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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 May 11, 2001 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 Retail Sales ............................................... Consumer Sentiment ......................................... Producer Prices .......................................... 1 1 4 Tables Retail Sales ......................................... Survey of Consumer Attitudes ............................ Recent Changes in Producer Prices ........................ Unemployment Insurance Benefits ........................ 2 3 6 7 The Financial Economy Table Selected Financial Market Quotations ...................... 8 The International Economy ................................ 9 Prices of Internationally Traded Goods ........................... 9 Table Prices of U.S. Imports and Exports ....................... 10 Chart Oil Prices ........................ 10 ................. Supplemental Notes The Domestic Nonfinancial Economy Retail Sales According to the advance report, total nominal retail sales jumped 0.8 percent in April, boosted by strong sales at building material and supply stores and at automotive dealers. Nominal outlays in the retail control group, which excludes sales at these establishments, rose 0.7 percent. However, the increase in the nominal retail control was revised down 0.4 percentage point in March and 0.2 percentage point in February. 1 Within the nominal control category, outlays fell again in April at stores selling furniture and appliances. Purchases at eating and drinking places and at drug and proprietary stores also declined last month while spending at food stores and at outlets for "other durable goods" were little changed. In contrast, spending at apparel outlets and general merchandise stores rose briskly last month, and purchases at gasoline stations jumped 2.5 percent. However, the rise in sales at gasoline stations largely reflected higher pump prices in April physical product data from the Department of Energy indicate that real gasoline purchases rose only slightly. On balance, today's retail sales data did not materially alter our view of the evolution of consumer spending over the first half of this year. The downward revisions to purchases in February and March suggest that BEA's advance estimate of the change in total real PCE in the first quarter will be revised down from an annual rate of around 3 percent to an increase of 2-3/4 percent. For the second quarter, although nominal retail control was up more sharply in April than expected, the downward revisions to February and March put spending on a lower trajectory moving into the second quarter.2 Nonetheless, our estimated level of real outlays in the control category in April relative to the revised first-quarter level does not alter our projection for the change in real PCE in the second quarter. Consumer Sentiment According to the preliminary release, the Michigan Survey Research Center (SRC) index of consumer sentiment rose four percentage points in early May to a level a bit above its long-run historical average. This month, respondents became more optimistic about expected business conditions. They also had more favorable assessments of buying conditions for large household 1. Sales at furniture and appliance stores were revised down in both months as were purchases at most stores selling nondurable goods. 2. The April retail sales data along with our estimate of consumer prices suggests that spending on real goods excluding motor vehicles rose 0.4 percent in April to a level that was unchanged from the first quarter. May 11, 2001 RETAIL SALES (Percent change; seasonally adjusted) 2000 Q3 Total sales Previous estimate 2001 2001 Q1 Feb. Mar. .1 1.0 1.1 -.2 .0 -.4 -.2 Q4 Retail control1 Previous estimate 1.6 .4 .8 1.1 -. 5 -. 3 -. 4 -.0 Total excl. automotive group Previous estimate 1.4 .5 .9 1.2 -.4 -. 2 -.4 -. 1 GAF2 Previous estimate 1.4 -.1 .5 1.1 -.9 -. 5 -1.0 -. 1 Durable goods stores Previous estimate .8 -. 9 1.3 1.2 Bldg. material and supply Automotive dealers Furniture and appliances Other durable goods Nondurable goods stores Previous estimate Apparel Food General merchandise 3 Gasoline stations Other nondurable goods 4 Eating and drinking Drug and proprietary -1.1 1.3 .1 1.4 -1.0 -.2 -1.1 1.0 .4 -.9 -1.2 -1.7 1.7 .8 .7 1.1 -. 7 -. 4 1.3 .4 2.1 2.4 2.4 1.1 3.4 1.8 1.2 1.3 1.1 .3 -1.9 1.3 2.5 3.2 .2 .3 -. 