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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
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Information Act.

Content last modified 04/01/2015.

Class III FOMC - Internal (FR)

October 30, 2009

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
Real Gross Domestic Product ...................................................................1
Consumer Spending ..................................................................................3
Prices and Labor Costs..............................................................................6
Tables and Charts
Real Gross Domestic Product and Related Items .....................................2
Output per Hour ........................................................................................3
Real Personal Consumption Expenditures ................................................4
Fundamentals of Household Spending .....................................................5
Price Measures ..........................................................................................8
Consumer Prices .......................................................................................9
Broad Measures of Inflation/Surveys of Inflation Expectations.............10
Hourly Compensation and Unit Labor Costs ..........................................11
Change in Employment Cost Index of Hourly Compensation for
Private-Industry Workers/Change in ECI Benefits (unpublished) .......12

The Domestic Financial Economy ............................................................ 7
Tables
Commercial Bank Credit ............................................................... 13
Selected Financial Market Quotations ........................................... 14

-ii-

Supplemental Notes
The Domestic Nonfinancial Economy
Real Gross Domestic Product
According to the BEA’s advance release, real GDP moved up at an annual rate of
3½ percent in the third quarter following a decline at a ¾ percent rate in the second
quarter. The BEA’s third-quarter estimate somewhat exceeded our expectation, as
stronger-than-anticipated estimate of private inventory investment more than offset a
weaker-than-expected final sales.
Final sales accelerated in the third quarter, increasing at an annual rate of 2½ percent
after having risen at a ¾ percent rate in the second quarter. This acceleration was driven
by private domestic expenditures, which turned up in most categories following secondquarter declines. Real personal consumer expenditures increased at an annual rate of
3½ percent in the third quarter after having fallen at an annual rate of 1.0 percent in the
second quarter—a swing that was particularly pronounced in the durable goods category
because of the temporary boost to motor vehicle purchases from the “cash-for-clunkers”
program. Residential investment spending also turned up in the third quarter, rising at an
annual rate of nearly 25 percent, following 14 consecutive quarterly declines. Though
expenditures on business fixed investment continued to contract in the third quarter, the
rate of spending decline moderated a fair bit, in part as a result of a small upturn in
outlays on equipment and software. In the government sector, federal spending posted
another strong quarterly increase, at an annual rate of 7.9 percent, while spending at the
state and local level edged lower. In the external sector, imports of goods and services
were estimated to have increased at an annual rate of 16-½ percent in the third quarter
and exports to have risen at an annual rate of almost 15 percent. On net, trade in goods
and services subtracted about ½ percentage point from the change in real GDP reported
in the advance third-quarter estimate after having boosted the second-quarter change by
more than 1½ percentage points.
The BEA estimated that a slower pace of private inventory liquidation contributed about
a percentage point to the change in real GDP in the third quarter: Real private inventories
fell at an annual rate of $131 billion following a $160 billion decline in the preceding
three-month period.
On the income side of the accounts, real disposable personal income fell at an annual rate
of 3½ percent in the third quarter, retracing much of a second-quarter increase that had
been augmented by one-time economic recovery payments of $250 to beneficiaries of

-1-

-2-

Real Gross Domestic Product and Related Items
(Percent change from previous period at a compound annual rate;
based on seasonally adjusted data, chain-type quantity indexes)
2009:Q1

2009:Q2

2009:Q3

Third

Third

Advance

-6.4

-.7

3.5

-4.1

.7

2.5

.6

-.9

3.4

2.5

-3.1

8.1

Durables

3.9

-5.6

22.3

Nondurables

1.9

-1.9

2.0

-.3

.2

1.2

Business fixed investment

-39.2

-9.6

-2.5

Nonresidential structures

-43.6

-17.3

-9.0

Equipment and software

-36.4

-4.9

1.1

-38.2

-23.3

23.4

Federal government

-4.3

11.4

7.9

State and local government

-1.5

3.9

-1.1

Exports of goods and services

-29.9

-4.1

14.7

Imports of goods and services

-36.4

-14.7

16.4

Inventory investment1

-113.9

-160.2

-130.8

Net exports of goods and services1

-386.5

-330.4

-348.3

Nominal GDP

-4.6

-.8

4.3

Nominal GDI

-5.9

-2.6

n.a.

