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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 II FOMC August 18, 2000 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 Developments ...................... Consumer Sentiment .................. ............... 1 .1 U.S. International Transactions ............................. 3 Trade in Goods and Services ............................ 3 Implications for NIPA Real Net Exports ................... 3 Tables Michigan Survey of Consumer Attitudes .................... U.S. Exports and Imports of Goods and Services ............. 2 6 Charts U.S. International Trade in Goods and Services .............. 5 The Financial Economy .......................................... Tables Selected Financial Market Quotations ...................... 7 7 Supplemental Notes The Domestic Nonfinancial Economy Consumer Sentiment According to the preliminary report, the University of Michigan Survey Research Center's overall index of consumer sentiment was little changed in early August and remained a bit above the elevated level registered, on average, over the past two years. Assessments of current conditions moved down in early August, as in the preceding two months, and now stand in the lower end of the range recorded over the past two years.1 In contrast, assessments of expected conditions held steady in early August and remained in the upper end of their range during the past two years. Among those questions not in the overall index, appraisals of buying conditions for cars popped up in August; appraisals of buying conditions for homes rose modestly, but remained well below the average seen in the winter and early spring. Expectations about changes in unemployment over the next twelve months were a shade more favorable in early August than in July. Expected inflation over the next twelve months fell somewhat in early August: The mean decreased 0.4 percentage point to 3.3 percent while the median decreased 0.3 percentage point to 2.7 percent. However, expected inflation over the next five years rose a little: The mean increased 0.2 percentage point to 3.4 percent, and the median increased 0.1 percentage point to 2.9 percent. 1. At the end of May, the current conditions index registered its second highest value since monthly readings of the series began in 1978. August 18, 2000 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1999 2000 2000 2000 2000 2000 2000 2000 Dec. Jan. Feb. Mar. Apr. May June July 105.4 112.2 101.1 112.0 111.3 116.8 107.1 109.2 117.3 115.4 108.6 107.8 101.7 117.8 103.7 110.7 119.9 104.8 106.4 115.1 100.8 Personal financial situation Now compared with 12 months ago* Expected in 12 months* 133 132 135 141 132 138 135 136 130 137 138 137 Expected business conditions Next 12 months* Next 5 years* 150 125 165 133 161 136 146 128 152 130 141 158 154 144 169 152 153 172 153 134 165 150 50 70 51 85 48 75 105 104 19 Expected inflation - next 12 months Mean Median Expected inflation - next 5 to 10 years Mean Median 2000 Aug (p) Indexes of consumer sentiment (Feb. 1966=100) Composite of current and expected conditions Current conditions Expected conditions Appraisal of buying conditions Cars Large household appliances* Houses Willingness to use credit Willingness to use savings Expected unemployment change - next 12 months Prob. household will lose a job - next 5 years 114.2 104.5 107.8 112.9 104.5 129 137 130 139 125 140 153 133 146 123 148 135 152 130 148 176 151 145 173 136 138 170 128 141 167 136 149 168 138 52 67 54 70 45 65 49 79 106 109 109 104 112 111 110 19 21 20 19 18 21 23 21 3.6 3.0 3.5 3.0 3.5 2.9 3.8 3.2 3.5 3.2 3.5 3.0 3.4 2.9 3.7 3.0 3.3 2.7 3.2 2.9 3.5 3.0 3.3 2.9 3.8 