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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 February 7, 1986 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 THE DOMESTIC NONFINANCIAL ECONOMY Employment and unemployment. . . . . . . . . . . . . . . . . . THE DOMESTIC FINANCIAL ECONOMY Appendix The Federal Budget . . . . . . . . . . . . . . . . . . . . . . Tables Changes in employment . . . . . . . . . . . . . . Selected unemployment rates . . . . . . . . . . . Hourly earnings index . . . . . . . . . . . . . . Monetary aggregates . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit . . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . . . . A1-12 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Employment and Unemployment Labor demand strengthened considerably in January. Both the household and payroll surveys reported particularly strong gains in employment in January, and the civilian unemployment rate dropped another 1/4 percentage point to 6.7 percent. Nonfarm payroll employment jumped 566,000 last month after seasonal adjustment, the largest monthly rise since September 1983.1 Hiring remained at a brisk pace in the service-producing sector, with large job gains at retail establishments (207,000), and a continued climb in service industry employment (114,000). At construction sites, employment advanced 157,000 owing to the unusually good January weather. In manufacturing, payrolls rose another 35,000, bringing the cumulative increase in employment since September to 187,000. Factory job gains were fairly widespread at both durable and nondurable goods industries. In addition, although the factory workweek edged down 0.1 to 40.9 hours, but remains at a very high level. Wage rates, as measured by the hourly earnings index, fell 0.4 percent in January, after a sharp jump in December. The industries in which the index fell sharply in January (construction, retail trade, and services) were the same industries that posted the largest increases in December. Over the past twelve months, the index has increased about 3 percent in the private nonfarm economy and 2-3/4 percent in manufacturing. 1. Not seasonally adjusted, payroll employment fell 1.5 million in January. However, employment usually declines this time of year and the drop this year was smaller than usual. CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data) 1985 1984 1985 Q1 Q2 Q3 Q4 1985 Nov. Dec. 1986 Jan. -Average monthly changesNonfarm payroll employment 2 Strike adjusted 327 329 248 246 273 267 188 182 248 254 284 283 242 244 268 269 566 533 Manufacturing Durable Nondurable Construction Trade Finance and services Total government Private nonfarm production workers Manufacturing production workers 52 45 7 29 106 106 17 -14 -14 -1 24 72 123 36 -26 -17 -9 28 91 150 20 -43 -30 -12 28 77 94 23 -40 -37 -3 28 50 127 80 51 29 22 13 72 122 20 43 19 24 1 33 158 -2 50 24 26 7 87 94 28 35 14 21 157 229 149 -34 253 172 182 130 148 226 226 189 486 33 -15 -33 -47 -27 47 29 59 23 Total employment 3 Nonagricultural 269 265 163 183 234 259 -117 -59 306 347 229 184 156 144 237 156 404 4 n.a. 1. Average change from final month of preceding period to final month of period indicated. 2. Survey of establishments. Strike-adjusted data noted. 3. Survey of households. 4. The January 1986 change is adjusted for the effect of technical changes introduced to reflect new estimates of undocumented immigrants. SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data) 1985 Nov. Dec. 1986 Jan. 7.0 18.4 6.9 18.8 6.7 18.4 10.8 5.2 5.5 11.0 5.2 5.6 10.6 5.1 5.4 10.4 5.0 5.3 6.2 14.8 6.0 15.1 5.9 15.6 5.9 14.9 5.7 14.4 6.9 6.9 6.7 6.7 6.6 6.4 7.2 7.0 6.9 6.9 6.8 6.6 1985 1984 1985 Q1 Q2 Q3 Q4 Civilian, 16 years and older Teenagers 7.5 18.9 7.2 18.6 7.3 18.5 7.3 18.4 7.2 18.3 7.0 19.0 20-24 years old Men, 25 years and older Women, 25 years and older 11.5 5.7 6.0 11.0 5.4 5.9 11.1 5.4 .0 11.3 5.4 6.0 11.0 5.3 5.9 White Black 6.5 15.9 6.2 15.1 6.3 15.4 6.3 15.0 7.2 6.9 7.0 7.4 7.1 7.2 Fulltime workers Memo: Total national1 1. Includes resident Armed Forces as employed. HOURLY EARNINGS INDEX1 (Percentage change; based on seasonally adjusted data) 2 1985 1984 1985 Q1 Q2 -Annual Total private nonfarm Manufacturing Durable Nondurable Contract construction Transportation and public utilities Total trade Services Q3 Q4 rate-- 1985 Nov. Dec. 1986 Jan. --Monthly rate- 3.1 3.0 3.5 3.2 2.0 3.3 .5 .7 -.4 3.3 3.1 3.7 1.3 3.3 3.4 3.1 1.1 5.2 5.9 4.0 5.2 3.5 3.4 3.8 -. 