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Class III FOMC - Internal (FR)

Part 2

January 23, 2008

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 23, 2008

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
Aggregate economic activity appears to have decelerated sharply. Notably, the
contraction in homebuilding intensified in the fourth quarter and shows few signs of
letting up. Retail sales were weak in December, perhaps reflecting the combined
influence of rapidly rising energy prices, eroding housing and equity wealth, and
depressed consumer sentiment. The very-limited available information about auto sales
in January suggests some softening from the reasonably steady pace of the preceding
several months. Sentiment appears to have soured on the business side as well, and
industrial production contracted in the fourth quarter. Conditions in the labor market also
deteriorated noticeably near year-end, with private payroll employment posting a small
decline in December and the unemployment rate rising sharply. As for inflation, both
headline and core measures have increased in recent months. The twelve-month change
in overall consumer prices is up a good bit from its year-earlier levels because of higher
price inflation for both food and energy; core price inflation is roughly unchanged, on
net, over that period.
Labor Market Developments
Hiring slowed to a trickle late last year. After an increase of 87,000 in November, private
nonfarm payrolls decreased 13,000 last month, as employment declined sharply in
manufacturing, construction, and retail trade—the last of which reversed much of
November’s outsized increase. On average, private nonfarm employment rose 37,000 in
November and December, only about half of the average pace seen from July to October,
which had itself been a step-down from the gains in the first half of the year.1 Over the
year as a whole, the deterioration in labor demand was most pronounced in the
construction and financial activities industries, which have been hardest hit by the
difficulties in the housing and mortgage markets. Nevertheless, the job cutbacks seen so
far in the residential construction industry have been smaller than would be expected
given the plunge in homebuilding.
The average workweek of production or nonsupervisory workers on private nonfarm
payrolls held steady in December, at 33.8 hours; aggregate hours also were unchanged
for the month. In the fourth quarter, aggregate hours of private production or
nonsupervisory workers rose at an annual rate of 1.0 percent.

The Bureau of Labor Statistics (BLS) will revise the March 2007 level of payroll employment in its
January 2008 employment report. Based on its preliminary estimate, we expect the BLS to revise down the
level of private nonfarm payrolls about 200,000.

II-1

II-2
Changes in Employment
(Thousands of employees; seasonally adjusted)
2007
Measure and sector

2006

Oct.

Average monthly change
Nonfarm payroll employment
(establishment survey)
Private
Natural resources and mining
Manufacturing
Construction
Wholesale trade
Retail trade
Transportation and utilities
Information
Financial activities
Professional and business services
Temporary help services
Nonbusiness services1
Total government
Total employment (household survey)
Memo:
Aggregate hours of private production
workers (percent change)2
Average workweek (hours)3
Manufacturing (hours)

Nov.

Dec.

Monthly change

189
169
5
-7
11
11
-3
9
2
16
42
-1
83
20
264

134
114
3
-14
-3
9
10
1
3
4
16
-9
86
20
23

77
61
2
-21
-23
9
-0
9
0
-7
23
-9
70
15
58

97
61
3
-22
-35
4
-4
2
-8
-7
51
12
77
36
-16

159
110
0
-23
-20
12
-20
0
-5
-2
70
23
98
49
-244

115
87
5
-13
-37
3
32
9
-5
-16
39
12
70
28
631

18
-13
5
-31
-49
-1
-24
-3
-13
-4
43
0
64
31
-436

2.5
33.8
41.1

1.6
33.8
41.1

1.2
33.8
41.3

1.0
33.8
41.2

.1
33.8
41.2

.1
33.8
41.3

.0
33.8
41.1

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.

Aggregate Hours and Workweek of
Production or Nonsupervisory Workers

Changes in Private
Payroll Employment
Thousands

400

35.0

Hours

2002 = 100

110

3-month moving average
300

300

200

100

Dec.

-100

34.5

106

Dec.
34.0

-200

-300

1999 2000 2001 2002 2003 2004 2005 2006 2007

-400

104
102

-100

-200

-400

108

Aggregate
hours
(right scale)

100
33.5

Workweek
(left scale)

98
96

33.0

1999 2000 2001 2002 2003 2004 2005 2006 2007

II-3
Selected Unemployment and Labor Force Participation Rates
(Percent; seasonally adjusted)
2007
Rate and group

2007

Oct.

Nov.

Dec.

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

4.6
15.7
8.2
3.6
3.6

4.5
15.7
7.8
3.5
3.6

4.7
15.8
8.6
3.6
3.7

4.8
16.4
8.6
3.7
3.8

4.8
15.7
8.6
3.7
3.7

4.7
16.4
8.0
3.6
3.8

5.0
17.1
9.4
3.8
3.9

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

66.0
41.3
74.4
75.6
59.7

66.0
41.5
74.2
75.6
59.6

66.0
40.7
74.4
75.6
59.8

66.0
41.0
74.0
75.5
59.7

65.9
41.2
73.9
75.3
59.6

66.0
40.9
74.3
75.6
59.8

66.0
41.0
73.9
75.6
59.7

Labor Force Participation Rate
and Unemployment Rate

Percent

67.6
67.4

6.5

Participation rate (left scale)

67.2

6.0

67.0
66.8

5.5

Unemployment rate (right scale)

66.6

5.0

66.4

4.5
Dec.

66.2

4.0

66.0

3.5

65.8
65.6

7.0

2000

2001

2002

2003

2004

2005

Job Losers Unemployed
Less Than 5 Weeks

3.0

2007

Unemployed Due to Job Loss

(as a percent of household employment)

(as a percent of the labor force)

Percent

1.4

2006

1.4

Percent

4.0

3-month moving average (thick line)
3.5
1.2

3.5

1.2
3.0
Dec.

1.0

0.8

0.6

3.0
Dec.

1.0

2.5

2.0

1.5

0.8

2000

2001

2002

2003

2004

2005

2006

2007

0.6

1.0

2000

2001

2002

2003

2004

2005

2006

2007

1.0

II-4
Labor Market Indicators

Unemployment Insurance
3.0

Layoffs and Job Cuts

Percent

Thousands
Insured unemployment rate
(left scale)

550
500

300

Percent of private employment

Thousands

250

1.6

2.5
450

200

400

150

350

100

300

Nov.

Jan. 5
2.0

1.4

1.2

Initial claims*
(right scale)
1.5
Jan. 12
1.0

2000

2002

2004

2006

2008

250

*4-week moving average.

Net Hiring Plans
30

Percent of private employment

4.5

4.0

3.5

3.0

2.5

15
10

Dec.

2002

4.0

Nov.

2004

2006

2008

2.0

1.5

Note. Percent planning an increase in employment
minus percent planning a reduction.
*Seasonally adjusted by FRB staff.

3.0
2.5

Jan.
(p)

140

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

160

Percent

Index

40
140

110
90

120

Dec.

25
100

100

2006

2008

Note. The fraction of households expecting unemployment
to rise, minus the fraction expecting unemployment to
fall, plus 100.
p Preliminary.

150
130

Job availability*
(right scale)

30
120

2004

1.5

Job Availability and Hard-to-Fill Positions
Index

160

2.0

Source. Job Openings and Labor Turnover Survey.

Reuters/Michigan Expected
Unemployment Change (next 12 months)

2002

3.5

Job openings

National Federation of
Independent Business*
(3-month moving average)

2000

4.5

Hires (monthly)

0.8

Job Openings and Hires
Percent

2000

Dec.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Manpower, Inc.

1.0

Announced job cuts
(left scale)

Note. Both series are seasonally adjusted by FRB staff.
Source. For layoffs and discharges, Job Openings and
Labor Turnover Survey; for job cuts, Challenger, Gray,
and Christmas, Inc.

1.8

Layoffs and discharges
(monthly, right scale)

Hard-to-fill**
(left scale)

70
50

10
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
*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.

II-5

Output per Hour
(Percent change from preceding period at an annual rate;
seasonally adjusted)

Sector
Nonfarm business
All persons
All employees2
Nonfinancial corporations3

2005:Q3 2006:Q3
to
to
2006:Q3 2007:Q3
.1
.1
1.7

2.71
2.41
2.0

2006
Q4
1.8
1.5
1.3

2007
Q1
.6
.2
.7

2.2
2.6
2.1

6.21
5.41
4.2

1. Staff estimates.
2. Assumes that the growth rate of hours of non-employees equals the growth rate of hours of employees.
3. All corporations doing business in the United States except banks, stock and commodity brokers,
and finance and insurance companies. The sector accounts for about two-thirds of business employment.
Nonfinancial corporate output is calculated as an income-side measure.

In the household survey, the unemployment rate jumped to 5.0 percent in December,
while the labor force participation rate held steady at 66.0 percent. The unemployment
rate moved up ½ percentage point from May to December. In the past, increases of this
magnitude have been associated with periods of substantial and prolonged labor market
weakness.
Most other indicators of labor demand have also weakened. Initial and continuing claims
for unemployment insurance moved higher in November and December, consistent with
slowing employment growth.2 Layoffs and discharges in the Job Openings and Labor
Turnover (JOLT) survey rose sharply between July and November, and higher
unemployment among job losers accounted for about half of the increase in the overall
jobless rate over the second half of the year. The most recent readings on net hiring plans
from Manpower and the National Federation of Independent Business (NFIB) point to a
further slowdown in hiring. In contrast to these downbeat readings, announcements of
job cuts reported by Challenger, Gray, and Christmas continued to trend down through
year-end.
Other indicators of labor market tightness have also pointed toward some softening of
labor market conditions. Unemployment expectations in the Reuters/University of
Michigan Survey jumped in December and remained elevated in early January.
Moreover, respondents to the Conference Board survey reported that job availability
eroded further in December, and fewer small businesses in the NFIB survey reported
2

Initial claims have dropped back down in the last two weeks. However, unemployment insurance claims
are very difficult to adjust for seasonal variation at this time of year, and thus we are not taking much signal
from the recent declines.

II-6

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

Component

Proportion
2007
(percent)

2007

20071
Q3

2007
Q4

Oct.

Annual rate
Total
Previous

Nov.

Dec.

Monthly rate

100.0
100.0

1.8
...

3.6
3.9

-1.0
...

-.5
-.7

.3
.3

.0
...

81.9
76.3
71.5

1.7
1.9
1.0

3.6
3.8
2.4

-1.9
-1.1
-2.1

-.6
-.5
-.6

.3
.2
.1

.0
.0
-.1

8.6
9.6

.9
3.2

4.1
3.1

4.7
2.1

.0
.0

1.0
.0

.1
-.2

20.5

2.7

4.8

2.7

-.1

-.2

High technology
Computers
Communications equipment
Semiconductors2

4.8
1.2
1.1
2.6

16.4
22.6
14.0
14.9

26.4
14.0
8.2
43.7

14.3
7.0
12.8
19.1

1.4
.0
-.2
2.9

1.6
1.7
4.5
.2

.8
1.1
-1.0
1.5

Motor vehicles and parts

5.5

-2.0

1.2

-13.1

-1.6

1.2

-.5

69.1
20.9
4.0
16.9

.8
.2
-1.7
.6

2.0
.8
.5
.9

-2.1
-2.9
-7.4
-1.8

-.6
-.4
-1.2
-.2

.1
-.6
-.1
-.7

.0
.3
-.5
.5

Business equipment
Defense and space equipment

7.8
1.7

2.4
-.8

7.3
2.8

1.5
-1.3

-.7
-.2

.2
.2

1.1
.1

Construction supplies
Business supplies

4.5
7.9

-.5
-.3

1.3
.1

-5.5
-2.5

-.7
-1.0

-.3
-.1

-.9
-.2

26.1
14.5
11.6

1.5
2.9
-.3

2.1
4.6
-1.0

-1.8
-.4
-3.7

-.7
-.3
-1.2

.7
.7
.7

-.5
-.6
-.4

Manufacturing
Ex. motor veh. and parts
Ex. high-tech industries
Mining
Utilities
Selected industries
Energy

Total ex. selected industries
Consumer goods
Durables
Nondurables

Materials
Durables
Nondurables

1. From fourth quarter of preceding year to fourth quarter of year shown.
2. Includes related electronic components.
... Not applicable.

Capacity Utilization
(Percent of capacity)
19722006
average

199495
high

200102
low

Nov.

Dec.

Total industry

81.0

85.1

73.6

81.7

82.0

81.5

81.6

81.4

Manufacturing
Ex. motor veh. and parts
Mining
Utilities

79.8
79.9
87.4
86.7

84.6
84.3
88.9
93.7

71.6
71.4
84.8
83.8

80.3
80.5
89.9
85.8

80.6
80.8
90.8
86.2

79.8
80.0
91.8
86.4

79.8
80.1
92.1
86.5

79.7
79.9
92.1
86.2

Stage-of-process groups
Crude
Primary and semifinished
Finished

86.5
82.2
77.8

89.5
88.2
80.5

82.0
74.6
70.0

89.2
82.2
78.6

89.7
82.7
78.8

90.1
81.9
78.1

90.6
82.1
78.0

90.3
81.7
78.3

Sector

2007

II-7

having hard-to-fill positions. In contrast, job vacancies as measured in the JOLT survey
remained at a relatively high level in November, although they have moved down in
recent months toward the low end of the narrow range that has prevailed since late 2005.
Industrial Production
Activity in the industrial sector has been stagnant, on balance, in recent months. After
posting widespread declines in October, industrial production (IP) firmed a bit in
November and held steady in December. For the fourth quarter as a whole, IP declined at
an annual rate of about 1 percent, as a drag from motor vehicles and construction-related
industries more than offset a positive contribution from other industries.3 Manufacturing
output declined at an annual rate of nearly 2 percent in the fourth quarter, and the factory
operating rate fell back to its long-run average. In addition, several forward-looking
indicators of manufacturing activity have deteriorated recently and suggest that the
overall trajectory for IP will remain quite soft in the early part of this year. Outside of
manufacturing, utilities output climbed for a second consecutive quarter, and mining
output was bolstered by increases in natural gas extraction and in crude oil.
The production of motor vehicles and parts fell at an annual rate of 13 percent in the
fourth quarter, subtracting about ¾ percentage point from the rate of change in total IP.
Assemblies of light vehicles declined to an annual rate of 10¼ million units, down more
than 400,000 units from the rate in the third quarter. The recent cuts to production,
coupled with the steady pace of light vehicle sales through the end of last year, helped
bring inventories of all domestic manufacturers down to comfortable levels; days’ supply
for domestic light vehicles stood at 64 days at the end of December. Nevertheless, with
automakers projecting slower sales in 2008, their assembly plans call for production to
edge down further in the first quarter, to a pace of 10.1 million units. Elsewhere in
transportation, commercial aircraft production climbed at an annual rate of about
15 percent in the fourth quarter. The ramping up of production of Boeing’s new 787
Dreamliner should boost IP significantly in the first half of this year.4

The previous two quarterly declines in total IP—in 2006:Q4 and 2003:Q2—were larger than last quarter's
decrease but were relatively small compared with those in the past economic downturns. In recessions, IP
generally falls in conjunction with real GDP but by a much larger amount.
4
Boeing recently announced another delay of the initial delivery of the 787, citing start-up issues at its
assembly plant and ongoing complications with several suppliers. The announcement follows a November
decision to push back delivery from mid- to late-2008. In spite of these problems, the company still plans
to complete roughly four 787s per month by the middle of the year. However, these aircraft cannot be
delivered until Boeing has received final approval from the Federal Aviation Administration, which now
seems unlikely until early 2009.

II-8
Production of Domestic Light Vehicles
(Millions of units at an annual rate except as noted)
2007

2008

2007

Item

Sept.

Oct.

Nov.

Dec.

U.S. production1
Autos
Light trucks

10.8
3.9
6.9

10.7
3.9
6.7

10.3
4.0
6.3

10.1
3.9
6.2

10.2
3.7
6.5

10.1
3.9
6.2

10.4
4.0
6.4

10.3
4.1
6.2

Days’ supply2
Autos
Light trucks

67
56
76

69
59
75

64
51
75

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

68
58
74

69
60
76

68
53
81

64
50
75

Inventories3
Autos
Light trucks

2.67
.96
1.72

2.75
.99
1.76

2.59
.90
1.69

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

2.75
.99
1.76

2.75
1.00
1.75

2.74
.98
1.77

2.59
.90
1.69

Memo: U.S. production,
total motor vehicles4

11.1

10.9

10.5

10.4

10.3

10.6

Note. FRB seasonals. Components may not sum to totals because of rounding.
1. Production rates for the first quarter 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.

Inventories of Light Vehicles
Millions of units
3.6
3.4
3.2
3.0
2.8
Dec.

2.6
2.4

1998

1999

2000

2001

2002

2003

2004

2005

2006

2.2

2007

Days’ Supply of Light Vehicles
Days
90
80
70
Dec.
60
50
40
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

II-9
Indicators of High-Tech Manufacturing Activity

Rate of Change in Semiconductor
Industrial Production

Industrial Production in the High-Tech Sector
2000 = 100, ratio scale

Dec.
Semiconductors

450
400
350
300
250

200

150

Computers

Communications equipment
2002

2003

2004

2005

2006

2007

8
6

Dec.

4
2

0
Non-MPU chips

-2

-6

-4
2000 2001 2002 2003 2004 2005
Note. MPU is a microprocessor unit.

2006

-6

2007

MPU Shipments and Intel Revenue
Billions of dollars, ratio scale

Millions of units, ratio scale

1.0
Q4
0.9

18
17
16

0.8

0.7

11
Q1
Q4

10
9

Intel revenue
8

PCs (right scale)
0.6

Worldwide MPU shipments

0.5

6
10

Servers (left scale)
0.4

10
MPUs

-4
50

U.S. Personal Computer and Server Sales
Millions of units, ratio scale

-2

2001

2
100

2000

Percent
3-month moving average

2001
2002
2003
2004
2005
2006
2007
Note. FRB seasonals. PCs include desktops, notebooks,
ultraportables, and x86 "PC"servers. Q4 value for servers is
Gartner’s forecast.
Source. IDC and Gartner.

Circuit Board Orders and Shipments

2000 2001 2002 2003 2004 2005 2006 2007 2008
Note. FRB seasonals. Q1 Intel revenue is the range of the
company’s guidance as of January 15, 2008. Q4 worldwide
MPU shipments is a staff estimate.
Source. Intel and Semiconductor Industry Association.

High-Tech Spending Plans
Billions of dollars

180

Diffusion index

160
Nov.

Shipments

Q4
140

2002
2003
2004
2005
2006
2007
Note. U.S. and Canadian bare and loaded circuit board
shipments.
Source. IPC.

100

70
65

120
Orders

2003
2004
2005
2006
2007
Note. Indexes are based on responses to survey questions
about whether firms plan to increase or decrease their spending
on various categories of high-tech goods in the next 12 months.
Source. NABE Industry Survey.

II-10
Indicators of Industrial Activity

Motor Vehicle Assemblies
0.6

Millions of units

Trade shares
Millions of units

Autos and light trucks
(right scale)

Percent

28
20

0.4
+ Jan.

0.3

Imports/domestic absorbtion (right scale)
26

Medium and heavy trucks
(left scale)

0.2

9
16
2002
2003
2004
2005
2006
2007
Note. January values are based on latest industry
schedules.

2008

IP: Construction Supplies and Durable Materials

Exports/shipments (left scale)
2000 2001 2002 2003 2004 2005 2006
Note. Trade shares are 3-month moving averages.
Source. Staff flow-of-goods system.

2002 = 100

115

Dec.

2007

110

Dec.

110
105

Construction supplies

100
100

Consumer goods
95

2002
2003
2004
2005
2006
2007
Note. Data exclude motor vehicle parts, high-tech, and
aircraft parts industries.

New Orders: ISM Survey and Change in Real
Adjusted Durable Goods Orders (RADGO)

125

115

Dec.

Percent

120

Business equipment and
defense and space
equipment

105

Durable materials

IP: Equipment and Consumer Goods

2002 = 100, ratio scale

Nov.

0.5

0.1

Percent

Diffusion index

ISM (right scale)

2002
2003
2004
2005
2006
2007
Note. Data exclude energy, motor vehicles and parts,
and high-tech industries.

New Orders: FRB New York Survey
and FRB Philadelphia Survey
Diffusion index

90
80

0
-1

50
Dec.
Nov. 40

-2

75
70

New York

65
60
55
Jan.

45
Jan.
40

RADGO (left scale)
-3

-4

2002
2003
2004
2005
2006
2007
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. RADGO is a 3-month moving
average.

Philadelphia

35
2002
2003
2004
2005
2006
2007
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.

2008

II-11

Production in high-tech industries increased at an annual rate of 14.3 percent in the fourth
quarter, a step-down from the third-quarter rate and somewhat below the average pace
since 2003. Although output of communications equipment picked up to a solid rate,
production increases for both computers and semiconductors moderated in the fourth
quarter. The deceleration in semiconductor output has been broadly based. For
computers, preliminary data from the International Data Corporation indicate that PC
sales only edged up in the fourth quarter.
Available indicators suggest moderate gains for high-tech output during the next few
months. Intel’s guidance for the current quarter points to little change in nominal
revenue from the fourth quarter and is consistent with a moderate rise in real MPU
production. Domestic orders of printed circuit boards declined in November from a
relatively high level, but the book-to-bill ratio remained slightly above one, indicating
that shipments and orders are roughly balanced. In addition, according to the latest
NABE Industry Survey, high-tech spending plans for the next twelve months picked up
in the fourth quarter. The improvement in the diffusion index was widespread across
industry groups; spending plans in the finance, insurance, and real estate sector recovered
some after dropping noticeably in the third quarter.
Outside of energy, motor vehicles and parts, and high-technology, production declined at
an annual rate of 2.1 percent in the fourth quarter. Among the major market groups, the
index for construction supplies moved down in December for the sixth consecutive
month. Materials output decreased at an annual rate of about 2 percent in the fourth
quarter, with production likely curbed by weak demand from the construction and motor
vehicles sectors. Elsewhere, the output of consumer goods increased in December but
was down at an annual rate of nearly 3 percent for the quarter as a whole. In contrast, the
index for business equipment climbed further, due in large part to the ongoing strength of
commercial aircraft production and to apparent strength in export demand.
The indicators of near-term manufacturing activity have deteriorated, on balance, since
the December Greenbook and point to small declines in production in coming months.
The ISM’s diffusion index of new orders dropped nearly 7 index points, to 45.7, in
December—its lowest level since the fourth quarter of 2001, when IP declined at an
annual rate of about 5 percent. In addition, the three-month moving average of the staff’s
series on real adjusted durable goods orders moved further into negative territory in
November. And although the new orders indexes from the regional manufacturing
surveys were, on balance, above 50 in December, the early readings for January from the
Empire State, Philadelphia Business Outlook, and Richmond Federal Reserve surveys all

II-12
Sales of Light Vehicles
(Millions of units at an annual rate; FRB seasonals)
2007
Category

2007

Total

Oct.

Nov.

Dec.

16.1

16.0

15.9

16.1

16.0

16.2

7.6
8.5

7.7
8.3

7.4
8.5

7.8
8.3

7.5
8.5

8.0
8.1

7.9
8.3

North American1
Autos
Light trucks

12.4
5.3
7.1

12.3
5.3
7.0

12.3
5.1
7.2

12.4
5.5
6.9

12.2
5.2
7.0

12.4
5.7
6.7

12.5
5.6
6.9

Foreign-produced
Autos
Light trucks

3.8
2.4
1.4

3.6
2.3
1.3

3.8
2.3
1.4

3.8
2.3
1.5

3.8
2.4
1.4

3.8
2.3
1.4

51.2

51.8

50.4

50.8

50.4

49.9

Autos
Light trucks

Memo:
Detroit Three domestic
market share (percent)2

Content redacted.

