greenbooks · May 18, 1987

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.

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 15, 1987

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 NONFINANCIAL ECONOMY

Industrial production Producer price index .

Page

. . . . . . . . . . . . . . ........

. . . . . . . . . . . . .

.. . . . . . . . . . . . . .

Manufacturing and trade inventories

. . .

Tables Industrial production

. . . . . . . .

...

. . . . . . ..

Recent changes in producer prices. . . . . . . . . . . . Changes in manufacturing and trade inventories . . .

Inventories relative to sales

. . . . .. . . . . . . . .

. .

THE FINANCIAL ECONOMY Tables Monetary aggregates

. . . . . . . . . . . . . . . . . . . .

Commercial bank credit and short- and intermediateterm business credit . . . . . . . . . . . . . . ..

. ..

Selected financial market quotations . . . . . . . . . . . .

INTERNATIONAL DEVELOPMENTS U.S. Merchandise trade . . . . . . . . . . . . . . . . . ..

SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Industrial Production Industrial production declined an estimated 0.4 percent in April, after falling 0.2 percent in March.

Much of the April decline in total

production was related to sharp cuts in the output of motor vehicles; however, smaller declines were widespread elsewhere.

Output of consumer

goods declined 0.9 percent in April after decreasing 0.4 percent in March. A sharp reduction in auto assemblies-from a 7.9 million unit rate in March to a 7.2 million unit pace-accounted for a large part of the decline in production of consumer goods.

Moreover, output of home goods and nondurable

consumer goods, both of which advanced in the last quarter of 1986, fell again in April.

Business equipment production decreased 0.4 percent, led

by weakness in transit equipment (particularly motor vehicles); and output of defense and space equipment was about flat for a second month.

The

production of both construction and business supplies, which was quite strong during the second half of last year, has been, on average, little changed since December.

Output of materials was about unchanged in April

as declines in durable and nondurable goods materials offset a small rise in energy materials. Producer Price Index

The producer price index rose 0.7 percent in April.

Consumer food

prices jumped 1.5 percent as a pickup in livestock prices was translated into higher finished food prices.

Moreover, large increases in the prices

of cattle, hogs, and poultry pushed the index for crude foods up 4.3 percent, and recent commodity prices suggest a further rise in May.

However, supply

indicators point to increased meat production as the year progresses, and futures prices of cattle and hogs show a sharp reversal of the recent runup.

Consumer energy prices also rose in April after leveling

off in March, as gasoline, fuel oil, and natural gas all posted sizable increases; and wellhead prices of crude petroleum turned up again last month. Apart from food and energy, price increases, on average, were more moderate than in March.

The PPI for other consumer goods was up 0.2 percent,

and capital equipment prices rose 0.3 percent.

Both these indexes were in-

fluenced importantly by an uptick in manufacturers' prices for automobiles and light trucks.

Elsewhere, prices, on average, for other consumer durables

were up slightly, and prices of other types of capital equipment were little changed.

Prices of nondurable consumer goods (excluding food and

energy) fell last month, after a particularly sharp rise a month earlier. At the intermediate stage of processing, the index for intermediate materials rose another 0.3 percent last month, as prices rose rapidly for various pertroleum-derived materials. Manufacturing and Trade Inventories The market value of retail inventories rose at an annual rate of $38.4 billion in March.

With a 0.8 percent gain in sales, the retailers'

inventory-sales ratio rose from 1.53 to 1.55.

As in the previous several

months, the March retail inventory change was heavily influenced by movements in auto dealers' stocks.

But several other categories of stores-apparel,

lumber, food, and general merchandise-also reported relatively sizable stock accumulations.

With the exception of general merchandisers, most of

these stores also posted some gain in sales in March, and their inventory-

-3-

sales ratios were still below the most recent highs reached last year. For all manufacturing and trade, inventory accumulation expanded at an annual rate of $28 billion in March and $40.5 billion for the first quarter as a whole.

With a 0.8 percent rise in total shipments and sales,

the overall inventory-sales ratio for all manufacturing and trade edged down from 1.49 to 1.48.

