The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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 13, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1994 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Consumption. .... . . . Business inventories . . Prices . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 3 . 5 Tables Retail sales . . . . . . . . . . . . . . . . . . University of Michigan Survey Research Center: Survey of Consumer Attitudes . . .. .. .. Changes in manufacturing and trade inventories . Inventories relative to sales . . ... .. . . Recent changes in consumer prices. . . . . . .. . Recent changes in producer prices. . . . . . . . Inflation rates excluding food and energy. .... . . . . . Spot prices of selected commodities . .. ... . . . . . . ... . .. .. . . . 6 8 8 10 10 11 .12 Charts Real PCE goods excluding motor vehicles . . . . . . . . . . . . . . Housing attitudes/MBA data . . . .. Ratio of inventories to sales. . ... . . . .. .. Construction prices. . . . . . . .. . . . . . . . . . . . 5 7 9 13 THE FINANCIAL ECONOMY Senior Loan Officer Opinion Survey . . . . . . ... . 14 Table Commercial bank credit and short- and intermediate. . . . . . . . . . . . . . . term business credit .. . . . Selected financial market quotations . . . .. 19 20 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Consumption Total nominal retail sales are estimated to have dropped back in April following two months of sizable increases. Indeed, the March increase is now shown to have been 1-1/4 percentage points higher than the estimate reported last month. Nominal sales in the retail control category, which excludes auto dealers and building material and supply stores, fell 0.4 percent in April. Sales declined last month at stores in every major category within the control group except general merchandisers--where sales were little changed--and gasoline stations--where spending was estimated to have risen 1-1/4 percent. Separate physical product data from the Department of Energy, however, indicate that gasoline sales were down somewhat in real terms last month. The large upward revision to retail sales in March was concentrated in sales at automotive dealers and stores in the nondurable goods categories. Within the retail control category, nominal spending is now estimated to have risen 1.9 percent in February and 0.8 percent in March, compared with the previous estimates of 1.7 percent and 0.1 percent, respectively. The staff estimates that these revisions to the nominal retail control will translate into roughly a $5 billion upward revision to the estimate of growth in real PCE for goods other than motor vehicles during the first quarter of 1994 (chart). The Michigan index of consumer sentiment fell slightly in early May, retracing its small April gain. Deteriorations in households' assessments of their current and future personal financial situations more than offset improvements in their appraisals of buying conditions for appliances and future business conditions. -2Results for questions not included in the overall index were also somewhat less upbeat in early May. The index of home buying conditions slipped to its lowest level in a year, with fewer consumers offering favorable views based on low prices and low interest rates. The index of car buying conditions also declined; it now stands at the level reached at the end of last year. In addition, consumers expressed a somewhat less optimistic view of future employment conditions. The mean values of expected inflation fell in March, but the median values rose. Mean expected inflation over the coming year edged down to 4.4 percent while the median value rose 0.5 percentage point to 3.5 percent. The mean value of expected inflation over the next five to ten years fell 0.3 percentage point to 4.7 percent; the median value rose 0.6 percentage point to 3.8 percent. Business inventories Retail inventories expanded