1 2.0 2.3 1.5 -1.2 2.3 1.9 3.0 .5 .4 .4 .4 -.4 .4 .4 .4 1.2 .1 .2 .0 -.8 2.9 2.6 4.0 3.0 1.9 4.3 2.7 1.8 2.1 2.9 2.1 5.7 2.3 1.2 3.8 4.1 2.6 5.5 .7 .5 .6 .7 .6 1.0 -.2 -.6 -.9 1. Excludes the effect of interindustry shifts in employment and fluctuations in overtime hours in manufacturing. 2. Changes over periods longer than one quarter are measured from final quarter of preceding period to final quarter of period indicated. Quarterly changes are compounded annual rates. APPENDIX* THE FEDERAL BUDGET The administration presented its fiscal 1987 federal budget to Congress on Wednesday, February 5. outlays, It contains current services estimates of receipts, and the deficit as well as proposed deficit-reducing measures needed to meet the deficit targets mandated under the Gramm-RudmanHollings Act (see table 1).1 Current services deficits, although declining, are estimated to remain large in the near term--between 3 and 5 percent of GNP--and, as has been the case in the past few years, the administration's proposals are focused largely on outlay cuts in domestic nonentitlement programs. If the congressional debate on the budget follows the pattern of recent years, the administration's figures--for current services and suggested savings--will provide a benchmark for development of alternative budget programs. 2 Current Services Budget The current services budget is an estimate of receipts and outlays as they would evolve under the administration's economic assumptions in the absence of changes in federal laws or policies. Cost estimates are typically raised through time to maintain program levels in real terms. * Prepared by Albert M. Teplin, Economist, Government Finance Section, Division of Research and Statistics. 1. A three-judge District Court today ruled unconstitutional that portion of the act requiring the General Accounting Office to prepare the sequestration report and declared the order issued on February 1 sequestering FY1986 funds invalid. However, the court was required by the act to stay their decision until after an appeal to the Supreme Court. A ruling by the higher court is not expected until several months after the sequester order takes effect on March 1. Although the act has fall-back provisions for Congress to follow in this event, they are considered to be more difficult to implement. 2. The budget FY1987 tion's Congressional Budget Office has scheduled release of its annual review for February 18. Press reports indicate that CBO's deficit estimate is about $180 billion, close to the administracurrent services figure. In addition, for entitlement programs, increases in the number of eligible participants are taken into account. Interest outlays are allowed to rise or fall to meet the change in costs of servicing the public debt. After removing the effects of different economic assumptions, there has usually been little disagreement among analysts over current services estimates. In the past few years, however, the administration has set "current services" defense outlays at levels that would provide the substantial real growth that has been the administration's policy; subse- quent legislation that provided slower military outlay growth has been a sizable portion of the "budget cuts" of recent years. In this year's document the administration's current services defense figures are based on those in the FY1986 Congressional Budget Resolution, which called for no change in budget authority for FY1986 and 3 percent real growth in FY1987 authority and beyond. The resulting defense outlay figures are considerably lower than those reported in previous current services budgets.1 Current services receipts are estimated to grow at a rapid 9 percent rate in FY1987 and FY1988 before slowing