The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Prefatory Note The attached document represents the most complete and accurate version available based on original files from the FOMC Secretariat at the Board of Governors of the Federal Reserve System. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. Content last modified 03/07/2014. Confidential (FR) Class III FOMC April 25, 2008 CURRENT ECONOMIC AND FINANCIAL CONDITIONS Supplemental Notes Prepared for the Federal Open Market Committee by the staff of the Board of Governors of the Federal Reserve System Contents The Domestic Nonfinancial Economy ......................................................1 Consumer Sentiment....................................................................................1 Sales of New Homes....................................................................................1 Shipments and Orders for Nondefense Capital Goods ................................2 Tables and Charts Reuters/University of Michigan Survey of Consumers ...............................4 Private Housing Activity..............................................................................5 Indicators of Single-Family Housing...........................................................6 Orders and Shipments of Nondefense Capital Goods..................................7 The Domestic Financial Economy ...........................................................3 Errata for Part 2 of the Greenbook.....................................................3 Tables Commercial Bank Credit .............................................................................8 Selected Financial Market Quotations .........................................................9 ii Supplemental Notes The Domestic Nonfinancial Economy Consumer Sentiment After having declined just a touch to 69.5 in March, the Reuters/University of Michigan index of consumer sentiment plunged to 62.6 in April. The decrease was slightly larger than had been reported in the preliminary estimate released in the middle of the month, implying that sentiment fell a bit further in the second half of the month. Both the “current conditions” and the “expected conditions” components of the overall index decreased significantly between March and April. Among those items not included in the overall sentiment index, consumers’ expectations about the change in unemployment over the next twelve months worsened considerably in April, and consumers’ appraisals of buying conditions for cars also softened. However, consumers’ appraisals of buying conditions for houses strengthened in April, largely because of increases in the number of households noting that prices and interest rates were low. Since July, the level of sentiment has fallen precipitously; these declines reflect heightened concerns about the economy that can only partially be explained by the usual influences on sentiment, including inflation, the stock market, and employment conditions. The index from the Reuters/Michigan survey now stands a touch below the nadir reached during the 1990-1991 recession. Among households, the median of expected inflation over the next twelve months rose 1/2 percentage point to 4.8 percent in April, and the median of expected inflation over the next five to ten years rose to 3.2 percent, the highest level since the summer of 2006. Sales of New Homes New home sales continued to decline in March. The number of new-home sales agreements sank 8½ percent in March to an annual rate of 526,000 units; sales in February were revised down a touch. For the first quarter as a whole, sales came in at an average annual rate of 570,000 units, down 13 percent from the preceding quarter and 33 percent below their year-earlier level. Inventories of new homes for sale moved down another 1 percent in March and are now 20 percent below their peak in the summer of 2006. Even so, these inventories represented about 10¾ months’ supply at March’s slower sales pace—the highest reading since 1981. The constant-quality price index for new homes—which controls for changes in readily measurable attributes such as home size and the geographic composition of sales—fell at -1- -2- an annual rate of 9¾ percent in the first quarter, a somewhat larger drop than the 5 percent rate of decline recorded in the fourth quarter. Shipments and Orders for Nondefense Capital Goods Shipments of nondefense capital goods excluding aircraft increased 1.2 percent in March after having declined in the preceding two months; new orders, which also fell in January and February, were flat and point to weaker