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Class III FOMC - Internal (FR)

Part 2

January 20, 2010

CURRENT ECONOMIC
AND FINANCIAL CONDITIONS
Recent Developments

Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System

Class III FOMC - Internal (FR)

January 20, 2010

Recent Developments

Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System

Domestic Nonfinancial
Developments

Domestic Nonfinancial Developments
On balance, the data we received during the intermeeting period suggest that economic
activity has continued to improve. Consumer spending was well maintained in the fourth
quarter, and business expenditures on equipment and software appear to have
strengthened. However, the improvement in the housing market has slowed lately, and
spending on nonresidential structures has continued to fall. Recent data suggest that the
pace of real business inventory liquidation decreased considerably in the fourth quarter,
providing a sizable boost to economic activity. Moreover, industrial production
advanced at a solid pace in the fourth quarter after a large increase in the previous
quarter. In the labor market, layoffs subsided noticeably in the fourth quarter, but the
unemployment rate remained elevated and hiring conditions remained weak. Meanwhile,
increases in energy prices have pushed up top-line consumer price inflation, even as core
consumer price inflation has remained subdued.
Labor Market Developments
The pace of job loss has continued to moderate. Private nonfarm payroll employment fell
64,000 in December after no change in November and a decline of 163,000 in October.
Smoothing through these monthly fluctuations, the three-month change in employment
has shown steady improvement since early last year, and this pattern has been widespread
across industries. Of particular note, the temporary help services industry—a bellwether
of developments in the labor market—added nearly 50,000 jobs per month during the
past three months. Employers also may have begun to lengthen workweeks: The
average workweek for production and nonsupervisory workers was 33.2 hours in
November and December after hovering at 33.1 hours since March.
As with the payroll data, key measures from the household survey show some moderation
in the rate of deterioration in the labor market. The unemployment rate moved up
another ¼ percentage point in the fourth quarter to an average of 10 percent after an
increase of almost ½ percentage point in the third quarter. These increases contrast with
the steep rise of 4 percentage points in the jobless rate that occurred over the preceding
year. In addition, the fraction of workers on part-time schedules for economic reasons
increased only slightly, on net, in the second half of 2009. In contrast, the labor force
participation rate has declined steeply since the spring, likely reflecting, at least in part,
the ongoing deterioration in labor market conditions.

__________________________
Note: A list of abbreviations is available at the end of Part 2.

II-1

II-2

Changes in Employment

(Thousands of employees; seasonally adjusted)
2009
Measure and sector

2009

Oct.

Average monthly change
Nonfarm payroll employment
(establishment survey)
Private
Natural resources and mining
Manufacturing
Ex. motor vehicles
Construction
Residential
Nonresidential
Wholesale trade
Retail trade
Financial activities
Temporary help services
Nonbusiness services1
Total government
Federal government
Total employment (household survey)
Memo:
Aggregate hours of private production
workers (percent change)2
Average workweek (hours)3
Manufacturing (hours)

Nov.

Dec.

Monthly change

-347
-342
-7
-106
-95
-78
-27
-51
-19
-35
-26
-12
5
-5
4
-450

-428
-425
-11
-140
-117
-80
-26
-54
-20
-27
-35
-28
19
-3
3
-272

-199
-171
-5
-46
-55
-63
-15
-48
-9
-35
-16
5
25
-28
3
-423

-69
-76
-1
-37
-35
-45
-12
-33
-12
-21
-3
49
2
6
1
-325

-127
-163
-5
-48
-52
-56
-14
-42
-7
-40
-6
44
-20
36
17
-526

4
0
4
-35
-31
-27
-4
-23
-11
-14
-6
55
21
4
-5
139

-85
-64
-1
-27
-22
-53
-19
-35
-18
-10
4
47
6
-21
-9
-589

-5.0
33.1
39.8

-7.8
33.1
39.5

-2.5
33.1
39.9

-.5
33.1
40.3

-.4
33.0
40.1

.6
33.2
40.4

.0
33.2
40.4

1. Nonbusiness services comprises education and health, leisure and hospitality, and "other."
2. Establishment survey. Annual data are percent changes from Q4 to Q4. Quarterly data are percent changes from preceding
quarter at an annual rate. Monthly data are percent changes from preceding month.
3. Establishment survey.

Changes in Private
Payroll Employment
400

Aggregate Hours and Workweek of
Production and Nonsupervisory Workers
Thousands

3-month moving average

200

400

200

35.0

Hours

2002 = 100
Aggregate
hours
(right scale)

110
108

34.5
106

0
Dec.

34.0

-200

-400

104

Workweek
(left scale)

102

-400

33.5
Dec.

100
98

-600

33.0
96

-800

2000

2002

2004

2006

2008

2010

-800

32.5

2000

2002

2004

2006

2008

2010

Note: The shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research (NBER). The vertical lines
represent the last business cycle peak as defined by the NBER.
Source: U.S. Department of Labor, Bureau of Labor Statistics.

II-3

Selected Unemployment and Labor Force Participation Rates
(Percent; seasonally adjusted)

2009
Rate and group

2009

Oct.

Nov.

Dec.

Civilian unemployment rate
Total
Teenagers
20-24 years old
Men, 25 years and older
Women, 25 years and older

9.3
24.3
14.8
8.8
6.9

9.3
23.1
14.9
8.9
6.9

9.7
25.4
15.1
9.4
7.1

10.0
27.2
15.7
9.5
7.5

10.1
27.6
15.6
9.7
7.6

10.0
26.8
15.9
9.5
7.3

10.0
27.1
15.6
9.2
7.6

Labor force participation rate
Total
Teenagers
20-24 years old
Men, 25 years and older
Women, 25 years and older

65.4
37.5
73.0
74.7
59.9

65.7
38.3
73.9
74.9
60.2

65.3
37.4
72.8
74.8
59.8

64.9
35.8
71.4
74.3
59.6

65.0
36.1
71.4
74.7
59.6

64.9
35.8
71.8
74.3
59.6

64.6
35.6
71.1
73.8
59.5

Unemployment Rate and Persons Working
Part Time for Economic Reasons
11

Percent of household employment

Percent of labor force

Labor Force Participation Rate
11

Percent

67.5

Dec.
10

67.0

66.5

66.0

65.5

65.0

Unemployment rate (right scale)

Persons working part
time for economic
reasons (left scale)

3
2

3
2002

2004

2006

2008

2010

64.5
64.0

Dec.
2002

2004

2006

2008

2010

Source: U.S. Department of Labor, Bureau of Labor Statistics.

64.0

Source: U.S. Department of Labor, Bureau of Labor Statistics.

Job Losers Unemployed
Less Than 5 Weeks

64.5

Layoffs and Initial Claims

Percent of household employment

1.8

3.0

Percent of private employment

Thousands

700
650

1.6

1.4

600

2.5
Dec.

1.2
1.0

1.2

550
2.0

Layoffs and discharges
(left scale)

Jan.
9
Nov.

1.0
1.5

0.8
0.6

0.8

2002

2004

2006

2008

2010

Note: Thick line is the 3-month moving average.
Source: U.S. Department of Labor, Bureau of Labor Statistics.

0.6

450
400
350

Initial claims
(right scale)
1.0

500

2002

300
2004

2006

2008

2010

250

Note: Data for initial claims are 4-week moving averages.
Source: For layoffs and discharges, Job Openings and
Labor Turnover Survey; for initial claims, U.S. Dept.
of Labor, Employment and Training Administration.

II-4

Labor Market Indicators

Hires and Hiring Plans

Job Openings
110

Percent

Index, 1980=100

100

4.5

4.0
3.5

2.0

1.5

0
-5

0.5

-10

4.5

4.0

70
60

Nov.

Composite
Help Wanted
Index** (left scale)

50
40

Dec.

30
20

2000

2002

2004

2006

2008

2010

Duration of Unemployment
Weeks

Nov.

Hiring plans**
(left scale, 3-month moving average)

3.5

Dec.
3.0

2000

2002

2004

2006

2008

2010

2.5

*Percent of private employment.
**Percent planning an increase in employment minus
percent planning a reduction. Seasonally adjusted by
FRB staff.
Source: For hires, Job Openings and Labor Turnover Survey;
for hiring plans, National Federation of Independent Business.

*Percent of private employment plus job openings.
**Index of staff composite help-wanted advertising as a percent
of payroll employment.
Source: For job openings, Job Openings and Labor Turnover
Survey; for Composite Help Wanted Index, Conference Board
and staff calculations.

5.0

1.0

3.0

Job openings*
(right scale)

Percent
Hires*
(right scale)

2.5

Percent

Insured Unemployment
Percent of unemployed

45
40

Millions

11
10

Dec.
35

10
Dec.
26
9

9
8

Mean (left scale)
20

Long-term unemployed*
(right scale)

2000

2002

2004

2006

2010

5
Jan.
2

4
3

10
2008

Incl. extended and
emergency benefits

Regular state programs
2000

2002

2004

2006

2
2008

2010

*Unemployed more than 26 weeks.
Source: U.S. Dept. of Labor, Bureau of Labor Statistics.

Expected Labor Market Conditions

Percent

Index

150

110
105

40
35

Note: 4-week moving averages.
Source: U.S. Dept. of Labor, Employment and Training
Administration.

Job Availability and Hard-to-Fill Positions
45

130

Index

Index
Conference Board
(left scale)

110

100

110

Dec.

Job availability*
(right scale)

120

100

90
Jan.
(p) 80

25
20
15
10
5

75
50
Hard-to-fill**
(left scale, 3-month moving average)

Dec.
30

Reuters/Michigan
(right scale)

50
40

60
2000
2002
2004
2006
2008
2010
*Proportion of households believing jobs are plentiful, minus
the proportion believing jobs are hard to get, plus 100.
**Percent of small businesses surveyed with at least one
"hard-to-fill" job opening. Seasonally adjusted by FRB staff.
Source: For job availability, Conference Board; for hardto-fill, National Federation of Independent Business.

2000
2002
2004
2006
2008
2010
Note: The proportion of households expecting labor
market conditions to improve, minus the proportion expecting
conditions to worsen, plus 100.
p Preliminary.
Source: Conference Board; Reuters/University of Michigan
Surveys of Consumers.

II-5

The slower rise in the unemployment rate since midyear primarily reflects a moderation
in layoffs rather than an improvement in hiring. Both the number of new job losers and
initial claims for unemployment insurance have fallen over the past several months. The
rate of layoffs and discharges as measured in the November Job Openings and Labor
Turnover Survey (JOLTS) has also moved down from its highs last winter, but its
progress has been more erratic.

In contrast, hiring conditions remain weak. Measures of job openings and hiring in the
JOLTS were little changed, on net, between April and November, and, although helpwanted advertising and survey-based indicators of hiring plans rebounded a bit in
December, they remain near the depressed levels seen throughout 2009. As a result, the
average length of ongoing unemployment spells has risen steeply, and joblessness has
become increasingly concentrated among those out of work for more than 26 weeks.
Indeed, as of December, 40 percent of unemployed persons have been unemployed for
more than half a year, up from 23 percent one year earlier. Rising unemployment
duration is also reflected in the increasing share of total claimants for unemployment
insurance who are receiving extended or emergency benefits. Although the number of
persons receiving unemployment insurance benefits through regular state programs has
been declining for some time, the total number of individuals receiving unemployment
insurance—including extended and emergency benefits—has continued to climb.
Most other indicators of the labor market—such as the number of firms reporting hard-tofill positions in the NFIB survey and individuals’ perceptions of current job availability
from the Conference Board survey—remain weak. However, households’ expectations
of future labor market conditions have rebounded a bit recently.
We estimate that output per hour of all persons in the nonfarm business sector rose at an
annual rate of 7.1 percent in the third quarter—as hours declined sharply and output
expanded—following a similarly large increase in the second quarter. Over the four
quarters ending in the third quarter of 2009, labor productivity is estimated to have
increased 3.7 percent. Despite the outsized productivity gains, wage increases have been
quite subdued. Average hourly earnings rose 0.2 percent again in December, bringing the
12-month change to 2¼ percent, noticeably lower than the nearly 4 percent rise seen over
2008.

II-6

Hourly Compensation and Unit Labor Costs

(Percent change from preceding period at compound annual rate; based on seasonally adjusted data)

Category

2007:Q3 2008:Q3
to
to
2008:Q3 2009:Q3e

2008

2009

Q3 e

Compensation per hour
Nonfarm business

3.1

2.5

2.9

-4.7

6.9

5.4

Output per hour
Nonfarm business

1.2

3.7

6.9

7.1

Unit labor costs
Nonfarm business

1.9

-1.2

2.0

-5.0

-1.6

e Staff estimate.
Source: U.S. Dept. of Labor, Bureau of Labor Statistics.

Compensation per Hour

Unit Labor Costs

(Percent change from year-earlier period)

(Percent change from year-earlier period)
Percent
10

10
8

Percent

-2

-4

Productivity and costs*

2
0

ECI

1996 1998 2000 2002 2004 2006 2008 2010
1997 1999 2001 2003 2005 2007 2009
*Value for 2009:Q3 is a staff estimate.
Source: U.S. Dept. of Labor, Bureau of Labor Statistics.

-2

1996 1998 2000 2002 2004 2006 2008 2010
1997 1999 2001 2003 2005 2007 2009
Source: U.S. Dept. of Labor, Bureau of Labor Statistics.

-4

Markup, Nonfarm Business

Average Hourly Earnings
(Percent change from year-earlier period)
5

Percent

Ratio

1.72

1.68

1.64

1.60

1.56

1.52

Dec.

1
0

1996 1998 2000 2002 2004 2006 2008 2010
1997 1999 2001 2003 2005 2007 2009
Source: U.S. Dept. of Labor, Bureau of Labor Statistics.

Average,
1968-present
1996 1998 2000 2002 2004 2006 2008 2010
1997 1999 2001 2003 2005 2007 2009
Note: The markup is the ratio of output price to unit
labor costs. Value for 2009:Q3 is a staff estimate.
Source: For output price, U.S. Dept. of Commerce, Bureau
of Economic Analysis; for unit labor costs, U.S. Dept. of Labor,
Bureau of Labor Statistics.

1.72
1.68

1.56
1.52

II-7

Industrial Production
Expansion in the industrial sector was well maintained in the fourth quarter. Industrial
production (IP) rose 0.6 percent in December, the sixth consecutive increase since its
trough last June. The gain in December primarily resulted from a jump in output at
electric and natural gas utilities due to unseasonably cold weather. In manufacturing,
production edged down last month but advanced at an annual rate of 5¾ percent in the
fourth quarter as a whole after having increased 9 percent in the third quarter. The
increases in manufacturing IP in the second half of 2009 reflected the ongoing recovery
in motor vehicle output, rising export demand, and a slower pace of business inventory
liquidation.
The factory operating rate in December, at 68.6 percent, was 3 percentage points above
its June trough, though it was still 11 percentage points below its average for the period
from 1972 to 2008.
Production of light motor vehicles edged down in December. Nonetheless, the average
pace for the fourth quarter as a whole, at 6.9 million units, was ½ million units above the
pace in the third quarter. Dealer inventories expanded moderately in the fourth quarter
after having contracted sharply in each of the three previous quarters. Days’ supply
moved up to 53 days at the end of the fourth quarter, a level still well below the industry
target of about 65 days. Accordingly, manufacturers’ assembly plans suggest that light
motor vehicle production will rise further in the first quarter of 2010, to an annual rate of
7.3 million units.
Elsewhere in the transportation sector, commercial aircraft production increased at an
annual rate of 5½ percent in the fourth quarter. Boeing’s 787 Dreamliner, which had its
maiden test flight in December after more than two years of delays, should provide a
boost to commercial aircraft production starting late this year.
Production in high-tech industries posted a modest increase of 5½ percent in the fourth
quarter. Since mid-2009, domestic semiconductor manufacturers have benefited from
strong foreign demand for high-tech products—such as personal computers and cell
phones—that use domestically produced chips. However, with inventories currently lean
and with utilization rates at semiconductor factories at high levels, the industry may have
trouble promptly meeting further increases in demand. 1 Domestic demand for high-tech
1

Indeed, shortages of components reportedly delayed delivery of computers by a major manufacturer
over the holiday season, and spot market prices for some key semiconductors remain elevated.

II-8

Selected Components of Industrial Production
(Percent change from preceding comparable period)

Component

Proportion
2009
(percent)

20091

2009
Q3

2009
Q4

Oct.

Annual rate
Total
Previous

Nov.

Dec.

Monthly rate

100.0
100.0

-4.5
...

6.9
6.1

7.0
...

.2
.0

.6
.8

.6
...

Manufacturing
Ex. motor veh. and parts

79.0
74.5

-4.8
-4.7

9.0
5.3

5.7
4.9

-.1
.0

.9
.9

-.1
-.1

Mining
Utilities

10.6
10.4

-5.8
-1.8

5.8
-5.3

7.5
15.2

.0
2.6

1.9
-2.4

.2
5.9

Selected industries
Energy

23.9

-3.2

-1.6

11.5

1.4

-.9

3.1

High technology
Computers
Communications equipment
Semiconductors2

4.2
1.0
1.3
1.8

-3.7
-10.5
-5.1
1.8

9.2
10.6
-12.2
31.8

5.5
2.7
1.4
10.6

.9
.4
1.5
.6

.1
.8
.5
-.7

2.4
1.2
2.9
2.7

Motor vehicles and parts

4.5

-7.4

123.2

22.9

-2.4

1.5

-.1

Aircraft and parts

2.3

10.9

8.6

3.9

-.6

-.5

1.4

Total ex. selected industries3
Consumer goods
Durables
Nondurables

65.1
20.7
3.5
17.1

-5.7
-1.9
-9.6
-.4

5.2
2.3
1.9
2.4

4.9
4.6
.8
5.3

.0
.3
.4
.3

1.1
.4
1.1
.3

-.2
-.2
-1.4
.0

Business equipment
Defense and space equipment

6.6
1.1

-12.0
2.2

.0
16.6

1.3
-5.4

.6
-1.8

-.7
-.9

.5
-1.6

Construction supplies
Business supplies

4.8
7.3

-13.7
-8.5

1.8
1.2

-7.6
3.2

-1.6
.0

1.5
1.4

-2.1
-.8

24.6
12.4
12.2

-5.0
-13.0
3.1

11.0
11.3
10.8

9.9
9.2
10.5

.0
.1
-.1

2.1
1.5
2.6

.2
.4
.0

Materials
Durables
Nondurables

1. From fourth quarter of preceding year to fourth quarter of year shown.
2. Includes related electronic components.
3. Includes manufactured homes (not shown separately).
... Not applicable.
Source: Federal Reserve, G.17 Statistical Release, "Industrial Production and Capacity Utilization."

Capacity Utilization
(Percent of capacity)

19722008
average

199495
high

200102
low

Nov.

Dec.

Total industry

80.9

84.9

73.5

68.7

70.1

71.5

72.0

Manufacturing
Mining
Utilities

79.6
87.6
86.8

84.5
89.1
93.3

71.4
84.9
84.2

65.4
81.8
79.6

67.1
83.2
78.2

68.3
85.0
80.6

68.5
85.5
78.4

68.6
85.7
82.9

Stage-of-process groups
Crude
Primary and semifinished
Finished

86.6
82.0
77.7

89.9
87.9
80.3

81.7
74.3
70.0

79.6
66.2
67.1

82.5
67.1
68.6

85.2
68.3
69.9

85.6
68.2
69.9

86.1
68.9
70.2

Sector

2009

Source: Federal Reserve, G.17 Statistical Release, "Industrial Production and Capacity Utilization."

II-9

Indicators of Industrial Activity

IP Diffusion Index

Utilities Output

Index

2002 = 100
125

100
90

Electricity

+ Jan.
Dec.

115

80
70

105

Dec.

60
50

40
30

Natural gas

20
10

2002 2003 2004 2005 2006 2007 2008 2009 2010
+January value for electricity generation is based on weekly
generation data from the Edison Electrical Institute (EEI).
Source: EEI; Federal Reserve, G.17 Statistical Release, "Industrial
Production and Capacity Utilization."

1998
2000
2002
2004
2006
2008
2010
Note: The diffusion index equals the percentage of series
that increased relative to 3 months earlier plus one-half the
percentage that were unchanged.
Source: Federal Reserve Board, G.17 Statistical Release,
"Industrial Production and Capacity Utilization."

Manufacturing Capacity Utilization

3-Month Changes in Months’ Supply
Diffusion index

Percent
90

100

60
Dec.

120

Dec.

20
0

2000
2002
2004
2006
2008
2010
Note: The diffusion index equals 50 plus one-half the share of
industries whose months’ supply is up relative to 3 months earlier
minus one-half the share of industries whose months’ supply is
down relative to 3 months earlier.
Source: Staff’s flow-of-goods system.

0.8
10

Autos and light trucks
(right scale)

0.5

Dec.
Jan.

Medium and heavy trucks
(left scale)

2002 2003 2004 2005 2006 2007 2008 2009 2010
+ January values are based on latest industry schedules.
Source: Ward’s Communications.

70
60
50
40

0.1
0.0

Jan.

0.3
0.2

Philadelphia
New York
ISM

0.4

Diffusion index
14

0.9

0.6

1998
2000
2002
2004
2006
2008
2010
Note: Horizontal line is 1972-2008 average.
Source: Federal Reserve Board, G.17 Statistical Release,
"Industrial Production and Capacity Utilization."

Millions of units

1.0

0.7

New Orders: ISM, FRB New York, and
FRB Philadelphia Surveys

Motor Vehicle Assemblies
Millions of units

10
2006
2007
2008
2009
2010
Note: The diffusion index equals the percentage of respondents
reporting greater levels of new orders plus one-half the percentage
of respondents reporting that new orders were unchanged.
Source: Institute for Supply Management (ISM); Federal Reserve.

Note: The shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research (NBER). The vertical
lines represent the last business cycle peak as defined by the NBER.

II-10

Production of Domestic Light Vehicles

(Millions of units at an annual rate except as noted)
2009
Item

2010
Q4

2009
Sept.

Oct.

Nov.

Dec.

U.S. production1
Autos
Light trucks

4.4
1.9
2.5

6.4
2.5
3.9

6.9
2.8
4.1

7.3
3.0
4.3

7.2
2.8
4.3

6.8
2.9
4.0

7.1
2.7
4.3

6.9
2.8
4.1

Days’ supply2
Autos
Light trucks

70
78
64

50
46
55

53
51
55

n.a.
n.a.
n.a.

63
59
66

57
56
58

55
54
55

52
48
55

Inventories3
Autos
Light trucks

1.63
.82
.81

1.38
.63
.75

1.44
.65
.79

n.a.
n.a.
n.a.

1.38
.63
.75

1.46
.66
.79

1.48
.67
.81

1.44
.65
.79

4.5

6.5

7.1

7.5

7.3

7.0

7.2

7.1

Memo: U.S. production,
total motor vehicles4

Note: FRB seasonals. Components may not sum to totals because of rounding.
1. Production rates for the first quarter of 2010 reflect the latest industry schedules.
2. Quarterly values are calculated with end-of-period stocks and average reported sales.
3. End-of-period stocks.
4. Includes medium and heavy trucks.
n.a. Not available.
Source: Ward’s Communications.

Inventories of Light Vehicles
Millions of units
3.5
3.0
2.5
2.0
1.5

Dec.

1.0
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0.5

2010

Source: Ward’s Communications. Adjusted using FRB seasonals.

Days’ Supply of Light Vehicles
Days
110
100
90
80
70
60
Dec.

50
40
30

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: Constructed from Ward’s Communications data. Adjusted using FRB seasonals.

2007

2008

2009

2010

II-11

Indicators of High-Tech Manufacturing Activity

Worldwide Shipments of Personal Computers
and of Cell Phones

High-Tech Exports
Billions of dollars, annual rate

Millions of units
160

Millions of units
400

1400

3-month moving average
150

800

120

600

110

400

100

Nov.

200

1000

130

Cell phones (left scale)

1200

140

350
300
250
200

Personal computers (right scale)

150

2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: Includes semiconductors and related equipment,
communications equipment, and computers and peripherals.
Source: U.S. International Trade Commission.

100
50
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: FRB seasonals.
+ Q4 cell phone units are a Gartner forecast.
Source: IDC (personal computers); Gartner (cell phones).

Import Penetration of
Computer and Peripheral Equipment

High-Tech Inventories
Billions of dollars

Percent
36

100
3-month moving average

Nov.
80

30
28

26
Nov.

24
50

22
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: Includes semiconductors and related equipment,
communications equipment, computers and peripherals, and
magnetic and optical media.
Source: U.S. Census Bureau.

Circuit Board Orders and Shipments

1998
2000
2002
2004
Source: FRB staff calculation.