moderately in March; excluding auto dealers, stocks rose at an annual rate of $5.1 billion in currentcost terms. Retail outlets of building materials, food, and apparel reported modest increases in their stocks while stores selling furniture and home furnishings as well as general merchandisers indicated substantial declines. For the first quarter as a whole, non-auto retail inventories increased just $4.7 billion (annual rate)--well below the pace during the second half of last year. These data bring the first- quarter change in business inventories for manufacturing and trade excluding auto dealers to $12.8 billion (current cost, annual rate), about $20 billion below BEA's estimate in the advance GDP report. Prices In April, the consumer price index posted its smallest increase Food prices were little changed, energy prices fell since January. 0.4 percent, and the CPI excluding food and energy increased 0.2 percent. Over the past twelve months, the CPI has risen 2.4 percent, while the CPI excluding food and energy was up 2.8 percent; both of these increases were about 3/4 percentage point less than over the preceding twelve months. Food price increases were held down by a decline of 2.3 percent in the volatile fruits and vegetables category. That drop provided an offset to large price increases for cereal and bakery goods and dairy products. Among energy items, prices for electricity and heating oil posted large declines. The index for consumer goods other than food and energy edged up slightly, on balance, in April. Prices of both new cars and light trucks rose 0.4 percent last month. So far in 1994, prices of new cars and light trucks are up at 4 and 5-3/4 percent annual rates, respectively, reflecting strong demand for motor vehicles. However, apparel prices fell 0.5 percent in April to a level slightly below a year ago. The moderation in apparel prices has also been apparent at the producer level, where the PPI for apparel has been about unchanged over the past twelve months. Prices of nonenergy services rose 0.2 percent in April, Owners' equivalent rent rose just 0.1 percent after increases of 0.6 and 0.4 percent in February and March. But fees for medical services rose 0.7 percent in April, the largest increase in eleven months. In addition, auto finance charges jumped up 2.3 percent in April, the largest increase in this category since 1989. The PPI for finished goods declined 0.1 percent in April. Food and energy prices both moved down, and the index excluding food and energy items rose 0.1 percent. Over the twelve months ended in -4April, the overall PPI declined 0.4 percent while the PPI excluding food and energy edged up 0.1 percent. The drop in prices of finished foods in April offset an equivalent increase in March. Over the past twelve months, food prices have risen only 0.4 percent--well below the 3 percent increase over the preceding twelve-month period. Energy prices were little changed for a second month in April, as a 1 percent rise in gasoline prices offset a sharp decline for fuel oil. Over the past twelve months, finished energy prices have fallen 3.7 percent. For goods excluding food and energy, the most notable price change was a 1.6 percent jump in the price of light trucks, for which supplies are tight. In the consumer goods category this increase was offset by price declines for several nondurable goods, including tobacco and apparel. However, prices of capital equipment were up 0.4 percent in April; in addition to the increase in prices of light trucks, higher prices were registered for tools and dies, civilian aircraft, and construction machinery. At earlier stages of processing, the index for intermediate goods excluding food and energy was up 0.2 percent in April, bringing the increase over the past twelve months to 1 percent. Materials for nondurable manufacturing fully accounted for the April increase. were mixed: Price changes for construction materials