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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS III - FOMC August 18, 1989 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Consumer prices. . . . . . . . . . . . . . Federal sector forecast in the Greenbook Tables Recent changes in consumer prices . . . . Federal sector accounts . . . . . . . . . THE FINANCIAL ECONOMY Tables Monetary aggregates . . . . . . . . . . . Commercial bank credit and short- and intermediate-term business credit . . . Selected financial market quotations . . . THE INTERNATIONAL ECONOMY U.S. merchandise trade . . . . . .. . . . . . . . . 8 SUPPLEMENTAL NOTES DOMESTIC NONFINANCIAL ECONOMY Consumer Prices The consumer price index for all urban consumers rose 0.2 percent in July. Energy prices fell 0.7 percent, as gasoline prices dropped 2.2 percent in the wake of recent declines in crude oil costs and high levels of gasoline inventories. Food prices rose 0.3 percent, as declines in prices for pork, poultry, and eggs partially offset moderate increases in the price of fruits and vegetables and most other types of food at home. Poultry prices came down sharply at the farm, producer, and consumer levels in July. Consumer prices other than food and energy rose 0.4 percent in July, about the same as the average monthly rate of increase in the preceding twelve months. Among the components of this index, service prices continued to rise considerably faster than consumer goods prices, which have been held down by the moderation in import prices. food and energy rose 0.1 percent in July. Prices of commodities other than Apparel prices fell 0.9 percent as retailers, who needed to trim stocks to make room for the fall clothing line, discounted prices more than usual. New car prices fell 0.4 percent as automakers stepped up incentive programs to clear out their inventories before the 1990 models begin to reach showrooms. Non-energy services prices jumped 0.6 percent, led by large increases in the cost of out-of-town lodging, hospital services, and educational services. Residential rent and owners' equivalent rent rose 0.3 percent and 0.4 percent, respectively, the same pace as in the preceding twelve months. RECENT CHANGES IN CONSUMER PRICES (Percentage change; based on seasonally adjusted data) All items2 Food Energy All items less food and energy Commodities Services Relative importance Dec. 1988 1987 100.0 16.2 7.3 4.4 3.5 8.2 4.4 5.2 .5 76.5 25.7 50.8 4.2 3.5 4.5 4.7 4.0 5.0 5.2 4.1 5.9 3.8 2.0 4.3 .2 -.1 .4 .4 .1 .6 100.0 4.5 4.4 6.2 5.7 .2 .2 1989 1988 Q1 1989 Q2 -Annual rate6.1 5.7 8.2 5.6 24.8 10.2 June July -Monthly rate.2 .2 .2 .3 -.7 -1.0 Memorandum: CPI-W 3 1. Changes are from final month of preceding period to final month of period indicated. 2. Official index for all urban consumers. 