Greenbook/Tealbook
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
October 31, 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
Page
THE DOMESTIC NONFINANCIAL ECONOMY New home sales . . . . .
1
...........
.....
. . .....
.............. .
1
Tables ........... .. The market for new houses . . . .. Changes in manufacturing and trade inventories . . . . ...
3 4
Manufacturers' inventories .
.
Inventories relative to sales .
. . . .
.
4
. . ...
. . . . . . . .
THE FINANCIAL ECONOMY Tables Monetary aggregates
. .....
. . . . . .
. .
. . . . .
.
5
Commercial bank credit and short- and intermediateterm business credit ... ..
. . . . . .
. . .
. .
.
Selected financial market quotations . . . . . . . . . . . .
6
7
INTERNATIONAL DEVELOPMENTS Foreign exchange markets . . . . . . . . . . . . .............. U.S. merchandise trade - September . . . . . . . . . . . . . . . . . . . . .. Import and export prices - 1986-Q3. ... .
9 10
SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY New home sales Sales of new homes rose 11 percent in September to a 690,000 annual rate.
The increase in September, together with upward revisions to figures
for July and August, brought third-quarter sales to 670,000, well below the high first-half average but about the same as the pace for 1985 as a whole. The average price of new homes sold in September was $114,000, up 11 percent from one year earlier.
The inventory of unsold new homes registered
a small increase in the third quarter, reaching 357,000 units, but remains within the range of recent quarterly observations. Manufacturers' inventories The book value of manufacturers' inventories fell $8 billion at an annual rate in September, after a $14 billion decline in the previous month. Factory shipments rose 1.5 percent last month, and the inventory-to-shipments ratio for all manufacturing fell from 1.44 to 1.41, the lowest since November 1985. Inventories at durable goods industries rose at a $2 billion annual rate in September.
The September rise, only the second in the past 15
months, reflected a sharp increase in aircraft stocks.
Outside of aircraft
and parts, the nonelectrical machinery (primarily office and computing machinery and steel industries continued to report book-value inventory reductions in September, but stocks at other durable goods industries appear to have
remained stable.
Among nondurable goods industries, inventories of food
products and petroleum both fell sharply.
With petroleum prices fluctuating
over the summer, it is not clear to what extent the drop in that industry's book value inventories may reflect price developments. For the third quarter as a whole, factory inventories fell at a $6-1/2 billion annual rate in book value terms-only slightly different from the drop that BEA had assumed when the preliminary GNP estimates for the third quarter were prepared.
THE MARKET FOR NEW HOUSES
1986 1985
Q2r
Q3P
Julyr
1986 Aug.r
688
796
670
695
624
690
Average ($1,000, NSA) (Percent change from year earlier)
100.8
112.0
114.9
116.3
113.8
114.1
(3.3)
(11.4)
(14.3)
(17.0)
(14.7)
(11.2)
Median ($1,000, NSA) (Percent change from year earlier)
84.3
92.1
93.5
91.6
91.7
(5.4)
(9.3) (11.1)
Sales Volume (Thousands of units,
SAAR)
Sept.P
Sales Price
92.4
(13.9) (10.0)
(8.4)
Inventory
Units for sale (Thousands of units, end of period)
Months'
(At current sales rate) Note:
349
340
357
349
354
357
6.2
5.2
6.4
6.2
6.8
6.3
supply
Months' supply data derived by Census Bureau by seasonal adjustment of the ratio of homes for sale to homes sold. It may, therefore, not agree with the seasonally adjusted components shown on the table.
r-revised. p--preliminary.
CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates)
1985 Q4
Q1
1986 Q2
Q3
17.6 -8.6 6.1 20.1 19.9 .2
20.1 -9.3 4.5 24.9 15.1 9.8
2.9 -4.6 6.9 .6 -1.4 2.0
--6.4 --- 11.0 -10.5 3.6 17.8 15.9 1.9
29.8 -5.3 6.8 28.3 17.2 11.0
1.6 1.0 4.6 -4.0 -1.8 -2.3
1986 Aug.r
Sept.P
35.8 2.4 11.5 21.9 20.1 1.8
-7.9 -13.7 11.8 -6.0 -9.9 3.9
-7.9 -
22.8 10.1 17.0 -4.3 -6.0 1.7
-4.6 -11.5 19.4 -12.4 -15.0 2.6
July
Book Value Basis: Total Manufacturing Wholesale Retail Automotive Ex. auto Constant Dollar Basis: Total Manufacturing Wholesale Retail Automotive Ex. auto
----
INVENTORIES RELATIVE TO SALES
Book Value Basis:
1985 Q4
Q1
-
1
1986 Q2
Q3
July
1986 Aug.r
Sept.P
Cyclical Reference Points 2 81 low 82 high
Total Manufacturing Wholesale Retail Automotive Ex. Auto
1.39 1.60 1.06 1.37 1.57 1.31
1.53 1.77 1.28 1.46 1.90 1.37
1.36 1.42 1.18 1.43 1.65 1.37
1.38 1.43 1.20 1.47 1.78 1.38
1.39 1.43 1.23 1.45 1.70 1.38
1.42 --
1.38 1.44 1.22 1.45 1.72 1.37
1.38 1.44 1.23 1.42 1.63 1.36
1.41 -
1.58 1.88 1.26 1.38 1.54 1.31
1.72 2.04 1.45 1.49 1.90 1.41
1.54 1.72 1.30 1.48 1.66 1.44
1.55 1.72 1.31 1.52 1.83 1.44
1.54 1.70 1.32 1.48 1.74 1.41
-
1.53 1.70 1.30 1.47 1.73 1.40
1.52 1.71 1.31 1.44 1.56 1.40
-
Constant Dollar Basis: Total Manufacturing Wholesale Retail Automotive Ex. auto
1. Ratio of end-of-period inventories to average monthly sales for the period. . Highs and lows are specific to each series and are not necessarily coincidental. -- Revised estimates. p-Preliminary estimates.
MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1 1984:Q4 to 1985:Q4 ----
1. 2. 3.
M1 M2 M3
11.9 8.7 7.7
Q3
1986 Aug.
Percentage
change
at annual
15.8 10.4 9.0
17.4 11.2 10.1
Q2
20.8 11.1 8.9
October 31, 1986
Sept. rates
Oct.pe
Growth from Q4 1985 to Oct. 1 9 8 6 Pe
----
9.9 7.4 8.8
14-1/2
9 9 Levels in billions of dollars Sept. 1986
Selected components 4.
Currency
7.5
6.2
7.3
10.1
5.4
10
179.8
5.
Demand deposits
8.6
15.2
14.4
14.6
1.6
5
292.2
6.
Other checkable deposits
22.3
25.6
31.2
39.4
25.6
34
215.1
7.
M2 minus M12
7.7
8.7
9.1
7.9
6.6
8
2047.5
20.0
-2.3
28.3
41.8
55
72.3
9.3 9.1
27.3 5.7
13.8 6.3
3.6 5.5
11.4 7.1
29 5
202.2 881.5
19.0 -0.6 5.1
13.2 -3.1 7.3
18.5 -9.0 5.9
19.5 -12.6 4.1
20.6 -10.9 1.2
21 -18 2
508.9 372.6 892.6
13.7 -0.4
13.8 2.6
18.9 -3.7
17.1 -5.7
10.1 -5.7
20 -12
393.7 498.9
3.8
3.4
6.0
0.0
14.0
-9
683.9
-1.8 -8.8 11.0
-1.1 -3.0 2.4
5.1 7.3 2.2
-2.1 -2.6 -2.2
-9 -11 -7
446.8 281.1 165.7
3
84.4 78.4 80.6
8. 9. 10. 11. 12. 13. 14. 15. 16.
Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 3 plus MMDAs, NSA Small time deposits 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: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 6 27. Other
-30.7
11.1
39.2
30.9
51.1
53.5
-4.0 -4.9
19.3 6.1
15.2 -6.5
9.6 -9.1
41.2 36.8
-5 -42
Average monthly change in billions of dollars -
-5.5 -2.6 -2.9 0.4 1.1
-1.7 -1.2
3.9 0.7 3.2
5.9 4.2 1.7
4.0 -0.6 4.6
-12 -3 -9
484.3 342.0 142.3
-0.2 3.4
0.0 1.8
5.2 -0.7
-8 -1
-25.0 167.3
U.S. government deposits at commercial 7 0.2 16.0 0.9 -0.8 --1.6 2.9 -3 banks . 0 1. Ouarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly 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 (MMDRs), not seaCommercial bank savings deposits excluding MMDAs increased during September and October 1986 at sonally adjusted. institutions, savings deposits excluding lMMDs increased At thrift rates of 36.0 percent and 38 percent, respectively. during September and October 1986 at rates of 15.6 percent and 25 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 pe-preliminary estimate 28.
6 COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)1
1986 Q1
Q2
03p -
1.
