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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 December 17, 1999 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 Domestic Nonfinancial Developments .......................... Housing Starts .......................... 1 ................. 1 Contracts of Nonresidential Construction ................... 1 Tables Private Housing Construction ............................ U.S. Exports and Imports of Goods and Services ............. 2 6 Charts Contracts for Nonresidential Buildings ..................... 3 U.S. International Transactions ............................. Trade in Goods and Services ........................... 4 .4 The Financial Economy .................................... Tables Selected Financial Market Quotations ................... 7 ... 7 Supplemental Notes The Domestic Nonfinancial Economy Housing Starts Total private housing starts slipped 2-1/4 percent in November to an annual rate of 1.60 million units. Total starts in both September and October were revised up slightly. Among regions, starts fell in the South and the Midwest, but rose in the West and the Northeast. Single-family starts declined 3.6 percent last month to 1.29 million units, about in line with the assumption in the December Greenbook. Unseasonably warm and dry weather in November may have boosted starts somewhat. Single-family starts averaged 1.32 million units in October and November, about 1-1/2 percent less than the average pace earlier this year. Adjusted permits for single-family units were about unchanged last month at a level somewhat lower than starts, which, in itself, would imply a small reduction in the backlog of single-family permits. However, cancellations of single-family permits fell from 42,000 units (annual rate) in October to -58,000 units in November.' As a result, the permit backlog increased almost 4 percent in November. Starts of multifamily units rose 3.7 percent in November to 308,000 units, about 30,000 units less than we had expected. The average level of these starts in October and November was about 12 percent lower than the pace during the first three quarters of this year. Permits for these units increased 1.9 percent in November, and the permit backlog for multifamily units rose slightly. All told, today's starts data do not suggest a material revision to our outlook for outlays for real residential structures in the current quarter. Contracts for Nonresidential Construction The value of contracts for private nonresidential buildings fell 6 percent in November. 2 Furthermore, the figure for October was revised to show a 10 percent decline, compared with the 4-1/2 percent drop shown in last month's initial estimate. In November, contracts for office construction shot up nearly 40 percent; however, contracts for office buildings have trended down, on balance, since February, and even with the gain this month the level of contracts was well below the earlier peak. Industrial construction contracts rose for the fourth consecutive month, though these gains followed sharp drops during the second and third quarters. Contracts for other commercial structures (which include 1 The level of permit cancellations may be negative when permits that were originally assigned to the multifamily category are reclassified as single-family permits; reporting errors are one reason why such reclassifications occur. 2. Note, however, that preliminary estimates of contracts often are revised substantially. December 17, 1999 PRIVATE HOUSING CONSTRUCTION (Thousands of units, seasonally adjusted annual rate, except where noted) 1999 1998 Q1 Q2 Q 3r Starts 1-family Multifamily 1,617 1,271 346 1,773 1,389 384 1,617 1,318 299 Permits 1-family Multifamily 1,604 1,184 421 1,723 1,274 449 Adjusted permits 1 1-family Multifamily 1,711 1,284 427 Permit backlog 2 1-family Multifamily Sept.r Oct.P Oct.r Nov.P 1,657 1,305 352 1,637 1,295 342 1,628 1,325 303 1,637 1,340 297 1,600 1,292 308 1,601 1,233 368 1,589 1,209 380 1,506 1,171 335 1,584 1,165 419 1,594 1,178 416 1,614 1,190 424 1,817 1,368 449 1,688 1,321 368 1,679 1,296 383 1,604 1,269 335 1,664 1,245 419 1,675 1,259 416 1,679 1,255 424 129 83 58 136 82 54 150 90 59 147 94 53 147 94 53 139 84 55 140 84 56 142 86 57 Permit Cancellations 3 1-family Multifamily 61 -12 73 64 -17 81 17 -31 48 34 -24 58 17 -68 85 127 37 90 125 42 83 47 -58 104 Mobile home shipments 373 385 363 332 320 n.a. 321 n.a. Total Starts Northeast Midwest South West 149 331 743 395 168 353 855 398 154 352 719 392 158 342 751 406 133 372 745 387 130 378 755 365 137 382 755 363 147 356 680 417 Total Permits Northeast Midwest South West 157 323 727 397 171 343 797 412 161 335 707 398 154 330 724 382 147 333 664 362 142 332 742 368 142 328 751 373 163 353 721 377 Regional Data 1. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas and a correction for starts occurring in permit issuing places but without a permit. 2. Number outstanding at end of period. Seasonally adjusted by staff. Excludes permits that have been cancelled, abandoned, expired, or revoked. Not at an annual rate. 3. Calculated by Board staff. Annual and quarterly data are averages of monthly obervations. Estimated cancellations can be negative because the input series are not necessarily consistent. Annual rate. r--revised. p--preliminary. n.a.--not available. -3- Contracts for Nonresidential Buildings Total Private Millions of dollars 110000 Office 3000 Other Commercial 2500 2000 1500 1000 500 Industrial Institutional Note. Data are seasonally adjusted using FRB seasonal factors. Individual sectors include both public and private construction contracts. retail space and warehouses) and for lodging and miscellaneous structures slid further last month. U.S. International Transactions Trade in Goods and Services In October, the U.S. trade deficit in goods and services was $25.9 billion, about $1-1/2 billion larger than in the previous two months and higher than the previous peak deficit recorded in July. Net Trade in Goods and Services (Billions of dollars, seasonally adjusted) 1998 _1 Real NIPAJ Net exports of G&S -215.1 Monthly rate 1999 Annual rate 1999 02 I 3 -319.0 -336.7 -284.5 Aug. I Sept. I Oct. Nominal BOP -24.0 -24.2 -164.3 -215.9 -260.1 -293.8 Net exports of G&S -30.1 -30.2 -246.9 -296.8 -337.6 -367.1 Goods, net 6.1 80.9 77.3 73.3 6.2 Services, net 82.6 1. Billions of chained (1996) dollars. Source. U.S. Department of Commerce, Bureaus of Economic Analysis and Census. n.a. Not available. ... Not applicable. -25.9 -32.0 6.1 The value of exports was about the same in October as in the previous two months. A strong increase in exports of nonagricultural industrial materials in October was nearly offset by a sharp decline in exported machinery. The rise in the value of industrial materials was largely from fuel (primarily price) and chemicals (about one-third price). The drop in exported machinery was in computers, semiconductors, and other machinery (especially telecommunications equipment). Exports of aircraft moved up a bit in October, and other trade categories saw smaller movements, which were largely offsetting. The value of imports jumped 1-1/2 percent in October from the already high levels recorded in the previous two months. The largest increases were in consumer goods and machinery (computers, semiconductors, and other industrial machinery), with smaller rises in oil and industrial materials. Rising prices of oil more than offset a decline in the quantity imported. Imported automotive products (primarily passenger cars) declined moderately for a second month from the peak reported in August. -5- The trade figures for October and the revisions for September affect the staffs estimates for real net exports in both the third and fourth quarters. The data suggest that, owing to higher exports, NIPA real net exports of goods and services were stronger in 1999:Q3 than estimated in the November Greenbook by perhaps $1 to 2 billion (annual rate). For 1999:Q4, the new information suggests a slightly lower level of real net exports than shown in the Greenbook. However, part of the decline could be offset on the top line by additional strength in domestic equipment and software expenditures. U.S. Exports and Imports of Goods and Services (Billions of dollars, SAAR, BOP basis) Levels Amount Change 1 1999 1999 Oct. Sept. Q3 Q2 10.4 34.0 -1.8 -1.3 1999 Q3 Q2 938.0 972.0 1999 Oct. Sept. 984.3 983.0 663.4 49.0 3.3 611.1 695.9 51.7 6.1 638.0 707.2 52.3 11.7 643.2 704.4 51.1 5.0 648.3 6.3 1.7 0.5 4.1 32.4 2.7 2.8 27.0 -2.5 -0.6 6.9 -8.8 -2.8 -1.2 -6.7 5.1 48.7 46.5 45.2 159.2 53.9 48.2 49.2 167.9 51.1 48.8 48.6 172.2 54.9 47.4 46.8 166.7 -7.9 2.3 3.1 0.3 5.1 1.8 4.1 8.8 -13.0 0.4 -0.8 5.8 3.8 -1.3 -1.8 -5.6 75.0 44.6 11.4 19.0 76.0 46.1 11.5 18.4 74.4 45.2 12.2 17.0 76.0 44.9 14.2 16.8 3.6 1.9 1.2 0.6 0.9 1.5 0.0 -0.6 -5.9 -3.1 0.3 -3.1 1.5 -0.2 2.0 -0.2 129.5 79.1 27.9 134.2 80.6 28.0 138.2 82.9 27.0 148.0 81.2 27.3 3.4 -0.5 -0.3 4.7 1.5 0.1 2.2 4.0 -1.1 9.8 -1.7 0.3 274.6 276.2 277.1 278.6 4.2 1.6 0.7 1.5 Imports of G&S 1198.4 1265.8 1274.1 1294.3 54.9 67.4 0.6 20.2 Goods imports Petroleum Gold Other goods 1001.1 1062.9 1069.7 1088.4 63.7 78.3 84.5 87.2 3.2 7.4 11.6 6.4 934.3 977.2 973.6 994.8 47.1 21.3 -0.1 25.9 61.8 14.6 4.3 42.9 -1.5 4.6 3.6 -9.8 18.6 2.7 -5.2 21.2 Exports of G&S 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 Aircraft & pts Computers Semiconductors Other cap gds 22.6 82.0 37.3 149.8 24.9 82.5 38.2 156.5 25.3 77.4 37.6 158.8 24.6 82.9 39.6 163.2 0.4 4.5 3.9 3.9 2.4 0.5 0.9 6.7 3.1 -6.8 -0.5 1.8 -0.7 5.5 1.9 4.4 Automotive from Canada from Mexico from ROW 175.1 62.6 33.3 79.2 186.2 66.0 34.1 86.1 184.3 61.9 35.9 86.5 180.9 62.5 35.8 82.6 3.4 -2.5 2.4 3.6 11.1 3.4 0.8 6.9 -4.4 -11.1 0.9 5.8 -3.5 0.6 -0.1 -3.9 Ind supplies Consumer goods Foods All other 146.2 232.7 43.8 44.8 154.0 242.9 44.2 47.7 155.7 243.2 44.5 46.8 158.3 251.8 43.8 49.7 3.9 3.6 2.1 0.2 7.9 10.1 0.4 2.9 0.2 0.2 0.5 -3.8 2.6 8.6 -0.7 2.9 197.3 202.9 204.4 205.9 7.8 5.6 2.1 1.5 Services imports Memo: Oilqty(mb/d) 11.86 11.51 11.34 11.18 0.65 -0.35 -0.35 Oil price ($/bbl) 14.69 18.62 20.41 21.36 4.30 3.93 1.68 1. Change from previous quarter or month. Source. U.S. Department of Commerce, Bureaus of Economic Analysis and Census. -0.16 0.95 Selected Financial Market Quotations (One-day quotes in percent except as noted) 1998 Change to Dec. 16 from selected dates (percentage points) 1999 Instrument Oct. 15 Dec. 31 FOMC* Nov. 16 Dec. 16 1998 Oct. 15 1998 Dec. 31 FOMC* Nov. 16 Short-term FOMC intended federal funds rate 5.00 4.75 5.25 5.50 .50 .75 .25 Treasury bills 1 3-month 6-month 1-year 4.05 4.12 4.06 4.37 4.39 4.33 5.12 5.22 5.21 5.23 5.50 5.56 1.18 1.38 1.50 .86 1.11 1.23 .11 .28 .35 Commercial paper 1-month 3-month 5.27 5.13 4.90 4.84 5.31 5.80 6.33 5.87 1.06 74 1.43 1.03 1.02 .07 Large negotiable CDs I 1-month 3-month 6-month 5.35 5.31 5.10 5.01 4.97 4.97 5.43 5.99 5.98 6.45 6.10 6.10 1.10 79 1.00 1.44 1.13 1.13 1.02 .11 .12 Eurodollar deposits 2 1-month 3-month 5.34 5.28 4.94 4.94 5.38 5.94 6.38 6.06 1.04 78 1.44 1.12 1.00 12 Bank prime rate 8.25 7.75 8.25 8.50 .25 .75 .25 Intermediate-and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year 4.13 4.58 5.02 4.54 4.65 5.09 5.79 5.94 6.04 6.15 6.31 6.39 2.02 1.73 1.37 1.61 1.66 1.30 .36 .37 .35 U.S. Treasury 10-year indexed note 3.69 3.88 4.07 4.28 .59 .40 .21 Municipal revenue (Bond Buyer) 3 5.21 5.26 6.08 6.17 .96 .91 .09 Corporate bonds, Moody's seasoned Baa 7.26 7.23 8.03 8.24 .98 1.01 .21 11.28 10.17 10.91 10.92 -.36 .75 .01 6.49 5.36 6.77 5.58 7.67 6.30 7.84 6.45 1.35 1.09 1.07 .87 .17 .15 High-yield corporate 4 Home mortgages (FHLMC survey rate) 5 30-year fixed 1-year adjustable Record high 1998 Stock exchange index Change to Dec. 16 from selected dates (percent) 1999 Level Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 1 2. 3. 4. 5. * Date Dec. 31 FOMC* Nov. 16 Dec. 16 11,326.04 1,433.30 3,715.06 491.41 13,281.06 8-25-99 12-3-99 12-16-99 4-21-98 12-3-99 9,181.43 1,229.23 2,192.69 421.96 11,317.59 10,760.75 1,394.39 3,219.54 452.97 12,844.55 11,244.89 1,418.78 3,715.06 465.26 13,224.40 Secondary market. Bid rates for Eurodollar deposits collected around 9:30 am. Eastern time. Most recent Thursday quote. Merrill Lynch 175 high-yield bond index composite. For week ending Friday previous to date shown. Data are as of the close on November 15, 1999. Record high -.72 -1.01 .00 -5.32 -.43 Dec. 31 FOMC* Nov. 16 22.47 15.42 69.43 10.26 16.85 4.50 1.75 15.39 2.71 2.96
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