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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 II FOMC March 17, 2000 CURRENT ECONOMIC AND FINANCIAL CONDITIONS Supplemental Notes Prepared for the Federal Open Market Committee by the staff of the Board of Governors of the Federal Reserve System Contents 1 Domestic Nonfinancial Developments .......................... Housing Markets ................................. ............ . Prices ................. Consumer Sentiment ................................... Labor Settlement at Boeing .................... .. 1 .... . ....... . 1 7 .9 ...... Tables Private Housing Activity ................................ CPI and PPI Inflation Rates ............................ University of Michigan Survey Research Center: Survey of Consumer Attitudes .......................... Prices of U.S. Imports and Exports ....................... .......... U.S. Current Account ..................... Summary of U.S. International Transactions ................ 2 5 8 . 11 . 13 15 Charts Indicators of Housing Supply, Home Prices, and Housing ................ ........ ... Demand ........... Measures of Core Consumer Price Inflation ................. U.S. International Transactions ............................. Prices of Internationally Traded Goods .................... ... ..... ...... U.S. Current Account ................ .................. Transactions Financial U.S. International 3 6 10 10 . 12 13 16 The Financial Economy .................................... Tables Selected Financial Market Quotations ................... . 16 Supplemental Notes The Domestic Nonfinancial Economy Housing Markets Total private housing starts rose 1-1/4 percent last month to an annual rate of 1.78 million units. The continuing overall strength of residential construction activity was the result of a sharp--but likely temporary--surge in multifamily starts that offset a decline in single-family starts. At the regional level in February, total starts jumped 21 percent in both the Northeast and Midwest; the surprisingly strong reading in the Midwest was the highest since late 1978. Starts rose 1-1/4 percent in the West and declined 11-1/4 percent in the South. The extent to which favorable weather may have given some support to construction in February is not clear. The sizable increases in starts in the Northeast and Midwest coincided with above-normal temperatures. However, unusually good weather should boost single-family as well as multifamily starts, and the strength was confined to the latter category. In addition, weather conditions in the South, the only region where starts declined, were even better in comparison to historical norms than in the other regions.1 In the single-family sector at the national level, starts declined nearly 4 percent to an annual rate of 1.31 million units in February from a January estimate that was revised down almost 2-1/2 percent to 1.36 million units. Permits for new single-family houses turned down noticeably in February, more than retracing January's increase. The ratio of starts to permits was close to its long-term average, implying that the starts estimate likely does not understate the underlying level of construction activity. Multifamily housing starts jumped 19 percent to an annual rate of 471,000 units in February--the highest level since January 1989. However, permits dropped sharply, and the ratio of starts to permits in the multifamily sector was 2-1/2 standard deviations above its mean, which strongly suggests that starts will retreat to a more moderate level. Prices The consumer price index jumped 0.5 percent in February reflecting a 4-1/2 percent surge in energy prices. Over the past twelve months, the CPI rose 3.2 percent, compared with a 1.6 percent increase over the preceding twelve- 1. Some evidence suggests that unusual weather has a more noticeable effect on housing starts in the