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 16, 1986 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS THE DOMESTIC FINANCIAL ECONOMY Housing market activity. . . . . . . . . .. . . . . . . . .. Producer price index . . . . . . . . . . . . . . . . . . . .. Industrial production . . . . . . . . . . . . . . . . . . . . 1 1 2 Tables Private housing construction . . . . . . . . . . . . Recent changes in producer prices. . . .. . . . . . Industrial production . . . . . . . . . . . . . . . Monetary aggregates . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediate. . . . . . . . . . . . term business credit . Selected financial market quotations . . . . . . . . . . . . . . .. . . . . . .. 3 4 5 6 . ... . . . . 7 8 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Housing market activity Housing starts in April remained in the elevated range recorded in the first three months of the year. At a 2.01 million unit annual rate, starts in April were up 4 percent from a month earlier; the monthly advance was about evenly divided (in percentage terms) between single- and multifamily units. In the first four months of 1986, starts averaged 1.99 million units at an annual rate, well above the 1.7 to 1.75 million units started in each of the previous three years. Issuance of residential building permits rose 3 percent in April. Permit issuance, which tends to be a less volatile measure of the onset of construction activity, has been in line with housing starts in recent months. Producer price index The producer price index for finished goods fell 0.6 percent in April. The decline primarily reflected an 8.4 percent drop in the index for energy products. Gasoline prices decreased 10.4 percent in April, after their record 22 percent drop in March, while natural gas prices were down 5.6 percent--their first major reaction to the lower prices for petroleum products. Finished food prices edged up 0.1 percent in April as sizable increases for coffee and fresh vegetables were largely offset by declines for beef and fish. Excluding food and energy, the PPI increased 0.2 percent in April, about the same pace that has prevailed for the past year. Consumer goods excluding food and energy were up 0.2 percent in April, pushed up by a 1.6 1 2 percent rise in passenger car prices, while capital equipment prices increased 0.3 percent. Intermediate materials prices excluding food and energy fell 0.3 percent in April, with declines registered for a number of products that use petroleum as a primary input. Crude food prices fell 3.1 percent in April after a 1 percent decline in March; the decrease reflected lower prices for livestock and grains. Industrial Production Industrial production increased an estimated 0.2 percent in April following revised declines of 0.8 and 0.7 percent in February and March, respectively. The April increase was concentrated in motor vehicles for consumer and business use, where output rebounded from its March decline. Output of consumer goods increased 0.6 percent in April, after declines in the preceding three months, as auto assemblies rose to a seasonally adjusted annual rate of 8.1 