and supplies gypsum prices continued to soar, and concrete prices jumped up further; but the producer price of softwood lumber posted another steep decline. The index for crude materials other than food and energy edged down 0.3 percent in April, following six months of sizable increases. Iron and steel scrap prices, which fell for a second month, accounted for the April decline. In addition, prices of logs and timber only edged up in April after two months of large increases. RETAIL SALES (Percent change; seasonally adjusted) Q3 Q4 Q1 1.4 3.1 Retail control 1 Previous estimato .8 Total excl. automotive group .9 Total sales Previous estimate Previous 2.3 Mar. 1.4 .8 1.9 1.6 1.7 .4 -.8 1.4 1.0 .6 1.9 1.7 .8 .1 -.4 1.9 .6 1.6 1.3 -.5 .1 1.3 .4 .6 2.2 .3 .8 2.4 .3 2.1 1.8 3.0 1.3 1.6 1.1 -1.9 2.0 estimate Durable goods stores 3.1 Apr. Feb. Previous estimate GAP2 1994 1994 1993 5.8 Previous estimate -. 3 -1.6 Bldg. material and supply 2.4 7.6 -2.0 8.0 -2.5 Automotive dealers Furniture and appliances 3.3 3.8 7.3 4.8 4.2 -.1 2.7 3.6 2.9 1.2 -1.7 -.5 Other durable goods 1.9 -1.9 -. 8 -. 2 -. 5 -1.1 .5 1.4 1.0 .6 1.9 1.6 .8 -. 0 -. 2 .8 .4 2.3 -3.4 .6 1.0 1.8 1.3 -. 4 1.8 -1.5 .9 1.8 3.3 .6 4.7 .7 .7 2.9 2.9 -. 6 -. 1 .2 2.1 2.1 -1.3 -. 2 .1 1.2 -.7 Nondurable goods stores Previous estimate Apparel Food General arahandise 3 Gasoline stations Other nondurables4 1. Total retail sales less building material and supply stores and automotive dealers, except auto and hom 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. Includes sales at eating and drinking places, drug stores and proprietary stores. REAL PCE GOODS EXCLUDING MOTOR VEHICLES* Billions of 1987 dollars * Quarterly Averages 1989 1990 1991 The figures for Febuary. March, Apdi anM1994:01 am staff es~ 1992 es 1993 1994 May 13, 1994 1994 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1993 1993 1993 1993 1994 1994 1994 1994 Sep Oct Nov Dec Jan Feb Mar Apr Composite of current and expected conditions 77.9 82.7 81.2 88.2 94.3 93.2 91.5 92.6 91.5 Current conditions Expected conditions 95.2 66.8 98.7 72.5 98.2 70.3 102.9 78.8 106.6 86.4 108.3 83.5 101.4 85.1 108.1 82.6 105.2 82.7 104 114 104 119 107 121 113 122 115 123 114 127 105 125 116 124 105 116 95 83 76 77 126 99 121 88 121 96 117 91 121 95 134 143 170 132 151 170 139 147 172 144 153 174 148 162 174 155 167 176 147 158 176 150 164 170 144 167 165 Expected unemployment change - next 12 months 133 137 131 115 104 115 112 116 118 Expected inflation - next 12 months Expected inflation - next 5 to 10 years 4.8 4.0 3.6 3.8 3.5 3.7 4.4 4.5 4.4 4.6 4.8 4.5 4.8 4.8 4.7 5.4 5.0 4.7 May (p) Indexes of consumer sentiment (Feb. 1966=100) Personal financial situation Now compared with 12 months ago* Expected in 12 months* Expected business conditions Next 12 months* Next 5 years* Appraisal of buying conditions Cars Large household appliances* Houses Willingness to use credit Willingness to use savings * -- 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. Asterisk (*) indicates the question is one of the five equally-weighted components of the index of sentiment. Expected change in unemployment is the fraction expecting unemployment to rise minus the fraction expecting unemployment to fall. 5/13/94 CONSUMER HOMEBUYING ATTITUDES* (Seasonally adjusted) Millions of units (annual rate) 1.8 R- Diffusion index Consumer homebuying attitudes (right scale) 0.8 Single-family starts (left scale) I I 1987 I 1988 1 1989 1 I 1990 1991 I 1992 I 1993 The homebuying attitudes index is calculated by the Survey Research Center (University of Michigan) as the proportion of respondents rating current conditions as good minus the proportion rating such conditions as bad. 1994 BUILDERS' RATING OF NEW HOME SALES* Millions of units (annual rate) Cliffusion index (Seasonally adjusted) Builders' 1987 1988 1989 1991 1990 1992 1993 1994 SThe index is calculated from National Association of Homebuilders data as the proportion