South, where winter weather conditions are marginal for construction, than in areas such as the Northeast and upper Midwest where conditions typically are unfavorable even if the weather is somewhat better than normal. -2- Private Housing Activity (Millions of units; seasonally adjusted annual rate) 1999 Q2 1999 Q3 Q4 r Dec.r 2000 Jan.r Feb.P All units Starts Permits 1.67 1.64 1.59 1.60 1.66 1.59 1.69 1.61 1.77 1.62 1.76 1.77 1.78 1.63 Single-family units Starts Permits Adjusted permits 1 1.33 1.23 1.32 1.30 1.23 1.32 1.31 1.21 1.30 1.38 1.20 1.30 1.44 1.23 1.35 1.36 1.32 1.38 1.31 1.22 1.29 New home sales Existing home sales .91 5.20 .93 5.29 .90 5.25 .90 5.06 .92 5.14 .88 4.59 n.a. n.a. Multifamily units Starts Permits .33 .41 .30 .37 .36 .38 .31 .41 .33 .39 .40 .45 .47 .41 Mobile homes Shipments .35 .36 .33 .31 .30 .31 n.a. Note. p Preliminary. r Revised. n.a. Not available. 1. Adjusted permits equals permit issuance plus total starts outside of permit-issuing areas, minus a correction for those starts in permit-issuing places that lack a permit. Total Private Building (Seasonally adjusted annual rate) Millions of units P . r • Ti ui 11 ii \ X' It \ '. I /| . -,w I - *** 1976 1978 1980 t Feb. "t . .Ir//':" '. j: * *1 .. ",'"**'.', ,. . . .*, 1 j.- ; IA ' " Feb. ','' " Multifamily 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Indicators of Housing Supply, Home Prices, and Housing Demand Supply of Existing Homes Existing Home Prices Months Percent 8 4-quarter change 7 6 5 4 3 2 1 0 Note. Ratio of inventory, seasonally adjusted by Board staff, to sales, seasonally adjusted by the National Association of Realtors. New Home Prices Note. Not seasonally adjusted. Builders' Rating of New Home Sales Percent Diffusion index 8 4-quarter change 80 6 60 Mar. Q4 40 20 2 I 1995 I 1996 , . . , . . 1998 1997 I 0 1999 1995 Note. Not seasonally adjusted. 1996 I- 1997 -- 1998 I 1999 2000 '-20 Note. Calculated from National Association of Homebuilders' data as the proportion of respondents rating current sales as good minus the proportion rating them as poor. Seasonally adjusted by Board staff. Perceived Homebuying Conditions MBA Index of Purchase Applications Index -week moving average Diffusion index 90 350 80 300 Mar. 10 70 250 60 50 200 Mar. 40 150 30 I Note. Seasonally adjusted by Board staff. 100 S20 Source. Michigan Survey, not seasonally adjusted. month period; faster energy price inflation more than accounts for this acceleration in the total CPI. Excluding food and energy, the CPI rose 0.2 percent in February and was up 2.1 percent over the past twelve months, the same as the increase over the preceding period. On a current-methods basis, the twelve-month change in the core CPI has increased 0.2 percentage point over the past year; excluding tobacco as well as food and energy items, the acceleration over the past year is 0.4 percentage point. Among energy items, consumer motor fuel prices jumped 6 percent in February, and heating fuel prices surged 28 percent--by far the largest monthly increase on record. In fact, that increase seems to be an aberration; it is out of line with movements in wholesale prices, and we expect some fallback in consumer heating fuel prices in March. However, for motor fuel, survey data for the first half of March point to further large price increases this month. Consumer prices of natural gas also rose notably in February, in part reflecting substitution away from petroleum-based fuels, and electricity prices were up last month as well. In all, the CPI for energy increased nearly 20 percent over the past twelve months. Food prices rose 0.4 percent in February, reflecting larger than usual increases in the meats, poultry, fish, and eggs category, as well as higher prices for fruits and vegetables. Overall food prices have increased 1-3/4 percent over the past twelve months, not much different from the rise in the core index. Prices