185.4

249.8

n.a.

59.1

43.8

n.a.

8.3

8.6

n.a.

.2

3.8

-3.4

3.7

4.9

3.3

Item
Gross Domestic Product
Final sales
Consumer spending
Goods

Services

Residential investment

ADDENDA:

Statistical discrepancy2
Change in economic profits2
Profit share3
Real disposable personal income
Personal saving rate (percent)

1. Level, billions of chained (2005) dollars.
2. Billions of dollars.
3. Economic profits as a share of GNP.
n.a. not available.
Source: Bureau of Economic Analysis.

-3-

Social Security and other retirement programs. The personal saving rate fell to
3.3 percent in the third quarter after having jumped to 4.9 percent in the second quarter.
According to the BEA, nonfarm business output rose at an annual rate of 4.0 percent in
the third quarter; this implies that nonfarm business productivity increased at an annual
rate of 7½ percent in the third quarter following an increase at a 7 percent rate in second
quarter.

Output per Hour
(Percent change from preceding period at an annual rate;
seasonally adjusted)

Sector
Nonfarm business
All persons
All employees2

2007:Q3 2008:Q3
to
to
2008:Q3 2009:Q31
1.2
.8

3.8
3.7

2008

2009

Q4

Q1

Q2

Q31

.8
-1.0

.3
1.1

7.0
7.7

7.5
7.2

1. Staff estimates.
2. Assumes that the growth rate of hours of non-employees equals the growth rate of hours of employees.
Source: For output, U.S. Dept. of Commerce, Bureau of Economic Analysis; for hours, U.S. Dept. of Labor,
Bureau of Labor Statistics.

Consumer Spending
Real PCE fell 0.6 percent in September after jumping in August. For the third quarter as
a whole, PCE moved up at an annual rate of about 3½ percent. The recent monthly
volatility was the result of swings in motor vehicle sales during and after the
government’s cash-for-clunkers program. Real outlays for other goods and services
moved up by a robust ¼ percent per month, on average, in the third quarter. While the
spending gains were broad-based across the various categories of goods and services, the
increases for furniture, electronics, and other durable goods were especially pronounced.
Real disposable personal income was reported to have fallen for the fourth consecutive
month in September.
The final October reading from the Reuters/University of Michigan survey indicated that
consumer sentiment edged down relative to September and remained at a level consistent
with only sluggish gains in spending.

-4-

-5-

-6-

Prices and Labor Costs
The latest monthly readings on PCE prices came in broadly similar to our estimates in the
October Greenbook and indicate that consumer price inflation has remained subdued in
recent months. Both total and core PCE prices edged up 0.1 percent in September.
Broader measures of inflation also showed a deceleration in prices over the past year.
The change in GDP prices over the four quarters ending in 2009:Q3 was only ¾ percent
compared with the increase of 2½ percent over four quarters ending a year earlier. GDP
prices excluding food and energy also decelerated over that period, reflecting a drop in
core PCE inflation and a deceleration in both residential and business fixed investment
prices.
After decelerating sharply in the first half of the year, measures of labor costs rebounded
in the third quarter, posting moderate rates of increase. Based on the most recent NIPA
data, we estimate that compensation per hour in the nonfarm business sector (as
published in the productivity and cost release) increased at an annual rate of nearly
2 percent in the third quarter after decreasing at an annual rate of 2¼ percent in the first
half. The fall in this measure of compensation per hour in the first half included a drop of
4¾ percent (annual rate) in the first quarter, which may have reflected a steep decline in
bonus payments; a similar drop in bonuses reported in the employment cost index (ECI).
Following an increase at an annual rate of only ¾ percent over the first half of the year,
the ECI for private industry workers increased at an annual rate of 1¾ percent over the
three months ending in September. The ECI index for wages and salaries, which
increased at an annual rate of 1¾ percent over the three months ending September, was
boosted by gains in several industry categories such as retail trade, accommodation and
food services, and other services, which may reflect the increase in the minimum wage in
July. The ECI index for benefits rose more slowly, increasing at an annual rate of
1 percent over the three months ending in September, as increases in a number of
components were partially offset by declines in the retirement and savings, state
unemployment, and workers’ compensation components.
According to the ECI, employer contributions for health insurance rose 4¾ percent over
the 12 months ending in September, up from a rise of 4 percent over the preceding year.
Taken together, the available indicators thus far provide no evidence that any dramatic
change in the rate of increase of health insurance costs is in the offing. Private surveys—
which typically show somewhat larger increases than the ECI—suggest that overall
premiums (that is, the shares paid by both employers and employees) will rise in the
neighborhood of 6 to 7 percent in 2010, just a bit above the survey results for 2009.

