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Confidential (FR) Class III FOMC December 5, 2003 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 Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Labor Market Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Manufacturers’ Inventories, Shipments, and Orders . . . . . . . . . . . 1 Consumer Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Tables Changes in Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Selected Unemployment and Labor Force Participation Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Change in Manufacturing Inventories . . . . . . . . . . . . . . . . 5 Manufacturers’ Inventory-Shipment Ratios . . . . . . . . . . . . 6 Orders and Shipments of Nondefense Capital Goods . . . . 7 Consumer Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Commercial Bank Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Selected Financial Market Quotations . . . . . . . . . . . . . . . 10 Chart Private Payroll Employment Growth . . . . . . . . . . . . . . . . . 3 Aggregate Hours of Production or Nonsupervisory Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Labor Force Participation Rate and Unemployment Rate . 4 Job Losers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Long-term Unemployed . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Computers and Peripherals . . . . . . . . . . . . . . . . . . . . . . . . 7 Communications Equipment . . . . . . . . . . . . . . . . . . . . . . . 7 Other Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Aircraft Shipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The International Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 U.S. International Financial Transactions . . . . . . . . . . . . . . . . . . 11 Tables Summary of U.S. International Transactions . . . . . . . . . . 12 Supplemental Notes The Domestic Economy Labor Market Developments The labor market continued to improve in November. Employment on private nonfarm payrolls rose 50,000—a bit below the increases of the previous two months—and aggregate hours of production or nonsupervisory workers rose 0.2 percent.1 The unemployment rate ticked down to 5.9 percent. The rise in payroll employment in November was widespread, with noticeable gains in temporary help services (21,000), non-business services (including 34,000 in education and health services and 21,000 in leisure and hospitality), and the construction industry (10,000). Although cutbacks continued in manufacturing (-17,000), those losses have tapered off in recent months. After adjusting for the effect of recent strikes at food stores, employment in retail trade was little changed in November. Government employment rose 7,000, as increases at state and local governments more than offset a decline in federal government jobs. The average workweek of production or nonsupervisory workers edged up 0.1 hour to 33.9 hours in November, the highest level since September 2002. Aggregate hours stood at their highest level since January. In the household survey, the unemployment rate edged down 0.1 percentage point to 5.9 percent, the lowest level since March. The number of persons unemployed less than five weeks declined noticeably in November, and the number of job losers dropped back for a second month. However, the count of those jobless more than 26 weeks was little changed. The household measure of employment