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CONFIDENTIAL (FR) CLASS III - FOMC December 9, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1988 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Wholesale inventories . . . . . . . . . . . . . . . . . . . 1 Table Wholesale trade inventories: change in book value . . . . . Wholesale trade inventory-to-sales ratio . . . . . . . . . 2 2 THE FINANCIAL ECONOMY Tables Monetary aggregates . . . . . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediate- term business credit . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . . . . 3 4 5 SUPPLEMENTAL NOTES DOMESTIC NONFINANCIAL ECONOMY Wholesale inventories Wholesale inventories rose at an annual rate of $6 billion in October--quite moderate compared with the $21 billion accumulation in the third quarter. Inventories of motor vehicles posted another fairly sizable increase, and stocks of apparel and piece goods also rose significantly. Elsewhere, wholesale inventory changes were generally small. Wholesale sales rose 1.9 percent in October, with strong gains in both durable and nondurable categories. As a result, the wholesalers' inventory-sales ratio fell from 1.29 to 1.27--the lowest level this year. WHOLESALE TRADE INVENTORIES: CHANGE IN BOOK VALUE (Billions of dollars; seasonally adjusted; annual rate) 1988 1988 1987 Q4 Q1 Q2 Q3 July Aug. Sept.r Oct. p 21.9 26.5 13.1 21.1 27.7 22.3 13.4 2.5 6.1 15.0 22.8 -4.1 18.5 24.3 11.8 19.3 4.3 6.9 3.7 17.2 2.6 3.3 10.5 -6.0 1.7 Excluding farm 7.1 1.0 6.2 3.0 3.2 7.4 -1.6 4.2 Farm -.1 2.7 11.0 -.4 3.1 -4.4 -2.4 Total (Previous) Durable Nondurable .1 Note: Totals may not add because of rounding. WHOLESALE TRADE INVENTORY-TO-SALES RATIO 1987 1988 1988 r Q4 Total Durable Nondurable r--Revised. p--Preliminary. Q1 Q2 Q3 July Aug. Sept. Oct. 1.28 1.31 1.30 1.30 1.28 1.29 1.29 1.78 1.70 1.74 1.71 1.72 1.73 1.71 .86 .86 .92 .88 .88 .88 .88 r3 1.27 1.72 n .86 MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted) 19871 1988 Q2 1988 Q3 1988 Sep ------------ Percent change at annual 1. Ml 2. M2 3. M3 6.3 7.7 7.7 5.2 3.6 5.7 1988 Oct Growth 1988 Q4 87Nov pe Nov 88pe rates--------------------0 6 6 -0.3 1.0 1.7 ------------ Percent change at annual rates---------- 4 5s 6 - Levels bil. $ Oct 88 Selected components 4. 5. 6. MI-A 2.8 Currency Demand deposits 7. Other checkable deposits 8. M2 minus M12 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 Savings deposits, SA, plus MMDAs, NSA3 Small time deposits Thrift institutions Savings deposits, SA, plus MMDAs, NSA 3 3.9 -0.7 3.1 -2 505.5 7.1 0.7 8.7 -1.0 3.4 7.5 -7.0 5.8 0.8 5 -7 209.5 288.6 5 277.9 8 2253.7 -38 75.7 13.6 10.6 3.3 8.2 3.1 1.4 4.1 3.0 -4.0 -37.5 -29.4 3.3 6.8 3.2 11.8 9.1 2.3 14.0 -3.1 5.1 1.2 10.2 2.7 0.4 4.5 0.0 4.0 -7.9 20.0 1.6 -10.7 10.1 2.1 8.1 -4.0 23.4 -0.1 -12.6 9.0 Small time deposits 0.9 -1.3 1.0 231.2 971.5 542.2 429.2 976.4 395.8 580.7 17. M3 minus M2 4 11.2 7.4 13.7 4.1 17.4 18. 19. 20. 21. 8.5 11.2 3.4 7.6 6.7 9.3 15.8 21.5 4.5 20.0 18.0 24.3 14.4 14.6 14.0 530.0 356.7 173.3 3.0 32.9 13.8 -30.6 28.3 19.8 -23.3 12.0 38.1 -4.3 -15.6 -10.6 12.9 26.7 -24.9 84.6 124.2 99.3 22. 23. Large time deposits At commercial banks, net s At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA MEMORANDA: 6 24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross Nondeposit funds Net due to related foreign institutions, NSA 7 Other 28. 29. U.S. government deposits at commercial 8 banks 26. 27. 6 831.4 ----- Average monthly change in billions of dollars---- 6.2 3.5 2.7 2.9 -0.2 0.3 1.8 6.4 -4.6 3.9 2.4 -8.3 6.1 -14.4 0.8 4.0 -3.2 0.1 -4.7 -9.5 -4.9 -4.3 1.1 5 -1 4.8 173.0 6.2 -9 30.7 0.8 8.7 601.5 423.7 177.8 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 IMDAs grew during October and November at rates of -2.5 percent and 19 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during October and November at rates of -8.9 percent and -1 percent, respectively. 