to around a 6-3/4 percent annual rate during the FY1989-91 period. This receipts pattern depends, of course, on the economy achieving the real GNP growth rates and other favorable economic assumptions shown in table 2. Other factors the same, a change of one percentage point in real GNP growth in FY1987 would alter receipts, and hence the deficit, by roughly $6-1/2 billion. In addition, 1. Actual budget authorization for FY1986 was less than the budget resolution compromise and the sequestration order issued on February 1 reduced defense authority even further to a level below FY1985 authority. Even so, defense outlays will continue to rise because there is a substantial backlog of unspent obligations and unused authority from prior years. receipts growth is boosted in FY1988 by the scheduled increase of the combined employer-employee social security tax rate from 14.3 percent to 15.02 percent; the rate goes to 15.3 percent on January 1, 1990. Moreover, the budget receipts estimates assumed the price of oil would remain close to the levels prevailing at the end of last year. Although lower oil prices may bolster economic activity and raise revenues over time, they also imply several billion dollars less in windfall profits taxes in FY1987. Outlay growth under the current services budget is estimated to slow gradually from around 5 percent in FY1987 and FY1988 to 4 percent in later years. About half of the growth in current services outlays during the entire period can be accounted for by the 8 to 9 percent per annum rise in nominal defense outlays. Social security and medicare payments grow nearly 8 percent per year owing to the increased number of aged and adjustments to payments due to inflation. Smaller deficits and the administration's assumed drop in average interest rates over the period mean debt service outlays level off by FY1988 and then decline in subsequent years. Current services agricultural spending declines between FY1986 and FY1987 as the administration expects a reduction in farm price supports and related commodity credit corporation program payments as a result of reforms in the recently enacted farm bill together with assumptions of more normal farm supply conditions. With receipts now shown growing more rapidly than outlays, current services budget deficits are markedly different than indicated in previous years (see table 3). The current services deficit for FY1987 is now indicated to be $182 billion, and the deficit declines to $104 billion--or only 1.7 percent of GNP--by FY1991. In the 1985 and 1986 budgets, current services deficits remained above $200 billion. The lower deficits shown this year reflect primarily the more moderate growth path of defense outlays and cuts in interest outlays. These declining current services deficits have significantly different implications--a shift from stimulus to fiscal restraint. Because they apply to an economy that is assumed to be drifting up to potential GNP levels, most of the decline in the current services deficit is a reduction in the structural deficit rather than reflecting cyclical movements in the economy. Budget Trends Before turning to the President's budget proposals, it is instructive to examine how the budget has changed over the past four years. Such an analysis may provide clues as to why deficit reduction has been so difficult. After all, since 1982, the Congress and administration have compromised on measures to reduce the deficit, yet in the current fiscal year the size of the deficit is still estimated to be over $200 billion, nearly 5 percent of GNP. The level of federal receipts has risen $135 billion between FY1981 and FY1985, an average annual growth rate of 7 percent. The 1981 tax cuts reduced the level of receipts, and all types of revenue except those for social insurance have fallen as a percent of GNP. Consequently, total revenues in 1985 amounted to 18.4 percent of GNP compared with 20.1 percent in 1981 (table 4). Historically, total receipts averaged 17.6 percent of GNP in the fifties, percent in the seventies. 