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. Domestic market share excludes sales of foreign brands affiliated with the Detroit Three.

Ten-day U.S. Light Vehicle Sales
for Toyota, Honda, Nissan, and Mazda

Car-Buying Attitudes
Index

Percent
80

56
48

140

40
24
16

Jan.

5.5
5.0

120
100
4.0

80
Jan.

3.5

0
2002

2003

2004

2005

6.0

4.5

Bad time to buy:
Gas prices and shortages
(left scale)

8
-8

Jan. 20

180
Appraisal of car-buying conditions (right scale)
160

6.5

Annual rate

72
64

Million of units

200

2006

2007

Source. Reuters/University of Michigan Survey.

2008

2002

2003

2004

2005

2006

Source. Nissan North America.

2007

2008

3.0

II-13

stood at or below 50. Finally, the weekly physical product data available for the first part
of January have been about unchanged from their levels in December.
Motor Vehicles
Sales of light vehicles averaged a moderate pace of 16.1 million units (annual rate) in the
fourth quarter.
. Looking ahead, however,
indicators of vehicle demand suggest a softer pace of sales in the near term. Through the
first twenty days of January, the pace of sales at Toyota, Honda, Nissan, and Mazda was
nearly unchanged from December’s rate, but the major domestic firms are forecasting
weaker sales. More broadly, the gains in employment and real income have been weak
recently, and the Reuters/Michigan index of car-buying attitudes remained near its
historical low in early January.
Consumer Spending
The rise in real consumer spending appears to have moderated in the fourth quarter. For
the retail control category of goods, which excludes sales of auto dealers and building
material and supply stores, monthly changes in nominal spending have been volatile, in
part due to swings in sales at gasoline stations. Factoring in our estimate of PCE prices,
real spending in the retail control category rose weakly, on net, over the last three months
of the year, consistent with the low readings of consumer sentiment and industry reports
of mediocre holiday sales. After no change, on balance, in September and October, real
outlays on services rose solidly in November (the most recent month available), led by
rebounds in energy services and commissions paid to stock brokers. However, warmerthan-usual temperatures in December likely damped expenditures for energy services.
The fundamental determinants of consumer spending have deteriorated recently. Real
disposable income posted a second monthly decline in November, due mostly to higher
consumer energy prices; with households adjusting only slowly to their reduced
purchasing power, the personal saving rate fell to -0.5 percent in November. Also, the
wealth-to-income ratio ticked down in the third quarter as house prices fell a touch, and
available indicators point to continued declines in house prices in the fourth quarter.
Furthermore, equity prices are down 14 percent since the end of the third quarter and
11 percent since the end of last year.
The few available spending indicators for January have been soft; recent readings of
weekly chain store sales point to just small gains, and anecdotal reports generally
characterize spending as remaining weak this month. Consumer sentiment, as measured

II-14
Retail and Food Services Sales
(Percent change from preceding period; seasonally adjusted current dollars)
2007
Category

Total sales
Retail control1
Ex. sales at gasoline stations
Memo:
Real PCE control2

Q3
Annual rate

Oct.

Nov.
Dec.
Monthly rate

5.4
8.0
5.4

3.7
4.0
5.0

4.8
6.9
3.0

.0
.3
.0

1.0
1.6
.7

-.4
-.1
.1

4.1

2.3

-.3

1. Total sales less outlays at building material and supply stores and automobile and other motor
vehicle dealers.
2. Total goods spending excluding autos and trucks. The values for October and November are staff
estimates. The values for December and Q4 are staff forecasts.

Change in Real PCE Goods
2.0

Percent

6-month

1.5

Change in Real PCE Services
2.0

1.0

1.5

0.8

Percent

6-month

0.8
Nov.

0.6
1.0

1.0

0.6

1.0
0.4

0.5

Dec.

0.5

0.4

0.2

0.0

-0.0

-0.5

-0.2

-0.4
-1.0

-0.4

-1.0
1-month

-0.6
-1.5
-2.0

1-month
2004

2005

2006

2007

-1.5

-0.8

-2.0

-1.0

-0.6
-0.8

2004

2005

2006

-1.0

2007

Note. The values for October and November are staff
estimates. The value for December is a staff forecast.

Personal Saving Rate
Percent

0
Nov.

-2

-4

-6

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-6

II-15
Fundamentals of Household Spending

Changes in Nominal Wages and Salaries, Nominal DPI, and Real DPI
Percent, annual rate
Nominal wage and salary disbursements (white)
Nominal DPI (black)
Real DPI (striped)

-4
2006

2007:H1

2007:Q3

August

Change in Real DPI

October

November

Household Net Worth and Wilshire 5000
4-quarter percent change

September

16200

14200

Index

Ratio

Wilshire 5000
(left scale)

Jan.22

6.0
10200

6200

4200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Note. Values for 2004:Q4 and 2005:Q4 exclude the effect
on income of the one-time Microsoft dividend in December 2004.

1985 = 100

1966 = 100

5.5
8200
Ratio of household
net worth to DPI*
(right scale)
1998

2000

5.0

2002

2004

2006

2008

4.5

*The value for 2004:Q4 excludes the effect on income of
the one-time Microsoft dividend in December 2004.

Percent

140
130

160
140

Federal Funds Rate and 10-Year Treasury Yield

Consumer Confidence
180

6.5

12200

7.0

Conference Board
(left scale)

7
6

Treasury
yield

120

110
120

4
100

100
80

Reuters/
Michigan
(right scale)

Dec.
Jan.

60
40

Jan. 22

Federal
funds
rate

70
1998
2000
p Preliminary.

2002

2004

2006

2008

1998

2000

2002

2004

2006

2008

II-16

Private Housing Activity
(Millions of units, seasonally adjusted; annual rate except as noted)
2007
Sector
All units
Starts
Permits
Single-family units
Starts
Permits
Adjusted permits1
Permit backlog2
New homes
Sales
Months’ supply3
Existing homes
Sales
Months’ supply3
Multifamily units
Starts
Permits
Permit backlog2
Mobile homes
Shipments
Condos and co-ops
Existing home sales

2007

Oct.

Nov.

Dec.

1.35
1.38

1.46
1.46

1.30
1.32

1.15
1.13

1.27
1.17

1.17
1.16

1.01
1.07

1.05
.97
.99
.106

1.17
1.05
1.07
.116

.99
.94
.97
.113

.83
.76
.78
.106

.88
.81
.83
.112

.82
.77
.78
.112

.79
.69
.73
.106

n.a.
n.a.

.86
7.65

.73
8.76

n.a.
n.a.

.71
8.68

.65
9.37

n.a.
n.a.

5.15
8.32

4.72
9.26

n.a.
n.a.

4.37
10.12

4.40
9.90

n.a.
n.a.

.298
.411
.081

.310
.384
.075

.395
.361
.074

.355
.392
.072

n.a.

.099

.096

n.a.

.094

.093

n.a.

.767

.700

n.a.

.610

.600

n.a.

.308
.403
.073

.321
.376
.073

.212
.376
.073

1. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas.
2. Number outstanding at end of period. Excludes permits that have expired or have been canceled,
abandoned, or revoked. Not at an annual rate.
3. 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.

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

Millions of units
1.0

2.0

1.8
Single-family starts (right scale)

1.6

1.4

1.2
Single-family adjusted permits (right scale)

1.0

Dec.

.8
.6

Multifamily starts (left scale)
.2

Dec.

.1
.0

.4
.2

1999

2000

2001

2002

2003

2004

2005

Note. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas.

2006

2007

II-17

by the Reuters/University of Michigan and the Conference Board surveys, held at low
levels in December. The preliminary reading of the Reuters/Michigan index rose in early
January but remains well below its level in midsummer. The decline in sentiment since
July remains larger than we would have predicted given changes in inflation, stock
prices, and employment conditions.
Housing
The contraction in residential construction steepened in the second half of last year.
Single-family housing starts moved down 3 percent in December to an annual rate of
794,000 units, bringing the cumulative decline in the second half of last year to
31 percent and the decline since its peak in the first quarter of 2006 to 53 percent.
Adjusted single-family permit issuance—generally a useful indicator of current and
future construction activity—also declined noticeably in December. Meanwhile,
multifamily starts plunged in December, but this series is volatile, and permit issuance
points to a rebound in multifamily starts in the near term.
The demand for new homes also seems to have weakened further in the last few months.
The Census Bureau’s estimate of new home sales dropped 9 percent in November after
having held relatively steady since August.

.5 In contrast, recent readings on the demand for
existing homes have not been as bleak. In particular, sales of existing single-family
homes edged up 0.7 percent in November after holding steady in October. In addition,
the index of pending sales agreements—which tends to lead sales of existing singlefamily homes by one to two months—points to a December pace of sales that would
leave existing home sales roughly flat in the fourth quarter.
Tight financing conditions for nonprime and jumbo mortgages continued to restrain
housing demand through the end of last year. Available data suggest that issuance of
securities backed by nonprime mortgages (which include the subprime and alt-A
categories) slowed more than home sales in the fourth quarter, suggesting that the

II-18
Indicators of Single-Family Housing

Existing Single-Family Home Sales
Millions of units
_ (annual rate)
70
Pending home sales index (right scale)
6.5
- - Existing home sales (left scale)

New Single-Family Home Sales
Index

140
130

6.0

Millions of units
(annual rate) 0.4

0.40

1.3

120

5.5

0.35
1.1

110

5.0

0.30

0.9

4.5

100

4.0

3.5

0.25

0.7

0.20

Source. For NAHB new home sales, NAHB's survey
of large homebuilders; for new home sales agreements,
Census Bureau.

Source. National Association of Realtors.

Content partially redacted.

_
15

Millions of units
(annual rate)

New Home Sales
Months' Supply

Mortgage Rates
Months
Nov.

Percent

9
8

30-year jumbo FRM
30-year conforming FRM
1-year conforming ARM

9
8

6
5

3
2

Note.
s'§P~rc~.

. Months'
calculated using the 3-month moving average of sales.

Note. The Jan. readings are for data through Jan. 16, 2008.
Source. Conforming rates are from Freddie Mac. The
jumbo rate is the sum of the 30-year conforming FRM rate
and the jumbo conforming spread from bankrate.com.

for months' supply, Census Bureau.

Prices of Existing Homes
Percent change from year earlier
Repeat transactions, purchase-only index
Average price of homes sold
Case-Shiller price index

Prices of New Homes
35
30

Percent change from year earlier
Constant quality index
Average price of homes sold

