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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 16, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1997 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY . . . . . 1 1 University of Michigan Survey Research Center: Survey of Consumer Attitudes .. . . . . ..... Private housing activity . . . . . . . . . . . . 3 4 Consumer sentiment Housing starts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tables Chart . . . . . . . . . . . . . . 4 . . . . . . . . . . . . . . 5 Selected financial market quotations . . . . . . . . . 7 Private housing starts . . THE FINANCIAL ECONOMY Selected interest rates . Table Chart Selected interest rates . . . . . . . . .. . 6 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Consumer Sentiment According to the preliminary report, the Michigan SRC index of consumer sentiment surged in early May, reaching an all-time high of 104.6. The index of expected conditions rose 6.1 points, as households reported decidedly more favorable expectations of their personal financial situations and of business conditions in the next twelve months. The index of current conditions slipped a bit in early May but remained at a very high level. Among questions not included in the overall index, results were also upbeat. The index of car buying conditions advanced strongly, reaching the highest level since April 1994. The index of house buying conditions also posted a solid gain in early May. In their attitudes towards buying cars and homes, consumers' concerns about rising interest rates diminished in May, after increasing appreciably in April. The expected change in unemployment over the next year declined sharply, continuing a broad downward trend that began in early 1996. The mean value of expected inflation over the coming year rose 0.1 percentage point to 3.8 percent, while the median was unchanged at 3.0 percent. Both the mean and median values of expected inflation over the next five to ten years moved up 0.2 percentage point, to 3.8 and 3.1 percent respectively. Housing Starts Total private housing starts rose 2.6 percent in April to 1.47 million units because of a jump in construction of multifamily housing units. Revisions boosted the starts estimates for February and March by 32,000 units and 10,000 units, respectively. Estimates of permit issuance were revised back to January 1995, but most of the changes were negligible. The rise in starts at the national level almost entirely reflected an 11-1/4 percent surge in the South to one of the highest levels on record for that region. 0.7 percent. Starts in the Midwest edged up Starts were off about 7 percent in both the Northeast and the West. Single-family starts were about unchanged in April at 1.12 million units, but permits for single-family construction rose nearly 3 percent. The level of permit issuance suggests that -2single family construction may be marginally higher than is indicated by the level of starts. Multifamily starts jumped to 355,000 units nearly 11 percent in April However an increase of permits for multifamily units dropped following a large rise in March, suggesting that the bulge in multifamily starts likely is transitory May 16, 1997 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1996 Sep 1996 Oct 1996 Nov 1996 Dec 1997 Jan 1997 Feb 1997 Mar 1997 Apr 94.7 102.0 90.1 96.5 106.6 89.9 99.2 107.5 93.9 96.9 104.9 91.8 97.4 106.8 91.3 99.7 107.2 94.9 100.0 109.8 93.6 101.4 115.2 92.5 104.6 113.9 98.6 Personal financial situation Now compared with 12 months ago* Expected in 12 months* 109 130 115 127 121 133 117 132 116 128 114 134 119 134 132 130 125 143 Expected business conditions Next 12 months* Next 5 years* 127 105 131 103 137 108 130 107 136 103 135 113 138 105 130 113 145 109 Appraisal of buying conditions Cars Large household appliances* Houses 134 155 149 132 161 159 135 158 157 134 155 156 141 160 162 130 164 166 135 166 155 136 167 153 150 171 162 40 62 37 62 43 70 41 63 45 71 39 67 37 66 41 68 52 75 112 114 110 110 114 107 112 113 106 Mean 4.3 4.2 4.0 3.9 4.1 3.8 3.5 3.7 3.8 Median 