18.2 percent in the sixties, and 18.3 Hence, although the net effect of the tax changes enacted since 1981 has been a substantial reduction in revenues from what would have occurred, total federal receipts relative to GNP are not particularly low by historical standards. In contrast to the receipts pattern, outlays have grown by $268 billion or 9 percent at an annual rate. Table 5 compares the levels of spending for major budget categories in fiscal 1981 with those in 1985, and shows how the increase has been distributed. About a third of the rise reflects the steady increase in defense spending. Social security and medicare payments accounted for 28 percent and interest on the national debt accounted for another 20 percent of the rise. Increases in other income security and agricultural programs have been significant, smaller. but Nominal spending for the remainder of the functional categories has changed little or declined. The trends shown in table 5 have been influenced both by economic events and by legislative actions and it two effects in many cases. is difficult to distinguish the However, CBO has estimated that between 1981 and 1985 legislation to reduce entitlement and discretionary domestic spending has just about offset the acceleration in defense outlays experienced over the same period. Further spending reductions would have been necessary to match the revenue losses and to offset or curtail the increases in interest outlays. The Budget Proposals This year's budget proposals would continue the trends of the 198185 period (see table 6). Receipts initiatives--amounting to increases of $6.3 billion in FY1987--are spread over a number of items. The item with the largest budget impact is the extension of the 16 cent cigarette excise tax, which is scheduled to expire on March 14; it adds $1.7 billion to FY1987 revenues. As a partial offset, there are two small tax-reducing measures that had been proposed in earlier years are again included; these are a higher-education tax incentive program and tuition tax credits for primary and secondary education at private schools. Proposed outlay savings relative to the current services baseline total $29 billion in FY1987 and grow to $64 billion by FY1989. There are no changes contemplated for social security retirement benefits, and defense outlays are reduced only slightly from the revised current services baseline. The defense savings result from lower than expected inflation and pay assumptions. For low-income support programs other than social security, the budget shows only small reductions. The bulk of the spending cuts--$25 billion in FY1987--are proposed for nondefense programs and are similar to requests made in earlier budgets. Medicare, Medicaid and other federal health programs, which have grown rapidly despite cut-backs in previous years from current services estimates, account for $8.1 billion of the savings. There are also sizable reductions planned for housing assistance, student aid, and other education programs. Federal civilian retirement costs would be reduced through a number of program reforms and an increase in the employee payroll contribution from the current 7 percent to 9 percent. Also, the budget proposes federal civilian pay increases of 3 percent in January of each year; military pay increases would continue to be in October and are scheduled to be 4 percent in FY1987 and 3 percent in subsequent years. Nearly all nondefense discretionary programs would face some reduction from current services levels through program consolidations, reforms, and shifts to state and local governments; there are a number of program eliminations, including the direct loan program of the Small Business Administration, commissions, certain regional development administrations and and the Interstate Commerce Commission. This year the administration is again requesting legislation to allow for sale of certain assets. Physical assets contemplated for sale include certain surplus property, the five power marketing administrations operated by the Department of Energy (DOE), and the two Naval petroleum reserves--oil fields owned and operated by DOE. The