million units following a 7.7 million unit rate in March. Production of durable consumer goods other than motor vehicles again changed little while output of nondurable consumer goods edged up 0.2 percent. Output of business equipment rose 0.6 percent after declines of about 1 percent in each of the previous two months. The increase was spurred by a 6.0 percent gain in transit equipment; in addition to a rise in output of autos for business use, production of trucks and aircraft also advanced. Production of manufacturing, power, and commercial equipment was about unchanged while output of construction, mining, and farm equipment continued to contract. Defense and space equipment, which had declined around the turn of the year, rose in April for the second successive month. Output of materials was again little changed and, on balance, has been stagnant since mid-1984. PRIVATE HOUSING CONSTRUCTION (Thousands of units, SAAR) Percent change 1985 Q41 Starts in Apr. Previous 1986 Q11 Feb.1 Mar. 1 Apr. 2 from Year Month Earlier 1773 1988 2001 1930 2009 4.1 8.5 1074 699 1248 740 1202 799 1207 723 1256 753 4.1 4.1 11.2 4.3 1737 1834 1808 1834 1883 2.7 11.2 1-family 2- or more-family 960 777 1045 789 1033 775 1043 791 1138 745 9.1 -5.8 21.1 -1.2 Mobile home shipments 288 262 266 240 n.a. n.a. n.a. 1-family 2- or more-family Permits issued 1. Revised. 2. Preliminary. n.a.-Not available. RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data) 1 Relative Importance Dec. 1985 1985 1984 1985 Q3 Q4 1986 Q1 -Annual rateFinished goods Consumer foods Consumer energy Other consumer goods Capital equipment 100.0 24.5 12.5 40.3 22.7 1.7 3.5 -4.1 2.2 1.8 1.8 .5 -.3 2.7 2.7 -2.4 -2.9 -11.3 .0 -.9 9.2 16.0 20.7 4.4 5.6 Intermediate materials 2 Exc. energy 95.3 79.6 1.7 2.1 .0 -.1 -1.3 -.7 Crude food materials Crude energy Other crude materials 52.5 31.6 15.9 -1.2 -1.3 -3.4 -6.4 -4.9 -4.3 -20.6 -5.9 -4.4 Mar. 1986 Apr. -Monthly rate- -12.4 -7.5 -67.6 2.9 .7 -1.1 0.3 -13.4 .8 .3 -.6 .1 -8.4 .2 .3 2.9 .0 -11.9 -1.2 -1.3 .0 -1.0 -.3 47.0 -4.0 1.5 -25.2 -50.1 -3.7 -1.0 -8.9 2.6 -3.1 -7.7 1.2 1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds. INDUSTRIAL PRODUCTION (percentage change from preceding period; based on seasonally adjusted data) 1985 Q4 1986 Q1 --Annual rate-- Feb. 1986 Mar. Apr. --Monthly rate-- 1.3 -0.8 -0.7 1.7 1.6 4.9 6.5 4.4 .5 -1.0 1.6 2.9 1.2 -0.9 -1.1 -0.5 -0.7 -1.0 -0.8 -2.7 Equipment Business Defense and space Oil and gas drilling -1.9 -3.5 10.3 -30.2 -3.9 1.7 -4.0 -59.7 -1.7 -1.0 -1.4 -15.2 Intermediate products Construction supplies 2.1 -0.6 5.8 11.0 -0.3 -0.4 2.5 1.4 7.9 -0.1 -0.6 Total Index Products Final products Consumer goods Durable Nondurable Materials Durable goods Nondurable goods Energy materials 2.2 2.2 .4 4.0 -0.3 -.6 -1.2 .2 -0.2 -. 1 -1.1 -0.9 1.0 -16.9 .2 .1 -0.6 -1.1 -0.7 .5 .3 .4 .6 2.0 .2 .0 .6 .5 -18.0 -0.1 .2 .1 .1 .2 -0.2 MONETARY AGGREGATES 1 (Based on seasonally adjusted data unless otherwise noted) 1984:Q4 to 1985:Q4 1985 Q4 Q1 Feb. 1986 Mar. May 16, Apr.P 1986 Growth from Q4 1985 to Apr. 1986 P ------ Percentage change at annual rates --11.9 8.6 7.7 M1 M2 M3 1. 2. 3. 