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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 July 3, 1986 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS THE DOMESTIC FINANCIAL ECONOMY Employment and unemployment. . Auto sales .. . . . . . . ... Page . . . . . . . . 1 2 Changes in employment. . .. . . . . . . . . . . . .. Selected unemployment rates. . . . . . . . . . . . . . . . Hourly earnings index . . . . . . . . . . . . . . . . . . Monetary aggregates . . . . . . . . . . . . . . . ... . . . . 3 3 4 5 . . 6 7 .. . . . . . . . . . . . . . . Tables Commercial bank credit and short- and intermediateterm business credit . . . . . . . . Selected financial market quotations . . . . . . . . . . . . . . . . . . . SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Employment and Unemployment Nonfarm payroll employment, after adjusting for strike activity at AT&T and Alcoa1, grew slowly again in June. Last month's increase of 80,000 follows a downward revised gain of 125,000 in May. Factory layoffs continued in June, particularly in the metals and machinery industries, and another 16,000 jobs were lost in oil and gas extraction. In construction, where hiring surged 135,000 in April, employment levelled off in May and retreated 30,000 in June. This pattern apparently reflects the fact that homebuilding strengthened earlier in the season than is usually the case. Elsewhere, service industries posted a particularly large employment increase last month; however, hiring at retail establishments was markedly slower than earlier in the year. The June household survey, which can be affected by sizable seasonal swings in labor force activity, reported a considerably larger over-themonth rise in employment than shown in the payroll survey. The bulk of the 560,000 increase in total employment occurred among adult women, as fewer than usual apparently left the labor force last month. The civilian unemployment rate in June fell back to its April level of 7.1 percent. Compared with April, jobless rates last month were somewhat lower for younger workers (16 to 24 years), but higher for adult men. 1. The industry distribution of the increased strike activity at AT&T and 90,000 in communications and 40,000 each in manufacturing and Alcoa was: wholesale trade. 2 The hourly earnings index for production workers rose 0.4 percent in June, bringing the average increase the second quarter to just 2 percent at an annual rate. Auto Sales Unit sales of domestic autos averaged 8.3 million units (annual rate) in June, about in line with the pace that has prevailed since incentive programs were expanded in late April. CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data) 1984 1985 1985 Q4 -Average Nonfarm payroll employment 2 Strike adjusted 1986 Q2 Q1 Apr. 1986 May June monthly changes- Total employment 3 Nonagricultural 261 260 191 184 112 166 299 296 125 124 -89 79 -18 -16 -2 -4 21 65 122 38 30 13 17 -5 20 55 123 31 -11 -14 3 -16 17 79 98 23 -37 -34 -3 -28 36 25 147 5 -10 -3 -7 -31 134 46 162 12 -45 -37 -8 -33 4 56 115 32 -56 -61 5 -16 -30 -28 164 -28 236 159 191 135 70 251 69 27 -18 24 -13 -22 -1 -34 -30 269 265 Manufacturing Durable Nondurable Mining Construction Trade Finance and services Total government Private nonfarm production workers Manufacturing production workers 230 229 163 183 229 184 e 19 4 295 335 104 167 218 280 563 558 332 334 1 49 e -109 e = estimated; adjusted for the introduction of revised population estimates. 1. Average change from final month of preceding period to final month of period. 2. Survey of establishments. Strike-adjusted data noted. 