4. The non-H2 component of M3 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 estima-t 8. Consists of Treasury demand deposits and note balances at commercial banks. pe - preliminary estimate COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) Levels 1986:Q4 to 1988 P 1987: Q4 Q2 Q3 Sept. Oct. Nov. bil.$ p Nov. ----------------------- Commercial Bank Credit ----------------------1. 2. Total loans and securities at banks 7.9 5. 6. 7. Security loans 8. Real estate loans 9. Consumer loans 10. -.2 -.4 8.3 1.7 551.3 9.6 12.1 2.3 6.8 8.9 4.1 356.3 1.6 -4.7 -13.4 7.4 -2.5 195.0 12.6 5.6 -.8 6.8 7.0 1846.3 15.2 3.2 -4.4 7.6 -2.4 599.2 -18.4 -30.5 -113.7 69.4 -28.1 37.5 13.3 12.6 11.5 13.4 12.5 658.8 9.9 5.5 7.3 2.4 7.9 351.1 -3.1 Business loans 8.3 5.1 Total loans 2397.6 18.8 Other securities 5.8 7.0 4. 7.1 8.9 U.S. government securities -.7 -1.9 3. 4.3 5.0 Securities 11.6 13.8 -1.6 -18.4 -21.6 22.7 199.7 .8 Other loans --------- Short- and Intermediate-Term Business Credit--------1. Business loans net of bankers acceptances Loans at foreign branches 13. Sum of lines 11 & 12 14. Commercial paper issued by nonfinancial firms 15. Sum of lines 13 & 14 16. Bankers acceptances: -4.0 -4.1 4.1 24.1 15.1 3.8 -1.6 12.2 -4.8 -1.3 39.9 14.7 2.6 -1.7 13.1 -7.3 -3.7 -18.6 n.a. 31. 75 11.6 n.a. 744.25 8.3 -2.2 596.0 66.0 34.1 -16.6 21.4 -1.8 9.0 -2.7 617.4 24.4 .8 95.2 712.6 U.S. trade related ' 17. 3.1 5.7 12. 15.5 6.8 2 7.2 13.3 -9.5 Line 15 plus bankers acceptances: U.S. trade related 6.0 13.5 2.2 -1.8 18. Finance company loans to business 19.3 12.1 10.9 18.2 n.a. n.a. 227.2 6 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 8.8 13.2 4.2 2.9 n.a. n.a. 964.4 6 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. October data. 6. September data. n.a.--not available. p--preliminary SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) 1987 Jan.-Feb. lows Oct. 16 Feb lows 1988 FOMC Nov.1 Dec. 8 Change from: FOMC Nov. 1 Short-term rates Federal funds 3 Treasury bills 3-month 6-month 1-year 5.95 7.59 6.38 8.31 8.58 5.30 5.31 5.35 6:93 7.58 7.74 5.59 5.77 6.10 7.34 7.47 7.49 7.98 Commercial paper 1-month 3-month 5.81 5.73 7.94 8.65 6.41 6.45 8.19 8.29 9.24 9.08 1.05 .79 Large negotiable CDs 1-month 3-month 6-month 5.85 5.80 5.78 7.92 8.90 9.12 6.44 6.49 6.55 8.19 8.40 8.41 9.32 9.20 9.19 1.13 .80 .78 Eurodollar deposits 5 1-month 3-month 6.00 6.00 7.79 8.69 6.60 6.69 8.25 8.56 8.45 9.20 1.20 .64 Bank prime rate 7.50 9.25 8.50 10.00 10.50 .50 9.52 10.23 10.24 7.28 8.11 8.32 8.33 8.68 8.76 9.03 9.02 8.97 7.76 7.70 7.96 8.20 8.24 Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 6.34 10-year 7.01 30-year 7.29 Municipal revenue (Bond Buyer) 6.92 Corporate A utility (recently offered) 8.78 11.50 9.63 9.96 10.03 7 Home mortgage rates S&L fixed-rate S&L ARM, 1-yr. 9.10 7.52 11.58 8.45 9.84 7.59 10.22 8.13 10.44 8.26 1986 Year-end 9.58e 1988 1987 Record highs Lows FOMC Nov. 1 Dec. 8 Percent change from: FOMC Nov.1 Stock prices Dow-Jones Industrial 1895.95 2722.42 1738.74 2150.96 2141.71 -.43 NYSE Composite 138.58 187.99 125.91 156.98 155.37 -1.03 IMEX Composite 263.27 365.01 231.90 299.56 297.38 -.73 NASDAQ (OTC) 348.83 455.26 291.88 382.35 375.22 -1.86 1. One-day quotes except as noted. 4. Secondary market. Las- business day prior to stock market 5. Average for statement week closest 'ecline on Monday, October 19, 1987. to date shown. 3. Average for two-week maintenance period 6. Based on one-day Thursday quotes closest to date shown except lows shown which and futures-market index changes. e nne-week average ending Feb.25 and Feb.10, 7. Quotes for week ending Friday closest respectively. Last observation is average to date shown. -o date for maintenance period ending 12/14/88. e--estimate
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