two sales would total $1.5 billion in FY1987 and $4 billion in FY1988. also be sold. Financial assets would The budget proposal calls for a demonstration sale of a portion of the government's direct loans portfolio in order to establish a market price of such assets. These sales are expected to yield $1.7 billion in FY1987 and $0.7 billion in FY1988. Other "privatization" initiatives are proposed including a review of the feasibility of selling the Federal Housing Administration's mortgage insurance business. The combination of the economic scenario assumed in the budget and enactment of the President's program would put the deficit on the path envisioned in the Gramm-Rudman-Hollings legislation, with the deficit-GNP ratio falling about one percentage point per year. Enactment would also extend the trend in budget outlay composition experienced between 1981-85. By FY1991 the proposed budget shows defense spending as a third of total outlays and social security payments about a fourth. The remainder of the budget would decline from 56 percent of the total in FY1981 to 44 percent in FY1991. The administration's budget release is the first step in the Congressional budget process that was revised and accelerated in the Gramm-Rudman-Hollings Act. As envisioned in the act, Congress is to consider alternatives and complete action on a joint budget resolution by April 15. It is anticipated that the resolution will then lead to enactment of appropriations and other necessary legislation by mid-summer. In any event, OMB and CBO are required to submit a forecast of the FY1987 budget deficit and the economy in mid-August, taking into account enacted legislation to date. If their deficit estimate exceeds the requirements of the act, the sequester process would begin, with an order taking effect in October. However, Congress could continue to pass legislation in order to meet the target and avoid sequestration until the order became effective. Should appropriations bills not be passed, the sequestered amounts would be based on FY1986 budget authority, which is generally lower than the authority required to meet the current services estimates in the FY1987 budget, especially for defense. Table 1 ADMINISTRATION CURRENT SERVICES BUDGET (Fiscal years) 1986 1987 1988 1989 1990 1991 --------------- Billions of dollars--------------Revenues 777 844 927 989 1,053 1,120 Outlays 982 1,026 1,077 1,128 1,179 1,224 Deficit 206 182 150 139 126 104 91 105 1990 1991 Memo: Deficit reduction proposals Deficit with proposals 203 Table 2 ECONOMIC ASSUMPTIONS (Calendar years) 1986 1987 1988 1989 ---------- Percent change , Q4 to Q4-------------Nominal GNP 8.0 8.3 7.7 7.0 6.2 5.6 Real GNP 4.0 4.0 4.0 3.7 3.6 3.5 GNP deflator 3.8 4.1 3.6 3.2 2.5 2.0 ------------- Percent, fourth quarter----------Unemployment rate 6.7 6.5 6.2 6.0 5.7 5.5 Treasury bill rate 7.2 6.1 5.3 4.5 4.1 4.0 Table 3 ADMINISTRATION CURRENT SERVICES DEFICIT ESTIMATES Budget 1986 Fiscal years 1988 1989 1987 1990 1991 -------------- Billions of dollars--------------1985 233 237 221 208 n.a. n.a. 1986 230 246 248 233 224 n.a. 1987 206 182 150 139 126 104 ---------------- Percent of GNP-----------------1985 5.4 5.1 4.4 3.8 n.a. n.a. 1986 5.4 5.3 4.9 4.3 3.9 n.a. 1987 4.9 4.0 3.1 2.6 2.2 1.7 Table 4 BUDGET RECEIPT TRENDS 1981-1985 (Fiscal years, billions of dollars) Level as a percent of GNP 1985 1991*1 1981 Memo: 1981 1985 Increase Total receipts 559.3 734.1 134.8 20.1 18.4 Individual 285.9 334.5 48.6 9.6 8.4 8.6 Corporate 61.1 61.3 0.2 2.0 1.5 2.1 Social insurance 182.7 265.2 82.5 6.1 6.6 6.8 Excise and other 69.6 73.1 3.5 2.3 1.8 1.2 1. Calculated from the FY1987 Budget (February 1986). 18.6 Table 5 BUDGET OUTLAY TRENDS 1981-1985 (Fiscal years) Budget function Total outlays Level: (Billion of dollars) 1981 1985 Change: Billions Annual percentage of dollars rate Memo: Level as a percent total outlays 1981 1985 19913 678.2 946.3 268.1 8.7 100.0 100.0 100.0 157.5 68.7 139.6 252.7 129.4 188.6 95.2 60.7 49.0 12.5 17.2 7.8 23.2 10.1 20.6 26.7 13.7 19.9 32.6 10.3 23.5 Medicare Income security1 Agriculture 2 Health International affairs Transportation Science 39.1 99.7 11.3 26.9 13.1 23.4 6.5 65.8 128.2 25.6 33.5 16.2 25.8 8.6 26.7 28.5 14.3 6.6 3.1 2.4 2.1 13.9 6.5 22.7 5.6 5.5 2.5 7.2 5.8 14.7 1.7 4.0 1.9 3.5 1.0 7.0 13.5 2.7 3.5 1.7 2.7 .9 8.8 11.8 1.0 3.6 1.6 2.1 1.0 Natural resources Regional Development Commerce-Housing Education Energy 13.6 10.6 8.2 33.7 15.2 13.4 7.7 4.2 29.3 5.7 -. 