3. Survey of households. SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data) Q1 Q2 Apr. 1986 May June 7.0 7.1 7.2 7.1 7.3 7.1 18.6 11.0 5.3 5.9 19.0 10.8 5.2 5.5 18.5 10.6 5.3 5.7 19.2 11.1 5.4 5.7 19.6 10.9 5.2 5.8 19.0 11.7 5.4 5.7 19.1 10.7 5.5 5.7 6.5 15.9 6.2 15.1 6.0 15.1 6.1 14.6 6.2 14.9 6.1 14.8 6.2 14.8 6.1 15.1 7.2 6.9 6.7 6.7 6.8 6.7 7.0 6.7 7.4 7.1 6.9 7.0 7.1 7.0 7.2 7.0 1984 1985 1985 Q4 Civilian, 16 years and older 7.5 7.2 Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 18.9 11.5 5.7 6.0 White Black Fulltime workers Memo: Total national1 1. Includes resident Armed Forces as employed. 1986 HOURLY EARNINGS INDEX 1 (Percentage change; based on seasonally adjusted data) 2 1985 1985 1986 Q4 Q3 Q1 Q2 -- Annual rate--Total private nonfarm Manufacturing Durable Nondurable Contract construction Transportation and public utilities Finance, insurance, and real estate Total trade Services 1986 Apr. May June -Monthly rate- 3.0 2.4 3.2 2.7 1.9 -.1 .2 .4 3.3 3.4 3.1 1.4 2.6 2.7 2.3 .5 2.4 2.4 2.5 .8 2.3 2.3 2.2 -2.8 2.6 2.7 2.3 4.2 .1 .2 .0 1.0 .3 .1 .5 .3 .1 .2 .1 .2 3.0 3.4 3.3 2.8 1.2 -.5 .3 .7 4.2 2.0 4.1 2.9 1.7 3.3 6.1 2.8 4.9 8.0 1.8 5.0 4.7 .0 1.7 -.2 -.1 -.5 .4 -.1 .1 1.1 .4 .7 1. Excludes the effect of interindustry shifts in employment and fluctuations in overtime hours in manufacturing. 2. Changes over periods longer than one quarter are measured from final quarter of preceding period to final quarter of period indicated. Quarterly changes are compounded annual rates. 5 ON TARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) M E 1984:Q4 to 1985:94) -11.9 8.6 7.6 1. Ml 2. M2 3. M3 Q1 I Q2pe i 1986 Apr. m 1 May July 3, 1986 Junepe Growth from 4 Q 1985 to June 19 86 pe - Percentage change at annual rates -7.7 4.3 7.4 15-3/4 10-1/4 8-1/4 14.5 13.7 10.7 12-3/4 7-3/4 7-3/4 23.2 12.0 6.8 Levels in billions of dollars May 1986 Selected components 4. Currency 7.5 7.5 6-1/4 3.5 9.6 6 175.8 5. Demand deposits 8.6 3.0 15-1/2 11.0 25.7 15 281.6 22.3 15.0 25-3/4 30.5 32.9 24 195.1 7.6 3.2 8-1/2 13.5 8.4 7 1988.5 18.9 3.6 10.9 -10.8 9.3 9.1 10.9 7.2 27-3/4 5-3/4 19.0 -0.6 5.1 8.7 5.3 4.3 13 -3-1/4 7-1/2 13.7 -0.4 1.3 6.6 14 2-3/4 12.9 5.9 3.7 20.1 1/2 -0.9 -13.7 5.7 5.1 6.8 15.5 18.5 10.0 -2 -9 10-3/4 4.3 -0.4 11.8 -15.4 -23.4 -1.5 11.1 -4.6 -4.9 26.8 44.1 6.2 39-1/4 -8-3/4 5-1/2 6. Other checkable deposits 7. M2 minus M12 8. 9. 10. 11. 14. 15. 16. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 3 plus MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, 3 plus MMDAs, NSA Small time deposits M3 minus M24 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA - MEMORANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds Net due to related foreign 26. institutions, NSA 6 Other 27. -13-3/4 -80 66.3 66.7 -32.3 -17.6 12.5 4.2 27 7 193.4 862.2 15.5 -9.6 6.5 33.5 5.9 21 -10 8 477.4 384.8 878.2 21.4 -4.3 25 -5 371.8 506.4 -1 660.2 446.2 281.4 164.8 76.1 68.4 79.9 32.4 -5.2 -11.9 Average monthly change in billions of dollars -- 7.7 3.4 4.3 0.3 1.0 -7 -2-3/4 -4-1/4 -8.7 -0.8 -7.9 -5.3 -6.6 1.3 -7 -1 -6 472.9 340.3 132.6 2.4 2.0 -1-3/4 -2-1/4 -6.9 -1.0 4.2 -2.9 -3 -3 -22.2 154.8 U.S. government deposits at commercial 21.3 -5 3.9 1.7 1/4 -0.6 0.2 banks 7 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly changes are calculated on an end-month-of-quarter basis. 2. Nontransactions M2 is seasonally adjusted as a whole. growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seay adjusted. Commercial bank savings deposits excluding MMDAs increased during May and June 1986 at rates At thrift institutions, savings deposits excluding MMDAs increased .8 percent and 20 percent, respectively. during May and June 1986 at rates of 31.2 percent and 29 percent, respectively. 4. The non-M2 component of M3 is seasonally adjusted as a whole. 5. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 6. Consists of borrowings 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 borrowings from the Federal Data are partially estimated. Reserve and unaffiliated foreign banks, loan RPs and other minor items). 