10.7 6.0 6.4 7.7 4.3 7.4 13.9 6.8 6.8 14.5 13.7 10.6 Levels in billions of dollars Apr. 1986P Selected components Currency 7.5 7.4 7.5 7.0 6.9 5. Demand deposits 8.6 7.7 3.0 1.3 17.8 10.5 275.6 6. Other checkable deposits 22.3 18.8 15.0 17.3 13.8 30.5 189.9 7. M2 minus M12 7.6 4.6 3.2 2.4 4.4 13.5 1974.9 18.7 24.2 4.8 -7.1 -19.5 16.2 67.4 9.3 9.1 0.9 5.2 11.1 7.2 22.3 2.8 35.1 7.1 35.4 6.0 191.8 859.3 19.0 -0.6 5.1 11.1 -1.6 1.4 8.7 5.3 4.4 10.4 2.8 6.8 13.9 -3.4 7.7 471.4 387.9 872.8 13.7 -0.4 7.4 -2.9 1.3 6.6 3.7 8.2 6.7 6.7 13.6 3.8 365.5 507.3 3.8 8.0 19.8 15.9 6.9 -1.4 666.7 5.7 5.1 6.8 10.8 14.1 5.2 15.5 18.5 10.0 8.8 7.5 11.4 -2.4 -18.5 27.8 3.7 -1.3 11.8 451.7 286.7 165.0 11.1 -4.4 -4.0 3.1 39.2 -6.0 26.8 47.2 1.5 7.1 31.5 40.7 44.3 18.8 16.6 66.7 -30.3 -19.4 74.1 69.6 79.1 8. 9. 10. 11. 3 plus MMDAs, NSA Small time deposits 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, Thrift institutions Savings deposits, SA, 3 plus MMDAs, NSA Small time deposits M3 minus M24 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA -MEMORANDA: at commercial 23. Managed liabilities banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 6 27. Other 28. 1. 4.1 174.5 4. Average monthly change in billions of dollars -- 475.3 346.7 128.6 0.3 1.0 0.8 3.3 2.4 1.9 -0.4 0.9 1.5 7.6 -7.0 -1.0 -26.5 155.1 U.S. government deposits at commercial 7 17.4 -5.4 1.7 0.9 -0.6 2.1 banks 0.2 Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quar terly changes are calculated on an end-month-of-quarter basis. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seaCommercial bank savings deposits excluding MMDAs increased during March and April 1986 at rates sonally adjusted. institutions, savings deposits excluding MMDAs increased At thrift of 6.7 percent and 8.6 percent, respectively. during March and April 1986 at rates of 8.7 percent and 24.5 percent, respectively. 4. The non-M2 component of M3 is seasonally adjusted as a whole. institutions. 5. Net of large-denomination time deposits held by money market mutual funds and thrift 6. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold for borrowed money (including borrowings from the Federal under agreements to repurchase, and other liabilities Data are partially estimated. Reserve and unaffiliated foreign banks, loan RPs and other minor items). 7. Consists of Treasury demand deposits and note balances at commercial banks. p--preliminary - COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT 1 (Percentage changes at annual rates, based on seasonally adjusted data) 1985 Q3 ---- 1. Feb. Apr.P Levels in bil. of dollars AprilP Commercial Bank Credit --------------------- 8.6 Total loans 9.5 1.6 1944.1 19.6 3.0 4.0 -19.0 -11.7 444.1 -3.5 -4.0 28.1 -12.4 -14.3 264.8 61.3 13.8 -29.7 -28.6 -8.0 179.3 7.4 Other securities 4.1 18.8 4. 9.7 9.0 U.S. government securities 11.8 12.4 Securities 3. 