3. Index for urban wage earners and clerical workers. -3Federal Sector Forecast in the Greenbook The following table, Federal Sector Accounts, replaces the one included in the August 16 Greenbook, Part 1. That table omitted lines containing High-employment Budget data and projections; these lines have been inserted on the new table. CORRECTED CONFIDENTIAL CLASS II August 17, 1989 FEDERAL SECTOR ACCOUNTS (Billions of dollars) Fiscal Year 1988a Admin i CBO 2 FRB Staff Admin i CB2 FRB Staff Projection I FY19 9 0p_ FY1989p 1988 IVa FRB Staff I I la a1a 89 I Ila IV I II 1990 III . - BUDGET Not seasonally adjusted 3 Budget receipts 3 Budget outlays Surplus/deficit(-) to be financed 3 (On-budget) (Off-budget) 909 1064 996 1144 983 1142 993 1162 1080 1179 1069 1215 1069 1179 -155 -194 39 -148 -202 53 -159 -215 56 -168 -221 53 -99 -164 65 -146 -214 68 -110 -176 66 n.a. n.a. n.a. n.a. n.a. n.a. 143 13 13 n.a. n.a. n.a. n.a. n.a. n.a. 107 -3 6 n.a. n.a. 32 n.a. n.a. 35 Means of financing: Borrowing Cash decrease 4 Other Cash operating balance, end of period 44 222 289 34 220 280 308 285 -61 -77 16 23 0 23 15 NIPA FEDERAL SECTOR Receipts Expenditures Purchases Defense Nondefense Other expend. Surplus/deficit 244 306 10 -29 -4 41 12 9 44 32 228 295 27 248 297 329 298 265 290 249 314 -49 -69 19 31 8 23 -25 -40 15 -64 -74 10 15 40 35 25 Seasonally adjusted annual rates 1034 1188 404 300 104 784 -154 n.a. n.a. n.a. n. a. n.a. n.a. n.a. n.a. -175 n.a. n.a. n.a. .4 n.a. n.a. -4.1 * 958 1103 377 297 80 726 -145 n.a. n.a. -155 n.a. .3 .2 * n.a. n.a. n.a. n.a. n.a. 1037 1177 395 302 93 782 -140 1112 1245 413 300 114 831 -133 995 1162 40, 301 106 756 -168 1036 1184 399 299 100 785 -148 1051 1198 404 302 102 794 -147 1055 1209 407 300 107 802 -154 1072 1216 405 297 108 811 -144 1107O 1124 1245 1257 415 418 301 301 113 117 830 839 -138 -133 1145 1262 416 300 116 846 -117 1162 1276 417 299 117 859 -114 n.a. -144 -186 -172 -168 -173 -161 -152 -142 -122 -114 n.a. n.a. -.6 1 -. 3 -. 1 .1 -. 2 -. 2 -. 2 -. 4 -.1 n.a. n.a. -7.3 * 1 -2.7 -. 1 -. 7 -3.1 -3.7 -.1 -1 -2 1133 1255 416 311 105 839 -122 FISCAL INDICATORS 5 High-employment (HEB) surplus/deficit(-) Change in HEB, percent of potential GNP Fiscal impetus measure (FI), percent a--actual Note: 1. 2. 3. 4. 5. - p--projection ----- *--calendar year -- n.a.--not available Details may not add to totals due to rounding. The Administration figures are from the Mid-Session Review of the Budget (July 18, 1989), which incorporates the Bipartisan Budget Agreement but does not include on-budget RTC spending in FY1989. The CBO figures are baseline budget estimates from An Analysis of President Reagan's Budgetary Proposals for Fiscal Year 1990 (February 1989). New CBO estimates will be released August 17, 1989. Budget receipts, outlays, and surplus/deficit include social security (OASDI) receipts, outlays and surplus, respectively. The OASDI surplus is excluded from the "on-budget" deficit and shown separately as "off-budget", as classified under current law. Other means of financing are checks issued less checks paid, accrued items and changes in other financial assets and liabilities. HEB is the NIPA measure in current dollars with cyclically-sensitive receipts and outlays adjusted to a 6 percent unemployment rate. Quarterly figures for change in BEB and FI are not at annual rates. Change in HEB, as a percent of nominal potential GNP, is reversed in sign. FI is the weighted difference of discretionary federal spending and tax changes (in 1982 