-7-

Among the major plans for public employees, premiums in the Federal Employees Health
Benefits Program are expected to increase 7½ percent, on average, in 2010 after a rise of
6½ percent in 2009. The premiums for the California Public Employees’ Retirement
System are expected to move up 3 percent in 2010 after a 5 percent increase in 2009.

The Domestic Financial Economy
Tables attached

-8-

-9-

-10-

-11-

-12-

-13Commercial Bank Credit
(Percent change, annual rate, except as noted; seasonally adjusted)
Type of credit

Level1
Oct. 2009e

2007

H2
2008

H1
2009

July
2009

Aug.
2009

Sept.
2009

Oct.
2009e

10.0

Total

2008

4.9

4.6

-5.8

-7.1

-6.9

-12.5

-10.8

9,049

Loans2
Total
Core
To businesses
Commercial and industrial
Commercial real estate

10.8
9.6

4.6
5.2

3.1
3.4

-7.2
-4.4

-16.4
-8.8

-15.3
-12.6

-18.3
-17.9

-15.6
-14.4

6,708
5,964

19.0
9.4

16.3
6.0

14.0
3.2

-13.9
-1.6

-15.7
-5.5

-26.5
-6.8

-31.9
-9.2

-28.5
-10.3

1,378
1,663

To households
Residential real estate
Revolving home equity
Closed-end mortgages
Consumer
Memo: Originated3
Other

5.5
5.6
5.5
6.8
6.5
18.7

-3.0
13.0
-7.9
7.1
5.6
.7

-5.2
12.8
-11.1
7.6
4.5
1.3

-1.4
6.6
-4.4
.0
-1.7
-25.4

-8.0
-6.5
-8.6
-5.2
-2.3
-72.4

-11.3
-5.3
-13.7
-3.0
-7.4
-35.8

-21.1
-5.7
-27.1
-3.2
-5.7
-22.0

-14.0
-4.2
-17.9
-.6
-2.0
-25.1

2,074
601
1,473
848
1,243
743

7.7
-5.4
28.1

6.0
15.0
-4.2

9.8
29.0
-12.0

-1.0
-1.7
.1

22.1
48.3
-13.6

18.7
33.4
-2.3

4.9
11.9
-5.5

3.2
6.6
-2.1

2,341
1,407
934

Securities
Total
Treasury and agency
Other4

Note: Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data have been
adjusted to remove the effects of mark-to-market accounting rules (FAS 115) and the initial consolidation of certain variable
interest entities (FIN 46). Data also account for the effects of nonbank structure activity of $5 billion or more.
1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels.
2. Excludes interbank loans.
3. Includes an estimate of outstanding loans securitized by commercial banks that retained recourse or servicing rights.
4. Includes private mortgage-backed securities; securities of corporations, state and local governments, and foreign governments;
and any trading account securities that are not Treasury or agency securities.
e Estimated.
Source: Federal Reserve.

Total Loans at Commercial Banks

Allowance for Loan Losses at Commercial Banks
Billions of dollars

Billions of dollars
4500

NBER
Monthly
peak

140

NBER
Monthly
peak

120

4000

100

Large*

3500

Large*

Oct.
Oct.

3000
Small**

Small**

2500

Feb.

June Oct.
2008

Feb.

June Oct.
2009

60
40

2000
June Oct.
2007

80

20
June Oct.
2007

Feb.

June Oct.
2008

Feb.