2 -. 2 1.3 .3 2.0 Apr. -1.4 -. 1 -1.4 -1.3 .5 -1.8 .1 -.7 -2.1 .2 .1 .7 1.6 .1 2.1 2.5 .0 -. 8 -. 6 1. Total retail sales less sales at building material and supply stores and automotive dealers, except auto and home supply stores. 2. General merchandise, apparel, furniture, and appliance stores. 3. Excludes mail-order nonstores; mail-order sales are also excluded from the GAF grouping. 4. Also includes sales at liquor stores and mail order houses. May 11, 2001 2001 Apr. 2001 May (p) UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 2000 Sept. 2000 Oct. 2000 Nov. 2000 Dec. 2001 Jan. 20012001 1 Feb. Mar. 106.8 112.0 103.4 105.8 113.6 100.7 107.6 116.9 101.6 98.4 110.5 90.7 94.7 107.7 86.4 90.6 105.8 80.8 91.5 103.4 83.9 88.4 98.0 82.2 92.6 102.1 86.5 Personal financial situation Now compared with 12 months ago* Expected in 12 months* 124 132 129 132 133 137 126 131 123 126 122 129 119 131 110 134 114 129 Expected business conditions Next 12 months'* Next 5 years* 149 136 143 132 142 131 121 113 106 115 93 102 97 109 92 104 102 116 Expected inflation - next 12 months Mean Median 3.7 2.9 4.1 3.2 3.8 2.9 3.4 2.8 3.8 3.0 3.2 2.8 3.3 2.8 3.7 3.1 3.8 3.1 Expected inflation - next 5 to 10 years Mean Median 3.6 3.0 3.7 3.0 3.6 2.9 3.7 3.0 3.5 2.9 3.6 3.0 3.6 3.0 3.6 3.1 3.4 3.0 Indexes of consumer sentiment (Feb. 1966=100) Composite of current and expected conditions Current conditions Expected conditions Appraisal of buying conditions Cars Large household appliances* Houses 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. appliances and of their current personal finances relative to a year ago. However, they were less optimistic about their personal financial situations over the coming year, which according to the SRC, reflected concern about higher gasoline and electricity prices. Among those questions not in the overall index, the index of expected unemployment change dropped sharply in early May. This put the index back to about the same level as in January of this year and suggests a noticeable improvement in expected labor market conditions over the next twelve months. In addition, appraisals of car and home buying conditions both improved in May, reflecting in part more favorable assessments of current prices. The mean of expected inflation over the next 12 months edged up 0.1 percentage point to 3.8 percent, but the median was unchanged at 3.1 percent. The mean of expected inflation over the next 5 to 10 years fell 0.2 percentage point to 3.4 percent, and the median ticked down 0.1 percentage point to 3 percent. Producer Prices The producer price index for finished goods rose 0.3 percent in April, following a 0.1 percent decline in March. Excluding food and energy, the PPI rose 0.2 percent last month, a bit more than we had expected. The core PPI rose 1.6 percent over the twelve months ending in April, 0.4 percentage point faster than a year ago. Wholesale energy prices rose 0.1 percent last month, reflecting offsetting swings in the various components of this category. Gasoline prices jumped 7 percent in April while fuel oil prices were up about 2 percent. By contrast, electricity prices rose only 0.2 percent last month, and natural gas prices fell 4-1/4 percent; prices of other energy goods also declined sharply on net.3 Over the past twelve months, total finished energy prices rose 13-1/2 percent, 4 percentage points less than the year-earlier rate of increase. The PPI for food rose 0.6 percent in April; meat, egg, and dairy prices moved higher, while vegetable prices fell sharply. The twelve-month change in producer food prices was 3.1 percent last month, roughly the same as a year ago. Core consumer goods prices rose 0.2 percent in April after having risen 0.3 percent in the preceding month. Over the past twelve months, core 3. We had expected to see an April increase in the PPI for electricity as a result of rate increases that occurred in California after the March PPI's pricing date. However, this increase was not evident in the electricity PPI for either California or the nation as a whole in April. consumer goods prices have risen 1.9 percent, compared with a year-earlier twelve-month change of 1.5 percent. Capital goods prices rose 0.3 percent in April after having posted no change in March; this left the twelve-month change in capital goods prices at 1.1 percent, up 1/2 percentage point from a year ago. Computer prices rose 1-1/2 percent last month; this was the first increase in this index since 1994, but came on the heels of a particularly steep decline in March. Despite the April increase, computer prices have fallen 18-1/2 percent over the past year, compared with a 16-1/2 percent decline over the year-earlier twelve-month period. Elsewhere, the PPI for applications software rose 4.2 percent in April, following a 0.3 percent increase in March. 