rose sharply for a second month in November, and the labor force participation rate moved up 0.2 percentage point to 66.3 percent. Average hourly earnings of production or nonsupervisory workers on private nonfarm payrolls inched up 0.1 percent in November, bringing the increase over the last twelve months to 2.1 percent, the lowest year-over-year increase since 1987. Manufacturers’ Inventories, Shipments, and Orders The book value of manufacturers’ inventories increased at an annual rate of $2.3 billion in October. Paced by stockbuilding at manufacturers of transportation equipment and of computers and electronic products, inventories held by producers of durable goods rose at an annual rate of $7.2 billion. Producers of nondurable goods continued to liquidate stocks in October, with 1. The BLS estimates that the net change in employment in November was reduced 25,000 to 30,000 by the effects of strikes at food and beverage stores. -2- the largest run-off at chemical manufacturers. Overall, with shipments having risen 0.7 percent, the manufacturing inventory-shipments ratio edged down to 1.29 months, a new low. Revised estimates of shipments and orders of durable goods were little changed from the advance release reported in Part 2 of the Greenbook. As we noted, the Census Bureau reviewed its estimates of a second sharp monthly rise in new orders for communication equipment, but did not alter them significantly. Consumer Credit In October, consumer credit rose at an annual rate of 1/2 percent, down from a 10-1/2 percent pace in September; revolving credit posted a modest gain while nonrevolving credit fell slightly. -3- Changes in Employment (Thousands of employees; seasonally adjusted) 2003 Measure and sector 2002 H1 Q3 Sept. Average monthly change Nonfarm payroll employment (establishment survey) Private Previous Manufacturing Construction Wholesale trade Retail trade Transportation and utilities Information Financial activities Professional and business services Temporary help services Nonbusiness services1 Total government Total employment (household survey) Memo: Aggregate hours of private production workers (percent change)2 Average workweek (hours)3 Manufacturing (hours) Oct. Nov. Monthly change -39 -55 -55 -57 -4 -7 -6 -4 -14 5 -10 1 45 16 31 -49 -36 -36 -55 12 -6 -7 -11 -11 14 6 8 23 -13 217 26 32 34 -40 14 -6 8 1 -5 5 34 18 25 -7 -55 99 113 117 -19 16 1 12 13 3 6 53 25 29 -14 -52 137 112 116 -14 5 1 28 4 -6 -12 26 15 79 25 441 57 50 n.a. -17 10 6 -28 4 1 -5 20 21 59 7 589 -1.0 33.9 40.5 -1.7 33.7 40.3 -0.7 33.7 40.3 0.0 33.7 40.5 0.4 33.8 40.6 0.2 33.9 40.8 1. Nonbusiness services comprises education and health, leisure and hospitality, and "other." 2. Establishment survey. Annual data are percent changes from Q4 to Q4. Semiannual data are percent changes from Q4 to Q2. Quarterly data are percent changes from preceding quarter at an annual rate. Monthly data are percent changes from preceding month. 