25
20

25
15

20
15

-5
-5

-10
~~~~~~~~~~~~~~~~~~-15

Note. The Case-S hiller price index is the 10-city index.
Source. For repeat transactions, OFHEO; for average
price, National Association of Realtors; for Case-Shiller,
Chicago Mercantile Exchange.

Note. Average price values have been adjusted by
Board staff to take into account new sampling procedures
adopted in 2005.
Source. Census Bureau.

II-19

fraction of home sales financed with these types of mortgages has continued to trend
down. At the same time, data from the Federal Housing Finance Board’s Monthly
Interest Rate Survey suggest that the share of jumbo loans in prime mortgage originations
was about 5½ percent from September to November, about two-thirds of its average
share since early 2006. Spreads between rates for jumbo and conforming thirty-year
fixed-rate mortgages also widened to 90 basis points in December—about 65 basis points
wider than the average spread between 2001 and mid-2007. Although increased fees
imposed by Fannie Mae and Freddie Mac may have tightened financing for borrowers at
the margins of the prime category in the fourth quarter, interest rates faced by other prime
borrowers moved down over the fourth quarter and fell further through the middle of
January.
Because sales of new homes fell 19 percent over the six months ending in November,
builders have made little progress at paring down their bloated inventories. Despite a
small decline in the inventory of new homes for sale in November, the months’ supply of
unsold new homes remained more than twice as high as the upper end of the fairly tight
range that it had occupied between 1997 and the summer of 2005.
Home prices continued to decelerate in the second half of last year. The purchase-only
version of the repeat-sales price index calculated by the Office of Federal Housing
Enterprise Oversight (OFHEO) decreased at an annual rate of 1 percent in the third
quarter, the first nominal decline since 1993; over the four quarters ending in the third
quarter, this index increased 1.8 percent. The ten-city version of the Case-Shiller repeatsales price index—which is more heavily concentrated in urban areas that had seen
greater appreciation in earlier years—posted a decline of 6¾ percent over the twelve
months ending in October. The average price of existing homes sold—which is available
on a more-timely basis than the other measures but reflects shifts in the mix of homes
sold—was 3.7 percent below its year-earlier reading in November. In the market for new
homes, prices were about unchanged from a year earlier but have fallen on balance since
spring, and in November the average price of homes sold declined 2.8 percent. Recent
declines in new home prices are consistent with mounting anecdotal evidence that many
large homebuilders are resorting to price discounts, in addition to nonprice incentives, to
bolster sales and unload inventory.
Equipment and Software
Spending on real equipment and software appears to have advanced at a sluggish rate in
the fourth quarter after a solid increase in the third quarter. Although outlays in the

II-20
Orders and Shipments of Nondefense Capital Goods
(Percent change; seasonally adjusted current dollars)
2007
Category

Sept.

Annual rate

Oct.

Nov.

Monthly rate

Shipments
Excluding aircraft
Computers and peripherals
Communications equipment
All other categories

9.7
9.6
11.9
12.6
9.0

9.4
6.1
-15.2
13.1
8.0

.9
1.8
10.4
-1.0
1.2

-.6
-1.2
-3.8
-8.0
-.2

-.3
.2
1.2
1.5
.0

Orders
Excluding aircraft
Computers and peripherals
Communications equipment
All other categories

34.2
13.0
7.5
64.2
9.6

-1.5
3.4
.7
17.3
2.4

4.9
1.4
7.6
8.7
-.1

-2.6
-3.0
-14.9
-21.0
.4

4.2
-.1
13.9
-2.8
-1.2

Memo:
Shipments of complete aircraft1

40.1

44.9

42.0

49.1

47.4

1. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate.

Communications Equipment
20
17
14

Non-High-Tech,
Nontransportation Equipment

Billions of chained (2000) dollars, ratio scale
Shipments
Orders

20
17
14

8
Nov.

58
52

190

47
Nov.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Note. Shipments and orders are deflated by a price index
that is derived from the BEA’s quality-adjusted price indexes
and uses the PPI for communications equipment for
monthly interpolation.

2000 = 100

Billions of chained (2000) dollars

Industrial production (left scale)
Real M3 shipments (right scale)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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 BEA’s
quality-adjusted price indexes.

Medium and Heavy Trucks

Dec.
Nov.

22
19

170

150

130

110

58
52

Computers and Peripherals
220

Billions of chained (2000) dollars, ratio scale
Shipments
Orders

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Note. Ratio scales. Shipments are deflated by the staff
price index for computers and peripheral equipment, which
is derived from the BEA’s quality-adjusted price indexes.

1240
1040
900

Thousands of units, ratio scale
Sales of class 4-8 trucks
Net new orders of class 5-8 trucks

1240
1040
900

760

620

480

340

Dec. 340

200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Note. Annual rate, FRB seasonals.
Source. For sales, Ward’s Communications;
for orders, ACT Research.

200

II-21

volatile transportation equipment category moved up briskly, spending on other types of
equipment appears to have slowed appreciably.
Business demand for motor vehicles appeared to firm in the fourth quarter. Sales to daily
rental fleets moved up noticeably, but the increase was likely transitory. Sales of medium
and heavy trucks (classes 4 through 8) edged up in the fourth quarter after falling to a
four-year low in the third quarter. The recent strength in truck orders suggests that sales
will continue to recover in the next few months from the payback that ensued after the
January 2007 change in diesel engine regulations. With respect to aircraft, data on
shipments and net exports through November suggest that domestic spending on aircraft
may have recouped part of its third-quarter decline. However, high fuel prices could be
acting as a drag on spending; Federal Express recently cited fuel prices when it postponed
taking possession of new aircraft.
Real outlays on high-tech equipment and software appear to have increased at a subpar
pace over the second half of last year. Data from the Quarterly Services Survey show a
tepid increase in spending on software in the third quarter, which matched a tepid rise in
real spending on computers and peripheral equipment. The subdued growth of computer
spending likely continued into the fourth quarter: Shipments of computers and peripheral
equipment declined, on balance, in October and November, and IP for computers
decelerated further in the fourth quarter. Orders and shipments of communications
equipment did not rebound significantly in November from their large declines in
October, but imports increased briskly in those two months, an indication that real
spending in this category may post a modest gain in the fourth quarter.
Business spending on equipment outside of high-tech and transportation appears to have
fallen in the fourth quarter after posting sizable gains over the summer. Shipments in
October and November were fairly flat while orders declined, and imports in the first two
months of the quarter were below their average in the third quarter.
Available indicators of business conditions and sentiment have deteriorated. The
manufacturing diffusion index from the monthly ISM survey declined further in
December, and the Philadelphia Fed’s survey of business sentiment plunged in January.
The ISM semiannual report (released in December) suggests that this deterioration of
business sentiment is being reflected in capital spending plans. Compared with the same
report one year ago, about 10 percent of survey respondents shifted from predicting
increases in capital expenditures to predicting declines. However, other diffusion indexes
of capital spending plans paint a less uniformly negative picture; as noted, the index from

II-22
Fundamentals of Equipment and Software Investment

Real Business Output
4-quarter percent change

8
6

4
Q3

-2

-4

1990 1991 1992 1993 1994 1995
Source. Bureau of Economic Analysis.

1996

1997

1998

1999

2000

User Cost of Capital

2002

2003

2004

2005

2006

2007

-4

Corporate Bond Yields
4-quarter percent change

2001

Percent

13.5

12.5

11.5

Non-high-tech

0
Q3

-3
-6

-6

-9
-12
-15

-3

High-tech
1990
1991

1995
1995

2000
1999

2003 2005 2007

10.5

8.5

7.5

-9

6.5

-12

5.5

-15

4.5

Jan. 18

7.5
6.5

10-year BBB

5.5
2000 2001
2001 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006 2007
2007 2008
2008
2000

4.5

Note. Daily averages based on Merrill Lynch bond data.

Surveys of Business Conditions
Ratio

Billions of chained (2000) dollars

1.4
1300

Q3
Real cash flow
(left scale)

Diffusion index

70
ISM
Philadelphia Fed

1.5

1500

80
70

1.3

1.2
50

Dec.

1.1

900

Q3
Ratio of cash flow
to fixed investment
(right scale)

700
500
300

9.5

8.5

Corporate Cash Flow

1100

10.5
10-year high-yield

9.5

Source. Staff calculation.

1700

13.5

1.0
0.9

Jan.

40
30

0.8
1990
1991

1995
1995

2000
1999

2003

2005

0.7
2007

Note. Cash flow and fixed investment for the corporate business sector.
Source. Bureau of Economic Analysis; FRB flow of funds accounts.

2000 2001 2002 2003 2004 2005 2006 2007 2008
2000 2001 2002 2003 2004 2005 2006 2007 2008
Source. Manufacturing ISM Report on Business;
Philadelphia Fed Business Outlook Survey.

II-23

the National Association of Business Economists' industry survey rebounded in the fourth
quarter from a third-quarter decline, with capital spending plans improving for both hightech equipment and overall equipment.
In addition, the cost and availability of financing for business spending on equipment and
software has become less favorable, on balance. Although interest rates on investmentgrade corporate bonds have changed little, on net, since the time of the December
Greenbook, rates on high-yield bonds have risen considerably. At banks, the latest
Senior Loan Officer Opinion Survey reported widespread tightening of standards and
terms on loans to business borrowers.
Nonresidential Construction
Available data through November suggest that nonresidential building activity remained
vigorous in the fourth quarter. Although increases in investment were widespread across
major categories in the second half of 2007, gains were especially large in the office,
power and communication, and “other” sectors.6 However, several indicators suggest
that some deceleration of spending may be in the offing. The three-month moving
average of the architectural billings diffusion index—which is reasonably well correlated
with construction spending six months hence—moved down in the second half of 2007,
and vacancy rates in the retail sector increased.7 In addition, there are some indications
that financial turmoil may be affecting activity in this sector. Although commercialmortgage-backed securities (CMBS) are not an important source of new-construction
financing, the sharp contraction in CMBS issuance may signal a more general
deterioration in financing conditions. Along these lines, nonresidential construction
contractors have indicated that funding has become more difficult to obtain in some
cases, especially for more speculative projects.8 In addition, signs of decelerating
commercial property values may reduce the pace of new construction.
The Bureau of Economic Analysis (BEA) reported that real expenditures on drilling and
mining structures jumped at an annual rate of 26 percent in the third quarter after an even
larger increase in the second quarter. The magnitude of these reported increases is

The “other” sector includes religious, educational, lodging, amusement and recreation, transportation, and
health-care facilities.
7
Despite a decline in transactions in the office sector since September, the available evidence does not
suggest overbuilding in the office market. Completion of new office space in the third quarter was
30 percent less than its level of the mid-1980s, a period of substantial overbuilding. Moreover, the vacancy
rate in this sector remains well below its cyclical peaks of 1991 and 2003.
8
These responses were reported in a survey conducted by Associated General Contractors of America.

II-24

Nonresidential Construction and Indicators
(All spending series are seasonally adjusted at an annual rate; nominal CPIP deflated by
BEA prices through Q3 and by staff projection thereafter)

Total Structures

Office, Commercial, and Other
Billions of chained (2000) dollars

290
270

Billions of chained (2000) dollars

Nov.

90
80

Nov.
250

250

230

210

Other

Nov.

190
170

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

60
50

Commercial
Nov.

Office

190

170

30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Note. Other includes religious, educational, lodging, amusement and recreation, transportation, and health-care facilities.

Manufacturing
and Power & Communication
Billions of chained (2000) dollars

70
60

Architectural Billings and
Nonresidential Construction Employment
70

3.0

Percent

Diffusion index

Power & communication

60
2.0

Dec.

Billings (right scale)

Nov.

40
0.5
30

Manufacturing

0.0

Dec.

-0.5
20

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-1.5

Change in
employment (left scale)

20
-1.0

1.5
1.0

2.5

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Note. Both series are 3-month moving averages. Employment
includes industrial, commercial, and specialty trade construction.
Source. For billings, American Institute of Architects;
for employment, Bureau of Labor Statistics.

Vacancy Rates

Drilling Rigs in Operation
Percent

18
15
12

Office

18
15

Number

1600
1400

Jan.

1200

Industrial

1600
1400
1200

Natural gas
1000

1000

800

600

Q4(p)
9

9
Retail

400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Note. Industrial space includes both manufacturing
structures and warehouses.
p Preliminary.
Source. Torto Wheaton Research.

400
Petroleum

Jan.

200
0

200
2000

2002

2004

2006

Note. The January readings are based on data
through January 18, 2008.
Source. DOE/Baker Hughes.

2008

II-25
Nonfarm Inventory Investment
(Billions of dollars; seasonally adjusted annual rate)
2007
Measure and sector

Sept.

Oct.

Nov.

-5.8
-14.7
8.9

1.3
-9.6
10.9

26.0
13.3
12.7

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

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

1.1
-5.0
4.3
1.8

10.8
-4.2
6.5
8.5

18.1
3.1
13.9
1.1

54.2
25.2
23.3
5.7

.9
-6.0
-13.0 e
19.9

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

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

33.9
4.8
22.0
7.2

60.7
21.6
20.6
18.4

38.3
12.6
21.4
4.3

73.3
36.4
28.4
8.5

40.4
10.0
4.8
25.6

Real inventory investment
(chained 2000 dollars)
Total nonfarm business
Motor vehicles
Nonfarm ex. motor vehicles

47.8
47.1
18.0
-17.3

n.a. Not available.
e Staff estimate of real inventory investment based on revised book-value data.
Source. For real inventory investment, BEA; for book-value data, Census Bureau.

ISM Customer Inventories:
Manufacturing

Inventory Ratios ex. Motor Vehicles
Months

1.9
1.8

1.9

Index

1.8

Staff flow-of-goods system

55
1.7

1.7

1.6

Dec.

1.6

1.5

1.4

1.3

Dec.

1.3
Census book-value data

1.2
1.1

Nov.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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.

1.2
1.1

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Note. A number above 50 indicates inventories are "too high."

II-26
CBO Budget Projections and Economic Assumptions

2008

2009

2010

2011

Budget projections1
(fiscal years)
Baseline deficit
Adjustments2
War on terrorism
Expiring tax provisions
Net interest
Adjusted deficit

2014

2015

2016

2017

2018

219

198

241

117

-87

-61

-96

-117

-95

-151

-223

30
12
0

58
92
5

59
104
11

51
267
25

29
395
45

13
443
70

-4
475
94

-17
508
123

-21
544
154

-24
583
189

-25
626
225

261

353

415

460

382

465

469

497

582

597

603

2.5

2.8

2.7

4.4
2.5
1.9
1.9
2.2
2.2

4.3
2.4
1.9
1.9
2.2
2.2

Percent of GDP
1.8

2.4

2.7

Economic assumptions
(calendar years)
Nominal GDP
Real GDP
PCE prices
Core PCE prices
CPI-U
Core CPI-U

2013

Billions of dollars

Memo:
Adjusted deficit

2012

2.8

2.2

2.6

Percent change, year over year
3.6
1.7
2.6
1.9
2.9
2.2

4.7
2.8
1.8
1.9
2.3
2.2

5.4
3.5
1.9
1.8
2.2
2.2

5.3
3.4
1.9
1.9
2.2
2.2

4.8
2.9
1.9
1.9
2.2
2.2

4.5
2.6
1.9
1.9
2.2
2.2

Percent, annual average
Unemployment rate

5.1

5.4

5.1

4.8

Treasury yields
Three-month
Ten-year

3.2
4.2

4.2
4.9

4.6
5.2

4.7
5.2

1. The baseline assumes that budget authority for discretionary programs grows with inflation after fiscal 2008 and
that no new mandatory spending or tax legislation is enacted.
2. Adjustments measure the effect of alternative policies on the deficit and move the baseline closer to policies in
effect in 2007. Real defense spending on the war in Iraq and Afghanistan is assumed to remain at 2007 levels over the next
several years and then to drift down. All expiring tax provisions are assumed to be extended, including relief from the
Alternative Minimum Tax, which is assumed to be indexed for inflation after 2007. Higher net interest costs reflect larger
deficits in the adjusted baseline.
Source. Congressional Budget Office (2008), The Budget and Economic Outlook: Fiscal Years 2008 to 2018 (January).

II-27

somewhat surprising given other indicators of activity in this sector, and the latest
available information suggests a much more modest increase in the fourth quarter.9
Business Inventories
Our translation of book-value inventory data through November suggests that the pace of
stockbuilding in the business sector (excluding motor vehicles) was little changed from
its average rate over the first three quarters of 2007. The ratio of manufacturing and trade
book-value inventories (excluding motor vehicles) to sales ticked down in November.
Information from the staff’s flow-of-goods system suggests that months’ supply of
inventories excluding motor vehicles ticked down in November, although this measure
edged up in December. The flow-of-goods estimates provide little indication of serious
inventory imbalances in most of the manufacturing sector. However, stock-sales ratios
do appear to be elevated in industries such as primary metals and, to a lesser extent, wood
products, fabricated metal products, and plastic and rubber products, likely because of the
ongoing weakness in construction and motor vehicle production.
Federal Government Sector
The federal unified budget situation has deteriorated somewhat in recent months. Yearover-year increases in receipts have continued to slow, whereas the rise in outlays has
picked up a bit. The Congressional Budget Office (CBO) expects the deficit to widen
noticeably this year; its latest Budget and Economic Outlook, which was released on
January 23, projects the deficit to widen from 1¼ percent of GDP in fiscal year 2007 to
1¾ percent of GDP in fiscal 2008 and nearly 2½ percent of GDP in 2009, assuming
current budget policies are extended.10
Receipts rose 5¾ percent in the fourth quarter of 2007 relative to the same period a year
earlier. Individual income and payroll taxes posted a 7 percent increase, similar to the
third-quarter rise. But corporate income taxes decreased 6 percent in the fourth quarter
relative to a year earlier, thereby continuing a decline that began during the summer.

The BEA’s estimates reflect proprietary information that is not available to the staff. In contrast, the
number of drilling rigs in operation and measures of footage drilled from the Department of Energy (not
shown) moved up little, on balance, during the second and third quarters and increased slightly in the fourth
quarter.
10
The CBO’s Budget and Economic Outlook projects federal unified budget deficits for both fiscal 2008
and 2009 assuming the Alternative Minimum Tax and other expiring tax provisions are extended and
current real levels of spending for military activities in Iraq and Afghanistan are maintained. The CBO
projection does not include a stimulus package. The CBO’s budget projections are based on economic
assumptions that show real GDP growth slowing to 1½ percent over the four quarters of this year and the
unemployment rate rising to 5¼ percent in the fourth quarter of 2008.

II-28

II-29

Outlays, adjusted for payment-timing shifts and financial transactions, rose 6 percent in
the fourth quarter relative to a year earlier. Interest outlays rose nearly 20 percent, as
high readings on overall CPI inflation boosted the nominal interest costs of Treasury
inflation-protected securities (TIPS). Defense outlays rose 8 percent in the fourth quarter
relative to a year earlier; they were at a level consistent with a solid gain in NIPA real
defense purchases last quarter relative to the third quarter.
In December, the Congress passed a one-year extension of the Alternative Minimum Tax
(AMT) and completed action on the regular appropriations bills.11 An economic stimulus
package around 1 percentage point of nominal GDP has been widely discussed, although
the Administration and congressional leadership have yet to settle on a plan.
State and Local Government Sector
Real state and local government expenditures appear to have risen sharply in the fourth
quarter. State and local hiring was quite vigorous; employment increased an average of
about 35,000 jobs per month in the fourth quarter, well above the solid monthly pace of
approximately 20,000 in the first three quarters of 2007. Real construction expenditures
increased at a brisk annual rate of about 11 percent, on average, in October and
November.
Most states’ budgets remain relatively healthy, but fiscal conditions are tightening
because revenue gains are slowing. The Census Bureau’s Quarterly Summary of State
and Local Government Tax Revenue indicates that the year-over-year change in state tax
revenues slowed to 4½ percent in the third quarter of 2007, down from the 7¾ percent
gain over the preceding year. The National Conference of State Legislatures (NCSL)
reports that aggregate state revenues have been coming in about as projected in fiscal
2008 budgets but that receipts in individual states have been mixed.12 Some midwestern
and western states have experienced larger-than-anticipated gains in revenues, whereas
several large coastal states—including California, Florida, and New York—have
experienced slower-than-expected increases in receipts. Half of states reported that their
revenues have been adversely affected by the housing market slump; the categories most

The Internal Revenue Service announced that the processing of a small number of the early income-tax
returns may be delayed by a few weeks because of the last-minute reprogramming of its computers as a
result of the late enactment of the AMT bill. This delay should have only a minor effect on the timing of
individual refunds.
12
Fiscal 2008 began in the third quarter of 2007 for forty-six states.

II-30

State and Local Indicators

Real Spending on Consumption & Investment

Net Change in Employment

Percent change, annual rate
12
10

Thousands of jobs, monthly average
12

Spending
4-quarter moving average

4
Q3

-2

-4

1999

2001

2003

2005

-4

2007

50
40

-10

1999

2001

2003

2005

-10

2007

Net Saving
Percent of nominal GDP

Billions of chained (2000) dollars

200

190

190
Q4

180
170

160

150

1.0

0.5

0.0

-0.5

140

1999

2001

Real Construction
Annual rate

2003

2005

2007

140

-1.0

0.0

-0.5

1987

1992

1997

2002

2007

-1.0

Note. Nominal CPIP deflated by BEA prices through
Q3 and by a staff projection thereafter. Observation for
Q4 is the average for October and November.

State Revenues

Local Revenues

Percent change from year earlier
20

4-quarter moving average

Individual and
corporate income
taxes

Total
revenues

Percent change from year earlier
20

4-quarter moving average

12
10
Property taxes

8
Q3

-5

-10

-15

1999

2001

Source. Census Bureau.

2003

2005

2007

Total revenues
1999

2001

Source. Census Bureau.

2003

2005

2007

II-31

Price Measures
(Percent change)
12-month change

Dec.
2006

Dec.
2007

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

2.5
2.1
2.9
2.6
-.1
3.7
4.3
2.9
2.4
2.3

4.1
4.9
17.4
2.4
.1
3.3
3.1
3.6
3.4
2.1

PCE prices 2
Total
Food and beverages
Energy
Ex. food and energy
Core goods
Core services
Shelter
Other services
Core market-based
Core non-market-based

2.3
2.1
3.5
2.3
-.4
3.3
4.3
3.0
2.0
3.5

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

1.1
1.7
-2.0
2.0
1.8
2.3
2.8
4.5
-4.7
17.0

Measures

3-month change

1-month change

Annual rate

Monthly rate

Sept.
2007

Dec.
2007

Nov.
2007

Dec.
2007

1.0
4.9
-14.8
2.5
.3
3.3
2.9
3.7
...
...

5.6
2.4
37.1
2.7
.8
3.5
2.9
4.3
...
...

.8
.3
5.7
.3
.2
.3
.3
.3
...
...

.3
.1
.9
.2
.0
.3
.3
.4
...
...

3.5
4.6
18.5
2.3
-.3
3.3
3.1
3.3
2.0
3.3

1.5
4.5
-15.0
2.4
-.7
3.6
2.9
3.9
1.7
5.2

4.7
2.3
39.4
2.8
.9
3.5
3.3
3.6
2.7
3.3

.6
.2
6.0
.2
.1
.3
.3
.3
.2
.2

.3
.0
.9
.2
.0
.3
.3
.3
.2
.3

6.3
7.4
18.4
2.0
2.5
1.3
6.8
3.3
20.6
16.8

1.0
4.2
-3.0
1.7
2.1
1.1
-.5
.0
-8.5
12.4

13.3
9.4
51.9
2.2
2.8
1.3
15.0
4.6
59.6
3.6

3.2
.0
14.1
.4
.4
.3
3.7
1.0
8.7
-.5

-.1
1.3
-1.9
.2
.2
.1
-.2
.0
1.0
.0

1. Higher-frequency figures are not applicable for data that are not seasonally adjusted.
2. PCE prices in December 2007 are staff estimates.
... Not applicable.

II-32

Consumer Prices
(12-month change except as noted)

PCE Prices

CPI and PCE ex. Food and Energy
Percent

Percent

Total PCE
3

Dec.*

CPI
Dec.*

2
PCE

Core PCE

2000 2001 2002 2003 2004 2005 2006 2007 2008

CPI
chained

2000 2001 2002 2003 2004 2005 2006 2007 2008

* PCE for December is a staff estimate.

* Staff estimate.