June Oct.
2009

Note: The NBER peak is the last business cycle peak as defined by the National Bureau of Economic Research (NBER).
* Large domestically chartered commercial banks are defined as the top 25 domestically chartered commercial banks, ranked by domestic
assets as of the previous commercial bank Call Report to which the H.8 release data have been benchmarked.
** Small domestically chartered commercial banks are defined as all domestically chartered commercial banks not included in the top 25.
Source: Federal Reserve.

-14Selected Financial Market Quotations
(One-day quotes in percent except as noted)
2008

Change to Oct. 29 from
selected dates (percentage points)

2009

Instrument
Sept. 12

Aug. 11

Sept. 22

Oct. 29

2008
Sept. 12

2009
Aug. 11

2009
Sept. 22

2.00

.13

.13

.13

-1.87

.00

.00

1.46
1.80

.18
.28

.11
.20

.06
.17

-1.40
-1.63

-.12
-.11

-.05
-.03

Commercial paper (A1/P1 rates)2
1-month
3-month

2.39
2.75

.22
.29

.18
.21

.19
.22

-2.20
-2.53

-.03
-.07

.01
.01

Large negotiable CDs1
3-month
6-month

2.79
3.09

.32
.46

.25
.35

.22
.32

-2.57
-2.77

-.10
-.14

-.03
-.03

Eurodollar deposits3
1-month
3-month

2.60
3.00

.50
.80

.40
.55

.30
.45

-2.30
-2.55

-.20
-.35

-.10
-.10

Bank prime rate

5.00

3.25

3.25

3.25

-1.75

.00

.00

Intermediate- and long-term
U.S. Treasury4
2-year
5-year
10-year

2.24
2.97
3.93

1.20
2.70
3.97

.99
2.44
3.74

.99
2.44
3.76

-1.25
-.53
-.17

-.21
-.26
-.21

.00
.00
.02

U.S. Treasury indexed notes5
5-year
10-year

1.33
1.77

1.54
1.89

1.11
1.69

.76
1.51

-.57
-.26

-.78
-.38

-.35
-.18

Municipal general obligations (Bond Buyer)6

4.54

4.65

4.20

4.39

-.15

-.26

.19

4.26
4.36
6.62
7.22
10.66

3.98
4.35
5.41
6.72
10.61

3.67
4.12
5.11
6.36
9.90

3.65
4.09
5.16
6.28
9.59

-.61
-.27
-1.46
-.94
-1.07

-.33
-.26
-.25
-.44
-1.02

-.02
-.03
.05
-.08
-.31

5.78
5.03

5.29
4.72

5.04
4.52

5.03
4.57

-.75
-.46

-.26
-.15

-.01
.05

Short-term
FOMC intended federal funds rate
Treasury bills1
3-month
6-month

Private instruments
10-year swap
10-year FNMA7
10-year AA8
10-year BBB8
10-year high yield8
Home mortgages (FHLMC survey rate)
30-year fixed
1-year adjustable

Record high

Change to Oct. 29
from selected dates (percent)

2009

Stock exchange index
Level
Dow Jones Industrial
S&P 500 Composite
Nasdaq
Russell 2000
D.J. Total Stock Index

Date

Aug. 11

Sept. 22

Oct. 29

Record
high

2009
Aug. 11

2009
Sept. 22

14,165
1,565
5,049
856
15,807

10-9-07
10-9-07
3-10-00
7-13-07
10-9-07

9,241
994
1,970
562
10,243

9,830
1,072
2,146
621
11,083

9,963
1,066
2,098
580
10,924

-29.67
-31.88
-58.45
-32.20
-30.89

7.80
7.22
6.49
3.22
6.64

1.35
-.52
-2.27
-6.52
-1.43

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. Derived from a smoothed Treasury yield curve estimated using all outstanding securities and adjusted for the carry effect.
6. Most recent Thursday quote.
7. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities.
8. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data.
_______________________________________________________________________
NOTES:
September 12, 2008, is the last business day before Lehman Brothers Holdings filed for bankruptcy.
August 11, 2009, is the day before the August 2009 FOMC monetary policy announcement.
September 22, 2009, is the day before the most recent FOMC monetary policy announcement.
_______________________________________________________________________


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102