3. Establishment survey. n.a. Not available. Private Payroll Employment Growth Thousands of employees 500 500 Aggregate Hours of Production or Nonsupervisory Workers 106 2002 = 100 106 104 104 102 102 100 Nov. 100 3-month moving average 400 400 300 300 200 200 Nov. 100 100 0 0 -100 -100 -200 -200 -300 -300 -400 1997 1998 1999 2000 2001 2002 2003 -400 98 98 96 96 94 1997 1998 1999 2000 2001 2002 2003 94 -4- Selected Unemployment and Labor Force Participation Rates (Percent; seasonally adjusted) 2003 Rate and group 2002 Q1 Q2 Q3 Sept. Oct. Nov. Civilian unemployment rate 16 years and older Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 5.8 16.5 9.7 4.7 4.6 5.8 17.2 9.2 4.9 4.4 6.2 18.6 10.4 5.3 4.6 6.1 17.5 10.5 5.2 4.7 6.1 17.5 10.9 5.0 4.8 6.0 17.1 10.0 5.0 4.7 5.9 15.5 10.5 5.0 4.5 Labor force participation rate Total Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 66.6 47.4 76.4 75.9 59.4 66.3 45.2 75.5 75.3 59.6 66.4 45.1 75.9 75.6 59.8 66.2 44.2 75.5 75.5 59.5 66.1 43.9 75.7 75.4 59.2 66.1 43.5 75.2 75.5 59.5 66.3 44.0 75.0 75.8 59.5 Labor Force Participation Rate and Unemployment Rate Percent 67.4 Percent 7.0 Participation rate (left scale) 67.2 6.5 67.0 6.0 66.8 5.5 Nov. 66.6 66.4 4.5 Unemployment rate (right scale) 66.2 66.0 5.0 1994 1995 1996 1997 Job Losers (Less than 5 weeks) 1998 4.0 1999 2000 1.3 1.2 2002 3.5 2003 Long-term Unemployed (More than 26 weeks) Percent 1.4 (Percent of household employment) 2001 Percent 1.6 (Percent of labor force) 1.4 1.4 Nov. 1.2 1.2 1.0 1.0 0.8 0.8 0.6 0.6 1.1 1.0 Nov. 1994 1996 1998 2000 2002 0.9 0.4 0.4 0.8 0.2 0.2 0.7 0.0 1994 1996 1998 2000 2002 0.0 -5- Change in Manufacturing Inventories (book value, billions of dollars at annual rate) 2002 2003 Sector Q4 Q1 Total manufacturing Excl. aircraft 2.4 -2.7 Durable goods Lumber and wood prod. Nonmetalic minerals Primary metals Fabricated metals Machinery Computer and electronic prod. Electrical equip. Transportation equip. Motor vehicles Aircraft Furniture Other durables Nondurable goods Food Beverage and tobacco Textiles Textile products Apparel Leather and allied prod. Paper products Printing Chemicals Petroleum and coal Rubber and plastics Stage of Processing Materials and supplies Work in process Finished goods Q2 2003 Q3 July Aug. Sept. Oct. 4.0 -10.1 4.9 -11.4 -17.5 -15.1 -22.8 -16.3 -13.6 -9.7 -16.1 -19.4 2.3 1.3 1.7 -.4 .4 1.2 -.5 .6 -4.9 -1.6 6.7 .0 5.1 .1 .1 -9.3 -13.2 .0 -.9 1.1 .7 1.0 -3.8 -.3 -.9 -4.0 -1.8 -8.5 -5.9 -.1 -.6 .4 .1 -.6 -1.0 -.9 1.3 .2 .0 .8 -.2 -17.9 -.6 -.6 -3.4 -2.3 -2.6 -3.4 -1.0 -3.8 -1.5 -2.4 -.7 .4 -18.2 -1.1 .2 -2.8 -4.4 -1.6 -3.5 -1.5 -5.3 -1.1 -6.5 .0 1.8 -20.3 -1.0 -1.5 -2.2 -.7 -4.9 -6.6 -.4 -3.2 .9 -3.9 -.8 1.0 -15.3 .1 -.6 -5.1 -1.9 -1.2 -.1 -1.0 -2.8 -4.4 3.4 -1.2 -1.5 7.2 .9 -.6 -2.6 .8 -.1 2.6 -.5 4.2 -.9 .9 -.3 2.7 .7 -.3 -1.1 -.2 -.1 .1 .4 .6 .8 -1.4 1.1 .8 13.3 3.2 -.2 .4 .4 .6 .0 .7 -.3 3.8 2.0 2.7 3.1 -.6 .5 .3 -.1 .6 .0 .4 -.6 2.4 -2.1 2.4 .4 .9 1.2 .0 .1 -.2 -.1 -.5 .3 -.2 .7 -1.7 -4.6 -1.3 .6 -.8 -.1 .9 -.7 -1.0 .9 3.1 -1.9 -4.3 6.6 1.4 1.0 -.3 .3 -.9 -.1 -.4 .1 1.0 5.6 -.9 -.8 2.5 1.9 1.0 .2 -.6 .5 -.1 -.1 -4.6 -1.5 .0 -5.0 1.4 -.4 -1.0 -.4 -.4 .3 -.9 -.8 -2.4 .2 -.6 -8.2 3.1 7.5 -1.1 2.5 2.5 -8.7 -4.1 2.7 -12.0 -2.3 -3.2 -22.9 5.7 -5.6 -11.3 -2.1 -.3 -1.8 -10.6 -3.6 -.7 14.1 -11.1 -6- Manufacturers’ Inventory-Shipments Ratios 2002 2003 2003 Sector Q4 Q1 Q2 Q3 July Aug. Sept. Oct. Total manufacturing Excl. aircraft 1.36 1.28 1.35 1.28 1.36 1.28 1.31 1.23 1.31 1.23 1.33 1.25 1.30 1.23 1.29 1.22 Durable goods Lumber and wood prod. Nonmetalic minerals Primary metals Fabricated metals Machinery Computer and electronic prod. Electrical equip. Transportation equip. Motor vehicles Aircraft Furniture Other durables 1.54 1.32 1.31 1.67 1.51 2.06 1.57 1.47 1.33 .57 4.05 1.35 1.76 1.53 1.35 1.35 1.72 1.54 2.04 1.50 1.51 1.33 .56 4.13 1.38 1.78 1.52 1.29 1.38 1.70 1.56 