of respondents rating current sales as good to excellent minus the proportion rating them as poor. Millions of units (annual rate) MBA INDEX OF MORTGAGE LOAN APPLICATIONS March 16, 1990 = 100 (Seasonally adjusted) 1991 1992 1993 1994 CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates; based on seasonally adjusted data) 1993 Q3 1994 Q4 Q1 1994 Jan. Feb. Mar. Current-cost basis Total Excluding auto dealers Manufacturing Defense aircraft Nondefense aircraft Excluding aircraft Wholesale Retail Automotive Excluding auto dealers 16.1 23.5 -2.5 -.8 -3.3 1.5 12.0 6.6 -7.4 14.0 18.8 5.5 -13.1 -4.7 -4.5 -3.9 6.1 25.8 13.3 12.5 15.7 12.8 9.7 -4.5 -1.4 15.6 -1.6 7.6 2.9 4.7 17.8 12.5 17.8 -.2 2.2 15.8 .8 -.8 5.3 -6.1 48.5 46.2 13.9 -3.1 -4.3 21.3 17.2 17.4 2.3 15.1 -19.1 -20.3 -2.7 -10.3 -2.1 9.7 -22.7 6.3 1.2 5.1 16.4 23.5 3.1 8.5 4.8 -7.1 11.8 5.4 3.0 -5.3 -.4 11.1 2.4 8.6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 4.2 1.4 16.5 -4.9 -7.5 2.8 -10.3 38.2 27.5 4.4 12.7 21.1 10.7 10.4 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Constant-dollar basis Total Excluding auto dealers Manufacturing Wholesale Retail Automotive Excluding auto dealers INVENTORIES RELATIVE TO SALES 1 (Months supply; based on seasonally adjusted data) 1993 03 1994 04 Q1 1994 Jan. Feb. Mar. Current-cost basis Total Excluding auto dealers Manufacturing Defense aircraft Nondefense aircraft Excluding aircraft Wholesale Retail Automotive Excluding auto dealers 1.46 1.44 1.49 5.22 5.39 1.35 1.34 1.52 1.69 1.48 1.43 1.41 1.42 5.24 5.05 1.29 1.34 1.51 1.66 1.47 1.41 1.39 1.40 4.78 4.98 1.28 1.31 1.50 1.61 1.47 1.42 1.40 1.41 4.95 5.07 1.28 1.33 1.52 1.65 1.48 1.41 1.39 1.40 5.24 5.49 1.27 1.32 1.50 1.61 1.47 1.39 1.37 1.38 4.69 4.62 1.27 1.29 1.48 1.57 1.45 1.55 1.54 1.60 1.42 1.60 1.76 1.55 1.52 1.50 1.53 1.42 1.57 1.67 1.54 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1.51 1.50 1.52 1.41 1.57 1.65 1.55 1.50 1.49 1.51 1.41 1.56 1.64 1.54 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Constant-dollar basis Total Excluding auto dealers Manufacturing Wholesale Retail Automotive Excluding auto dealers 1. Ratio of end of period inventories to average monthly sales for the period. RATIO OF INVENTORIES TO SALES (Current-cost data) Ratio 2.2 Manufacturing 1.95 - Total 1.7 1.45 1,4 *3" Excluding aircraft ^,2 S 1979 1981 I 1983 I I 1985 I I I 1987 1989 I I I 1991 Mar. I 1.2 1993 Ratio S1.5 Wholesale S1.4 1.3 Mar. S1.2 I II 1979 1981 1983 III I I 1985 1987 I. 1989 - 1991 1.1 ,I 1993 Ratio Ratio 2.7- 1.7 Retail ., 2.5 GAF group 5' *', - - ' 2.3 - ': \ ,,,J 1.6 1.5 SMar. Total excludina auto 2.1 - 1979 1981 1983 1985 1987 1989 1991 - 1993 1.4 -10RECENT CHANGES IN CONSUMER PRICES (Percent change; based on seasonally adjusted data) 1 Relative importance, Dec. 1993 1993 1992 1993 Q3 1994 Q4 Q1 ----- Annual rate-----All items 2 Food Energy All items less food and energy Commodities Services Memo: CPI-W 3 1994 Mar. Apr. -Monthly rate- 100.0 15.8 7.0 2.9 1.5 2.0 2.7 2.9 -1.4 2.0 2.6 -4.2 3.3 4.9 1.2 2.5 -1.1 4.7 .3 .1 .4 .1 .1 -.4 77.2 24.4 52.8 3.3 2.5 3.7 3.2 1.6 3.9 2.1 .0 3.5 3.4 2.4 3.7 2.9 .6 4.2 .3 .3 .4 .2 .1 .2 100.0 2.9 2.5 1.4 3.1 2.5 .3 .1 1. Changes are from final month of preceding period to final month of period indicated. 2. Official index for all urban consumers. 3. Index for urban wage earners and clerical workers. RECENT CHANGES IN PRODUCER PRICES (Percent change; based on seasonally adjusted data) 1 Relative importance, Dec. 1993 1993 1992 1993 Q3 Q4 1994 --Q1 ----- Annual rate-----Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment 1994 Mar. Apr. -Monthly rate- 100.0 22.9 13.3 63.7 40.3 23.4 1.6 1.6 -.3 2.0 2.1 1.7 .2 2.4 -4.1 .4 -.4 1.8 -2.5 3.2 -7.4 -3.5 -6.4 2.2 -. 3 5.2 -15.6 .9 1.5 .3 3.9 -.9 16.6 3.3 2.3 4.6 .2 .5 .0 .2 .1 .3 -. 