PCE excluding Food and Energy

PCE Goods and Services
Percent

Percent

Dec.*
3
Dec.*

3
Services ex. energy

0
1

Market-based components

-1
-2

2000 2001 2002 2003 2004 2005 2006 2007 2008

-3

* Staff estimate.

0
-1

Goods ex.
food and energy

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008

-3

* Staff estimate.

PCE excluding Food and Energy

CPI excluding Food and Energy
Percent

Dec.*

3-month change, annual rate

Percent

5
4

3-month change, annual rate
3

3
Dec.

Dec.*

-1

2000 2001 2002 2003 2004 2005 2006 2007 2008
* Staff estimate.

2000 2001 2002 2003 2004 2005 2006 2007 2008

-1

II-33

affected are sales taxes, real estate transaction fees, and capital gains taxes.13 The NCSL
also reports that recent trends in revenues are generating concern among the states about
the budget outlook for the remainder of fiscal 2008. The National Association of State
Budget Officers reports that states expect year-end budget balances to decline for the
second consecutive year as a result of the deceleration in revenues. On average, states
expect to end fiscal 2008 with reserves equal to approximately 6¾ percent of general
fund expenditures, well below the 11½ percent recorded at the end of fiscal 2006 but still
above the 5 percent threshold generally considered to constitute an adequate cushion.
Prices
Overall consumer price inflation has stepped up noticeably from the low rates posted last
summer. Total PCE prices moved up 0.6 percent in November and are estimated to have
increased 0.3 percent in December, thereby bringing the estimated twelve-month change
in PCE prices through December to 3.5 percent. Excluding food and energy, PCE prices
have continued to rise at a faster rate than they did during the first half of the year; for the
year as a whole, core PCE price inflation is estimated to have been the same as in 2006.
Long-term inflation expectations have moved up toward the top of the range seen in
recent years.
Core PCE prices rose 0.2 percent in both October and November and are estimated to
have risen 0.2 percent again in December. The estimated increase in core PCE prices
over the past six months—at an annual rate of 2.6 percent—is up noticeably from the rate
of 1.9 percent posted over the first half of last year. The pickup in core PCE price
inflation over the second half of last year reflects an acceleration in prices that were
unusually soft earlier in the year, such as prices for apparel, prescription drugs, and
nonmarket services. Smoothing through the variation in monthly changes last year, the
twelve-month change in core PCE prices through December—estimated at 2.3 percent—
is unchanged from a year earlier.
Consumer energy prices jumped 6 percent in November after having risen 1½ percent in
October, and they are estimated to have risen about 1 percent in December. These
increases mainly reflect the ongoing pass-through of the higher cost of crude oil into the
retail prices of gasoline and heating oil, although prices also moved up, on balance, for
electricity and natural gas. At the turn of the year, the price of crude oil surged to about
$100 per barrel. However, prices have retreated recently as forecasts of demand have
13

To date, property taxes—which are mostly collected by local governments—do not appear to have been
adversely affected by decreases in house values. Many states limit the annual increases allowed for
property tax payments, and thus property tax revenues adjust to changes in house prices only gradually.

II-34

Energy and Food Price Indicators
(Data from Energy Information Administration except as noted)

Total Gasoline Margin
180

Gasoline Price Decomposition

Cents per gallon
180
Retail price less average spot crude price*

160

Cents per gallon

350
300

Rack price

Retail price*

350
300

Jan. 21
140

140

250

120

200

100

150

100

Jan. 21

2005
2006
2007
2008
* Regular grade seasonally adjusted by FRB staff,
less average spot crude price: 60% WTI, 40% Maya
heavy crude.

Gasoline Inventories
Millions of barrels
Excluding ethanol
Adjusted for ethanol use*

245
235

Jan. 11

225
215

205

195

185

2005
2006
2007
2008
Note. Shaded region is average historical range as
calculated by DOE. Monthly data through October 2007,
weekly data thereafter, as indicated by line weights.
* Adjustment for approximate amount of fuel ethanol to be
blended with RBOB component of inventories; estimated by
FRB staff.

4.5

2008

Cents per gallon

450

Near-futures price, daily
Monthly futures, Jan. 22

500
450

400

350

300

250

200

150

100

2005
2006
Source. Chicago Board of Trade.

2007

2008

100

Spot Agricultural Commodity Prices
12-month percent change

Food and beverages
Ex. food and energy

5.0
4.0

Dec.*

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.5
2005
2006
2007
*Staff estimate.
Source. Bureau of Economic Analysis.

2008

0.0

Dollars per bushel

4.5

4.0

0.0

2005
2006
2007
* Regular grade seasonally adjusted by FRB staff.
** 60% WTI, 40% Maya heavy crude.

500

PCE Food Prices
5.0

100

Ethanol Prices

245
235

Average spot crude price**

Soybeans (right scale)
Corn (left scale)

Jan. 22

4
3
2
1
0

2005
2006
2007
Source. Commodity Research Bureau.

2008

15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0

II-35

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

2004

2005

2006

2007

Product prices
GDP price index
Less food and energy

3.0
2.9

3.3
3.2

3.2
3.2

2.4
2.3

Nonfarm business chain price index

2.5

3.5

3.0

1.5

Expenditure prices
Gross domestic purchases price index
Less food and energy

3.3
2.9

3.8
3.0

3.3
3.0

2.3
2.2

PCE price index
Less food and energy

2.7
2.1

3.2
2.1

2.9
2.4

2.1
1.9

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

2.3
1.4

3.1
1.7

2.7
2.1

2.0
1.7

CPI
Less food and energy

2.7
1.8

3.8
2.1

3.4
2.8

2.4
2.1

Chained CPI
Less food and energy

2.5
1.7

3.4
1.8

2.8
2.6

2.1
1.8

Median CPI
Trimmed mean CPI

2.3
2.1

2.4
2.3

3.2
2.9

2.8
2.4

Trimmed mean PCE

2.4

2.8

2.2

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

2006:Q1
Q2
Q3
Q4

3.6
4.0
3.3
1.9

3.7
4.5
4.0
3.5

3.0
3.5
3.4
3.0

3.3
3.6
3.3
3.5

2.9
3.1
3.0
3.0

2.5
2.5
2.5
2.5

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

2007:Q1
Q2
Q3
Q4

2.4
2.7
2.4
4.0

3.6
4.2
4.1
4.1

3.0
3.3
3.2
3.3

3.4
3.5
3.5
3.3

2.9
3.0
3.0
2.9

2.4
2.4
2.4
2.4

2.0
2.0
2.1
2.1

2007:Sept.
Oct.
Nov.
Dec.
2008:Jan.

2.8
3.5
4.3
4.1
n.a.

4.0
3.7
4.3
4.4
4.1

3.1
3.1
3.4
3.4
3.4

3.4
3.1
3.4
3.5
3.4

2.9
2.8
2.9
3.1
3.0

...
...
2.4
...
...

...
...
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 compiled by the Federal Reserve Bank of Philadelphia.
... Not applicable.
n.a. Not available.

II-36

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

Percent

Percent
12

Quarterly

Monthly

Median, next 5 to 10 years
6
4

Jan.

Q4
2
0

Median, next 12 months

1972 19751977 19801982 19851987 19901992 19951997 20002002 20052007

Inputs to Models of Inflation
12

2005

Percent

Quarterly

Distributed lag of
core PCE inflation**

0
0
0
2005
2006
2007
2008
1972 19751977 19801982 19851987 19901992 19951997 20002002 20052007
*For 2007 forward, the median projection for PCE inflation over the next 10 years from the Survey of Professional Forecasters (SPF);
for 1991 to 2006, the equivalent SPF projection for the CPI; for 1981 to 1991, 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.
**Derived from one of the reduced-form Phillips curves used by Board staff.

Inflation Compensation from TIPS

Percent

Percent
5

Quarterly

Weekly

4
3
5 to 10 years ahead

Next 5 years

3
Jan. 22

3
Q4

2008

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

2007

Percent

2006

0
0
0
2001
2002
2003
2004
2005
2006
2007
2005
2006
2007
2008
Note. Based on a comparison of an estimated TIPS yield curve with an estimated nominal off-the-run Treasury yield curve, with an
adjustment for the indexation-lag effect.

II-37

been marked down. Currently, crude oil prices stand at levels close to those seen at the
time of the December Greenbook. Survey data through mid-January point to a small
increase in retail gasoline prices this month.
After a series of large increases over much of 2007, consumer food inflation has recently
come in at or below core PCE inflation rates. Although the PCE price index for food and
beverages is estimated to have risen 4½ percent over the twelve months ending in
December, consumer food prices rose 0.2 percent in November and are estimated to have
been about flat in December. The upward pressure on retail food prices emanating from
meats and poultry appears to have eased somewhat late last year as increased supplies
have begun to come on line. Elsewhere, a continued run-up in the prices of bakery
products and a rebound in egg prices in December were offset by price declines in other
categories of food at home. In commodity markets, grain prices have moved up sharply
since the December Greenbook, as strong global demand has outpaced current world
supplies, whereas prices for livestock have declined.
The high readings on overall consumer price inflation late last year appear to have
contributed to a pickup in inflation expectations. As measured by the Reuters/University
of Michigan Survey, median expectations for year-ahead inflation moved up to
3.4 percent in November and remained at that level in December and early January. The
survey’s measure of median inflation expectations over the next five to ten years
increased to 3.1 percent in December but ticked down to 3.0 percent in the preliminary
January release. Since the December Greenbook, inflation compensation derived from
TIPs has been mixed: five-year inflation compensation has declined about 0.2 percentage
point, and the five-year-ahead measure has risen nearly 0.2 percentage point.
Outside the energy sector, price pressures at earlier stages of processing have also
increased somewhat of late. The producer price index (PPI) for core intermediate
materials rose 1 percent in November and remained flat in December. The prices of a
number of energy-intensive intermediate materials—such as industrial and agricultural
chemicals and plastics—moved up briskly late last year, but the prices of construction
materials moved sideways, and the prices of metal products declined. On balance last
year, the index for core intermediate materials increased 3¼ percent, compared with the
4½ percent rise over 2006.
Commodity prices have risen significantly over the past year, and this trend has
continued since the December Greenbook. The Journal of Commerce (JOC) index of
industrial materials has increased 1.5 percent since early December, and the Commodity

II-38

Commodity Price Indexes
Journal of Commerce
2006 = 100

180
160

Jan. 22

140

120

100

Industrials

60
40
20

60
40

Metals
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
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 Journal of Commerce data is held by CIBCR, 1994.

Commodity Research Bureau
1967 = 100

550

Jan. 22
500

500

450

400

400
Spot industrials

350

300

250

250
Futures

200
150

200

1991 1992
1992 1993 1994
1994 1995 1996
1996 1997 1998
1998 1999 2000
2000 2001 2002
2002 2003 2004
2004 2005 2006
2006 2007 2008
2008
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

2006 1

12/19/06
to
12/4/07 2

12/4/07 2
to
1/22/08

52-week
change to
1/22/08

10.4
43.5
26.9
13.0
15.0

10.5
8.0
11.9
23.2
15.2

1.5
2.1
.2
4.4
6.5

11.7
12.1
13.0
24.1
23.5

1. From the last week of the preceding year to the last week of the year indicated.
2. December 4, 2007, is the Tuesday preceding publication of the December Greenbook.

150

II-39

Research Bureau (CRB) spot index of industrial materials has edged up 0.2 percent. The
faster increase in the JOC index reflects its inclusion of energy products and a different
mix of metals than in the CRB index.
Labor Costs
After a soft reading in October, average hourly earnings (AHE) rose 0.4 percent in both
November and December; the twelve-month change in AHE was 3.7 percent in
December, down about ½ percentage point from the elevated pace posted in 2006.

II-40

Hourly Compensation and Unit Labor Costs
(Percent change from preceding period at compound annual rate; based on seasonally adjusted data)

Category

2005:Q3 2006:Q3
to
to
2006:Q3 2007:Q3e

2006

2007

Q3 e

Compensation per hour
Nonfarm business

2.7

5.8

12.2

5.9

1.0

4.3

Unit labor costs
Nonfarm business

2.6

3.0

10.3

5.2

-1.1

-1.8

e Staff estimate.

Compensation per Hour

Unit Labor Costs

(Percent change from year-earlier period)

(Percent change from year-earlier period)
Percent

Percent

-1

-2

Productivity and costs*
Q3

Q3
ECI

1996199719981999200020012002200320042005200620072008
* Value for 2007:Q3 is a staff estimate.

1996199719981999200020012002200320042005200620072008

-2

Note. Value for 2007:Q3 is a staff estimate.

Average Hourly Earnings

Markup, Nonfarm Business

(Percent change from year-earlier period)
4.5

Percent

4.0

4.5

1.66

4.0

1.64

Ratio

1.66
1.64

Dec.
Q3

3.5

1.62

3.0

1.60

2.5

1.58

2.0

1.56

1.5

1.54

1.0

1.52

1.0

1996199719981999200020012002200320042005200620072008

Average,
1968-present

1.62

1.56
1.54

1996199719981999200020012002200320042005200620072008
Note. The markup is the ratio of output price to unit
labor costs. Value for 2007:Q3 is a staff estimate.

Last Page of Domestic Nonfinancial Developments

1.52

Domestic Financial
Developments

III-T-1

Selected Financial Market Quotations
(One-day quotes in percent except as noted)
2006

2007

2008

Instrument

Change to Jan. 22 from
selected dates (percentage points)

June 29

Sept. 17

Dec. 10

Jan. 22

2006
June 29

2007
Sept. 17

2007
Dec. 10

5.25

4.50

3.50

-1.75

-1.00

4.88
5.06

4.05
4.15

2.98
3.20

2.30
2.34

-2.58
-2.72

-1.75
-1.81

-.68
-.86

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

5.27
5.37

5.23
5.25

4.36
4.94

3.51
3.37

-1.76
-2.00

-1.72
-1.88

-.85
-1.57

Large negotiable CDs1
3-month
6-month

5.47
5.59

5.52
5.36

5.18
4.98

3.38
3.23

-2.09
-2.36

-2.14
-2.13

-1.80
-1.75

Eurodollar deposits3
1-month
3-month

5.33
5.49

5.55
5.60

5.40
5.25

3.80
3.70

-1.53
-1.79

-1.75
-1.90

-1.60
-1.55

Bank prime rate

8.25

7.50

6.50

-1.75

-1.00

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

5.26
5.15
5.28

4.12
4.18
4.58

3.17
3.55
4.33

2.04
2.69
3.71

-3.22
-2.46
-1.57

-2.08
-1.49
-.87

-1.13
-.86
-.62

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

2.51
2.61

2.04
2.15

1.42
1.94

.71
1.34

-1.80
-1.27

-1.33
-.81

-.71
-.60

Municipal general obligations (Bond Buyer)6

4.71

4.46

4.38

4.15

-.56

-.31

-.23

Private instruments
10-year swap
10-year FNMA7
10-year AA8
10-year BBB8
10-year high yield8

5.81
5.59
6.20
6.74
8.74

5.17
5.01
6.05
6.46
8.95

4.89
4.83
6.08
6.55
9.23

4.17
4.12
5.64
6.23
1.05

-1.64
-1.47
-.56
-.51
1.31

-1.00
-.89
-.41
-.23
1.10

-.72
-.71
-.44
-.32
.82

Home mortgages (FHLMC survey rate)9
30-year fixed
1-year adjustable

6.78
5.82

6.34
5.65

6.11
5.50

5.69
5.26

-1.09
-.56

-.65
-.39

-.42
-.24

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

Record high

2007

2008

Stock exchange index
Dow Jones Industrial
S&P 500 Composite
Nasdaq
Russell 2000
Wilshire 5000

Change to Jan. 22
from selected dates (percent)

Level

Date

Sept. 17

Dec. 10

Jan. 22

Record
high

2007
Sept. 17

2007
Dec. 10

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

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

13,403
1,477
2,582
776
14,839

13,727
1,516
2,719
791
15,311

11,971
1,311
2,292
672
13,190

-15.48
-16.27
-54.60
-21.52
-16.56

-1.69
-11.25
-11.21
-13.44
-11.12

-12.79
-13.55
-15.69
-15.12
-13.86

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.
9. Home mortgage rates for January 22, 2008, are for the week ending January 17, 2008.
_______________________________________________________________________
NOTES:
June 29, 2006, is the day the most recent policy tightening ended.
September 17, 2007, is the day before the most recent policy easing began.
December 10, 2007, is the day before the most recent FOMC announcement.
_______________________________________________________________________

III-C-1

Short-Term Funding and Interbank Markets
Spreads between 30-Day Libor
and OIS Rates

Basis points
120

Dec. FOMC

Daily

Spreads on 30-Day
Commercial Paper

Basis points

Daily

200

Dec. FOMC

100
150
Jan.
22

80
Jan.
22

100

A2/P2

ABCP

0
July

Sept.
2007

Nov.

Jan.

July

Sept.
2007

2008

Nov.

Jan.
2008

Note. The ABCP spread is the AA ABCP rate minus the AA
financial rate. The A2/P2 spread is the A2/P2 nonfinancial
rate minus the AA nonfinancial rate.

Commercial Paper
Outstandings

Federal Funds Rates

Billions of dollars

Weekly

Dec. FOMC

1300

Daily

Percent
6.0

Dec. FOMC

5.5

Target

1200

5.0

1100

ABCP

Effective

4.5

1000
4.0
Unsecured CP

Jan.
16

900
3.5
800

Jan.

Mar.

May
2007

July

Sept.

Nov.

3.0
July

Jan.
2008

Aug.

Sept. Oct.

Nov.

Dec.

Jan.
2008

2007

Note. Seasonally adjusted; weeks ending on Wednesdays.

3-Month Treasury Bill Rate
Daily

Treasury Repo Rates
for General Collateral

Percent
6.0

Dec. FOMC

Daily
Overnight

5.5

Percent
6

Dec. FOMC

5.0
4.5

One
month

4.0
3.5

3.0
2

2.5
Jan.
22

July

Sept.
2007

Nov.

Jan.
2008

Jan.
22

2.0

1
July

Sept.
2007

Nov.

Jan.
2008

Domestic Financial Developments
Overview
While pressures in short-term funding markets have eased somewhat since the December
FOMC meeting, perceptions of a deteriorating economic outlook have weighed heavily
on broader financial markets. Equity price indexes have plunged, and corporate bond
spreads have shot up to their highest levels since 2003. The FOMC lowered the target
federal funds rate 75 basis points on January 22, and market participants place high odds
on at least 50 basis points of additional easing at the upcoming FOMC meeting. Further
ahead, the expected policy path bottoms out at about 2 percent in early 2009, about
120 basis points lower than at the time of the December meeting. Nominal Treasury
yields have dropped sharply. Near-term inflation compensation has moved somewhat
lower, on net, but inflation compensation at more-distant horizons has risen modestly.
Delinquency rates on subprime mortgages increased markedly, and those on prime
mortgages and on nonmortgage consumer loans edged up. Issuance of securities backed
by nonconforming residential mortgages fell to its slowest pace since 2002. Commercial
bank credit continued to expand briskly, spurred by strong growth in business loans and
in nonmortgage consumer loans. In the January 2008 Senior Loan Officer Opinion
Survey on Bank Lending Practices, banks reported further net tightening of terms and
standards on business and household loans over the past three months.
Money Market Functioning
Conditions in short-term funding markets have improved since the December FOMC
meeting, but strains remain. Spreads of term federal funds rates and libor over rates on
comparable-maturity overnight index swaps have narrowed substantially, on net, since
the December FOMC but are still elevated by historical standards. Spreads on assetbacked commercial paper, as well as those on lower-rated nonfinancial unsecured paper,
also fell significantly on net. Asset-backed commercial paper outstanding increased in
each of the first two weeks of January, after having contracted in every week since
August.
Yields on three-month Treasury bills rose after the turn of the year, as market participants
reported significantly improved trading conditions; more recently, however, renewed
safe-haven flows along with the lower policy path pushed yields markedly lower, on net,
and liquidity in the bill market deteriorated. In addition, rates on general collateral
Treasury repurchase agreements have generally traded substantially below the overnight
federal funds rate since the December FOMC.

III-1

III-2

Policy Expectations and Treasury Yields
Money Market Futures Rates

Percent

FOMC TAF
statement announcement

Durable
goods

ISM Nonfarm
payrolls

Chairman’s
speech

Intermeeting
move

February 2008 federal funds

December 2008 Eurodollar

Dec. 10

Dec. 13

Dec. 18

Dec. 21

Dec. 27

Jan. 2

Jan. 7

Jan. 10

Jan. 15

4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2

Jan. 18

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

Implied Volatility of Interest Rates
Expected Federal Funds Rates

Percent

Basis points
4.25 300

December 10, 2007

3.50

Dec. FOMC

6-month Eurodollar (left scale)*
10-year Treasury (right scale)

4.00
3.75

Basis points

Daily

250

800
700

200
600

3.25
3.00 150
Jan.
22

2.75
January 22, 2008

June
2008

Oct.

Feb.

June
2009

Oct.

400

2.25

300
50
200
Oct. Feb.
2005

Feb.
2010

Note. Estimates from federal funds and Eurodollar futures.

Treasury Yield Curve

500

2.50 100

2.00
Feb.

900

June Oct.
2006

Feb.

June Oct. Jan.
2008
2007

*Width of a 90 percent confidence interval computed from the
term structures for the expected federal funds rate and implied
volatility.

Inflation Compensation

Percent
5.0
4.5

Percent

Daily

Dec. FOMC

3.0
2.8

Five-to-ten years ahead

December 10, 2007

4.0

2.6

3.5
Next five years*

January 22, 2008

2.4

3.0
2.2

2.5
2.0

2.0
1

10
Years ahead

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

Jan.

Mar.

May

July
2007

Sept.

Nov.

Jan.
2008

Note. Estimates based on smoothed nominal and inflationindexed Treasury yields.
*Adjusted for lagged indexation of TIPS.

III-3

Policy Expectations and Treasury Yields
The expected path of monetary policy over the next year has tilted down steeply since the
December FOMC meeting, largely in response to concerns about a deteriorating
economic outlook. Economic data, particularly the ISM and employment reports
released just after the turn of the year, came in weaker than expected, prompting strong
reactions from market participants. Reports of heavy losses at large financial institutions
on mortgage-related securities also appeared to have pushed down policy expectations,
even as some large financial institutions were successful in raising capital.
Investors largely anticipated the Committee’s decision to lower the target federal funds
rate 25 basis points at the December meeting, though they were reportedly disappointed
by the absence of any accompanying measures to address strains in term funding markets.
Some of that surprise was reversed the next day, following the announcement of the
Term Auction Facility (TAF) and the associated swap lines with the European and Swiss
central banks. The release of the minutes of the December FOMC meeting elicited little
market reaction. The expected policy path moved down a few basis points with the
Chairman’s speech on January 10, as market participants reportedly interpreted the
remarks as suggesting that the FOMC would likely ease policy aggressively in response
to a deterioration in the economic outlook.
The 75 basis point reduction in the target federal funds rate on January 22 largely
surprised market participants, and implied rates on short-dated futures contracts declined
sharply on the announcement. On net, market participants now expect the federal funds
rate to decline to about 2 percent by early 2009, about 120 basis points lower than they
had priced in at the time of the December meeting. Options on federal funds futures
contracts indicate that investors place high odds on at least 50 basis points of policy
easing at next week’s FOMC meeting. On balance, uncertainty about the course of
monetary policy over the next six months has changed little on net since early December;
option-implied distributions of the federal funds rate over that horizon remained
negatively skewed around a significantly lower modal outcome.
Consistent with the revision in policy expectations and the reduction in the target federal
funds rate, yields on nominal Treasury coupon securities have declined substantially
since the December FOMC, and the yield curve has steepened somewhat further; the twoyear yield has dropped 110 basis points, while the ten-year yield has declined about
60 basis points. Near-term inflation compensation increased in early January amid rising
oil prices, but it subsequently retreated and is now about 15 basis points lower, on net,

III-4
Corporate Yields, Risk Spreads, and Stock Prices
Selected Stock Price Indexes

Implied Volatility on S&P 500 (VIX)
Dec. 10, 2007 = 100

Percent
130

Daily

125

Dec.
FOMC

120

35
Jan.
22

115
DJ Financial

110

25
Avg.
since 1991

105
100
95

Wilshire 5000

90
Jan.
22

85
80

Jan.

Mar.

May

July
2007

Sept.

Nov.

Jan.

5
Jan.

Mar.

2008

Ratio of Trend Earnings to Price for S&P 500 and
Long-Run Treasury Yield
Percent

July
2007

Sept.

Nov.

Jan.

2008

Corporate Bond Yields
Percent
12

Monthly

May

Daily

12.0

Dec.
FOMC

10.5
(Trend earnings) / P

8
9.0

10-year high-yield

+
6
Jan.
22

Long-run real Treasury yield

Jan.
22

7.5

4
6.0

10-year BBB

2
4.5

1984

1988

1992

1996

2000

2004

2008

2002

2003

2004

2005

2006

2007

2008

* Trend earnings are estimated using analysts’ forecasts of
year-ahead earnings from I/B/E/S.
+ Denotes the latest observation using daily interest rates and
stock prices and latest earnings data from I/B/E/S.

Note. Yields from smoothed yield curves based on Merrill Lynch
bond data.

Corporate Bond Spreads

Far-Term and Near-Term Forward High-Yield
Corporate Bond Spreads
Basis points

Basis points

Basis points
390

Daily

Dec.
FOMC

800

315

10-year high-yield
(left scale)

600

1000

Dec.
FOMC

800
Near-term*

Jan.
22

240

600

400
400
165

200

Far-term**
10-year BBB
(right scale)

90
2002

2003

2004

2005

2006

2007

2008

Note. Measured relative to comparable-maturity Treasuries.

0
2002

2003

2004

2005

2006

* Forward spread between years 2 and 3.
** Forward spread between years 9 and 10.
Source. Staff estimates.

2007

2008

III-5

than in early December. Five-year-forward inflation compensation five years ahead has