INDUSTRIAL PRODUCTION (Percentage change from preceding period; based on seasonally adjusted data)

1986

1987

-Annual

rate-

Products Final products Consumer goods Durable consumer goods Nondurable consumer goods

Defense and space Oil and gas drilling

2.2 -1.6 9.8 48.8

Intermediate products Construction supplies

5.5 6.2

Business

Materials Durable goods Nondurable goods Energy materials

3.0 4.3 5.2 -1.8

Mar.

-. 2

-. 4

-. 3 -.5 -. 4 -.9

-. 5 -. 6 -. 9 -2.5

-. 3

-.5

-. 4 -.4 -.1 -1.5

-. 8

.1 3.2 .2 -. 3

2.5

-. 2

2.9

-. 1 -.3

6.0 -1.9

Apr.

-- Monthly rate-.4

Total Index

Equipment

1987 Feb.

-. 4 -1.7

-.1 -.2

-.1 -.2 -.2

-.3

RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data)l

Relative Importance Dec. 1986

1986 1986

1987 01

-Annual rate-

1987 Mar. Apr. -Monthly rate-

100.0 26.3 8.6 40.6 24.5

-2.3 2.9 -38.0 3.0 2.1

-.4 11.2 -42.7 2.3 2.0

1.8 1.1 -12.5 4.4 3.4

3.9 -6.7 57.6 3.4 .1

.4 -.5 -.2 .8 .1

.7 1.5 2.1 .2 .3

Intermediate materials 2 Exc. energy

95.0 82.9

-4.5 .1

-1.5 1.5

-1.2 1.2

8.0 3.3

.4 .3

.3 .2

Crude food materials Crude energy Other crude materials

42.5 40.9 16.6

-1.4 -27.5 1.7

18.1 -19.6 -24.1

-2.7 -.5 8.5

-11.3 41.2 16.3

.4 -.9 -.9

4.3 1.7 .7

Finished goods Consumer foods Consumer energy Other consumer goods Capital equipment

1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds.

BUSINESS INVENTORIES (Billions of dollars, current cost basis, seasonally adjusted annual rate)

1987 Q1

1986 Dec.

Jan.

-.5

-4.4

-1.1

40.4

-41.8

76.0

17.2 13.8

-10.8 10.2 5.9 4.3 2.9 .3 1.4

-11.7 7.3 5.9 1.4 -5.4 -11.3 6.8

-.7 -.4 -4.9 4.5 2.4 5.2 2.1

5.7 34.8 8.5 26.3 19.5 20.2 6.7

-6.6 -35.2 -9.9 -25.3 -25.3 -15.5 .0

30.2 45.8 23.7 22.1 20.1 25.4 2.1

-1.8 19.1 .7 18.3 14.7 17.9 3.6

1986 Manufacturing and trade (Previous) Manufacturing Trade, total Wholesale Retail Durable Auto Nondurable

1987 Feb.r

Mar.P 28.1 -11.3 39.5 1.1 38.4 23.9 17.2 14.5

Totals may not add because of rounding.

INVENTORY/SALES RATIOS (Current-cost basis)

Manufacturing and trade Manufacturing Trade, total Wholesale Retail r--Revised. p--Preliminary.

1986 Q3

1987 Q1

1986

1.56

1.53

1.50

1.51

1.47

1.55

1.49

1.48

1.70 1.43 1.30 1.56

1.69 1.40 1.28 1.50

1.65 1.38 1.25 1.51

1.64 1.41 1.23 1.58

1.61 1.36 1.24 1.47

1.69 1.44 1.28 1.59

1.64 1.37 1.21 1.53

1.62 1.38 1.21 1.55

Dec.

Jan.