1 -.5 -.1 .1 -.1 .4 Intermediate materials 2 Excluding food and energy 95.2 82.3 1.1 1.2 .8 1.6 -1.0 1.0 -.3 1.6 2.8 1.6 .2 .2 .0 .2 Crude food materials Crude energy Other crude materials 44.1 34.4 21.5 3.0 2.3 5.7 7.2 -12.3 10.7 13.1 -28.1 -4.5 18.4 -22.1 15.4 -4.8 18.9 23.4 -1.0 9.3 .9 -1.1 -.1 -.3 1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds. -11INFLATION RATES EXCLUDING FOOD AND ENERGY Percent change from twelve months earlier Apr. 1992 Apr. 1993 Apr. 1994 3.9 3.5 2.8 3.0 2.7 0.9 3.2 2.5 2.4 2.1 0.1 7.8 2.3 7.7 1.7 2.4 2.6 .0 1.2 3.1 1.4 10.6 1.3 3.6 -0.6 0.9 0.7 3.1 1.9 -8.1 4.3 3.8 3.7 3.6 2.6 4.9 5.0 7.8 4.0 -12.2 9.4 3.3 2.4 4.5 7.1 6.7 3.0 -9.2 8.4 3.2 2.4 2.8 11.7 5.3 4.1 -1.9 6.7 PPI finished goods 2.7 2.0 0.1 Consumer goods 2.9 2.2 -1.0 Capital goods, excluding computers Computers 3.2 -20.9 2.4 -15.2 2.4 -8.3 PPI intermediate materials 0.2 1.9 1.0 -2.7 9.0 9.1 ECI hourly compensation 1 Goods-producing Service-producing 4.2 4.6 4.0 3.5 4.0 3.2 3.3 3.2 3.4 Civilian unemployment rate 2 , 3 7.3 7.0 6.4 78.3 80.1 82.8 3.4 3.9 4.4 4.0 4.4 4.4 0.1 0.1 2.0 1.8 1.1 1.3 0.5 1.1 4.1 CPI Goods Alcoholic beverages New vehicles Apparel House furnishings Housekeeping supplies Medical commodities Entertainment Tobacco Services Owners' equivalent rent Tenants' rent Other renters' costs Airline fares Medical care Entertainment Auto financing Tuition PPI crude materials Factors affecting price inflation Capacity utilization 2 ,4 (manufacturing) Inflation expectations 5 , 6 Mean of responses Median, bias-adjusted 7 Non-oil import price8 Consumer goods, excluding food, and beverages Autos autos, 1. Private industry workers, periods ended in March. 2. End-of-period value. 3. Data for 1994 are not directly comparable with earlier values because of a redesign of the CPS in January 1994. 4. Latest reported value: March. 5. Michigan Survey one-year-ahead expectations. 6. Latest reported value: May. 7. Median adjusted for average downward bias of 0.9 percentage points, relative to actual inflation, since 1978. 8. BLS import price index (not seasonally adjusted), periods ended in March. -121 SPOT PRICES OF SELECTED COMMODITIES -------------- Percent change --------------Memo: jast >bservktion 1. 2. 1992 1993 Dec 93 to Mar 153 Mar 153 to date Year earlier to date PPI for crude materials 4 Apr 3.3 0.1 3.8 -0.4 0.5 la. lb. 1c. Id. Apr Apr Apr 3.0 2.3 5.7 7.2 -12.3 10.7 1.7 4.4 6.8 -0.8 -0.1 0.1 2.4 -6.4 9.1 Apr 6.1 10.6 5.4 -0.3 9.0 Foods and feeds Energy Excluding food and energy Excluding food and energy, seasonally adjusted Commodity Research Bureau 2a. Futures prices 2b. Industrial spot prices May 10 May 10 -2.9 -0.7 11.6 -0.0 1.7 5.1 -1.9 2.6 8.1 10.8 3, Journal of commerce industrials 3a. Metals May 10 May 10 5.0 1.9 -4.0 -2.6 3.5 3.7 3.1 0.1 3.8 4.2 4. Dow-Jones Spot May 10 10.4 5.1 4.1 2.1 13.2 -2.6 -3.1 2.4 2.4 -14.4 0.2 2.9 4.4 6.5 n.a. n.a. n.a. 6.4 -4.8 5.2 1.6 4.5 9.1 4.4 5.3 8.7 -0.3 -5.0 12.9 8.5 4 5. IMF commodity index 5a. Metals Nonfood agricultural 5b. Mar Mar Mar 6. Economist (U.S. dollar index) 6a. Industrials May 03 May 03 1. Not seasonally adjusted. observation of previous period. 2. Change is measured to end of period, from last 3. Week of the March Greenbook. IMF index includes items not shown separately. 4. Monthly observations. n.a. Not available. Index Weights Energy Food Commodities Precious Metals O 0 0 Others' PPI for crude materials 18 1 41 41 CRB futures 14 14 57 14 CRB industrials 100 Journal of Commerce index 12 88 Dow-Jones 58 25 17 IMF index Economist 45 55_; 50 1. Forest products, industrial metals, and other industil materials. 