Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, February 4-5, 1992 : Greenbook Supplement

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CONFIDENTIAL (FR)
CLASS III

- FOMC

January 31,

SUPPLEMENT
CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the
Federal Open Market Committee

By the Staff
Board of Governors
of the Federal Reserve System

1992

TABLE OF CONTENTS

Page
THE DOMESTIC NONFINANCIAL ECONOMY
New home sales .
Corrigenda . . .

. .
. .

. . . .
. ... .

.
.

. .
. .

.
.

. .
. .

. ..
. . .

.
.

1
3

Tables

The market for new houses. ... .

THE FINANCIAL ECONOMY
The January 1992 senior loan officer opinion
. . ....
survey on bank lending practices ..

. . ..

Tables
..
. . . . . . . . .
Monetary aggregates
Commercial bank credit and short- and
intermediate-term business credit. . . .
Selected financial market quotations . . .

...

.
.

. ...

. .
..

9
10

THE INTERNATIONAL ECONOMY
Prices of imports and exports.

... .

...

. . . .

Tables
Import and export price measures

SUPPLEMENTAL NOTES
THE DOMESTIC NONFINANCIAL ECONOMY
New Home Sales
Sales of new single-family homes declined 6.6 percent in
December to 522,000 units (annual rate), following an upward
revision to the November estimate from 520,000 to 559,000 units.
For the fourth quarter as a whole, new home sales increased
4.7 percent to 533,000 units, the strongest quarterly pace since the
spring of 1990.
Analysts at the Census Bureau attribute the November revision
to a persistent statistical problem affecting the estimation of new
home sales that has contributed to a number of upward revisions in
recent months.

The Census Bureau samples newly issued building

permits and then obtains information about sales and prices for
newly permitted units.

Homes that are sold before a permit is

issued necessitate a revision to the sales estimate for prior
months.

Although imputations are made for pre-sales, pre-selling

has become increasingly common.

Because the December preliminary

estimate may also be subject to this bias, new home sales actually
may be stronger than is indicated by the latest report.
The median price of new homes sold in December declined
2.5 percent from a year earlier to $123,800; the average price of
new homes decreased 3.4 percent to $148,200.

These price measures

are not adjusted for variations in the structural characteristics
and geographic distribution of homes sold.
The number of new homes for sale nationwide edged down in
December to 283,000 units.

This inventory level translates into a

6.6 months' supply, as compared with 7.1 months, on average, in the
third quarter.

THE MARKET FOR NEW HOUSES
1991
1991

Q3r

Q4p

Oct.r

504

509

533

518

-5.6

-0.2

4.7

4.0

147.7

145.4

147.8

141.1

140.5

-1.4

-0.1

-3.1

-3.4

-1.5

-2.0

-3.4

120.0

120.5

123.5

117.4

117.3

123.8

-2.4

2.6

-0.8

2.9

-1.3

283

291

283

287

283

7.3

7.1

6.6

6.7

6.6

Northeast

Midwest

102

South

212

210

230

221

West

143

144

150

132

Sales Volume
Thousands of units, SAAR
(Percent change from
earlier comparable period,
not at an annual rate)
Sales Price
Average ($1,000, NSA)
(Percent change
from year earlier)
Median ($1,000, NSA)
(Percent change
from year earlier)

Inventory
Units for sale
(Thousands of units,
end of period)
Months' supply
(At current sales rate)

Nov.p

Nov.r

7.9

Dec.p

-6.6

148.2

-2.5

Regional Sales Volume
Thousands of units, SAAR

1. The relative standard error for the monthly sales estimates is
(+) or (-) 6 percent.
2. Months' supply data derived by Census Bureau by seasonal adjustment of the
ratio of homes for sale to homes sold. It may, therefore, not agree with the
seasonally adjusted components shown on the table.
r--revised p--preliminary.
January 31, 1992

Mortgage and Consumer Finance Section

Corrigenda
Two tables in the nonfinancial portion of Part 1 of the
Greenbook had incorrect numbers for the consumer price index in
1992.

The corrected tables are shown below.

MAJOR INDICATORS OF ECONOMIC PERFORMANCE
(Percent change, fourth quarter to fourth quarter)
1989

1990

1991

1992

1993

- projected
Real GDP

1.7

-.1

2.1

3.5

Consumer price index

4.6

6.3

2.9

3.5

2.8

4.3

5.3

4.4

3.4

2.8

ECI hourly compensation

4.8

4.6

4.4

3.7

3.3

Memo:
Civilian unemployment rate

5.4

6.0

6.9

7.2

6.7

Exc. food and energy

Average in the fourth quarter.

STAFF SIMULATIONS OF THE EFFECTS OF FISCAL ACTION ON THE ECONOMY
(Percentage change, fourth quarter to fourth quarter)
1992

1993

Simulation with fixed short-term interest rates----1.