1987 Mar.P Feb.r

-7MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1 1985: 04 to 1986:04

----1. Ml 2. M2 3. M3

15.3 8.9

8.8

1986 04

1987 Feb. Mar.

May 15,

Aor .P

1987

Growth from 04 1986 to Apr. 1987P

Percentage change at annual rates ---17.0 9.2 8.0

13.0 6.4 6.5

-0.7 -0.2 1.2

3.3 1.8 1.9

17.9 5.9 5.8 Levels in billions of dollars Apr. 1987P

Selected components 4. Currency

7.5

8.1

10.1

7.7

3.8

7.0

188.9

Demand deposits

11.6

12.8

2.4

-17.3

-6.4

19.3

303.9

Other checkable deposits

28.6

31.1

29.4

13.0

13.8

21.9

250.6

M2 minus Ml12

6.9

6.6

4.1

-0.1

1.3

14.7

21.9

16.6

-57.3

-39.1

17.3 6.8

12.7 6.4

6.2 5.9

9.8 -1.1

5.1 1.2

2.9 -7.2 5.6

8. 9. LO. Ll. .2. 13. 14. LS. 6.

Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, plus LMDAs, NSA 3 Small time deposits Thrift institutions

16.0 -4.2 4.3

Savings deposits, SA, 3 plus MMDAs, NSA Small time deposits M3 minus M2

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 Net due to related foreign 26. institutions, NSA 6 27. Other 28.

U.S. goverment deposits at commercial 7 banks

19.2 -10.7 3.1

1.7

2089.4

-1.6

77.1

1.1 -1.6

211.8 905.1

7.7 -8.3 7.6

2.6 -8.0 4.4

547.5

357.6 909.1 424.0 485.1

12.0 -1.2

15.5 -6.4

14.5 -4.8

16.7 -3.9

15.6 0.7

10.0 -0.5

8.3

3.4

7.1

2.2

5.2

701.7

3.0 2.8 3.3

-2.2 0.4 -7.3

-4.3 0.4 -14.0

5.4 12.6 -8.7

12.3 28.1 -18.3

454.6 306.1 148.6

30.3 28.3 2.3

16.8 26.4 5.1

2.8 -15.9 20.0

-25.4 80.4 -40.7

83.1 87.6 88.3

2.7 9.5 -10.0 0.9 5.9 49.4

10.0 38.7 51.5

Average monthly change in billions of dollars --

0.6 0.8

1.3 0.5 0.8

8.8 2.8 6.0

4.9 0.9 4.0

7.9 3.0 4.9

1.7 -1.0

4.3 1.7

3.0 0.9

6.0 -1.0

519.5 359.8 159.7 -3.6 0.3

-9.7 169.4

2.8 0.4 1.6 -1.2 1.9 -5.5 1. Dollar mounts shown under memoranda are calculated on an end-month-of-quarter basis. 2. Nontransactions N2 is seasonally adjusted as a whole. 3. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seaMDA increased during March and April 1987 at rates Commercial bank savings deposits excluding H sonally adjusted. At thrift institutions, savings deposits excludin MMDAs increased of 27.7 percent and 27.8 percent, respectively. during March and April 1987 at rates of 29.1 percent and 30.5 percent, respectively. 4. The non-h2 component of M3 is seasonally adjusted as a whole. 5. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 6. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold mder agreements to repurchase, and other liabilities for borrowed money (including borrowings from the Federal teserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated. 7. Consists of Treasury demand deposits and note balances at commerclal banks. p--preliminary

-8COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)

1986 03

-----

----------------------

1. 2.

Total loans and securities at banks Securities

Feb.

Mar.

Apr.P

May 15,

Levels in bil. of dollars AprilP

Commercial Bank Credit ---------------

13.4

8.4

7.0

0.9

3.8

31.5

6.0

2.4

5.9

1.9

11.9

2147.2

7.0

512.8

5.0

315.6

U.S. government securities

27.8

20.2

5.7

-4.2

Other securities

36.8

-14.5

-2.8

23.3

9.9

10.4

197.2

7.8

9.1

8.4

-0.7

4.4

13.4

1634.5

7.6

-0.6

-4.6

5.0

554.0

-3.1

25.5

-6.2

159.8

43.4

17.9

11.8

17.1

16.2

517.9

Total loans

Business loans

3.4

18.5

Security loans

14.5

-39.3

Real estate loans

13.6

16.3

Consumer loans

6.2

5.4

Other loans

7.9

-20.5 ----

11.

Business loans net of bankers acceptances

12.

Loans at foreign branches

13.

Sum of lines 11 & 12

14.

Commercial paper issued by nonfinancial firms

15.