4 At earlier stages of processing, core intermediate goods prices edged down 0.1 percent last month and have risen about 1/2 percent over the past year. Prices of core crude materials dropped another 2-1/2 percent in April, and have fallen more than 12 percent over the past twelve months. 4. The BEA uses this index as the quarterly indicator for prepackaged software prices in the NIPAs. However, because it is a component of the PPI for service industries, it is not included in the finished goods PPIs discussed in this memo. RECENT CHANGES IN PRODUCER PRICES (Percent change; based on seasonally adjusted data)1 Dec. 2000 2001 2001 2000 Relative importance, - 1999 Q4 Q3 2000 Q1 ----- Annual rate------ Mar. Apr. -Monthly rate- 100.0 22.5 15.6 61.9 38.0 23.9 2.9 .8 18.1 .9 1.2 .3 3.6 1.7 16.6 1.3 1.4 1.2 2.0 -1.2 6.4 2.5 2.4 1.7 2.9 2.7 12.0 .5 1.0 .3 4.9 10.2 12.6 1.3 2.1 .0 -.1 1.1 -2.6 .1 .3 .0 .3 .6 .1 .2 .2 .3 2 Intermediate materials Excluding food and energy 95.6 79.8 4.0 1.9 4.2 1.6 3.1 .3 1.2 -.3 1.8 1.5 -. 2 .1 -. 3 -.1 Crude food materials Crude energy Other crude materials 31.8 52.5 15.8 -.1 36.9 14.0 7.4 85.6 -5.5 36.5 102.6 -9.2 14.8 -44.1 -13.4 3.0 -4.9 -1.3 -.5 3.0 -2.6 Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment 1. 2. -8.2 20.0 -8.8 Changes are from final month of preceding period to final month of period indicated. Excludes materials for food manufacturing and animal feeds. RECENT CHANGES IN PRODUCER PRICES -- RELATIVE CONTRIBUTION 2 (Percent change; based on seasonally adjusted data) Relative importance Dec. 2000 2000 1999 2000 Q3 Q4 1 2001 -Ql ----- Annual rate-----Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment 100.0 22.5 15.6 61.9 38.0 23.9 2.9 .2 2.2 .6 .5 .1 3.6 .4 2.3 .8 .6 .3 2.0 -.3 1.0 1.5 .9 .4 2.9 .6 1.8 .3 .4 .1 4.9 2.2 1.9 .8 .8 .0 2001 Mar. Apr. -Monthly rate-.1 .2 -. 4 .1 .1 .0 1. Data may not add due to rounding. 2. Changes are from final month of preceding period to final month of period indicated. .3 .1 .0 .1 .1 .1 May 10, 2001 UNEMPLOYMENT INSURANCE BENEFITS (In thousands) 2001 Mar. 24 Mar. 31 Apr. 7 Apr. 14 Apr. 21 Apr. 28 -------- Seasonally adjusted; BLS basis 1 May 5 -- - - -- - Initial Claims All regular programs 2 State programs 367 365 386 384 399 396 391 389 414 412 427 425 386 384 Insured unemployment All regular programs 3 State programs Extended benefits 2533 2494 1 2593 2554 4 2536 2500 2 2697 2661 3 2704 2671 2 2760 2727 2 - 2.0 2.0 2.0 2.1 2.1 2.1 Initial Claims (Four-week moving avg.) 378 All regular programs 2 376 State programs 380 378 384 382 386 384 398 395 408 406 State-insured Unemployment rate 4 405 403 ----------- Not seasonally adjusted-----------Regular state programs Initial claims Insured unemployment 1. 2. 3. 4. 336 2863 330 2858 400 2677 350 2834 372 2703 Only data for regular state programs are seasonally adjusted. Includes federal employees and ex-servicemen. Includes federal employees, railroad workers, and ex-servicemen. Percent of covered employees receiving regular state benefits. 354 2714 336 III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2000 Change to May 10 from selected dates (percentage points) 2001 Instrument June 26 Mar. 19 Apr. 17 May 10 2000 June 26 2001 Mar. 19 2001 Apr. 17 6.50 550 5.00 4.50 -2.00 -1.00 -50 4.02 4.02 3.99 3.66 3.58 358 4.96 4.62 4.03 3.90 -2.53 -2.66 -.82 -.81 -.93 -.72 Large negotiable CDs 1 1-month 3-month 6-month 5.00 4.72 4.61 4.09 3.98 3.96 Eurodollar deposits 2 1-month 3-month 4.98 4.71 4.06 3.96 -2.57 -2.73 -. 84 -. 83 -.92 -.75 Bank prime rate 8.00 7.50 -2.00 -1.00 -.50 -.88 -.09 -.22 -.43 .16 .02 -1.00 -1.22 .18 -.32 .10 -.15 Short-term FOMC intended federal funds rate Treasury bills 3-month 6-month 1-year 1 Commercial paper 1-month 3-month 656 6.56 4.85 4.71 Intermediate-and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year U.S. Treasury 10-year indexed note Municipal revenue (Bond Buyer) 3 Private instruments 10-year swap 10-year FNMA Merrill Lynch BBB High yield 4 Home mortgages (FHLMC survey rate) 5 30-year fixed 1-year adjustable 7.38 7.15 8.49 11.97 5.76 5.67 731 12.03 6.13 5.99 7.59 12.48 5.99 5.99 7.30 11.95 8.14 7.22 6.96 632 7.04 6.15 7.14 6.00 Change to May 10 Record high 2001 from selected dates (percent) Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 1. 