5. Q1 1986 Total loans and securities at banks 2. Q4 ---------------- 1986 Mar. May 16, 9.4 11.8 4.2 18.4 5.6 1500.0 6. Business loans 2.4 5.5 6.6 2.7 16.5 6.0 504.6 7. Security loans -18.0 5.2 99.2 -36.2 186.6 -44.7 46.5 8. Real estate loans 11.2 13.0 11.7 12.4 14.2 13.8 440.6 9. Consumer loans 11.1 8.8 11.6 12.0 10.3 6.5 296.4 12.3 13.5 8.1 -11.3 9.1 -1.7 211.9 10. Other loans ---------11. Business loans net of bankers acceptances 5.5 500.5 -83.2 16.1 14.1 2.3 516.6 -2.7 -27.4 -40.7 82.6 2.1 0.4 7.6 -3.6 -9.8 -3.7 -18.6 n.a. 31.7 (Mar) 1.6 0.2 6.5 n.a. 632.8 (Mar) 157.0 (Mar) 789.8 (Mar) 2.2 14. 15. Sums of lines 13 & 14 16. Bankers acceptances: 4 5 related , U.S. -2.1 -41.5 -68.8 -53.0 4.7 5.1 0.7 55.5 -14.4 11.4 -6.7 Commercial paper issued by 3 nonfinancial firms 16.4 -1.5 Sum of lines 11 & 12 3.4 1.6 13. 6.9 1.9 Loans at foreign branches 5.0 -4.1 2 12. 17. Short- and Intermediate-Term Business Credit --------- -31.7 599.2 trade Line 15 plus bankers acceptances: U.S. trade related 18. Finance company loans to business 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 9.0 4 3.1 19.2 16.4 16.5 13.9 n.a. 1.5 10.9 4.5 3.4 8.0 n.a. n.a.--not available. p--preliminary 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Average of Wednesdays. 4. Based on average of current and preceding ends of month. 5. Consists of acceptances that finance U.S. imports, U.S. exports and domestic shipment and storage of goods. SELECTED FINANCIAL MARKET QUOTATIONS 1/ (percent) 1982/1983 cyclical low 1984 Highs March highs Change from: 1986 1985 FOMC Apr 1 May 15 1985 FOMC highs Apr 1 Short-term rates Federal funds 2/ 8.46 Commercial paper 7.36 6.85 -1.73 -0.51 10.67 10.77 11.13 8.80 9.13 9.25 6.33 6.32 6.30 6.17 -2.63 6.16 -2.97 6.25 -3.00 -0.16 -0.16 -0.05 8.00 1-year 8.58 7.08 7.62 7.73 Treasury bills 3 11.63 11.42 8.94 723 9.12 7.04 6.75 -2.19 11.35 -0.48 -0.41 8.08 8.12 8.20 11.52 11.79 12.30 8.89 9.29 9.92 7.12 6.68 -2.21 6.61 -2.68 6.62 -3.30 -0.44 7.00 6.92 8.68 8.71 11.89 12.20 8.89 9.58 7.34 7.23 6.86 -2.03 6.79 -2.79 10.50 13.00 10.50 9.00 8.50 -2.00 -0.50 10.58 10.74 1-month 5.94 5.84 6.18 -4.40 6.03 -4.71 0.24 0.19 11.22 12.02 11.97 7.01 7.37 -3.857 0.36 0.42 7.47 4.23 7.50 -4.47 7.97 3-month Large negotiable CD's 3/ 3-month 6-month Eurodollar deposits 4/ 1-month 3-month Ba k prime rate n Treasury bill futures June 1985 contract Sept 1986 contract 6.63 -2.49 -0.39 -0.30 Intermediate- and lor-term rates U.S. reasury (ocnstant maturty) 13.49 3-year 9.33 10.12 10-year 13.99 10.27 30-year 13.9 Mlnicipal revee 5/ (Bond Byer inex) Cr 9.21 S&L fied-rate S&L ARM, 1-yr. 11.44 10.25 7.69 7.91 -2.34 0.22 11.64 15.30 13.23 9.14 9.39 -3.84 0.25 12.55 n.a. ate-A utility 6/ Hne mortae rates 6/ 0.03 14.68 12.31 13.29 11.14 10.10 8.67 10.00 -3.29 8.59 -2.55 -0.10 -0.08 1986 Percent change from: 1983 1984 1985 highs Ls Mrch POC 1985 highs Apr 1 May 15 high 1287.20 9.63 29.03 328.91 1086.57 85.13 187.16 225.30 FMC Apr 1 Stock prices Dw-Jones Industrial NYCE Cc psite AM Cazcaiote NAaAQ (U) 1553.10 1790.11 121.90 135.86 246.13 7.43 32516 374.15 1/ Oe-day quotes except as noted. 2/ Averages fbr two-week reserve maintainence period closest to date shMwn. Last observation is the maintenance period endirg ay 21, 1986. 3/ Seondary market. 1774.68 136.29 272.07 3.75 14.27 11.80 10.54 18.63 -0.86 0.32 1.74 3.10 4/ Averages for statement week closest to date shown. 5/ Thursday quotes. 6/ Friday quotes. e-estiat e