2 -2.9 -4.0 -4.4 -9.5 -. 4 -7.7 -15.4 -3.4 -21.7 2.0 1.6 1.2 5.0 2.2 1.4 .8 .4 3.1 .6 1.0 .5 -.2 2.3 .3 Other 11.1 11.6 .5 1.1 1.6 1.2 .1 Defense Interest Social security (OASDI) 1. The FY1985 figure was elevated by a one-time $14 billion payment for HUD-guaranteed notes to finance low-income housing. Without these payments, the annual rate of change would have been 3.5 percent. 2. Year-to-year agricultural outlays tend to be especially volatile. The change from 1981 to the average of 1984 and 1985 was an annual rate of 14.8 percent. 3. Calculated from policy levels in the FY1987 Budget (February 1986). Table 6 DEFICIT REDUCTION PROPOSALS IN THE FY1987 BUDGET (Fiscal years, billions of dollars) 1987 1988 1989 Total savings 38.2 56.4 71.4 Receipts 6.3 5.9 6.9 28.7 45.9 63.8 Defense 2.7 4.5 6.3 Low-income benefits1 0.7 0.9 1.1 15.4 24.0 31.0 Other 3 7.5 13.6 16.0 Changes in user fees 4 2.4 2.8 3.2 3.2 4.6 0.7 Outlays Human and social services 2 Net asset sales 1. Includes, among other things, aid for families with dependent children and food stamp outlays. 2. Includes spending for education, housing assistance, Medicare, and Medicaid. 3. Major items in this category are outlays for agriculture, rural housing, transportation, community and regional development, and civilian agency pay. 4. Includes off-setting collections which appear in the budget as negative outlays. MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted)1 1984:Q4 to 1985:Q4 -----1. 2. 3. M12 M2 M3 1985 Q3 Q4 Nov. Dec. February 7, 1986 Jan.Pe 1986 Growth from Q4 1984 to Dec. 19851 Percentage change at annual rates ----- 11.6 (12.1) 15.0 8.6 10.2 7.9 8.2 13.4 6.6 5.9 13.2 7.8 7.2 11.9 (12.4) 8.6 7.9 Levels in billions of dollars Dec. 1985 Selected components 4. Currency 7.6 9.1 7.4 8.5 5.6 5. Demand deposits 8.3 11.9 4.7 10.5 20.3 -8 270.8 6. Other checkable deposits 21.7 26.1 17.2 23.0 10.2 18 177.2 7.7 8.7 4.9 4.6 6.0 1 1938.9 21.0 19.3 27.6 30.4 71.5 -43 72.9 9.1 9.2 4.1 7.8 0.0 4.7 -3.4 7.2 -4.8 7.5 9 7 175.8 841.3 19.0 -0.6 5.1 19.2 -4.4 3.9 11.2 -2.7 1.8 13.6 -0.3 2.7 6.9 8.2 4.5 11 3 0 457.1 384.2 851.0 14.2 -0.5 16.7 -4.6 9.1 -3.1 6.1 0.5 5.4 0.4 9.9 3.0 4.8 27 649.5 6.5 6.0 7.4 -3.0 -3.2 -2.8 13.2 16.1 8.5 12.2 12.6 11.5 9.0 5.1 16.0 25 35 8 441.0 281.3 159.7 11.1 5.6 -4.6 1.3 -8.1 -4.9 3.1 35.4 -9.0 22.7 62.9 1.5 0.0 33.9 -39.5 37 2 -20 64.5 76.4 76.4 7. M2 minus M1 3 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 4 plus MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, 4 plus KMDAs, NSA Small time deposits minus M2 5 Large time deposits 6 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA 6 -3.0 9.8 170.8 356.9 494.1 -- Average monthly change in billions of dollars -MEMORANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 27. Other 7 0.4 1.3 2.4 1.2 1.2 5.4 2.3 4.1 4.0 2.1 1.9 465.5 337.1 128.4 1.3 -0.1 0.8 3.3 -1.7 3.6 -27.7 156.1 28. U.S. government deposits at commercial 8 0.2 -0.7 1.2 9.6 5.5 banks 0 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quar terly changes are calculated on an end-month-of-quarter basis. 2. Figures in parentheses calculated from Q2 1985 base. 3. Nontransactions M2 is seasonally adjusted as a whole. 4. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Commercial bank savings deposits excluding MMDAs decreased during December 1985 and January 1986 at rates of 5.7 percent and 3 percent respectively. At thrift institutions, savings deposits excluding MMDAs decreased during December 1985 at a rate of 2.0 percent and increased during January 1986 at a rate of 5 percent. 