3.2 3.0 3.0 3.0 3.0 3.0 2.8 3.0 3.0 4.1 3.2 4.2 3.0 3.7 3.0 3.9 3.0 4.0 3.1 3.7 3.1 3.6 3.0 3.6 2.9 3.8 3.1 1997 May (p) 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 Expected inflation - next 12 months Expected inflation - next 5 to 10 years Mean Median * -- 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. Private Housing Activity (Millions of units; seasonally adjusted annual rate) 1996 1996 Q3 r r Q4 r 1997 Feb.r Q1r Mar.r Apr.P All units Starts Permits 1.48 1.43 1.49 1.42 1.42 1.38 1.45 1.43 1.55 1.44 1.44 1.46 1.47 1.45 Single-family units Starts Permits New home sales Existing home sales 1.16 1.07 .76 4.09 1.18 1.06 .79 4.09 1.09 1.01 .76 4.00 1.16 1.05 .82 4.08 1.24 1.07 .83 4.23 1.12 1.03 .81 4.11 1.12 1.06 n.a. n.a. Multifamily units Starts Permits .32 .36 .31 .36 .33 .38 .30 .38 .32 .37 .32 .42 .36 .38 Mobile homes Shipments .36 .37 .35 .35 .35 .36 n.a. Note. p Preliminary. r Revised. n.a. Not available. Private Housing Starts (Seasonally adjusted annual rate) Millions of units I A 1 1977 I I I 1979 I I I I 1981 1983 1985 I I I 1987 1 I 1989 I I I 1991 I 1993 I I I 1995 I Apr. f I 1997 -5THE FINANCIAL ECONOMY Selected Interest Rates Attached are the charts on selected interest rates usually printed on the back of the green Greenbook Part 2 financial sheet at the beginning of the section Selected Interest Rates Short-Term Percent Percent 8 Daily FOMC 3/25 - 7 : * * * . Federal funds - : S ... - 6 .* 5.. Three-month T-bill 4 3 I I I 3/28 4/4 4/11 I 1991 1992 1993 1994 1995 1996 1997 3/21 I 4/18 1997 I I 1 4/25 5/2 5/9 Long-Term Percent Percent Weekly/Daily FOMC 3/25 Corporate bond (weekly) Mortgage rate (weekly) Thirty-year T-bond (daily) 1991 1992 1993 1994 1995 1996 1997 3/21 3/28 4/4 4/11 4/18 1997 4/25 5/2 5/9 2 Selected Financial Market Quotations' (Percent except as noted) 1996 Instrument 1997 Change to May 15, from: Feb. July FOMC,* Feb. July FOMC,* low high Mar. 25 May 15 low high Mar. 25 5.15 5.39 5.29 5.51 0.36 0.12 0.22 4.76 4.67 4.55 5.21 5.40 5.64 5.25 5.35 5.53 4.99 5.31 5.51 0.23 0.64 0.96 -0.22 -0.09 -0.13 -0.26 -0.04 -0.02 5.27 5.12 5.50 5.59 5.61 5.66 5.62 5.70 0.35 0.58 0.12 0.11 0.01 0.04 5.21 5.12 4.99 5.44 5.59 5.83 5.56 5.63 5.77 5.60 5.71 5.89 0.39 0.59 0.90 0.16 0.12 0.06 0.04 0.08 0.12 5.13 5.13 5.38 5.56 5.50 5.56 5.56 5.69 0.43 0.56 0.18 0.13 0.06 0.13 8.25 8.25 8.25 8.50 0.25 0.25 0.25 4.98 5.58 6.02 6.62 7.06 7.19 6.45 6.72 6.94 6.39 6.67 6.88 1.41 1.09 0.86 -0.23 -0.39 -0.31 -0.06 -0.05 -0.06 n.a. n.a. 3.47 3.57 n.a. n.a. 0.10 Municipal revenue (Bond Buyer)5 5.67 6.24 6.06 5.91 0.24 -0.33 -0.15 Corporate-A utility, recently offered 7.18 8.23 8.11 7.98 0.80 -0.25 -0.13 9.57 10.36 9.66 9.58 0.01 -0.78 -0.08 6.94 5.19 8.42 6.01 7.94 5.71 7.91 5.82 0.97 0.63 -0.51 -0.19 -0.03 0.11 Short-term rates Federal funds 2 Treasury bills 3 3-month 6-month 1-year Commercial paper 1-month 3-month Large negotiable CDs3 1-month 3-month 6-month Eurodollar deposits4 1-month 3-month Bank prime rate Intermediate- and Long-term Rates U.S. Treasury (constant maturity) 3-year 10-year 30-year U.S. Treasury indexed bond High-yield corporate 6 Home mortgages 7 FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate 1996 Record high Percentage change to May 15, from: 1997 July Record FOMC,* July FOMC,* Level Date low Mar. 25 May 15 high low Mar. 25 Dow-Jones Industrial 7333.55 5/15/97 5346.55 6905.25 7333.55 0.00 37.16 6.20 S&P 500 Composite 841.88 5/15/97 626.65 790.89 841.88 0.00 34.35 6.45 1388.06 1/22/97 1042.37 1242.64 1353.58 -2.48 29.86 8.93 370.65 1/22/97 307.78 349.48 364.04 -0.68 19.61 4.17 Stock exchange index NASDAQ (OTC) Russell 2000 Wilshire 7924.24 5/15/97 6099.34 7501.44 7924.24 0.00 29.92 5.64 1. One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is the average to date for maintenance period ending May 21,1997. 3. Secondary market. 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. Merrill Lynch Master II high-yield bond index composite. 7. Quotes for week ending Friday previous to date shown. * Figures cited are as of the close on March 24, 1997.
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