of commodities excluding food and energy were unchanged in February. New car and truck prices edged down further last month; with the expiration of the General Motors coupon incentives at the end of February, some uptick in these prices may be expected in March. Over the past year, new vehicle prices have fallen 1/2 percentage point. In addition, computer prices declined at a more-typical 2.8 percent rate in February after two months of unusually firm prices. (A similar result was evident in the PPI for computers in February.) However, consumer tobacco prices rose 2 percent last month, reflecting the remainder of the mid-January wholesale cigarette price increase. And, prices of apparel items moved up 0.2 percent last month after a sizable decline in January that may have been exaggerated by seasonal adjustment difficulties. Overall, prices of core commodities have increased 0.3 percent over the past twelve months--a 1/2 percentage point deceleration from its year-earlier increase that is more than explained by a sharp deceleration in tobacco prices over this period. Prices of non-energy services rose 0.3 percent in February, the same as the average increase over the preceding three months. Owners' equivalent rent rose another 0.3 percent last month, continuing its string of larger monthly gains following unusually small increases through much of last year. Elsewhere, prices in the erratic airfares category jumped 3.8 percent in February; airlines' -5- CPI AND PPI INFLATION RATES (Percent) From 12 months earlier Feb. 1999 Feb. 2000 1999 Q3 2000 Q4 -Annual rate- Jan. Feb. -Monthly rate- CPI All items (100.0) 1 Food (15.3) Energy (7.0) CPI less food and energy (77.7) Commodities (23.4) New vehicles (4.8) Used cars and trucks Apparel (4.7) Tobacco (1.3) Other Commodities (1.9) (10.7) Services (54.3) shelter (29.9) Medical care (4.5) Other services (20.0) 1.6 3.2 2.4 2.9 .2 .5 2.4 -5.7 2.1 1.8 19.9 2.1 1.8 12.7 2.1 2.7 10.7 2.3 -. 1 1.0 .2 .4 4.6 .2 .7 .3 .6 1.5 -. 2 .0 -.4 -. 1 -1.7 33.5 -.6 3.2 -.4 9.8 -. 1 12.1 -3.5 16.9 .5 5.0 3.5 12.5 -.3 -.7 -1.1 1.6 -.1 -.6 .2 2.1 -. 3 -. 4 -. 7 -. 7 .1 2.8 2.8 2.3 2.7 .3 .3 3.0 3.4 2.3 2.8 3.7 2.7 2.5 3.5 1.9 2.3 3.4 3.3 .3 .3 .3 .3 .5 .2 .5 4.0 4.0 3.7 .0 1.0 .4 -7.6 1.3 24.7 2.3 24.9 1.1 14.1 .1 .7 .4 5.2 2.2 1.0 .8 2.5 -.2 .3 3.6 .1 1.5 .3 1.7 -.5 3.4 1.4 -.4 .1 .5 .0 -2.7 5.3 6.0 4.3 .4 .8 -1.8 2.7 3.8 2.3 .3 .2 -11.9 26.1 32.7 16.2 2.7 4.2 -6.6 -18.0 -13.1 -.6 73.8 15.4 -2.2 96.2 18.3 8.8 19.7 25.1 .7 4.4 3.2 .7 10.0 -.2 -. 2 PPI Finished goods (100.0) 2 Finished consumer foods (22.9) Finished energy (13.8) Finished goods less food and energy (63.3) Consumer goods (38.9) Capital equipment (24.4) Intermediate materials (100.0) 3 Intermediate materials less food and energy (81.6) Crude materials (100.0) 4 Crude food materials (38.8) Crude energy (39.4) Crude materials less food and energy (21.8) 1. 2. 3. 4. Relative Relative Relative Relative importance importance importance importance weight weight weight weight for for for for CPI, December 1999. PPI, December 1999. intermediate materials, December 1999. crude materials, December 1999. Measures of Core Consumer Price Inflation (12-month change except as noted) CPI Excluding Food and Energy Percent %V%i1* 1 A 6 i 6 1 3-month change ILr 4 . t I I I 1993 1992 1995 1994 1996 1997 1998 jn 2000 2000 1999 CPI Services and Commodities Percent services ex. energy SCPI - - - - r--. ,- % Feb. ' - - 3 -I 1992 CPI and PCE Excluding Food and Energy Percent CPI C IFeb. n.t-ethods CPI _ '- PCE price index . 