5. The non-M2 component of M3 is seasonally adjusted as a whole. of large-denomination time deposits held by money market mutual funds and thrift institutions. ists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold agreements to repurchase, and other liabilities for borrowed money (including borrowings 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. pe--preliminary estimate - COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1 1985 Q2 Q3 Q4 ---------------1. 2. Dec. Levels in bil. of dollars JanuaryP Commercial Bank Credit ----------------------- Total loans and securities at banks 9.3 8.6 11.8 16.4 16.6 15.0 1919.2 Securities 5.5 12.4 19.6 30.8 26.2 24.8 454.4 0.0 9.0 -3.5 22.2 -18.8 -28.4 ' 264.3 16.1 18.8 61.3 45.7 103.0 107.3 190.1 10.4 7.4 9.4 12.0 13.7 12.0 1464.8 5.5 8.9 8.1 -0.2 493.8 3.1 -9.5 25.5 140.6 42.9 3. U.S. government securities 4. Other securities 5. Nov. 1986 Jan.P Total loans 6. Business loans 2.6 2.4 7. Security loans 87.8 -19.0 8. Real estate loans 12.4 11.2 13.0 13.6 11.5 9.1 426.4 9. Consumer loans 14.9 11.1 8.8 10.7 11.4 22.4 291.8 7.1 12.3 14.3 22.9 34.3 9.2 209.9 10. Other loans -------------- Short- and Intermediate-Term Business Credit ------------ 11. Business loans net of bankers acceptances 12. Loans at foreign branches 13. Sum of lines 11 & 12 2.2 2 -4.1 Commercial paper issued by 3 nonfinancial firms 15. Sums of lines 13 & 14 16. Bankers acceptances: 5 related4, 17. 7.9 5.0 -6.2 8.4 6.3 -0.5 489.6 0.0 19.3 6.4 -0.5 508.9 -14.9 87.6 7.1 -6.2 2.0 4.5 8.1 -1.5 55.5 64.6 36.2 11.5 16.0 11.3 -2.4 -13.8 -42.0 21.8 n.a. 33.7 (Dec) 1.5 596.6 U.S. trade -12.2 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 -1.1 6.7 1.1 10.0 12.6 12.1 n.a. 631.5 (Dec) 8.0 3.1 n.a. 27.3 n.a. n.a. 148.4 (Nov) 6.9 1.5 n.a. 15.6 n.a. n.a. 773.6 (Nov) n.a.--not available. p--preliminary 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. 3. 4. 5. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. Average of Wednesdays. Based on average of current and preceding ends of month. Consists of acceptances that finance U.S. imports, U.S. exports and domestic shipment and storage of goods. SELECTED FINANCIAL MARKET QUOTATIONS 1/ (percent) 1982/1983 1984 cyclical low Highs March highs June lows FOMC Dec Feb 6 8.46 11.63 8.58 7.38 8.05 7.94 -3.69 7.08 7.62 7.73 10.77 10.67 6.66 6.81 6.98 7.00 7.00 7.02 7.10 7.13 7.12 -3.57 -. 64 11.13 8.80 9.13 9.25 -4.01 0.10 0.13 0.10 8.00 7.97 11.42 11.35 8.94 9.12 6.95 7.01 7.77 7.66 7.65 7.60 -3.77 -3.75 -0.12 -0.06 Large negotiable CD's 3/ 1-month 8.08 8.12 6-month 8.20 11.52 11.79 12.30 8.89 9.29 9.92 7.09 7.18 7.30 7.69 7.63 7.63 7.69 7.70 7.71 -4.59 4.09 0.07 8.68 8.71 11.89 12.20 8.89 9.58 7.45 7.50 7.98 7.86 7.91 7.93 -3.98 427 -0.07 0.07 10.50 13.00 10.50 9.50 9.50 9.50 -3.50 - 10.58 10.74 7.47 7.78 6.68 6.76 6.89 6.87 U.S. Theasury (constant maturity) 3-year 13.49 9.33 10-year 10.12 13.99 10.27 13.94 30-year 11.22 12.02 11.97 8.73 9.83 10.23 8.18 9.04 9.35 8.22 9.03 9.25 4.9 -4.69 0.04 -0.01 -0.10 Municipal revenue 5/ (Bond Buyer index) 1985 1986 Change from: 1984 highs FOMC Dec Short-term rates Federal funds 2/ Treasury bills 3/ 3-month 1-year Commercial paper 1-month 3-month Eurodollar deposits 4/ 1-month 3-month Bank prime rate Teasuy bill futures h 1986 contract June 1986 contract -4.59 -0.11 0.08 0.21 0.11 Interrediate- and long-term rates 9.21 11.44 10.25 9.10 8.96 8.24 -3.20 -0.72 Recently offered 11.64 15.30 13.23 11.50 10.95 10.57 -4.73 -0.38 Home mortgage rates 6/ S&L fixed-rate S&L AIM, 1-yr. 112.55 n.a. 14.68 12.31 13.29 11.14 12.05 9.83 11.14 9.17 10.89 8.97 -3.79 -3.34 -0.25 -0.20 Corporate-A utility 6/ 1983 1984 Highs Lows 1985 FMC Dec Highs 1986 Feb 6 Percent change from: 1984 FMC 47. 3.64 lows Dec Stock prices Dow-Jones Industrial NYE Ccmposite A2X Ccosite ASDAQ (TC) 1287.20 99.63 2 9.03 32 .91 1086.57 1553.10 1544.50 1600.69 85.13 121.90 87.1 246.13 225.30 325.16 121.17 123.14 243.85 243.71 323.25 340.76 1/ On-day quotes except as noted. 2/ Averages for two-week reserve naintainence period closest to date shown. Last observation is the average to-date for the maintainence period endirg February 12, 1986 3/ Secondary market. .65 30.21 51.25 1.6 -0.6 5.42 4/ Averages for statement week closest to date shown. 5/ Thursday quotes. 6/ Friday quotes. e-estimate
@FedFRASER