2.02 1.41 1.51 1.36 .57 4.12 1.37 1.77 1.45 1.17 1.32 1.62 1.51 1.95 1.33 1.46 1.29 .54 3.95 1.30 1.72 1.46 1.23 1.35 1.66 1.49 1.97 1.35 1.45 1.27 .53 3.84 1.31 1.72 1.48 1.18 1.34 1.68 1.55 1.97 1.33 1.49 1.35 .57 4.07 1.32 1.73 1.43 1.12 1.30 1.61 1.51 1.94 1.32 1.45 1.27 .53 3.92 1.31 1.71 1.43 1.11 1.27 1.57 1.51 1.92 1.29 1.44 1.29 .53 4.06 1.30 1.71 Nondurable goods Food Beverage and tobacco Textiles Textile products Apparel Leather and allied prod. Paper products Printing Chemicals Petroleum and coal Rubber and plastics 1.15 .86 1.65 1.40 1.70 1.57 1.80 1.13 .78 1.40 .83 1.27 1.15 .89 1.64 1.44 1.77 1.63 1.81 1.13 .78 1.39 .76 1.31 1.17 .87 1.64 1.61 1.77 1.71 1.82 1.12 .76 1.42 .83 1.36 1.14 .86 1.69 1.58 1.72 1.68 1.80 1.12 .80 1.34 .77 1.31 1.13 .85 1.64 1.57 1.71 1.73 1.71 1.11 .80 1.32 .77 1.31 1.14 .85 1.68 1.57 1.72 1.72 1.74 1.13 .80 1.37 .76 1.32 1.14 .85 1.71 1.56 1.70 1.65 1.87 1.13 .79 1.34 .78 1.29 1.13 .85 1.69 1.49 1.66 1.63 1.91 1.12 .80 1.31 .78 1.28 326.4 328.8 325.0 335.5 337.2 331.7 337.6 339.9 Memo: Manufacturing shipments (billions of dollars) -7Orders and Shipments of Nondefense Capital Goods (Percent change from preceding period; seasonally adjusted current dollars) 2003 Indicators Q2 Q3 Aug. Annual rate Sept. Oct. Monthly rate Shipments Excluding aircraft Computers and peripherals Communications equipment All other categories 5.7 5.6 35.8 -6.5 2.7 16.4 15.6 43.5 35.2 8.4 -2.8 -2.2 -7.1 -.8 -1.3 3.5 3.1 1.3 .9 3.8 .3 .8 4.8 2.8 -.2 Shipments of complete aircraft1 -41.5 38.8 -24.1 -4.4 n.a. Orders Excluding aircraft Computers and peripherals Communications equipment All other categories 12.9 3.2 65.1 -31.2 1.0 17.9 17.1 26.6 80.8 7.6 -1.6 -.2 1.5 -1.7 -.3 5.2 6.0 -.2 15.6 5.7 2.9 1.8 -.4 23.3 -1.7 1. From Census Bureau, Current Industrial Reports. n.a. Not available. Computers and Peripherals Communications Equipment Billions of dollars, ratio scale 13 Shipments Orders 12 13 12 11 11 10 10 9 9 Billions of dollars, ratio scale 21 18 Shipments Orders 15 21 18 15 12 12 9 9 Oct. 8 8 7 7 6 1999 2000 2001 2002 6 2003 3 Other Equipment Shipments Orders 48 42 Oct. 3 3 42 40 38 38 2003 Billions of dollars, ratio scale 4 40 2002 3 2003 4 44 2001 2002 48 44 2000 2001 5 46 1999 2000 50 46 36 1999 6 Aircraft Shipments Billions of dollars, ratio scale 50 Oct. 6 36 5 Oct. 2 1 2 1999 2000 2001 2002 2003 Source. Census Bureau, Current Industrial Reports. 1 -8- Consumer Credit 2001 r 2003 r r Q3 Aug. r Sept. Oct. p 2002 Q1 Q2 7.3 4.3 5.0 4.8 7.1 6.0 10.4 0.6 ( 7.3) 5.1 8.8 ( 4.3) 1.5 6.0 ( 5.1) 4.8 5.1 ( 4.8) 3.0 5.8 ( 6.4) 3.9 9.0 ( 5.5) 3.4 7.6 ( 9.7) 6.5 12.8 -1.2 1817.2 1895.4 1919.0 1941.9 1976.3 1959.3 1976.3 1977.3 701.3 1115.9 712.0 1183.4 720.6 1198.5 726.0 1216.0 733.1 1243.2 729.1 1230.1 733.1 1243.2 735.3 1241.9 8.5 13.2 7.6 12.5 7.1 11.7 7.1 12.2 6.8 12.0 6.8 12.0 n.a. n.a. n.a. n.a. 14.9 13.4 13.2 12.9 12.5 12.5 n.a. n.a. 5.6 4.3 3.6 2.6 3.6 3.6 3.8 3.9 12.2 10.7 10.3 9.9 9.6 9.6 9.4 9.2 Credit outstanding, end of period Growth rates (percent, SAAR) Total (Previous) Revolving Nonrevolving 3.6 Levels (billions of dollars, SA) Total Revolving Nonrevolving Interest rates1 (annual percentage rate) Commercial banks New cars (48 mo.)2 Personal (24 mo.)2 Credit cards3 Auto finance companies4 New cars Used cars 1. Annual data are averages of quarterly data for commercial banks and of monthly data for finance companies. 