dollars), scaled by real federal purchases. For change in REB and FI, (-) indicates restraint. MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted) 19881 1989 Ql 1989 Q2 1989 May 1989 Jun 1989 Jul p Growth Q4 88Jul 89p ------------ Percent change at annual rates--------------------4.3 5.2 '6.2 ------------ -0.4 1.8 3.7 -5.6 1.0 2.8 -15.0 -3.6 -1.5 -4.3 6.1 5.5 10.4 12.1 9.3 Percent change at annual rates------------ -1.9 3.0 4.0 Levels bil. $ Jul 89p Selected components 4. Ml-A -0.2 -3.3 -6.4 -5.5 10.6 504.0 8.1 -1.2 7.0 -5.5 4.1 -8.7 2.8 -13.6 5.5 -13.8 2.8 17.0 217.9 278.9 2.5 5. Currency 6. Demand deposits 7. Other checkable deposits 7.7 -0.7 -9.7 -31.0 -1.8 10.2 273.2 8. M2 minus M12 5.5 2.6 3.3 0.3 9.6 12.6 2340.2 -5.8 13.6 -29.8 -27.6 31.6 64.9 7.4 6.9 1.4 14.7 20.5 5.4 -8.4 22.4 20.8 5.4 -14.9 29.0 -0.9 -1.1 -28.5 28.2 28.7 6.2 0.7 12.1 43.0 7.0 6.8 7.4 9. 10. 11. 12. 13. 14. 15. 16. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks 3 Savings deposits, SA, plus MMDAs, NSA Small time deposits Thrift institutions 3 Savings deposits, SA, plus MMDAs, NSA Small time deposits 17. M3 minus M2 4 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA 78.0 274.6 1017.5 512.6 505.0 4.6 -3.0 -1.1 1.5 6.1 4.5 969.6 -4.3 11.7 -14.0 4.3 -24.6 14.0 -33.5 22.5 -9.9 15.6 -3.1 8.6 348.4 621.1 10.2 10.4 9.1 5.9 3.3 -0.4 883.3 11.0 12.2 8.8 12.7 18.1 1.2 14.1 17.8 6.0 9.5 10.1 8.2 1.9 2.1 1.4 1.7 5.7 -7.5 574.0 398.5 175.5 -0.8 13.7 11.2 10.6 5.8 -1.2 12.2 0.3 -5.5 53.4 1.9 -9.4 45.9 -2.8 -15.4 39.1 -56.7 3.6 98.2 120.9 100.0 ---- Average monthly change in billions of dollars---MEMORANDA: 6 24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds 27. Net due to related foreign 28. Other institutions, SA 7 4.9 3.3 1.6 4.7 5.8 -1.1 7.9 4.0 3.9 6.9 4.1 2.8 17.8 1.9 15.9 6.9 3.0 3.9 688.6 461.7 226.9 -0.4 2.0 0.5 -1.6 -0.1 4.0 -3.0 5.7 8.0 7.9 3.2 0.6 11.1 215.7 0.0 -1.5 2.3 6.2 0.2 -4.6 22.7 29. U.S. government deposits at commercial banks 8 1. Amounts shown are from fourth quarter to fourth quarter. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Commercial bank savings deposits excluding MHDAs grew during June and July at rates of -5.9 percent and 2.6 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during June and July at rates of -9.2 percent and -6 percent, respectively. 4. The non-M2 component of 13 is seasonally adjusted as a whole. 5. Net of large denomination time deposits held by money market mutual funds and thrift institutions. 6. Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis. 7. Consists of borrowing from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase, and other liabilities for borrowed money (including borrowing from the Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated. 8. Consists of Treasury demand deposits and note balances at commercial banks. p - preliminary COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1987:Q4 to 1988:Q4 1989 l1 ------------- ---------1. Total loans and securities at banks 7.6 2. 4.8 Securities 3. U.S. government securities 4. Other securities 5. Total loans 7.9 ,2.2 May Q2 June July p Levels bil.$ July p Commercial Bank Credit--------------------5.2 7.5 5.0 10.0 2518.3 .7 4.3 -. 