospitals
585
Schools
265
Nonresidential Building Permits
Total Nonresidential
Industrial B l d g s .
Offices
Stores
Hospitals
Schools
Nonresidential Building Permits - $ M i l .
Total Nonresidential
405
Industrial Bldgs.
16
Offices
88
Stores
156
Hospitals
87
Schools
20
592
45
174
155
41
36
440
36
96
169
21
25
m
m
-32
-65
-49
+1
+113
-45
MHHHHII
H M M B M H H H i H H H H H H I
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
95,926
96,311
93,044
+3
1,041.6
528.5
1,051.0
540.0
1,055.6
695.5
-1
-24
143,462
143,770
143,888
-0
15,788
15,962
15,933
-1
204.6
111.5
206.2
115.6
205.5
148.9
-0
-25
23,524
23,666
24,148
-3
642
645
668
-4
10.6
4.2
10.8
4.2
10.9
8.4
-3
-50
1,175
1,170
1,232
-5
9,103
9,141
8,685
+5
111.4
78.3
111.6
80.1
105.1
93.4
+6
-16
12,895
12,918
12,750
+1
3,530
3,583
3,794
-7
48.0
17.9
48.5
18.9
51.9
26.4
-8
-32
5,316
5,330
5,582
•HTNBHHFLBBSBSTT
ü ü ; S^^WBUSÊSS
l ü
Nonresidential Building Permits - $ Mil.
Total Nonresidential
231
Industrial B l d g s .
29
Offices
53
Stores
70
22
Hospitals
Schools
11
234
29
56
76
17
7
253
27
65
81
16
7
-9
+9
-18
-14
+37
+51
Residential Building Permits
Value - $ Mil.
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
TENNESSEE
Nonresidential Building Permits - $ M i l .
Total Nonresidential
1,021
Industrial B l d g s .
207
Offices
231
Stores
298
Hospitals
40
Schools
17
982
210
217
312
48
12
954
191
241
284
58
11
+7
+8
-4
+5
-31
+52
Residential Building Permits
Value - $ M i l .
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .
-
-5
WM
433
434
609
-29
7.0
0.7
6.9
0.7
9.1
3.1
-23
-77
838
874
1,201
-30
Wi
H Ü
300
302
365
-18
5.0
1.1
5.1
1.1
5.9
2.8
-15
-61
531
536
618
-14
1,779
1,856
1,812
-2
22.6
9.3
23.3
10.6
22.6
14.8
0
-37
2,770
2,837
2,766
+0
NOTES: Data supplied by the U.S., Bureau of the Census , Housing Units Authorized by Building Permits and Public Contracts, C - 4 0 .
Nonresidential data excludes the cost of construction for publicly owned buildings.
The southeast data represents the total of the six states.
Digitized 52
for FRASER
S E P T E M B E R / O C T O B E R 1987, E C O N O M I C R E V I E W
Federal Reserve Bank of Atlanta
104 Marietta St, N.W.
Atlanta, Georgia 30303-2713
Address Correction Requested
Bulk Rate
U.S. Postage
FAID
Atlanta, Ga.
Permit 292
@FedFRASER