2. Average of most common rate charged for specified type and maturity during the first week of the middle month of each quarter. 3. Stated APR averaged across all credit card accounts at all reporting banks during the period. 4. Average rate for all loans of each type, regardless of maturity, made during the period. p Preliminary. n.a. Not available. r Revised. -9Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total 1. Adjusted1 2. Reported 3. 4. 5. 6. Securities Adjusted1 Reported Treasury and agency Other2 Loans3 7. Total 7a. Removing FIN 46 effects4 8. Business 8a. Removing FIN 46 effects4 9. Real estate 9a. Removing FIN 46 effects4 10. Home equity 11. Other 12. Consumer 13. Adjusted5 14. Other6 14a. Removing FIN 46 effects4 Level, Nov. 2003p ($ billions) Q1 2003 2003 Q3 2003 Oct. 2003 Nov.p 7.2 7.3 7.6 8.2 10.9 11.7 5.0 4.8 -4.4 -3.6 9.9 8.0 5,990 6,215 13.6 13.3 20.2 4.3 13.6 14.7 18.5 9.0 17.7 18.9 29.0 3.5 -1.2 -8.6 -16.3 3.8 16.9 19.0 17.8 20.9 25.9 18.4 22.1 12.7 1,641 1,833 1,096 737 5.0 5.5 -6.0 13.1 14.5 36.6 10.9 5.5 4.1 1.6 28.1 12.9 2.8 6.6 -3.4 10.4 7.3 -9.2 -14.8 18.0 18.0 23.7 17.3 6.6 3.7 17.5 4.4 -12.6 -12.1 -15.4 -15.2 -11.0 -13.0 30.6 -16.3 -7.1 1.9 -19.8 -9.2 3.7 4.0 -5.5 -5.2 -7.7 -7.7 38.0 -13.9 57.3 36.5 6.4 7.1 4,382 -7.0 8.6 8.5 -6.9 -7.3 11.6 11.6 28.1 9.6 2.0 4.9 30.2 29.4 2002 Q27 2003 888 2,221 274 1,948 632 997 641 Note. All data are adjusted for breaks caused by reclassifications. Monthly levels are pro rata averages of weekly (Wednesday) levels. Quarterly levels (not shown) are simple averages of monthly levels. Annual levels (not shown) are levels for the fourth quarter. Growth rates are percentage changes in consecutive levels, annualized but not compounded. The conversion from a thrift to a commercial bank charter added approximately $37 billion to the assets and liabilities of domestically chartered commercial banks in the week ending May 8, 2002. 1. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FIN 115), as well as the estimated effects of consolidation related to FIN 46. 2. 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. 3. Excludes interbank loans. 4. Adjusted to remove estimated effects of consolidation related to FIN 46. 5. Includes an estimate of outstanding loans securitized by commercial banks. 6. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. 7. Banks implemented FIN 46 on July 1, but because of the staff’s standard interpolation procedure for weekly bank credit series, this change also affected the levels and growth rates of bank credit and various components in June. p Preliminary. - 10 - III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2002 Change to Dec. 4 from selected dates (percentage points) 2003 Instrument Dec. 31 June 24 Oct. 27 Dec. 4 2002 Dec. 31 2003 June 24 2003 Oct. 27 Short-term FOMC intended federal funds rate 1.25 1.25 1.00 1.00 -.25 -.25 .00 Treasury bills 1 3-month 6-month 1.20 1.21 0.81 0.82 0.96 1.03 0.91 1.02 -.29 -.19 .10 .20 -.05 -.01 Commercial paper (A1/P1 rates) 1-month 3-month 1.28 1.36 0.91 0.88 1.02 1.09 1.03 1.05 -.25 -.31 .12 .17 .01 -.04 Large negotiable CDs 1 1-month 3-month 6-month 1.34 1.31 1.32 0.96 0.93 0.92 1.05 1.10 1.15 1.10 1.11 1.21 -.24 -.20 -.11 .14 .18 .29 .05 .01 .06 Eurodollar deposits 2 1-month 3-month 1.30 1.30 0.94 0.91 1.05 1.09 1.09 1.10 -.21 -.20 .15 .19 .04 .01 Bank prime rate 4.25 4.25 4.00 4.00 -.25 -.25 .00 Intermediate- and long-term U.S. Treasury3 