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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 passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. Content last modified 04/01/2015. Class III FOMC - Internal (FR) September 18, 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 Housing Starts .................................................................................. 1 Exhibits Private Housing Activity.................................................................. 2 Nonfarm Inventory Investment ........................................................ 3 The Domestic Financial Economy .............................................................. 1 Exhibits Commercial Bank Credit ................................................................. 4 Selected Financial Market Quotations ............................................. 5 The International Economy ........................................................................ U.S. Current Account....................................................................... 6 U.S. International Financial Transactions ........................................ 6 Exhibits U.S. Current Account...................................................................... 6 Summary of U.S. International Transactions ................................... 8 -i- 6 Supplemental Notes _____________________________________________________________ The Domestic Nonfinancial Economy Housing Starts Single-family housing starts inched down to an annual rate of 480,000 units in August but remained substantially above the record low reached in the first quarter. Adjusted single-family permit issuance—which usually leads starts activity by a month or so— held steady in August at a level just below the rate of starts. Meanwhile, tight credit conditions and elevated vacancy rates continued to hold back activity in the much smaller multifamily sector, with starts registering another very weak reading of 120,000 units (annual rate) in August. Note: Attached is an updated version of the table on nonfarm inventory investment that appeared on page II-26 of Part 2. The Domestic Financial Economy Update tables on commercial bank credit and selected financial market quotations are attached. -1- -2- Private Housing Activity (Millions of units, seasonally adjusted; annual rate except as noted) 2009 Sector 2008 All units Starts Permits Single-family units Starts Permits Adjusted permits1 New homes Sales Months’ supply2 Existing homes Sales Months’ supply2 Multifamily units Starts Built for rent Built for sale Permits Condos and co-ops Existing home sales Q1 Q2 June July Aug. .91 .91 .53 .53 .54 .53 .59 .57 .59 .56 .60 .58 .62 .58 .58 .36 .36 .37 .43 .41 .42 .48 .43 .45 .49 .46 .47 .48 .46 .47 .49 10.68 .34 11.61 .37 9.55 .40 8.51 .43 7.51 n.a. n.a. 4.35 9.98 4.12 9.69 4.24 8.80 4.33 8.39 4.61 8.03 n.a. n.a. .28 .22 .07 .33 .17 .14 .03 .17 .12 .10 .02 .12 .11 n.a. n.a. .14 .10 n.a. n.a. .10 .12 n.a. n.a. .12 .56 .47 .52 .56 .63 n.a. 1. Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas. 2. At current sales rate; expressed as the ratio of seasonally adjusted inventories to seasonally adjusted sales. Quarterly and annual figures are averages of monthly figures. n.a. Not available. Source: Census Bureau. Private Housing Starts and Permits (Seasonally adjusted annual rate) Millions of units 2.0 2.0 1.8 1.8 Single-family starts 1.6 1.6 1.4 1.4 1.2 1.2 Single-family adjusted permits 1.0 1.0 .8 .8 .6 .6 Aug. .4 .2 .4 .2 Multifamily starts Aug. .0 1999 2000 2001 2002 2003 2004 2005 2006 2007 Note: Adjusted permits equal permit issuance plus total starts outside of permit-issuing areas. Source: Census Bureau. 