1992 I .,I 1993 1994 1995 - ' - - N' -/ I 1996 1997 1998 1999 '- Jan. J0 2000 -7attempts to add fuel surcharges to ticket prices, which has met with only partial success, may explain part of last month's increase. Overall, the CPI for nonenergy services increased 2.8 percent over the past year, the same as its yearearlier increase. At earlier stages of processing, the PPI for intermediate materials excluding food and energy rose another 0.2 percent in February. The increase in recent months has been most pronounced in a variety of petroleum-related materials, including chemicals and plastics, as well as in metals. Over the past twelve months, this index has risen 2-3/4 percent, more than reversing the decline registered in the preceding year. However, the PPI for core crude prices edged down last month after having jumped more than 3 percent in January; the rise over the past year still is more than 15 percent reflecting sizable price increases for several metals. The energy price increases appear to be showing through more noticeably to expectations of inflation. According to the preliminary Michigan survey, median one-year-ahead inflation expectations moved up to 3.2 percent in early March, from an average of 2.9 to 3 percent over the preceding few months. Median five- to ten-year ahead expectations ticked up early this month as well, to 3.1 percent. Consumer Sentiment According to the preliminary report, the Michigan Survey Research Center index of consumer sentiment fell about 3-1/2 points in early March. While the overall index has retreated from the historical high level posted in January, it remains above the highly favorable level recorded, on average, over last year. Compared with February, respondents reported improved views of their current financial situations early this month, but were a bit less optimistic about their finances looking ahead twelve months. Expectations of business conditions for this year and over the next five years moved down significantly relative to last month. Also, consumers lowered their appraisals of buying conditions for large household appliances in early March. Among those questions not in the overall index, assessments of current buying conditions for homes and cars were not as favorable as last month. According to the early-March results, current buying conditions for cars were at their lowest level in more than two years, as consumers' views of price discounting fell sharply. After having recorded very low values since December, the index of unemployment change moved up in early March, but was still in the middle of the favorable range posted over 1999. March 17, 2000 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1999 July 1999 Aug. 1999 Sept. 1999 Oct. 1999 Nov. 1999 Dec. 2000 Jan. 2000 Feb. 2000 Mar (p) 106.0 116.5 99.2 104.5 114.1 98.4 107.2 115.9 101.5 103.2 112.7 97.1 107.2 116.8 101.0 105.4 112.2 101.1 112.0 117.3 108.6 111.3 116.8 107.8 107.7 115.7 102.6 Personal financial situation Now compared with 12 months ago* Expected in 12 months* 132 135 132 139 132 135 127 133 138 138 133 132 135 141 132 138 135 135 Expected business conditions Next 12 months* Next 5 years* 147 118 140 118 150 124 140 118 146 123 150 125 165 133 161 136 151 127 Appraisal of buying conditions Cars Large household appliances* Houses 153 171 167 148 165 153 145 169 149 146 166 149 148 166 156 141 158 154 144 169 152 153 172 153 135 166 146 49 73 50 65 47 62 48 59 50 68 50 70 51 85 48 75 54 71 109 113 110 112 111 105 104 106 111 24 21 20 20 21 19 19 21 21 Expected inflation - next 12 months Mean Median 3.0 2.7 3.2 2.8 3.2 2.7 3.5 2.9 3.3 2.9 3.6 3.0 3.5 3.0 3.5 2.9 3.9 3.2 Expected inflation - next 5 to 10 years Mean Median 3.3 2.9 3.3 2.8 3.5 2.9 3.2 2.8 3.5 2.9 3.2 2.9 3.5 3.0 3.3 2.9 3.8 3.1 Indexes of consumer sentiment (Feb. 1966=100) Composite of current and expected conditions Current conditions Expected conditions Willingness to use credit Willingness to use savings Expected unemployment change - next 12 months Prob. household will lose a job - next 5 years * -- Indicates the question is one of the five equally-weighted components of the index of sentiment. (p) -- Preliminary (f) -- Final Note: Figures on financial, business, and buying conditions are the percent reporting 'good