3.1 3.2 2.8 3.4 2.9 3.3 2.8 3.2 2.8 3.4 2.9 108.3 * -- Indicates the question is one of the five equally-weighted components of the index of sentiment. (p) -- Preliminary (f) -- Final 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. U.S. International Transactions Trade in Goods and Services In June, the U.S. trade deficit in goods and services was $30.6 billion, not much different from the size of deficits recorded in the previous three months. For the second quarter, the deficit was $366 billion at an annual rate, $21 billion larger than in the first quarter. Net Trade in Goods and Services (Billions of dollars, seasonally adjusted) 1999 1999 Annual rate 2000 _04 01 1 02 Monthly rate 2000 Apr. I May I June Real NIPA1 Net exports of G&S -322.4 -352.5 -376.8 -416.1 ... ... -265.0 -305.1 -344.7 -365.7 -30.5 -345.6 80.6 -30.3 -30.6 -384.9 79.8 -423.4 -440.9 78.7 75.2 -36.9 6.4 -36.5 6.2 -36.8 6.2 Nominal BOP Net exports of G&S Goods, net Services, net 1. Billions of chained (1996) dollars. Source: U.S. Department of Commerce, Bureaus of Economic Analysis and Census. n.a. Not available. ... Not applicable. The value of exports of goods and services in June jumped sharply with increases recorded in all major trade categories, particularly semiconductors, computers, and other machinery. For the second quarter, nominal exports of goods and services rose at an annual rate of 14 percent. Almost all of the increase was in capital goods. Exports of high tech goods (computers, semiconductors, and telecommunications equipment) and other machinery rose strongly. The increase in aircraft exports in the second quarter reversed a decline in the first quarter when Boeing was on strike. The value of imports of goods and services also grew strongly in June, particularly oil (both price and quantity), automotive products (reversing declines in May), and computers and semiconductors. For the second quarter, the nominal value of imports of goods and services jumped at an annual rate of 17 percent. The sharpest increases were in oil (mostly quantity), consumer goods, and capital equipment. Implications for NIPA Real Net Exports U.S. trade data for June, and revisions for May, suggest that NIPA real net exports in 2000:Q2 could be $6-1/2 billion (seasonally adjusted, annual rate) stronger (smaller deficit) than estimated in the August Greenbook. Both exports and imports were substantially higher in the second quarter than we anticipated, -4with real exports $15 billion stronger and real imports $8-1/2 billion stronger. A rough estimate suggests that BEA's Advance NIPA estimate for net exports could revised by similar amounts. US. International Trade in Goods and Services Contribution of Net Exports to Real GDP Growth Percentage points, s.a.a 3 *- 2 2 0 1992 1994 1996 -3 S I 1998 2000 -4 BilS, s.a.a.r. Net rade in computers and semiconductors / o0 - -21 -2C Net automotive trade Swith Canada and Mexico 1992 1994 1996 1998 Selected Imports 1. Excludes agriculture and gold. 2. Excludes computers and semiconductors. 1. Excludes oil and gold. 2. Excludes computers and semiconductors. 3. Excludes Canada and Mexico. 