Growth of real GDP
(Baseline)

3.4
(2.1)

4.7
(3.5)

Consumer price index
(Baseline)

3.7
(3.5)

3.4
(2.8)

Civilian unemployment rate 1
(Baseline)

6.8
(7.2)

5.7
(6.7)

--------- Simulation with fixed money growth

---------

Growth of real GDP
(Baseline)

3.1
(2.1)

2.8
(3.5)

Consumer price index
(Baseline)

3.7
(3.5)

3.1
(2.8)

Civilian unemployment ratel
(Baseline)

6.9
(7.2)

6.5
(6.7)

Average in the fourth quarter.

THE FINANCIAL ECONOMY
The January 1992 Senior Loan Officer Opinion Survey
on Bank Lending Practices
The January 1992 Senior Loan Officer Opinion Survey on Bank
Lending Practices posed questions about changes in bank lending
standards and terms and about the demand for business and household
loans.

It also sought information about bank lending to commercial

and industrial firms that is secured by real estate.
Virtually all surveyed banks--both domestically chartered banks
and U.S. branches and agencies of foreign banks--indicated that they
had kept their credit standards for approving business loan
applications unchanged since the October 1991 survey.

The few banks

that did tighten standards most often cited a less favorable
economic outlook as the primary reason for the change.

Though

some banks reported that terms on business loans have become more
stringent, their numbers fell noticeably from the October survey.
Domestic banks reported that business loan demand from firms of
all sizes weakened over the past three months at about the same pace
reported in the October survey.

Foreign banks also reported softer

business loan demand, in contrast to the somewhat stronger demand
reported in October.

More than half of banks reported stronger

residential mortgage demand--well above the number so reporting in
October--while demand for home equity loans was down at some banks
and up at others.

Demand for consumer installment loans

continued to weaken.

Banks' willingness to provide consumer credit

over the last three months appears to have increased a bit.

1. In light of the historical tendency of banks not to report
that they have eased standards, the virtual absence of reported
tightening of standards in the current survey might be interpreted
as indicating that standards actually have been eased. This feature
of earlier survey data is discussed in "Survey Evidence of Tighter
Credit Conditions:
What Does It Mean?" by Stacey L. Schreft and
Raymond E. Owens in the March/April 1991 issue of the Federal
Reserve Bank of Richmond's Economic Review.

-5The number of banks reporting further tightening of standards
for approving commercial real estate loans continued to fall in the
January survey.

Again in January, almost all banks indicated that

their lending standards for residential mortgages were unchanged.
Banks reported that about one-fourth of their loans secured by
real estate were extended to commercial and industrial firms, and
that about one-third of those loans were for purposes other than
acquisition or improvement of the real estate pledged as collateral.
In general, banks characterized such loans as having higher yields
than most C&I loans, as being made to smaller, riskier firms, and as
having declined relatively in volume over the past two years.
Lending Standards and Terms
Nonmerger-related C&I loans:

credit standards.

Very few

domestic banks reported that they had altered standards for
approving business loans for nonmerger-related purposes.

Business

lending standards at branches and agencies of foreign banks were
generally unchanged as well.

As in previous surveys, a common

reason given by the few banks that did report tightening over the
prior three months were concerns about the economic outlook.
Nonmerger-related C&I loans:
credit.

price and nonprice terms of

In the January survey, banks on balance reported some

additional tightening of terms on business loans, although the
changes were somewhat less common than in the October survey.

minority of banks responded that they had decreased the size of
credit lines for large firms and increased credit line costs and the
spreads of loan rates over base rates for smaller business
borrowers.
Commercial real estate loans:

credit standards.

As occurred

in the October survey, the number of domestic banks that indicated
that they had further tightened credit standards for the various

-6categories of commercial real estate lending fell by half in the
most recent survey.

In January, less than 10 percent of banks

reported having tightened lending standards for construction and
land development loans.

The number of banks that tightened

standards for loans for commercial office buildings, for industrial
structures, and for other nonfarm nonresidential purposes also
declined noticeably since the last survey.

Relatively more foreign

banks adjusted their lending policies for these categories, about
one-fourth of them reporting that they had tightened standards.
Household loans:

As in October, in January very few domestic

respondents reported having tightened credit standards for approving
home purchase loan applications from individuals.

With regard to

banks' willingness to make consumer loans, banks on balance again
registered a small increase in the willingness to lend in the three
months ending in January.
The Demand for Loans
Business loans.

A significant minority of domestic banks

reported that the demand for business loans had weakened over the
past three months compared with the prior three months.

This

pattern held across both large and small banks and across firms of
all sizes, although the tendency was less prevalent in small
firms.2

Banks that noted weaker business loan demand most often

cited decreases in their customers' funding needs for inventories
and fixed investment, regardless of the size of the borrower.

contrast to October, when foreign banks tended to report somewhat
stronger business loan demand, in January these banks faced weaker
business loan demand, attributed in part to their customers opting
for nonbank financing, for example bond or equity issuance.

2. Large banks are those with at least $10 billion of assets.

-7Household loans.

After being generally unchanged over the

period covered by the October survey, the demand for residential
mortgages picked up sharply during the past three months.
At the same time, demand for home equity lines of credit, on
balance, was a bit weaker.