times' (or 'better') minus the percent reporting 'bad times' (or 'worse'), plus 100. Expected change in unemployment is the fraction expecting unemployment to rise minus the fraction expecting unemployment to fall, plus 100. Labor Settlement at Boeing Boeing announced earlier today that the company had reached a tentative contract agreement with its striking engineers, which would end the strike which began February 9. The union workers are expected to vote on Sunday and, according to the company, could be back to work as early as Monday. The proposed contract looks favorable to the union on the three key issues in the strike: guaranteed annual wage increases, bonuses, and health insurance provisions regarding copayments/deductibles and employee contributions to premiums. According to the terms of the agreement (as provided by the union), professional workers will receive wage increases totaling 8 percent in the first year and 4-1/2 percent in the second and third years, of which 3 percent per year is guaranteed and the rest is allocated for merit increases, skills improvement, and promotions. Technical workers are slotted to receive wage increases of 5-1/2 percent in the first year and 4-1/2 percent in years two and three, with guaranteed wage increases of 4 percent in the first year and three percent in the other years. Although the total wage increases are only about 1/2 percentage point per year higher than Boeing's initial offer, Boeing had not initially offered any guaranteed wage increases to the professional workers and much more modest increases for the technical workers. In addition, both professional and technical workers will receive $2,500 bonuses, with the first $1000 guaranteed and the remainder tied to aircraft delivery goals that seem quite attainable. The agreement also leaves the basic health and disability benefit packages essentially unchanged from the previous contract. Specifically, the workers will not face monthly premiums for health insurance, their deductibles or copayments for medical costs as well as the nature of the disability and pension plans will not be changed--although pension benefits will increase. U.S. International Transactions Prices of Internationally Traded Goods Non-oil imports and exports. Prices of imported non-oil goods rose in February following a small decline in January Most of the increase was in industrial supplies, particularly metals. For January-February combined, prices of non-oil imports rose at an annual rate of 3/4 percent, a smaller increase than in the fourth quarter of last year. Prices of imported computers and semiconductors declined in January-February at rates similar to those recorded in the fourth quarter. Prices of core goods (which exclude oil, computers, and semiconductors) rose less in January-February than in the fourth quarter as prices of imported machinery swung back to a decline (as did prices of consumer goods) and prices of industrial supplies and foods rose a bit less rapidly than previously. Oil. The price of imported oil (BLS) jumped sharply in February following a much smaller increase in January. For January-February combined, the price of oil imports rose at an annual rate of 83 percent, about the same rate as in the fourth quarter Oil prices have continued to rise since February, with spot West Texas intermediate breaking through $34 per barrel on March 7 to set a new post-Gulf War high. Spot WTI is currently trading around $31 per barrel. Prices of total goods exports rose strongly in February, following a small increase (revised) in January, with most of the rise in agricultural products and industrial supplies. For January-February combined, prices of exports rose at an annual rate of 2 percent, a little less than the increase recorded by BLS for the fourth quarter of last year. The price index for agricultural exports in JanuaryFebruary averaged about the same