2006

2008

2010

MPU Shipments and Intel Revenue
Billions of dollars

Billions of dollars, ratio scale
140

11.0

Orders

+ Q1

130
120
110

Intel revenue

+ Q4

100

7.0

Nov.
80

Worldwide MPU shipments

6.5
6.0

70
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: U.S. and Canadian orders and shipments of bare and
loaded circuit boards.
Source: IPC.

10.0
9.5
9.0
8.5
8.0
7.5

90
Shipments

2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: FRB seasonals. MPU is a microprocessor unit. MPU
shipments are a quarterly sum.
+ Q4 MPU shipments are based on October and November.
+ Q1 Intel revenue is the midpoint of the range given by the
company’s guidance as of January 14, 2010.
Source: Intel; Semiconductor Industry Association.

5.5

II-12

products has also been improving, but the effect on domestic production—particularly of
computers—has been limited by rising import penetration.
Looking ahead, available indicators suggest solid increases in high-tech production in the
first quarter. Orders for circuit boards were above shipments for a fourth consecutive
month in November and point to continued gains in the semiconductors and related
electronic components industry. Revenue guidance from Intel suggests further increases
in microprocessor production in the current quarter. Forecasts from outside consultancies
as well as corporate comments from IBM, Seagate, Micron, and key telecommunications
service providers are consistent with rising output for computers and communications
equipment in the near term.
Outside of energy, motor vehicles and parts, aircraft and parts, and high-technology
industries, production decreased ¼ percent in December after large and widespread gains
in November. The output of consumer goods, business equipment, and materials rose in
the fourth quarter, though the average monthly gains in these categories were a little
smaller than in the third quarter. In contrast, the output of construction supplies fell in
the fourth quarter after having edged up in the third quarter.
The available near-term indicators of production suggest that IP will continue to increase
in the coming months. The new orders diffusion index from the national ISM survey
jumped in December to a level consistent with sizable near-term increases in
manufacturing output, while the new orders indexes from the regional manufacturing
surveys are suggestive of more-modest production gains. The three-month moving
average of the staff’s series on real orders for durable goods (adjusted to exclude
industries for which reported orders have little information content for predicting
shipments) rose in November and was consistent with a moderate gain in manufacturing
output in coming months. In the first reading on January activity, the new orders index
from the Empire State survey reversed most of its decline from the previous month.
Consumer Spending
Consumer spending continued to trend up through the end of last year. Real PCE rose
0.3 percent in November, putting it on track to increase at an annual rate of more than
2 percent in the second half of the year. Still, overall spending remained well below its
pre-recession level. Smoothing through the sharp movements in income and spending
caused by various stimulus programs, the saving rate, at 4.7 percent in November, was
little changed over 2009 following a sharp increase in 2008.

II-13

Real Personal Consumption Expenditures

(Percent change from preceding comparable period)
Category
Total real PCE
Motor vehicles
Goods ex. motor vehicles
Services
Ex. energy
Memo:
Real PCE control1
Nominal retail control2

2009
Q3
Q4e
Annual rate

Oct.e

2009
Nov.e
Dec.e
Monthly rate

-.9

2.8

n.a.

-6.3
-2.8
.2
.7

53.7
3.8
.8
.8

-21.7
5.6
n.a.
n.a.

9.8
.1
.2
.1

2.0
.9
.0
.1

5.3
-.2
n.a.
n.a.

-2.5
-2.8

3.2
1.4

5.6
5.2

.2
.2

.8
.8

-.3
-.3

1. Durables excluding motor vehicles, nondurables excluding gasoline, and food services.
2. Total sales less outlays at building material and supply stores, automobile and other
motor vehicle dealers, and gasoline stations.
e Staff estimate.
n.a. Not available.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Change in Real PCE Goods
Percent

0.8

0.4

Dec.

2.0

Percent

2.8

0.6

0.8

0.4

0.2
-0.0

1.2

0.2

-0.2

6-month moving average

2.0

6-month
moving average

-0.0

0.4

1.2
Dec.

-0.4
-1.2

-0.4

-0.6

-0.6
-0.8

0.4
-0.4

Monthly

-1.2

-2.0

-0.8

2.8

-2.8

-2.0

-2.8
2006 2007 2008 2009 2010
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Note: The shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research (NBER). The vertical line
represents the last business cycle peak as defined by the NBER.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Change in Real PCE Services
Percent

0.5

0.4

0.3

0.2

6-month
moving average

0.6

0.3

0.2

Percent

0.6

0.1

6-month moving average

Nov.

0.1

0.0

-0.1

0.4

0.2

0.2
Nov.

0.0

-0.1

0.4

-0.2

Monthly

-0.2

-0.2
-0.4
-0.4
2006 2007 2008 2009 2010
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Note: The shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research (NBER). The vertical line
represents the last business cycle peak as defined by the NBER.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

II-14

Sales of Light Vehicles

(Millions of units at an annual rate; FRB seasonals)
2009
Category

2009

Total

Oct.

Nov.

Dec.

10.3

9.6

11.5

10.8

10.4

10.9

11.2

Autos
Light trucks

5.4
4.9

4.9
4.7

6.4
5.1

5.7
5.2

5.4
5.0

5.6
5.3

5.9
5.3

North American1
Autos
Light trucks

7.6
3.6
4.0

7.1
3.2
3.9

8.4
4.2
4.2

8.2
3.9
4.4

7.9
3.7
4.2

8.3
3.8
4.5

8.6
4.1
4.4

Foreign-produced
Autos
Light trucks

2.7
1.8
.9

2.4
1.6
.8

3.1
2.1
.9

2.6
1.8
.8

44.7

46.8

43.1

45.0

44.8

44.9

45.3

Memo:
Detroit Three
market share (percent)2

Note: Components may not sum to totals because of rounding.
1. Excludes some vehicles produced in Canada that are classified as imports by the industry.
2. Includes domestic and foreign brands affiliated with the Detroit Three.
Source: Ward’s Communications. Adjusted using FRB seasonals.

Content redacted.

Car-Buying Attitudes
Percent
110
Appraisal of car-buying conditions (right scale)
100

Average Value of Incentives on Light Vehicles
180

Current dollars per vehicle, ratio scale
3000

160

2600

Index

140
Jan.
(p)

80
70

2200

120
Jan.
10

100
60

Good time to buy: low prices
(left scale)

Jan.
(p)

80
1400
60
40

30
20

1800

2002

2004

2006

2008

2010

p Preliminary.
Source: Reuters/University of Michigan Surveys of Consumers.

2004

2005

2006

2007

2008

2009

2010

1000

Note: Weekly weighted average of customer cash rebate
and the present value of interest rate reduction.
Source: J.D. Power and Associates. Adjusted using FRB seasonals.

II-15

Fundamentals of Household Spending
Household Net Worth
and Dow Jones Total Market Index
18000

Change in Real Disposable Personal Income

Index

Ratio

7.0

12-month percent change

6
15400

Ratio of household
net worth to DPI*
(right scale)

12800

6.0
Jan. 19
5.5

6.5

2
Nov.

10200

1
Total Market Index
(left scale)

5.0

5000

4.5

1999
2001
2003
2005
2007
2009
* The value for 2004:Q4 excludes the effect on income of
the one-time Microsoft dividend in December 2004.
Source: Federal Reserve Board; U.S. Department of
Commerce, Bureau of Economic Analysis; Wall Street Journal.

4.0

-1

-2

7600

-2

-3

-3
1999
2001
2003
2005
2007
2009
Note: Values for December 2004 and December 2005
exclude the effect on income of the one-time Microsoft dividend
in December 2004.
Source: U.S. Department of Commerce, Bureau of
Economic Analysis.

Target Federal Funds Rate
and 10-Year Treasury Yield

Personal Saving Rate
Percent

Nov.

Percent

6
Treasury
yield

4
4

1
0

0
-1

Federal
funds
rate

1999
2001
2003
2005
2007
2009
Note: The value for December 2004 excludes the effect
on income of the one-time Microsoft dividend in that month.
Source: U.S. Department of Commerce, Bureau of
Economic Analysis.

1
Jan. 19

0
-1

1999
2001
2003
2005
Source: Federal Reserve Board.

2007

2009

Consumer Confidence
1985 = 100

1966 = 100

170

115

Reuters/
Michigan
(right scale)

150

105

130

110

90
70
50

Conference Board
(left scale)

Jan.
(p)
Dec.

75
65
55

35
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Note: The shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research (NBER). The vertical line
represents the last business cycle peak as defined by the NBER.
p Preliminary.
Source: Reuters/University of Michigan Surveys of Consumers; Conference Board.

II-16

The available data for spending in December have been mixed. Given the retail sales
report and the CPI, we estimate that real PCE control (goods excluding motor vehicles
and gasoline, plus food services) declined 0.3 percent in December after increasing at a
solid average monthly rate of 0.6 percent in the four previous months. However, the
dropback in spending in December may have partly reflected transitory factors, such as
the unusually cold weather and a major winter storm the weekend before Christmas, as
well as an apparent ongoing shift in the timing of holiday purchases. 2
In contrast, sales of light vehicles rose to an annual rate of 11¼ million units in
December. Smoothing through the ups and downs related to the “cash for clunkers”
program, the underlying demand for light vehicles appears to have improved in the fourth
quarter. Although consumer attitudes toward car-buying conditions and incentives at
automakers were little changed in early January, a preliminary estimate from J.D. Power
and Associates suggests that sales this month have been running below the pace in
December.
The fundamental determinants of household spending strengthened modestly, on balance,
near the end of the year but were still marked by general weakness. Real disposable
personal income (DPI) rose 0.2 percent in November. Over the past year, real DPI likely
increased about 1½ percent, with most of this modest gain stemming from fiscal stimulus.
Equity prices continued to advance solidly in recent weeks, while house prices edged
down in November. Although household balance sheets have improved considerably
since last winter, household net worth from mid-2007 to present has still experienced a
loss equivalent to nearly 1½ years of household income. Measures of consumer
sentiment have held steady, on net, since the summer at levels that are much improved
from those early last year. Despite the improvement, sentiment remains at low levels by
historical norms. Similarly, while credit conditions for auto loans have improved
significantly since midyear, terms and standards on other consumer loans, particularly on
credit cards, remain very tight.

In recent years, spending appears to have gradually shifted from the fourth quarter to the first quarter,
perhaps because of deep post-holiday discounting or the increased use of gift cards. Because the seasonal
factors will be slow to incorporate this shift, the seasonally adjusted retail sales data will be held down
somewhat in December but boosted in January.

II-17

Housing
The recovery in the housing market slowed in the second half of 2009. Sales of new
single-family homes in November were 15 percent below their pace in July after having
risen 27 percent in the preceding six months. Moreover, although sales of existing
single-family homes shot up 25 percent from July to November, the plunge in the
pending home sales index in November suggests that much of this increase was
transitory, possibly reflecting sales that were pulled forward ahead of the anticipated
expiration of the first-time homebuyer tax credit. 3 On net, the pending home sales index
rose only 5 percent from May to November, compared with a 10 percent increase in the
previous six months.
The slowdown in sales notwithstanding, a number of factors supported housing demand
in the second half of the year. Interest rates for conforming 30-year fixed-rate mortgages
were very low by historical standards and remained low through mid-January. Although
the repeat-sales price index for existing single-family homes calculated by
LoanPerformance edged down in November, it still stood 4 percent above its trough in
March—a marked change from the 22 percent decline over the 12 months ending in
March. In addition, in the Reuters/University of Michigan Surveys of Consumers for
early January, the number of respondents who expected house prices to increase over the
next 12 months continued to exceed the number of respondents who expected prices to
decrease.
Similar to the pattern of new home sales, starts of single-family homes retreated a little
from June to December after advancing briskly last spring. According to anecdotal
reports in the Beige Book
, loans for
acquisition, development, and construction became more difficult to obtain in the fall,
which may have contributed, in part, to the deceleration in construction activity.
However, adjusted permit issuance in this sector rose in December to a level not seen
since September 2008, signaling an upturn in starts in the near term. In the much smaller
multifamily sector—where credit conditions are very tight and vacancies are elevated—
starts deteriorated a bit further, on balance, in the second half of the year.
Although the pace of new home sales is still modest, it has been ample enough, given the
slow pace of construction, to reduce further the overhang of unsold new single-family
3

In November, the Congress extended the first-time homebuyer tax credit by six months and expanded
it to include repeat homebuyers who have owned and occupied a house for at least five of the past eight
years.

11-18

Content partially redacted.

Indicators of Single-Family Housing
Inventories of New Homes
and Homeowner Vacancy Rate

New Single-Family Home Sales
Millions of units
_ (annual rate)
16
1.4

600
550

Total (left scale)

Percent

Thousands of units
Inventories of new homes
(left scale)

2.75
2.50

500

1.2

2.25

450
1.0
400

2.00

0.8
350
0.6

1.75

300

0.4

1.50

250
200
Source: For total, Census Bureau;

Note: Homeowner vacancy rate is seasonally adjusted
by Board staff.
Source: Census Bureau.

Existing Single-Family Home Sales
Millions of units
_ (annual rate)
65

Mortgage Rates

Index (2001=100)

Percent

140

7.5

130

6.0
Nov.
5.5
5.0

1.25

120
110
100

Pending home sales
(right scale)

4.5

80
4.0

3.5 ..................................... .........................2~0·0·6......................... ..........................2~0·1·0....... 60
2~00~4
2~00~8
2002
Source: National Association of Realtors.

Note: 2-week moving average.
Source: Federal Home Loan Mortgage Corporation.

Prices of Existing Homes

House Price Expectations
Index, 2000 = 100
240

LP price index
Monthly FHFA purchase-only index
20-city S&P/Case-Shiller monthly price index

220

Diffusion index

Jan. (p)

80
60
40

200

20
180

Jan. (p)

160
-20
140

-40

120

-60

~2~0~0~2................."""'""!!2~00~4
.......................2~0~0~6................."""'""!!2~00~8~.................2~0~1~0....... 100

....__2~00_7__.~....___.._2_0.0-8----~---------2-0~09__.~....___.._2_0 10-80
.......

Note: LP and S&P/Case-Shiller are seasonally adjusted
by Board staff. FHFA is re-indexed to 2000.
Source: For FHFA, Federal Housing Finance Agency;
for S&P/Case-Shiller, Standard & Poor's; for LP,
LoanPerformance, a division of First American CoreLogic.

Note: Diffusion index is constructed by subtracting
expectations of decrease from expectations of increase.
p Preliminary.
Source: Reuters/University of Michigan Surveys of Consumers.

II-19

Private Housing Activity

(Millions of units, seasonally adjusted; annual rate except as noted)
2009
Sector

2009

All units
Starts
Permits
Single-family units
Starts
Permits
Adjusted permits1
New homes
Sales
Months’ supply2
Existing homes
Sales
Months’ supply2
Multifamily units
Starts
Built for rent
Built for sale
Permits
Condos and co-ops
Existing home sales

Oct.

Nov.

Dec.

.55
.57

.54
.53

.59
.57

.55
.60

.52
.55

.58
.59

.56
.65

.44
.44
.44

.43
.41
.42

.50
.46
.48

.47
.48
.49

.47
.45
.46

.49
.47
.48

.46
.51
.52

n.a.
n.a.

.37
9.44

.41
7.71

n.a.
n.a.

.40
7.20

.36
7.94

n.a.
n.a.

4.24
8.80

4.65
8.05

n.a.
n.a.

5.32
6.68

5.77
6.20

n.a.
n.a.

.11
n.a.
n.a.
.14

.12
.10
.01
.12

.09
.07
.02
.11

.08
n.a.
n.a.
.12

.05
n.a.
n.a.
.10

.09
n.a.
n.a.
.12

.10
n.a.
n.a.
.15

n.a.

.52

.64

n.a.

.77

n.a.

1. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas.
2. At current sales rate; expressed as the ratio of seasonally adjusted inventories to seasonally adjusted
sales. Quarterly and annual figures are averages of monthly figures.
n.a. Not available.
Source: Census Bureau.

Private Housing Starts and Permits
(Seasonally adjusted annual rate)
Millions of units
2.0

2.0

1.8

1.8
Single-family starts

1.6

1.4

1.2

1.2
Single-family adjusted permits

1.0

.6
Dec.

.2
.0

Dec.

Multifamily starts
1999

2000

2001

2002

2003

2004

2005

2006

2007

Note: Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas.
Source: Census Bureau.

2008

2009

.0
2010

II-20

Orders and Shipments of Nondefense Capital Goods
(Percent change; seasonally adjusted current dollars)
2009
Category

Sept.

Annual rate

Oct.

Nov.

Monthly rate

Shipments
Excluding aircraft
Computers and peripherals
Communications equipment
All other categories1

-13.3
-10.1
-7.2
4.2
-11.6

3.8
2.2
.1
33.5
-.2

3.3
.5
-.1
-2.8
.9

-1.2
.5
4.0
4.0
-.2

.5
1.1
1.5
-2.7
1.4

Orders
Excluding aircraft
Computers and peripherals
Communications equipment
All other categories1

12.2
7.2
14.2
35.4
4.1

28.6
14.1
5.5
31.2
13.4

4.2
3.5
2.2
.7
4.0

2.0
-1.8
.0
-4.1
-1.7

-3.0
2.7
6.7
2.2
2.3

Memo:
Shipments of complete aircraft2

36.8

36.4

43.0

31.6

38.0

1. Excludes most terrestrial transportation equipment.
2. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate.
Source: Census Bureau.

Communications Equipment

Non-High-Tech,
Nontransportation Equipment

Billions of chained (2005) dollars, ratio scale

20
17
14

Shipments
Orders

20
17
14

Billions of chained (2005) dollars, ratio scale

59
54

Orders

8
Nov.

Nov.

2000
2002
2004
2006
2008
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: Shipments and orders are deflated by a price index
that is derived from the quality-adjusted price indexes of the
Bureau of Economic Analysis and uses the producer price
index for communications equipment for monthly interpolation.
Source: Census Bureau.

Computers and Peripherals
240
210
190

2000 = 100

Billions of chained (2005) dollars, ratio scale

21
19

960
820
680

400

Dec.
130
Real M3
shipments
(right scale)

Thousands of units, ratio scale
1240

540

150

1240

Nov.

Industrial production
(left scale)

2000
2002
2004
2006
2008
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: Shipments and orders are deflated by the staff
price indexes for the individual equipment types included
in this category. Indexes are derived from the quality-adjusted
price indexes of the Bureau of Economic Analysis.
Source: Census Bureau.

Medium and Heavy Trucks

170

110

Shipments

960
820
680

Net new orders
of class 5-8 trucks

540
Dec.

260

400
Sales of class 4-8 trucks

260

2000
2002
2004
2006
2008
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: Shipments are deflated by the staff price index for
computers and peripheral equipment, which is derived from
the quality-adjusted price indexes of the Bureau of Economic
Analysis.
Source: Census Bureau; FRB Industrial Production.

120

2000
2002
2004
2006
2008
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: Annual rate, FRB seasonals.
Source: For sales, Ward’s Communications; for orders,
ACT Research.

120

II-21

houses. The stock of unsold new homes fell again in November and is now less than half
of its peak in mid-2006; however, measured relative to the November pace of sales, the
months’ supply of new homes, which now stands at 8 months, is only about one-third
below its peak in January 2009. More broadly, the vacancy rate for homes intended for
owner occupancy (which includes both existing and completed new homes for sale),
although down from its peak in 2008, is still quite high relative to pre-2006 levels.
Equipment and Software
Real spending on equipment and software (E&S) appears to have risen robustly in the
fourth quarter after having increased at an annual rate of 1½ percent in the previous
quarter. Business outlays on transportation equipment apparently surged last quarter, and
spending outside of the transportation sector is on track to post a solid increase.
Business purchases of motor vehicles increased briskly in the fourth quarter. Although
sales of light vehicles to fleet customers fell back a bit in December, they rose in the
fourth quarter as a whole. In addition, new vehicle leases have stepped up sharply in
recent months after having plunged to a very low level in the first half of the year. 4 Sales
of medium and heavy trucks moved up in December for the fourth consecutive month.
After jumping in September and October, new orders for medium and heavy trucks fell
back, on net, in November and December; the recent volatility in orders was likely driven
by new environmental regulations on diesel engines that took effect in January 2010.
After posting a modest gain in the third quarter, spending on high-tech equipment appears
to have risen at a considerably more rapid clip in the fourth quarter. Both orders and
shipments of high-tech equipment rose markedly, on net, in October and November.
Moreover, industrial production of computers increased further in the fourth quarter.
According to a representative from Dell, the company expects continued strong spending
on computers over the next 18 months as businesses do a “rolling refresh” of an aging
computer stock.
Outside of the transportation and high-tech sectors, business investment appears little
changed in the fourth quarter. Orders and shipments increased in November, reversing
their declines in October. The increase in orders and shipments in November was
concentrated in industrial machinery.

New vehicle leases, which are included in the light vehicle sales data each month, are counted as a
business purchase in the national accounts even if the vehicle is held by a household.

II-22

Fundamentals of Equipment and Software Investment

Real Business Output
4-quarter percent change

-2

-2
Q3

-4
-6

-4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis.

User Cost of Capital

Corporate Bond Yields
4-quarter percent change

-6

Percent

Non-high-tech

10-year high-yield

12
10

Q3
-5

-5

-10

-15

High-tech
-15

1990
2000
2010
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
1995
2005
Source: Staff calculation.

Percent

10-year BBB

4
1990 1992 1994 1996 1998 2000 2002 2004 2006 20082010
1995
2000
2005
1990
2010

Surveys of Business Conditions
Percent

Credit expected to be tighter (right scale)

Note: End of month. January value as of January 15.
Source: Merrill Lynch.

NFIB: Survey on Loan Availability
20

Jan.

18
14

Dec.

10
6

Diffusion index

80
70

ISM (left scale)
Philadelphia Fed (right scale)

70
Dec.

2
8

-2

-6
4

-10
-14

0
Credit more difficult to obtain (left scale)
-4

1990
1995
2000
2005
2010
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

-18
-22

Note: Of borrowers who sought credit in the past 3
months, the proportion that reported or expected more difficulty
in obtaining credit less the proportion that reported or expected
more ease in obtaining credit. Seasonally adjusted.
Source: National Federation of Independent Business (NFIB).

1990
1995
2000
2005
2010
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: Institute for Supply Management (ISM),
Manufacturing ISM Report on Business; Philadelphia Fed
Business Outlook Survey.

Note: Shaded bars indicate a period of business recession as defined by the National Bureau of Economic Research (NBER). The vertical
lines represent the last business cycle peak as defined by the NBER.

II-23

The apparent pickup in overall equipment spending in the fourth quarter is consistent
with the trend in a variety of other indicators of business demand. In December, both the
ISM index of manufacturing activity and the Philadelphia Fed’s indicator of general
business conditions rose to their highest levels in several years. Similarly, yields on
BBB-rated corporate bonds have declined to 2006 levels. In addition, according to the
latest SLOOS, banks generally ceased tightening standards on commercial and industrial
loans but have yet to unwind the unprecedented tightening that occurred over the past two
years. Meanwhile, banks’ responses indicated that the credit quality of their outstanding
loans to small firms in the fourth quarter was worse than that of such loans to large and
middle-market firms. Those responses are consistent with reports that small businesses
are continuing to find credit difficult to obtain.
Nonresidential Construction
Conditions in the nonresidential construction sector generally remain poor. Real outlays
on structures outside of the drilling and mining sector dropped at an annual rate of
23 percent in the third quarter, and recent data on nominal expenditures through
November point to an even faster rate of decline in the fourth quarter. The weakness has
been widespread across categories and likely reflects the drag from rising vacancy rates,
plunging property prices, and difficult financing conditions for new projects. According
to the latest SLOOS, a substantial share of banks reported both tighter policies on
commercial real estate loans and weaker demand for such loans. In addition, the most
recent reading from the architectural billings index remained at levels consistent with
further declines in spending in the first half of this year.
Following a steep drop in the first half of the year, real spending on drilling and mining
structures rose at an annual rate of about 9 percent in the third quarter. Increases in the
number of drilling rigs in operation and footage drilled point to a similar expansion in the
fourth quarter. The upturn in investment in this sector was stimulated by a rebound in oil
prices.
Business Inventories
The pace of real business inventory liquidation appears to have decreased considerably in
the fourth quarter. Information from the motor vehicle sector indicates that auto dealers
added to their stocks last quarter. In addition, after three quarters of sizable declines, real
nonfarm inventories excluding motor vehicles ran off at a more modest pace in October,
and book-value data for this category suggest that inventories may have increased in real
terms in November. Although the book-value data for October and November received a

II-24

Nonresidential Construction and Indicators
(All spending series are seasonally adjusted at an annual rate; nominal CPIP deflated by
BEA prices through Q4 and by staff projection thereafter)

Office, Commercial,
Communication, and Other

Total Structures
Billions of chained (2005) dollars

380

380
360

100

340

90
80

320

Billions of chained (2005) dollars

120
110

360

100
Other

300
Nov.

280

2000

2002

2004

2006

2008

2010

240

2000

2002

2004

2006

70
65

20
10
2008

2010

Nov.
Power

Number

Millions of feet

60
55
50

2000
1800

Footage drilled
(left scale)

40
35

25
20
15

Drilling rigs
in operation
(right scale)

Nov.