risen about 15 basis points, on net, since the December FOMC, including about a
10 basis point increase on the day of the intermeeting move.
Stock Prices and Corporate Interest Rates
Broad stock price indexes have fallen 14 percent over the intermeeting period, on
perceptions of a deteriorating economic outlook and additional write-downs by financial
institutions. Declines were widespread across sectors, but bank stocks were again among
the hardest hit. Stock prices of financial guarantors continued their precipitous declines
with the news of possible and actual downgrades of their insurer ratings, which also
fueled already elevated concerns in the broader markets about further losses on CDOs
and municipal securities. Option-implied volatility on the S&P 500 index remained high
by historical standards and increased markedly in the past few days. The spread between
the twelve-month-forward trend earnings-to-price ratio for S&P 500 firms and a real
long-run Treasury yield—a rough gauge of the equity risk premium—widened further
and is now at the upper end of its range over the past two decades.
Yields on investment-grade corporate bonds have fallen less than those on comparablematurity Treasury securities since the December FOMC meeting, while yields on
speculative-grade bonds have risen about 80 basis points. As a result, corporate bond
spreads climbed to their highest levels since early 2003. The run-up in speculative-grade
spreads was particularly sharp and primarily reflected higher near-term forward spreads,
suggesting increased concern among investors about the outlook for corporate credit
quality over the next few years. Far-term forward spreads on speculative-grade bonds
rose a bit above recent peaks, suggesting that corporate bond investors now require
somewhat greater compensation for credit risk.
Corporate Earnings and Credit Quality
With about 100 earnings reports in hand and analysts’ forecasts for the remainder,
operating earnings per share for the S&P 500 firms in the fourth quarter are projected to
have been about 20 percent below year-ago levels, depressed by huge losses at financial
firms. In contrast, for nonfinancial firms in the S&P 500, four-quarter growth in earnings
per share is projected to have been about 12 percent. Revisions to year-ahead earnings
for the S&P 500 as a whole were substantially negative in the month ending in midDecember, but revisions were modestly positive for nonfinancial firms.

III-6
Corporate Earnings and Credit Quality
S&P 500 Earnings Per Share

Revisions to Expected S&P 500 Earnings

Percent
40

Change from 4 quarters earlier

Percent
3

Monthly

0
MidDec.

0
-10
All firms
Nonfinancials

-2
All firms
Nonfinancials

-20

-3

-30
1998

2001

2004

2007

-4
2002

2003

2004

2005

2007

Bond Ratings Changes of Nonfinancial Companies

Financial Ratios for Nonfinancial Corporations
Ratio

Percent of outstandings

Ratio
Liquid assets over
total assets
(left scale)

Annual*

2006

Note. Index is a weighted average of the percent change in the
consensus forecasts of current-year and following-year EPS for a
fixed sample.

p Preliminary.
Source. I/B/E/S for S&P 500 earnings per share.

0.12

-1

0.35

Annual rate
Upgrades

30
20

H1 Q4

0.09

10
0.30

0
Q3

0.06

10
20

Debt over
total assets
(right scale)

0.25

Downgrades

0.03

50
1989

1992

1995

1998

2001

2004

2007

1991 1993 1995 1997 1999 2001 2003 2005 2007

* Data are quarterly starting in 2000:Q1.
Source. Calculated with Compustat data.

Source. Calculated with data from Moody’s Investors Service.

Selected Default and Delinquency Rates

Expected Year-Ahead Defaults

Percent of outstandings

Percent of liabilities
7

2.0

Monthly

6
1.5

5
C&I loan delinquency rate
(Call Report)

1.0

3
2

Dec.

0.5

Bond default rate*
Dec.

1991

1995

1999

2003

2007

* 6-month moving average, from Moody’s Investors Service.

0.0

0
1993 1995 1997 1999 2001 2003 2005 2007
Note. Firm-level estimates of default weighted by firm liabilities as
a percent of total liabilities, excluding defaulted firms.
Source. Moody’s KMV.

III-7

Overall, the credit quality of nonfinancial firms continued to be solid. Data on corporate
balance sheets for the third quarter of 2007 indicate that the aggregate ratio of liquid
assets to total assets stayed high by historical standards, while aggregate leverage ticked
up but remained low. In December, rating downgrades on corporate bonds were again
modest. In addition, the realized six-month trailing default rate on corporate bonds
stayed near zero in December, and the delinquency rate on C&I loans was close to
historical lows in the third quarter. The forecast of the aggregate year-ahead default rate
based on the KMV model moved up further in December, but remained moderately low
by historical standards.
Business Finance
Gross bond issuance by nonfinancial firms was strong in December but appears to have
stepped down in January. The moderation in bond issuance likely reflects typical
seasonal patterns and rising yields on speculative-grade bonds. Outstanding nonfinancial
commercial paper declined somewhat in December but rebounded in January. C&I loans
expanded briskly in December and in the first half of January, though at a considerably
slower pace than over the second half of 2007. Aggregating across bonds, commercial
paper, and C&I loans, net debt financing in the fourth quarter about matched its robust
third-quarter pace.
Gross public equity issuance by nonfinancial firms, including both seasoned and initial
public offerings, slowed in December and has been very light in January, likely due to
typical seasonal patterns and the drop in equity prices. In the third quarter, the combined
level of public and private equity issuance was dwarfed again by the extraordinary pace
of equity retirements. This pattern likely continued in the fourth quarter, judging from
the partial data in hand on equity retirements. Retirements from cash-financed mergers
and acquisitions set a new record in the fourth quarter, boosted by a few blockbuster
leveraged buyouts from the pipeline of pending deals. However, relatively few new deals
were announced. Meanwhile, announcements of new share repurchase programs by
nonfinancial firms have continued apace.
Commercial Real Estate
The growth of commercial mortgage debt slowed a bit in the third quarter (latest
complete data), perhaps restrained by an upward drift in commercial mortgage rates.
Even so, the pace of debt growth in this sector stayed in the upper end of its range over
the past decade. The sharp decline in commercial-mortgage-backed securities (CMBS)
issuance in the fourth quarter (not shown) suggests that the growth of commercial

III-8

Business Finance
Gross Issuance of Securities by U.S. Corporations
(Billions of dollars; monthly rates, not seasonally adjusted)
2007
Type of security

6.5
2.0
4.4

2.7
.9
1.8

2.0
1.0
1.0

26.6
19.8
3.4
3.3

37.0
20.3
6.8
9.9

32.8
25.3
5.0
2.5

20.0
17.0
3.0
.0

1.2

-4.1

-.2

-3.5

5.0

13.0

12.2

36.7

21.5

12.2

16.0

5.3
187.7

9.3
207.0

3.5
126.9

12.1
79.0

18.1
51.1

n.a.
50.0

2005

2006

3.7
.4
3.3

5.4
1.6
3.8

4.6
1.7
2.8

4.7
1.8
2.9

5.5
1.7
3.9

4.3
1.2
3.1

31.6
15.9
11.3
4.3

22.7
8.2
9.7
4.9

19.1
8.4
6.4
4.3

29.8
13.0
8.0
8.8

37.9
14.2
15.4
8.3

-3.4

1.5

-.4

3.9

-7.7

3.1

9.9

6.6
111.1

6.9
139.3

5.0
176.3

Bonds2
Investment grade
Speculative grade
Other (sold abroad/unrated)
Memo
Net issuance of commercial paper3
Change in C&I loans at
commercial banks3,4
Financial corporations
Stocks1
Bonds2

Jan. p

2004

Nonfinancial corporations
Stocks1
Initial public offerings
Seasoned offerings

2008
Dec.

2003

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. End-of-period basis, seasonally adjusted.
4. Adjusted commercial bank credit data.
5. n.a. Not Available.
p Preliminary.
n.a. Not available.

Selected Components of Net Debt Financing

Components of Net Equity Issuance

Billions of dollars
Q3

Monthly rate, nonfinancial firms
Commercial paper*
C&I loans*
Bonds

Billions of dollars

40
Monthly rate, nonfinancial firms

30
20

Total

0
-10

-20

-30
-40

-50
-10

-60
Public issuance
Private issuance
Repurchases
Cash mergers

-20
-30

-70
-80

Total

-90

-40
2003

2004

2005

2006

* Seasonally adjusted, period-end basis.

2007

-100
2003

2004

2005

2006

2007

III-9

Commercial Real Estate
Commercial Mortgage Debt

Sales of Commercial Real Estate

Percent change from year earlier

Billions of dollars
18

Quarterly

3-month moving average

16
14
Q3

12
10

Dec. p

8
6
20

4
2
0
1996

1998

2000

2002

2004

2006

Source. Flow of funds.

Investment-Grade CMBS Spreads
Basis points
Jan.
16

Weekly

0
2001 2002 2003 2004 2005
p Preliminary
Source. Real Capital Analytics.

900

2006

2007

Interest Rate on Mortgages Originated for
Percent
Securitization

800
700
600

500

p
Dec.

400
300

BBB
Jan.
16

AAA

200
100
0

2000

2002

2004

2006

2008

2003

2005

2007

p Preliminary.
Source. Real Capital Analytics.

Rents and Vacancy Rates on Commercial
Properties
Percent

5
2001

Note. Measured relative to the 10-year Treasury yield.
Source. Morgan Stanley.

Delinquency Rates on Commercial Mortgages

Percent change from year earlier

Percent
10

Quarterly

8
Rents
(right scale)

6
Q3

At commercial
banks*

2
Q4

-2
8

-4

Vacancy rates
(left scale)

2
CMBS

Q3
1

At life
insurance
companies

Nov.
Q3

-6

-8
1992

1995

1998

2001

2004

2007

Note. Average of series for office, industrial, and retail
properties.
Source. Torto Wheaton.

1997

1999

2001

2003

2005

2007

* Excluding construction, land development, and multifamily loans.
Source. Citigroup, Call Report, ACLI.

III-10

Household Liabilities
Mortgage Debt and Consumer Credit

Mortgage Rates for Prime Borrowers

Percent change from year earlier

Percent
16

Mortgage

7.5

30-year
fixed-rate
jumbo

Weekly

7.0

12
Jan.
16

10
Q3

30-year
fixed-rate
conforming

6.0

6
Nov.
Consumer

Jan.
16

4
1-year
adjustable-rate
conforming

1999

2001

2003

2005

5.0

2007

2006

Source. Flow of funds.

2007

2008

Source. Freddie Mac and Inside Mortgage Finance.

Delinquencies on Mortgages

Delinquencies on Consumer Loans
Percent of loans
Nov.

Monthly

Percent
22

Fixed rate
Variable rate

Credit card loans

14
10

Subprime
Nov.

Nonrevolving
consumer loans at
commercial banks

12
8

Nov.

6
Nov.

Prime

2
Auto loans at captive
finance companies

2
0

2002

2003

2004

2005

2006

2007

1
1997

Note. Percent of loans 90 or more days past due or in
foreclosure. Prime includes near-prime mortgages.
Source. First American LoanPerformance.

1999

2001

2003

2005

Gross Issuance of ABS by Type

Billions of dollars

Billions of dollars
100

H1
H2 H1

Prime jumbo
Subprime
Alt-A

2007

Source. For credit cards and nonrevolving, Call Report;
for auto loans, Federal Reserve.

Gross Issuance of Non-Agency MBS by Type
Monthly rate

2001

5.5

Jan.
16

0
1997

6.5

Monthly rate

Credit Card
Auto

20
60
H2 H1
H1

Q3 Q4

10
Q4

0
2002

2003

2004

2005

2006

Source. Inside Mortgage Finance MBS database.

2007

0
2002

2003

2004

2005

2006

2007

Note. Auto includes car loans and leases and financing for
buyers of motorcycles, trucks, and other vehicles.
Source. Inside MBS & ABS and Merrill Lynch.

III-11

mortgage debt may have slowed further. Sales of commercial real estate decreased again
in December, but remained high by historical standards.
Since the December FOMC meeting, spreads of yields on AAA-rated CMBS over those
on comparable-maturity Treasuries have remained at historically high levels, while
spreads on BBB-rated CMBS continued to soar. These elevated spreads reportedly
reflect continued concerns about high levels of leverage on recently securitized
mortgages and about credit risks in structured financial products in general. Interest rates
on commercial mortgages originated for securitization increased but remained below
their highs early on in this decade.
Fundamentals in the commercial real estate sector continued to be solid on the whole. In
the fourth quarter, the vacancy rate on commercial properties remained near its average
level, and commercial rents continued to grow moderately. Delinquency rates on CMBS
stayed low through November; and in the third quarter, the delinquency rate on
commercial real estate loans held at life insurance companies remained near zero. At the
same time, commercial banks experienced a further uptick in commercial mortgage
delinquencies, although the rate remained low by historical standards.
Household Finance
The growth of residential mortgage debt declined further in the third quarter.
Nonmortgage consumer credit continued to grow at a moderate pace in November. Since
the December FOMC, interest rates on thirty-year fixed-rate conforming mortgages have
fallen roughly in line with those on comparable-maturity Treasuries, and indicative
quotes on thirty-year fixed-rate jumbo mortgage rates have fallen as well. Interest rates
on credit card and auto loans have been about unchanged (not shown), although their
spreads over Treasury rates have widened.
Household loan performance has deteriorated further on balance, though problems
remained concentrated among subprime mortgage borrowers. In November, delinquency
rates on variable-rate and fixed-rate subprime mortgages continued to rise notably,
reaching 21 percent and 7.5 percent, respectively. Meanwhile, delinquency rates on
variable-rate prime mortgages edged up to 2 percent, while those on fixed-rate prime
mortgages stayed near 1 percent. The delinquency rate on auto loans held at captive
finance companies ticked up further in November and now stands at its highest level
since 1998. In general, delinquency rates on nonmortgage consumer credit have trended
up over the past year but remained at or below their average levels over the past decade.

III-12

Household Assets
House Prices

S&P/Case-Shiller House Price Futures
Percent change, annual rate

Oct. 2007 = 100
14

Quarterly, s.a.

120

Jan. 22, 2008
Dec. 10, 2007

Oct.
2007

110

8
6
100

OFHEO purchase-only index

4
2
90

0
Q3

-2
-4

1997

1999

2001

2003

2005

2007

Jan.

Source. Office of Federal Housing Enterprise Oversight.

Jan.
2005

Jan.
2006

Jan.
2007

2008

Source. S&P/Case-Shiller; Chicago Mercantile Exchange.

Stock Prices

Net Worth
Percent change, annual rate

Ratio to disposable income
150

Quarterly, end of period
Wilshire 5000

6.5

Quarterly, end of period, s.a.

100

6.0

e
Q4
5.5

0
Q4
5.0

-50
-100
1997

1999

2001

2003

2005

2007

4.5
1996

1998

2000

2002

2004

2006

e Staff estimate.

Net Flows into Mutual Funds
(Billions of dollars, monthly rate)
Fund type

Total long-term funds
Equity funds
Domestic
International
Hybrid funds
Bond funds
High-yield
Other taxable
Municipals
Money market funds

2006

18.9
13.3
0.9
12.4
0.6
5.0
-0.2
4.0
1.3
27.8

2007
Q3

Q4e

2007
Dec.e

Assets
Nov.

39.5
21.2
6.5
14.7
3.3
15.0
0.7
11.4
2.9
18.1

24.2
8.1
-3.9
12.0
1.9
14.1
-0.2
12.5
1.8
34.5

4.6
1.2
-8.3
9.5
1.0
2.5
-0.8
3.1
0.2
108.0

8.3
1.5
-8.1
9.6
1.5
5.4
-0.4
6.7
-0.9
83.4

8.4
4.0
-5.2
9.2
2.0
2.3
0.2
4.6
-2.5
27.1

9,002
6,604
4,919
1,685
719
1,679
157
1,143
378
3,099

Note. Excludes reinvested dividends.
e Staff estimate based on confidential weekly data.
Source. Investment Company Institute.

2008

III-13

While issuance of nonconforming residential-mortgage-backed securities (RMBS) was
extremely weak in the fourth quarter, issuance of MBS guaranteed by Fannie Mae and
Freddie Mac (not shown) was robust. Issuance of consumer auto and credit card assetbacked securities also remained solid last quarter, although the deals were placed at
notably higher spreads than in early autumn.
OFHEO’s purchase-only index of national home prices posted a small nominal decrease
in the third quarter. S&P/Case-Shiller’s ten-city composite house price index fell sharply
in October, leading financial market participants to mark down the expected path for
house prices slightly. S&P/Case-Shiller futures quotes now indicate that investors expect
house prices to fall at least through the middle of 2008 in each of the ten large cities that
they cover. With stock prices having declined last quarter and house prices likely to have
done so as well, the ratio of household net worth to disposable personal income is
estimated to have fallen in the fourth quarter. Long-term mutual funds received net
inflows in December despite continued net redemptions of domestic equity funds. On
balance, money market funds attracted new cash in December, but much less than in the
previous few months.
Treasury and Agency Finance
Treasury auctions of two-, five-, and ten-year nominal notes and of ten- and twenty-year
TIPS notes over the intermeeting period were all well received. The Treasury raised the
size of its bill auctions to offset the bills redeemed by the Federal Reserve to
accommodate credit extended through the TAF. Foreign custody holdings at the Federal
Reserve Bank of New York were generally about flat, and foreign participation in
Treasury auctions continued to decline modestly. Spreads between on-the-run and offthe-run ten-year yields widened further to their highest levels since 2003. However, bidasked spreads on both on-the-run and off-the-run Treasury notes have retreated somewhat
since the end of the year and trading volume of on-the-run Treasury securities has picked
up.
Yield spreads on GSE debt have declined on net since the December FOMC, but
remained a bit elevated by historical standards. In January, Moody’s placed Freddie Mac
on watch for a possible downgrade of its financial strength rating. Moody’s decision
followed Freddie Mac’s announcement on the day of the December FOMC meeting that
it expected substantial portfolio losses in the fourth quarter. GSE equity prices have
fallen notably since the December FOMC meeting. In early January, Fannie Mae raised
capital by issuing $7 billion of preferred stock, roughly matching Freddie Mac’s

III-14

Treasury and Agency Finance
Foreign Participation in Treasury Auctions

Foreign Custody Holdings
Billions of dollars

Percent of total issue
60

1400
Weekly average

6-month moving average

Jan.
16

Treasury

1200

1000
Jan.
16

Indirect bids

800

30
Dec. 31

600
Agency

20
Dec. 17

400

Actual foreign allotment
200

0
2003

2004

2005

2006

2007

2008

2001

2003

2005

2007

Note. Securities held in custody at the Federal Reserve Bank
of New York on behalf of foreign official institutions.

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.

Average Trading Volume

Bid-Ask Spread

Cents per
$100 face value

Billions of dollars
400

Dec.
FOMC

5-day moving average

Jan.
22

1.10

Dec.
FOMC

5-day moving average

1.05
300
Jan.
22

1.00
0.95

200
2-year on-the-run
Treasury notes

0.90

100

0.85
0.80

0
Jan.

May
Sept.
2006

Jan.

May
Sept.
2007

Jan.
2008

Jan.

May
Sept.
2006

Jan.

May
Sept.
2007

Note. 5-day moving average of daily trading volume in 2-, 5-,
and 10-year on-the-run coupon securities in interdealer market.
Source. BrokerTec Interdealer Market Data.

Source. BrokerTec Interdealer Market Data.

10-Year GSE Yield Spreads

GSE Stock Prices
Basis points

Daily

Fannie Mae
Freddie Mac

May 1, 2006 = 100
80

Dec.
FOMC

Jan.
2008

Dec.
FOMC

Daily

Fannie Mae
Freddie Mac

70
60
50
Jan.
22

40
Jan.
22

Jan.
22

20
July

Oct.
2006

Jan.

Apr.

July
2007

Oct.

Jan.
2008

Note. GSE yields based on senior unsecured debt relative to
the off-the-run Treasury yield.

May

Aug. Nov.
2006

Feb.

May Aug.
2007

Nov.

Jan.
2008

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

III-15

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

2007
Type of security
Total
Long-term 1
Refundings 2
New capital
Short-term

2003

2004

2005

2006

37.9
32.0
10.0
22.1
5.8

34.7
29.8
10.8
19.0
4.9

38.4
34.1
15.6
18.6
4.2

3.5

2.0

2.1

Memo: Long-term taxable

2008
Dec.

Jan. p

41.3
34.3
9.3
25.0
7.0

33.8
29.2
6.9
22.3
4.6

23.0
20.0
3.0
17.0
3.0

2.2

1.3

1.0

36.1
32.5
10.6
21.9
3.7

41.9
38.5
16.3
22.1
3.4

36.4
30.7
7.6
23.1
5.7

2.5

2.2

3.0

1. Includes issues for public and private purposes.
2. All issues that include any refunding bonds.
p Based on preliminary data through January 17, 2008.

Ratings Changes
Number of ratings changes
2800

Annual rate

Q3
H1

2100
Q4

Upgrades

1400
Jan.*

700
0
700
1400

Downgrades

2100
2800
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

* Staff estimate based on data through January 16, 2008.
Source. S&P’s Credit Week Municipal and Ratings Direct.

Municipal Bond Yields
General Obligation

Municipal Bond Yield Ratio
Percent

General Obligation over Treasury
8

Weekly

Ratio

Weekly

7
20-year

1.0
20-year

Jan.
17

5
Jan.
17

0.9
4
3

1-year

Jan.
22

0.8

2
1
0

1994 1996 1998 2000 2002 2004 2006 2008
Source. Municipal Market Advisors and Bond Buyer.

0.7
1994 1996 1998 2000 2002 2004 2006 2008
Source. Bond Buyer.

III-16

M2 Monetary Aggregate
(Based on seasonally adjusted data)

Percent change (annual rate)1

2006

2007

2007
Q4

4.9

5.9

6.7

4.7

Components
Currency
3
Liquid deposits
Small time deposits
Retail money market funds

3.5
.8
18.5
12.9

2.0
4.5
4.1
20.5

2.6
6.5
4.1
15.5

Memo:
Institutional money market funds
Monetary base

15.6
3.1

38.3
2.0

22.7
2.5

Aggregate and components
M2

Level
(billions
of dollars),

Nov.

Dec.

5.3

5.4

5.9

7,447

1.6
2.7
2.1
21.5

1.2
2.0
6.1
24.6

-.6
2.5
4.8
24.6

-3.5
1.9
3.7
36.0

759
4,489
1,217
976

38.1
1.9

53.4
1.0

41.7
1.4

23.8
-3.2

1,861
823

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.

III-17

$6 billion offering in early December.
State and Local Government Finance
Gross issuance of long-term municipal bonds was solid in December but has slowed in
January. While broadly consistent with typical seasonal patterns, this recent slowdown
may also reflect heightened concerns over the credit quality of financial guarantors.1
Issuance of short-term municipal bonds was moderate in both months, suggesting state
and local governments are not experiencing substantial near-term funding pressures.
The credit quality of municipal bonds has deteriorated somewhat in recent months. After
having spiked in the fourth quarter, the number of municipal bond downgrades by
Standard & Poor’s was negligible in early January. Yields on municipal bonds have
fallen roughly in line with those on comparable-maturity Treasuries since the December
FOMC meeting. As a result, the ratio of municipal bond yields to Treasuries has
remained near its recent peak. Fitch downgraded a major financial guarantor in January
from AAA to AA, intensifying concerns that credit ratings on a substantial portion of
municipal bonds outstanding might also be downgraded. Nonetheless, state and local
government balance sheets have generally remained solid.
Money and Bank Credit
M2 expanded moderately in December. Retail money funds advanced briskly, likely
reflecting safe-haven flows, and growth in small time deposits was supported by some
large thrifts that continued to offer unusually high rates on these deposits. In contrast,
growth of liquid deposits remained slack, and currency contracted notably in December,
reflecting the ongoing trend in overseas demand away from U.S. dollar banknotes toward
those in euro and other currencies.
Commercial bank credit expanded strongly in December, supported by robust growth in
business loans and in nonmortgage loans to households. C&I loans surged in December,
with strength evident across different size categories of domestic banks and foreign
institutions. Lending to businesses through commercial real estate loans stayed solid in
December. In contrast, residential real estate loans were only up a little in December,
even as revolving home equity loans expanded briskly. Consumer loans grew rapidly,
possibly because of lower short-term interest rates. The strength in bank lending in
December occurred despite the reported tightening of credit conditions: According to the
January 2008 Senior Loan Officer Opinion Survey, domestic and foreign banks indicated
1

Historically, financial guarantors insure about half of municipal bonds.

III-18

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

Total
Loans2
Total
To businesses
Commercial and industrial
Commercial real estate
To households
Residential real estate
Revolving home equity
Other
Consumer
Originated3
Other4
Securities
Total
Treasury and agency
Other5

Level1
Dec. 2007

2006

H1
2007

Q3
2007

Q4
2007

Nov.
2007

Dec.
2007

9.8

9.3

12.4

9.2

1.8

8.5

8,740

10.9

10.2

12.5

11.6

6.2

12.3

6,646

16.5
13.7

10.1
13.8

24.2
3.9

29.8
7.6

13.4
7.9

21.2
7.2

1,414
1,576

7.0
1.4
9.1
5.9
6.9
11.8

7.0
1.9
8.7
6.5
5.2
14.3

9.6
6.5
10.6
10.5
10.3
19.3

1.0
12.2
-2.7
7.1
7.2
18.1

-7.6
11.7
-14.1
16.0
11.3
12.5

2.9
13.1
-.5
17.8
13.2
21.5

1,875
482
1,393
802
1,200
979

6.5
2.6
13.2

6.6
-4.9
24.1

12.0
6.5
19.2

1.8
-23.9
35.0

-11.8
-22.3
.1

-3.3
-11.9
6.3

2,094
1,096
998

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 (FIN 39 and FAS 115), the consolidation of
certain variable interest entities (FIN 46), the adoption of fair value accounting (FAS 159), and the effects of sizable
thrift-to-bank and bank-to-thrift structure activity in October 2006, March 2007, and October 2007. Data also account for
breaks caused by reclassifications.
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.
4. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified.
Also includes lease financing receivables.
5. Includes private mortgage-backed securities, securities of corporations, state and local governments, foreign
governments, and any trading account assets that are not Treasury or agency securities, including revaluation gains
on derivative contracts.

III-19

that they had tightened their standards and terms across a broad range of business and
household loan categories over the past three months.

Appendix
