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Prefatory Note The attached document represents the most complete and accurate version available based on original files from the FOMC Secretariat at the Board of Governors of the Federal Reserve System. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. Content last modified 02/09/2012. Confidential (FR) Class III FOMC March 24, 2006 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 The Domestic Nonfinancial Economy ........................................................ 1 Sales and Prices of New and Existing Homes .................................1 Equipment Spending........................................................................1 Tables Private Housing Activity..................................................................2 Orders and Shipments of Nondefense Capital Goods......................5 Charts Private Housing Starts and Permits..................................................2 Indicators of Single-Family Housing...............................................3 Computers and Peripherals ..............................................................5 Communications Equipment............................................................5 Medium and Heavy Trucks..............................................................5 Non-high-tech, Non-trans. Equipment.............................................5 The Domestic Financial Economy ...........................................................6 Tables Commercial Bank Credit .................................................................6 Selected Financial Market Quotations .............................................7 Supplemental Notes The Domestic Nonfinancial Economy Sales and Prices of New and Existing Homes Sales of new homes fell 11 percent in February to an annual rate of 1.08 million units; the sharp drop suggests that residential construction will decline in the coming months. The stock of new homes for sale increased in February, and it represented 6.3 months of sales at February’s unusually depressed pace of sales. The months’ supply of new homes has been trending upward since October 2004 and is now at a level not seen since the end of 1995. At the same time, sales of existing homes turned up in February for the first time since last August. Total sales rose 5.2 percent to an annual rate of 6.9 million units; sales of single-family homes increased 4.7 percent while sales of condos and co-ops were up 8.8 percent. The inventory of homes for sale ticked down in February, but the months’ supply of homes at February’s sales pace remained elevated compared with its range of recent years. The average sales price of new homes was about 3 percent higher in February than it was a year earlier, and the median price of new homes in February was 3 percent lower than a year earlier. The Census Bureau began phasing in a new sampling frame in January 2005, and the sales prices of homes in the current sample may not be comparable to the previous sample. Because the sample of homes sold in 2005 contained a mixture of homes drawn from both the old and new sampling frames, the year-to-year changes in the prices of new homes sold should be interpreted with caution. That said, staff estimates of the magnitude of the bias suggest that new home prices have been decelerating in recent months. The median sales price of existing homes sold was up 10.6 percent in February from a year earlier. The median price of single-family homes climbed 11.7 percent. Although the rate of increase of single-family home prices remained robust, the percent change over the twelve months ending in February was smaller than the twelve-month changes of the summer and fall. The median price of condos and co-ops rose 3.5 percent from a year earlier, continuing a marked deceleration that began in the spring of 2005. Equipment Spending New orders for nondefense capital goods excluding aircraft fell 2¼ percent in February after having ticked up in January. Orders for non-high-tech equipment plunged -1- -2- Private Housing Activity (Millions of units, seasonally adjusted; annual rate except as noted) 2005 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 2006 2005 Q2 Q3 Q4 Dec. Jan. Feb. 2.07 2.15 2.04 2.11 2.10 2.18 2.06 2.11 1.99 2.08 2.30 2.22 2.12 2.18 1.72 1.68 1.69 .17 1.69 1.64 1.67 .16 1.75 1.71 1.74 .17 1.72 1.69 1.72 .17 1.61 1.65 1.67 .17 1.84 1.69 1.71 .17 1.80 1.66 1.67 .16 1.28 4.45 1.29 4.30 1.30 4.50 1.29 4.70 1.28 4.80 1.21 5.30 1.08 6.30 6.18 4.40 6.28 4.30 6.26 4.60 6.06 4.90 5.86 4.90 5.79 5.10 6.06 5.10 .35 .47 .06 .35 .47 .06 .35 .47 .06 .34 .42 .06 .38 .43 .06 .46 .53 .06 .32 .52 .06 .15 .13 .13 .19 .18 .17 .90 .92 .92 .88 .89 .78 n.a. .85 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. The ratio of n.s.a. inventories to n.s.a. sales is seasonally adjusted by the Census Bureau; as a result, the s.a. ratio may not be the same as the ratio of s.a. inventories to s.a. 