2008

2010

1000
800

2008
2010
2000
2002
2004
2006
Note: The January readings for drilling rigs are based on
data through January 15, 2010. Both series are seasonally
adjusted by FRB staff.
Source: For footage drilled, U.S. Department of Energy,
Energy Information Agency; for drilling rigs, Baker Hughes.

Percent

3.0
2.5

Office

15
Q4 (p)
Industrial

Percent

Diffusion index

Billings (right scale)

55
50

1.5
12

1.0

Dec.

9
Retail

-0.5
-1.0

Change in
employment (left scale)

35
Dec.

2004

2006

2008

Note: Industrial space includes both manufacturing
structures and warehouses.
p. Preliminary.
Source: Torto Wheaton Research.

2010

-1.5
25

-2.0
2002

45
40

0.0
9

2.0

0.5

2000

400

Architectural Billings and
Nonresidential Construction Employment

1200

600

Vacancy Rates

Jan.

Source: Census Bureau.

1600
1400

20
15

2006

2600
2200

40
35

2004

2400

2002

Drilling and Mining Indicators

Manufacturing

2000

50
40

Note: Other consists of structures for religious organizations,
education, lodging, amusement and recreation, transportation,
and health care.
Source: Census Bureau.

Billions of chained (2005) dollars

55
50

Nov.
Communication

20
10

Manufacturing and Power

70
65

Office

Source: Census Bureau.

Commercial

50
40

260

260
240

280

90
80
70

60
300

120
110

-2.5

2000
2002
2004
2006
2008
2010
Note: Both series are 3-month moving averages.
Employment consists of industrial, commercial, and specialty
trade construction.
Source: For billings, American Institute of Architects; for
employment, U.S. Department of Labor, Bureau of Labor
Statistics.

II-25

Nonfarm Inventory Investment

(Billions of dollars; seasonally adjusted annual rate)
2009
Measure and sector

-114.9
-63.6
-51.3

-163.1
-48.1
-115.1

-141.4
-4.6
-136.9

Manufacturing and trade ex. wholesale
and retail motor vehicles and parts
Manufacturing
Wholesale trade ex. motor vehicles & parts
Retail trade ex. motor vehicles & parts

-49.3
-28.9
-8.8
-11.6

-110.9
-39.8
-52.5
-18.6

-129.3 e -166.3
-55.3e -83.8
-51.9 e -51.2
e
-22.1
-31.2

Book-value inventory investment
(current dollars)
Manufacturing and trade ex. wholesale
and retail motor vehicles and parts
Manufacturing
Wholesale trade ex. motor vehicles & parts
Retail trade ex. motor vehicles & parts

-146.9
-81.1
-47.3
-18.6

-152.6
-66.0
-62.9
-23.7

-124.7
-49.8
-50.7
-24.2

Real inventory investment
(chained 2005 dollars)
Total nonfarm business
Motor vehicles
Nonfarm ex. motor vehicles

Sept.

Oct.

Nov.

...
...
...

-12.1e
4.3 e
-4.8e
e
-11.6

n.a.
n.a.
n.a.
n.a.

-109.2
-47.9
-34.5
-26.8

33.1
22.1
19.8
-8.8

62.9
9.0
68.5
-14.5

n.a. Not available.
... Not applicable.
e Staff estimate of real inventory investment based on revised book-value data.
Source: For real inventory investment, U.S. Dept. of Commerce, Bureau of Economic Analysis;
for book-value data, Census Bureau.

ISM Customers’ Inventories:
Manufacturing

Inventory Ratios ex. Motor Vehicles
Months

1.9
1.8

1.9

Index

1.8

Staff flow-of-goods system

1.7

1.7
Dec.

1.6

1.5

1.4

1.3

1.3
Dec.
35

Nov.
1.2

1.2
Census book-value data

1.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2000
2002
2004
2006
2008
2010
Note: Flow-of-goods system covers total industry ex.
motor vehicles and parts, and inventories are relative
to consumption. Census data cover manufacturing and
trade ex. motor vehicles and parts, and inventories are
relative to sales.
Source: Census Bureau; staff calculation.

1.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2000
2002
2004
2006
2008
Note: A number below 50 indicates inventories are "too low."
Source: Institute for Supply Management (ISM),
Manufacturing ISM Report on Business.

II-26

sizable boost from wholesale inventories of farm products that reflected an unusually
large and unusually late crop harvest, the moderation in the pace of stock liquidation
outside of the motor vehicle industry appears to have been relatively widespread. 5 Taken
together, the recent inventory data indicate that the change in inventory investment is
likely to make an appreciable contribution to the rate of change of real GDP in the fourth
quarter. The measure of months’ supply implied by the book-value data has fallen
significantly since mid-2009 and is only a little above the range observed in the year
before the recession.
The staff’s flow-of-goods inventory system, which uses industrial production data
through December, also suggests that inventories outside motor vehicles declined at a
noticeably slower pace than in the third quarter. This measure of months’ supply edged
down, on net, during the fourth quarter and has now reversed about one-half of its run-up
from mid-2008 to mid-2009. Among market groups, inventories of consumer goods
appear well-aligned with the current pace of sales, but months’ supply for equipment,
materials, and construction supplies remain elevated.
In the manufacturing ISM for December, the number of supply managers who described
their customers’ inventories as too low increased further and continued to exceed those
who described inventories as too high by a very wide margin. This reading suggests that
managers in manufacturing expect their customers to do some restocking in the coming
months. 6
Federal Government Sector
Incoming data suggest that total real purchases by the federal government decreased
moderately in the fourth quarter after having risen substantially in the preceding two
quarters. This decrease in federal expenditures reflects a marked decline in real defense
spending as indicated by the Monthly Treasury Statements through December. However,
outlays for defense tend to be volatile from quarter to quarter, and defense expenditures

Wholesale inventories of farm products rose at an annual rate of $43 billion, on average, in book
value terms in October and November after declining $6½ billion in the third quarter.
6
The question posed to purchasing managers in the ISM survey to determine whether stocks are too
high or too low does not specify the measure of sales against which respondents should compare the level
of their customers’ inventories. If the respondents currently are judging inventories against a level of
expected sales in coming months that is materially above the recent pace of sales (a plausible assumption
given the marked improvement in recent months of the ISM’s new orders index), then the low level of the
customers’ inventories measure may well be consistent with the inventory ratios in both the book-value
data and the staff’s flow-of-goods system that use the current pace of sales.

II-27

Federal Government Indicators
Total Real Federal Purchases
Percent change, annual rate

20
15

Real Defense Spending

Current
4-quarter moving average

Billions of chained (2005) dollars

700
Unified (monthly)
NIPA (quarterly)

Dec.

700

650

600

550

500

-5

450

-10

400

400
2004
2005
2006
2007
2008
2009
Note: Nominal unified defense spending is seasonally adjusted
and deflated by BEA prices. NIPA defense purchases exclude
consumption of fixed capital; Q4 is an estimate.
Source: Monthly Treasury Statement; U.S. Department of
Commerce, Bureau of Economic Analysis.

10
Q3

-10

2004
2005
2006
2007
2008
2009
Note: NIPA measure.
Source: U.S. Department of Commerce, Bureau of Economic
Analysis.

Billions of dollars

Percent of GDP

Billions of dollars (right scale)
Percent of GDP (left scale)

600
300

-300

-4

-600

-6

-900

Dec.

60
55

-10

Dec. -1200
-1500

-8

-1800

2001
2003
2005
2007
2009
Note: Adjusted for payment-timing shifts; cumulative deficit
over the previous 12 months.
Source: Monthly Treasury Statement.

Percent change from year earlier

2001
2003
2005
2007
Source: Monthly Treasury Statement.

2009

Recent Unified Federal Outlays and Receipts

Unified Outlays and Receipts

Percent of GDP

-2

-12

600

Federal Debt Held by the Public

Unified Budget Deficit
4

650

Outlays
Receipts

Oct.-Dec. 2009
20
15

5
Dec.

-5

-10

-15

-20

-20
2001
2003
2005
2007
2009
Note: Adjusted for payment-timing shifts; based on cumulative
outlays or receipts over the previous 12 months.
Source: Monthly Treasury Statement.

Function or source

Billions
of dollars

Outlays
National defense
Major transfers1
Other primary spending
Net interest

836
181
482
121
52

-3.9
2.1
16.9
-46.5
-4.4

Receipts
Individual income and
payroll taxes
Corporate income taxes
Other

488
396

-10.9
-11.6

34
58

-32.6
18.2

-348

8.0

Deficit (-)

Percent
change*

Note: Adjusted for payment-timing shifts.
* Relative to same year-earlier period. Percent change in
deficit is calculated on an absolute-value basis.
1. Includes Social Security, Medicare, Medicaid, and income
security programs.
Source: Monthly Treasury Statement.

II-28

State and Local Indicators

Real Spending on Consumption and Investment
Percent change, annual rate
12

12
Spending
4-quarter moving average

0
Q3

-3
-6

-3

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

-6

2009

Source: U.S. Dept. of Commerce, Bureau of Economic Analysis; national income and product accounts.

Net Change in Employment

Real Construction
Billions of chained (2005) dollars, annual rate

Thousands of jobs, monthly average
50

20
Q4

10
0

250

240

230

220

210

200

10
0

-10

-20

-30

-40

-50

1999

2001

2003

2005

2007

2009

-50

190

1999

2001

2003

2005

2007

2009

190

Note: Nominal CPIP deflated by BEA prices through
Q3 and by a staff projection thereafter. Observation for
Q4 is the average of October and November.
Source: Census Bureau, Construction Spending.

Source: U.S. Dept. of Labor, Bureau of Labor Statistics,
Employment Situation.

State Revenues

Local Revenues

Percent change from year earlier

Individual and
corporate income
taxes

Total
revenues

Property taxes

15
Total revenues

-5

-5
Q3

-10

-15

-20

-25

Q3
0

-5

-25

-30

1999

2001

2003

2005

2007

2009

Source: Census Bureau, Quarterly Summary of State
and Local Government Tax Revenue.

-30

-10

1999

2001

2003

2005

2007

2009

Source: Census Bureau, Quarterly Summary of State
and Local Government Tax Revenue.

-10

II-29

in the fourth quarter appeared to be below a trend level of spending that is more
consistent with what would be allowed by budget appropriations.
The unified federal budget deficit widened further in the first three months of fiscal year
2010, pushing federal debt held by the public up to around 55 percent of GDP. Receipts
were 11 percent lower in the October to December period relative to the same period a
year earlier, primarily because of the effects of continued weakness in taxable income as
well as the revenue-reducing provisions of the 2009 stimulus legislation. On the
spending side, outlays declined 4 percent in the first three months of the fiscal year
relative to the same year-earlier period. However, this decline reflected TARP-related
outlays; excluding these outlays, expenditures increased about 7 percent, boosted by both
the effects of the weak labor market on low-income support programs, such as
unemployment insurance and food stamps, and the spending from the stimulus package. 7
In all, about $285 billion in stimulus funds (about 36 percent of the total $787 billion
stimulus package) had been distributed in the form of spending increases and tax cuts by
the end of December.
State and Local Government Sector
Real purchases by state and local governments appear to have been roughly flat in the
fourth quarter. Notably, employment appeared to stabilize: The sector averaged a
modest 5,000 net new hires per month in the fourth quarter after having shed 32,000 jobs
per month in the third quarter. Meanwhile, real construction spending moved sideways
following large increases in the second and third quarters.
Despite the substantial federal aid provided by the American Recovery and Reinvestment
Act, state and local governments continue to face significant fiscal headwinds because
tax revenues are still declining. According to the Census Bureau’s Quarterly Summary of
State and Local Government Tax Revenue, total tax collections fell almost 7 percent in
the third quarter relative to the year-earlier period. Personal income tax and sales tax
receipts decreased significantly at the state level, whereas local property tax collections
rose modestly. A recent report from The Nelson A. Rockefeller Institute of Government,
based on data from 38 states in October and November, suggests that state tax revenues
continued to decline in the fourth quarter but at a more moderate pace than in the
preceding three quarters. These revenue declines have generated budget shortfalls at the
state level. The National Conference of State Legislatures reports that these shortfalls,
7

Outlays associated with the TARP were only $6 billion in the first three months of the current fiscal
year, in contrast to the $91 billion recorded in the same period last fiscal year.

II-30

Price Measures
(Percent change)

12-month change
Dec.
2008

1-month change

Annual rate
Measures

3-month change

Monthly rate

Dec.
2009

Sept.
2009

Dec.
2009

Nov.
2009

Dec.
2009

CPI
Total
Food
Energy
Ex. food and energy
Core goods
Core services
Shelter
Other services
Memo: core ex. tobacco
Chained CPI (n.s.a.) 1
Ex. food and energy 1

.1
5.9
-21.3
1.8
-.6
2.7
1.9
3.7
1.7
-.5
1.3

2.7
-.5
18.2
1.8
3.0
1.4
.3
2.9
1.5
2.8
1.5

2.5
-1.1
21.1
1.3
.9
1.4
-.1
4.0
1.1
...
...

3.3
1.2
25.8
1.3
3.2
.6
-.3
2.6
1.2
...
...

.4
.1
4.1
.0
.2
.0
-.2
.2
.0
...
...

.1
.2
.2
.1
.2
.1
.1
.2
.1
...
...

PCE prices 2
Total
Food and bev. at home
Energy
Ex. food and energy
Core goods
Core services
Housing services
Other services
Memo: core ex. tobacco
Core market-based
Core non-market-based

.6
6.7
-23.5
1.8
.0
2.5
2.4
2.5
1.8
2.1
.2

2.2
-1.5
21.0
1.5
1.4
1.5
.7
1.8
1.3
1.6
1.1

1.7
-2.8
23.2
1.0
.0
1.3
-.4
1.9
.9
1.1
.2

2.8
2.1
27.8
1.5
-.9
2.2
-.6
3.1
1.4
.8
5.3

.2
.1
4.4
.0
-.1
.1
-.1
.1
.0
.0
.1

.1
.3
.2
.1
-.1
.1
.0
.2
.1
.1
.2

PPI
Total finished goods
Food
Energy
Ex. food and energy
Core consumer goods
Capital equipment
Intermediate materials
Ex. food and energy
Crude materials
Ex. food and energy

-.9
3.2
-20.3
4.5
4.6
4.3
-2.3
2.9
-24.6
-24.1

4.4
1.1
20.1
.9
1.6
.0
3.0
-.1
12.3
28.4

.7
-5.1
8.1
.2
.2
.0
6.9
6.9
-9.3
58.8

9.5
15.0
36.6
-.5
.4
-1.5
9.0
2.3
60.9
20.5

1.8
.5
6.9
.5
.6
.4
1.4
.3
5.7
-.8

.2
1.4
-.4
.0
.1
-.1
.5
.5
1.0
5.0

1. Higher-frequency figures are not applicable for data that are not seasonally adjusted (n.s.a.).
2. PCE prices in December 2009 are staff estimates.
... Not applicable.
Source: For consumer price index (CPI) and producer price index (PPI), U.S. Dept. of Labor, Bureau of
Labor Statistics; for personal consumption expenditures (PCE), U.S. Dept. of Commerce, Bureau of
Economic Analysis.

II-31

which must be closed by the end of the current fiscal year (June 30 in most states),
collectively equal $28 billion.
Prices
Consumer price inflation in December was modest after having been boosted in recent
months by increases in energy prices. Based on our translation of the CPI and PPI, we
estimate that overall PCE prices increased 0.1 percent in December after rising ¼ percent
in November; core PCE prices are estimated to have edged up 0.1 percent in December
after remaining flat in November. For the year as a whole, we estimate that overall PCE
prices increased about 2¼ percent on a 12-month change basis, up from ½ percent in
2008; the pickup in overall inflation was the result of a rebound in energy prices. 8 Food
prices fell last year, while both core PCE prices and market-based core PCE prices
increased 1½ percent in 2009, somewhat less than in 2008.
Consumer energy prices rose ¼ percent in December and 4½ percent in November.
Gasoline prices moved up again in December, and the advance in crude oil prices since
the last Greenbook, as well as the latest available survey data, suggest that gasoline prices
increased at a faster pace in January. Over the 12 months of 2009, the PCE energy price
index advanced 21 percent, reversing most of its decline in 2008.
Food prices have turned up modestly of late. The PCE price index for food and
beverages edged up 0.1 percent in both October and November and rose 0.3 percent in
December after posting sizable declines earlier in the year. For the year as a whole,
consumer food prices fell 1½ percent after surging 6¾ percent in 2008; this pattern
largely reflects the pass-through of the huge swings in spot prices of farm commodities
over the past two years.
Excluding food and energy, PCE inflation slowed noticeably last year. Core PCE prices
rose at an annual rate of 1¾ percent in the first half of 2009, similar to the pace in 2008,
and then increased at an annual rate of only 1¼ percent in the second half. 9 This
slowdown in core inflation was concentrated in market-based components; nonmarketbased price inflation turned up briskly in the second half. Among services, the index for
8

Note that on a four-quarter change basis, we estimate that overall PCE inflation was 1¼ percent in
2009, down from 1¾ percent in 2008. The difference between the four-quarter changes and 12-month
changes reflects the effects of large price declines recorded in November and December of 2008.
9
Excluding tobacco, the deceleration in core PCE prices was steadier: After rising at an annual rate of
1¾ percent in 2008, core PCE prices excluding tobacco rose at an annual rate of about 1½ percent in the
first half of 2009 and 1 percent in the second half.

II-32

Consumer Prices
(12-month change except as noted; PCE prices in December are staff estimates)

Measures of Core PCE

PCE Prices
Percent

5
4

Dec.

3
2

PCE excluding food and energy
Market-based components
Trimmed mean

4
Total PCE

Percent

2
2

Core PCE

-1

Dec.
Nov.

-1

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

-2

CPI and PCE excluding Food and Energy
4

Percent

5
4

PCE Goods and Services

Percent

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: For trimmed mean, Federal Reserve Bank of
Dallas; for all else, U.S. Dept. of Commerce, Bureau of
Economic Analysis.

CPI

3
2

3
Services ex. energy

2
Dec.

Dec.
PCE

CPI
chained

Dec.

-1
-2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: For CPI, U.S. Dept. of Labor, Bureau of Labor
Statistics; for PCE, U.S. Dept. of Commerce, Bureau of
Economic Analysis.

-3

Total PCE

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

-3

PCE excluding Food and Energy
Percent

-1
Goods ex.
food and energy

Percent

3-month change, annual rate
3-month change, annual rate

-3

-6

-3

Dec.
0

-9

Dec.

1
0

-6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

0
-1

-1

-9

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

-2

II-33

Energy and Food Price Indicators
(Data from U.S. Department of Energy, Energy Information Administration, except as noted)

Gasoline Price Decomposition

Total Gasoline Margin
180

Cents per gallon
Retail price less average spot crude price*

180

160

140

Cents per gallon

450
400

400

350
300

450

350
Retail price*
Rack price

300
Jan. 18

120

250

100

Jan. 18 100

200

150

80
60

2005
2006
2007
2008
2009
2010
* Regular grade seasonally adjusted by FRB staff,
less average spot crude price: 60% West Texas Intermediate,
40% Maya heavy crude. Includes gasoline taxes.

100
50

Gasoline Inventories

100

Average spot crude price**
2005
2006
2007
2008
2009
2010
* Regular grade seasonally adjusted by FRB staff.
** 60% West Texas Intermediate, 40% Maya heavy crude.

Natural Gas Prices
Millions of barrels

250

Dollars per million BTU

Adjusted for ethanol use*

Futures price

240
Jan. 8

230

240

230

Jan. 19
14

220

210

200

190

180

2006
2007
2008
2009
2010
Note: Bounds are defined as the monthly mean over the
preceding five years, plus or minus the standard deviation
for each month. Monthly data through September 2009,
weekly data thereafter.
* The RBOB component of total motor gasoline inventories
is adjusted for ethanol use after 2006, boosting reported
stocks; estimated by FRB staff.

12-month percent change

8
6

Food and beverages

4
Dec.*

16
14
12

2009

2010

Dollars per bushel

Corn (left scale)
Soybeans (right scale)
Wheat (right scale)
Futures price

Jan. 19

18
16
14
12

10
2

8
8

Ex. food and energy
0

Spot Prices of Agricultural Commodities

PCE: Food at Home and Core Prices
8

2005
2006
2007
2008
Note: National average spot price.
Source: Bloomberg.

4
-2
-4

-2

2005
2006
2007
2008
2009
2010
*Staff estimate.
Source: U.S. Dept. of Commerce, Bureau of Economic
Analysis.

-4

2005
2006
2007
2008
Source: Commodity Research Bureau.

2009

2010

II-34

Measures of Expected Inflation
Survey Measures (Reuters/University of Michigan)
12

Percent

Percent
12

Quarterly

Monthly

5
4
Jan.

Median, next 5 to 10 years
6

Q4
2
0

Median, next 12 months

1975
1985
1990 1993
1995
1973
1977 1980
1981
1985
1989
1997 2000
2001
Source: Reuters/University of Michigan Surveys of Consumers.

Inputs to Models of Inflation
12

2005
2005

2010
2009

2005 2006 2007 2008 2009 2010

Percent

Quarterly

Percent

Quarterly

8
FRB/US long-run expectations measure
for PCE inflation

6
2

4
Distributed lag of
core PCE inflation

2
0

0
0
0
1975
1985
1990 1993
1995
2005
2010
2005 2006 2007 2008 2009 2010
1973
1977 1980
1981
1985
1989
1997 2000
2001
2005
2009
Note: The distributed lag of core PCE inflation is derived from one of the reduced-form Phillips curves used by Board staff.
Source: For the distributed lag of core PCE inflation, FRB staff calculations; for the FRB/US measure, for 2007 forward, the median
projection for PCE inflation over the next 10 years from the Survey of Professional Forecasters (SPF); for 1990 to 2006, the equivalent
SPF projection for the CPI; for 1981 to 1989, a related survey for the CPI conducted by Richard Hoey; and for the period preceding 1981,
a model-based estimate constructed by Board staff. The survey data before 2007 are adjusted down 0.5 percentage point to put the CPI
projections approximately on a PCE basis.

Inflation Compensation from TIPS
Percent
4

Percent
4

4 Weekly

-1

Quarterly
5 to 10 years ahead
Q4

-2

Next 5 years

Jan. 19

-2
-2
-2
2001
2002
2003
2004
2005
2006
2007
2008
2009
2005 2006 2007 2008 2009 2010
Note: Based on a comparison of an estimated TIPS (Treasury inflation-protected securities) yield curve with an estimated nominal
off-the-run Treasury yield curve, with an adjustment for the indexation-lag effect.
Source: FRB staff calculations.

II-35

Commodity Price Indexes

Journal of Commerce

Ratio scale, 2006 = 100
180
Jan. 19

100

140

100
100
Industrials
60

Metals

1992
1992

1994
1994

1996
1996

1998
1998

2000
2000

2002
2002

2004
2004

2006
2006

2008
2008

2010
2010

Note: The Journal of Commerce (JOC) industrial price index is based almost entirely on industrial commodities, with a small
weight given to energy commodities. Copyright for JOC data is held by CIBCR, 1994.

Commodity Research Bureau
Ratio scale, 1967 = 100
650
600
Jan. 19
550
500

600
500

450
400

400
Spot industrials
350

300

300
250
Futures

200

1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Note: The Commodity Research Bureau (CRB) spot industrials index consists entirely of industrial commodities, excluding
energy. The CRB futures index gives about a 60 percent weight to food commodities and splits the remaining weight roughly
equally among energy commodities, industrial commodities, and precious metals.

Selected Commodity Price Indexes
(Percent change)

Index
JOC industrials
JOC metals
CRB spot industrials
CRB spot foodstuffs
CRB futures

2008 1

12/30/08
to
12/8/09 2

12/8/09 2
to
1/19/10

52-week
change to
1/19/10

-41.4
-48.2
-35.1
-14.1
-24.7

62.0
80.5
47.5
15.8
34.5

6.8
11.8
3.7
4.0
4.0

66.0
79.3
47.6
17.4
39.1

1. From the last week of the preceding year to the last week of the year indicated.
2. December 8, 2009, is the Tuesday preceding publication of the December Greenbook.