Sums of lines 13 & 14

16.

Bankers acceptances: related3,4

17.

18.8

-22.5 17.4 -19.1

1.9 0.0

-3.4

1.1

1.9

-39.0

3.0

3.8 16.8

Short- and Intermed ate-Term Business 8.1 -7.1 7.7 -13.0

1987

316.7 202.5 Credit ----

-0.2

-3.1

548.9

60.8

-7.2

16.6

1.3

-3.0

565.5

0.0

79.7

-42.1

8.6

645.2

3.8

12.5

5.1

-4.1

-2.6

0.0

-16.9

-2.5

-3.8

7.7

n.a.

11.0

4.8

-4.1

-2.0

n.a.

672.2

(Mar)

11.2

14.7

15.1

12.2

n.a.

178.3

(Mar)

11.0

n.a.

-0.1

0.7

n.a.

850.4 (Mar)

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)

3.5

31.5 (Mar)

n.a.--not available. p-preliminary 1. Average of Wednesdays. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Based on average of current and preceding ends of month. 4. Consists of acceptances that finance U.S. imports, U.S. exports and domestic shipment and storage of goods.

II-T-1 SELECTED FINANCIAL MARKET QUOTATIONS 1/ (percent) 1984

1985 March

1986

hage frc:

1987

June FM June highs ar 31 May 14 highs

Highs

highs

11.63

8.58

6.90

6.11

6.75 -0.15

0.64

10.67

8.80

5.3

-0.79

Mar 31

acrt-term rates Federal flAds 2/

'easury

bills 3/

10.77 11.13

9.13 9.25

6.52 6.57 6.62

5.61 5.74 5.78

-0.61 6.55 -0.07i

0.12 0.22 0.77

11.42 11.35

8.94 9.12

6.87 6.81

6.39 6.31

6.80 -0.0 6.85 0.

0.11 0.54

11.79

12.30

8.89 9.29 9.92

6.88 6.91 6.97

6.30 6.30 6.31

6.72 -0.16 6.89 -0.02 7.12 0.15

0.42 0.59 0.81

11.89 12.20

8.89 9.58

7.01 7.01

6.38 6.36

6.81 -0.20 7.10 0.09

13.00

10.50

8.50

7.50

8.00 -0.50

0.50

U.S. easury (onstant maturity) 11.22 13.49 3-year 10-year 12.02 11.97 30-year 13.94

7.86 8.39

6.79

7.95

0.09

7.93

7.81

8.73

0.18

0.80

1.16 1.06 0.92

KMicipal reverue 5/ (Berd Buyer index)

th l.-conth 1-year

ercial paper 1-mnth 3-wcnth

large ngotiable CD's 31. 1-afth 11.52

3-mnth

-oEth

Eurodollar deposits 4/ 1-with 3-onth

Bak prime rate

Intermediate- and lag-tern rates 7.51

857

11.44

10.25

8.57

7.11

8.20 -0.37

1.09

15.30

13.23

9.70

9.05

9.93

0.23

0.88

14.68 12.31

1329

10.6

10.52 -0.24

1.45 0.32

Orprate-A util Heine prtgae

rates 6/

S&L fixd-rate S&L AM, 1-yr.

1984 LOws

11.14 1985 lows

8.65 1986

ffig Trch

907

7.53

7.5 -0.80

Perent charge frm:

1987

FMc ar 31

ay 1

1986

highs

FtC ?ar 31

Stock prices DmW-JOs Industrial 1086.57 NE C site 85.13 AM C ite 7.16 NASDAQ (C) 225.30

127.35 102.6 222.28 276.1

1955.57 2304.69 235.49 18.92 115.75 165.8 1.76 13.73 2.19 332.66 3.93 1.l 411.16 . 22.65 2.79

1/ One-day quotes exoept as noted. 2/ Averages for to-veek reserve naintenanoe period closest to date shown. Last observation is the average to date for the ainteance period edirg May 20, 1987.

3/ Secondary narket.

