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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS III - FOMC June 29, 1990 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Consumer attitudes . . . . . . New home sales . . . . . . . . Table The market for new houses. . . Chart Consumer attitudes . . . . . . THE FINANCIAL ECONOMY Tables Monetary aggregates . . . . . . . . . . Commercial bank credit and short- and intermediate-term business credit . . Selected financial market quotations . THE INTERNATIONAL ECONOMY Import and export prices . . . . . . . . Table Import and export price measures . . .. SUPPLEMENTAL NOTES DOMESTIC NONFINANCIAL ECONOMY Consumer Attitudes Consumer sentiment, as measured by the Survey Research Center at the University of Michigan, fell 2-1/4 index points in June to 88.3, the lowest level since late 1987. The near-term outlook for general business conditions deteriorated substantially in June according to survey participants, and the index of responses about the longer-term business climate remained at a relatively low level. In contrast, consumers have not markedly revised their assessments of their own financial situations or their appraisals of buying conditions in recent months. The average 12- month forecast of inflation moved back up to 4.9 percent this month after two months of readings in the neighborhood of 4-1/2 percent, while expectations for inflation over the next 5 to 10 years moved up another 0.2 percentage point, to 5.5 percent. The Conference Board's Consumer Confidence Index fell nearly 5 index points in June to 102.5--the lowest reading on this series since 1987. Since late last year, responses to all five of the questions making up the Conference Board's index have weakened. In June, fewer survey respondents reported that "jobs are plentiful," and fewer of them characterized general business conditions as "good." Moreover, prospects for the next six months are viewed somewhat less favorably in both areas. Finally, fewer respondents are expecting increases in income over the next six months. -2- CONSUMER ATTITUDES * Index S130 Conference Board Index of Consumer Confidence 11 - I1 / ' 194 19 \ I 110 1 I\ I/ II 197 \1 , B/ 'I 110 4 18 1 iJune Michigan Survey Research Center of Consumer Sentiment 70 1984 1985 1986 1987 1988 1989 1990 The base of the Michigan Index Is February 1966; the base of the Conference Board index s the annual average for 1985. Both indexes are an average of five equally-weighted questions that relate to current and expected economic conditions. However, the questions In the two surveys are different and the timing of the surveys In the field varies. -3- New Home Sales New home sales in May remained close to their lowest level since 1982, indicative of weak demand in the single-family market. At 532,000 units (SAAR), sales in May were about unchanged from the downward-revised April figure of 530,000 units (originally reported as 546,000). The median price of a new home sold in May was up 8.0 percent from a year earlier, while the mean price rose 6.1 percent higher. The inventory of unsold homes edged down to 358,000 units in May; the inventory estimate has remained in a narrow band for the past several years. -4THE MARKET FOR NEW HOUSES 1989 Sales Volume Thousands of units, SAAR Sales Price Average ($1,000, NSA) (Percent