9 -1.1 559.1 374.3 7.3 8.2 5.4 9.1 1.0 1.6 .5 -8.9 -8.2 -5.1 -3.9 -6.5 8.5 9.6 6.5 8.4 6.7 13.1 1959.1 184.8 Business loans 6.8 10.6 4.6 11.0 -2.7 15.2 632.4 Security loans -5.7 53.0 -22.9 -60.0 97.9 -23.4 40.3 8. Real estate loans 14.0 11.8 11.7 10.3 11.2 12.1 719.6 9. Consumer loans 8.5 5.6 6.1 8.3 2.0 1.6 367.0 0. Other loans -. 4 -2.7 1.2 7.6 12.5 40.4 199.8 6. --------11. Business loans net of bankers 6.9 acceptances 12. Loans at foreign branches 2 .3. Sum of lines 11 & 12 14. Commercial paper issued by 15. Sum of lines 13 & 14 16. Bankers accetances: U.S. trade related Line 15 plus bankers acceptances: U.S. trade related 18. Finance company loans to business 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 4.6 10.5 -2.7 32.8 69.1 32.7 7.6 12.4 5.6 12.7 -1.3 15.5 37.5 38.2 37.8 27.7 8.6 16.0 10.5 16.6 -6.8 17.9 8.0 10.3 16.0 10.5 16.3 14.7 14.4 11.5 15.9 7.8 3 11.0 51.9 30.3 nonfinancial firms 17. Sh ort- and Intermediate-Term Business Credit ---------- 12.3 8.9 8.0 14.1 3.3 15.1 4.5 14.6 .0 12.3 629.7 26.5 656.1 124.0 780.1 n.a. 5 35.75 n.a. 808.45 10.8 n.a. 247.65 5.6 n.a. 1056.05 17.0 4.0 1. Average of Wednesdays. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Based on average of data for current and preceding ends of month. 4. Consists of acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. 5. June data. p--preliminary. n.a.--not available Note: Data have been revised to reflect new benchmark adjustments. FINANCIAL MARKET QUOTATIONS 1/ (percent) SELECTED 1987 Change from: 1989 2/ Oct 16 March Jul-Aug Highs FOMC lows July 6 Mar 89 Jul-Aug FOC lows July 6 Aug 17 Highs Short-term rates 7.59 9.85 8.97 9.56 9.03 -0.82 0.06 -0.53 6.93 9.09 9.11 9.05 7.63 7.34 7.10 7.77 7.55 7.41 7.88 7.83 7.73 -1.21 -1.28 -1.32 0.25 0.49 0.63 0.11 0.28 0.32 10.05 10.15 8.52 8.24 9.18 8.92 8.84 -1.21 8.64-1.51 0.32 0.40 -0.34 -028 7.92 .90 9.12 10.07 10.32 10.08 8.45 8.26 8.12 8.85 8.72 8.64 -1.22 -1.60 -1.44 0.40 0.46 0.52 -0.32 -0.27 -0.14 Eurodollar deposits 5/ 1-month 3-month 8.00 9.06 10.19 10.50 8.44 8.31 9.25 9.06 8.88 8.75 -1.31 -1.75 0.44 0.44 -0.37 -0.31 Bank prime rate 9.25 11.50 10.50 11.00 10.50 -1.00 0.00 -0.50 U.S. Treasury (constant maturity) 9.52 3-year 10-year 10.23 10.24 30-year 9.88 9.53 9.31 7.51 7.74 7.83 7.92 8.08 -1.66 -1.35 -1.15 0.71 0.44 0.33 0.30 8.10 8.22 8.18 8.16 Mnicipal revenue 6/ (Bond Bayer index) 9.59 7.95 7.17 7.32 7.39 -0.56 0.22 0.07 11.50 10.47 9.45 9.56 9.56 -0.91 0.11 0.00 11.58 8.45 11.22 9.31 9.68 8.60 10.07 8.92 9.96 62 -1.26 -0.69 0.28 0.02 -0.11 -0.30 Federal funds 3/ Treasury bills 4/ 7.7 7.74 1-year Commrcial paper 1-onth 74 85 3-month Large negotiable CD's 4/ -onth Intermediate- and long-term rates Corporate-A utility Recently offered Home nort rates 7/ Fixed-year ARM, 1-year Highs Percent change from: 1989 1987 FCM July 6 FOC July 6 Aug 17 1987 Highs 1987 Lows 1738.74 2462.44 2679.63 125.91 179.82 191.95 -1.57 2.11 54.11 52.45 8.82 6.75 1.22 57.88 800 Lws 0.10 0.06 Stock prices Dow-Jones Industrial NYSE Composite AM Conmosite NASDAQ (C) 2722.42 187.99 5.01 455.26 231.90 31.11 291.88 39.57 378 1/ One-day quotes except as noted. 