7. Consists of Treasury demand deposits and note balances at commercial banks. pe-preliminary estimate 28. COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)1 Q1 Q2P 2. Total loans and securities at banks 9.3 2.0 Securities 3.7 --------------- 4.9 5.4 3.7 -1.9 10.4 6.1 458.3 18.2 2.2 274.6 -1.3 11.9 183.7 U.S. government securities -5.3 7.6 2.2 4. Other securities 12.8 0.9 -7.9 11.6 3.4 3.2 Total loans 6. Business loans 4.6 2.1 4.0 7. Security loans 101.7 -64.4 -57.3 8. Real estate loans 13.0 13.0 9. Consumer loans 11.0 6.5 7.3 -1.6 10. JuneP Other loans 1986 Levels in bil. of dollars JuneP 2.0 3. 5. May Commercial Bank Credit ~ 1. 1986 Apr. July 3, 3.9 3.1 1962.8 1504.6 4.7 508.7 -40.1 -106.3 42.2 12.7 15.2 10.8 450.3 6.4 6.8 6.3 304.4 -9.0 1.8 2.4 199.0 -2.6 Short- and Intermediate-Term Business Credit ----11. Business loans net of bankers acceptances 6.0 -16.5 2.2 5.1 2 5.2 5.1 -14.4 12. Loans at foreign branches 13. Sum of lines 11 & 12 14. Commercial paper issued by nonfinancial firms 3 55.5 15. Sums of lines 13 & 14 11.8 16. Bankers acceptances: 4 related ,5 17. 1.0 -21.4 0.1 -8.9 3.1 -3.8 3.6 503.5 -12.8 -19.5 -33.0 17.7 2.5 -4.4 2.1 521.1 17.5 83.6 -40.7 -2.9 4.2 604.7 -1.1 -3.4 -4.2 -6.2 n.a. 3.8 18.8 n.a. 32.5 (May 9.5 1.8 n.a. -3.0 -3.4 n.a. 635.1 (May) 19.2 16.4 n.a. 11.5 n.a. n.a. 158.5 (Apr) 11.3 4.6 n.a. -0.3 n.a. n.a. 795.2 (A.r) 2.2 U.S. trade -30.8 Line 15 plus bankers acceptances: U.S. trade related 18. Finance company loans to business 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 4 n.a.-not available. p-preliminary 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Average of Wednesdays. Based on average of current and preceding ends of month. Consists of acceptances that finance U.S. imports, U.S. exports and domestic shipment and storage of goods. e: Data in this table have been revised since the last reenbook, reflecting benchmark and seasonal factor revisions in the bsnk credit series. 03-Jul-86 SELECTED FINANCIAL MARKET QUOTATIONS (percent) 1/ II I I I 1984 1985 1986 1986 flghs High April Lows FOMC May20 July 2 Change from: April FOMC May 20 Short-term rates 11.63 8.58 6.95 6.84 6.94 -0.01 0.10 10.67 10.77 11.13 8.80 9.13 9.25 5.77 5.81 6.23 6.23 0.23 5.79 6.33 6.00 5.95 0.14 0.21 -0.23 -0.31 -0.33 11.42 11.35 8.94 9.12 6.42 6.30 6.78 6.72 6.71 6.54 0.29 0.24 -. -0.18 11.52 11.79 12.30 8.89 9.29 9.92 6.51 6.39 6.35 6.82 6.82 6.83 6.66 6.52 6.51 0.15 0.13 0.16 -0.16 -0.30 -0.32 11.89 12.20 8.89 9.58 6.59 6.55 6.86 6.79 6.91 6.76 0.32 0.21 0.05 -0.03 13.T 10.50 8.50 8.50 8.50 - 10.74 5.16 5.27 6.19 6.10 5.61 5.59 0.45 0.32 -0.58 -0.51 11.22 12.02 11.97 6.1 6.2 7. 4 7.46 7.88 7.58 7.02 7.37 7.22 0.53 0.39 0.08 -0.44 -0.51 11.44 10.25 7.55 7.91 7.90 0.35 -0.01 Corporate-A utility 6/ Recently offered 15.30 13.23 9.15 9.52 9.58 0.43 0.06 Home mortgage rates 6/ S&L fixed-rate S&L ARM, 1-yr. 14.68 12.31 13.29 11.14 9.60 8.41 10.08 8.57 10.62 8.54 1.02 0.13 0.54 -0.03 Federal funds 2/ Treasury bills 3/ 1-year Commercial paper 1-month 3-month Large negotiable CDs 3/ .00 Eurdollar deposits 4/ 1-month 3-month Bank prime rate - Teasury bill futures Sept 1986 contract Dec 1986 contract Intermediate- and long-term rates U.S. Treasury (constant maturity) 13.49 3-year 10-year 13. 30-year 13.9 Municipal revenue 5/ (Bond Buyer index) 1984 1985 Los March Los 1986 Aril 1986 EoC May 20 -0.36 Percent harge from July 2 April PCM ay 20 Highs II Dowlnes Indrstrial VE Composite XC csite (HTC 1/ 1086.57 1247.35 15.90 85.13 102.46 141.0 187.16 222.28 274.59 225.30 276.18 392.34 1783.98 136.06 274.16 1909.03 385.28 -day quotes except as noted. 2/ Averages for two-wek reserve amintenanoe period closest to date shown. Last observaticn is the average to date fbr the naintenanoe period endirg July 2, 1986. 3/ Seooncary narkiet. 14.15 2.79 409.48 2.86 2.89 3.71 4.37 .01 6.68 3.88 6.28 4/ Averages for statement closest to date shown. Friday quotes. e-esti ate
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