Senior Loan Officer Opinion Survey on Bank Lending Practices
The January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed
changes in the supply of, and demand for, bank loans to businesses and households over the past
three months.1 Special questions in the survey queried banks about changes in terms on
commercial real estate loans during 2007, expected changes in asset quality in 2008, and lossmitigation strategies on residential mortgage loans. In addition, the survey included a new set of
recurring questions regarding revolving home equity lines of credit. This appendix is based on
responses from fifty-four domestic banks and twenty-three foreign banking institutions.
In the January survey, domestic and foreign institutions reported having tightened their lending
standards and terms for a broad range of loan types over the past three months. Demand for bank
loans reportedly had weakened, on net, for both businesses and households over the same period.
Business Lending
Questions on commercial and industrial (C&I) lending. In the January survey, one-third of
domestic institutions—a larger net fraction than in the October survey—reported having
tightened their lending standards on C&I loans both to small and to large and middle-market
firms over the past three months. Significant net fractions of respondents also noted that they had
tightened pricing terms on C&I loans to all types of firms, including raising the cost of credit
lines and the premiums charged on riskier loans over the survey period. About 40 percent of
domestic banks—a higher net fraction than in the October survey—reported increasing spreads of
loan rates over their cost of funds over the previous three months. Smaller net fractions of
domestic banks also indicated that they had tightened nonpricing terms on C&I loans to all types
of firms.
Compared with domestic institutions, larger net fractions of U.S. branches and agencies of
foreign banks reported having tightened lending standards and terms on C&I loans. About twothirds of foreign banks—up from one-third in the October survey—noted that they had tightened
their lending standards on C&I loans over the past three months, and large majorities also
reported that they had tightened selected pricing terms for such loans. Indeed, about 85 percent
of foreign banks—a higher net fraction than in the October survey—indicated that they had
increased spreads of loan rates over their cost of funds over the past three months.
Large majorities of domestic and foreign institutions that reported tightening lending standards
and terms on C&I loans over the past three months pointed to a less favorable or more uncertain
economic outlook, a worsening of industry-specific problems, and a reduced tolerance for risk as
1

Banks received the survey in early January, and their responses were due on January 17.

III-A-1

III-A-2

Measures of Supply and Demand for C&I Loans,
by Size of Firm Seeking Loan

Net Percentage of Domestic Respondents Tightening Standards for C&I Loans
Percent
80

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

Oct.
survey

60
40
20
0
-20
-40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Net Percentage of Domestic Respondents Increasing Spreads of Loan Rates over Banks’ Costs of Funds
Percent
80

Oct.
survey

60
40
20
0
-20
-40
-60
-80

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Net Percentage of Domestic Respondents Reporting Stronger Demand for C&I Loans
Percent
60

Oct.
survey

40
20
0
-20
-40
-60
-80

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

III-A-3
reasons for their more-restrictive lending policies. Smaller but significant fractions of domestic
and foreign banks noted that a deterioration of their current or expected capital or liquidity
positions had contributed to the tightening of lending standards and terms over the past three
months.
On net, large domestic banks reported that demand for C&I loans from large and middle-market
firms was about unchanged over the past three months, whereas about 40 percent of small
domestic banks, on net, reportedly experienced weaker demand for C&I loans from these firms.
About one-fifth of both large and small domestic banks, on net, also saw weaker demand for C&I
loans from small firms. Finally about 40 percent of foreign institutions reported weaker demand,
on net, for C&I loans over the past three months.
Nearly all domestic institutions that indicated a weakening of loan demand pointed to a decrease
in customers’ needs to finance inventories and investment in plant and equipment. In addition,
about three-fourths of domestic banks and all foreign respondents cited a decrease in customers’
needs for merger and acquisition financing as a reason for lower demand for C&I loans.
Regarding future business, about 15 percent of domestic and 50 percent of foreign respondents,
on net, reported that the number of inquiries from potential business borrowers had decreased
over the previous three months.
Questions on commercial real estate lending. About 80 percent of domestic banks reported
tightening their lending standards on commercial real estate loans over the past three months, a
notable increase from the October survey. The net fraction of domestic banks reporting tighter
lending standards on these loans was the highest since this question was introduced in 1990.
About 55 percent of foreign banks—up from about 40 percent in the October survey—indicated
that they had tightened their lending standards on such loans. Concerning loan demand, about
40 percent of domestic respondents and 50 percent of foreign respondents reported weaker
demand for commercial real estate loans over the past three months.
As in past years, the January survey queried banks about changes in their lending terms on
commercial real estate loans over the previous twelve months. The responses to these special
questions indicated that considerable net fractions of banks had tightened terms on commercial
real estate loans in 2007; by contrast, in last year’s survey banks reported that they had eased
lending terms, on net, in 2006. In the latest survey, about half of domestic and foreign
respondents noted that they had required higher debt service coverage ratios and lower loan-tovalue ratios on commercial real estate loans in 2007. In addition, about 40 percent of domestic
banks and 50 percent of foreign banks indicated that they had reduced the maximum loan sizes
that they were willing to grant over the past twelve months. About 45 percent of domestic banks
and 75 percent of foreign banks reported raising loan rate spreads over their cost of funds in 2007.

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
100

Oct.
survey

-20

-40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

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

Oct.
survey

-20

-40

-60

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

III-A-5
A large number of domestic and foreign respondents pointed to a less favorable economic outlook
and to a worsening of the conditions of, or the outlook for, commercial real estate in the markets
where their banks operate as reasons for tightening terms on commercial real estate loans in 2007.
In addition, a large fraction of domestic banks noted a reduced tolerance for risk, whereas foreign
banks indicated that reduced liquidity of the securities collateralized by these types of loans was
an important factor.
Lending to Households
Questions on residential real estate lending. In the January survey, significant numbers of
domestic respondents reported that they had tightened their lending standards on prime,
nontraditional, and subprime residential mortgages over the past three months; the remaining
respondents noted that their lending standards had remained basically unchanged. About
55 percent of domestic respondents indicated that they had tightened their lending standards on
prime mortgages, up from about 40 percent in the October survey.2 Of the thirty-nine banks that
originated nontraditional residential mortgage loans, about 85 percent reported a tightening of
their lending standards on such loans over the past three months, compared with 60 percent in the
October survey.3 Finally, five of the eight banks that originated subprime mortgage loans noted
that they had tightened their lending standards on such loans, a proportion similar to that in the
October survey.4
About 60 percent of domestic respondents, on net, indicated that demand for prime and subprime
residential mortgages had weakened over the past three months, and 70 percent of respondents,
on net, noted weaker demand for nontraditional mortgage loans over the same period. The net
fractions reporting weaker demand for each of the three types of mortgage loans increased
relative to the October survey.
About 60 percent of domestic respondents indicated that they had tightened their lending
standards for approving applications for revolving home equity lines of credit over the past three
months. Regarding demand, about 40 percent of domestic banks, on net, reported that demand
for revolving home equity lines of credit had weakened over the past three months.

Fifty-one institutions reported that they originated prime residential mortgages. According to Call
Reports, these fifty-one banks accounted for about 80 percent of residential real estate loans on the books
of all commercial banks as of September 30, 2007.
3
According to Call Reports, these thirty-nine institutions accounted for about 70 percent of residential
real estate loans on the books of all commercial banks as of September 30, 2007.
4
According to Call Reports, these eight institutions accounted for about 45 percent of residential real
estate loans on the books of all commercial banks as of September 30, 2007.

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
1991

1993

1995

1997

1999

2001

2003

2005

2007

Q1
2008

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
60

All residential

Nontraditional

Subprime
40

-20

-40

-60

-80

-80
1991

1993

1995

1997

1999

2001

2003

2005

2007

Q3
2007

Q1
2008

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
60

Credit card loans
Other consumer loans

Oct.
survey

-20
1992

1994

1996

1998

2000

2002

2004

2006

2008

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

Oct.
survey

30
20
10
0
-10
-20
-30

1992

1994

1996

1998

2000

2002

2004

2006

2008

Net Percentage of Domestic Respondents Reporting Stronger Demand for Consumer Loans
Percent
60

Oct.
survey

40
20
0
-20
-40
-60

1992

1994

1996

1998

2000

2002

2004

2006

2008

III-A-8
Questions on consumer lending. About 10 percent of respondents—up from about 5 percent in
the October survey—reported that they had tightened their lending standards on credit card loans
over the past three months. About one-quarter of respondents noted that they had reduced the
extent to which such loans were granted to customers who did not meet credit-scoring thresholds;
smaller net fractions also indicated an increase in minimum required credit scores and a reduction
of credit limits on credit card loans. About 15 percent of domestic banks—up from about
5 percent in the October survey—indicated a diminished willingness to make consumer
installment loans relative to three months earlier. One-third of domestic banks—up from onefourth in the October survey—reported that they had tightened their lending standards on
consumer loans other than credit card loans. Significant net fractions of banks also noted that
they had tightened lending terms and conditions on such loans. In particular, domestic banks
increased minimum credit scores, reduced the extent to which such loans were granted to
customers who did not meet credit-scoring thresholds, and widened spreads of loan rates over
their cost of funds. Regarding loan demand, one-third of domestic institutions, on net, indicated
that they had experienced weaker demand for consumer loans of all types.
Special Questions on the Outlook for Loan Quality in 2008
A set of special questions asked banks about their expectations for delinquencies and charge-offs
on loans to businesses and households in 2008 under the assumption that economic activity
progresses in line with consensus forecasts. On balance, the responses indicate that large
majorities of domestic and foreign banks expect a deterioration in loan quality in 2008.
Regarding loans to businesses, between about 75 percent and 85 percent of domestic and foreign
banks expect a deterioration in the quality of their C&I and commercial real estate loan portfolios.
In particular, about 15 percent of domestic and 20 percent of foreign respondents expect a
substantial deterioration in the quality of their commercial real estate portfolio. Concerning
residential real estate loans, between about 75 percent and 80 percent of domestic respondents
expect the quality of their prime, nontraditional, and subprime residential mortgage loans, as well
as of their revolving home equity loans, to deteriorate in 2008. Finally, about 70 percent of
domestic respondents expect a deterioration of the quality of both credit card and other consumer
loans.
Special Questions on Loss-Mitigation Strategies on Residential Mortgage Loans
A final set of special questions queried domestic respondents about strategies that they expect
their banks to employ in order to mitigate a potential deterioration in the credit quality of their
banks’ residential mortgage loan portfolio or of the mortgage loans that their banks service for
others. More than 85 percent of respondents indicated that they expect loan-by-loan
modifications based on individual borrowers’ circumstances to be at least a somewhat significant
loss-mitigation strategy at their banks. More than 65 percent of respondents also anticipate
steps—such as short sales or deed-in-lieu of foreclosures—in which borrowers lose possession of

III-A-9
the house to be at least somewhat significant loss-mitigation strategies at their banks. A large
number of respondents also indicated that their loss-mitigation strategies will include refinancing
of loans into other mortgage products at their banks or into Federal Housing Administration
(FHA) products. Finally, about one-third of respondents expect streamlined loan modifications of
the sort proposed by the Hope Now Alliance to be a significant loss-mitigating strategy for their
banks.
Domestic respondents expect their banks to face several potential obstacles in undertaking these
loss-mitigation strategies: Respondents anticipate difficulties in contacting borrowers, and they
are concerned with borrowers’ reduced motivation to retain possession of their properties. To a
lesser extent, respondents also anticipate difficulties arising from a shortage of qualified lossmitigation specialists at their banks.
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 $57.8 billion in October, following a
deficit of $57.1 in September. In November, the deficit widened sharply to $63.1 billion.
The widening of the deficit reflected higher imports in both October and November,
which more than offset increased exports in both months.
Trade in Goods and Services
2006
Nominal BOP
Exports
Imports
Real NIPA
Exports
Imports
Nominal BOP
Net exports
Goods, net
Services, net

Annual rate
Monthly rate
2007
2007
Q2
Q3
Q4e
Sept.
Oct.
Nov.
Percent change

13.3
4.7

15.9
11.3

23.2
11.6

.8
.7

.9
1.0

.4
3.0

9.3
3.7

7.5
-2.7

19.1
n.a.
...
4.4
n.a.
...
Billions of dollars

...
...

-758.5
-838.3
79.7

-713.7
-816.9
103.1

-57.8
-66.9
9.2

-63.1
-72.7
9.6

-692.6
-798.8
106.2

8.1
11.6

-725.3
-837.9
112.6

-57.1
-65.8
8.7

e. BOP data are two months at an annual rate.
Source. U.S. Department of Commerce, Bureaus of Economic Analysis and Census.
n.a. Not available. ... Not applicable.

The average value of exports in October and November was 8.1 percent (a.r.) higher than
in the third quarter. Higher exports of services were an important contributor to the
increase in both months. Exports of industrial supplies also recorded a strong gain,
boosted by a large increase in exports of fuels in November. Higher exports of
semiconductors, aircraft, and machinery pushed up exports of capital goods, while
exports of agricultural goods increased only slightly following a large jump in the third
quarter. In contrast, exports of consumer goods and automotive products fell from their
level in the third quarter.
The average value of imports in October and November increased 11.6 percent (a.r.) from
the third quarter. The increase in imports almost entirely reflected a jump in the value of
imported oil, as imports of non-oil goods rose only 1.3 percent. Non-oil goods imports
were boosted by a large increase in imports of consumer goods, which more than offset a
steep decline in imports of non-oil industrial supplies. Imports of automotive products
IV-1

IV-2

U.S. International Trade in Goods and Services
(Quarterly)
Trade Balance

Contribution of Net Exports to Real GDP Growth
Billions of dollars, a.r.

Percentage points, a.r.

0
-100

2.0
1.5

-200

1.0

-300

0.5

-400
0.0
-500
-0.5

-600

-1.0

-700

Nov
2000

2002

2004

2006

2008

-1.5

-800
-900

Selected Exports

2000

2002

2004

2006

2008

-2.0

Selected Imports
Billions of dollars, a.r.

Billions of dollars, a.r.

450

500

450

400

400
Capital goods
ex. aircraft

350
Capital goods
350
300
300
250

200
Industrial
supplies

250

Industrial
supplies

Consumer
goods

200
150
150

Consumer
goods

100
100
Oil
50

Aircraft

2000

2002

2004

2006

2008

2000

2002

2004

2006

2008

IV-3

U.S. Exports and Imports of Goods and Services
(Billions of dollars, a.r., BOP basis)

Exports of G&S

Levels
2007
2007
Q3
Q4e
Oct. Nov.
1670.9 1703.9 1700.1 1707.7

Goods exports
Gold
Other goods

1191.8 1210.8 1210.2 1211.4
14.3
11.8
13.0
10.6
1177.5 1199.0 1197.2 1200.9

Change1
2007
2007
Q3
Q4e
Oct. Nov.
84.8
33.0
15.1
7.6
74.4
-2.2
76.6

19.0
-2.5
21.5

5.9
-.6
6.5

1.2
-2.4
3.6

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

458.9
93.0
43.4
48.5
274.0

464.8
95.5
41.8
51.1
276.3

470.2
100.6
41.3
51.3
277.0

459.3
90.5
42.4
50.9
275.6

27.7
13.5
1.5
-1.3
14.0

5.9
2.5
-1.5
2.6
2.3

15.4
12.0
-1.8
.8
4.4

-10.8
-10.1
1.1
-.4
-1.4

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

128.7
294.2
151.1
103.0
41.6

128.3
307.6
148.9
104.0
45.5

125.5
304.6
149.6
102.3
45.1

131.1
310.6
148.2
105.8
45.9

10.7
13.5
7.6
15.9
1.3

-.4
13.4
-2.2
1.0
4.0

.0
5.8
-4.8
-14.8
3.2

5.6
6.0
-1.4
3.5
.7

479.2

493.1

489.9

496.3

10.4

14.0

9.2

6.4

Imports of G&S

2363.6 2429.2 2393.3 2465.1

63.7

65.7

22.9

71.8

Goods imports
Oil
Gold
Other goods

1990.6 2048.7 2013.5 2083.9
327.5 384.4 355.5 413.3
10.7
6.7
8.3
5.1
1652.4 1657.6 1649.7 1665.5

56.4
15.0
.9
40.5

58.1
56.9
-4.0
5.2

19.0
27.5
-2.4
-6.0

70.4
57.8
-3.2
15.8

Services exports

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

451.2
35.1
101.7
26.6
287.9

453.2
36.5
101.4
27.1
288.2

452.2
37.8
101.7
27.1
285.5

454.2
35.1
101.1
27.2
290.8

13.3
.7
-1.1
.5
13.1

2.1
1.4
-.2
.6
.3

-6.2
1.6
-4.7
.4
-3.5

1.9
-2.7
-.6
.0
5.3

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

268.2
305.3
472.7
83.7
71.3

270.6
292.5
484.4
83.3
73.6

269.8
293.4
479.6
82.3
72.5

271.4
291.7
489.1
84.4
74.7

15.9
-.1
3.9
3.4
4.2

2.4
-12.8
11.6
-.4
2.3

1.8
-6.2
5.6
-1.6
.5

1.6
-1.7
9.6
2.1
2.3

373.0

380.6

379.8

381.3

7.4

7.6

3.9

1.4

12.75
70.31

13.40
78.46

12.99
74.93

13.80
81.99

-.66
6.50

.64
8.14

.33
4.01

.81
7.06

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

1. Change from previous quarter or month. e. Average of two months.
Source. U.S. Department of Commerce, Bureaus of Economic Analysis and Census.

IV-4

and capital goods recorded modest increases, with the increase in capital goods primarily
reflecting a jump in imports of telecommunications equipment. Imports of services grew
strongly.
Prices of Internationally Traded Goods
Non-oil imports. The average level of core import prices in the fourth quarter was
4 percent (a.r.) above the third-quarter average, as prices increased in all major subcategories. Prices for material-intensive goods were up nearly 8 percent in the fourth
quarter. After rising sharply in October and November, prices for imported nonfuel
industrial supplies rose at a slower pace in December as metal prices fell. In the fourth
quarter, prices for finished goods increased 2¼ percent. Within finished goods, prices for
capital goods excluding computers and semiconductors and automotive products both
increased at a rate of 3 percent, whereas prices for consumer goods rose only 1¾ percent.
Outside of core goods, prices for imported computers fell 2½ percent (a.r.), whereas
semiconductors prices rose 1 percent in the fourth quarter.
Oil. The BLS price index of imported oil fell 0.6 percent in December, after a 13 percent
increase in November. In contrast, the spot price of West Texas Intermediate (WTI)
crude oil surged in December and broke the $100 per barrel mark in early January. Since
then, the spot price of WTI has fallen back amid growing concerns about the strength of
economic activity. As of the close of trading on January 22, the spot price of WTI stood
at $89.86 per barrel. In contrast to the volatility in near-term prices, the futures price for
delivery at the end of 2016 has been much steadier and stands near $88 per barrel, little
changed from the time of the December Greenbook.
Exports. The average level of core export prices in the fourth quarter was 9¼ percent
(a.r.) above the third-quarter average, as prices of material-intensive goods soared
18 percent and prices of finished goods were up 2½ percent. The large increase in
material-intensive goods reflected a 40 percent increase in prices for agricultural exports
combined with a 12 percent increase in prices for nonagricultural industrial supplies.
Prices for agricultural exports rose briskly in all three months of the quarter. In contrast,
prices for nonagricultural industrial supplies rose at a much slower pace in December
than in November. Within finished goods, the category with the largest fourth-quarter
increase was capital goods excluding computers and semiconductors, which rose almost
3 percent. Outside of core goods, prices for exported computers declined 4¼ percent
(a.r.) in the fourth quarter, whereas prices for exported semiconductors rose 1½ percent.

IV-5

Prices of U.S. Imports and Exports
Merchandise Imports

Categories of Core Imports
12-month percent change

12-month percent change

8
6

Core goods

15
Material-intensive
goods

4
2

Non-oil goods
2000

2002

2004

2006

2008

10
5

Finished goods

-2

-5

-4

-10

-6

2000

Oil

2002

2004

2006

2008

-15

Natural Gas
Dollars per barrel

105

300

2000=100

95
85
75

Dollars per million BTU
Import price
index
(left scale)

250

30
25

200

150

100

65
55
45
Spot WTI

35
25

Import unit value

2000

2002

2004

2006

2008

Merchandise Exports

Spot Henry Hub
(right scale)

15
2000

2002

2004

2006

2008

Categories of Core Exports
12-month percent change

12-month percent change

8
6
4

Core goods

20
15

Material-intensive
goods

10
5

Finished goods

-2

-5

-4

-10

Total goods

2000

2002

2004

2006

2008

-6

2000

2002

2004

2006

2008

-15

IV-6

Prices of U.S. Imports and Exports
(Percentage change from previous period)
Annual rate
2007
Q2
Q3
Q4
Merchandise imports
Oil
Non-oil
Core goods1
Finished goods
Cap. goods ex. comp. & semi.
Automotive products
Consumer goods
Material-intensive goods
Foods, feeds, beverages
Industrial supplies ex. fuels
Computers
Semiconductors
Natural gas
Merchandise exports
Core goods2
Finished goods
Cap. goods ex. comp. & semi.
Automotive products
Consumer goods
Material-intensive goods
Agricultural products
Industrial supples ex. ag.
Computers
Semiconductors

Monthly rate
2007
Oct.
Nov.
Dec.

----------------------- BLS prices --------------------15.2
9.7
16.6
1.4
3.3
.0
89.0
48.1
77.4
5.0
12.7
-.6
3.8
1.8
4.4
.6
.7
.3
4.6

3.1

3.9

1.4
3.1
.9
.4

2.2
3.9
1.5
2.4

2.2
2.8
3.0
1.7

.2
.3
.3
.0

.3
.3
.3
.3

.2
.3
.2
.2

12.3
8.4
13.3

5.3
10.7
4.6

7.7
9.7
7.3

1.2
1.1
1.2

.9
-.1
1.2

.5
.6
.5

-7.7
-16.2
13.0

-.2
4.9
-51.0

-2.4
1.1
81.8

-.5
-.5
11.1

-.2
1.0
16.0

-.3
-.8
2.8

6.1

2.8

7.5

7.3

3.1

9.2

1.0

1.1

2.4
2.7
.9
3.2

2.0
2.4
.8
2.2

2.4
2.9
1.3
2.3

.3
.4
.2
.3

.2
.3
.0
.4

.2
.2
.2
.1

13.7
7.0
16.4

4.5
24.0
-.3

17.9
41.1
11.7

1.8
3.8
1.1

2.0
1.4
2.4

.9
2.7
.3

-11.1
4.2

-5.3
.6

-4.3
1.4

-.1
-.4

-.7
.9

-.4
.4

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

11.9
2.7
3.6

7.5
1.4
3.1

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

...
...
...

Exports of goods & services
Total merchandise
Core goods2

5.3
5.1
7.4

3.8
3.2
4.5

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

...
...
...

1. Excludes computers, semiconductors, and natural gas.
2. Excludes computers and semiconductors.
n.a. Not available. ... Not applicable.

IV-7

U.S. Current Account
In December, the U.S. current account deficit was reported at $714 billion (a.r.) for the
third quarter of 2007, $42 billion narrower than in the second quarter (revised). Most of
this narrowing was the result of an increase in net investment income which remains
large and positive in spite of the substantial negative net international investment position
of the United States; direct investment and “other” private income receipts (portfolio
interest and dividend payments) both moved higher. In addition, the deficit on goods and
services narrowed by $21 billion as widespread increases in goods exports outpaced
increases in imports. There was only a slight increase in the net surplus on services.
Partially offsetting these improvements was an increase in net unilateral transfers to
foreigners, primarily increases in U.S. Government grants and private remittances and
other transfers.

U.S. Current Account