as in the fourth quarter. Prices of exported core goods rose at an annual rate of 3 percent, nearly as fast as in the fourth quarter. While much of the rise was in industrial supplies, prices of exported machinery and consumer goods also posted moderate increases. IMPLICATIONS FOR THE GREENBOOK FORECAST For imports, data for February matched what we had estimated for prices of imported core goods and suggest that no revisions are necessary to the staff projection of import prices in 2000:Q1 (prices of imported core goods are projected to rise 1-3/4 percent AR). For exports, the smaller rise in prices in January-February than in the fourth quarter of last year reported in the BLS data is consistent with the direction we anticipated for Q1 export prices in the Greenbook. The magnitude of export price increases reported in NIPA figures is smaller than shown in BLS data for both 1999:Q4 and (we project) for 2000:Q1. Prices of U.S. Imports and Exports (Percentage change from previous period) Annual rates 1999 2000 Q3 Q4 Q1e Merchandise imports Oil Non-oil Core goods* Foods, feeds, beverages Industrial supplies ex oil Computers Semiconductors Cap. goods ex comp & semi Automotive products Consumer goods Merchandise exports Agricultural Nonagricultural Core goods* Industrial supples ex ag Computers Semiconductors Cap. goods ex comp & semi Automotive products Consumer goods Chain price index Imports of goods & services Non-oil merchandise Core goods* Monthly rates 1999 2000 Dec. Jan. Feb. ---------- BLS prices (1995 weights)---------9.0 8.2 8.0 0.6 0.3 1.9 178.2 83.8 83.3 6.5 3.0 13.9 -0.1 1.9 0.8 0.0 -0.1 0.3 1.0 2.5 1.0 0.0 -0.1 0.4 -6.8 7.9 -13.7 -7.4 -2.1 0.8 -0.4 2.6 9.9 -1.0 1.6 0.3 0.5 0.1 0.7 5.1 -0.6 -2.9 -1.5 0.6 -0.I 1.9 -0.1 0.5 -0.3 -0.3 0.0 -0.1 -1.3 0.1 . -0.2 0.0 -0.1 0.1 0.0 -0.6 1.4 -0.5 -0.2 0.0 0.1 0.0 0.7 -4.2 1.1 1.6 2.6 -1.7 3.1 4.1 1.8 -0.3 2.2 3.1 0.0 -0.7 0.1 0.0 0.1 0.2 0.1 0.3 0.5 1.0 0.5 0.6 10.1 -8.6 -9.6 -0.5 0.8 0.3 10.6 -2.0 -3.8 0.5 2.6 1.3 8.6 -1.8 -4.6 0.9 -0.2 0.9 0.7 -0.4 -0.9 -0.2 -0.1 0.2 0.5 0.0 -0.4 0.2 0.0 0.0 1.6 -0.3 -0.1 0.2 0.1 0.2 ---Prices 6.2 -0.7 1.1 in the NIPA accounts (1996 weights)--4.6 n.a. 0.8 n.a. 1.2 n.a. 1.3 Exports of goods & services Nonag merchandise 1.0 2.5 Core goods* */ Excludes computers and semiconductors. e/ Average of two months. n.a. Not available. ... Not applicable. 2.6 2.8 2.9 n.a. n.a. n.a. Oil Prices Dollars per barrel Spot West Texas Intermediate U.S. Current Account In the fourth quarter of 1999, the U.S. current account deficit rose to $399 billion at a seasonally adjusted annual rate, an increase of $43 billion over the third quarter (revised). Nearly half of the widening of the deficit in the fourth quarter was from a jump in net payments of income on investments. While income receipts from U.S. direct investments abroad rose a bit, there was an extraordinary surge in income payments to foreigners on their direct investments in the United States (reflecting in part the robust U.S. profits picture). In addition, the sharp rise in income payments on foreign portfolio investments in the United States exceeded the increase in income receipts on U.S. portfolio investments abroad (both reflected increased capital flows and a rising rate of return). About one-fourth of the rise in the current account deficit in Q4 was from trade in goods and services. Although the global expansion has fueled increasing demand for U.S. exports, the U.S. appetite for imports has remained stronger. The jump in "other net income and unilateral transfers" by $11 billion at an annual rate largely reflected year-end government grants to Israel. For the year 1999, the current account deficit was $339 billion compared with $221 billion in 1998. Most of the $118 billion widening in the deficit was from trade in goods and services, particularly from the strong steady growth of merchandise imports. Most of the pick-up