2-year 10-year 30-year 1.60 4.09 4.96 1.14 3.46 4.53 1.83 4.44 5.29 2.05 4.54 5.32 .45 .45 .36 .91 1.08 .79 .22 .10 .03 U.S. Treasury 10-year indexed note 2.32 1.70 1.96 2.05 -.27 .35 .09 Municipal revenue (Bond Buyer) 4 5.16 4.89 5.25 5.19 .03 .30 -.06 4.22 4.49 5.06 6.45 12.03 3.67 3.84 4.13 5.16 9.03 4.68 4.79 5.09 5.88 8.56 4.79 4.84 5.17 5.87 8.22 .57 .35 .11 -.58 -3.81 1.12 1.00 1.04 .71 -.81 .11 .05 .08 -.01 -.34 5.93 4.01 5.21 3.51 6.05 3.76 5.89 3.77 -.04 -.24 .68 .26 -.16 .01 Private instruments 10-year swap 10-year FNMA5 10-year AA 6 10-year BBB 6 High-yield 7 Home mortgages (FHLMC survey rate) 8 30-year fixed 1-year adjustable Record high Change to Dec. 4 from selected dates (percent) 2003 Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 Level Date June 24 Oct. 27 Dec. 4 Record high 2003 June 24 2003 Oct. 27 11,723 1,527 5,049 606 14,752 1-14-00 3-24-00 3-10-00 3-9-00 3-24-00 9,110 983 1,606 441 9,388 9,608 1,031 1,883 515 10,027 9,931 1,070 1,969 544 10,432 -15.29 -29.97 -61.00 -10.22 -29.28 9.01 8.77 22.62 23.42 11.12 3.36 3.74 4.56 5.59 4.04 1. Secondary market. 2. Bid rates for eurodollar deposits collected around 9:30 a.m. Eastern time. 3. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. 4. Most recent Thursday quote. 5. Constant maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 6. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. 7. Merrill Lynch Master II high-yield bond. 8. For week ending Friday previous to date shown. _______________________________________________________________________ NOTES: December 31, 2002, is the end of the last calendar year. June 24, 2003, is the day before the most recent policy easing. October 27, 2003, is the day before the most recent FOMC meeting. ___________________________________________________________________ - 11 - The International Economy U.S. International Financial Transactions October data on U.S. international financial transactions were transmitted to us after the Greenbook was finalized; they will be released to the public on or about December 15th. The October data revealed that foreign private demand for U.S. securities continued to be weak. Following net sales of $10 billion in September, foreign private investors on net purchased only $3 billion in U.S. securities in October (line 4 of the Summary of U.S. International Transactions table). Demand for corporate bonds (line 4c) remained strong in the month, but sales of Treasuries (line 4a) were sizeable and private foreigners sold small amounts of agency bonds (line 4b) and equities (line 4d). The weakness in inflows into U.S. securities was surprising, especially given anecdotal evidence of strong foreign demand for new agency and Treasury issues (which, in retrospect, likely owed to strong foreign official demand) and the strong performance of the U.S. equity markets. In contrast to the weak private demand for U.S. securities, banking inflows (line 3) were exceptionally large in October and net foreign official inflows (line 1) continued at a robust pace. The largest foreign official inflows were from Japan, Russia, and Australia. Through the first ten months of 2003, foreign official inflows totaled $155 billion, far exceeding the previous annual record of $129 billion in 1996. Partial data from the Federal Reserve Bank of New York indicate that foreign official reserves in custody there increased by an additional $30 billion during November. U.S. investors continued their recent enthusiasm for foreign securities in October, purchasing on net $15 billion in foreign equities and bonds (line 5), following net purchases of $29 billion in the third quarter. - 12 Summary of U.S. International Transactions (Billions of dollars, not seasonally adjusted except as noted) Official financial flows 1. Change in foreign official assets in the U.S. (increase, +) a. G-10 countries b. OPEC countries c. All other countries 2. Change in U.S. official reserve assets (decrease, +) Private financial flows Banks 3. Change in net foreign positions 1 of banking offices in the U.S. Securities2 4. Foreign net purchases of U.S. securities (+) a. Treasury securities b. Agency bonds c. Corporate and municipal bonds d. Corporate stocks 3 5. U.S. net acquisitions (-) of foreign securities a. Bonds b. Stock purchases 3 c. Stock swaps Other flows (quarterly data, s.a.) 6. U.S. direct investment (-) abroad 7. Foreign direct investment in U.S. 8. Foreign holdings of U.S. currency 9. Other (inflow, + )4 U.S. current account balance (s.a.) Capital account balance (s.a.) Statistical discrepancy (s.a.) 5 2003 2001 2002 2002 Q4 Q1 Q2 Q3 Sept Oct -.5 90.5 28.5 39.0 56.8 42.0 26.6 16.4 4.4 -8.4 -3.1 15.9 94.2 30.7 -7.5 70.9 29.3 6.0 .7 22.7 39.0 26.9 -7.5 19.5 57.0 25.2 1.1 30.7 42.7 16.1 2.1 24.4 27.4 8.4 1.9 17.2 16.4 19.1 4.0 -6.7 -4.9 -3.7 -.8 .1 -.2 -.6 -.8 .0 416.1 437.5 124.1 101.6 91.8 … … -6.2 139.1 35.5 -33.1 -36.2 33.6 -32.9 50.9 398.1 -7.4 81.8 201.8 403.5 106.4 78.1 160.3 82.9 14.2 15.5 39.8 68.5 13.4 -2.3 59.5 142.3 55.4 -1.7 67.3 91.2 52.2 -15.9 57.6 -9.7 -5.2 -16.3 17.9 3.4 -10.9 -3.6 18.9 121.8 58.8 13.3 -2.1 21.2 -2.7 -6.2 -1.0 -85.1 24.6 -62.7 15.5 33.5 -14.8 -5.3 7.6 -12.9 -27.5 7.0 -19.9 8.9 26.0 -17.1 -29.0 1.3 -30.3 -12.7 -2.7 -9.9 -14.5 -5.2 -9.4 -47.0 -3.2 .0 -14.7 .0 .0 .0 .0 -120.0 -137.8 151.6 39.6 23.8 21.5 53.9 -43.9 -31.7 15.3 7.2 20.2 -34.4 34.4 4.9 88.9 -32.0 12.1 1.5 -4.7 n.a. n.a. n.a. n.a. … … … … … … … … -393.7 -480.9 -128.6 -138.7 -138.7 n.a. … … n.a. n.a. … … … … -1.1 -20.8 -1.3 -45.8 -.4 -23.6 -.4 -1.6 -.3 -9.6 n.a. NOTE: Data in lines 1 through 5 differ in timing and coverage from the balance of payments data published by the Department of Commerce. Details may not sum to totals because of rounding. 1. Changes in dollar-denominated positions of all depository institutions and bank holding companies plus certain transactions between broker-dealers and unaffiliated foreigners (particularly borrowing and lending under repurchase agreements). Includes changes in custody liabilities other than U.S. Treasury bills. 2. Includes commissions on securities transactions and excludes adjustments BEA makes to account for incomplete coverage; therefore does not match exactly the data on U.S. international transactions published by the Department of Commerce. 3. Includes (4d) or represents (5c) stocks acquired through mergers. 4. Transactions by nonbanking concerns and other banking and official transactions not shown elsewhere plus amounts resulting from adjustments made by the Department of Commerce and revisions in lines 1 through 5 since publication of the quarterly data in the Survey of Current Business 5. Consists of transactions in nonproduced nonfinancial assets and capital transfers. n.a. Not available. ... Not applicable.
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