150

II-36

Broad Measures of Inflation
(Percent change, Q3 to Q3)

Measure

2006

2007

2008

2009

Product prices
GDP price index
Less food and energy

3.3
3.3

2.6
2.6

2.5
2.7

.6
.2

Nonfarm business chain price index

3.0

2.1

1.9

Expenditure prices
Gross domestic purchases price index
Less food and energy

3.4
3.2

2.6
2.6

4.0
2.9

-.9
.2

PCE price index
Less food and energy

2.8
2.5

2.3
2.2

4.3
2.6

-.7
1.3

PCE price index, market-based components
Less food and energy

2.9
2.5

2.0
1.9

4.6
2.6

-.6
1.7

CPI
Less food and energy

3.3
2.8

2.3
2.1

5.2
2.5

-1.6
1.5

Chained CPI
Less food and energy

3.1
2.6

2.0
1.7

4.5
2.1

-1.6
1.1

Median CPI
Trimmed mean CPI

3.0
2.8

2.9
2.5

3.2
3.6

1.7
1.1

Trimmed mean PCE

2.8

2.5

2.9

1.6

Source: For CPI, U.S. Dept. of Labor, Bureau of Labor Statistics; for median and trimmed mean CPI,
Federal Reserve Bank of Cleveland; for all else, U.S. Dept. of Commerce, Bureau of Economic Analysis.

Surveys of Inflation Expectations
(Percent)

Reuters/Michigan Survey
Period

Actual
CPI
inflation 1

1 year 2

Professional
forecasters
(10 years) 4

5 to 10 years 3

Mean

Median

Mean

Median

CPI

PCE

2008:Q1
Q2
Q3
Q4

4.1
4.4
5.3
1.6

4.2
6.4
5.4
3.0

3.8
5.0
4.7
2.8

3.3
3.8
3.6
2.9

3.0
3.3
3.1
2.8

2.5
2.5
2.5
2.5

2.2
2.2
2.2
2.2

2009:Q1
Q2
Q3
Q4

.0
-1.2
-1.6
1.4

2.4
3.4
3.1
3.1

2.0
2.9
2.6
2.7

3.3
3.1
3.2
3.1

2.9
2.9
2.9
2.9

2.4
2.5
2.5
2.3

2.2
2.3
2.2
2.1

2009:Sept.
Oct.
Nov.
Dec.
2010:Jan.

-1.3
-.2
1.8
2.7
n.a.

2.8
3.2
3.1
3.0
3.3

2.2
2.9
2.7
2.5
2.8

3.2
3.2
3.2
3.0
3.2

2.8
2.9
3.0
2.7
2.8

...
...
2.3
...
...

...
...
2.1
...
...

1. Percent change from the same period in the preceding year.
2. Responses to the question, By about what percent do you expect prices to go up, on
average, during the next 12 months?
3. Responses to the question, By about what percent per year do you expect prices to go up,
on average, during the next 5 to 10 years?
4. Median CPI and PCE price projections.
... Not applicable.
n.a. Not available.
Source: For CPI, U.S. Dept. of Labor, Bureau of Labor Statistics; for Reuters/Michigan Survey,
Reuters/University of Michigan Surveys of Consumers; for professional forecasters, the Federal Reserve
Bank of Philadelphia.

II-37

housing services decelerated dramatically last year and actually fell in the second half,
likely reflecting the poor state of the housing market. Aside from housing and energy,
price increases for market-based services slowed early last year and remained modest
throughout 2009, possibly reflecting the deceleration in labor costs. Prices for core goods
also decelerated considerably last year apart from the tax-induced increases in tobacco
prices and the rebound in motor vehicle prices.
Median near-term inflation expectations in the Reuters/University of Michigan survey
increased in January to 2.8 percent from 2.5 percent in December. Meanwhile, median
inflation expectations over the next 5 to 10 years edged up 0.1 percentage point from
their December reading to 2.8 percent—still near the lower end of the narrow range that
has prevailed over the past few years. The TIPS-based measure of inflation
compensation 5 to 10 years ahead has changed little since the previous FOMC meeting,
whereas five-year inflation compensation has moved up somewhat; as discussed in the
“Domestic Financial Developments” section, most of the increase in five-year inflation
compensation likely reflects changes in liquidity and inflation risk premiums.
At earlier stages of processing, the PPI for core intermediate materials rebounded in
November and December following October’s decline. Despite these recent increases,
the December PPI for core intermediates was essentially unchanged from its year-earlier
level. In contrast, commodity prices have rebounded considerably over the past year
from their sharp drop in late 2008. Since the December Greenbook, both the Commodity
Research Bureau spot index of industrial materials and the Journal of Commerce index of
industrial materials have continued to move up—rising 3¾ percent and 6¾ percent,
respectively—reflecting, in large part, sizable increases in metals prices.

Last page of Domestic Nonfinancial Developments

Domestic Financial
Developments

Domestic Financial Developments
Overview
Over the intermeeting period, conditions in financial markets improved a bit further, as
incoming data bolstered investors’ confidence in the recovery in economic activity.
Yields and spreads on both investment-grade and speculative-grade corporate bonds
declined, and broad stock-price indexes rose. Bank stock prices outperformed broad
equity indexes, and several large banking organizations issued equity and repaid TARP
capital. However, conditions in commercial real estate markets remained strained, with
delinquency rates on commercial mortgages rising further. In addition, credit flows
remained weak overall, with further runoffs in bank loans to both households and
businesses. While the Senior Loan Officer Opinion Survey on Bank Lending Practices
(SLOOS) conducted in January 2010 indicated that the tightening of banks’ credit
standards might be coming to an end, standards and terms on most types of loans
remained tight, and loan demand continued to weaken, on net.
Policy Expectations and Treasury Yields
The FOMC’s decision to keep the target range for the federal funds rate unchanged at the
December meeting and the retention of the “extended period” language in the statement
were widely anticipated and elicited little price response. Later in the intermeeting
period, the expected path of monetary policy inferred from futures markets quotes shifted
down slightly, on net, as market participants interpreted some Federal Reserve
communications, including the discussion about the large-scale asset purchases in the
FOMC minutes, as pointing to a more protracted period of accommodative monetary
policy than had been anticipated. Futures quotes currently indicate that the federal funds
rate is expected to rise above 25 basis points during the third quarter of 2010 and reach
about 2 percent by the end of 2011.
In contrast to the slight downward shift in policy expectations, yields on 2-year and
10-year nominal Treasury securities increased by about 4 basis points and 10 basis points,
respectively, consistent with a slight further unwind in flight-to-quality demands.
Measures of TIPS-based inflation compensation over the next five years rose about
20 basis points; staff models interpret the increase as largely reflecting an increase in
inflation risk premiums and some improvement in TIPS market liquidity. Inflation
compensation 5 to 10 years ahead declined about 8 basis points.

III-1

III-2
Selected Financial Market Quotations
(One-day quotes in percent except as noted)
2008

2009

Change to Jan. 19 from
selected dates (percentage points)

2010

Sept. 12

Nov. 3

Dec. 15

Jan. 19

2008
Sept. 12

2009
Nov. 3

2009
Dec. 15

2.00

.13

-1.87

.00

1.46
1.80

.06
.17

.05
.17

.06
.14

-1.40
-1.66

.00
-.03

.01
-.03

Commercial paper (A1/P1 rates)2
1-month
3-month

2.39
2.75

.16
.18

.13
.20

.10
.17

-2.29
-2.58

-.06
-.01

-.03
-.03

Large negotiable CDs1
3-month
6-month

2.79
3.09

.22
.32

.22
.31

.20
.29

-2.59
-2.80

-.02
-.03

-.02
-.02

Eurodollar deposits3
1-month
3-month

2.60
3.00

.30
.45

.32
.45

.30
.45

-2.30
-2.55

.00
.00

-.02
.00

Bank prime rate

5.00

3.25

-1.75

.00

Intermediate- and long-term
U.S. Treasury4
2-year
5-year
10-year

2.24
2.97
3.93

.93
2.37
3.73

.87
2.33
3.79

.91
2.46
3.89

-1.33
-.51
-.04

-.02
.09
.16

.04
.13
.10

U.S. Treasury indexed notes5
5-year
10-year

1.33
1.77

.70
1.48

.50
1.42

.42
1.45

-.91
-.32

-.28
-.03

-.08
.03

Municipal general obligations (Bond Buyer)6

4.54

4.39

4.19

4.31

-.23

-.08

.12

4.26
4.36
6.62
7.22
10.66

3.62
4.06
5.12
6.25
9.48

3.74
4.08
5.04
6.09
9.29

3.82
4.19
5.04
5.75
8.62

-.44
-.17
-1.58
-1.47
-2.04

.20
.13
-.08
-.50
-.86

.08
.11
.00
-.34
-.67

5.78
5.03

4.98
4.47

4.94
4.34

5.06
4.39

-.72
-.64

.08
-.08

.12
.05

Instrument
Short-term
FOMC intended federal funds rate
Treasury bills1
3-month
6-month

Private instruments
10-year swap
10-year FNMA7
10-year AA8
10-year BBB8
10-year high yield8
Home mortgages (FHLMC survey rate)
30-year fixed
1-year adjustable
Record high
Stock exchange index
Dow Jones Industrial
S&P 500 Composite
Nasdaq
Russell 2000
D.J. Total Stock Index

2009

2010

Change to Jan. 19
from selected dates (percent)

Level

Date

Nov. 3

Dec. 15

Jan. 19

Record
high

2009
Nov. 3

2009
Dec. 15

14,165
1,565
5,049
856
15,807

10-9-07
10-9-07
3-10-00
7-13-07
10-9-07

9,772
1,045
2,057
571
10,729

10,452
1,108
2,201
606
11,385

10,725
1,150
2,320
649
11,865

-24.28
-26.51
-54.04
-24.14
-24.93

9.76
10.03
12.79
13.76
10.59

2.62
3.82
5.42
7.07
4.22

1. Secondary market.
2. Financial commercial paper.
3. Bid rates for Eurodollar deposits collected around 9:30 a.m. eastern time.
4. Derived from a smoothed Treasury yield curve estimated using off-the-run securities.
5. Derived from a smoothed Treasury yield curve estimated using all outstanding securities and adjusted for the carry effect.
6. Most recent Thursday quote.
7. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities.
8. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data.
_______________________________________________________________________
NOTES:
September 12, 2008, is the last business day before Lehman Brothers Holdings filed for bankruptcy.
November 3, 2009, is the day before the November 2009 FOMC monetary policy announcement.
December 15, 2009, is the day before the most recent FOMC monetary policy announcement.
_______________________________________________________________________

III-3

Policy Expectations and Treasury Yields
Interest Rates
Percent

Percent

4.2

PCE
Dec. FOMC

New Home Sales

4.0
CPI

Kohn
Speech

Initial Claims

10-year Treasury
yield (left scale)

2.0

Employment

FOMC
Minutes
Pending
Home Sales

Consumer
Credit

1.8
1.6

3.8
1.4
December 2010
Eurodollar (right scale)

3.6

1.2

3.4

1.0
Dec. 15

Dec. 18

Dec. 23

Dec. 29

Jan. 4

Jan. 6

Jan. 8

Jan. 12

Jan. 15

Note: 5-minute intervals. 8:00 a.m. to 4:00 p.m. No adjustments for term premiums.
Source: Bloomberg.

Treasury Yield Curve

Implied Federal Funds Rate
Percent

Percent
3.5

5.0
January 19, 2010

4.5

3.0

4.0
2.5

December 15, 2009

3.5
3.0

2.0

2.5
1.5
1.0

December 15, 2009

2.0
1.5
1.0

January 19, 2010
Jan.

May Sept.
2010

Jan.

May Sept.
2011

0.5

0.0

Jan.

0.0
1

Years ahead

Note: Estimated from federal funds and Eurodollar futures,
with an allowance for term premiums and other adjustments.
Source: CME Group.

Note: Smoothed yield curve estimated from off-the-run Treasury
coupon securities. Yields shown are those on notional par Treasury
securities with semiannual coupons.
Source: Federal Reserve Board.

10-Year Treasury Implied Volatility

Inflation Compensation
Percent

Daily

Dec.
FOMC

Percent
14
12

Dec.
FOMC

Daily

5 to 10 years ahead
Jan.
19

Jan.
19

3
2

Next 5 years*
1
0

-1

-2
Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan.
2007
2008
2009
2010
Note: 10-year Treasury note implied volatility derived from
options on futures contracts.
Source: Bloomberg.

Jan. May Sept. Jan. May Sept. Jan. May Sept. Jan.
2007
2008
2009
2010
Note: Estimates based on smoothed nominal and inflation-indexed
Treasury yields.
*Adjusted for lagged indexation of Treasury inflation-protected
securities.
Source: Federal Reserve Board.

III-4

Financial Institutions, Short-Term Funding Markets, and Liquidity Facilities
Senior CDS Spreads for Banking Organizations

Bank Exchange-Traded Funds
Jan 2, 2009 = 100
Daily

Basis points
140

Dec.
FOMC

Daily

130

Large banks
Regional and smaller banks

Other banks
Large bank holding
companies

120
110
Jan.
19

100

550

Dec.
FOMC

500
450
400
350

300

250

200

60
Jan.
19

50
40
Jan.

Mar.

May

July
2009

Sept.

Nov.

Jan.
2010

May

July
2009

Sept.

Nov.

Jan.
2010

150
100
50

Note: Large banks ETF includes 24 banks. Small banks ETF
includes 51 banks.
Source: Keefe, Bruyette & Woods (KBW) and Bloomberg.

Note: Median spreads for 6 large bank holding companies and
8 other banks.
Source: Markit.

Libor over OIS Spread

Spreads on 30-day Commercial Paper
Basis points
Dec.
FOMC

Daily

Basis points

550
500

1-month
3-month
6-month

Dec.
FOMC

Daily

ABCP
A2/P2

450
400

800
700
600

350
300
250

400

200
150
Jan.
20

500

300
200

100
50

Jan.
19

0
Oct.
2008

Jan.

Apr.

July
2009

Oct.

Jan.
2010

Oct.
2008

Source: British Bankers’ Association and Prebon.

Jan.

Billions of dollars
0.4

Dec.
FOMC

Fed funds effective
Overnight GC repo
Overnight Libor

Oct.

Jan.
20

1600

Jan.
2010

Dec.
FOMC

Daily

0.3

800

150

600

0.0

250
200

1000

0.1

300

1200

100
Other facilities*
(left scale)

400

Jan.
18

TALF
(right scale)

200

Jan.
2010

Billions of dollars

1400

0.2

Source: Federal Reserve Board.

July
2009

Usage of TALF and Other Lending Facilities
Percent

Dec.
2009

Apr.

Note: The ABCP spread is the AA ABCP rate minus the AA
nonfinancial rate. The A2/P2 spread is the A2/P2 nonfinancial
rate minus the AA nonfinancial rate.
Source: Depository Trust & Clearing Corporation.

Selected Money Market Rates
Daily

100

50
0

Jan.

July
2007

Jan.

July
2008

Jan.

July
2009

Jan.
2010

* Includes primary, secondary, and seasonal credit; TAF; PDCF;
dollar liquidity swaps; CPFF; and AMLF.
Source: Federal Reserve Board.

III-5

Financial Institutions and Short-Term Funding Markets
Over the intermeeting period, investor sentiment about prospects for financial institutions
improved a bit further. Stock prices of both large and regional banks increased. CDS
spreads ticked up for large bank holding companies and were about flat for other banks.
In December, a few major banking organizations issued common equity to private
investors and repaid the remainder of the government’s preferred equity shares.
However, the Treasury Department continues to hold common equity shares in Citigroup.
Recently, sentiment about financial institutions appeared to be boosted by a generally
positive start to the earnings season and only tempered somewhat by the Administration’s
proposal for a “financial crisis responsibility fee” that would be levied on financial
institutions with more than $50 billion in total assets.
In December, the Treasury announced that it would increase its capital commitment to
Fannie Mae and Freddie Mac from $200 billion per institution to any amount necessary
to ensure that each firm would maintain positive net worth over the next three years. In
addition, the Treasury provided additional capital to GMAC, though not as much as had
been anticipated.
Short-term funding markets were generally stable over the intermeeting period. One- and
three-month Libor-to-OIS spreads remained low while six-month spreads continued to
edge down. Spreads on A2/P2-rated commercial paper and AA-rated ABCP held steady
at the low end of their ranges since mid-2007. Strong demand for Treasury bills in the
cash and repo market, together with a seasonal decline in bills outstanding, put downward
pressure on both bill yields and short-term repo rates.
Year-end pressures in short-term funding markets were generally modest amid ample
liquidity. The repo market experienced some year-end dislocations, with a few
transactions reportedly occurring at negative interest rates, but that market now appears
to have largely recovered.
Federal Reserve Purchase Programs and Facilities
Use of Federal Reserve credit facilities edged lower over the intermeeting period, and
market commentary suggests little concern about the impending expiration of a number
of the facilities. Three of the facilities scheduled to expire on February 1—the TSLF,
PDCF, and AMLF—have no loans outstanding, while the CPFF, also set to expire on the
same date, has a modest amount outstanding. Because of the normal lack of market
activity around year-end, there was only one TALF-supported new issue over the

III-6

Corporate Yields, Risk Spreads, and Stock Prices
Selected Stock Price Indexes

Expected Real Equity Return and
Long-Run Treasury Yield

Dec. 15, 2009 = 100
Daily

165

Dec.
FOMC

Percent
14

Monthly

140

S&P Financial
Jan.
19

Expected 10-year real equity return

115

8
6

Jan.
19

S&P 500

Expected real yield on 10-year Treasury*

40
July

Oct.
2008

Jan.

Apr.

July
2009

Oct.

Jan.

-2
1990

1994

1998

2002

2006

2010

* Off-the-run 10-year Treasury yield less Philadelphia Fed 10-year
expected inflation.
+ Denotes the latest observation using daily interest rates and
stock prices and latest earnings data from I/B/E/S.
Source: Thomson Financial.

Source: Standard & Poor’s.

Implied Volatility on S&P 500 (VIX)

Corporate Bond Yields
Percent

Weekly Friday*

Percent
95

Dec.
FOMC

Daily
Dec.
FOMC

21
19

10-year high-yield

25
Jan.
19

Jan.
19

10-year BBB

5
2007

2008

2009

2007

Dec.
FOMC

1600

2008

2009

Estimated Median Bid-Asked Spread
for Corporate Bonds

Basis points

Daily

2010

Source: Staff estimates of smoothed yield curves based on Merrill
Lynch bond data.

Corporate Bond Spreads
Basis points

7
3

2010

* Latest observation is for most recent business day.
Source: Chicago Board of Exchange.

1800

1000
900

500

Daily

450

Dec.
FOMC

800

1400

Basis points

400

700

800

10-year high-yield
(left scale)

600
400

300

500

1000

350

600

1200

250

400
300
Jan.
10-year BBB 19

200

(right scale)

200

High-yield

150

100

Jan.
19

Investment-grade

0
2002

2004

2006

2008

2010

Note: Spreads over 10-year Treasury yield.
Source: Staff estimates of smoothed corporate yield curves based
on Merrill Lynch data and smoothed Treasury yield curve.

100
50
0

2005

2006

2007

2008

2009

2010

Source: Staff estimate using data from the National Assn. of
Securities Dealers’ Trade Reporting and Compliance Engine.

III-7

intermeeting period, a $1.5 billion auto floor-plan ABS deal. At the mid-December
CMBS subscription, $1.3 billion in loans collateralized by legacy CMBS were extended,
and a similar amount is expected for the January subscription.
In December, the Federal Reserve Board proposed the establishment of a term deposit
facility. Under the proposal, the Federal Reserve banks would offer interest-bearing term
deposits to eligible institutions through an auction mechanism as a means of draining
reserves. The news was generally well received by markets and elicited little price
response.
Stock Prices and Corporate Interest Rates
Broad stock-price indexes rose about 4 percent, on net, over the intermeeting period,
consistent with further indications that the economy is recovering. The gap between the
staff’s estimate of the expected real equity return over the next 10 years for
S&P 500 firms and the real 10-year Treasury yield—a gauge of the equity risk
premium—was little changed and remained well above its average level during the past
decade. However, option-implied volatility on the S&P 500 index edged down to the low
end of its range since mid-2007.
Over the intermeeting period, yields on both investment- and speculative-grade corporate
bonds declined, even as those on comparable-maturity Treasury securities inched up. As
a result, spreads on investment-grade and speculative-grade corporate bonds narrowed
about 45 basis points and 80 basis points respectively. Risk spreads on investment-grade
corporate bonds have nearly returned to the levels that prevailed before mid-2007.
Estimates of bid-asked spreads for corporate bonds—a measure of liquidity in the
corporate bond market—remained steady. In the leveraged loan market, average bid
prices rose and bid-asked spreads were little changed.
Corporate Earnings and Credit Quality
As shown by data from the national income accounts, profits of nonfinancial and
financial corporations continued to rebound in the third quarter. Amid relatively few
earnings announcements or warnings through mid-January, analysts’ forecasts of yearahead earnings for S&P 500 firms were little changed. Over the past several days, the
initial spate of fourth-quarter earnings reports generally exceeded analyst forecasts.
On balance, the credit quality of nonfinancial firms has continued to improve in recent
months. The aggregate ratio of debt to assets for nonfinancial corporations decreased in

III-8

Corporate Earnings and Credit Quality
Domestic Corporate Profits before Tax*

Revisions to Expected S&P 500 Earnings

Billions of dollars
Quarterly
Nonfinancial

Percent
900
700

Monthly

3
MidJan.

1
-1

300

-3

200

500
400

-5
-7
-9

100

Financial

-11

*
1988 1991 1994 1997 2000 2003 2006 2009

2000

2002

2004

2006

2008

-13
2010

Note: Shaded bars indicate periods of business recessions defined
by the National Bureau of Economic Research (NBER). Vertical line
represents the last NBER business cycle peak.
* Profits before tax plus capital consumption adjustment.
Source: Bureau of Economic Analysis.

Note: Index is a weighted average of the percent change in the
consensus forecasts of current-year and following-year earnings per
share for a fixed sample.
* Revision in Feb. 2009 was -17.2%.
Source: Thomson Financial.

Financial Ratios for Nonfinancial Corporations

Bond Ratings Changes of Nonfinancial Companies

Ratio

Percent of outstandings
0.14

0.36

40
Annual rate

0.33

Debt over
total assets
(left scale)

Upgrades

0.12

Liquid assets over
total assets
(right scale)

Q4
Q3
H1

0.10

0.30
Q3

0.08

0.27
0.06

40
Downgrades

0.24
0.04
1990 1993

1996 1999

2002

2005 2008

1991

1994

1997

2000

2003

2006

2009

Source: Calculated using data from Moody’s Investors Service.

Note: Data are annual through 1999 and quarterly thereafter.
Source: Compustat.

Selected Default and Delinquency Rates

Expected Nonfinancial Year-Ahead Defaults

Percent of outstandings

Percent of liabilities
8

Monthly

7
6
C&I loan delinquency rate

7
6

2
Bond default rate*

Jan.

2
1

Dec.

0
0
1991 1994 1997 2000 2003 2006 2009
* 6-month trailing defaults divided by beginning-of-period
outstandings, at an annual rate.
Source: For default rate, Moody’s Investors Service; for
delinquency rate, Call Report data.

1995

1998

2001

2004

2007

2010

Note: Firm-level estimates of default weighted by firm liabilities as
a percent of total liabilities, excluding defaulted firms.
Source: Calculated using firm-level data from Moody’s KMV.