change from year earlier) Median ($1,000, NSA) (Percent change from year earlier) Inventory Units for sale (Thousands of units, end of period) Months' supply (At current sales rate) 1989 1990 Q4 Ql 650 652 148.8 151.2 7.6 120.0 7.7 124.8 150.3 4.2 1990 Mar. 144.8 -2.8 Apr. 154.2 MayP 154.0 6.6 124.6 119.9 133.4 14.3 128.5 6.7 9.6 5.6 -2.5 366 362 363 363 362 358 7.0 6.8 7.5 7.7 8.4 8.2 Regional Sales Volume Thousands of units, SAAR 91 92 83 86 94 84 Midwest 103 102 94 94 89 96 South 257 260 West 201 198 Northeast Note: Months' supply data derived by Census Bureau by seasonal adjustment of the ratio of homes for sale to homes sold. It may, therefore, not agree with the seasonally adjusted components shown on the table. r--revised p--preliminary. -5MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted) 1989 1 ----------1. 2. 3. 1990 Qzpe 1990 Apr 1990 May Growth 1990 Q4 89Jun pe Jun 90pe Percent change at annual rates--------------------0.6 4.5 3.3 M1 M2 M3 1990 Q1 4.8 6.0 2.6 35 2 ½ 3.9 1.9 1.0 -2.8 -2.9 -2.6 5 2 0 4 3½ 1 Levels ----------- Percent change at annual rates----------- bil. $ May 90 Selected components 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. MI-A Currency Demand deposits Other checkable deposits 2 M2 minus Ml Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares Commercial banks 3 Savings deposits plus MMDAs Small time deposits Thrift institutions 3 Savings deposits plus MMDAs Small time deposits 4 17. M3 minus M2 18. 19. 20. 21. 22. 23. Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares Term RPs, NSA Term Eurodollars, NSA 0.4 4.2 4.8 -2.8 10.3 -0.9 1.0 1½ 0.7 -4.0 93 -5 8.9 -6.4 5.9 7 5.9 6.4 -9.2 28.0 29.7 7.5 -1.7 19.0 18.8 -0.2 -9.3 5.8 3 513.9 -13.8 9 -2 231.6 274.6 9.5 -1.2 9 291.5 2 1.4 -3.0 0 2458.1 -16¼ -43.1 30.8 8.5 9.3 7.8 -0.7 8.6 7.8 9.4 -1.7 -3.0 2.8 -4.3 5.4 -7.7 -20.0 13.7 6.0 21.5 -13.0 -7.7 -16.5 7.8 -1.5 -10.6 -7¼ -3.0 -1.2 4.2 -8.3 -10¼ -13.2 -6.7 9.9 -7.8 -1.6 -24.7 -2 -30½ -5.1 -34.2 5.5 -40.3 10.2 -39.8 -50.4 11 -1¼ -143. 15.9 5.6 -5.2 5.2 17.1 -16.0 -22.0 -9.0 52.6 -71 79.8 6 15 319.4 1110.0 10 20 558.9 551.1 -15 -8 -20 950.8 356.3 594.4 -8 .792.5 534.6 396.4 138.2 0 -1 -30 107.3 93.1 69.0 ----- Average monthly change in billions of dollars---MEMORANDA: 6 24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds 27. Net due to related foreign institutions 7 Other 28. 29. U.S. government deposits at commercial 8 banks 5.9 2.1 -2¾ -4.9 -0.4 2.6 3.3 -2.3 4.4 -1k -1 -2.2 -2.7 -0.5 0.1 0.2 3.3 -1¼ -0.7 3.1 1.2 ¼ -2.1 -0.3 -0.6 ½ 2.0 7.9 -7.6 -2.6 720.8 454.6 266.2 -11 10 24.4 241.9 2 18.6 1. Amounts shown are from fourth quarter to fourth quarter. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Commercial bank savings deposits excluding MMDAs grew during May and June at rates of -1.9 percent and 6 percent, respectively. At thrift institutions, savings deposits excluding MMOAs grew during May and June at rates of -2.2 percent and -4 percent, respectively. 4. The nor,-M2 component of M3 is seasonally adjusted as a whole. 5. Net of large denomination tine deposits held by money market mutual funds and thrift institutions. 6. Dollar amounts shown-under memoranda are calculated on an end-month-of-quarter basis. 