2008 2009 .0 -3Nonfarm Inventory Investment (Billions of dollars; seasonally adjusted annual rate) 2008 Measure and sector 2009 Q4 Q1 -35.7 -.7 -35.1 -114.9 -63.6 -51.3 -168.6 e -48.1 e -120.5 e Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts -19.8 8.2 -10.2 -17.8 -49.3 -28.9 -8.8 -11.6 -111.0 e -40.0 e -52.4 e -18.6 e Book-value inventory investment (current dollars) Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts -155.9 -65.2 -55.7 -34.9 -143.2 -77.3 -47.3 -18.6 -150.2 -63.6 -62.9 -23.7 Real inventory investment (chained 2005 dollars) Total nonfarm business Motor vehicles Nonfarm ex. motor vehicles Q2 May June July ... ... ... ... ... ... ... ... ... -86.3 e -138.2 e -26.7 e -45.3 e -36.8 e -81.8 e -22.8 e -11.0 e -124.9 -48.4 -49.8 -26.8 -178.0 -68.9 -90.6 -18.5 n.a. n.a. n.a. n.a. -121.4 -43.8 -55.3 -22.3 n.a. Not available. ... Not applicable. e Staff estimate of real inventory investment based on revised book-value data. Source: For real inventory investment, U.S. Dept. of Commerce, Bureau of Economic Analysis; for book-value data, Census Bureau. ISM Customers’ Inventories: Manufacturing Inventory Ratios ex. Motor Vehicles Months 1.9 1.8 1.9 60 Index 60 1.8 Staff flow-of-goods system 1.7 55 55 50 50 45 45 1.7 Aug. 1.6 1.6 1.5 1.5 1.4 1.4 July 1.3 1.3 40 1.2 40 Aug. 1.2 Census book-value data 1.1 1.1 2000 2000 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 2010 Note: Flow-of-goods system covers total industry ex. motor vehicles and parts, and inventories are relative to consumption. Census data cover manufacturing and trade ex. motor vehicles and parts, and inventories are relative to sales. Source: Census Bureau; staff calculation. 35 2000 2000 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 35 Note: A number above 50 indicates inventories are "too high." Source: Institute for Supply Management (ISM), Manufacturing ISM Report on Business. -4Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total Level1 Aug. 2009 2007 2008 H2 2008 Q1 2009 Q2 2009 July 2009 Aug. 2009 9.9 5.1 4.5 -5.5 -3.5 -12.6 -10.6 9,260 Loans2 Total Core To businesses Commercial and industrial Commercial real estate 10.7 9.6 4.6 5.2 2.1 2.7 -7.1 -3.0 -6.6 -5.8 -19.3 -8.7 -17.0 -14.4 6,886 6,120 19.0 9.3 16.6 6.0 11.4 2.9 -13.4 -.7 -15.3 -1.7 -12.1 -5.1 -27.8 -7.8 1,453 1,690 To households Residential real estate Revolving home equity Closed-end mortgages Consumer Memo: Originated3 Other 5.6 5.7 5.6 6.7 6.4 18.7 -3.0 13.0 -7.9 7.2 5.7 .5 -5.2 13.0 -11.2 7.4 4.4 -1.5 -1.4 10.0 -5.6 8.0 1.4 -34.2 -1.5 2.8 -3.2 -7.0 -4.3 -13.0 -9.5 -6.1 -10.8 -8.4 -3.8 -95.6 -12.3 -5.1 -15.2 -9.3 -11.4 -37.8 2,131 606 1,524 847 1,248 766 7.0 -6.1 28.3 6.9 18.6 -7.0 12.9 32.4 -11.2 -.3 5.9 -9.6 6.3 -5.8 25.5 7.7 7.9 7.3 8.5 17.2 -4.3 2,373 1,419 954 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. 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. Source: Federal Reserve. -5- III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2008 Change to Sept. 17 from selected dates (percentage points) 2009 Instrument Sept. 12 June 22 Aug. 11 Sept. 17 2008 Sept. 12 2009 June 22 2009 Aug. 11 2.00 .13 .13 .13 -1.87 .00 .00 1.46 1.80 .20 .34 .18 .28 .10 .20 -1.36 -1.60 -.10 -.14 -.08 -.08 Commercial paper (A1/P1 rates)2 1-month 3-month 2.39 2.75 .30 .63 .22 .29 .18 .22 -2.21 -2.53 -.12 -.41 -.04 -.07 Large negotiable CDs1 3-month 6-month 2.79 3.09 .40 .68 .32 .46 .25 .36 -2.54 -2.73 -.15 -.32 -.07 -.10 Eurodollar deposits3 1-month 3-month 2.60 3.00 .65 1.05 .50 .80 .40 .55 -2.20 -2.45 -.25 -.50 -.10 -.25 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 1.17 2.71 4.04 1.20 2.70 3.97 .97 2.41 3.68 -1.27 -.56 -.25 -.20 -.30 -.36 -.23 -.29 -.29 U.S. Treasury indexed notes5 5-year 10-year 1.33 1.77 1.45 2.10 1.54 1.89 1.01 1.63 -.32 -.14 -.44 -.47 -.53 -.26 Municipal general obligations (Bond Buyer)6 4.54 4.86 4.65 4.20 -.34 -.66 -.45 4.26 4.36 6.62 7.22 10.66 3.97 4.40 5.94 7.58 12.13 3.98 4.35 5.41 6.72 10.61 3.63 4.11 5.05 6.38 9.98 -.63 -.25 -1.57 -.84 -.68 -.34 -.29 -.89 -1.20 -2.15 -.35 -.24 -.36 -.34 -.63 5.78 5.03 5.42 4.93 5.29 4.72 5.04 4.58 -.74 -.45 -.38 -.35 -.25 -.14 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 Sept. 17 from selected dates (percent) 2009 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 D.J. Total Stock Index Level Date June 22 Aug. 11 Sept. 17 Record high 2009 June 22 2009 Aug. 11 14,165 1,565 5,049 856 15,807 10-9-07 10-9-07 3-10-00 7-13-07 10-9-07 8,339 893 1,766 493 9,130 9,241 994 1,970 562 10,243 9,784 1,065 2,127 615 11,008 -30.93 -31.92 -57.87 -28.08 -30.36 17.33 19.31 20.41 24.89 20.58 5.87 7.15 7.97 9.49 7.47 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. June 22, 2009, is the day before the June 2009 FOMC monetary policy announcement. August 11, 2009, is the day before the most recent FOMC monetary policy announcement. _______________________________________________________________________ -6- The International Economy U.S. Current Account Balance of payments data for the second quarter were released on Wednesday. The current account deficit narrowed slightly in the second quarter of 2009 to $395 billion at an annual rate. The decrease relative to the previous quarter was more than accounted for by a shrinking of the deficit on goods and services, as imports have fallen by more than exports. However, this improvement in the goods and services balance was partly offset by a somewhat smaller surplus in investment income and larger deficit in other income and transfers. U.S. Current Account (Billions of dollars, seasonally adjusted annual rate) Goods and Investment Other Period services, income, income and net net transfers, net Annual 2007 -701.4 97.9 -123.1 2008 -695.9 125.6 -135.7 Quarterly 2008:Q3 Q4 2009:Q1 Q2 Change Q3-Q2 Q4-Q3 Q1-Q4 Q2-Q1 Current account balance -726.6 -706.1 -743.8 -578.0 -369.6 -332.0 143.7 92.1 80.4 72.8 -136.7 -133.6 -128.6 -135.9 -736.7 -619.5 -417.8 -395.2 -12.4 165.8 208.3 37.6 31.4 -51.6 -11.7 -7.7 -4.9 3.1 5.0 -7.3 14.2 117.2 201.7 22.6 Source: U.S. Department of Commerce, Bureau of Economic Analysis. U.S. International Financial Transactions The recently released balance of payments data also included more complete information on financial flows in the second quarter. U.S. direct investment abroad and foreign direct investment into the United States remained weak in the second quarter (see lines 6 and 7 of the table “Summary of U.S. International Transactions”), and on net generated an outflow of $19 billion. Transactions by non-banking concerns and other bank flows reported quarterly resulted in an inflow of $54 billion (line 10). -7- The statistical discrepancy for the first half of 2009 was a sizable $111 billion, more than half the current account deficit recorded during the period. This positive discrepancy suggests some over-reporting of the current account deficit or under-reporting of net financial flows. -8-
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