III-9

the third quarter, while the aggregate liquid asset ratio rose and now stands above its
previous peak in 2004. The pace of nonfinancial corporate ratings downgrades by
Moody’s remained moderate in the fourth quarter, while the pace of upgrades rebounded,
largely owing to the upgrade of Ford Motor Company in December. Meanwhile, the
six-month trailing bond default rate for all U.S. firms dropped further in December and
has now retraced almost all of the run-up since the outset of the financial crisis. The
year-ahead expected default frequency for nonfinancial firms from Moody’s KMV
inched down a bit in the month ending in mid-January.
Business Finance
In December, gross issuance of investment-grade and speculative-grade bonds by
nonfinancial corporations continued to be solid, and early indications suggest that bond
issuance has picked up a bit in January. In contrast, commercial paper outstanding was
little changed, and C&I loans continued to contract. Overall, net debt financing by
nonfinancial businesses was close to flat in the fourth quarter, after declining in the third
quarter, consistent with weak demand for credit and still tight credit conditions at banks.
Gross public equity issuance by nonfinancial firms maintained its solid pace in
December; the pace was fueled by the continued strength of initial equity offerings.
Equity retirements from cash-financed mergers rose sharply in the fourth quarter, mostly
because of the completion of two large deals in the pharmaceutical industry. As a result,
net equity issuance by nonfinancial firms, which had been positive in the first three
quarters of 2009, turned negative in the fourth quarter. Although announcements of new
share repurchase programs were sparse in the fourth quarter, announcements of cashfinanced mergers and acquisitions increased.
Public equity issuance by financial firms surged in December, as several large banks
were able to sell record-high volumes of shares to investors to raise funds to repay the
Treasury for capital acquired under the TARP program. Gross bond issuance by financial
firms continued to be somewhat slower than in the third quarter.
Commercial Real Estate Finance
Financing conditions for commercial real estate remained strained. Outstanding
commercial mortgage debt is estimated to have decreased at an annual rate of 3½ percent
in the third quarter of 2009, and recent data suggest another decline in the fourth quarter.
In December, the dollar value of commercial real estate sales ticked up, as market
participants tried to close deals by the end of the year, but the level of activity remained

III-10

Business Finance
Gross Issuance of Securities by U.S. Corporations
(Billions of dollars; monthly rates, not seasonally adjusted)
2009
Type of security

2005

Financial corporations
Stocks1
Bonds2

4.7
1.8
2.9

5.5
1.6
3.8

3.7
.3
3.4

5.3
.2
5.1

5.4
.6
4.8

5.0
1.6
3.4

4.8
1.5
3.3

29.3
13.1
6.2
10.1

35.1
17.5
7.5
10.0

27.7
19.5
1.8
6.4

50.1
32.6
5.3
12.2

30.4
13.4
7.4
9.7

30.3
14.3
8.2
7.8

24.0
10.0
9.7
4.3

-.2

2.4

-.4

1.6

-12.4

-.9

-2.9

10.2

11.0

21.2

12.8

-17.4

-33.8

-20.9

-22.0

5.0
170.4

Memo
Net issuance of commercial paper3
Change in C&I loans at
commercial banks3

2008

18.7
8.7
5.2
4.8

Bonds2
Investment grade
Speculative grade
Other (sold abroad/unrated)

2007

4.6
1.7
2.8

Nonfinancial corporations
Stocks1
Initial public offerings
Seasoned offerings

2006

Dec.

5.3
180.6

8.6
151.7

13.5
45.4

15.9
44.5

5.5
38.9

19.5
28.0

53.7
29.3

Note: Components may not sum to totals because of rounding.
1. Excludes private placements and equity-for-equity swaps that occur in restructurings.
2. Data include regular and 144a private placements. Bond totals reflect gross proceeds rather than par value of original discount bonds.
Bonds are categorized according to Moody’s bond ratings or to Standard & Poor’s if unrated by Moody’s.
3. For all nonfinancial firms; End-of-period basis, seasonally adjusted.
Source: Depository Trust & Clearing Corporation; Thomson Financial; Federal Reserve Board.

Components of Net Equity Issuance

Selected Components of Net Debt Financing
Billions of dollars

Billions of dollars
80

Commercial paper*
C&I loans*
Bonds

80
Monthly rate, nonfinancial firms

Monthly rate, nonfinancial firms
60
H1

Total

Public issuance
Private issuance*
Repurchases
Cash mergers

60
40
H1

Total

Q3 Q4

e Q4 e

20
20
0
0
-20
-20
-40
-40

-60

-80

-80
2005

2006

2007

2008

2009

* Seasonally adjusted, period-end basis.
Source: Depository Trust & Clearing Corporation; Thomson
Financial; Federal Reserve Board.

-100
2005

2006

2007

2008

2009

* Private issuance was revised back to 2005.
e Estimate.
Source: Thomson Financial, Investment Benchmark Report;
Money Tree Report by PricewaterhouseCoopers, National
Venture Capital Association, and Venture Economics.

III-11

Commercial Real Estate
Commercial Mortgage Debt

Commercial Real Estate Sales

Percent change, annual rate

Billions of dollars
24

Quarterly

21
18
15

Percent
60

140
Dec.

120

50
Share of properties sold
at nominal loss (right scale)

100

12
9
6

80
30

Value of sales (left scale)

3
0
Q3

-3

Dec.

-6
0
2001

2003

2005

2007

2009

0
2001

2003

2005

2007

2009

Note: 3-month moving averages.
Source: Real Capital Analytics.

Source: Federal Reserve Board.

Prices of Commercial Real Estate

Index, 2001:Q1=100
225

Delinquency Rates on Commercial Mortgages
Percent
on Existing Properties

200

At life insurance companies
CMBS
At commercial banks*

175

Dec.

150
Q3

NCREIF
TBI

Oct.

6
5

Q3
Moody’s index

125

100

25
1996

1998

2000

2002

2004

2006

2008

2010

1996

Note: NCREIF TBI series re-weighted by staff to exclude multifamily.
Source: NCREIF; MIT Center for Real Estate; Moody’s.

Delinquency Rates on Construction Loans at Banks
Percent

2000

2002

2004

2006

2008

2010

Commercial Mortgage CDS Index Prices
CMBX

Quarterly

1998

* Excluding farmland.
Note: CMBS are commercial mortgage-backed securities.
Source: Citigroup; Call Report data; ACLI.

Q3
25

Percent
120

Daily, by rating
Senior AAA

Dec.
FOMC
Jan.
14

20
Q3
Residential
construction

100

Junior AAA

10
Commercial
construction

40
BBB-

0
2007

2008

Note: Data series begin in 2007:Q1.
Source: Call Report data.

2009

0
July
Dec.
2007

May
Oct.
2008

Mar.

Aug.
2009

Jan.

Note: Each index corresponds to pools of mortgages
securitized in 2006:H1.
Source: JPMorgan Chase & Co.

III-12

Residential Mortgages
Spread of Mortgage Rate to Treasury Yield

Mortgage Rate and MBS Yield
Percent

Basis points
8.0

Weekly

Dec.
FOMC

30-year conforming
fixed mortgage rate

300

Weekly

7.5

Dec.
FOMC

30-yr FRM to 10-yr Treasury

7.0

250

6.5
200

6.0
Jan.
13

5.5
150

5.0
4.5

MBS yield
Jan.
19

Jan.
13

4.0

100

3.5
50
Jan.

June Nov.
2007

Apr.
Oct.
2008

Mar.

Aug.
2009

Jan.

June Nov.
2007

Apr.
Oct.
2008

Mar.

Aug.
2009

Jan.

Note: For MBS yield, Fannie Mae 30-year current coupon rate.
Source: For mortgage rate, Freddie Mac; for MBS yield,
Bloomberg.

Note: Spread is relative to corresponding off-the-run
Treasury yield.
Source: Bloomberg; Freddie Mac.

Net Agency MBS Issuance

Prices of Existing Homes
Billions of dollars

Index peaks normalized to 100
100

110

Monthly

100

Oct.

40
Nov.

FHFA price index
LP price index
20-city S&P/Case-Shiller
price index

Oct.
Nov.

0
60
2003

2005

2007

2009

2005

2006

2007

2008

2009

Source: For FHFA, Federal Housing Finance Agency; for LP,
LoanPerformance, a division of First American CoreLogic; for
S&P/Case-Shiller, Standard & Poor’s.

Note: 3-month moving average
Source: FHLMC, FNMA, and GNMA.

Delinquencies on Subprime and FHA-Backed
Mortgages

Delinquencies on Prime Mortgages
Percent of loans

Percent of loans
10

Monthly

Nov.

Percent of loans
40

Monthly
Oct.
Nov.

Variable-rate
Fixed-rate

12
FHA (left scale)

20
4

2005

2007

2009

Note: Percent of loans 90 or more days past due or in
foreclosure. Prime includes near-prime mortgages.
Source: McDash Analytics.

0
2003

15
Subprime (right scale)

2001

30
25

Nov.

5
0
2001

2003

2005

2007

2009

Note: Percent of loans 90 or more days past due or in foreclosure.
For subprime mortgages, rates are for securitized loans.
Source: For FHA-backed mortgages, McDash Analytics; for
subprime mortgages, LoanPerformance, a division of
First American CoreLogic.

III-13

very low by historical standards and transaction prices appeared weak. In October,
Moody’s index of commercial property prices decreased about 2 percent, bringing the
index back to its 2002 level—40 percent below its mid-2007 peak. Delinquency rates on
loans in CMBS pools increased further in December. CDS index prices on CMBS were
little changed, on net, over the intermeeting period.
Household Finance
The average interest rate on 30-year conforming fixed-rate mortgages increased to just
over 5 percent over the intermeeting period. However, the increase in this mortgage rate
was slightly smaller than that in the 10-year Treasury yield, leaving the mortgage spread
to the 10-year Treasury yield a touch narrower. Net issuance of agency MBS dropped in
November to its early 2009 level. As yet, there are few signs that the tapering of the
Federal Reserve’s purchases of MBS ahead of the scheduled completion of the MBS
purchase program in March is putting much upward pressure on MBS yields.
The repeat-sales house-price index from LoanPerformance ticked down in October and
November, and the S&P/Case-Shiller index was unchanged in October, after rising
modestly in previous months. Both indexes are about 30 percent below their peaks in
2006. In November, delinquency rates for fixed- and variable-rate prime mortgages
continued to climb and the delinquency rate for FHA-backed loans reached nearly
8 percent.
Consumer credit contracted for the tenth consecutive month in November, pushed down
by a further steep decline in revolving credit. Gross consumer ABS issuance slowed in
the fourth quarter, in response to a widening in spreads and typical year-end effects, but
is expected to be strong in the first quarter of 2010, as suggested by the current calendar
of offers. Credit card ABS issuance was minimal in October and November but picked
up in December, following the FDIC’s announcement of a temporary extension of safeharbor rules for its handling of securitized assets should a sponsoring bank be taken into
receivership. Changes in spreads of consumer loan interest rates over two-year Treasury
yields were mixed. Credit card interest rate spreads continued to increase in November,
while spreads on new auto loans continued to trend down through early January.
Delinquency rates on consumer loans remained high in recent months.
Long-term mutual funds received sizable net inflows in December, with large net flows
into bond funds more than offsetting net redemptions from equity funds. In early
January, bond, hybrid, and equity funds all attracted net inflows. Money market funds

III-14

Consumer Credit and Mutual Funds
Consumer Credit

Gross Consumer ABS Issuance

Percent change, annual rate
16

3-month change

Monthly rate

Revolving

TALF eligible
Non-TALF

20
16

Nov.

4
Nonrevolving

Billions of dollars

-4

-8
Nov.

-12
-16

2004

2005

2006

2007

2008

2009

2005

2010

Source: Federal Reserve Board.

2006

2007

2008

4
0

2009

Note: Credit card, auto, and student loan ABS.
Source: Inside MBS & ABS; Merrill Lynch; Bloomberg;
Federal Reserve Board.

Spread of Consumer Interest Rates to Treasury Yield

Delinquencies on Consumer Loans

Percent

Percent
16

Nov.

Credit card loans
in securitized pools

Nonrevolving
consumer loans at
commercial banks

8
6
New auto loans

Jan.
10

Q3
Nov.

2008

2010

1
1998

2000

2002

2004

2006

2008

2010

Source: For auto loans, Federal Reserve Board; for credit cards,
Moody’s Investors Service; for nonrevolving consumer loans, Call
Report.

Note: Spreads are relative to 2-yr Treasury yields.
Source: For credit cards, Mintel; for auto loans, PIN.

Net Flows into Mutual Funds
(Billions of dollars, monthly rate)
Fund type
H1
Total long-term funds
Equity funds
Domestic
International
Hybrid funds
Bond funds
High-yield
Other taxable
Municipals
Money market funds

2008
H2

2009
Oct.

Nov.

Dec.e

Assets
Nov.

11.8
-3.6
-5.0
1.3
1.7
13.8
-0.2
11.1
2.9
56.1

-49.4
-35.2
-20.2
-15.1
-5.0
-9.2
0.1
-7.7
-1.6
59.6

23.3
-0.1
0.9
-1.0
-0.3
23.8
2.8
16.2
4.8
-27.3

47.9
0.9
-3.7
4.6
5.2
41.8
1.4
31.8
8.7
-81.1

40.7
-7.1
-14.8
7.8
2.9
44.9
0.7
39.5
4.8
-70.9

36.8
-2.8
-8.8
6.0
3.4
36.2
0.3
31.0
5.0
-33.7

26.9
-4.2
-8.1
3.9
2.6
28.6
1.2
22.5
4.8
-30.7

7,641
4,825
3,580
1,245
629
2,186
182
1,554
450
3,327

Note: Excludes reinvested dividends.
e Staff estimate.
Source: Investment Company Institute.

3
2

Auto loans at captive
finance companies

0
2006

4
2

2004

6
5

Credit cards

2002

III-15

Treasury Finance
Foreign Participation in Treasury Auctions

Treasury Auction Amounts
Billions of dollars

Percent of total issue
140

Quarterly

Dec.
FOMC

6-month moving average

120

2-year
3-year
5-year
10-year

100

Jan.
15

Indirect bids

Jan.
15

60
40
20

2006

2007

2008

2009

2010

Billions of dollars
250

Dec.
FOMC

30
20

2005

2007

2009

2010

Note: Indirect bids and actual allotment are a percentage of
the total amount accepted, including the amount tendered to
the Federal Reserve. Moving averages include 2-, 5-, and 10year original auctions and reopenings.
Source: Federal Reserve Board.

Daily Treasury Market Volume
Monthly average

0
2003

Note: No 3-year issuance between Q3 2007 and Q3 2008.
Source: U.S. Treasury.

Actual foreign allotment

0
2005

Average Absolute Nominal Yield Curve
Basis points
Fitting Error
Dec.
FOMC

Daily

200

150

100

Jan.

Jan.
19

0
2004

2005

2006

2007

2008

2009

2010

2001

Note: January observation is the month-to-date average.
Source: Bloomberg.

2003

2005

2007

Treasury On-the-Run Premium

Fails-to-Deliver of Treasury Securities
Basis points
Dec.
FOMC

Monthly average

2009 2010

Note: Calculated from securities with 2 to 10 years until maturity,
excluding on-the-run and first off-the-run securities.
Source: Federal Reserve Board.

Billions of dollars
70

Dec.
FOMC

Weekly

3000
2500

60
50

2000

1500

1000

10-year note

Jan.
6

20
Jan.

0
2000

2002

2004

2006

2008

500

2010

Note: Computed as the spread of the yield read from an estimated
off-the-run yield curve over the on-the-run Treasury yield. January
observation is the month-to-date average.
Source: Federal Reserve Board.

Q3
2007

Q3
2008

Q3
2009

Q1
2010

Source: Federal Reserve Board, FR 2004, Government Securities
Dealers Reports.

III-16

State and Local Government Finance
Gross Offerings of Municipal Securities
(Billions of dollars; monthly rate, not seasonally adjusted)

2009
Type of security

2005

2006

2007

2008

38.4
34.2
15.6
18.6
4.2

36.1
32.5
10.6
21.9
3.7

40.4
35.5
12.6
22.9
4.9

2.1

2.5

2.4

Total
Long-term 1
Refundings 2
New capital
Short-term
Memo: Long-term taxable

Dec.

37.6
32.6
14.6
17.9
5.0

36.6
33.0
12.5
20.4
3.6

42.0
30.7
11.2
19.5
11.2

43.2
40.2
16.0
24.2
3.1

40.9
36.2
10.0
26.1
4.7

2.3

4.5

7.9

11.9

10.5

1. Includes issues for public and private purposes.
2. All issues that include any refunding bonds.
Source: Thomson Financial.

Ratings Changes
Number of ratings changes
1200
Annual rate

Upgrades

900
H1

600
300
0
300
600

Downgrades

900
1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

1200

2009

Source: Moody’s Credit Trends.

Municipal Bond Yields

Municipal Bond Yield Ratio
Percent

General Obligation over Treasury
9

Weekly

Dec.
FOMC

7
6

20-year general
obligation

5
Jan.
14

4
3

7-day SIFMA
swap index*

2
20-year

1
Jan.
6

2005

2006

2007

Ratio

2008

2009

2010

* SIFMA is the Securities Industry and Financial Markets
Association.
Source: Municipal Market Advisors; Bond Buyer.

Jan.
14

0
-1
2002

2004

Source: Bond Buyer.

2006

2008

2010

2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8

III-17

continued to experience net outflows in December and early January, as yields paid by
these funds remained extremely low.
Treasury Finance
During the intermeeting period the Treasury auctioned $192 billion of nominal coupon
securities and $10 billion of inflation-protected securities. Consistent with typically
weaker demand around year-end, the auctions in the last week of 2009 were less
favorably received than those in previous months, as indicated by relatively-low bid-tocover ratios. However, the auctions since year-end have garnered stronger demand.
Also consistent with typical seasonal patterns, Treasury trading volumes were on the
lower side of their recent ranges. The repo market experienced some dislocations,
including negative repo rates and a modest rise in fails to deliver. However, the cash
market continued to function normally, with on-the-run premiums and yield curve fitting
errors little changed over the intermeeting period.
State and Local Government Finance
Financing conditions in the municipal bond market appeared solid. Gross issuance of
long-term municipal bonds remained robust in December, mostly driven by continued
strength in new capital issuance. The pace of short-term issuance picked up a bit, but
remained subdued. Ratings data from Moody’s show that the number of municipal bond
downgrades outpaced the number of upgrades in the third quarter of 2009. Yields on
long-term municipal bonds were about flat over the intermeeting period and their ratios to
those on comparable-maturity Treasury securities remained at levels within the typical
historical range.
Money and Bank Credit
M2 continued to expand sluggishly in December, rising about 2 percent at an annual rate.
Although growth in liquid deposits remained robust, small time deposits and retail money
market mutual funds continued to contract at a rapid pace in response to the low yields on
those assets. The monetary base was roughly flat in December, as the contraction in
credit outstanding under liquidity and credit facilities was about offset by the increase in
reserves from the large-scale asset purchases.

III-18

M2 Monetary Aggregate
(Based on seasonally adjusted data)

Percent change (annual rate)1

Aggregate and components

(billions
of dollars),

2008

2009
(p)

8.5

4.9

1.6

3.4

3.9

2.1

8,524

Components2
Currency
Liquid deposits3
Small time deposits
Retail money market funds

5.8
6.9
12.3
13.0

6.9
17.2
-16.0
-23.0

3.8
14.5
-23.6
-32.2

2.0
18.7
-31.9
-34.8

-1.3
18.3
-30.9
-33.3

.6
14.7
-30.0
-34.9

862
5,676
1,168
814

Memo:
Institutional money market funds
Monetary base

24.9
70.3

-1.9
41.6

-11.0
-1.9

-27.6
62.1

-29.9
51.0

-32.2
-.7

2,220
2,018

2009
Q4
Nov.
(p)

Level

Dec.
(p)

1. For years, Q4 to Q4; for quarters and months, calculated from corresponding average levels.
2. Nonbank traveler’s checks are not listed.
3. Sum of demand deposits, other checkable deposits, and savings deposits.
p Preliminary.
Source: Federal Reserve Board.

Dec.
(p)

III-19

Commercial Bank Credit

(Percent change, annual rate, except as noted; seasonally adjusted)
Type of credit

2007

2009

Q3
2009

Oct.
2009

Nov.
2009

Dec.
2009

9.9

4.9

-6.5

-7.1

-10.7

-4.6

-3.4

9,087

10.6
9.5

4.4
5.0

-9.6
-7.6

-12.3
-9.5

-14.2
-13.1

-5.5
-7.2

-9.8
-9.6

6,730
5,983

19.2
9.4

16.3
6.1

-17.0
-4.4

-19.8
-5.6

-26.5
-9.9

-16.5
-8.6

-20.2
-9.0

1,343
1,647

5.3
5.6
5.3
6.8
6.5
18.5

-3.2
13.0
-8.0
7.1
5.7
.4

-5.3
.5
-7.4
-2.2
-3.6
-22.8

-7.8
-4.5
-9.1
-3.7
-4.6
-33.4

-11.2
-5.3
-13.4
-2.0
-3.9
-22.8

-.6
-5.7
1.3
-6.2
-9.0
8.0

-1.7
-6.0
-.1
-13.7
-5.2
-11.6

2,159
602
1,558
833
1,225
747

7.7
-6.2
29.4

Total

2008

Level1
Dec. 2009

6.8
16.3
-4.2

3.9
7.9
-1.8

9.5
18.1
-2.4

-.5
-.9
.0

-1.8
2.1
-7.6

15.2
33.6
-12.7

2,358
1,438
919

Loans2
Total
Core
To businesses
Commercial and industrial
Commercial real estate
To households
Residential real estate
Revolving home equity
Closed-end mortgages
Consumer
Memo: Originated3
Other
Securities
Total
Treasury and agency
Other4

Note: Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data have been
adjusted to remove the effects of mark-to-market accounting rules (FAS 115) and the initial consolidation of certain variable
interest entities (FIN 46) and off-balance sheet vehicles (FAS 166 and 167). Data also account for the effects of nonbank
structure activity of $5 billion or more.
1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels.
2. Excludes interbank loans.
3. Includes an estimate of outstanding loans securitized by commercial banks that retained recourse or servicing rights.
4. Includes private mortgage-backed securities; securities of corporations, state and local governments, and foreign governments;
and any trading account securities that are not Treasury or agency securities.
Source: Federal Reserve Board.

C&I Loans at Commercial Banks

Composition of Assets at Commercial Banks

Percent change, annual rate

Billions of dollars
60

NBER
Peak

Monthly

Percent
Total assets
Securities
Other*

Loans
Cash and equivalents

40
20

2007

2008

2009

Note: Three-month moving average based on seasonally adjusted
data. Large domestic banks include the top 25 domestic banks by
assets.
Source: Federal Reserve.

11500

-20

11000

-40

10500

-60

Large domestic
Other
Foreign

12000

0
Dec.

12500

10000

100

0
Jan.

June Nov.
2007

Apr.

Oct.
2008

Mar.

Aug.
2009

* Other assets include loans to banks, trading assets (excluding
securities), and other assets not elsewhere classified.
Source: Federal Reserve.

III-20

Commercial bank credit continued to contract in December; an increase in banks’
securities holdings was more than offset by a large drop in total loans1. C&I loans and
commercial real estate loans again fell steeply. Paydowns continued to be the most
commonly cited reason for the decline in C&I loans, and reports of large originations
remained sparse. In the fourth quarter, C&I loans contracted sharply at large domestic
banks and foreign banks, while the decline at smaller domestic banks abated somewhat.
Holdings of closed-end residential mortgages were little changed in December, but homeequity loans continued to run off. Consumer loans originated by banks contracted
further, reflecting continued substantial weakness in credit card loans.
For the year as a whole, the substantial decline in total loans was only partly offset by
high growth in cash assets, which include reserves and now account for 10 percent of
total bank assets. Overall, industry assets dropped more than 5 percent in 2009.
Although lending standards for most types of loans were little changed according to the
January SLOOS, banks’ standards and terms on all major loan types remained tight in the
fourth quarter, and the demand for loans generally weakened further (see the appendix to
this section). A substantial fraction of banks continued to tighten their credit policies on
commercial real estate loans.

Available data indicate that, so far, about 10 banks have consolidated about $115 billion in total
assets onto their books in conjunction with the adoption of new accounting rules FAS 166 and 167, and
many more banks are expected to do so by the end of the first quarter of 2010. The effects of these
consolidations have been removed from the bank credit data presented here.

Appendix
Senior Loan Officer Opinion Survey on Bank Lending Practices
The January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that
commercial banks generally ceased tightening standards on most loan types in the fourth quarter
of last year but have yet to unwind the unprecedented tightening that has occurred over the past
two years. The net fraction of banks reporting tighter loan terms continued to trend lower. Banks
reported that loan demand from both businesses and households weakened further, on net, over
1
the survey period.
For most major loan categories covered by the survey, the net fraction of respondents that
tightened standards in the fourth quarter of 2009 was close to zero, an indication that the recent
bout of tightening in credit standards may be drawing to an end. However, banks continued to
tighten a number of terms on loans to both businesses and households, although the net fractions
of banks that reported doing so in the January survey generally stepped down again. Banks’
policies on commercial real estate (CRE) lending are an exception, as large net fractions of
respondents further tightened their credit standards during the final quarter of last year. In
addition, banks reported that they had tightened terms on CRE loans substantially over the past
year.
Banks’ responses regarding commercial and industrial (C&I) lending indicated some disparities
between recent changes in their credit policies for small firms and those for large and middlemarket firms. For example, some banks reported easing a number of price and nonprice terms on
C&I loans over the past three months, and, in several cases, a few more banks did so on loans to
large and middle-market firms than did so on loans to small firms. These differences may partly
reflect differences in the current and expected credit quality between firms in the two size
categories. Indeed, in response to special questions on credit quality, banks indicated that the
credit quality of their outstanding loans to large and middle-market firms in the fourth quarter
was better than that for small firms; moreover, respondents indicated that the outlook for credit
quality in 2010 was more positive for larger firms than for their smaller counterparts.
Demand from both businesses and households for all major categories of loans weakened further,
on net, over the past three months. The net fractions of banks that reported weaker demand for

The January 2010 survey addressed changes in the supply of, and demand for, loans to businesses and
households over the past three months. The survey also included three sets of special questions: The first set asked
banks to compare the delinquency rate of commercial and industrial loans made to small firms to the delinquency rate
of such loans made to large and middle-market firms, the second set asked banks about changes in policies on
commercial real estate loans over the past year, and the third set asked banks about their outlook for the loan quality of
a number of categories of loans in 2010. This appendix is based on responses from 54 domestic banks and 22 U.S.
branches and agencies of foreign banks. Respondent banks received the survey on or after December 29, 2009, and
their responses were due by January 12, 2010.