50 -13- 5/13/94 SOFTWOOD LUMBER PRICES Index, June 1992= 100 -- Spot price May 13 Apr. Producer price index rj~a I 1993 1990 1989 PRODUCERS' PRICES OF CONSTRUCTION MATERIALS - -'- I 1994 Index, June 1992 = 100 % - Asphalt roofing 1989 1990 1991 1992 1994 240 -14THE FINANCIAL ECONOMY The May Senior Loan Officer Opinion Survey on Bank Lending Practices The May 1994 Senior Loan Officer Opinion Survey on Bank Lending Practices posed questions about changes in bank lending standards and terms, changes in loan demand by businesses and households, banks' holdings of securities, and real estate loans. Fifty-nine domestic commercial banks and eighteen U.S. branches and agencies of foreign banks participated in the survey. As in the last several surveys, the results show an easing of terms and standards on loans both to businesses and to households. Respondents reported easing terms and standards on commercial and industrial loans to firms of all size categories, with more banks easing for middle-market firms than for larger and smaller firms. As in the February survey, the responses indicated a slight easing of standards for commercial real estate loans. Respondents reported an increased willingness to make loans to individuals and indicated that they had eased standards on home mortgage loans. business credit surged. Demand for For each size category of borrower, a larger fraction of banks reported increased demand than has so reported since the questions were introduced at the end of 1991. Respondents also reported that demand for business loans is now more sensitive to changes in terms than it had been a year ago. Household demand for credit, particularly for installment credit, continued to grow, but demand for residential mortgages fell back a bit. Special questions on the survey explored the reasons for the recent strength in banks' security holdings and weakness in banks' real estate loans. Those respondents that had expanded their holdings of Treasury securities stated they had done so primarily because the recent decline in the price of those securities made -15them an attractive investment. A majority of respondents who had experienced decreased growth in their holdings of residential real estate loans attributed the drop largely to a slowdown in refinancing activity. However, more respondents reported increases than decreases in holdings of commercial real estate loans. Lending to Businesses Commercial and industrial loans other than for mergers. Domestic respondents reported some easing of credit standards for firms in all size categories, with less than 10 percent easing for large firms and small firms and around 15 percent easing for middlemarket firms. These figures are little changed from those in the February survey. Two U.S. branches of foreign banks, or 11 percent of the sample, eased lending standards, and none reported tightening. With respect to loan terms, many banks reduced the spreads of loan rates over base rates and the cost of credit lines. About half of the domestic respondents reported reductions for large and middle-market firms, and about a quarter indicated reductions for small firms. Smaller fractions of respondents eased other terms, such as loan covenants, credit line size, and collateralization. Terms were eased the most for large firms and the least for small firms. The fraction of foreign respondents that eased terms was similar to that for domestic banks. Respondents attributed their easing to various reasons, including increased competition, a more favorable economic outlook, and a lessening of industry-specific problems. 1 Commercial real estate loans. Domestic respondents indicated that credit standards for commercial real estate loans eased slightly. A couple of domestic banks reported a slight easing on 1. "Increased competition" was not offered as a reason for easing of terms and standards, but many banks wrote it in under the "Other" category. Increased competition was, in fact, the most popular and most highly ranked response. -16loans secured by commercial office buildings, and a few more reported easing for other types of commercial real estate loans. These results are similar to those reported in the February survey, which represented the first sign of a backing-off in standards for commercial real estate loans since the significant tightening in 1990-91. At U.S. branches and agencies of foreign banks, standards for commercial