7. Consists of borrowing from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase, and other liabilities for borrowed money (including borrowing from the Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated. 8. Consists of Treasury demand deposits and note balances at commercial banks. pe - preliminary estimate -6COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) Levels 1988:Q4 to 1989:Q4 1989 Q4 ----------------------1. 2. Total loans and securities at banks Securities 3. U.S. government securities 4. Other securities 5. Total loans 1990 Q1 Mar. Apr. May p bil.$ May p Commercial Bank Credit --------------------- 7.2 6.9 6.8 9.2 5.1 4.1 2644.1 3.9 9.6 16.8 13.8 8.8 7.2 607.1 9.7 16.9 24.6 19.5 10.9 14.8 427.9 -6.9 -5.5 -. 2 .7 4.0 -10.6 179.2 8.1 6.1 3,9 7.8 4.1 3.2 2037.0 6.8 3.0 .6 9.6 10.1 -. 6 647.9 12.9 11.2 10.1 9.7 7.7 12.5 787.5 6. Business loans 7. Real estate loans 8. Consumer loans 6.3 6.4 3.7 1.0 -4.4 4.4 379.2 9. Security loans 3.8 -1.0 -12.2 -81.8 -40.7 -42.2 35.7 .6 -1.9 -6.4 28.4 -11.4 -9.6 186.7 10. Other loans --------11. 4. Business loans net of bankers acceptances Loans at foreign branches2 13. Sum of lines 11 & 12 14. Commercial paper issued by nonfinancial firms 15. Sum of lines 13 & 14 16. Bankers acFeptances: 6.8 9.1 10.0 -5.0 -21.7 11.1 6.4 8.3 -. 8 639.6 16.4 22.2 9.7 .0 661.8 -31.4 145.0 31.2 21.0 24.5 43.7 55.7 9.8 5.9 4.4 14.4 17.9 6.1 -9.1 -19.8 -32.1 -36.7 -15.1 31.3 9.7 5.3 3,4 12.5 15.7 -6.1 838.1 10.6 6.2 4.7 5.1 7.8 n.a. 262.05 9.9 5.4 3.7 10.6 13.8 n.a. 1104.45 -5.8 806.8 U.S. trade related ' 17. Short- and Intermediate-Term Business Credit ---------- Line 15 plus bankers acceptances: U.S. trade related 18. Finance company loans to business' 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 1. Average of Wednesdays. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Based on average of data for current and preceding ends of month. 4. Consists of acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. 5. April data. p--preliminary. n.a.--not available -71 SELECTED FINANCIAL MARKET QUOTATIONS (percent) March highs 2 Oct 16 Change from: 1990 1989 1987 Dec lows FOMC May 15 June 28 Mar 89 highs Dec 89 FOMC May 15 lows Short-term rates Federal funds 3 7.59 9.85 8.45 8.23 8.28 -1.57 -0.17 0.05 Treasury bills4 3-month 6-month 1-year 6.93 7.58 7.74 9.09 9.11 9.05 7.53 7.29 7.11 7.65 7.67 7.65 7.74 7.62 7.52 -1.35 -1.49 -1.53 0.21 0.33 0.41 0.09 -0.05 -0.13 Commercial paper 1-month 3-month 7.94 8.65 10.05 10.15 8.51 8.22 8.22 8.20 8.26 8.18 -1.79 -1.97 -0.25 -0.04 0.04 -0.02 Large negotiable CDs 1-month 3-month 6-month 7.92 8.90 9.12 10.07 10.32 10.08 8.52 8.22 8.01 8.23 8.28 8.39 8.26 8.27 8.29 -1.81 -2.05 -1.79 -0.26 0.05 0.28 0.03 -0.01 -0.10 Eurodollar deposits 5 1-month 3-month 8.00 9.06 10.19 10.50 8.38 8.25 8.19 8.25 8.19 8.25 -2.00 -2.25 -0.19 0.00 0.00 0.00 Bank prime rate 9.25 11.50 10.50 10.00 10.00 -1.50 -0.50 0.00 U.S. Treasury (constant maturity) 3-year 9.52 9.88 10-year 10.23 9.53 30-year 10.24 9.31 7.69 7.77 7.83 8.58 8.37 -0.21 0.70 -0.18 8.62 8.47 8.45 -1.51 -1.06 -0.86 0.68 8.65 0.62 -0.17 Municipal revenue" (Bond Buyer) Intermediate- and long-term rates 9.59 7.95 7.28 7.66 7.48 -0.47 0.20 -0.18 Corporate--A utility recently offered 11.50 10.47 9.29 10.04 9.94 -0.53 0.65 -0.10 Home mortgage rates 7 S&L fixed-rate S&L ARM, 1-yr. 11.58 8.45 11.22 9.31 9.69 8.34 10.54 8.63 10.16 8.50 -1.06 -0.81 0.47 0.16 -0.38 -0.13 1989 Record highs Date Lows Jan 3 1990 FOMC May 15 