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 2.0 2.0 1.8 1.8 Single-family starts Feb. 1.6 1.4 1.6 1.4 1.2 1.2 Single-family adjusted permits 1.0 1.0 .8 .8 .6 .6 Multifamily starts .4 .4 Feb. .2 .0 .2 1999 2000 2001 2002 2003 2004 Note. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas. 2005 2006 .0 -3- Indicators of Single-Family Housing Existing Home Sales New Home Sales 6500 Thousands of units 6500 6000 Feb. 6000 5500 5500 5000 5000 4500 4500 1500 Thousands of units 1500 1300 1300 1100 4000 1999 2000 2001 2002 2003 2004 2005 2006 4000 1100 Feb. 900 700 Source. National Association of Realtors. 900 1999 2000 2001 2002 2003 2004 2005 700 2006 Source. Census Bureau. Homebuying Indicators Mortgage Rates Percent 9 9 Fixed rate Diffusion index 120 MBA purchase index (right scale) Michigan homebuying attitudes (left scale) 100 8 8 7 7 80 6 60 5 40 4 20 3 0 Index 575 525 475 425 6 Mar. Mar. 17 375 5 325 1-year ARM rate 4 3 1999 2000 2001 2002 2003 2004 2005 2006 Note. The March readings are based on data through March 22, 2006. Source. Freddie Mac. 10 10 Feb. 5 5 0 0 1999 2000 2001 2002 2003 2004 225 2005 Source. For repeat transactions, OFHEO; for average price, National Association of Realtors. Percent change from year earlier 25 25 Constant quality Average price of homes sold 20 20 15 Q4 -5 1999 2000 2001 2002 2003 2004 2005 2006 2007 Prices of New Homes Percent change from year earlier 20 Repeat transactions, purchase-only index Average price of homes sold 15 15 275 Note. MBA index is a 4-week moving average. Source. Mortgage Bankers Association and Michigan Survey. Prices of Existing Homes 20 Mar. 2006 -5 15 10 10 Feb. 5 5 Q4 0 0 -5 -5 -10 1999 2000 2001 2002 2003 2004 2005 2006 -10 Note. Starting in 2005, average price values are adjusted by Board staff to take into account new sampling procedures. Source. Census Bureau. -4- 4½ percent last month, after having risen strongly on balance in December and January, leaving the January-February average level 2½ percent above the fourth-quarter average. Orders for communications equipment surged for a second month in February while orders for computers and peripherals retraced almost half of their January decline. Shipments of nondefense capital goods excluding aircraft dropped 1 percent in February after having been unchanged in January. Shipments of non-high-tech equipment fell 1½ percent last month—their first monthly decline since last July. However, backlogs of unfilled orders widened slightly last month, and we continue to expect solid gains in shipments over the coming months. Shipments of communications equipment moved up ¾ percent in February following very strong gains in the previous two months. In contrast, shipments of computers and peripherals only inched up last month following a sharp decline in January. The recent shipments and orders data for computers are consistent with anecdotal reports from the industry that the first quarter was weak. -5- Orders and Shipments of Nondefense Capital Goods (Percent change; seasonally adjusted current dollars) 2005 Category Q3 Q4 2006 Dec. Annual rate Jan. Feb. Monthly rate Shipments Excluding aircraft Computers and peripherals Communications equipment All other categories 1.8 3.2 -6.6 30.8 2.3 35.1 15.6 24.2 -9.2 17.3 5.2 3.8 2.7 5.8 3.8 -4.4 .0 -5.7 5.3 .4 .6 -1.1 .3 .8 -1.6 Orders Excluding aircraft Computers and peripherals Communications equipment All other categories -15.6 4.0 -10.7 23.2 4.8 89.9 11.9 17.7 -21.3 15.2 1.9 4.9 4.3 -5.8 6.1 -19.8 .3 -12.5 16.1 1.1 1.6 -2.3 4.8 9.6 -4.6 Memo: Shipments of complete aircraft1 26.2 27.6 27.5 31.7 n.a. 1. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate. n.a. Not available. Computers and Peripherals 13 12 Communications Equipment Billions of dollars, ratio scale Shipments Orders 10 13 12 10 Feb. 8 8 20 17 14 Billions of dollars, ratio scale Shipments Orders 20 17 14 11 11 8 8 Feb. 5 6 4 1999 2000 2001 2002 2003 2004 2005 2006 4 2 800 Thousands of units, ratio scale Sales of class 4-8 trucks Net new orders of class 5-8 trucks 700 600 950 55 800 52 700 Feb. 600 2 55 52 Feb. 48 400 44 44 300 40 40 200 36 500 400 300 1999 2000 2001 2002 2003 2004 2005 2006 Note. Annual rate, FRB seasonals. Source. For class 4-8 trucks, Ward’s Communications; for class 5-8 trucks, ACT Research. Billions of dollars, ratio scale Shipments Orders 48 500 200 1999 2000 2001 2002 2003 2004 2005 2006 Non-high-tech, Non-trans. Equipment Medium and Heavy Trucks 950 5 6 1999 2000 2001 2002 2003 2004 2005 2006 36 -6- The Domestic Financial Economy Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total Adjusted1 Reported Securities Adjusted1 Reported Treasury and agency Other2 Loans3 Total Business Real estate Home equity Other Consumer Adjusted4 Other5 Level (billions of dollars), Feb. 2006 2004 2005 2005: Q3 2005: Q4 Jan. 2006 Feb. 2006 8.9 8.4 10.4 9.6 9.6 9.7 5.8 5.2 9.4 9.7 15.9 15.4 7,358 7,494 6.6 5.2 4.9 5.6 7.4 5.0 -.4 13.2 .5 1.7 -5.3 12.0 -.6 -2.4 -10.1 8.4 4.4 6.2 11.7 -1.0 31.4 28.6 34.3 20.9 1,904 2,040 1,176 864 9.8 1.3 14.0 43.8 9.8 8.8 5.7 7.8 11.5 13.4 14.0 11.1 14.5 3.0 .6 8.2 12.9 11.4 17.0 10.8 18.2 4.8 3.6 7.0 8.1 9.5 8.3 -1.9 10.2 -4.4 -4.5 17.4 11.0 25.9 11.0 -3.9 13.6 6.5 7.4 -4.1 10.6 11.0 9.2 -5.5 11.7 2.4 6.8 22.6 5,454 1,047 2,947 433 2,514 692 1,064 769 Note. Data are adjusted to remove estimated effects of consolidation related to FIN 46 and for breaks caused by reclassifications. Monthly levels are pro rata averages of weekly (Wednesday) levels. Quarterly levels (not shown) are simple averages of monthly levels. Annual levels (not shown) are levels for the fourth quarter. Growth rates are percentage changes in consecutive levels, annualized but not compounded. 1. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FAS 115). 2. 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. 3. Excludes interbank loans. 4. Includes an estimate of outstanding loans securitized by commercial banks. 5. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. -7III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004 2005 Change to Mar. 23 from selected dates (percentage points) 2006 Instrument June 28 Dec. 30 Jan. 30 Mar. 23 2004 June 28 2005 Dec. 30 2006 Jan. 30 1.00 4.25 4.25 4.50 3.50 .25 .25 1.36 1.74 3.99 4.22 4.38 4.45 4.55 4.63 3.19 2.89 .56 .41 .17 .18 Commercial paper (A1/P1 rates)2 1-month 3-month 1.28 1.45 4.23 4.37 4.47 4.55 4.73 4.84 3.45 3.39 .50 .47 .26 .29 Large negotiable CDs1 3-month 6-month 1.53 1.82 4.49 4.65 4.64 4.77 4.91 5.03 3.38 3.21 .42 .38 .27 .26 Eurodollar deposits3 1-month 3-month 1.29 1.51 4.36 4.52 4.56 4.67 4.81 4.95 3.52 3.44 .45 .43 .25 .28 Bank prime rate 4.00 7.25 7.25 7.50 3.50 .25 .25 Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year 2.88 3.97 4.90 4.43 4.35 4.47 4.54 4.49 4.63 4.79 4.73 4.84 1.91 .76 -.06 .36 .38 .37 .25 .24 .21 U.S. Treasury indexed notes 5-year 10-year 1.56 2.25 2.03 2.10 1.93 2.05 2.14 2.25 .58 .00 .11 .15 .21 .20 Municipal general obligations (Bond Buyer)5 5.01 4.38 4.42 4.43 -.58 .05 .01 Private instruments 10-year swap 10-year FNMA6 10-year AA7 10-year BBB7 5-year high yield7 5.21 5.30 5.59 6.18 8.30 4.92 4.82 5.25 5.84 8.28 5.06 4.88 5.39 5.96 8.17 5.26 5.08 5.61 6.14 8.17 .05 -.22 .02 -.04 -.13 .34 .26 .36 .30 -.11 .20 .20 .22 .18 .00 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.21 4.19 6.21 5.16 6.23 5.33 6.32 5.41 .11 1.22 .11 .25 .09 .08 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high 2005 Change to Mar. 23 from selected dates (percent) 2006 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Level Date Dec. 30 Jan. 30 Mar. 23 Record high 2005 Dec. 30 2006 Jan. 30 11,723 1,527 5,049 748 14,752 1-14-00 3-24-00 3-10-00 3-23-06 3-24-00 10,718 1,248 2,205 673 12,518 10,900 1,285 2,307 731 12,979 11,270 1,302 2,300 748 13,136 -3.86 -14.78 -54.44 .00 -1.95 5.16 4.28 4.30 11.05 4.94 3.40 1.28 -.29 2.29 1.21 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. Most recent Thursday quote. 6. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 7. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. _______________________________________________________________________ NOTES: June 28, 2004, is the day before the most recent policy tightening began. January 30, 2006, is the day before the most recent FOMC meeting. _______________________________________________________________________
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