real estate loans were essentially unchanged. Demand. Demand for business loans was reported to have strengthened considerably over the past three months. Between a third and a half of domestic respondents experienced stronger demand, particularly from middle-market and small firms. For each size category of borrower, this survey's net share of respondents reporting increased demand is the largest since the questions on this subject were introduced on a regular basis at the end of 1991. Respondents attributed the strength primarily to customers' greater needs to finance inventories and investment in plant and equipment. A few banks attributed the increase in demand to a reduction in their customers' financing from nonbank sources. respondents also noted increased demand. Foreign About half of both domestic and foreign respondents stated that, for all size categories of borrower, the demand for business loans is currently more sensitive to changes in terms than it was a year ago. Lending to Households Respondents were also more willing to make consumer and residential mortgage loans. More than a quarter of the respondents, similar to the fractions in the February survey, indicated greater willingness to make consumer installment and home equity loans. Only a few banks reported having eased standards for approving mortgage applications for purchasing houses during the past three months. -17Demand for household credit was said to have increased on net from February to May. More than a third of the respondent banks experienced an increase in demand for consumer installment loans, a slightly higher proportion than reported in the February survey. The respondents reporting declines in residential mortgage demand exceeded those indicating increases, with several banks experiencing substantial declines. credit picked up: demand. However, demand for home equity lines of On net, just under 10 percent of banks saw higher Demand for home equity loans had been weak in the last couple of surveys, likely because of paydowns of these loans with the proceeds from mortgage refinancings. Securities Nationwide, banks' holdings of U.S. Treasury and agency securities grew rapidly in March and April. About 25 percent of the survey respondents had stronger growth in their holdings of securities over that period. About a third of these banks experienced a pickup in growth only in agency securities. Those banks that accelerated their purchases of Treasury securities did so largely because the recent decline in the price of Treasuries has made them more attractive investments. Banks were also asked what actions they had taken in response to FAS 115, which substantially increased the share of securities that must be marked to market. The most common action was to decrease the maturity of their security portfolios, although many banks increased hedging activities and reduced security holdings. Real Estate Loans For the United States as a whole, the growth in commercial banks' holdings of real estate loans slowed markedly in the first quarter of this year. A majority of the domestic respondents experienced a similar slowdown in residential real estate loan -18growth. Of those banks that saw reduced growth, the most popular explanation was a deceleration in refinancing activity, followed at some distance by loss of business to competitors and a slowdown in originations. The most common destination of lost mortgage business appears to have been mortgage companies. Despite the overall decline in real estate loans, respondents characterized the growth at their bank of commercial real estate loans as somewhat increased, on net, relative to growth in the preceding three months. This finding is consistent with the greater willingness to lend indicated in this and the February survey as well as the pickup in the commercial real estate market reported in the press. -19COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage change at annual rate, based on seasonally adjusted data) Dec. 1992 to Dec. 1993 Type of credit 1994 Q1 1993 Q4 1994 Mar. 1994 Feb. 1994 Apr. p Level, Apr. 1994 p (billions) Commercial bank credit 1. Total loans and securities 5.2 2. 