June 28 ------------------ Percent change from: Record highs _-_------------------__-----*----- 1989 lows FOMC May 15 ---------- ____--------------------*--ItK Stock prices Dow-Jones Industrial 2935.89 NYSE Composite 200.21 AMEX Composite 397.03 NASDAQ (OTC) 485.73 Wilshire 3523.47 6/15/90 2144.64 2822.45 2878.71 6/4/90 154.98 193.31 195.18 10/10/89 305.24 353.56 358.57 10/9/89 378.56 442.50 460.38 10/9/89 2718.59 3373.68 3417.43 -1.95 -2.51 -9.69 -5.22 -3.01 34.23 25.94 17.47 21.61 25.71 1.99 0.97 1.42 4.04 1.30 -- -- - -- - -- - -- - -- - -- - -- - -- - -- - -- -- - -- - -- - -- - - - - -- - -- - -- - -- - -- - 1/ One-day quotes except as noted. 2/ Last business day prior to stock market decline on Monday Oct. 19, 1987. 3/ Average for two-week reserve maintenance period closest to date shown. Last observation is average for the maintenance period ending June 27, 1990. 4/ Secondary market. 5/ Bid rates for Eurodollar deposits at 11 a.m. London time. 6/ Based on one-day Thursday quotes and futures market index changes. 7/ Quotes for week ending Friday closest to date shown. -8- INTERNATIONAL DEVELOPMENTS Import and Export Prices According to the Bureau of Labor Statistics, prices for imports fell for the third month in a row in May. Prices for nonpetroleum imports declined for the third month in a row while prices for petroleum fell for the fourth month in a row. The May decreases in prices for nonpetroleum imports was led by a continuing fall in the index for motor vehicles. As was the case in April, the decline in prices for imported motor vehicles was associated with the appreciation of the yen during the previous two months. In contrast, prices for imports of consumer goods continued to rise. The small increase in export prices was primarily related to a continuing rise in prices for agricultural exports. by higher prices for soybeans and corn. remained unchanged in May. This increase was led Prices for nonagricultural exports IMPORT AND EXPORT PRICE MEASURES (percentage change from previous period, annual rate) Year 1990-01 1989-01 Months Quarters 1989 1990 03 04 01 (annual rates) BLS Prices - Imports, Total Foods, Feeds, Bev. Industrial Supplies Ind Supp Ex Oil* Capital Goods Automotive Products Consumer Goods 1.3 -1.7 1.0 -4.3 1.8 0.6 3.4 -4.6 -15.5 -14.1 1990 Apr** May (monthly rates) - -1.2 0.0 1.2 5.3 7.4 8.7 -2.4 2.8 5.7 4.1 4.9 11.2 1.6 -2.4 10.4 -0.4 7.4 -0.8 -0.4 -2.5 0.0 -0.4 -0.8 0.3 -0.6 0.1 -1.0 -0.2 0.0 -1.2 0.4 13.4 0.2 -24.4 -2.8 36.0 2.8 8.7 4.1 -7.3 -0.2 -3.1 -0.2 Exports. Total Foods, Feeds, Bev. Industrial Supplies Capital Goods Automotive Products Consumer Goods -0.4 -11.2 -1.6 3.0 2.8 3.2 -2.8 -21.6 -4.6 3.0 3.0 2.8 0.0 -7.4 -2.8 2.4 4.9 2.0 1.6 -3.2 0.4 4.1 1.6 6.6 Memo: Agricultural Nonagricultural -7.0 0.8 -15.8 -0.4 -5.1 0.4 -1.2 2.4 Memo: Oil Non-oil Fixed-Weight Imports, Total Oil Non-oil Exports, Total Ag. Nonag. - -7.4 - - Oil Non-oil Exports, Total Ag. Nonag. *Not for publication. ** Revised 1.6 0.0 - Prices in the GNP Accounts - 3.0 25.9 -0.1 -8.9 -31.0 -4.9 0.1 -5.9 1.4 -4.1 -9.4 -2.9 -12.9 1.4 3.1 2.7 3.1 -1.0 25.9 -3.3 -11.1 -30.7 -7.1 2.2 22.9 -2.7 5.5 47.3 3.4 -2.2 -5.9 -1.5 -5.5 -9.4 -4.5 -2.4 -12.9 -1.3 -0.2 2.7 -0.7 4.0 23.5 1.3 -1.1 10.1 47.9 4.9 Deflators Imports, Total 0.3 2.7 -0.3 0.0 0.1 0.6 2.2 0.0
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