shipments in the near term. Within the hightech category, both orders and shipments of computers and peripherals posted solid gains in March and were revised up in February. However, although shipments of communications equipment stepped up in March, the rise reversed only a part of the declines posted in January and February, while orders dropped more than 3 percent. Outside of the high-tech sector, shipments increased somewhat last month but orders only edged up after having plunged in February. The three-month moving average of the staff’s constructed series on real adjusted durable goods orders was down 1 percent in March. This series—which strips out nondefense aircraft, defense capital goods, and industries for which reported orders actually equal shipments—is one of the staff’s indicators of near-term industrial production. -3- The Domestic Financial Economy Errata for Part 2 of the Greenbook: Page III-17 The sentence that reads: Indeed, the net fractions of banks tightening lending standards reached or surpassed historical highs for all loan categories in the survey. should read: Indeed, the net fractions of domestic banks tightening lending standards were close to, or surpassed, historical highs for nearly all loan categories in the survey. Page III-A-1 The sentence that reads: In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on all loan categories over the past three months, with the net fractions of banks reporting tighter lending standards now being at, or above, historical highs for all loan categories in the survey. should read: In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on all loan categories over the past three months, with the net fractions of domestic banks reporting tighter lending standards now close to, or above, historical highs for nearly all loan categories in the survey. -4- April 25, 2008 Reuters/University of Michigan Survey of Consumers Indexes of consumer sentiment (Not seasonally adjusted) 2007 2008 Oct. Nov. Dec. Jan. Feb. Mar. Apr.P Composite of current and expected conditions1 Current conditions1 Expected conditions1 83.4 80.9 97.9 97.6 74.1 70.1 76.1 91.5 66.2 75.5 91.0 65.6 78.4 94.4 68.1 70.8 83.8 62.4 69.5 84.2 60.1 63.2 78.4 53.4 62.6 77.0 53.3 Personal financial situation Now compared with 12 months ago2 Expected in 12 months2 109 119 111 119 101 115 98 112 98 116 94 112 93 112 87 97 86 100 82 96 78 84 73 76 68 81 68 88 54 83 46 81 42 72 40 71 Appraisal of buying conditions Cars Large household appliances2 Houses 139 144 123 128 142 131 117 136 122 117 137 128 119 146 124 119 123 140 114 124 129 112 115 135 110 112 136 Expected unemployment change - next 12 months 127 130 128 139 141 141 148 155 154 Prob. household will lose a job - next 5 years 21 21 19 23 21 24 22 24 23 Expected inflation - next 12 months Mean Median 4.0 3.1 3.7 3.1 4.3 3.4 4.4 3.4 4.0 3.4 3.9 3.6 4.6 4.3 5.6 4.8 5.7 4.8 Expected inflation - next 5 to 10 years Mean Median 3.4 2.9 3.1 2.8 3.4 2.9 3.5 3.1 3.4 3.0 3.4 3.0 3.2 2.9 3.4 3.1 3.5 3.2 Category Sept. Expected business conditions Next 12 months2 Next 5 years2 Apr.F Note. Figures on financial, business, and buying conditions are the percent reporting ’good times’ (or ’better’) minus the percent reporting ’bad times’ (or ’worse’), plus 100. Expected change in unemployment is the fraction expecting unemployment to rise minus the fraction expecting unemployment to fall, plus 100. P Preliminary. F Final. 1. Feb. 1966 = 100. 2. Indicates the question is one of the five equally-weighted components of the index of sentiment. Consumer sentiment Expected inflation 1966 = 100 130 1985 = 100 180 160 Percent 5 5 120 4 Reuters/Michigan (right scale) 140 4 Median, 5 to 10 years ahead 110 Apr. 120 100 100 90 80 3 3 2 2 80 Mar. Apr. 60 Conference Board (left scale) 40 2000 2002 2004 2006 2008 Median, 12 months ahead 1 1 70 60 0 2000 2002 2004 2006 2008 0 -5- Private Housing Activity (Millions of units, seasonally adjusted; annual rate except as noted) 2007 2008 Sector 2007 Q4 Q1 Jan. Feb. Mar. 1.36 1.38 1.30 1.32 1.15 1.14 1.04 .99 1.08 1.06 1.08 .98 .95 .93 1.05 .97 .99 .109 .99 .94 .97 .114 .83 .76 .78 .109 .72 .65 .67 .098 .77 .68 .70 .110 .72 .65 .67 .109 .68 .62 .65 .098 .78 8.33 .73 8.79 .66 9.25 .57 10.03 .61 9.53 .58 9.87 .53 10.68 4.94 8.67 4.76 9.15 4.39 9.96 4.39 10.18 4.35 10.74 4.47 9.77 4.35 10.02 .309 .407 .075 .310 .384 .075 .325 .377 .075 .313 .342 .070 .317 .380 .077 .354 .338 .073 .267 .307 .070 .096 .096 .093 .092 .094 .713 All units Starts Permits Single-family units Starts Permits Adjusted permits1 Permit backlog2 New homes Sales Months’ supply3 Existing homes Sales Months’ supply3 Multifamily units Starts Permits Permit backlog2 Mobile homes Shipments Condos and co-ops Existing home sales Q3 .701 .608 .540 .560 n.a. .560 n.a. .580 1. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas. 2. Number outstanding at end of period. Excludes permits that have expired or have been canceled, abandoned, or revoked. Not at an annual rate. 3. At current sales rate; expressed as the ratio of seasonally adjusted inventories to seasonally adjusted sales. Quarterly and annual figures are averages of monthly figures. n.a. Not available. Private Housing Starts and Permits (Seasonally adjusted annual rate) Millions of units Millions of units 1.0 2.0 1.8 .9 Single-family starts (right scale) 1.6 .8 1.4 .7 1.2 .6 Single-family adjusted permits (right scale) 1.0 .5 .8 Mar. .4 .6 .3 .4 Mar. Multifamily starts (left scale) .2 .1 .2 1999 2000 2001 2002 2003 2004 2005 2006 Note. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas. 2007 2008 .0 -6- Indicators of Single-Family Housing Existing Single-Family Home Sales New Single-Family Home Sales lndex(2001=100) 140 _ 15 130 1.3 6.0 120 5.5 Millions of units (annual rate) Content partially redacted. Millions of units _ (annual rate) 65 1.1 110 0.9 100 5.0 90 4.5 80 0.7 0.5 Note: Source. National Association of Realtors. Source. for sales agreements, Census Bureau Content partially redacted. New Home Sales Months' Supply Mortgage Rates Months Percent 11 30-year jumbo FRM 30-year conforming FRM 1-year conforming ARM 10 9 Months' supply (right scale) 8 8 7 7 6 6 5 5 4 3 4 2 Note. . Months' supply is calculated using the 3-month moving average of sales. Source. for months' supply, Census Bureau. Note. The Apr. readings are for data through Apr. 23, 2008. Source. Conforming rates are from Freddie Mac. The jumbo rate is the sum of the 30-year conforming FRM rate and the jumbo conforming spread from bankrate.com. Prices of Existing Homes 40 9 Price of New Homes Percent change, annual rate Quarterly OFHEO purchase-only index Monthly OFHEO purchase-only index Case-Shiller 10-city price index 40 20 Percent change from preceding period, annual rate 20 Constant quality index 30 15 15 20 20 10 10 10 10 5 30 5 0 0 -10 -10 -5 -20 -20 -10 Note. The Case-Shiller and monthly OFHEO indexes are 3-month percent changes. Source. For purchase-only indexes, OFHEO; for Case-Shiller, Chicago Mercantile Exchange. -5 -10 Source. Census Bureau. -7- Orders and Shipments of Nondefense Capital Goods (Percent change; seasonally adjusted current dollars) 2007 Category 2008 Q4 Q1 Jan. Annual rate Feb. Mar. Monthly rate Shipments Excluding aircraft Computers and peripherals Communications equipment All other categories 2.8 4.9 36.6 -16.9 4.4 -.3 .2 1.2 -5.6 .7 1.6 -.4 -1.3 -4.9 .2 -3.9 -1.6 -2.2 -.5 -1.6 .8 1.2 3.1 .7 1.0 Orders Excluding aircraft Computers and peripherals Communications equipment All other categories 6.6 -1.7 8.2 -42.1 2.5 -9.7 4.1 1.6 -.3 4.8 -7.7 -1.0 -13.2 -13.7 1.7 -.3 -2.0 11.3 7.9 -4.1 1.5 .0 1.6 -3.3 .2 Memo: Shipments of complete aircraft1 46.7 n.a. 53.9 48.7 n.a. 1. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate. n.a. Not available. Communications Equipment Non-High-Tech, Nontransportation Equipment Billions of chained (2000) dollars, ratio scale 20 17 14 Shipments Orders 20 17 14 11 8 Billions of chained (2000) dollars, ratio scale 58 Shipments Orders 52 52 11 8 58 47 47 Mar. Mar. 2 42 42 37 5 37 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 Note. Shipments and orders are deflated by a price index that is derived from the BEA’s quality-adjusted price indexes and uses the PPI for communications equipment for monthly interpolation. 2 32 Computers and Peripherals 220 190 2000 = 100 32 Medium and Heavy Trucks Billions of chained (2000) dollars Industrial production (left scale) Real M3 shipments (right scale) 2000 2001 2002 2003 2004 2005 2006 2007 2008 Note. Shipments and orders are deflated by the staff price indexes for the individual equipment types included in this category. Indexes are derived from the BEA’s quality-adjusted price indexes. Mar. 22 19 170 17 150 15 130 1240 1040 900 11 90 1040 900 Thousands of units, ratio scale Sales of class 4-8 trucks Net new orders of class 5-8 trucks 13 110 1240 9 Note. Ratio scales. Shipments are deflated by the staff price index for computers and peripheral equipment, which is derived from the BEA’s quality-adjusted price indexes. 