8.5 2.8 Securities 5.5 10.4 10.4 3,193.1 17.2 6.9 25.7 22.2 967.6 0.0 25.2 18.0 758.9 3. U.S. government 9.6 3.7 11.6 4. Other 4.4 -. 7 39.1 33.0 26.7 38.6 208.7 4.7 4.0 4.9 4.1 5.3 2,225.5 9.5 13.3 602.3 -. 1 2.8 943.0 407.3 Loans 5. 4.0 6. Business 7. Real estate 4.5 8. Consumer 9. Security 10. -1.8 Other -2.0 7.8 -. 0 -1.5 9.0 11.3 10.5 10.1 12.4 18.2 35.1 25.3 -18.3 19.3 16.1 -93.6 76.8 -.6 -10.8 7.7 19.8 8.6 196.1 -14.0 Short- and intermediate-term business credit 11. Business loans net of bankers acceptances 12. Loans at foreign branches 2 -2.0 -12.1 -2.5 13. Sum of lines 11 and 12 14. Commercial paper issued by nonfinancial firms 4.4 -1.1 15. Sum of lines 13 and 14 16. Bankers acceptances, U.S. 3, 4 trade-related 4 17. Loans at finance companies 18. Total (sum of lines 15, 16, and 17) -1.7 8.3 5.0 9.9 11.0 1.9 -7.4 -44.4 28.8 45.1 3.4 10.3 12.2 -10.6 -29.8 -11.0 151.5 7.6 766.1 -1.6 -B.2 -3.0 3.6 -12.2 -22.5 -. 5 .1 -1.2 -12.2 -2.5 17.9 9.3 .5 2.1 592.5 22.1 614.6 23.6 17.4 n.a. 21.0 9.4 18.3 n.a. 312.9 3.3 6.9 n.a. 1,095.2 1. Except as noted, levels are averages of Wednesday data and percentage changes are based on averages of Wednesday data; data are adjusted for breaks caused by reclassification; changes are measured from preceding period to period indicated. 2. Loans to U.S. firms made by foreign branches of dcmestically chartered banks. 3. Acceptances that finance U.S. imports, U.S. exports, and dcaestic shipment and storage of goods. 4. Changes are based on averages of month-end data. 5. March 1994. p Preliminary. n.a. Not available. 5 5 -20SELECTED FINANCIAL MARKET QUOTATIONS (Percent except as noted) 1993 Instrument Mid-Oct lows SHORT-TERM RATES 2 Federal funds 3 Treasury bills 3-month 6-month 1-year Commercial paper 1 month 3-month Large negotiable CDs 1-month 3-month 6-month 4 Eurodollar deposits 1-month 3-month Bank prime rate 1994 Feb Change to May i2 FOMC.'i 3 Mar 22 May .1 1 1-Z 12 1994 From Mid-Oct! From lows Feb 3 MFro Mar FM 2: 3.07 3.07 3.22 3.73 0.66 0.66 0.51 3.01 3.09 3.23 3.13 3.27 3.52 3.52 3.87 4.19 4.13 4.71 5.18 1.12 1 62 1 95 1i.00 1.44 1.66 0.61 0.84 0.99 3.13 3.23 3.16 3.64 4.37 1 .24 3.25 3.87 4.72 1.49 1.21 1.47 0.73 0.85 3.08 3.22 3.23 3.11 3.25 3.41 3.54 3.80 4.07 4.32 4.67 5.10 1.24 1.45 1.87 1.21 1.42 1.69 0-78 0.87 1 .03 3.06 3.25 3.06 3.25 3.50 3.81 4.31 4.75 1.25 1.50 1.25 1.50 0.81 0.94 6.00 6.00 6.00 6.75 0.75 0.75 0.75 4.06 4.60 5.49 6.53 2.47 5.19 5.81 6.55 7.36 5.78 6.31 6.94 7.57 2.17 1.79 1 .04 0.81 0.63 5.41 5.49 6.06 6.60 1.19 0.54 6.79 7.35 7.76 8.46 1.67 .11 6.74 4.14 6.97 4.12 7.76 4.60 8.53 5.25 1 79 1.56 0.77 1.11 1.13 0.65 INTERMEDIATE- AND LONG-TERM RATES U.S. Treasury 3-year 10-year 30-year (constant maturity) 5 Municipal revenue (Bond Buyer) Corporate--A utility. recently offered 6 Home mortgages FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate 1989 Record high Stock exchange index Level Dow-Jones Industrial NYSE Composite NASDAQ (OTC) Wilshire 3978.36 267.71 803.93 4804.31 Date 1/31/94 2/2/94 3/18/94 2/2/94 1994 Percentage change to May 12 111111~ Low. Jan. 3 FOMC.' Mar 22 2144.64 154.00 378.56 3864.85 2718.59 4705.03 One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is average for maintenance period ending 1994. May 11 3. Secondary market. Rates are as of the close-on March 21. 1994. 259.91 797.30 0 70 r May 12 3652.84 245.55 719.61 4408.29 From From record high 1989 low From FOMC. Mar 22 70.32 59.45 90.09 62.15 -5.49 -5.52 -9.74 -6.31 -8.18 -8.28 *10.49 -8.24 4. Bid rates for Eurodollar deposits at 11 a.m. London time. 5. Most recent observation based on one-day Thursday quote and futures market index changes. 6. Quotes for week ending Friday previous to date shown.
@FedFRASER