III-A-1

III-A-2

Measures of Supply and Demand for Commercial and Industrial Loans,
by Size of Firm Seeking Loan

Net Percentage of Domestic Respondents Tightening Standards for Commercial and Industrial Loans
Percent

Oct.
survey

100
80

Loans to large and medium-sized firms
Loans to small firms

60
40
20
0
-20
-40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Net Percentage of Domestic Respondents Increasing Spreads of Loan Rates over Banks’ Costs of Funds
Percent
100
80
60
40
20
0
-20
-40
-60
-80
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Net Percentage of Domestic Respondents Reporting Stronger Demand for Commercial and Industrial Loans
Percent
60
40
20
0
-20
-40
-60
-80
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

III-A-3

business loans continued to decline, while changes in the comparable readings on demand for
loans to households were mixed.
In response to a set of special questions on asset quality, the majority of banks indicated that their
outlook for the change in credit quality in 2010 was less pessimistic relative to their outlook,
when asked one year ago, for the change in credit quality in 2009. Outside of commercial and
prime residential mortgages, banks generally expect asset quality to stabilize this year.
Lending to Businesses
Questions on commercial and industrial lending. Overall, banks reported little net change in
their standards for C&I loans in the fourth quarter of 2009. However, moderate net fractions of
domestic banks continued to tighten both price and nonprice terms on C&I loans to large and
middle-market firms as well as to small firms. In general, the net fractions of banks that reported
a further tightening of loan terms over the past three months were considerably below those from
recent surveys, though the net fraction of banks that reported further increases in loan rate
premiums for risky borrowers remained somewhat elevated. In a tentative sign that the current
credit cycle may be coming to an end, some of the largest domestic banks (those with assets
greater than $20 billion) reported having eased loan terms to large and middle-market firms,
particularly terms pertaining to loan maturities and loan spreads. Similarly, branches and
agencies of foreign banks reported, on net, that they had eased most loan terms over the past three
months.
The reported thawing of loan terms at large domestic banks and foreign institutions for C&I loans
to large firms is consistent with the substantial narrowing of credit spreads in the corporate bond
market—an important alternative source of credit for large business borrowers—and improved
conditions in the syndicated loan market, which includes many nonbank lenders. Indeed, almost
all of the domestic and foreign institutions that reported having eased credit standards or loan
terms over the past three months cited increased competition from other banks and from nonbank
sources of funding as an important reason for the change in their lending posture. In addition, a
majority of banks that eased some of their loan terms viewed the improved economic outlook as
an important reason for the change in their credit policies.
In contrast, moderate net fractions of smaller domestic bank respondents (those with total assets
below $20 billion) continued to tighten terms on loans to firms of all sizes. Moreover, the net
fractions of domestic banks that tightened terms on loans to small firms were generally a little
larger than the net fractions that tightened terms on loans to large and middle-market firms. Most
banks that tightened standards and terms continued to point to a weaker or more uncertain
economic outlook as one of the reasons, and many banks reported greater aversion to risk as well.
Demand for C&I loans—from firms in both size categories—weakened further, on net, at
domestic banks over the past three months. The net fraction that reported weaker demand over

III-A-4

Measures of Supply and Demand for Commercial Real Estate Loans
Net Percentage of Domestic Respondents Tightening Standards for Commercial Real Estate Loans
Percent

Oct.
survey

100

-20

-40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Net Percentage of Domestic Respondents Reporting Stronger Demand for Commercial Real Estate Loans
Percent
60

-20

-40

-60

-80

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

III-A-5

the past three months was only somewhat smaller than it was in the October survey. In contrast,
foreign institutions reported that loan demand was about unchanged, on net, over the same period.
Almost all banks that reported weaker loan demand indicated that their customers’ financing
needs for investment in plant and equipment had declined as had funding needs for inventories
and accounts receivable. Most of the handful of banks that experienced an increase in loan
demand cited a shift in demand from other credit sources to their bank, increased merger and
acquisition activity, and higher credit demand for financing accounts receivable. The number of
inquiries for new or expanded C&I credit lines—which tends to be a leading indicator of nearterm changes in loan demand—weakened again, on net, at domestic banks, but at a more
moderate pace than in recent quarters; foreign institutions, in contrast, reported little change in the
number of inquires for new or expanded C&I credit lines over the survey period.
Special questions on delinquency rates on C&I loans by firm size. In response to a special
question about the quality of C&I loans on banks’ books in the fourth quarter, banks reported
higher delinquency rates on loans to small firms than on loans to large and middle-market firms.
On net, nearly 65 percent of domestic respondents indicated that in the fourth quarter of 2009, the
delinquency rate on their outstanding loans to small firms was higher than the rate on outstanding
loans to large and middle-market firms.
Questions on commercial real estate lending. In contrast to C&I lending, a substantial share of
domestic banks, on net, reported having tightened standards on CRE loans again in the fourth
quarter of 2009. Consistent with the weak fundamentals in the sector, domestic banks reported a
further weakening in demand for such loans. Moderate net fractions of foreign banks also
reported having tightened standards on CRE loans and having seen weaker demand for such loans
over the past three months.
Special question on commercial real estate lending. In response to a special question (repeated
on an annual basis since 2001), large net fractions of both domestic and foreign institutions again
reported having tightened a range of terms on CRE loans over the course of 2009. The largest net
tightening was reported on the spreads of loan rates over banks’ cost of funds, debt-service
coverage ratios, and loan-to-value ratios.
Lending to Households
Questions on residential real estate lending. Banks continued to tighten standards on
residential real estate loans over the past three months. In line with recent patterns, a small net
fraction of banks reportedly tightened standards on prime residential real estate loans over that
period, and somewhat larger net fractions of banks tightened standards on nontraditional
2
residential real estate loans. For the first time since the January 2009 survey, a moderate net
fraction of banks reported weaker demand from prime borrowers for residential real estate loans,
2

Only two banks reported that they had made subprime residential real estate loans over the survey period.

III-A-6

Measures of Supply and Demand for Residential Mortgage Loans

Net Percentage of Domestic Respondents Tightening Standards for Residential Mortgage Loans
Percent

Percent

100

All residential
20

Prime
Nontraditional
-20

-20

Subprime
1990

1992

1994

1996

1998

2000

2002

2004

2006

2007

2008

2009

Q2
2010

Note: For data starting in 2007:Q2, changes in standards for prime, nontraditional, and subprime mortgage loans are reported separately.

Net Percentage of Domestic Respondents Reporting Stronger Demand for Residential Mortgage Loans
Percent

Percent

Prime

All residential

Nontraditional
Subprime

-20

-40

-60

-80

1990

1992

1994

1996

1998

2000

2002

2004

2006

Q2
2007

Q2
2008

Q2
2009

Q2
2010

Note: For data starting in 2007:Q2, changes in demand for prime, nontraditional, and subprime mortgage loans are reported separately.

III-A-7

Measures of Supply and Demand for Consumer Loans

Net Percentage of Domestic Respondents Tightening Standards for Consumer Loans
Percent

Oct.
survey

100
80
60

Credit card loans
Other consumer loans

40
20
0
-20

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Net Percentage of Domestic Respondents Reporting Increased Willingness to Make Consumer Installment Loans
Percent
40

-20

-40
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Net Percentage of Domestic Respondents Reporting Stronger Demand for Consumer Loans
Percent
60
40
20
0
-20
-40
-60
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

III-A-8

a pattern consistent with the softer recent data on housing market activity, including home prices
and new home sales. Demand from customers seeking nontraditional mortgages weakened
further over the survey period. Only a small net fraction of banks reported having tightened
standards on revolving home equity lines of credit over the past three months, but a substantial
net fraction of banks continued to report lower demand for such loans.
Questions on consumer lending. For the first time in nearly three years, banks reported an
increased willingness to make consumer installment loans now as opposed to three months ago.
However, demand for consumer loans weakened further in the January survey: A sizable net
fraction of banks again reported weaker demand for consumer loans of all types, a reading that
stayed within its range of the past few years.
Regarding credit card loans, a very small net fraction of banks reported having tightened
standards on such loans over the past three months. However, substantial net fractions of banks
indicated that they had reduced credit limits on credit cards and had become less likely to issue
cards to customers not meeting credit scoring thresholds. A moderate fraction reported having
increased spreads. These results are consistent with responses to the October 2009 survey, in
which banks indicated that they would tighten a wide range of their credit card policies following
the enactment of the Credit CARD Act. For consumer loans other than credit card loans, banks
reported no change, on net, in their standards in the January survey. Moreover, respondents
indicated little change in most terms on such loans.
Special Questions on Banks’ Outlook for Asset Quality
The January survey included a set of special questions that asked banks about their outlook for
delinquencies and charge-offs across major loan categories in the current year, assuming that
economic activity progresses in line with consensus forecasts. This set of special questions has
been asked on an annual basis since 2006. In general, the outlook for loan quality in 2010 was
among the least pessimistic recorded since this series of questions began. In the previous two
years, large majorities of banks expected widespread deterioration in credit quality over the
coming year across all major loan categories. In this survey, by contrast, substantially fewer
banks reported having such expectations; banks anticipated significant additional deterioration in
the quality of only CRE loans, prime residential mortgages, and revolving home equity lines of
credit this year, with the quality of other loans expected to change little or improve, on net.
Regarding C&I loans, a substantial net fraction of banks reportedly expect delinquencies and
charge-offs of such loans to large and middle-market firms to decline in 2010. A much smaller
net fraction of banks expect an improvement in the credit quality of C&I loans to small firms,
which suggests that many small business borrowers are likely to continue to face tight credit
conditions this year.

III-A-9

On the household side, a moderate net fraction of banks indicated that the credit quality of their
prime residential mortgages and home equity loans would likely deteriorate further in 2010.
However, banks reportedly expect portfolios of most other types of consumer and residential real
estate loans to experience little further deterioration in credit quality this year—indeed, banks
indicated that they hold a relatively optimistic outlook for the credit quality of other consumer
loans, with a moderate net share of banks reportedly expecting some improvement in credit
quality in this loan category.

Last page of Domestic Financial Developments

International Developments

International Developments
U.S. International Transactions
Trade in Goods and Services
The U.S. international trade deficit widened to $36.4 billion in November, from
$33.2 billion in October, as a sharp rise in nominal imports outpaced an increase in
exports.
Trade in Goods and Services
2008
Q2
Nominal BOP
Exports
Imports
Real NIPA
Exports
Imports
Nominal BOP
Net exports
Goods, net
Services, net

Annual rate
Monthly rate
2009
2009
Q3
Q4e
Sept.
Oct.
Nov.
Percent change

-3.4
-7.3

-.8
-9.9

-3.4
-6.8

-4.1
-14.7

-695.9
-840.2
144.3

-325.0
-461.9
137.0

24.8
37.2

2.8
5.6

2.7
.7

.9
2.6

17.8
...
...
21.3
...
...
Billions of dollars

...
...

-33.2
-45.2
12.0

-36.4
-48.4
12.0

-389.5
-528.6
139.0

22.4
24.3

-417.6
-561.3
143.8

-35.7
-47.4
11.7

BOP Balance of payments.
NIPA National income and product accounts.
e BOP data are two months at an annual rate.
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis; Census Bureau.

The value of exports of goods and services moved up 0.9 percent in November after
increasing by almost 3 percent in both September and October. The November increase
was driven primarily by a surge in agricultural exports, which was partially offset by a
decline in consumer goods after a robust October. Exports of capital goods rose, as
computers and semiconductors built further on increases in October. Exports of
automotive products were boosted by strong exports to Canada, while exports of
industrial supplies were flat.
In the first two months of the fourth quarter, nominal exports jumped a robust 22 percent
at an annual rate, continuing to retrace the declines recorded in late 2008 and the first half
of 2009. The fourth-quarter increase was broad-based across capital goods, consumer
goods, industrial supplies, automotive products, and services. Agricultural products also
had a notable increase, reflecting rising quantities and prices.

IV-1

IV-2

U.S. International Trade in Goods and Services
(Quarterly)
Contribution of Net Exports to
Growth of Real Gross Domestic Product

Trade Balance
Billions of dollars, annual rate

Percentage points, annual rate

3.5
3.0

-100

2.5

-200

2.0

November

-300

1.5

-400

1.0

-500

0.5
0.0

-600

-0.5
-700

-1.0

-800

2000

2002

2004

2006

2008

-900

Selected Exports

-1.5

2000

2002

2004

2006

2008

-2.0

Selected Imports
Billions of dollars, annual rate

Billions of dollars, annual rate

600

550

500

Consumer
goods

450

400

400
Capital goods

350

300

250

Capital goods
ex. aircraft

350

250
Industrial
supplies

200

Industrial
supplies
150
Consumer
goods

Oil
100

2002

2004

2006

2008

100

Aircraft

2000

150

Source: U.S. Dept. of Commerce, Bureau of Economic Analysis; Census Bureau.

2000

2002

2004

2006

2008

IV-3

U.S. Exports and Imports of Goods and Services

(Billions of dollars; annual rate, balance of payments basis)

Exports of goods and services
Goods exports
Gold
Other goods

Levels
2009
2009
Q3
Q4e
Oct.
Nov.
1570.1 1651.5 1644.1 1658.8
1055.6 1128.6 1121.6 1135.6
14.3
14.3
16.8
11.8
1041.4 1114.3 1104.9 1123.8

Change1
2009
2009
Q3
Q4e
Oct.
Nov.
84.5
81.4
43.5
14.7
71.1
2.0
69.1

73.0
-.0
73.0

38.1
1.8
36.3

13.9
-5.0
18.9

Capital goods
Aircraft & parts
Computers & accessories
Semiconductors
Other capital goods

382.2
70.4
37.4
38.5
235.9

406.8
73.2
40.4
43.2
250.1

404.7
75.8
39.6
41.6
247.7

409.0
70.6
41.1
44.7
252.5

9.1
-3.0
1.9
3.5
6.7

24.6
2.8
3.0
4.7
14.2

14.6
2.3
3.1
3.4
5.7

4.3
-5.2
1.6
3.2
4.8

Automotive
Ind. supplies (ex. ag., gold)
Consumer goods
Agricultural
All other goods

86.4
283.3
150.0
99.0
40.4

99.4
300.0
160.6
106.8
40.7

95.1
300.4
164.9
99.1
40.7

103.7
299.6
156.3
114.5
40.7

19.7
33.5
5.8
-1.9
3.0

13.0
16.7
10.6
7.8
.3

5.0
3.4
11.8
2.1
2.8

8.6
-.8
-8.6
15.4
-.0

514.5

522.9

522.5

523.3

13.4

8.4

5.5

1959.7 2069.0 2042.4 2095.7

149.1

109.4

14.0

53.3

1584.2 1689.9 1663.8 1716.1
275.5 283.3 273.3 293.2
8.8
11.1
10.8
11.4
1299.9 1395.6 1379.6 1411.5

137.7
47.7
.4
89.6

105.7
7.8
2.3
95.6

11.6
-32.3
2.4
41.5

52.3
19.8
.5
31.9

Services exports
Imports of goods and services
Goods imports
Oil
Gold
Other goods
Capital goods
Aircraft & parts
Computers & accessories
Semiconductors
Other capital goods

364.2
29.1
95.0
22.2
217.9

390.7
29.9
110.6
23.9
226.3

383.4
30.6
106.2
24.5
222.2

398.0
29.2
115.1
23.3
230.4

18.6
-2.3
10.6
1.8
8.4

26.5
.8
15.6
1.7
8.4

12.5
1.8
10.2
1.8
-1.3

14.6
-1.3
8.9
-1.2
8.2

Automotive
Ind. supplies (ex. oil, gold)
Consumer goods
Foods, feeds, beverages
All other goods

178.0
190.5
422.6
81.0
63.6

202.6
210.7
447.4
82.1
62.1

202.9
208.5
439.2
83.0
62.6

202.3
213.0
455.5
81.1
61.6

51.2
11.8
3.5
-.5
5.1

24.6
20.3
24.7
1.1
-1.5

6.8
8.2
14.6
2.6
-3.1

-.6
4.6
16.3
-1.9
-1.0

375.5

379.1

378.6

379.6

11.3

3.7

2.4

1.0

11.36
66.25

10.92
71.02

10.89
68.69

10.94
73.34

-.26
12.55

-.45
4.73

-1.22
-.38

.05
4.65

Services imports
Memo:
Oil quantity (mb/d)
Oil import price ($/bbl)

1. Change from previous quarter or month.
e Estimate based on average of two months.
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis; Census Bureau.

IV-4

The value of imports of goods and services rose 2.6 percent in November after posting a
modest gain of 0.7 percent in October. Imports of oil accounted for roughly one-third of
the November increase, which reflected rising prices as volumes were flat. Most other
categories of imports also recorded gains in November. A prominent exception was
automotive products, which shrank modestly following three months of strong growth.
For the first two months of the fourth quarter, nominal imports rose by 24 percent at an
annual rate, down somewhat from the rapid third-quarter pace. However, as with
exports, these increases have reversed only a small amount of the earlier steep decline.
The fourth-quarter increase was broad-based across major categories of imports.
Prices of Internationally Traded Goods
Non-oil imports. Prices for imported non-oil goods rose 0.5 percent in December, in
line with their increases over the past four months. The pickup was driven by higher
prices for material-intensive goods, particularly nonfuel industrial supplies. Prices for
finished goods were flat.
In the fourth quarter, non-oil import prices as measured by the Bureau of Labor Statistics
(BLS) increased 5¾ percent at an annual rate. The increase largely reflected higher
prices for material-intensive goods. Prices for finished goods imports rose a more modest
1 percent.
Oil. The BLS price index of imported oil fell 2 percent in December after an increase of
more than 6 percent in November. The spot price of West Texas Intermediate (WTI)
crude oil followed a similar pattern, dipping roughly 4 percent in December from an
average of $78 per barrel in the previous month. Spot WTI has increased early in the
new year, closing most recently on January 19 at $79 per barrel. The higher oil prices in
late December and early January reflect stronger demand from China as well as from a
spell of colder-than-expected temperatures across much of the northern hemisphere.
Exports. Goods export prices rose 0.6 percent in December, a little less than in the
previous month. Once again, growth in the prices for these goods came from materialintensive goods, where prices of both agricultural products and industrial supplies
increased about 2 percent. However, prices for imported finished goods were unchanged.

IV-5

For the fourth quarter, goods export prices on a BLS basis increased 3¾ percent at an
annual rate. Prices for material-intensive goods shot up 10 percent, while prices for
finished goods edged up only 1 percent.

IV-6

U.S. International Financial Transactions
Since the previous Greenbook, we have received Treasury data on international financial
transactions through November and partial data for December and January. On balance,
official purchases of long-term U.S. Treasuries have remained elevated while private
foreigners have continued to purchase U.S. equities and, more recently, long-term U.S.
Treasuries.
Foreign official inflows slipped a bit in November but remained strong (see line 1 of the
table “Summary of U.S. International Transactions;” see also the figure “Foreign Official
Financial Inflows through November 2009”). Purchases of long-term Treasuries (line 1a)
increased smartly and offset a shift to net sales of short-term Treasuries (line 1b). Since
August of 2009, official foreigners have been selling bills or letting their bill holdings roll
off. This has brought the share of bills in their portfolios back toward pre-crisis levels
and has been in line with the overall composition of Treasuries outstanding. Confidential
custody data from FRBNY suggest further robust official inflows in December.
Foreign official holdings of Treasuries at FRBNY increased modestly and there was a
large increase in holdings in the Repo Pool, which acts as a deposit account. Through the
first half of January, foreign official holdings at FRBNY declined as Repo Pool holdings
dropped back.
Net official financial inflows in November also received a boost from a further
$11 billion decline in outstanding drawings by foreign central banks on the Federal
Reserve swap lines. Drawings on the swap lines involve U.S. purchases of foreign
currency, which are recorded as an official U.S. claim on foreigners, and repayments of
those drawings therefore generate inflows. As of the end of 2009, the outstanding
balances on the lines totaled $10 billion, down from a high of $583 billion in December
2008.
The decline in the swap drawings has coincided with renewed net lending abroad by
banks located in the United States amounting to, on net, $44 billion in November (line 3).
Bank flows tend to be volatile but, overall, net lending has grown as gross claims on
foreigners trended up throughout 2009 while gross liabilities to foreigners leveled out. A
rebound in lending through the repo market has contributed to the growth in gross claims,
though they are still far below their pre-crisis levels.
Private foreigners purchased on net $47 billion of Treasuries in November, a break from
the pattern of net sales, which totaled $74 billion, from March to October (line 4a; see

IV-7

also figure “Private Securities Flows through November 2009”). Purchases of Treasuries
reflected acquisitions of bonds and notes that outstripped reductions in bills (not shown
separately). This pattern is similar to that of official holdings, largely reflecting a change
in the composition of Treasuries outstanding. Private foreign investors continued to
show interest in U.S. equities (line 4d) in November and continued to sell, on net, agency
(line 4b) and corporate bonds (line 4c), despite robust issuance of corporate bonds.
U.S. investors purchased, on net, $3.1 billion of foreign securities in November, a sharp
decline relative to purchases in October (line 5). These small purchases of foreign
securities reflected acquisitions of foreign bonds (line 5a) offsetting small net sales of
foreign stocks (line 5b).

IV-8

IV-9

IV-10

IV-11

Prices of U.S. Imports and Exports
Merchandise Imports

Categories of Core Imports
12-month percent change

12-month percent change

6
Core goods

Material-intensive
goods

7
Finished goods

-3

-2
-8

-4

Non-oil goods

-13

-6
2000

2002

2004

2006

2008

-8

2000

Oil

2002

2004

2006

2008

-18

Natural Gas
Dollars per barrel

Spot West
Texas Intermediate

Import unit value
2000

2002

2004

2006

2008

145
135
125
115
105
95
85
75
65
55
45
35
25
15
5

Merchandise Exports

Core goods

Total goods

2002

2000 = 100

Dollars per million Btu

Import price
index
(left scale)

250

30
25

200

150

100

Spot Henry Hub
(right scale)

2000

2002

2004

2006

2008

Categories of Core Exports
12-month percent change

2000

300

2004

2006

2008

14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12

Source: Bureau of Labor Statistics; Wall Street Journal; Commodity Research Bureau.

12-month percent change

25
20
15

Material-intensive
goods

10
5

Finished goods

0
-5
-10
-15
-20
2000

2002

2004

2006

2008

-25

IV-12

Prices of U.S. Imports and Exports

(Percentage change from previous period)
Annual rate
2009
Q2
Q3
Q4
Merchandise imports
Oil
Non-oil
Core goods1

Monthly rate
2009
Oct.
Nov.
Dec.

----------------------- BLS prices --------------------14.9
12.0
10.9
.9
1.6
.0
246.9
88.4
36.6
2.4
6.3
-2.0
-3.3
1.1
5.7
.5
.6
.5
-1.2

2.3

6.2

Finished goods
Cap. goods ex. comp. & semi.
Automotive products
Consumer goods

-.5
-1.4
.0
-.1

.4
.4
2.0
-.4

1.0
.7
2.2
.5

.2
.1
.3
.2

.0
.1
.1
-.1

.0
.1
.1
.0

Material-intensive goods
Foods, feeds, beverages
Industrial supplies ex. fuels

-2.9
.8
-4.2

6.9
.9
8.4

18.8
8.3
22.1

1.2
.4
1.5

1.2
.9
1.3

1.6
.9
1.9

-4.2
7.1
-74.8

.3
-5.4
-39.4

-.5
3.4
163.9

-.4
-.5
17.4

.4
1.2
26.6

.0
.1
6.9

2.4

3.4

3.7

2.6

4.1

5.0

1.0

Finished goods
Cap. goods ex. comp. & semi.
Automotive products
Consumer goods

.4
2.5
-.6
-3.9

2.1
2.2
-.5
4.3

.9
.9
.9
1.1

.1
.2
.1
.1

-.0
-.1
.1
.1

.0
.0
.0
.0

Material-intensive goods
Agricultural products
Industrial supplies ex. ag.