2/ Last business day prior to stock market decline on Monday Oct. 19, 1987. 3/ Average for two-week reserve maintenance period closest to 3.65 63.15 4.77 4/ Secondary market. 5/ Bid rates for Eurodollar deposits at 11 a.m. London time. 6/ Based on one-day Thursday quotes and futures-market index changes. date shown except Feb. low which is the average to the statement week ended Feb. 10, 1988. Last observation is average to date 7/ Quotes for week ending Friday closest to date shown. for maintenance period ending August 23, 1989. INTERNATIONAL DEVELOPMENTS U.S. Merchandise Trade In June, the U.S. merchandise trade deficit was $8.2 billion (seasonally adjusted, Census basis, customs valuation), compared with $10.1 billion (revised) in May. For the second quarter, the deficit was somewhat smaller than in the first quarter. Exports in June were 1.5 percent higher than in May, primarily a result of increases in capital and consumer goods. Exports in the second quarter rose 4.8 percent, bringing the level of exports to 15 percent above that of a year earlier. This recent strength in exports has been spread among industrial supplies, capital goods (particularly machinery, but also aircraft and computers), and consumer goods. Imports declined 3.6 percent in June, largely because of a drop in the value of oil. There was a decline in both the price of imported oil (by 73 cents per barrel) and quantity (by 5 percent) from peak May levels. Nonetheless, the value of oil imports in the second quarter was 25 percent higher than in the first quarter with most of the increase in prices. Non-oil imports in the second quarter were at about the same level as in the first quarter; increases in imports of capital goods (primarily aircraft and computers) and consumer goods were largely offset by declines in the value of imports of automotive products and food. July 17, 1989 U.S. Merchandise Trade (billions of dollars, seasonally adjusted) Imports Exports Total Ag Nonag Total Oil Non-oil (nsa) 254.1 322.4 29.1 37.6 225.0 284.8 406.2 441.0 42.3 38.5 363.9 402.5 -152.1 -118.5 Quarters (a.r.): 1987 - 4 278.4 30.2 248.2 428.9 44.8 384.1 -150.5 1988 - 1 305.1 35.1 270.0 2 3 4 320.8 326.7 337.2 37.4 39.4 38.5 283.4 287.3 298.7 431.3 435.2 437.8 459.5 39.3 40.1 38.3 36.3 392.0 395.1 399.5 423.3 -126.2 -114.4 -111.1 -122.3 1989 - 1 2 351.5 368.5 42.0 41.9 309.5 326.6 462.6 474.7 41.7 52.0 420.9 422.6 -111.1 -106.1 Months: 1988 - Apr May June 26.0 27.4 26.7 3.3 3.1 2.9 22.7 25.2 23.8 35.4 36.1 37.3 3.1 3.6 3.3 31.9 32.5 34.0 -8.5 -8.7 -10.6 July Aug Sept 26.6 27.5 27.6 3.0 3.3 3.5 23.6 24.2 24.1 35.1 37.6 36.8 3.1 3.4 3.0 31.9 34.2 33.7 -8.5 -10.1 -9.2 Oct Nov Dec 27.9 27.5 28.9 3.1 3.1 3.4 24.1 24.4 25.5 37.1 38.1 39.7 2.9 2.9 3.3 34.2 35.2 36.4 -9.2 -10.5 -10.8 1989 - Jan Feb Mar 29.0 28.8 30.1 3.2 3.4 3.9 25.8 25.4 26.2 37.9 38.2 39.5 3.5 3.2 3.7 34.4 35.0 35.9 -8.9 -9.4 -9.5 30.8 30.5 30.9 3.7 3.5 3.3 27.1 27.0 27.6 39.0 40.5 39.1 4.0 4.7 4.2 35.0 35.8 34.9 -8.3 -10.1 -8.2 Years: 1987 1988 Apr May-r June-p p/ preliminary r/ revised SOURCE: U.S. Department of Commerce, Bureau of the Census Balance
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