2000 ---- ---- -- U.S. Exports and Imports of Goods and Services (Billions of dollars, s.a.a.r., BOP basis) Levels 2000 Exports of G&S 2000 May June QI Q2 1020.1 1054.9 1038.8 1086.8 Amount Change _ 2000 2000 June Q2 May Q1 21.5 34.7 -0.2 48.0 734.9 52.5 9.6 672.8 767.2 52.9 3.7 710.6 753.0 53.8 2.7 696.5 797.9 54.0 5.2 738.8 14.6 2.5 0.9 11.2 32.3 0.4 -5.9 37.8 43.6 51.2 52.5 179.0 52.9 55.3 59.6 189.4 56.5 52.4 57.8 182.0 55.5 57.1 65.1 196.5 -9.4 3.4 1.2 7.2 9.2 4.1 7.1 10.4 -1.0 4.7 7.3 14.5 80.3 47.5 15.9 17.0 80.1 45.0 17.3 17.8 78.8 44.5 17.1 17.3 84.6 46.9 18.4 19.2 2.8 0.2 2.2 0.4 -0.2 -2.5 1.4 0.8 5.8 2.5 1.3 1.9 148.8 87.3 30.0 154.1 88.7 30.4 152.1 86.0 31.0 158.3 93.7 28.1 3.3 3.7 -1.1 5.3 1.4 0.4 0.1 -0.6 -0.5 6.2 7.7 -2.9 285.2 287.6 285.8 288.8 7.0 2.4 -2.4 3.0 Imports of G&S 1364.8 1420.6 1402.5 1454.2 61.1 55.7 -2.5 51.7 Goods imports Petroleum Gold Other goods 1158.3 1208.1 1190.7 1240.1 108.0 117.3 113.7 129.2 4.2 3.0 2.3 9.6 1040.6 1087.8 1074.7 1106.7 53.0 22.3 0.3 30.4 49.8 9.3 -6.6 47.2 -2.8 4.6 -0.0 -7.4 49.4 15.5 1.8 32.1 Goods exports Agricultural Gold Other goods Aircraft & pts Computers Semiconductors Other cap gds Automotive to Canada to Mexico to ROW Ind supplies Consumer goods All other Services exports 2.2 2.8 -0.6 0.0 45.0 0.2 2.5 42.3 Aircraft & pts Computers Semiconductors Other cap gds 23.2 83.8 43.2 173.9 24.7 90.0 46.4 187.5 24.5 88.0 45.9 187.4 24.5 91.5 50.2 189.6 -0.9 0.1 1.5 8.8 1.5 6.1 3.1 13.5 -0.5 -2.4 2.9 1.8 -0.0 3.5 4.4 2.2 Automotive from Canada from Mexico from ROW 193.3 66.1 38.9 88.3 195.2 63.3 40.7 91.2 187.4 60.7 39.2 87.5 200.1 66.2 42.4 91.6 5.3 0.8 5.0 -0.5 1.9 -2.8 1.8 2.9 -10.6 -2.3 -1.3 -7.0 12.7 5.5 3.1 4.1 Ind supplies Consumer goods Foods All other 168.4 260.5 44.6 49.6 171.6 171.1 276.4 276.4 45.6 45.6 48.4 50.5 174.5 277.5 46.1 52.7 6.3 7.6 0.0 1.6 3.2 15.9 1.1 0.9 1.9 1.1 0.4 -2.0 3.5 1.1 0.5 4.3 206.6 212.5 211.8 214.1 8.1 5.9 0.3 2.3 11.35 12.00 Oil quantity (mb/d) 25.98 25.40 Oil import price ($/bbl) 1. Change from previous quarter or month. 12.11 25.44 12.11 25.44 0.75 3.83 0.65 -0.58 0.32 0.11 0.00 0.00 Services imports Memo: Source: U.S. Department of Commerce, Bureaus of Economic Analysis and Census. -7Selected Financial Market Quotations (One-day quotes in percent except as noted) 1999 Instrument FOMC* June 30 Change to Aug. 17 from selected dates (percentage points) 2000 FOMC** IFOMC*** May 16 1 June 28 Aug. 17 FOMC* I FOMC** June 30 May 16 FOMC*** June 28 I Short-term FOMC intended federal funds rate 6.00 6.50 6.50 Treasury bills 3-month 6-month 1-year 5.94 6.24 6.05 5.67 5.96 5.82 6.09 6.07 5.89 Commercial paper 1-month 3-month 6.47 659 6.56 6.58 6.47 6.47 Large negotiable CDs 1 1-month 3-month 6-month 6.55 6.74 6.97 6.66 6.74 6.89 6.55 6.61 6.75 Eurodollar deposits 2 1-month 3-month 6.53 6.72 6.66 6.72 Bank prime rate 9.00 Intermediate-and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year -.09 -.11 6.53 6.59 .00 -.13 -.13 -.13 9.50 9.50 .50 .00 6.50 6.10 5.95 6.30 5.81 5.72 4.08 4.02 .01 -.19 -.06 5.99 5.76 .14 -.47 -.23 7.82 7.70 8.86 11.94 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable .00 -.12 6.23 7.33 7.15 8.49 11.98 7.09 8.25 11.81 852 6.96 Private instruments 10-year swap 10-year FNMA Merrill Lynch BBB 4 High yield .00 4.21 3 .50 6.88 6.47 6.17 U.S. Treasury 10-year indexed note Municipal revenue (Bond Buyer) 1.75 8.14 7.22 8.04 7.28 .41 1.35 -.48 .32 -.10 .06 5 Y Record high Stock exchange index Level Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 Change to Aug. 17 from selected dates (percent) 2000 Date 1,527 5,049 606 14,752 3-24-00 3-10-00 3-9-00 3-24-00 FOMC** IFOMC*** May 16 June 28 1,452 3,608 498 13,438 1,451 3,859 508 13,537 Aug. 17 Record high 1,496 3,941 516 13,941 -2.06 -21.94 -14.79 -5.50 FOMC** I FOMC*** May 16 June 28 2.07 6.19 2.11 2.53 1. Secondary market. 2. Bid rates for Eurodollar deposits collected around 9:30 am. Eastern time. 3. Most recent Thursday quote. 4. Merrill Lynch 175 high-yield bond index composite 5. For week ending Friday previous to date shown. * Data are as of the close on June 29, 1999. ** Data are as of the close on May 15,2000. *** Data are as of the close on June 27. 2000 BA:DAM
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