2.
Total loans and securities at banks Securities
Aug.
Sept.
Octp
Levels in bil. of dollars OctoberP
Commercial Bank Credit
9.3
3.9
13.0
13.8
11.5
3
2033.6
2.0
4.9
31.6
29.0
28.2
0
494.7
18
298.6
3.
U.S. government securities
-5.3
7.9
28.1
23.1
13.2
4.
Other securities
12.8
0.7
36.8
40.0
51.2
11.6
3.6
7.3
8.9
6.1
5
1538.9
4.0
0.7
5
513.0
5.
Total loans
-26
196.1
6.
Business loans
5.3
2.0
1.7
7.
Security loans
102.7
-62.7
14.1
8.
Real estate loans
13.1
13.3
13.6
14.7
11.4
11
470.6
9.
Consumer loans
11.0
6.7
5.6
4.7
7.4
5
310.1
8.4
19.4
9.5
13
205.3
10.
7.3
Other loans
-1.6 --
11.
Business loans net of bankers acceptances 2
12.
Loans at foreign branches
13.
Sum of lines 11 & 12
14.
Commercial paper issued by 3 nonfinancial firms
15.
Sums of lines 13 & 14
16.
Bankers acceptances: 4 5 related '
17.
-16.1
-5.4
-112
39.9
Short- and Intermediate-Term Business Credit----
4.0
0.0
507.7
13.5
17.7
0.7
525.4
5.2
1.0
1.7
0.0
-21.5
9.1
5.1
0.2
2.0
3.2
-14.4
-10.3
10.6
60.1
-5.6
87.3
2.1
-1.3
3.2
10.9
-0.2
612.7
-6.2
16.3
2.4
-7.1
1.7
-0.3
16.4
4.6
-19.9
U.S. 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)
4
0.0
n.a.
33.4 (Sept.)
3.1
0.0
n.a.
642.6 (Sept.)
3.8
n.a.
n.a.
n.a.
159.5 (Aug.)
0.5
n.a.
n.a.
n.a.
801.9 (Aug.)
8.9
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)
1984
____ 1985 March
Highs
highs 0___ Hi~hp
lows
1986 FOMC Sept. 23
Federal funds 2
11.63
8.58
6.95
5.83
5.86
-1.09
.03
Treasury bills 3 3-month 6-month 1-year
10.67 10.77 11.13
8.80 9.13 9.25
5.77 5.81 5.79
5.25 5.41 5.49
5.18 5.24
5.38
-. 59 -. 57 -. 41
-.07 -. 17 -. 11
Commercial paper 1-month 3-month
11.42 11.35
8.94 9.12
6.42 6.30
5.78 5.75
5.69 5.62
-. 73 -. 68
-.09 -.13
Large negotiable CDs 3 1-month 3-month 6-month
11.52 11.79 12.30
8.89 9.29 9.92
6.51 6.39 6.35
5.81 5.81 5.82
5.60 5.60 5.60
-.91 -.79 -.75
-.21 -.21 -.22
11.89 12.20
8.89 9.58
6.59 6.55
6.01 5.96
5.93 5.94
-. 66 -. 61
-. 08 -.02
13.00
10.50
8.50
7.50
7.50
-1.00
U.S. Treasury (constant maturity) 3-year 13.49 11.22 10-year 12.02 13.99 30-year 11.97 13.94
6.49 6.98 7.14
6.77 7.58 7.76
6.52 7.31 7.61
.30 .33 .47
-. 25 -. 27 -. 15
Municipal revenue 5 (Bond Buyer index)
11.44
10.25
7.55
7.57
7.30
-. 25
-. 27
Corporate--A utility Recently offered
15.30
13.23
9.15
9.64
9.46
.31
-. 18
14.68 12.31 1984
13.29 11.14
9.86 8.41
Short-term rates
Eurodollar deposits 4 1-month
3-month Bank prime rate
April
Change from: April FOMC O)t
Oct
30-
3
nlows
1
CQe
diate- and long-term rates
Home mortgage rates 6 S&L fixed-rate S&L ARM. 1-yr.
1985 March lows
1986 Record highs
1086.57 85.13 187.16
1247.35 102.46 222.28
1919.71 145.75 285.19
1797.81 135.60 262.65
1878.34 140.26 264.62
-2.16 -3.77 -7.22
225.30
276.18
411.16
353.37
361.05
-12.19
Lows Stock prices Dow-Jones Industrial NYSE Composite AMEX Composite
NASDAQ (OTC)
1. One-day quotes except as noted. ages for two-week reserve maintenance period 2. to date shown. Last observation is the cl average to date for the maintenance period ending
November 5, 1986. 3. Secondary market.