2. 3. 4. 5. Record 2001 2001 Level Date Mar. 19 Apr. 17 May 10 high Mar. 19 Apr. 17 11,723 1,527 5,049 606 14,752 1-14-00 3-24-00 3-10-00 3-9-00 3-24-00 9959 1,171 1,951 451 10,754 10,217 1,192 1,923 456 10,924 10,910 1,255 2,129 491 11,575 -6.93 -17.83 -57.83 -19.06 -21.53 9.55 7.21 9.11 8.71 7.64 6.79 5.32 10.69 7.68 5.97 Secondary market. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. Most recent Thursday quote. Merrill Lynch 175 high-yield bond index composite. For week ending Friday previous to date shown. NOTES: June 26, 2000, is the day before the FOMC meeting that ended the most recent period of policy tightening. March 19, 2001 is the day before the most recent FOMC meeting. April 17, 2001 is the day before the intermeeting FOMC action. BA.DAM The International Economy Prices of imported non-oil goods (and core goods) declined about 1/2 percent in April. This was a smaller decrease than in the previous two months which had been affected by the sharp drop in the price of imported natural gas from elevated levels. In April, the decline in import prices occurred in all major categories of trade. The largest declines were in imported industrial supplies (from falling prices of unfinished metals and chemicals) and foods (led by a drop in prices of vegetables). The April decrease in prices of imported capital goods (other than computers and semiconductors), automotive products, and consumer goods followed increases of similar magnitudes in those categories in March. Prices of imported computers and semiconductors fell in April. Oil. The BLS price of imported oil declined slightly in April following a much larger drop in March. For the first quarter on average, the price of imported oil declined about 40 percent at an annual rate following two quarters of increases. The spot price of West Texas Intermediate crude generally moved up during April as a new round of OPEC supply cuts became effective. In early May, spot WTI has traded between $27 and $29 per barrel. Prices of U.S. goods exports (total and core) were unchanged in April following two months of slight declines. Prices for most exported goods saw little change in April, with the exception of agricultural products and computers. Prices of computers rose slightly after declining in March, while prices of agricultural products dropped by 0.6 percent. The decrease in agricultural products was led by falling prices for grains and oilseeds. Prices of U.S. Imports and Exports (Percentage change from previous period) Annual rates 2000 2001 Q1 Q4 Q3 ---------6.7 52.9 0.9 1.5 Merchandise imports Oil Non-oil Core goods* Monthly rates 2001 Apr. Feb. Mar. BLS prices (1995 weights)-------------1.5 -0.5 -5.6 -0.8 0.8 -6.6 -0.5 -44.9 0.3 5.0 -0.9 -0.7 -0.5 0.3 2.2 0.8 2.7 -1.0 -0.8 -0.4 Computers Semiconductors -3.4 -4.9 -10.4 -0.2 -4.3 -3.7 -1.2 -0.2 -0.8 -0.3 -2.0 -0.6 Cap. goods (ex comp & semi) Automotive products Consumer goods Foods, feeds, beverages Industrial supplies (ex oil) -1.5 0.5 -0.5 -4.6 8.6 -1.7 0.0 -1.0 -2.9 6.9 -0.3 -1.3 0.4 0.3 12.6 0.0 -0.6 0.0 -1.1 -2.8 0.4 0.1 0.0 1.0 -3.9 -0.3 -0.2 -0.1 -2.1 -0.6 -0.1 0.1 0.7 1.2 -0.4 -0.3 -0.2 -0.2 -0.1 -0.1 0.0 0.0 -2.2 -5.5 -1.6 -3.1 -2.4 -3.5 0.0 -0.3 -0.6 0.1 0.3 -0.1 1.0 1.0 0.0 -12.1 3.2 0.9 0.0 -0.8 12.4 -1.8 2.6 0.5 -0.7 2.9 -4.3 0.3 -0.1 -0.1 -1.4 -0.2 0.2 0.1 -0.1 0.2 -0.9 0.1 0.1 0.0 -0.6 0.0 Merchandise exports Core goods* Computers Semiconductors Cap. goods (ex comp & semi) Automotive products Consumer goods Agricultural products Industrial supples (ex ag) ---Prices 3.8 0.7 1.5 Chain price index Imports of goods & services Non-oil merchandise Core goods* Exports of goods & services Total merchandise Core goods* in the NIPA accounts (1996 weights)--0.2 -2.1 0.1 1.4 1.0 2.2 0.7 0.0 0.5 0.4 -0.4 -0.5 0 1 11 -On */ Excludes computers and semiconductors. n.a. Not available. ... Not applicable. Oil Prices Dollars per barrel Spot West Texas Intermediate Import unit value 1991 1992 1991 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001
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