in exports occurred in the second half of the year. IMPLICATIONS FOR THE GREENBOOK FORECAST. The current account deficit was $10 billion SAAR larger in 1999:Q4 than anticipated in the March Greenbook. Net trade in goods and services was $11 billion SAAR stronger (smaller deficit, all services), and payments of net investment income were $21 billion SAAR larger than projected. These data suggest that NIPA real net exports will be $7-1/2 (SAAR) stronger (smaller deficit than in the preliminary NIPA press release. Exports will be $2-3/4 billion (SAAR) higher, and imports will be $4-3/4 billion lower. A preliminary assessment suggests that not all of the fourth-quarter jump in income payments on foreign direct investments in the United States will be sustained in the current quarter, but that other elements of the current account will grow at rates projected in the March Greenbook from the new fourth quarter levels. Thus, for the current quarter and over the forecast period, a higher level of net receipts from service transactions is just about offset by a higher level of U.S. Current Account (Billions of dollars, seasonally adjusted annual rate) Period Goods and services, net Investment income, net Other income and transfers, net Current account balance Annual 1998 1999 -164.3 -267.5 -7.0 -19.2 49.3 -52.2 -220.6 -338.9 Quarterly 1999:Q 1 Q2 Q3 Q4 -216.7 -261.2 -290.4 -302.0 -12.1 -13.2 -15.5 -35.9 46.8 -50.2 -50.4 -61.3 -275.6 -324.6 -356.3 -399.1 -43.7 -44.5 -29.2 -11.6 2.2 -1.1 -2.3 -20.3 12.6 -3.4 -0.2 -10.9 -28.9 -49.0 -31.7 -42.8 Change Q1-Q4 Q2-Q1 Q3-Q2 Q4-Q3 Source: U.S. Department of Commerce. Bureau of Economic Analysis. net investment income payments, which leaves the projected current account deficit for 2000 and 2001 very close to what it was in the March Greenbook. U.S. International Financial Transactions Quarterly balance of payments data (released Wednesday) indicate continued large direct investment capital flows both into and out of the United States. In the third quarter of last year foreign direct investment into the United States (line 7 on the Summary of U.S. International Transactions table) totaled $61 billion$16 billion higher than previously reported. Preliminary data for the fourth quarter record an inflow of $44 billion. As has been the case for the past few years, direct investment into the United States was buoyed by foreign takeovers of U.S. firms. And, as has been the case for the past two years, a significant part of the direct investment inflow was effected by swapping shares in the acquired firm for shares in the acquiring firm. BEA estimates that U.S. residents acquired $26 billion in foreign equity through stock swaps in the third quarter (revised from $19 billion) and acquired $10 billion though this mechanism in the fourth quarter. (Stock swaps are included in line 9 of the Summary table.) As shown in line 6, U.S. direct investment abroad remained robust in the fourth quarter ($31 billion). As with the direct investment inflows, merger activity contributed significantly. -14The statistical discrepancy in the international accounts (the last line in the table) was a positive $10 billion in the fourth quarter. This represents the sum of all errors and omissions in the international accounts and a positive number indicates some combination of under reporting of net capital inflows or over reporting of the current account deficit. The discrepancy in the third quarter was negative $5 billion (revised from negative $16 billion). Summary of U.S. International Transactions (Billions of dollars, not seasonally adjusted except as noted) 1998 1999 Ql Q2 1999 1999 Q3 Q4 Dec 2000 2000 Jan -48.1 47.3 Official capital I. Change in foreign official assets in U.S. (increase,+) a. G-10countries b. OPEC countries c. All other countries 2. Change in U.S. official reserve assets (decrease, +) -16.6 46.0 * 13.0 6.9 49.7 7.6 19.2 -9.0 