And there were clear indications that

the demand for consumer installment loans had fallen further, with
about one-third of banks responding that it had weakened.
C&I Lending Classified as Real Estate Loans

The January survey inquired about banks' holdings of C&I loans
secured by real estate, which are reported and published on the Call

Report and other statistical releases as real estate loans.

Such

loans comprise about one-fourth of real estate loans at domestic
respondents and nearly that fraction at foreign banks.

Of these

loans, about one-third at both domestic and foreign banks are used
for purposes other than the acquisition or improvement of the real
estate securing the loan.

The interest charges on these loans are

almost all tied to the prime rate.

A sizable majority of these

loans have original maturities of at least three years.

Most banks

indicated that over 40 percent of such loans were made under some

type of formal loan commitment program.

Only a minority of these

C&I loans came to be secured by real estate after the origination of
the loan, although more than half of banks obtained some of these
loans in this way.

These C&I loans collateralized by real estate

are considered by banks generally to offer higher yields, to be
provided to borrowers with credit risk greater than typical of C&I
borrowers, and to be made to smaller borrowers.

The volume of such

loans relative to other C&I lending over the past two years appears
to have diminished.

(based

MONETARY AGGREGATES
on seasonally adjusted data unless otherwise noted)

19911

---------1.
2.
3.

Ml
M2
M3

1991
93

1991
Q4

1991
Nov

Percent change at annual
8.0
3.1
1.3

7.5
1.1
-1.1

11.1
3.3
1.3

Percent change at

------------

14.3
5.0
2.6

1991
Dec

Growth
1992
94 9 912
Jan pe Jan
pe

rates------------------9.2
2.8
1.8

annual rates--------

Levels
- bil.
$
Dec 91

Selected components
4,
5.
6.

M-A
Currency
Demand deposits

Other checkable deposits

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
Commercial banks
Savings deposits (including MMDAs)
Small time deposits
Thrift institutions
Savings deposits (including tMMAs)
Small time deposits

17. M3 minus M2

Large time deposits
4
At commercial banks, net
At thrift institutions
Institution-only money market
mutual fund shares
Term RPs, NSA
Term Eurodollars. NSA

5.6

4.4

8.7

11.2

7.1

564.9

8.4
3.4

6.9
2.6

7.4
10.0

5.4
16.1

5.4
7.9

9
15

267.2
289.5

12.5

12.9

15.1

19.6

333.2

1.5

-1.0

0.7

1.7

-2

2544.7

-8.1

-15.1

38.1

62.3

36.2

4.6
7.6
13.3
-6.9
9.2
-16.5

-3.4
7.9
12.5
3.4
-10.5
9.9
-24.2

-3.1
4.3
13.2
-4.8
-8.2
9.7

-1.0
0.0
14.3
-15.0
-4.4
13.7
-18.4

0.3
-0.2
14.0
-15.4
-4.4
14.2
-19.0

-3
4
28
-22
-2
24
-22

362.2
1258.9
660.4
598.5
844.0
377.2
466.8

-6.1

-11.0

-7.6

-8.1

-2.6

-10

735.4

-12.7
-6.6
-31.7

-16.7
-10.4
-40.5

-24.1
-20.6
-37.4

-20.8
-18.2
-31.6

-15.2
-11.8
-29.6

-28
-29
-26

436.6
353.6
83.0

33.4
-21.6
-8.1

11.4
-11.5
-2.5

37.0
-23.6
-0.6

38.5
-28.6
-11.4

38.0
-47.2
-26.8

20
-2
-27

179.1
70.9
61.4

2.1

-21.2

12.4
O.S

75.1

---- Average monthly change in billions of dollars---MEMORANDA:$
24. Managed liabilities at commercial
banks (25+26)
25. Large time deposits, gross
Nondeposit funds
26.
Net due to related foreign
27.
institutions
&
28.
Other
29. U.S. government deposits at commercial
7
banks

706.9
423.8
283.1

-1.2
-0.7
-0.5

-2.4
-3.0
0.6

3.7
-5.7
9.4

-0.6
-3.4
2.8

8.7
-2.3
11.0

0.6
-1.0

0.5
0.1

6.9
2.4

2.5
0.3

6.8
4.2

0
-5

41.3
241.8

0.2

-0-1

0.9

5.0

-7.7

26.5

Amounts shown are from fourth quarter to fourth quarter.
Nontransactions HZ is seasonally adjusted as a whole.
The non-MZ component of M3 is seasonally adjusted as a whole.
Net of large denomination time deposits held by money market mutual funds and thrift institutions.
Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis.
Consists of borrowing from other than commercial banks in the form of federal funds purchased, securities
for borrowed money (including borrowing from the
sold under agreements to repurchase, and other liabilities
Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated.
7. Consists of Treasury demand deposits and note balances at commercial banks.
pe - preliminary estimate

1.
2.
3.
4.
5.
6.

COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT 1
(Percentage change at annual rate, based on seasonally adjusted data)

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, February 4-5, 1992 : Greenbook Supplement

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