0.90 -0.08 1.28 -1.72

4/ Averages for statement week closest to date shown.

raday quotes. 5/ 6/ Friday quotes. e-estimate

-10Merchandise Trade through March. The March merchandise billion

(See

the table below.)

and imports rose in March although, quarter as a whole.

deficit was $13.6 billion ($164

the same as the average

at an annual rate),

January-February.

trade

deficit

for

The value of both exports

on this basis,

not in

the first

These data are not seasonally adjusted and the

value of imports includes insurance and freight charges

(CIF).

The

chart on the next page illustrates that monthly data are very volatile; the Commerce Department advised that because

of late documents,

the

reported January deficit was understated and the February deficit was overstated. MONTHLY TRADE DATA (Billions of dollars, annual rates) Revised Census Basis, NSA Exports Imports Balance CIF CIF Months 1986 - Oct.

235

411

-176

Nov. Dec.

221 222

406 375

-185 -153

1987 - Jan.

197

344

-147

Feb. Mar.

224 252

405 416

-181 -164

226 225

398 388

-172 -164

Quarters 1986 - Q4 1987 - Q1

SOURCE:

U.S. Department of Commerce, Bureau of the Census.

On a seasonally adjusted basis, the staff estimates that the merchandise trade deficit in as the deficit in basis).

the first

quarter will be about the same

the fourth quarter of last year (balance-of-payments

(See the table below.)

The Commerce Department will release

revised seasonally adjusted quarterly data on May 27.

-11-

U.S. MERCHANDISE TRADE Billions of

Trade Balance

, A.R

140

210

280

Billions of I, A.R. -490

Inports and Exports

- 420 Imports

I I

1981

1982

1983

1984

19685

1986

380

280

-_ 210

1980

1967

-12-

Exports in the first quarter increased by an estimated 1 percent from the fourth-quarter level.

Much of the increase was in

industrial supplies (especially paper and chemicals), in consumer goods and in exports of automotive parts to Mexico and other non-Canadian destinations.

Exports of machinery continued at about the same

elevated rate as in the fourth quarter (about 5 percent above previous 1986 levels).

While the value of aircraft exports declined for the

second quarter in

a row,

the level of those exports was still

rates recorded throughout the first half of last year.

above

Over the past

four quarters, the value of nonagricultural exports rose about 10 percent, largely in volume. Agricultural exports declined somewhat in 1987-Q1 from strong fourth-quarter levels, particularly the volume of soybeans and cotton. While the value of agricultural exports was about the same in 1987-Q1 as it was a year earlier, a decline in prices was largely offset by an increased volume of shipments. Imports increased slightly in the first quarter. increase was in percent.

Part of the

the value of oil imports, which rose an estimated 5

The price of imported oil rose by nearly 25 percent in

the

first quarter (by about $3 per barrel) as OPEC countries acted to limit oil production and raise prices.

The volume of U.S. oil imports

declined by an estimated 1 million barrels per day, reflecting in part a drawdown in stocks of petroleum from unusually high fourth-quarter levels; U.S. domestic consumption was essentially flat.

There was also

a small increase in the value of non-oil imports, most of which appears to have been in manufactured goods, particularly machinery. imported machinery (other than computers)

rose strongly in

Prices of the first

-13-

quarter, as did prices of imported consumer goods.

More detailed

information about imports will be availble next week.

U.S. MERCHANDISE TRADE (Billions of dollars, annual rates) Balance-of-payments basis, seasonally adjusted Exports Imports Total Ag. Nonag. Total Oil Non-oil Balance (1) (2) (3) (4) (5) (6) (7) Ye Years

1984 1985 1986

220 214 222

38 30 27

182 185 195

332 339 370

57 51 34

275 288 336

-112 -124 -148

1985-4

211

182

360

304

-149

1986-1 2

214 220

29 25

186 196

223

197

229

201

360 363 372 383

40 31 32 32

320 332 340 351

-146 -143 -149 -154

232

205

387

353

-155

OtQuarters

1987-le

eU/ FR staff estimate. SOUR CE:

U.S. Department of Commerce, Bureau of Economic Analysis.

Cite this document

APA

Federal Reserve (1987, May 18). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19870519_part1

BibTeX

@misc{wtfs_greenbook_19870519_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1987},
  month = {May},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19870519_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}