5.3
19.6
1.3

6.5
-7.8
12.1

10.0
2.9
13.0

.3
-.7
.6

2.2
4.0
1.5

1.8
2.0
1.9

-3.4
12.3

-1.5
-.8

10.7
-13.7

.3
-3.9

2.6
.2

-.2
.0

Computers
Semiconductors
Natural gas
Merchandise exports
Core goods2

Computers
Semiconductors

--------------------- NIPA prices --------------------Chain price index
Imports of goods & services
Non-oil merchandise
Core goods1

4.2
-3.9
-2.3

11.4
.6
1.3

n.a.
n.a.
n.a.

...
...
...

Exports of goods & services
Total merchandise
Core goods2

.1
1.9
2.4

4.6
4.6
5.1

n.a.
n.a.
n.a.

...
...
...

1. Excludes computers, semiconductors, and natural gas.
2. Excludes computers and semiconductors.
n.a. Not available. ... Not applicable.
BLS Bureau of Labor Statistics.
NIPA National income and product accounts.
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis; Bureau of Labor Statistics.

IV-13

Foreign Financial Markets
The trade-weighted value of the broad nominal dollar is slightly higher than at the time of
the December Greenbook, while foreign equity prices and sovereign yields have risen as
markets seem to have revised up their view of the prospects for global growth.
The major-currencies index of the dollar’s value has increased ¾ percent, while the OITP
index has declined slightly. Consistent with a shift in focus on growth and away from
risk appetite, there was a change in the tenor of the foreign exchange market, with
positive U.S. news leading to dollar appreciation and negative U.S. news leading to
depreciation. The dollar appreciated about 3 percent against the euro and yen as the
market seemed to be driven by a growing realization that U.S. growth prospects appear
considerably better than in Europe and Japan. Partially offsetting these moves, rising
commodity prices and a strong outlook for China led the dollar to decline against the
currencies of commodity producers and against most emerging Asian currencies, though
Chinese authorities continued to hold the renminbi stable against the dollar
Benchmark sovereign yields have increased about 30 basis points in the United Kingdom,
comparable to the increase in the United States, while yields in Germany and Japan have
moved up 15 and 5 basis points respectively. Consistent with the rise in yields in the
United Kingdom, expectations for the policy rate set by the Bank of England (BOE) as of
the end of 2012 has increased as inflation has come in higher than expected. In contrast,
expectations for the policy rates set by the ECB and Bank of Japan (BOJ) are little
changed over the forecast horizon. Most of the rise in nominal foreign yields can be
attributed to an increase in inflation compensation, and staff estimates of nominal and
real yield curves indicate that most of the rise in inflation compensation was at the shortend of the term structure. This may reflect some increase in short-term inflation
expectations associated with the recent move up in commodity prices, as survey measures
of foreign inflation expectations have also edged up; however, the rise in inflation
compensation may also reflect movements in the inflation risk premium and further
improvement in the liquidity of indexed-debt markets.
Although the rise in nominal sovereign yields is consistent with greater confidence in the
growth outlook and rising commodity prices, it may also have been affected by
expectations of greater government and corporate borrowing in the coming year.
Sovereign issuance is likely to be at record levels this year for many countries. Corporate
issuance also may be high; in 2009, for the first time on record, global corporate
investment grade bond issuance surpassed syndicated bank lending to investment grade

IV-14

corporations. However, despite the prospect of a large supply, public bond offerings so
far this year have met with reasonably strong demand. One notable exception to this is
Greece, where the government has avoided any public offerings of long-term debt in
January, stating that it may choose instead to place its debt privately, out of concern that a
public offering would not be met with strong demand. Spreads on Greek debt over
German bunds rose about 60 basis points as Greece was downgraded from A1 to A2 by
Moody’s and the country continued intense negotiations over its fiscal situation with the
European Union. Concerns about the fiscal situations in Spain and Portugal also led
spreads on Spanish and Portuguese debt over German bunds to increase.
In line with the more positive view of growth prospects, European and Japanese equity
prices rose about 5½ percent. European bank stocks indexes rose by a less than the
headline indexes. Although most earnings reports for the fourth quarter will not arrive
for a month or more, Societe Generale issued a profit warning and the Spanish retail bank
Banesto posted disappointing results after raising its estimates of the losses it would incur
from bad loans, rekindling some concern as to the health of European banks.
Although the Chinese stock prices have declined slightly on net, most other emerging
market equities indexes have risen at least 2 percent and a few have risen as much as
12 percent. Earlier in the period, emerging market equities had increased by even more;
however, news late in the period that the Peoples Bank of China had raised reserve
requirements caused a modest retreat in many emerging stock markets.
. In addition,
Taiwan's central bank moved to curb speculative capital inflows.

IV-15

IV-16

IV-17

IV-18

IV-19

IV-20

Developments in Advanced Foreign Economies
Incoming data suggest that activity in the advanced foreign economies continued to
expand in the fourth quarter, though at a moderate pace. PMIs and confidence indicators
generally advanced, industrial production firmed, and measures of capacity utilization
rebounded from their third-quarter lows. However, unemployment rates remain elevated
and consumption indicators were mixed. Credit conditions improved further, as lending
to the private sector expanded in most economies. Increases in export and import
volumes point to a gradual recovery in international trade.
Amid rising energy prices, 12-month headline inflation for December picked up in all
countries except Japan, where deflation moderated only mildly. Excluding food and
energy, inflation remained subdued. All major foreign central banks have kept their
policy rates unchanged.

IV-21

Advanced Foreign Economies
Average Real Gross Domestic Product
Quarterly

Annualized percent change

6
4
2
0
-2
-4
-6
-8

2000
2001
2002
2003
2004
2005
2006
Note: Chain weighted by moving bilateral shares in U.S. merchandise exports.
Source: FRB staff calculations.

2007

Consumer Prices
Monthly

2008

-10

2009

12-month percent change

Japan
Euro area
Canada
United Kingdom

8
6
4
2
0
-2

2000
2001
Source: Haver Analytics.

2002

2003

2004

2005

2006

2007

2008

-4

2009

Official or Targeted Interest Rates

Percent

Japan
Euro area
Canada
United Kingdom

7
6
5
4
3
2
1
0

2000
2001
Source: Bloomberg.

2002

2003

2004

2005

2006

2007

2008

2009

-1

IV-22

Japanese Real GDP

(Percent change from previous period except as noted, annual rate)
Component

20071 20081

GDP

2008

2009

1.7

-4.4

-10.2

-11.9

2.7

1.3

-2.0

-1.4

-9.0

-2.7

-.2

1.2

-1.9

-3.5

-4.9

4.8

3.8

Private investment

-4.3

-5.1

-19.5

-28.6

-19.8

-13.6

Public investment

-4.2

-8.6

1.7

15.5

27.5

-6.3

2.7

-.5

4.7

2.8

1.1

-.5

3.2

-1.4

-2.7

9.5

-13.4

-44.9

-61.7

28.8

28.6

1.5

-6.2

-47.7

-13.0

13.9

1.2

-2.2

-8.0

-5.3

4.5

2.0

Total domestic demand
Consumption

Government consumption
Inventories

Exports
Imports
2

Net exports

1. Q4/Q4.
2. Percentage point contribution to GDP growth.
Source: Haver Analytics.

Recent indicators suggest that the Japanese economy expanded at a faster pace in the
fourth quarter. Industrial production rose 2.2 percent in November from the previous
month and foreign orders climbed, as the industrial sector continues to benefit from the
recovery in global trade. Indeed, real exports increased sharply in November following
strong gains in the preceding two months. However, a bounceback in real imports
indicates that the contribution of the external sector to GDP growth may be moderating.
Indicators of domestic demand, however, remain soft. The monthly index of real
consumption fell in November. In December, new car registrations were flat and
consumer confidence weakened for the second consecutive month. Labor market
conditions have yet to improve significantly. In November, machinery orders fell at
double digit rate. Higher business confidence and a nascent increase in housing starts,
however, indicate that private investment might be approaching a trough.

IV-23

Japan
Economic Activity

2005 = 100

Industrial production
Tertiary services

Real Trade
120

2005 = 100

Real exports
Real imports

110

140
130

100

120
110

100

90
80

2001
2003
2005
Source: Haver Analytics.

2007

Labor Market

1.2
1.1

Ratio

2009

Percent

Unemployment rate (right scale)
Job openings to applications (left scale)

2001
2003
2005
Source: Haver Analytics.

Consumer Price Inflation
6.0

2007

2009

Percent, 12-month basis, n.s.a.

Consumer price inflation
Core*

0.9

5.0

0.8

0
4.5

0.7
0.6

-1

4.0

-2

0.5
0.4

5.5

1.0

150

2001
2003
2005
Source: Haver Analytics.

2007

2009

3.5

2001
2003
2005
2007
2009
*Excludes all food and energy; staff calculations.
Source: Haver Analytics.

Economic Indicators

(Percent change from previous period except as noted)

Machinery orders1
Household expenditures
New car registrations
2

Business sentiment
3

Wholesale prices

-7.2

n.a.

3.3

9.0

4.7

n.a.

-4.9

Housing starts

2009
Q3

-15.7

Indicator

-.9

n.a.

10.5

-4.5

-11.3

n.a.

1.0

n.a.

-.6

n.a.

14.6

19.4

10.9

3.3

5.2

4.5

-45.0

-38.0

-32.0

...

-5.5

-8.3

-5.2

-8.0

-6.8

-5.0

-3.9

1. Private sector excluding ships and electric power.
2. Tankan survey, diffusion index. Level.
3. Percent change from year earlier; not seasonally adjusted.
n.a. Not available. ... Not applicable.
Source: Haver Analytics.

Sept.

2009
Oct. Nov.

Dec.

-3

IV-24

In November, the 12-month inflation rate moved up to negative 1.9 percent from an alltime low of negative 2.5 percent in October, as energy prices rose. Core inflation
(excluding all food and energy) edged up to negative 1 percent. Incoming data, however,
point to ongoing deflationary pressures; in December, both headline and core inflation
declined further in the Tokyo area.
On December 18, the Bank of Japan (BOJ) left its policy rate unchanged and repeated its
commitment to maintain an extremely accommodative policy stance. Furthermore, the
BOJ reiterated its goal to attain inflation of around 1 percent over the medium- and longterm.
In the next few weeks, the Japanese Parliament is expected to approve the budget
submitted by the Hatayama government for the 2010 fiscal year. The budget proposal
provides additional fiscal stimulus, including increased transfers to households and local
governments.
Euro-Area Real GDP

(Percent change from previous period except as noted, annual rate)
Component

20071 20081

2008

2009

GDP

2.2

-1.8

-7.4

-9.5

-.5

1.7

Total domestic demand

1.8

-.4

-3.0

-7.5

-3.0

1.4

Consumption

1.2

-.7

-2.0

-1.6

-.6

Investment

3.1

-5.8

-15.1

-19.9

-6.3

-3.3

2.0

2.4

2.6

2.5

2.6

2.3

-2.9

-2.2

2.0

4.2

-6.9

-25.7

-30.2

-4.7

13.1

3.5

-4.0

-17.8

-26.6

-10.7

12.5

-1.4

-4.5

-2.1

2.6

Memo:
GDP of selected countries
France

2.1

-1.7

-5.9

-5.3

1.3

1.0

Germany

1.6

-1.8

-9.4

-13.4

1.8

2.9

-2.9

-8.0

-10.4

-1.9

2.3

Government consumption
Inventories

Exports
Imports
2

Net exports

Italy

1. Q4/Q4.
2. Percentage point contribution to GDP growth.
Source: Haver Analytics.

IV-25

Third quarter GDP growth in the euro area was revised up 0.2 percentage point to
1.7 percent, reflecting a larger contribution from inventories. Recent indicators have
been mixed but, on balance, suggest that economic activity continued to expand, albeit
moderately, in the fourth quarter. Advance reports indicate that German GDP stagnated
in the fourth quarter, surprising markets on the downside. In November, euro-area retail
sales and new car registrations declined, after a middling performance in October, and the
unemployment rate reached 10 percent. In contrast, after edging down in October,
industrial production rebounded in November and PMIs rose further into expansionary
territory in December. Moreover, in December, several measures of economic sentiment
reached their highest levels since July 2008.
In December, 12-month inflation rose to 0.9 percent from 0.5 percent in November.
Excluding all food and energy, November inflation was about 1.0 percent.
The ECB kept its benchmark policy rate unchanged at 1 percent at its January 14
meeting. The ECB has continued to buy covered bonds, and by early January had
purchased €29 billion out of planned €60 billion of total acquisitions.
Euro-area credit conditions have improved considerably in recent months. Household
credit continued to expand through November. Corporate credit edged down in October
and was flat in November, suggesting that it might soon start to recover. Tight bank
lending standards have induced firms to issue new debt in capital markets. In 2009,
nonfinancial corporations issued almost €100 billion worth of bond debt, making up for
much of the contraction in bank loans.

IV-26

Euro Area
Nominal Exports and Imports

Billions of U.S. dollars

Exports
Imports

Economic Sentiment
250

Percent balance

Consumer confidence
Industrial confidence

20
10

200
0
150

-10
-20

100
-30

2001
2003
2005
Source: Haver Analytics.

2007

Unemployment Rate

2009

Percent

2001
2003
2005
Source: Haver Analytics.

Consumer Price Inflation
10.5

2007

2009

Percent, 12-month basis, n.s.a.

Consumer price inflation
Core*

10.0

9.0

8.5

8.0

7.5
2007

7.0

2009

2001
2003
2005
2007
2009
*Excludes all food and energy; staff calculations.
Source: Haver Analytics.

Economic Indicators

(Percent change from previous period except as noted)

2009

Indicator

2009

Q1
1

Aug.

Sept.

Oct.

Nov.

Industrial production

-8.5

-1.2

2.3

1.1

-.3

1.0

Retail sales volume2

-.9

-.4

-.2

-.5

-1.1

New car registrations

12.7

3.0

-4.3

4.1

1.2

-.5

-.7

-.5

...

-2.0

-5.2

-7.1

-6.8

-7.0

-6.0

-3.9

6.5

4.7

2.8

3.0

2.0

-.3

Employment
3

Producer prices
3

5
4

9.5

2001
2003
2005
Source: Haver Analytics.

-40

1. Excludes construction.
2. Excludes motor vehicles.
3. Eurostat harmonized definition. Percent change from year earlier.
... Not applicable.
Source: Haver Analytics.

-1

IV-27

In the United Kingdom, recent indicators suggest that the economy is finally emerging
from the longest recession of the post-war period. Labor market indicators have
stabilized; the unemployment rate has remained at just under 8 percent since May and the
number of people claiming unemployment benefits edged down in November and
December. Output in the services sector posted modest gains in September and October,
and industrial production inched up in November. The volume of retail sales slid in
November after registering solid gains in the previous two months.
U.K. Real GDP

(Percent change from previous period except as noted, annual rate)
Component

20071 20081

2008

2009

GDP

2.4

-2.1

-7.0

-9.7

-2.7

-.6

Total domestic demand

3.1

-3.4

-8.9

-9.3

-3.7

Consumption

2.2

-.9

-4.5

-6.0

-3.2

-.1

Investment

4.9

-9.1

-9.4

-26.8

-21.6

8.9

1.2

3.3

4.5

-.2

2.6

1.3

-2.1

-5.5

-.7

1.5

-1.2

3.4

-3.6

-16.8

-25.1

-8.5

3.2

5.6

-8.1

-22.1

-24.2

-12.2

6.0

-.8

1.5

2.4

1.3

-.8

Government consumption
Inventories

Exports
Imports
2

Net exports

1. Q4/Q4.
2. Percentage point contribution to GDP growth.
Source: Haver Analytics.

Surveys paint a mixed portrait of the strength of the recovery. In December, PMIs were
consistent with the manufacturing and services sectors growing at their pre-recession
average. By contrast, business and consumer confidence weakened in December, and a
British Chambers of Commerce survey conducted late in the fourth quarter points to
further stagnation. Lenders reportedly increased the availability of secured household
credit and corporate credit, but the availability of unsecured household credit was
restrained further.
The housing sector continues to recover at a slow, yet steady, pace. Loan approvals for
house purchases rose for a 13th consecutive month in November, although they remained
at only about one-half their pre-recession level. House price indexes in December had
retraced about one-third of their peak-to-trough decline while new construction orders in
November lingered near their nadir.

IV-28

Twelve-month headline inflation surged to 2.9 percent in December as unusually large
price declines in December 2008 – reflecting the value-added tax cut, sharp oil price
decreases, and heavy discounts by retailers – dropped out of the equation. The recent rise
in commodity prices and a weak sterling have continued to exert significant upward
pressure on goods prices. The price of consumer goods excluding food and energy rose
3.2 percent in the 12 months to December, the fastest pace since the adoption of the
current methodology in 1997. By contrast, services inflation edged up to 2.6 percent, a
figure well below its recent trend.
As of January 14, the Bank of England had acquired £195 billion in securities at its Asset
Purchase Facility, nearly all of which (£193.2 billion) were gilts. The BOE plans to
purchase a total of £200 billion in assets through the creation of central bank reserves by
the end of January.

IV-29

United Kingdom
Consumer Price Inflation

Percent, 12-month basis, n.s.a.

Consumer price inflation
Core*

Unemployment Rates
6

Percent

Labor Force Survey
Claimant count

9
8

4
3

-1

2001
2003
2005
2007
2009
*Excludes all food and energy; staff calculations.
Source: Haver Analytics.

Purchasing Managers Survey

50+ = expansion

Services
Manufacturing

2001
2003
2005
Source: Haver Analytics.

Labor Costs
65

2007

2009

Percent, 12-month basis

Unit wage costs*
Average earnings**

-5

35
2005

2007

2009

2001
2003
2005
2007
*Manufacturing industries.
**Whole economy, including bonuses.
Source: Haver Analytics.

Economic Indicators

(Percent change from previous period except as noted)

2009

Indicator

2009

Sept.

Oct.

Nov.

Dec.

Industrial production

-.6

-.9

n.a.

1.3

n.a.

Producer input prices1

-8.9

-8.7

3.7

-6.2

4.0

6.9

1.1

n.a.

-.4

n.a.

-22.0

-7.0

-2.0

4.0

-7.0

-19.9

-14.1

-8.8

-10.1

-8.3

-9.7

-12.9

n.a.

-5.0

-5.1

-4.8

n.a.

Retail sales volume
2

Business confidence

Consumer confidence
3

Trade balance

20
15

2001
2003
Source: Reuters.

1. Percent change from year earlier.
2. Percent balance.
3. Level in billions of U.S. dollars.
n.a. Not available.
Source: Haver Analytics; FRB staff calculations.

2009

-10

IV-30

Canadian Real GDP

(Percent change from previous period except as noted, annual rate)
Component

20071 20081

2008

2009

GDP

2.8

-1.0

-3.7

-6.2

-3.1

Total domestic demand

6.6

-1.1

-6.1

-11.4

1.0

5.7

Consumption

5.4

-3.1

-1.4

1.8

3.1

Investment

4.5

-3.6

-14.8

-22.8

-4.9

8.9

3.7

3.1

2.5

2.2

3.3

5.0

1.7

-1.1

-1.2

-5.5

-1.5

-7.3

-17.7

-29.8

-19.5

15.3

8.5

-7.7

-23.4

-39.2

-6.9

36.0

-4.2

2.2

4.5

-4.0

-5.5

Government consumption
Inventories

Exports
Imports
2

Net exports

1. Q4/Q4.
2. Percentage point contribution to GDP growth.
Source: Haver Analytics.

In Canada, data received for the fourth quarter have been positive. The monthly GDP
index rose at an annual rate of 1.9 percent in October following an outsized increase of
5.2 percent in September. Gains in output were broad based over the two months. Real
retail sales were up in October amid strong sales of new cars, marking the sixth
consecutive monthly increase. Credit growth, which has remained relatively strong
through the downturn, may get a further lift going forward. According to the Bank of
Canada’s senior loan officer survey, credit conditions eased in the fourth quarter for the
first time since 2007.
The Canadian housing market has continued to rebound forcefully. Building permits
have increased more than 70 percent from their February lows. The level of permits is
now only a touch below its average level during the boom years of 2006 and 2007.
Prices for new houses rose 4½ percent at an annual rate over the three months ending in
November.
Labor market conditions improved further in the fourth quarter, as total employment rose
at an annual rate of nearly 1 percent. Public-sector employment advanced markedly,
whereas private-sector employment edged up in the last two months of the quarter, after
having fallen in October. Total hours of work were unchanged over the quarter, as a rise
in December hours offset previous declines. The unemployment rate remained at
8.5 percent in December.

IV-31

Consumer prices rose 1.2 percent over the 12 months ending in December, up
0.2 percentage point from November. Excluding food and energy, inflation was
0.7 percent in December, remaining at its lowest level since the early 1990s.
At its January meeting, the Bank of Canada maintained its policy rate at 0.25 percent and
reiterated its intention, conditional on the outlook for inflation, to keep rates at this level
until at least the end of the second quarter of 2010.

IV-32

Canada
Real Gross Domestic Product by Industry

Percent change from year earlier

Real Trade
8

2002 = 100

Real exports
Real imports

160
150
140

130

120

110
100

-2

-4
2001

2003

2005

2007

-6

2009

2001
2003
2005
Source: Haver Analytics.

Note: Constructed from various Statistics Canada surveys and
supplements to the quarterly income and expenditure-based estimates.

2007

2009

Source: Haver Analytics.

Unemployment Rate

Percent

Consumer Price Inflation
9.0

Percent, 12-month basis, n.s.a.

Consumer price inflation
Core*

8.5

5
4

8.0

7.5

7.0

6.5

6.0
2001
2003
2005
Source: Haver Analytics.

2007

-1

5.5

2009

2001
2003
2005
2007
2009
*Excludes all food and energy; staff calculations.
Source: Haver Analytics.

Economic Indicators

(Percent change from previous period except as noted)

2009
Q3

Sept.

Industrial production

-4.6

-1.4

n.a.

1.1

n.a.

New manufacturing orders

-1.7

1.8

n.a.

5.6

-2.8

1.2

n.a.

Retail sales

1.4

n.a.

1.3

n.a.

Employment

-.4

-.2

-.3

-.0

2.7

n.a.

53.4

56.4

55.2

61.7

61.2

55.9

48.4

Indicator

Wholesale sales
1

Ivey PMI

2009
Oct. Nov.

1. PMI Purchasing managers index. Not seasonally adjusted. 50+ indicates expansion.
n.a. Not available.
Source: Haver Analytics; Bank for International Settlements.

Dec.

-2

IV-33

Economic Situation in Other Countries
Economic activity in the emerging market economies continued to expand in the fourth
quarter, although at a more moderate pace than in the third quarter. Within emerging
Asia, growth appears to have remained robust in China and to have slowed elsewhere.
Exports continued to rebound, although merchandise trade balances declined in a number
of countries where strong domestic demand caused imports to outpace exports. In Latin
America, indicators point to a continuation of growth in much of the region, although
activity in Mexico appears to have decelerated significantly following the third quarter’s
outsized gain. Headline inflation continued to rise in emerging Asia, driven by energy
and food prices, but remained below its earlier elevated pace in Latin America. The
increase in food prices largely reflected the effects of adverse weather in several
emerging Asian economies during the fourth quarter.
In China, incoming data point to continued strong growth of real GDP in the fourth
quarter. Growth appears to be broad based, with consumption, investment, and net
exports all likely contributing positively. In December, real auto sales were 45 percent
higher than their year-earlier level, and, more generally, retail sales growth remained
strong. Over October and November, fixed-asset investment was 28 percent higher than
the same period in 2008. The value of nominal exports and imports jumped considerably
in December, although the levels of both remain about 5 percent below their pre-crisis
peaks. In the fourth quarter, the growth of exports outpaced that of imports, and,
consequently, the trade surplus widened.
Chinese authorities have recently taken significant steps to tighten monetary policy, as
the rapid pace of economic growth has led to concerns about inflation and potential asset
bubbles. In particular, the People’s Bank of China raised required reserve ratios 50 basis
points, to 16 percent for large banks and 14 percent for smaller banks, after holding these
ratios constant for more than a year. In addition, loan growth was subdued in the fourth
quarter relative to the extraordinary growth earlier in the year—in part owing to stricter
enforcement of mortgage requirements and restrictions on lending to industries with
excess capacity. Headline consumer prices rose rapidly from August through November,
led by food prices, but nonfood prices also increased. Over that period, 12-month
headline inflation climbed nearly 2 percentage points, from -1¼ percent to ½ percent.