7 620 480 340 2000 2001 2002 2003 2004 2005 2006 2007 2008 760 620 480 70 760 Mar. 340 200 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 Note. Annual rate, FRB seasonals. Source. For sales, Ward’s Communications; for orders, ACT Research. -8- Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total Level1 Apr. 2008e H1 2007 Q3 2007 Q4 2007 Q1 2008 Mar. 2008 Apr. 2008e 11.1 12.4 9.5 6.7 13.4 -6.4 8,978 Loans2 Total To businesses Commercial and industrial Commercial real estate 11.2 11.7 10.5 9.8 8.4 .2 6,798 25.1 9.8 21.4 10.4 27.3 9.1 15.9 9.4 19.9 13.1 11.5 7.4 1,481 1,631 To households Residential real estate Revolving home equity Other Consumer Originated3 Other4 -1.4 6.4 -4.0 10.8 9.4 20.8 2.6 5.4 1.7 10.7 10.1 19.7 -5.4 7.3 -9.6 10.6 8.4 21.0 5.4 10.8 3.5 7.4 7.8 12.1 14.0 18.5 12.5 4.6 4.0 -21.8 4.5 16.0 .4 7.7 8.6 -41.5 1,889 500 1,389 817 1,228 981 10.7 -5.0 29.9 14.8 7.7 23.4 6.3 -17.5 34.4 -2.5 -6.8 2.0 29.0 43.2 14.9 -26.6 -14.6 -38.9 2,180 1,115 1,066 Securities Total Treasury and agency Other5 Note. Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data have been adjusted to remove the effects of mark-to-market accounting rules (FIN 39 and FAS 115), the initial consolidation of certain variable interest entities (FIN 46), the initial adoption of fair value accounting (FAS 159), and the effects of sizable thrift-to-bank and bank-to-thrift structure activity in October 2006, March 2007, and October 2007. Data also account for breaks caused by reclassifications. 1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels. 2. Excludes interbank loans. 3. Includes an estimate of outstanding loans securitized by commercial banks. 4. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. 5. Includes private mortgage-backed securities, securities of corporations, state and local governments, foreign governments, and any trading account assets that are not Treasury or agency securities, including revaluation gains on derivative contracts. e Estimated. -9- III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2006 2007 Change to Apr. 24 from selected dates (percentage points) 2008 Instrument June 29 Sept. 17 Mar. 17 Apr. 24 2006 June 29 2007 Sept. 17 2008 Mar. 17 5.25 5.25 3.00 2.25 -3.00 -3.00 -.75 4.88 5.06 4.05 4.15 1.09 1.28 1.24 1.62 -3.64 -3.44 -2.81 -2.53 .15 .34 Commercial paper (A1/P1 rates)2 1-month 3-month 5.27 5.37 5.23 5.25 2.41 2.50 2.77 2.88 -2.50 -2.49 -2.46 -2.37 .36 .38 Large negotiable CDs1 3-month 6-month 5.47 5.59 5.52 5.36 2.63 2.45 2.95 3.02 -2.52 -2.57 -2.57 -2.34 .32 .57 Eurodollar deposits3 1-month 3-month 5.33 5.49 5.55 5.60 2.60 2.55 2.95 3.05 -2.38 -2.44 -2.60 -2.55 .35 .50 Bank prime rate 8.25 8.25 6.00 5.25 -3.00 -3.00 -.75 Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year 5.26 5.15 5.28 4.12 4.18 4.58 1.36 2.20 3.58 2.32 3.14 4.06 -2.94 -2.01 -1.22 -1.80 -1.04 -.52 .96 .94 .48 U.S. Treasury indexed notes5 5-year 10-year 2.51 2.61 2.04 2.15 .39 1.20 1.07 1.68 -1.44 -.93 -.97 -.47 .68 .48 Municipal general obligations (Bond Buyer)6 4.71 4.46 4.94 4.68 -.03 .22 -.26 Private instruments 10-year swap 10-year FNMA7 10-year AA8 10-year BBB8 10-year high yield8 5.81 5.59 6.20 6.74 8.74 5.17 5.01 6.05 6.46 8.95 4.02 4.43 6.04 6.61 10.54 4.46 4.54 6.06 6.89 9.86 -1.35 -1.05 -.14 .15 1.12 -.71 -.47 .01 .43 .91 .44 .11 .02 .28 -.68 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.78 5.82 6.34 5.65 5.87 5.15 6.03 5.29 -.75 -.53 -.31 -.36 .16 .14 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high 2007 Change to Apr. 24 from selected dates (percent) 2008 Stock exchange index Level Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Date Sept. 17 Mar. 17 Apr. 24 Record high 2007 Sept. 17 2008 Mar. 17 14,165 1,565 5,049 856 15,807 10-9-07 10-9-07 3-10-00 7-13-07 10-9-07 13,403 1,477 2,582 776 14,839 11,972 1,277 2,177 650 12,828 12,849 1,389 2,429 717 13,991 -9.29 -11.27 -51.89 -16.21 -11.49 -4.14 -5.95 -5.92 -7.57 -5.72 7.32 8.79 11.57 10.24 9.06 1. Secondary market. 2. Financial commercial paper. 3. Bid rates for Eurodollar deposits collected around 9:30 a.m. eastern time. 4. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. 5. Derived from a smoothed Treasury yield curve estimated using all outstanding securities and adjusted for the carry effect. 6. Most recent Thursday quote. 7. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 8. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. _______________________________________________________________________ NOTES: June 29, 2006, is the day the most recent policy tightening ended. September 17, 2007, is the day before the most recent policy easing began. March 17, 2008, is the day before the most recent FOMC monetary policy announcement. _______________________________________________________________________
@FedFRASER