(Billions of dollars, seasonally adjusted annual rate)
Other
Investment
Goods and
Period
income and
income,
services,
transfers, net
net
net
Annual
2005
-714.4
54.5
-94.9
2006
-758.5
43.2
-96.1
Quarterly
2006:Q4
2007:Q1
Q2
Q3
Change
Q4-Q3
Q1-Q4
Q2-Q1
Q3-Q2

Current
account
balance
-754.8
-811.5

-707.7
-710.3
-713.7
-692.6

45.3
36.2
57.4
88.6

-89.4
-114.3
-99.4
-109.8

-751.8
-788.4
-755.7
-713.8

89.5
-2.6
-3.4
21.1

15.3
-9.1
21.2
31.2

12.7
-24.9
15.0
-10.5

117.6
-36.6
32.7
41.9

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

IV-8

U.S. International Financial Transactions
The financial flows associated with the current account are presented in the Summary of
U.S. International Transactions table. The impact of the recent financial market turmoil
on U.S. financial flows is apparent in the recently-released balance of payments data for
the third quarter of 2007. Recorded net private financial inflows moved down to $56
billion. There was also an apparent ‘flight-to-quality’ in private foreign demand for U.S.
securities, as net purchases of U.S. Treasuries picked up, while on net private foreigners
sold corporate and agency debt and stocks. Measured official inflows plummeted to $37
billion, the smallest recorded quarterly inflow since early 2005.
In sum, third-quarter recorded net financial inflows were significantly smaller than the
recorded current account. The resulting statistical discrepancy totalled $86 billion for the
quarter and $138 billion for the first three quarters of 2007. This positive statistical
discrepancy indicates some combination of under-recorded net financial inflows or overrecorded net imports of goods and services and other transactions measured in the current
account balance.
U.S. direct investment abroad in the third quarter (line 6) weakened as the pace of new
investment by U.S. corporations in their foreign affiliates fell sharply. In contrast,
foreign direct investment flows into the United States (line 7) surged to a record level on
increased investment of new capital and continued strength in reinvested earnings.
One notable impact of the recent financial turmoil was the sharp contraction in global
demand for, and hence issuance of, asset-backed commercial paper. As a result, U.S.
nonbank entities that had issued commercial paper in the United States to fund their
foreign parents’ operations were forced to sharply reduce lending to foreign affiliates.
This reduction in U.S. claims on foreigners implied sizable net nonbank financial inflows
in the third quarter (included in line 10).
Turning to recent monthly data, in November net flows into U.S. securities by foreign
private investors (line 4) were at the pace seen prior to the turmoil (top-left panel of the
chart on Private Security Flows). There was continued strength in foreign demand for
relatively safe assets. Net foreign purchases of U.S. Treasuries (line 4a) fell slightly but
remained strong, totaling $25 billion, and purchases of agency debt (line 4b) picked up
slightly to $5 billion. In contrast, foreign demand for corporate and municipal debt (line
4c) remained extremely weak at $8 billion. This weak demand coincided with unusually
low issuance of U.S. corporate bonds in recent months, as the rate of new debt issuance

IV-9

fell to 2002 levels. Net foreign purchases of U.S. stock (line 4d) fell to $7 billion from
October’s elevated pace.
Net inflows from foreign official investors rose to $67 billion in November (line 1), a
record monthly pace (top-left panel of the chart on Foreign Official Financial Flows).
. Partial and confidential data on custody accounts at FRBNY point to
continued strong inflows in December and January. Note that recent high profile
investments by sovereign wealth funds into U.S. financial firms are not yet apparent in
these data and will be captured with other December securities transactions and reported
in the upcoming months.
Following on weak readings in October, there was a further sharp decline in U.S. demand
for foreign securities (line 5) in November, with the balance shifting to net sales of $19
billion. Demand was particularly weak for European and Japanese stocks and Asian
debt. Net sales have been fairly rare in recent years (bottom-left panel of the chart on
Private Security Flows) and in part reflect lower issuance of dollar-denominated foreign
debt.
Flows through the banking sector (line 3) remained volatile, turning from a modest
inflow in October to a modest outflow in November.

IV-10
Summary of U.S. International Transactions
(Billions of dollars, not seasonally adjusted except as noted)
2005
272.0

443.5

2006
Q4
85.7

257.9
12.8
14.0
231.1

441.2
21.4
45.2
374.5

84.3
10.0
-6.8
81.1

149.6
9.1
11.2
125.3

71.7
6.2
0.4
69.1

37.1
10.1
2.8
24.3

41.1
11.2
9.1
20.8

66.8
3.7
-3.7
66.8

14.1

2.4

1.4

-0.1

0.0

-0.1

-0.0

-0.1

505.3

389.7

139.5

32.4

81.0

56.3

...

15.4

142.3

39.2

-12.8

9.0

-37.6

-37.3

24.4

573.9
133.7
37.0
311.2
92.0

541.6
-35.0
14.9
412.9
148.9

149.0
22.5
-13.8
111.4
28.9

175.8
46.3
-32.0
117.2
44.2

247.7
0.5
29.0
111.6
106.6

8.2
50.8
-16.2
-8.2
-18.2

89.4
46.7
0.0
9.7
33.0

44.2
24.9
4.8
7.8
6.5

5. U.S. net acquisitions (-) of foreign
securities
a. Bonds
b. Stock purchases
c. Stock swaps 3

-197.0
-53.1
-139.9
-4.0

-290.4
-152.5
-119.1
-18.8

-118.4
-53.8
-52.2
-12.4

-83.7
-39.4
-40.1
-4.2

-68.7
-41.5
-27.2
0.0

-99.2
-42.6
-52.2
-4.5

-5.8
-9.7
4.0
0.0

18.9
10.3
8.6
0.0

Other flows (quarterly data, s.a.)
6. U.S. direct investment (-) abroad
7. Foreign direct investment in the U.S.
8. Net derivatives (inflow, +)
9. Foreign acquisitions of U.S. currency
10. Other (inflow, +) 4

7.7
109.0
n.a.
19.0
-22.6

-235.4
180.6
28.8
12.6
9.5

-66.1
45.6
-1.1
8.4
83.0

-81.4
11.9
15.4
-1.6
8.9

-78.0
46.6
0.2
3.3
-79.1

-56.3
81.2
8.6
4.7
146.7

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

-754.8
-4.1
-18.5

-811.5
-3.9
-17.8

-187.9
-0.6
-36.6

-197.1
-0.6
15.7

-188.9
-0.6
36.7

-178.5
-0.6
85.6

...
...
...

Official financial flows
1. Change in foreign official assets
in the U.S. (increase, +)
a. G-10 countries + ECB
b. OPEC
c. All other countries
2. Change in U.S. official reserve
assets (decrease, +)
Private financial flows
Banks
3. Change in net foreign positions
of banking offices in the U.S. 1

2006

Q1
149.5

Q2
71.8

2007
Q3
37.1

Oct.
41.0

Nov.
66.7

Securities
4. Foreign net purchases (+) of U.S.
securities
a. Treasury securities
b. Agency bonds
c. Corporate and municipal bonds
d. Corporate stocks 3

U.S. current account balance (s.a.)
Capital account balance (s.a.) 5
Statistical discrepancy (s.a.)

Note. Data in lines 1 through 5 differ in timing and coverage from the balance of payments data published by the
Department of Commerce. Details may not sum to totals because of rounding.
1. Changes in dollar-denominated positions of all depository institutions and bank holding companies plus certain
transactions between broker-dealers and unaffiliated foreigners (particularly borrowing and lending under repurchase
agreements). Includes changes in custody liabilities other than U.S. Treasury bills.
2. Includes commissions on securities transactions and therefore does not match exactly the data on U.S. international
transactions published by the Department of Commerce.
3. Includes (4d) or represents (5c) stocks acquired through non-market means such as mergers and reincorporations.
4. Transactions by nonbanking concerns and other banking and official transactions not shown elsewhere plus amounts
resulting from adjustments made by the Department of Commerce and revisions in lines 1 through 5 since publication of the
quarterly data in the Survey of Current Business.
5. Consists of transactions in nonproduced nonfinancial assets and capital transfers.
... Not applicable.

IV-11

Private Securities Flows Through November 2007
($ Billions, monthly, not seasonally adjusted)

Foreign Net Purchases (+) of U.S. Securities
Total

160
6-month moving average

Treasury Securities

140

Agency Bonds

-20

-40

120
100

40
20
0
2004

2006

Corporate and Municipal Bonds

2004

2006

-20

2004

2006

Corporate Stocks

-60

-20

-40

-40
2004

2006

-60

2004

2006

-60

U.S. Net Acquisitions (-) of Foreign Securities
Total

2004

2006

Bonds

Stock Purchases & Swaps

-20

-40

-60

2004

2006

-60

2004

2006

-60

IV-12
Foreign Official Financial Flows Through November 2007 (increase, +)
($ Billions, monthly, not seasonally adjusted)

Total

G-10 + ECB
6-month moving average

2003

2004

2005

2006

2007

-10

-20

-30

OPEC

2003

2004

2005

2006

2007

-30

All other countries

2004

2005

2006

2007

-10

-20

-30

2003

2004

2005

2006

2007

-30

IV-13

Foreign Financial Markets
Conditions in European interbank money markets improved substantially over the period,
although concerns about slower U.S. growth and potential spillovers to foreign
economies weighed on equity markets. Spreads between 3-month interbank offer rates
and overnight index swaps (OIS), an indicator of credit concerns in the term-money
market, declined 47 and 77 basis points in euro and sterling, respectively, down to their
November levels. The announcement of coordinated central bank measures on December
12, including the Federal Reserve’s Term Auction Facility and swap lines with the
European Central Bank (ECB) and the Swiss National Bank (SNB), appeared to
contribute to these declines. The ECB and the SNB auctioned off the dollars obtained in
swap arrangements with the Federal Reserve. The ECB auctioned a total of $20 billion at
the marginal rates and maturities of the first two TAF auctions on December 17 and
December 20, and re-auctioned $10 billion on January 15 at the marginal rate and
maturity of the third TAF auctions. The SNB auctioned $4 billion of 28-day funds on
December 17 at a weighted average rate of 4.79 percent, and again on January 14 at a rate
of 3.91 percent. The bid-to-cover ratios were 2.2, 1.4, and 1.48 for the ECB auctions,
lower than the 4.2 and 2.73 recorded for the SNB’s auctions. The volume of bids in the
ECB’s auction was likely dampened by the 17 percent haircut on collateral. In the FX
swap market, bid-ask spreads have fallen and trading volumes have increased. The
amount of outstanding European asset-backed commercial paper (ABCP) declined in
December, but rose sharply in early January.
Despite these improvements, global equity prices have fallen sharply since midDecember, amid increasing concerns about further financial distress and spillovers from
slower U.S growth. Major indexes in Europe and Japan dropped on balance 15 to
20 percent. Banking sector share prices often led the declines amid concerns about the
balance-sheet impact of the sub-prime crisis. Lower-than-expected earning reports by JP
Morgan and Citigroup, among others, contributed to the sharp declines in recent days.
Several sovereign wealth funds announced that they would inject capital into U.S. and
foreign banks over the period: Abu Dhabi Investment Authority: $7.5 billion to
Citigroup, Singapore Government Investment Corporation: $9.7 billion to UBS, China
Investment Corporation: $5 billion to Morgan Stanley, Temasek Holdings (Singapore):
$4.4 billion to Merrill Lynch. Implied volatilities on the major equity indexes, after
decreasing toward year end, rose in January. Ten-year European, Canadian, and Japanese
nominal sovereign bond yields fell 23 to 38 basis points on net, as prospects for monetary
easing increased and investors scaled back riskier positions.

IV-14

The broad trade-weighted index of the dollar is little changed on balance since
mid-December, as the dollar appreciated 4.6 and 1.8 percent against sterling and the
Canadian dollar, respectively, but depreciated 5.9 percent vis-à-vis the yen. Concerns
about slower economic growth in Canada and the United Kingdom contributed to the
weakness of the Canadian dollar and sterling, whereas the strengthening of the yen
appeared to be driven in part by the unwinding of carry-trade positions. On January 22,
the Bank of Canada cut the target for its policy rate 25 basis points, citing lower
Canadian inflation and a weaker outlook for the U.S. economy.
The dollar appreciated 1.5 and 3.7 percent against the Mexican peso and Brazilian real,
respectively. Most Latin American equity indexes dropped 6 to 17 percent. EMBI+
spreads increased 50 and 67 basis points for Mexico and Brazil. Asian equity indexes
also declined substantially. The dollar depreciated about 1.9 percent against the Chinese
renminbi, but appreciated 2.5 percent vis-à-vis the Thai baht. The Bank of Thailand
announced on December 17 that it would further relax capital controls imposed in
December 2006 to allow greater foreign currency holdings and to encourage capital
outflows. The People's Bank of China raised the required reserve ratio for banks and its
benchmark interest rate, together with the one-year lending and deposit rates, in a series
of tightening steps to contain inflation and prevent the economy from overheating.
We received no reports of intervention purchases or sales of dollars from the central
banks of industrial countries over the intermeeting period. The Desk did not intervene
during the period for the accounts of the System or the Treasury.

IV-15

Exchange Value of the Dollar and Stock Market Indexes

Percent change since
December FOMC

Latest
Exchange rates*
Euro ($/euro)
Yen (¥/$)
Sterling ($/£)
Canadian dollar (C$/$)

1.4535
105.2
1.9485
1.0284

1.1
-5.9
4.6
1.8

Nominal dollar indexes*
Broad index
Major currencies index
OITP index

99.1
73.6
126.7

0.1
0.2
0.0

339.5
1249.9
5558.6
1310.4

-19.5
-20.2
-15.0
-13.6

Stock market indexes
DJ Euro Stoxx
TOPIX
FTSE 100
S&P 500

* Positive percent change denotes appreciation of U.S. dollar.

Exchange Value of the Dollar
Weekly

January 5, 2004 = 100
Major Currencies Index
Euro
Yen

120

Daily

Dec. 11, 2007 = 100
FOMC

108

110
104
100

100

2004

2005

2006

2007

Sep. Oct.

Nov. Dec. Jan.

Stock Market Indexes
Weekly

January 5, 2004 = 100

DJ Euro Stoxx
TOPIX
S&P 500

180

Daily

160

Dec. 11, 2007 = 100
110
FOMC
105
100

140

120

90
85

100
2004

2005

2006

2007

80
Sep. Oct.

Nov. Dec. Jan.

IV-16

Industrial Countries: Nominal and Real Interest Rates

Percent

3-month LIBOR
Latest
Change since
December FOMC

10-year nominal
Latest
Change since
December FOMC

10-year indexed
Latest
Change since
December FOMC

Germany

4.29

-0.64

3.86

-0.38

1.68

-0.34

Japan

0.88

-0.16

1.35

-0.23

0.94

-0.29

United Kingdom

5.48

-1.14

4.38

-0.29

1.20

-0.34

Canada

4.05

-0.97

3.75

-0.32

...

United States

3.33

-1.80

3.52

-0.63

1.36

-0.60

Nominal 10-Year Government Bond Yields
3

Weekly
Germany
Japan (left axis)
United States

Percent

Daily

2004

2005

2006

2007

FOMC

Sep. Oct.

Nov. Dec. Jan.

Inflation-Indexed 10-Year Government Bond Yields
Weekly
France
Japan*
United States

2004

Percent

2005

2006

*Japan first issued inflation-indexed debt in March 2004.

2007

Daily
FOMC

Sep. Oct.

Nov. Dec. Jan.

IV-17

Measures of Market Volatility
Dollar-Euro Options-Implied Volatility*
Weekly

Percent

1-month
3-month

Daily
FOMC

11
10

9
10

7
6

6
2004

2005

2006

2007

5
Sep. Oct.

Nov. Dec. Jan.

*Derived from at-the-money options.

Yen-Dollar Options-Implied Volatility*
Weekly

Daily

Percent

FOMC

1-month
3-month

20
16

13
11

9
8

7
2004

2005

2006

2007

Sep. Oct.

Nov. Dec. Jan.

*Derived from at-the-money options.

Realized Stock Market Volatility*
Weekly

Percent
DJ Euro Stoxx
TOPIX
S&P 500

Daily
FOMC

30
25

20
20
15
10

2004

2005

2006

2007

10
Sep. Oct.

Nov. Dec. Jan.

*Annualized standard deviation of 60-day window of daily returns.

Realized 10-Year Bond Volatility*
Weekly

Percent
Germany
Japan
U.S.

Daily
FOMC

2004

2005

2006

*Annualized standard deviation of 60-day window of daily returns.

2007

Aug. Sep. Oct. Nov. Dec. Jan.

11
10
9
8
7
6
5
4
3
2

IV-18

Emerging Markets: Exchange Rates and Stock Market Indexes

Exchange value of the dollar
Latest
Percent change since
December FOMC*
Mexico
Brazil
Venezuela
China
Hong Kong
Korea
Taiwan
Singapore
Thailand

10.9660
1.8225
2.14
7.2370
7.8080
954.0
32.41
1.4383
31.00

Stock market index
Latest
Percent change since
December FOMC

1.5
3.7
-0.1
-1.9
0.1
3.3
0.2
-0.2
2.5

26893
54185
35925
4703
24090
1628
7408
940
741

-13.8
-17.2
-6.2
-9.1
-17.6
-15.4
-14.2
-4.8
-11.9

* Positive percent change denotes appreciation of U.S. dollar.

Exchange Value of the Dollar
Weekly

January 5, 2004 = 100

Mexico
Brazil
Korea
China

120

Daily

Dec. 11, 2007 = 100
FOMC

116

112
100
108

104
80
100

2004

2005

2006

2007

Sep. Oct.

Nov. Dec. Jan.

Stock Market Indexes
Weekly

January 5, 2004 = 100
Mexico
Brazil
Korea
Hong Kong

400

Daily

Dec. 11, 2007 = 100
FOMC

110
105

350

100

300

95
250
90
200
85
150

100
2004

2005

2006

2007

75
Sep. Oct.

Nov. Dec. Jan.

IV-19
Emerging Markets: Short-Term Interest Rates and Dollar-Denominated Bond Spreads

Percent

Latest
Mexico
Brazil
Argentina
China
Korea
Taiwan
Singapore
Hong Kong

Short-term
interest rates*
Change since
December FOMC

7.37
11.10
11.94
...
5.15
2.56
3.50
2.35

Dollar-denominated
bond spreads**
Latest
Change since
December FOMC

-0.07
-0.27
-1.75
...
0.00
0.07
0.00
-1.44

1.99
2.87
5.00
1.57
...
...
...
...

0.65
0.83
1.44
0.48
...
...
...
...

*One month interest rate except 1-week rate for Korea. No reliable short-term interest rate exists for China.
**EMBI+ or EMBI Global Spreads over similar-maturity U.S. Treasuries.
... Korea, Taiwan, Singapore, and Hong Kong have no outstanding dollar-denominated sovereign bonds.

EMBI+ Spreads
Weekly

Percent

Daily
FOMC

Overall
Mexico
Brazil

2004

2005

2006

2007

Sep. Oct.

Nov. Dec. Jan.

EMBI Global Spreads
Weekly

Percent
China
Malaysia
Indonesia*

Daily
FOMC

3
2
2
1

2004
*Begins May 2004.

2005

2006

2007

Sep. Oct.

Nov. Dec. Jan.

IV-20

Developments in Advanced Foreign Economies
Fourth-quarter indicators of economic activity for the advanced foreign economies
suggest that growth is decelerating, and real GDP estimates for the third quarter were also
revised down in Japan and the United Kingdom. Recent data on household expenditures
and retail sales have weakened on balance and there are signs that the Japanese and
Canadian labor markets are deteriorating.
Consumers and businesses are considerably less upbeat about growth prospects, possibly
as a result of the ongoing financial turmoil and tighter credit conditions. In Japan,
concerns about the elevated level of oil prices led to a decline in the business sentiment of
large manufacturers, the first drop in three years. Business confidence fell to its lowest
level in two years in the United Kingdom and economic sentiment continued to decline in
the euro area.
Consumer price inflation has been increasing, pushed up by higher oil prices and, in some
cases, food prices. However, excluding energy prices, inflation remained subdued at
around 2 percent, except in Japan where prices continue to fall. The Bank of Canada cut
its policy rate 25 basis points to 4 percent on January 22. Other central bank officials
held their policy rate constant in the intermeeting period, but markets now expect a lower
path of interest rates than they did at the time of the last Greenbook.
In Japan, real GDP growth was revised down to 1.5 percent (a.r.) in the third quarter, a
reduction of more than 1 percentage point. Growth was mostly driven by external
demand for Japanese products. Domestic demand, however, remained weak. Private
investment continued to decline in the third quarter, although less sharply than in the
second quarter. Residential investment in particular exerted a significant drag on growth
due to a revision to the Building Standards Law introduced in late June that increased
inspections of buildings to ensure that they meet earthquake resistance requirements.
Moreover, consumption growth appears relatively fragile as wages continue to decline.
The December Tankan survey indicated that business confidence of large manufacturers
fell for the first time in three years amidst concerns regarding the level of crude oil prices.
Confidence also fell among major nonmanufacturers in December, the second straight
quarter of decline, as firms find it increasingly difficult to pass on cost increases from
higher oil prices to consumers.

IV-21

Advanced Foreign Economies
Average Real GDP*
Quarterly

Annualized percent change, s.a.

6
5
4
3
2
1
0

1998

1999

2000

2001

2002

2003

2004

2005

2006

-1

2007

*Chain weighted by moving bilateral shares in U.S. merchandise exports.

Consumer Prices
Monthly

12-month percent change, s.a.
Japan
Euro Area
Canada
United Kingdom

6
5
4
3
2
1
0
-1

1998

1999

2000

2001

2002

2003

2004

2005

2006

-2

2007

Official or Targeted Interest Rates
Percent
Japan
Euro Area
Canada
United Kingdom

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-2

IV-22

Japan
Economic Activity

Real Trade
2000 = 100

Industrial production
Tertiary services

2000 = 100

120

180

Real exports
Real imports

115

160

110

140

105
120
100
100

90
1998

2000

2002

2004

2006

1998

Labor Market
1.2

2002

2004

2006

Consumer Price Inflation

Ratio

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

1.1

2000

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

6.0

CPI
Core*

1.5
1.0

5.5

1.0

0.5

0.9

5.0

0.0

0.8
-0.5

4.5

0.7

-1.0

0.6
4.0

-1.5

0.5
0.4

1998

2000

2002

2004

3.5

2006

1998

2000

2002

2004

*Excludes fresh food.

Economic Indicators

(Percent change from previous period except as noted, s.a.)

2007
Indicator

2007

Sept.

Oct.

Nov.

Dec.

1.2

-36.9

n.a.

-1.2

18.1

14.1

n.a.

Machinery orders

-2.3

2.5

n.a.

-7.6

12.7

-2.8

n.a.

Household expenditures

-0.1

-0.9

n.a.

0.7

0.1

-1.0

n.a.

New car registrations

-2.0

1.4

4.9

-4.4

8.0

0.5

-10.9

Business sentiment

7.0

4.0

2.0

...

Wholesale prices3

1.7

1.5

2.3

1.3

2.0

2.3

2.6

Housing starts
1

1. Private sector, excluding ships and electric power.
2. Tankan survey, diffusion index. Level.
3. Percent change from year earlier, n.s.a.
n.a. Not available. ... Not applicable.

2006

-2.0

IV-23

Some signs point to a weakening in employment. Although the unemployment rate
inched down to 3.8 percent in November, the job offers-to-applicants ratio (the number of
officially posted job openings relative to the number of officially registered job seekers)
fell to 0.99, its lowest level in two years. The slide in earnings growth steepened, as total
cash earnings (which include bonuses) fell 1.2 percent in November from a year earlier.
The nationwide headline consumer price index (excluding fresh food only) rose
0.4 percent in November from a year earlier, the first increase in eleven months.
However, the rise in the index was due to an increase in oil prices, as consumer prices
excluding fresh food and energy fell 0.1 percent.
In the euro area, recent indicators are consistent with slower growth in the fourth
quarter. Growth in the volume of retail sales declined in October and November, putting
the average level of sales for those two months was down nearly one percent from that of
the third quarter. Industrial production rebounded somewhat in October, but fell
0.4 percent in November.
Recent survey indicators unambiguously point to economic weakness. The European
Commission survey of euro-area economic sentiment fell in December for the seventh
consecutive month, with declines in confidence widespread across the industrial,
consumer, and construction sectors. Germany’s IFO business climate index fell in
December, after a brief rise in November, as firms took a bleaker view of current
business conditions; the index has fallen in seven of the past eight months. Also in
December, the euro-area services PMI continued to decline, while the manufacturing
PMI edged down after an unexpected rebound in the previous month. Both series are
near their lowest levels in more than two years. In contrast, the euro-area unemployment
rate remained at 7.2 percent in December, the same rate as in November and the lowest
since records began 15 years ago.
The ECB’s survey of euro-area bank lending indicated a further tightening of credit
standards in the fourth quarter. The percent balance of euro-area banks reporting a net
tightening of credit standards for loans to enterprises was 41 percent in the fourth quarter,
up significantly from 31 percent in the third, reflecting the deterioration of financial
market conditions since the start of the financial turmoil last summer. The percent
balance of euro-area banks reporting a net tightening of credit standards for housing loans
to households increased from 12 percent in the third quarter to 21 percent in the fourth.

IV-24

Euro Area
Nominal Exports and Imports

Economic Sentiment
Billions of U.S. $

Exports
Imports

Percent balance

200
Consumer confidence
Industrial confidence

180

15
10
5

160

0
140
-5
120
-10
100

-15

80
1998

2000

2002

2004

-20

2006

1998

Unemployment Rate

2000

2002

2004

2006

-25

Consumer Price Inflation
Percent

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

10.5

CPI
Core*

10.0

3.5
3.0

9.5

2.5

9.0
2.0
8.5
1.5

8.0

1.0

7.5
1998

2000

2002

2004

7.0

2006

1998

2000

2002

2004

*Excludes energy and unprocessed food.

Economic Indicators

(Percent change from previous period except as noted, s.a.)

2007
Q2

Aug.

1.0

0.4

1.5

1.2

-0.9

0.5

-0.4

Retail sales volume

-0.2

0.1

0.6

-0.1

0.1

-0.7

-0.5

New car registrations

-1.9

0.4

0.7

-0.0

0.5

0.2

-0.7

0.6

0.3

...

3.0

2.4

2.1

1.8

2.7

3.3

4.2

11.0

11.3

11.6

11.3

12.3

Indicator
1

Industrial production
2

Employment
3

Producer prices
3

1. Excludes construction.
2. Excludes motor vehicles.
3. Eurostat harmonized definition. Percent change from year earlier, s.a.
n.a. Not available. ... Not applicable.

2007
Sept.
Oct.

Nov.

2006

0.5

IV-25