9.95 10.07 .09 -. 12 8.03 -. 38 -. 16 8.19 Percent change from: 1986 Record FOMC FOMC highs Sept. 23 Sept. 23 Oct. 30 4.47 3.43 .75
2.17
4. Averages for statement week closest to date shown. 5. One-day quotes for preceding Thursday. 6. One-day quotes for preceding Friday. e--estimate
INTERNATIONAL DEVELOPMENTS
Foreign Exchange Markets Japanese officials announced a cut in the Bank of Japan's discount rate from 3.5 to 3.0 percent, effective from November 1. is the fourth one since January 30.
This reduction
The most recent cut was from 4.0 to
3.5 percent on April 21. The dollar moved up sharply in reaction to Thursday's betterthan-expected U.S. trade figures and then to the rumors and news that the Bank of Japan was lowering its discount rate.
The announcement of
an accord between Treasury Secretary Baker and Japanese Finance Minister Miyazawa in which they concurred that the realignment of the dollar-yen exchange rate since the Plaza agreement is now broadly consistent with underlying fundamentals provided further impetus for the dollar.
The
dollar's weighted-average value had risen by mid-day Friday to a level about 1-3/4 percent above its value at the last FOMC meeting.
U.S. Merchandise Trade --
September.
The U.S. merchandise trade deficit in September was $12.6 billion ($151 billion at an annual rate), smaller than recorded in either July or August according to Commerce Department Census Basis figures.
For the third quarter as a whole the deficit was slightly
larger than in the second quarter.
These data are not seasonally
adjusted, include insurance and freight charges for imports (CIF value) and are subject to large revisions.
Data on the commodity
composition of trade flows in the third quarter, on a revised basis, will be available next week. U.S. Merchandise Trade Billions of dollars, annual rates Not Seasonally Adjusted, Census Basis Unrevised Revised Exp. Imp. Bal. Exp. Imp. Bal. CIF CIF CIF CIF (6) (2) (3) (4) (5) (1)
BOP Basis Seasonally Adjusted Balance (7)
Year 1985
213
362
-149
213
357
-145
-124
Quarters 1985 - 1 2 3 4
225 217 201 209
350 369 355 373
-125 -152 -153 -164
220 219 199 212
338 360 353 378
-118 -140 -153 -167
-100 -121 -127 -149
215 218 211
389 380 387
-174 -162 -176
212 221 205*
364 -152 384 -163 386* -181*
-146 -144 -150*e
Months 986 - Apr. May June
216 209 229
360 380 399
-145 -171 -170
216 219 229
387 377 388
-171 -158 -159
-155e -140e -135e
July Aug. Sept.
213 211 210
429 371 361
-216 -160 -151
208 203 n.a.
401 -193 371 -168 n.a. n.a.
-160e -140e n.a.
1986 -
1 2 3
e/ FR staff estimate. Average of July and August. */ U.S. Department of Commerce. Source:
Import and Export Prices -- 1986-Q3. Prices of nonoil imports rose 12.2 percent at an annual rate in the third quarter, according to BLS figures.
This was a stronger
rate of increase than in the second quarter and nearly as strong as in the first quarter.
There were strong rises in import prices for most
major trade categories,
but the price of oil imports declined further
in the third quarter. Export prices declined fairly sharply in the third quarter, primarily because of a steep drop in the price of agricultural exports; there were smaller declines in prices of chemicals, crude materials, and fuel exports.
Moderate price increases were recorded for prices of
machinery and transportation equipment and for other manufactured goods exports.
BLS Price Indexes for Merchandise Exports and Imports (% change, AR) 1985 Q3
BLS Price Indexes Exports Imports Oil Nonoil
-4.0 -.4 -6.2 1.6
1986 Q4
.8 5.7 -1.0 9.6
Q1
Q2
Q3
1.2
-1.2
-6.4
-22.1 -78.2 14.5
-21.9 -81.0 4.6
2.9 -39.8 12.2
Cite this document
Federal Reserve (1986, November 4). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19861105_part2
@misc{wtfs_greenbook_19861105_part2,
author = {Federal Reserve},
title = {Greenbook/Tealbook},
year = {1986},
month = {Nov},
howpublished = {Greenbooks, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/greenbook_19861105_part2},
note = {Retrieved via When the Fed Speaks corpus}
}