IV-34

Chinese Economic Indicators

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator
Real GDP1
Industrial production
Consumer prices2
Merch. trade balance3

2008

2009

6.9
1.8
1.2
298.1

n.a.
n.a.
n.a.
196.4

2009
Q3
9.8
5.4
-1.3
99.5

Oct.

n.a. . . .
n.a.
-2.9
n.a.
-.5
228.4 183.0

Nov.

Dec.

...
3.4
.6
241.2

...
n.a.
n.a.
261.0

1. Gross domestic product. Annual rate. Quarterly data estimated by staff from reported
4-quarter growth rates. Annual data are Q4/Q4.
2. Non-seasonally adjusted percent change from year-earlier period, except annual data,
which are Dec./Dec.
3. Billions of U.S. dollars, annualized. Imports are valued at cost, insurance, and freight.
n.a. Not available. ... Not applicable.
Source: CEIC.

In India, economic activity appeared to pick up toward the end of the fourth quarter after
a slow start, underpinned by strength in the manufacturing sector. Industrial production
shot up 3.2 percent in November, buoyed by a strong rebound in consumer durables. The
purchasing managers index, which had been drifting down since May, jumped to 55.6 in
December, indicating a faster pace of expansion. Consistent with the domestic demandled recovery, the merchandise trade deficit has been widening since May, as demand for
imports has outpaced that for exports.
A severe drought in the summer has led to rapidly rising food prices and caused the
inflation outlook to deteriorate in recent months. Consumer price inflation, which had
been hovering above 10 percent, rose to 12.5 percent on a 12-month basis in November,
while wholesale price inflation jumped more than 3 percentage points, to 4.8 percent.

IV-35

Indian Economic Indicators

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator
Real GDP1
Industrial production
Consumer prices2
Wholesale prices2
Merch. trade balance3
Current account4

2008
5.9
4.4
9.7
6.1
-126.2
-31.0

2009
n.a.
n.a.
n.a.
7.3
n.a.
n.a.

2009
Q3
15.1
5.4
11.8
-.1
-73.8
-50.5

Q4
n.a.
n.a.
n.a.
4.4
n.a.
n.a.

Oct.

Nov.

...
...
-2.2
3.2
10.5
12.5
1.3
4.8
-85.4 -103.0
...
...

Dec.
...
n.a.
n.a.
7.3
n.a.
...

1. Gross domestic product. Annual rate. Annual data are Q4/Q4.
2. Non-seasonally adjusted percent change from year-earlier period, except annual data,
which are Dec./Dec.
3. Billions of U.S. dollars, annualized.
4. Billions of U.S. dollars, not seasonally adjusted, annualized.
... Not applicable.
Source: CEIC.

IV-36

China and India
Industrial Production

Consumer Prices
Jan. 2000 = 100

China
India

2003

2004

2005

2006

2007

2008

2009

400
375
350
325
300
275
250
225
200
175
150
125
100
75

Source: CEIC.

Percent change from year earlier

14
12
10
8
6
4
2
0

2003

2004

2005

2006

2007

2008

2009

-2

Source: China Statistic and Consultancy Service Center; CEIC.

Merchandise Trade Balances

Benchmark Interest Rates
Billions of dollars

Percent

3-month moving average (n.s.a.)
40

20
7
10
6

-10

2003

2004

2005

2006

2007

2008

2009

-20

2003

2004

2005

2006

Source: China Statistic and Consultancy Service Center; CEIC.

2008

2009

Source: Bloomberg; CEIC.

Gross External Debt

2007

Short-Term External Debt

Percent of gross domestic product

Percent of reserves

15
20
10
10

2003

2004

2005

2006

2007

2008

2009

Source: Bank for International Settlements; Haver Analytics.

2003

2004

2005

2006

2007

2008

Source: Bank for International Settlements; CEIC.

2009

IV-37

In the newly industrialized economies (NIEs),1 recent indicators point to slowing
growth in the fourth quarter from its rapid bounce back earlier last year. In Singapore,
the advance estimate of fourth-quarter GDP indicated a contraction of 6.8 percent at an
annual rate after two quarters of double-digit gains. The contraction was mainly due to
an output decline in the volatile biomedical sector. Other sectors, such as services and
construction, experienced positive growth. In Korea, incoming data suggest slowing
momentum in the economy; industrial production in October and November was, on
average, unchanged from its third-quarter level. However, exports—particularly to
China—surged in December, suggesting a possible pickup in growth toward the end of
the quarter. Exports picked up sharply in Taiwan as well during the fourth quarter,
reflecting increased demand from both Asia and the advanced economies.
Inflation has risen from very low levels across the NIEs, with Korea experiencing the
largest increase to about 3 percent in December on a 12-month basis. The increase
primarily reflects rising food prices; core inflation, which excludes food and energy
prices, moderated in recent months. To date, central banks in the region have kept policy
rates on hold.

Economic Indicators for Newly Industrialized Economies: Growth
(Percent change from previous period, seasonally adjusted, except as noted)
2007

2008

Real GDP1
Hong Kong
Korea
Singapore
Taiwan

7.0
5.7
5.8
6.5

Industrial
production
Hong Kong
Korea
Singapore
Taiwan

-1.5
7.0
5.9
7.8

2009
Q2

Sept.

Oct.

Nov.

-2.6
-3.4
-4.0
-6.3

14.9
11.0
21.7
18.8

1.5
13.6
14.2
8.3

...
...
...
...

-6.6
3.0
-4.2
-1.8

-.3
11.4
15.2
17.3

-2.6
7.2
8.6
7.0

...
5.7
-13.4
7.0

...
-3.8
.3
-.1

...
1.4
-8.8
6.5

1. Gross domestic product. Annual rate. Annual data are Q4/Q4.
... Not applicable.
Source: CEIC.

The NIEs are Hong Kong, Singapore, South Korea, and Taiwan.

IV-38

Economic Indicators for Newly Industrialized Economies: Merchandise Trade Balance
(Billions of U.S. dollars; seasonally adjusted, annualized)
2008
Hong Kong
Korea
Singapore
Taiwan

-25.9
5.7
18.4
4.4

2009
n.a.
n.a.
24.1
20.1

2009
Q3
-39.3
56.9
21.7
24.4

Oct.

Nov.

n.a.
n.a.
35.7
6.8

-42.1
45.6
39.0
21.4

-36.6
52.7
33.9
-11.8

Dec.
n.a.
n.a.
34.1
10.9

Source: CEIC.
n.a. Not available.

Economic Indicators for Newly Industrialized Economies: Consumer Price Inflation
(Non-seasonally adjusted percent change from year earlier except as noted)
20081

20091

2.1
4.1
4.3
1.3

n.a.
2.8
n.a.
-.2

Hong Kong
Korea
Singapore
Taiwan
1. Dec./Dec.
n.a. Not available.
Source: CEIC.

2009
Q3

-.9
2.0
-.4
-1.3

n.a.
2.4
n.a.
-1.2

Oct.
2.2
2.0
-.8
-1.9

Nov.
.5
2.4
-.2
-1.6

Dec.
n.a.
2.8
n.a.
-.2

IV-39

Newly Industrialized Economies
Industrial Production

Consumer Prices
Jan. 2000 = 100

Korea
Singapore
Hong Kong
Taiwan

Percent change from year earlier

185

8
6

165

145

2
125
0
105

-2

2003

2004

2005

2006

2007

2008

2009

Source: CEIC.

-4

2003

2004

2005

2006

2007

2008

2009

-6

Source: CEIC; Bank of Korea; Reuters.

Merchandise Trade Balances

Benchmark Interest Rates
Billions of dollars

Percent

3-month moving average (n.s.a.)
6
6
4
2

0
2
-2

2003

2004

2005

2006

2007

2008

2009

-4

Source: CEIC.

2003

2004

2005

2006

2007

2008

2009

Source: Bloomberg.

Gross External Debt

Short-Term External Debt

Percent of gross domestic product

Percent of reserves

350

400
350

300

250

250
200
200
150
150
100

100

2003

2004

2005

2006

2007

Source: Bank for International Settlements.

2008

2009

50
2003

2004

2005

2006

2007

Source: Bank for International Settlements.

2008

2009

IV-40

In the Association of Southeast Asian Nations (ASEAN-4),2 economic growth during
the fourth quarter was uneven across the region. In Indonesia, industrial production
accelerated on average in October and November, boosted by improved consumer
confidence and export demand. In Malaysia, it continued to increase but at a slightly
slower pace than in the third quarter. In Thailand, industrial production has edged down
since September amid subdued private investment and the suspension of 65 industrial
projects at Thailand’s largest industrial zone by a court order on environmental grounds.
Trade surpluses increased as exports recovered, but edged down in November in
Indonesia and Malaysia due to a boost to imports from strengthening domestic demand
and appreciating currencies.
Headline inflation continued to rise in Thailand and the Philippines, driven mostly by
energy and food prices. In the case of Thailand, the increase in food prices was related to
the implementation of a new price insurance scheme that limits the government’s role as
a supplier of farm products, and, in the case of the Philippines, to a crop shortfall caused
by floods in late 2009. In Indonesia, headline inflation remained flat due to the
strengthening of the rupiah and delays in increasing administered energy prices. With
year-end inflation in line with or below targets, central banks kept policy rates on hold.

The ASEAN-4 is Indonesia, Malaysia, the Philippines, and Thailand.

IV-41

ASEAN-4 Economic Indicators: Growth

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator

2009

2007

2008

Real GDP1
Indonesia
Malaysia
Philippines
Thailand

5.8
7.3
6.4
5.6

5.3
.2
2.9
-4.1

4.7
12.5
7.0
9.0

Industrial
production2
Indonesia3
Malaysia
Philippines
Thailand

5.6
2.1
-2.7
8.2

3.0
.7
.3
5.3

-.6
2.0
12.4
9.7

Sept.

Oct.

Nov.

7.9
9.9
4.1
5.5

...
...
...
...

-.9
3.4
6.0
4.0

-5.1
-1.7
8.4
10.0

4.9
6.3
.3
-.1

-.4
-4.6
n.a.
-.4

Note: ASEAN is the Association of Southeast Asian Nations.
1. Gross domestic product. Annual rate. Annual data are Q4/Q4.
2. Annual data are annual averages.
3. Staff estimate.
n.a. Not available. ... Not applicable.
Source: CEIC.

ASEAN-4 Economic Indicators: Merchandise Trade Balance
(Billions of U.S. dollars; seasonally adjusted, annualized)

Indicator
Indonesia1
Malaysia
Philippines
Thailand

2007

2008

39.6
29.2
-5.0
12.8

7.9
42.7
-7.7
.1

2009
Q2

20.7
30.8
-5.0
22.6

16.2
30.2
-2.7
15.9

Sept.
17.5
30.5
-1.5
9.2

Oct.
29.8
40.2
-1.2
15.2

Nov.
28.8
27.3
n.a.
6.0

Note: ASEAN is the Association of Southeast Asian Nations.
1. Imports prior to 2008 do not include trade through Indonesia’s bonded zone,
causing a break in the trade balance in 2008.
n.a. Not available.
Source: CEIC; Bank of Thailand; Philippines Economic Indicators Telegram (PEIT).

IV-42

ASEAN-4 Economic Indicators: Consumer Price Inflation

(Non-seasonally adjusted percent change from year earlier except as noted)
Indicator
Indonesia
Malaysia
Philippines
Thailand

20081

20091

11.1
4.4
8.0
.4

2.8
1.1
4.4
3.5

2009
Q3
2.8
-2.3
.3
-2.2

Q4
2.6
-.2
3.0
1.9

Oct.
2.6
-1.5
1.6
.4

Nov.

Dec.

2.4
-.1
2.8
1.9

2.8
1.1
4.4
3.5

Note: ASEAN is the Association of Southeast Asian Nations.
1. Dec./Dec.
n.a. Not available.
Source: CEIC; Haver Analytics; IMF International Financial Statistics database.

IV-43

ASEAN-4
Industrial Production

Consumer Prices
Jan. 2000 = 100

Indonesia
Malaysia
Philippines
Thailand

Percent change from year earlier

225

200
15

175
150

125
5

100
75

50
2003

2004

2005

2006

2007

2008

2009

Source: CEIC; Bank of Philippines.

2003

2004

2005

2006

2007

2008

2009

-5

Source: IMF International Financial Statistics; CEIC.

Merchandise Trade Balances

Benchmark Interest Rates
Billions of dollars

Percent

3-month moving average (n.s.a.)
4

2004

2005

2006

2007

2008

2009

2003

-2

2003

2004

2005

2006

Source: CEIC; Philippines Economic Indicators Telegram (PEIT);
Bank of Thailand Monthly Statistical Release.

Gross External Debt

2007

2008

2009

Source: Bloomberg; Haver Analytics.

Short-Term External Debt

Percent of gross domestic product

Percent of reserves

90
80

75
70
60

60
50

45
40
30

30
20

15
10
2003

2004

2005

2006

2007

2008

2009

Note: ASEAN is the Association of Southeast Asian Nations.
Source: CEIC; Bank for International Settlements.

2003

2004

2005

2006

2007

Source: Bank for International Settlements.

2008

2009

IV-44

In Mexico, indicators of economic activity point to subdued growth in the fourth quarter,
following the very rapid 12 percent pace seen in the third quarter, which partly reflected
the reversal of the H1N1 effects. Consumer demand continued to be restrained by the
still weak employment and tight credit conditions. The overall economic activity
indicator also points to weak performance in October. However, industrial production
extended its upward trend, though at a somewhat slower pace than in the previous
quarter, and the auto sector continued to expand. The trade balance turned positive in
October and November, as exports rose faster than imports. Forward-looking indicators
are also more upbeat; the purchasing managers index increased further for both
manufacturing and services, with both now above the neutral level of 50.
Headline inflation continued to decline in December, ending the year at 3.6 percent on a
12-month basis and within the Bank of Mexico’s 2 to 4 percent target range. The
continued decline in inflation reflected subdued domestic demand and the appreciation of
the peso. It occurred despite a series of price increases for administered goods and
services that started in the second half of December, along with the 1 percent increase in
the value added tax approved in the recent fiscal reform. Separately, Agustín Carstens
took office as the new governor of the Bank of Mexico on January 1.
Mexican Economic Indicators

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator
Real GDP1
Overall economic
activity
Industrial production
Unemployment rate2
Consumer prices3
Merch. trade balance4
Merchandise imports4
Merchandise exports4
Current account5

2008
-1.7
1.0
-1.0
4.0
6.5
-17.3
308.6
291.3
-15.8

2009
n.a.

2009
Q3
12.2

n.a.
2.2
n.a.
1.7
n.a.
5.9
3.6
5.1
n.a.
-7.9
n.a. 235.8
n.a. 227.9
n.a.
-7.6

Q4
n.a.

Oct.

Nov.

Dec.

...

n.a.
1.0
5.7
3.9
1.9
265.0
266.9
...

n.a.
n.a.
n.a.
3.6
n.a.
n.a.
n.a.
...

n.a.
.1
n.a.
.9
n.a.
5.8
4.0
4.5
n.a.
7.7
n.a. 246.2
n.a. 253.9
n.a. . . .

1. Gross domestic product. Annual rate. Annual data are Q4/Q4.
2. Percent; counts as unemployed those working 1 hour a week or less.
3. Non-seasonally adjusted percent change from year-earlier period, except annual data,
which are Dec./Dec.
4. Billions of U.S. dollars, annualized.
5. Billions of U.S. dollars, not seasonally adjusted, annualized.
n.a. Not available. ... Not applicable.
Source: Haver Analytics; Bank of Mexico.

IV-45

In Brazil, real GDP grew 5.1 percent in the third quarter, as investment soared and
private consumption remained robust. Indications are that fourth-quarter activity
remained strong. Although November industrial production declined slightly, it was up
3.7 percent on average in October and November relative to its third-quarter level, and
auto production continued to climb in December. The purchasing managers index for
manufacturing was nearly 56 in December, a level consistent with further expansion.
The recovery has been supported by rapid growth of government-directed credit and
strong domestic demand, particularly for autos and appliances, which benefited from
government tax breaks. Import growth far exceeded export growth, reflecting strong
domestic demand, causing the trade surplus to narrow.
Headline inflation came in at 4.3 percent in December on a 12-month basis, just below
the midpoint of the central bank’s target range. The central bank continued to intervene
to mitigate upward pressures on the real, and international reserves climbed to a record
high of over $240 billion in mid-January, about 14 percent of GDP.

Brazilian Economic Indicators

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator
Real GDP1
Industrial production
Unemployment rate2
Consumer prices3
Merch. trade balance4
Current account5

2008

2009

.9
3.1
7.9
5.9
25.0
-28.2

n.a.
n.a.
n.a.
4.3
25.0
-24.3

2009
Q3

Oct.

Nov.

Dec.

5.1
4.8
7.9
4.4
21.6
-19.7

n.a.
n.a.
n.a.
4.2
14.2
-48.9

...
2.3
7.7
4.2
14.4
-36.2

...
-.2
7.7
4.2
18.0
-39.2

...
n.a.
n.a.
4.3
10.2
-71.4

1. Gross domestic product. Annual rate. Annual data are Q4/Q4.
2. Percent.
3. Non-seasonally adjusted percent change from year-earlier period, except annual data,
which are Dec./Dec. Price index is IPCA.
4. Billions of U.S. dollars, annualized.
5. Billions of U.S. dollars, not seasonally adjusted, annualized.
n.a. Not available. ... Not applicable.
Source: Haver Analytics; IMF International Financial Statistics database;
Intituto Brasileiro de Geografia e Estatistica.

IV-46

In Argentina, economic activity appears to have accelerated somewhat in the fourth
quarter from its relatively flat performance over the first three quarters of 2009. Growing
Brazilian demand for automotive products and global demand for commodities
contributed to an expansion of exports. Inflation increased in the fourth quarter,
reflecting a pickup in commodity prices and a move by government officials to bring
official estimates in line with actual inflation rates.
On January 7, Argentine president Fernandez signed a decree ousting central bank
Governor Redrado for misconduct. Reportedly, the governor’s refusal to transfer
$6½ billion of the central bank’s reserves to the government’s Bicentennial Fund
triggered the action. Created in mid-December, the fund is intended to pay the
government’s upcoming debt obligations. To date, Governor Redrado has refused to step
down citing legal provisions, and a court order has halted the implementation of the
decree. The government’s attempt to use central bank reserves for debt repayments has
further blurred the distinction between the assets of the government and those of the
central bank. The attempt triggered a U.S. court order that froze the assets of Argentina’s
central bank deposited at the New York Fed, worth $1.7 million. The court order was
later lifted on January 19.
Argentine Economic Indicators

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator
Real GDP1
Industrial production
Unemployment rate2
Consumer prices3
Merch. trade balance4
Current account5

2008
3.9
4.9
7.9
7.2
12.6
7.1

2009
n.a.
n.a.
n.a.
7.7
n.a.
n.a.

2009
Q3
.2
1.2
9.1
5.9
12.1
4.5

Q4
n.a.
n.a.
n.a.
7.1
n.a.
n.a.

Oct.

Nov.

Dec.

...

...
1.0
...
7.1
17.8
...

...
n.a.
...
7.7
n.a.
...

...
6.5
14.0
...

1. Gross domestic product. Annual rate. Annual data are Q4/Q4.
2. Percent; not seasonally adjusted.
3. Non-seasonally adjusted percent change from year-earlier period, except annual data,
which are Dec./Dec.
4. Billions of U.S. dollars, annualized.
5. Billions of U.S. dollars, not seasonally adjusted, annualized.
n.a. Not available. ... Not applicable.
Source: Haver Analytics, IMF International Financial Statistics database;
Ministerio de economia; U.S. State Department.

IV-47

In Venezuela, the currency was devalued in mid-January and a formal dual exchange rate
regime was announced. The bolivar, which had been set at 2.144 bolivares per dollar
since 2005, was moved to 4.3 bolivares per dollar. Dollars will also be available at the
subsidized exchange rate of 2.6 bolivares per dollar for certain imports and for debt
payments. The devaluation is expected to alleviate pressures on public finances in the
short term, as oil export revenues, priced in dollars, comprise a large share of government
revenues.
Inflation remained at more than 25 percent over the past year, despite the weakening in
economic activity. Economic conditions appear to have weakened further over the past
few weeks, as a severe drought has prompted the government to impose drastic rationing
measures for electricity and water. Electricity generation in Venezuela is hydro-based,
and reservoirs are expected to remain well below normal levels until the rainy season
returns in May.

Venezuelan Economic Indicators

(Percent change from previous period, seasonally adjusted, except as noted)
Indicator
Real GDP1
Consumer prices2
Non-oil trade balance3
Merch. trade balance3
Current account4

2008
3.3
30.9
-39.2
45.7
37.4

2009
n.a.
25.1
n.a.
n.a.
n.a.

2009
Q3
-10.6
26.8
-26.9
26.7
20.3

Oct.

Nov.

Dec.

n.a.
26.0
n.a.
n.a.
n.a.

...
26.7
...
...
...

...
26.2
...
...
...

...
25.1
...
...
...

IV-48

IV-49

In Russia, economic activity rose at an annual rate of 10½ percent in the third quarter
following three consecutive quarters of decline, led by the industrial and transportation
sectors. However, retail sales were flat in the third quarter and remained sluggish in
October and November, and unemployment also ticked up in November. Consumer
prices rose 5 percent at an annual rate in December, bringing 12-month inflation down to
8.8 percent, the lowest rate in two years. The central bank has continued to decrease
interest rates to stem speculative capital inflows and the appreciation of the ruble.

Last page of International Developments

Abbreviations–Part 2

Abbreviations—Part 2
ABCP

asset-backed commercial paper

ABS

asset-backed securities

ACLI

American Council of Life Insurers

AMLF

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
Facility

ASEAN-4

Association of Southeast Asian Nations (Indonesia, Malaysia,
the Philippines, and Thailand)

BEA

Bureau of Economic Analysis, Department of Commerce

BLS

Bureau of Labor Statistics, Department of Labor

BOE

Bank of England

BOJ

Bank of Japan

BOP

balance of payments

certificate of deposit

CDS

credit default swap

C&I

commercial and industrial

CMBS

commercial mortgage-backed securities

CPFF

Commercial Paper Funding Facility

CPI

consumer price index

CPIP

construction put in place

CRB

Commodity Research Bureau

CRE

commercial real estate

DPI

disposable personal income

European Commission

ECB

European Central Bank

ECI

Employment Cost Index

E&S

equipment and software

ETF

exchange-traded fund

FDIC

Federal Deposit Insurance Corporation

V-1

V-2

FHA

Federal Housing Administration, Department of Housing and Urban
Development

FHFA

Federal Housing Finance Agency

FHLMC

Federal Home Loan Mortgage Corporation (Freddie Mac)

FNMA

Federal National Mortgage Association (Fannie Mae)

FOMC

Federal Open Market Committee; also, the Committee

FRB

Federal Reserve Board; also, the Board

FRM

fixed-rate mortgage

GDP

gross domestic product

GNMA

Government National Mortgage Association (Ginnie Mae)

IMF

International Monetary Fund

industrial production

ISM

Institute for Supply Management

JOC

Journal of Commerce

JOLT

Job Openings and Labor Turnover Survey

Libor

London interbank offered rate

LoanPerformance

MBS

mortgage-backed securities

MPU

microprocessor unit

NAHB

National Association of Home Builders

NBER

National Bureau of Economic Research

NCREIF

National Council of Real Estate Investment Fiduciaries

NFIB

National Federation of Independent Business

NIEs

newly industrialized economies (Hong Kong, South Korea, Singapore,
and Taiwan)

NIPA

national income and product accounts

nsa

not seasonally adjusted

OIS

overnight index swap

PCE

personal consumption expenditures

PDCF

Primary Dealer Credit Facility

V-3

PMI

purchasing managers index

PPI

producer price index

repo

repurchase agreement

s.a.a.r.

seasonally adjusted annual rate

SIFMA

Securities Industry and Financial Markets Association

SLOOS

Senior Loan Officer Opinion Survey on Bank Lending Practices

SPF

Survey of Professional Forecasters

TAF

Term Auction Facility

TALF

Term Asset-Backed Securities Loan Facility

TARP

Troubled Asset Relief Program

TIPS

Treasury inflation-protected securities

TSLF

Term Securities Lending Facility

WTI

West Texas Intermediate

Last page of Part 2

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, January 26-27, 2010 : Greenbook Part 2

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