Banks reported that the recent turmoil in credit markets continued to hamper their access
to wholesale funding over the past three months.
Driven by higher energy and food prices, the twelve-month rate of euro-area consumer
price inflation rose almost one percentage point over the course of the fourth quarter,
reaching 3.1 percent in December, its highest level in six and a half years. However,
excluding energy and unprocessed food prices, inflation was a more modest 2.3 percent.
In the United Kingdom, real GDP grew 2.5 percent (a.r.) in the fourth quarter according
to the preliminary estimate. The expansion was supported by strong wholesaling
activities, which partially offset slower retail sales, as well as faster growth among
transport, storage and communication industries. The business services and finance
sector, the largest contributor to the current economic expansion, grew a modest
1.7 percent, well below its 5.1 percent average over the previous year.
The Bank of England’s Credit Conditions Survey showed that lenders reduced corporate
credit availability significantly in the fourth quarter, and that the availability of credit to
households was reduced by more than lenders had expected a quarter earlier. The
tightening of credit likely contributed to a further moderation of activity in the housing
sector. Gross mortgage lending fell 21 percent in the twelve months to December.
Indicators of house prices were either flat or posted mild declines in the fourth quarter.
Consumer confidence slid in December as households were increasingly worried about
the general economic situation. The PMI for services firmed slightly in December, but
firms reported a contraction in outstanding business activities for the third consecutive
month. Business confidence rose in January after reaching a two-year low a month
earlier.
By contrast, the labor market continued to display much resilience. The number of
people employed was 175 thousand higher in the three months to November than in the
previous quarter. The number of people claiming unemployment benefits fell for the
fifteenth consecutive month in December. Average earnings growth including bonuses
remained moderate at about 4 percent.

IV-26

United Kingdom
Consumer Price Inflation

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

CPI
Core*

Percent

3.5

Labor force survey
Claimant count

3.0

6
2.5
5

2.0
1.5

1.0
3
0.5
1998

2000

2002

2004

0.0

2006

1998

2000

2002

2004

2006

*Excludes energy and unprocessed food.

Purchasing Managers Survey

Labor Costs
50+ = expansion

Services
Manufacturing

Percent, 12-month basis

Unit wage costs*
Average earnings**

10
8

6
4

2
0

-2
-4

-6
1998

2000

2002

2004

2006

1998

2000

2002

2004

*Manufacturing industries.
**Whole economy, including bonuses.

Economic Indicators

(Percent change from previous period except as noted, s.a.)

Indicator

Real GDP
1

PMI Services

Industrial production
2

Business confidence

Consumer confidence
3

Trade balance

2007
Q3

Oct.

2007
Nov.

Dec.

2008
Jan.

3.4

2.7

2.5

...

57.4

57.1

52.5

53.1

52.0

52.4

n.a.

0.7

0.0

n.a.

0.5

-0.1

n.a.

20.3

13.3

7.3

10.0

9.0

3.0

9.0

-4.2

-2.5

-3.8

-2.3

-4.1

-5.0

n.a.

-20.8

-26.9

n.a.

-8.7

-9.0

n.a.

1. 50+ indicates expansion.
2. Percent balance. 3. Level in billions of US Dollars.
n.a. Not available. ... Not applicable.

2006

-8

IV-27

Overall price pressure has risen further since last Greenbook. The twelve-month rate of
headline inflation remained near target at 2.1 percent in December. However, the
quarterly increase at an annual rate registered 3.8 percent in the fourth quarter, its fastest
pace since 1995 pushed up by rising energy and food prices. Moreover, producers prices
increased 5.0 percent in the year to December, their fastest pace since 1991, as
manufacturers passed on higher material and fuel inputs costs.
In Canada, indicators for the fourth quarter suggest that growth is moderating from the
2.9 percent rate posted in the third quarter. Monthly GDP in October rose 2.9 percent
(s.a.a.r.), which would lead to 2.3 percent growth for the fourth quarter if November and
December grow at the average rate of the first ten months of the year. However, limited
post-October data indicated some additional slowing at the end of the quarter. Imports of
machinery and equipment, a good indicator of fixed investment, fell 2.5 percent in
November. New motor vehicle sales, a timely indicator of consumer spending, fell
2.9 percent in November; new motor vehicle sales have fallen six out of the last seven
months.
Following very strong growth in November, private employment fell sharply in
December, leaving private employment up a paltry 0.2 percent in the fourth quarter.
Public sector employment continued its outsized gains throughout the fourth quarter,
leading the overall employment to rise 0.8 percent. The unemployment rate remained
unchanged at 5.9 percent in December, a thirty-year low.
The housing market appears to have weakened slightly over the past couple of months.
Single-unit housing starts declined a modest 2.4 percent in the fourth quarter.
Twelve-month house price appreciation has slowed from a peak of 12 percent in 2006 to
6.1 percent in November. Although movements in multi-unit housing starts have been
volatile, they have remained roughly flat, on average, over the past two years.
In November, the twelve-month rate of consumer price inflation increased slightly to
2.7 percent. The increase in inflation owed primarily to increasing energy prices. Core
inflation, which excludes the eight most volatile components and the effects of changes in
indirect taxes, increased 1.7 percent in October and November. The twelve-month
growth rate of average hourly wages jumped sharply in December, reaching 4.9 percent.

IV-28

Canada
Real GDP by Industry*

Real Trade
Percent change from year earlier

1997 = 100

200

Real exports
Real imports

180

160

4
140
3
120

100

1
1998

2000

2002

2004

2006

1998

2000

2002

2004

2006

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

Unemployment Rate

Consumer Price Inflation
Percent

1998

2000

2002

2004

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

8.5

CPI
Core*

8.0

7.5

7.0

6.5

6.0

5.5

2006

1998

2000

2002

2004

2006

*Excludes 8 most volatile components and the effects of changes
in indirect taxes.

Economic Indicators

(Percent change from previous period except as noted, s.a.)

Indicator

2007
Q3

Sept.

Industrial production

0.3

-0.3

n.a.

-0.5

0.1

n.a.

-0.8

-1.3

n.a.

-1.8

2.4

5.0

n.a.

2.5

0.2

n.a.

-0.5

0.4

0.2

n.a.

0.3

0.4

0.8

0.3

0.4

0.3

-0.1

97.4 100.8

97.9

...

106.7 101.6

n.a.

...

New manufacturing orders
Retail sales
Employment
1

Consumer attitudes

Business confidence

1. 2002=100.
n.a. Not available. ... Not applicable.

2007
Oct. Nov.

Dec.

IV-29

Economic Situation in Other Countries
Incoming data for the emerging market economies in Asia suggest that the pace of
expansion moderated in the fourth quarter. Trade balances have declined in several
countries as exports slowed. Indicators have been a bit more mixed in Latin America but,
on balance, also point to a slowing of growth, notably in Mexico. Headline inflation
remained elevated in the developing world. Although food price inflation has retreated
some from earlier peaks in a number of countries, energy prices have accelerated of late.
In China, incoming data continue to point to a more moderate rate of growth than was
seen in the first half of last year. Exports fell about 7 percent (s.a.a.r.) in the fourth
quarter and, with imports roughly unchanged, the trade surplus narrowed to less than
$250 billion at an annual rate. Over the October-November period, the average level of
industrial production rose 2½ percent (s.a.) from its third-quarter level, representing a
slight deceleration. Monthly fixed asset investment has been erratic, with its
year-over-year growth rate spiking in October and then falling back in November to
about 26 percent. The value of outstanding loans in December was just ½ percent higher
than at the end of October, reflecting guidance issued by the government in November to
cap bank lending. Twelve-month growth of M2 also slowed in December from its pace
in the past several months. In contrast, retail sales continued to accelerate, rising 19
percent in November from a year earlier.
Twelve-month inflation rose further to nearly 7 percent in November due mainly to
soaring vegetable prices. In addition, non-food price inflation also registered a
significant increase; the recent hike in government-controlled retail fuel prices helped
push non-food inflation to 1.4 percent, higher than its average pace of 1 percent in
previous months. Amid concerns over inflation, the government announced that it would
temporarily control the prices of some basic necessities such as grain, meat, and cooking
oil, whose prices had been market determined. Additionally, the central bank raised the
bank reserve requirement ratio in December and January by a cumulative 1½ percentage
points to a record 15 percent for large banks. In December, benchmark interest rates
were also raised 27 basis points to 4.14 percent for the one-year deposit rate and 18 basis
points to 7.47 percent for the one-year lending rate.

IV-30

Chinese Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2006

2007
Q3

Real GDP1
Industrial production
Consumer prices2
Merch. trade balance3

10.4
14.6
2.7
177.5

n.a.
8.2
n.a.
3.2
n.a.
6.1
262.2 265.7

Oct.

n.a. . . .
n.a.
-.3
n.a.
6.7
246.4 285.3

Nov.

Dec.

...
2.8
6.9
244.4

...
n.a.
n.a.
209.5

1. Annual rate. Quarterly data estimated by staff from reported four-quarter growth rates.
Annual data are Q4/Q4.
2. Percent change from year-earlier period, except annual data, which are Dec./Dec.
3. Billions of U.S. dollars, annual rate. Imports are c.i.f.
n.a. Not available. . . . Not applicable.

Recent indicators for India have been mixed but, on balance, point to a continued
moderation of activity in the fourth quarter. Industrial production rebounded in the
October-November period from a contraction in the third quarter. However, exports
declined, contributing to a widening of the trade deficit. Data from December suggest
that consumer price inflation has stopped decelerating and wholesale price inflation has
begun increasing after reaching a trough in October, rising from 3.2 percent in November
to 3.6 percent in December.
Indian Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2006

2007
Q3

Real GDP1
Industrial production
Consumer prices2
Wholesale prices2
Merch. trade balance3
Current account4

8.7
10.5
6.5
5.7
-54.4
-9.5

n.a.
8.0
n.a.
-.1
n.a.
6.4
3.6
4.1
n.a. -69.8
n.a. -22.1

Oct.

n.a. . . .
n.a.
1.8
n.a.
4.6
3.3
3.1
n.a. -81.6
n.a. . . .

Nov.

Dec.

...

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

.5
4.6
3.2
-85.9
...

1. Annual rate. Annual data are Q4/Q4.
2. Percent change from year-earlier period, except annual data, which are Dec./Dec.
3. Billions of U.S. dollars, annual rate.
4. Billions of U.S. dollars, n.s.a., annual rate.
n.a. Not available. . . . Not applicable.

IV-31

China and India
Industrial Production

Consumer Prices
Jan. 2000 = 100

Percent change from year earlier

300

275

China
India

250
225

200
175

150
125

100
2001

2002

2003

2004

2005

2006

2007

Merchandise Trade Balances

2001

2002

2003

2004

2005

2006

2007

-2

Benchmark Interest Rates
Billions of dollars

Percent

3-mo. moving ave. (n.s.a.)
20

10
7
5
6

-5

2001

2002

2003

2004

2005

2006

2007

-10

Gross External Debt

2002

2003

2002

2003

2004

2005

2006

2007

Short-Term External Debt
Percent of GDP

2001

2004

2005

2006

2007

Percent of reserves

2001

2002

2003

2004

2005

2006

2007

IV-32

In the NIEs1, indicators suggest that overall economic activity moderated in the fourth
quarter of last year from strong growth in the previous two quarters. In Singapore, the
advance unofficial estimate (not shown) indicates that fourth-quarter real GDP fell
3¼ percent as activity in the volatile biomedical sector contracted and production of
electronics slowed. Elsewhere, growth of industrial production also slowed in South
Korea and Taiwan. Across the region, trade balances generally decreased as exports
slowed and, in some cases, imports rose.
Twelve-month consumer price inflation remained elevated in the fourth quarter owing
mostly to higher food and energy prices. However, food price inflation has retreated in
the most recent months from previous peaks as the earlier effect of adverse weather has
faded in Hong Kong, Taiwan, and Korea. Citing inflationary pressures, the central bank
of Taiwan raised its discount rate .125 percentage points to 3.375 percent on December
20, while the Bank of Korea left its benchmark rate unchanged at the most recent
monetary policy meeting on January 10.
NIEs Economic Indicators: Growth
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2005

2006
Q2

Sep.

Oct.

Nov.

Real GDP1
Hong Kong
Korea
Singapore
Taiwan

7.8
5.7
8.2
6.8

7.2
4.0
6.5
4.0

8.2
7.4
14.5
11.6

5.8
5.4
4.3
12.9

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

Industrial
production
Hong Kong
Korea
Singapore
Taiwan

2.3
5.8
9.5
4.6

2.4
10.8
11.9
5.0

-1.9
4.4
4.9
6.5

-1.6
4.1
6.5
3.1

...

...
3.2
-1.6
1.8

...
-.2
5.8
-2.5

.0
-6.3
4.2

1. Annual rate. Annual data are Q4/Q4.
... Not applicable.

Newly-industrialized economies: Hong Kong, South Korea, Singapore, and Taiwan

IV-33

IV-34

NIEs
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

2001

2002

2003

2004

2005

2006

2007

Merchandise Trade Balances
3-mo. moving ave. (n.s.a.)

2002

2003

2004

2005

2001

2002

2003

2004

2005

2006

2007

-6

Benchmark Interest Rates
Billions of dollars

2001

-4

2006

Percent

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0

2007

2001

Gross External Debt

2002

2003

2004

2005

2006

2007

Short-Term External Debt
Percent of GDP

Percent of reserves

35
30

60
50

20
30
15
20

2001

2002

2003

2004

2005

2006

2007

2001

2002

2003

2004

2005

2006

2007

IV-35

Data from the ASEAN-4 region indicate that growth generally slowed in the fourth
quarter. Growth of industrial production softened, and with the exception of Thailand,
trade balances decreased. Across the region, higher food and energy prices pushed
twelve-month consumer price inflation higher. Despite the inflationary pressures, central
banks in Indonesia and the Philippines lowered interest rates by 25 basis points to
8 percent and to 5¼ percent respectively, in order to support growth.
Separately, the Philippines central bank announced measures to liberalize capital
outflows to stem local currency appreciation, raising the amount residents can invest
overseas without prior approval and the amount of foreign exchange individuals can buy
without documentation. The Bank of Thailand announced measures to further relax the
capital controls it had instituted in December 2006, scrapping the $100 million limit on
overseas investment by Thai companies and doubling to $100 million the limit parent
companies can invest in and lend to overseas subsidiaries.
Results of Thailand’s December parliamentary elections indicate that the People Power
Party (PPP), the party close to ousted Thai Prime Minister Thaksin Shinawatra, won a
landslide victory. It remained, however, uncertain whether the military regime and the
royal palace would cease their involvement in Thai politics.
ASEAN-4 Economic Indicators: Growth
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2005

2006
Q2

Real GDP1
Indonesia
Malaysia
Philippines
Thailand

4.9
5.7
5.6
4.3

6.0
5.8
5.5
4.3

6.6
6.6
7.4
5.2

9.5
9.2
1.1
6.3

Industrial
production2
Indonesia3
Malaysia
Philippines
Thailand

1.3
4.0
2.2
9.1

-1.6
4.8
-9.9
7.4

2.4
2.2
3.5
1.3

-2.3
.8
1.6
4.7

1. Annual rate. Annual data are Q4/Q4.
2. Annual data are annual averages.
3. Staff estimate.
n.a. Not available. ... Not applicable.

Sept.

Oct.

Nov.

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

1.7
1.2
-4.5
-1.0

-4.7
-2.4
.7
2.6

n.a.
4.1
n.a.
.5

IV-36

IV-37

ASEAN-4
Industrial Production

Consumer Prices
Jan. 2000 = 100

Indonesia
Malaysia
Philippines
Thailand

Percent change from year earlier

225

205
15

185
165

145
5

125
105

85
2001

2002

2003

2004

2005

2006

2007

Merchandise Trade Balances

2001

2002

2003

2004

2005

2006

2007

-5

Benchmark Interest Rates
Billions of dollars

3-mo. moving ave. (n.s.a.)

Percent

4.0

3.5
3.0

2.5
2.0
1.5

1.0
0.5
0.0

-0.5
-1.0
-1.5

2001

2002

2003

2004

2005

2006

2007

2001

Gross External Debt

2002

2003

2004

2005

2006

2007

Short-Term External Debt
Percent of GDP

Percent of reserves

90
80

75
70
60

60
50

45
40
30

30
20

15
10
2001

2002

2003

2004

2005

2006

2007

2001

2002

2003

2004

2005

2006

2007

IV-38

Data from Mexico suggest that growth slowed in the fourth quarter. In October, the
index of overall economic activity was little changed. Industrial production for the
October through November period weakened. Same-store sales (not shown) were also
down recently, but the trade balance moved into surplus in November, following a string
of deficits. The recently approved budget for 2008 calls for a 10 percent increase in real
expenditures (1.2 percent of GDP), which will provide some support to activity going
forward. Headline inflation fell back to 3.8 percent in the fourth quarter from 4 percent,
the upper limit of the central bank’s target range, in the previous quarter. Twelve-month
core inflation readings continued to be elevated at 4 percent in December.
Mexican Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2006

2007
Q3

Real GDP1
Overall economic
activity
Industrial production
Unemployment rate2
Consumer prices3
Merch. trade balance4
Merchandise imports4
Merchandise exports4
Current account5

4.3
4.9
5.0
3.6
4.1
-6.1
256.1
250.0
-1.9

n.a.

5.9

n.a.
1.5
n.a.
1.1
3.7
3.6
3.8
4.0
n.a. -10.5
n.a. 291.3
n.a. 280.8
n.a.
-5.4

Q4
n.a.

Oct.

Nov.

Dec.

...

n.a.
.1
3.7
3.9
3.6
288.4
291.9
...

n.a.
n.a.
3.8
3.7
n.a.
n.a.
n.a.
...

n.a.
.1
n.a.
.0
3.8
3.7
3.8
3.7
n.a. -11.5
n.a. 292.7
n.a. 281.2
n.a. . . .

1. Annual rate. Annual data are Q4/Q4.
2. Percent; counts as unemployed those working one hour a week or less.
3. Percent change from year-earlier period, except annual data, which are Dec./Dec.
4. Billions of U.S. dollars, annual rate.
5. Billions of U.S. dollars, n.s.a., annual rate.
n.a. Not available. . . . Not applicable.

In Brazil, real GDP growth jumped to 6.9 percent in the third quarter, boosted by
domestic demand, notably investment, as external demand slowed. Investment continued
to soar, rising nearly 20 percent for the second consecutive quarter, and private
consumption expanded at a solid 6 percent pace. Recent indicators for the fourth quarter
have been mixed. Industrial production was down in November, and the trade surplus
narrowed in the fourth quarter, but capacity utilization rates have remained very high.
Consumer price inflation remained elevated at 4.3 percent in the fourth quarter as higher
food prices continued to exert pressure on headline inflation.

IV-39

In December, the Brazilian congress rejected a measure introduced by the Lula
government to extend the financials transaction tax (CPMF), which expired at the end of
the year. The loss of revenues from the removal of the tax is estimated at $40 billion
(about 2½ percent of GDP). In response, the government proposed in early January a
controversial plan to cut spending and to raise the tax rates on capital gains and banks’
profit.
Brazilian Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator
Real GDP1
Industrial production
Unemployment rate2
Consumer prices3
Merch. trade balance4
Current account5

2006
5.0
2.8
10.0
3.3
46.4
13.6

2007
n.a.
n.a.
n.a.
4.5
40.3
n.a.

Oct.

Nov.

Dec.

6.9
1.7
9.2
4.2
33.0
4.1

n.a.
n.a.
n.a.
4.3
35.6
n.a.

...
3.2
8.8
4.2
39.5
-.5

...
-1.8
8.4
4.3
34.9
-16.1

...
n.a.
n.a.
4.5
32.5
n.a.

1. Annual rate. Annual data are Q4/Q4.
2. Percent.
3. Percent change from year-earlier period, except annual data, which are Dec./Dec.
Price index is IPCA.
4. Billions of U.S. dollars, annual rate.
5. Billions of U.S. dollars, n.s.a., annual rate.
n.a. Not available. . . . Not applicable.

Economic activity continued to be very strong in Argentina. Third-quarter real GDP
soared by nearly 12 percent, led by strong gains in agricultural production and
construction activity. Data for the fourth quarter indicate that activity continued to
expand solidly. In October and November, industrial production was up, and the trade
surplus widened significantly. Consumer price inflation, though elevated, moderated a
bit to 8.4 percent in the fourth quarter from 8.7 percent in the previous quarter. There are
allegations that Argentine authorities have continued to tamper with the consumer price
data to understate the rate of inflation.

IV-40

Argentine Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2006

2007
Q3

Real GDP1
Industrial production
Unemployment rate2
Consumer prices3
Merch. trade balance4
Current account5

8.5
8.3
10.2
9.7
12.3
8.1

n.a.
n.a.
n.a.
8.4
n.a.
n.a.

11.8
2.2
8.1
8.7
7.1
3.2

Q4
n.a.
n.a.
n.a.
8.4
n.a.
n.a.

Oct.

Nov.

Dec.

...
1.2
...
8.4
16.0
...

...
1.2
...
8.5
17.3
...

...
n.a.
...
8.4
n.a.
...

1. Annual rate. Annual data are Q4/Q4.
2. Percent; n.s.a.
3. Percent change from year-earlier period, except annual data, which are Dec./Dec.
4. Billions of U.S. dollars, annual rate.
5. Billions of U.S. dollars, n.s.a., annual rate.
n.a. Not available. . . . Not applicable.

In Venezuela, new finance minister Rafael Isea announced goals of 6 percent real GDP
growth and 11 percent inflation by the end of 2008. There are no hints that the
government will tighten monetary and fiscal policies, which have been expansionary and
fueled growth. Both headline and core inflation continued to rise significantly, reaching
22.4 percent and 28 percent, respectively, in December. On January 1, as had been
announced early last year as an anti-inflation measure, the government introduced a new
currency, the bolivar fuerte (“strong” bolivar, which is equal to 1,000 bolivares). In the
parallel market, the bolivar fuerte stood at 5.45 per dollar in mid-January, well below the
official value of 2.14 per dollar. In his mid-January state-of-the-nation address, President
Chavez stated that the unlimited term provision which was rejected by voters last
December might be re-introduced in 2010, three years before the end of his term.

IV-41

Venezuelan Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2006

2007
Q3

Real GDP1
Unemployment rate2
Consumer prices3
Non-oil trade balance4
Merch. trade balance4
Current account5

11.4
10.0
17.0
-22.9
32.7
27.1

n.a.
n.a.
22.5
n.a.
n.a.
n.a.

11.6
8.5
16.1
-35.7
25.0
27.5

Oct.

Nov.

Dec.

n.a.
n.a.
20.2
n.a.
n.a.
n.a.

...
7.5
17.2
...
...
...

...
7.1
20.7
...
...
...

...
n.a.
22.4
...
...
...

1. Annual rate. Annual data are Q4/Q4.
2. Percent.
3. Percent change from year-earlier period, except annual data, which are Dec./Dec.
4. Billions of U.S. dollars, annual rate.
5. Billions of U.S. dollars, n.s.a., annual rate.
n.a. Not available. . . . Not applicable.

IV-42

Latin America
Industrial Production

Consumer Prices
Jan. 2000 = 100

Argentina
Brazil
Mexico

Percent change from year earlier

140

130
35
120
25

110
100

90
5
80

2001

2002

2003

2004

2005

2006

2007

2001

Merchandise Trade Balances

2002

2003

2004

2005

2006

2007

-5

Benchmark Interest Rates
Billions of dollars

Percent

3-mo. moving ave. (n.s.a.)
4

2
15
1
10

-1

2001

2002

2003

2004

2005

2006

2007

-2

2001

Gross External Debt

2002

2003

2004

2005

2006

2007

Short-Term External Debt
Percent of GDP

2001

2002

2004

2005

2006

2007

Percent of reserves

225

450

200

400

175

350

150

300

125

250

120

100

200

150

100

210
180

Argentina
(left scale)

150

60
30

2001

2002

2003

2004

2005

2006

2007

IV-43

In Turkey, third-quarter real GDP contracted due to significant cuts in government
spending and drop in exports. Incoming data suggest that growth rebounded in the fourth
quarter. Average industrial production for October and November was up significantly
over the third quarter level as manufacturing activity strengthened. Twelve-month
consumer price inflation continued to rise in recent months, reaching 8.4 percent in
December, significantly higher than the upper limit of the central bank’s year-end target
of 4 percent. Nonetheless, the central bank cut twice its overnight borrowing rate by a
total of 75 basis points to 15½ and its lending rate by a total of 125 basis points to
19½ percent. The Monetary Policy Committee indicated that the lagged effects of
previous monetary tightening coupled with weak aggregate demand will continue to exert
downward pressures on inflation going forward.
Turkish Economic Indicators
(Percent change from previous period, s.a., except as noted)
2007
Indicator

2006

2007
Q3

Real GDP1
Industrial production
Consumer prices2
Merch. trade balance3
Current account4
Unemployment rate5

5.2
5.9
9.7
-53.8
-32.3
9.8

n.a.
n.a.
8.4
n.a.
n.a.
n.a.

-10.0
.2
7.1
-65.4
-27.5
10.0

Q4
n.a.
n.a.
8.2
n.a.
n.a.
n.a.

Oct.

Nov.

Dec.

...
4.7
7.7
-81.6
-38.2
...

...
8.8
8.4
-65.3
-39.2
...

...
n.a.
8.4
n.a.
n.a.
...

1. Annual rate. Annual data are Q4/Q4.
2. Percent change from year-earlier period, except annual data, which are Dec./Dec.
3. Billions of U.S. dollars, annual rate. Imports are c.i.f.
4. Billions of U.S. dollars, n.s.a., annual rate.
5. Percent
n.a. Not available. . . . Not applicable.

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Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, January 29-30, 2008 : Greenbook Part 2

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