1.7 2.5 -1.3 -14.4 -5.4 -10.2 -5.0 -6.8 8.6 1.2 1.9 57.3 5.9 6.0 19.0 -21.5 2.4 275.2 320.8 55.8 83.5 105.7 75.7 49.3 -19.8 -7.3 -5.2 9.8 -17.1 Private capital Banks 3. Change in net foreign positions of banking offices in the U.S.' Securities 2 4. Foreign net purchases of U.S. securities (+) a. Treasury securities 3 b. Agency bonds c. Corporate and municipal bonds d. Corporate stocks 5. U.S. net purchases (-) of foreign securities 73.8 18.1 17.1 21.2 17.5 121.7 50.5 158.6 34.8 33.8 49.5 40.4 53.7 108.2 10.2 37.9 25.2 35.0 10.0 7.3 17.4 -10.8 -3.9 -11.1 a. Bonds 17.4 -5.7 -.8 3.2 -10.1 2.0 b. Stocks 4 6.2 15.6 8.1 14.2 -.8 -5.9 6. U.S. direct investrrent (-) abroad -132.8 -152.2 -41.6 -31.8 -47.4 -31.3 7. Foreign direct investment in U.S. 193.4 282.5 23.1 154.5 60.8 Other flows (quarterly data, s.a.) 8. Foreign holdings of U.S. currency 9. Other(inflow, + )fU.S. current account balance (s.a.) Statistical discrepancy (s.a) 44. 1 16.6 22.4 -164.7 -166.0 11.0 -127.3 11.9 -37.9 -220.6 -338.9 -68.9 -81.2 -89.1 -99.8 10.1 -39.1 -4.8 -38.4 5.4 9.6 2.4 3. 1 4.7 12.2 NOTE. The sum of official capital, private capital. the current account balance, and the statistical discrepancy is zero. 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 excludes securities acquired through exchange of equities: therefore does not match exactly the data on U.S. international transactions published by the Department of Commerce. 3. Includes Treasury bills. 4. Quarterly balance of payments data include large U.S. acquisitions of foreign equities associated with foreign takeovers of U.S. firms. These are not included in line 5.bbutare included in line 9. 5. 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. n.a. Not available. - Not applicable. * Less than 550 million. -16- Selected Financial Market Quotations (One-day quotes in percent except as noted) 1999 Change to Mar. 16 from selected dates (percentage points) 2000 Instrument FOMC* 1999 1999 FOMC* June 29 Dec. 31 Feb. 2 Mar. 16 June 29 Dec. 31 Feb. 2 Short-term FOMC intended federal funds rate 4.75 5.50 5.50 5.75 1.00 .25 .25 Treasury bills 1 3-month 6-month 1-year 4.70 4.92 4.89 5.17 5.49 5.63 5.54 5.69 5.92 5.70 5.85 5.84 1.00 .93 .95 .53 .36 .21 .16 .16 -.08 Commercial paper 1-month 3-month 5.18 5.12 5.13 5.75 5.79 5.84 5.95 6.03 .77 .91 .82 .28 .16 .19 Large negotiable CDs I 1-month 3-month 6-month 5.21 5.32 5.43 5.72 5.90 6.08 5.86 6.01 6.24 6.03 6.14 6.35 .82 .82 .92 .31 .24 .27 .17 .13 .11 Eurodollar deposits 2 1-month 3-month 5.13 5.25 5.69 5.88 5.84 6.03 6.00 6.13 .87 .88 .31 .25 .16 .10 Bank prime rate 7.75 8.50 8.50 8.75 1.00 .25 .25 Intermediate- and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year 5.68 5.93 6.07 6.24 6.45 6.48 6.60 6.62 6.43 6.50 6.26 6.05 .82 .33 -.02 .26 -.19 -.43 -.10 -.36 -.38 U.S. Treasury 10-year indexed note 4.01 4.33 4.30 4.17 .16 -. 16 -.13 Municipal revenue (Bond Buyer) 3 5.62 6.23 6.34 6.16 .54 -.07 -.18 Corporate bonds, Moody's seasoned Baa 8.05 8.18 8.27 8.42 37 .24 .15 10.74 11.12 11.50 11.77 1.03 .65 .27 7.63 5.93 8.06 6.56 8.25 6.65 8.23 6.68 .60 .75 .17 .12 -.02 .03 High-yield corporate 4 Home mortgages (FHLMC survey rate) 5 30-year fixed 1-year adjustable Record high 1999 Level Date Dec. 31 FOMC* Feb. 2 Mar. 16 11,723 1,469 5,049 606 14,202 1-14-00 12-31-99 3-10-00 3-9-00 3-16-00 11,497 1,469 4,069 505 13,813 11,041 1,409 4,052 504 13,393 10,631 1,458 4,717 574 14,202 Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 1. 2. 3. 4. 5. * Change to Mar. 16 from selected dates (percent) 2000 Record high -9.32 -.73 -6.56 -5.26 .00 Dec. 31 FOMC* Feb. 2 -7.54 -.73 15.93 13.77 2.82 -3.72 3.49 1642 13.99 6.04 Secondary market. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. Most recent Thursday quote. Merrill Lynch Master II high-yield bond index composite. For week ending Friday previous to date shown. Data are as of the close on February 1, 2000. BA:DAM
@FedFRASER