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

December 11, 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

Page

Retail sales.......................................... Wholesale trade inventories.............................. Producer prices ....................................... Tables Retail sales........................................... Wholesale trade inventories: change in book value...... Wholesale trade inventory-to-sales ratio............... Recent changes in producer prices .....................

THE FINANCIAL ECONOMY December Senior Loan Officer Opinion Survey............ Tables December senior loan officer opinion survey............ Monetary aggregates.................................... Commercial bank credit and short- and intermediateterm business credit................................. Selected financial market quotations...................

INTERNATIONAL DEVELOPMENTS U.S. Merchandise Trade in October...................... 18 Table U.S. merchanise trade.................................. 19

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY Retail Sales Total retail sales in November edged up 0.2 percent from an October level that is substantially lower than originally reported.

For the

retail control group of stores , data now show a 0.9 percent decline in nominal sales for September followed by little change in the subsequent two months.

In particular, spending on furniture and appliances is

estimated to have fallen sharply in September and October--in marked contrast to the gains reported earlier for those months--and spending in this category moved lower again in November.

Outlays for apparel and

general merchandise in September and October also were revised down.

In

November, apparel sales are estimated to have recovered a bit, but spending on general merchandise is shown to be off again. Wholesale Trade Inventories Wholesale trade inventories rose in October at an annual rate of $24-1/2 billion on a current-cost basis, after little net change over the third quarter.

About two-thirds of the accumulation was in stocks

held by wholesalers of durables, particularly electrical goods, hardware, and machinery.

With shipments up 0.4 percent for the month, the

inventory-sales ratio for all merchant wholesalers edged up to 1.19, but remained below the average for the year.

1. This category excludes sales at automotive dealers, gasoline stations, and stores selling mainly nonconsumer items.

Producer Prices Producer prices of finished goods were unchanged, on balance, in November after declining a month earlier.

However, at earlier stages of

processing, prices of nonfood nonenergy materials continued to advance rapidly. The PPI for finished consumer goods, other than food and energy, was flat for a second month in November at a level 2-1/4 percent above a year earlier.

Manufacturers' prices of domestically produced new cars

dropped back at mid-month, prior to the new round of incentive programs, and prices also declined for electronic equipment and most categories of apparel.

In contrast, large increases were posted for pharmaceuticals,

as has been the case throughout much of the past year.

For finished

capital goods, prices edged up 0.1 percent in November, as declines in car prices and civilian aircraft were offset by higher prices for heavy trucks and other major categories of machinery. Finished food prices rose 0.3 percent last month, as bad weather in California and Florida led to an exceptionally large jump in prices of fresh vegetables.

Apart from this highly volatile category, food prices

dropped 0.9 percent with meat prices continuing to move lower.

Falling

livestock prices also contributed importantly to the 3 percent drop in the index for crude food. The PPI for finished energy fell in November for a third month. Although heating oil prices have risen substantially in each of the past two months, this has been offset by large declines in natural gas

3

prices.

Gasoline prices were up slightly in November after falling 7

percent between August and October. Prices of intermediate materials other than food and energy rose 0.5 percent last month, bringing the year-over-year increase to 4-3/4 percent.

Increases continue to be widespread across industries, with

especially large over-the-month increases in nonferrous metals, chemicals, plastics, and plywood.

At the crude level, sharply higher prices

were posted for steel and copper scrap as well as for timber.

RETAIL SALES

(Seasonally adjusted percentage change) 1987

Total sales 2

Total less auto dealers, nonconsumer stores, and gasoline stations 1

Q3

Sept.

-1.1

2.4

1.8

-1.7

-.9

.2

2.0

-1.1

-.1

--

.9 1.1

-2.0 -1.4

-1.3 -.5

--

.5

-.9

-.1

.6

-.3

.7

1.2

-1.2

.0

-2.6

1.7

1.0

.7

Previous estimate GAF 3 Durable

Automotive dealers & parts Motor vehicle dealers Furniture and appliances Other durable goods Nondurable Apparel Food General merchandise Gasoline stations Memo: Motor vehicle sales 5 Autos Light trucks

Nov.

Q2

Previous estimate (REAL) Previous estimate

1987

Oct.

Q1

2.1

.8

.2

-.2

-6.0

4.2

3.9

-2.8

-2.6

.4

-10.9 -11.8 .0 2.1

8.1 8.8 -1.1 .5

5.9 6.1 1.3 1.6

-4.4 -4.6 -1.7 .0

-3.5 -3.9 -1.1 -3.9

-.5 -.4 -.8 4.4

2.1 2.1 .2 3.2 4.4

1.3 .6 .7 1.8 4.2

.4 1.8 -.1 .9 2.9

-.9 .0 -.8 -1.5 -1.4

13.8 9.7 4.2

15.1 10.3 4.8

16.4 11.4 5.0

16.1 11.6 4.5

.2 -.2 .3 .7 -.8 13.7 9.1 4.6

.0 .5 .0 -.3 -.1 14.9 10.1 4.8

1. Based on incomplete sample counts approximately one month ago. 2. BCD series 59. Data are available approximately 3 weeks following the retail sales release. 3. General merchandise, apparel, furniture and appliance stores. 4. General merchandise excludes mail order nonstores; mail order sales are also excluded in the GAF grouping. 5. Millions of units at an annual rate; FRB seasonals. --Data are unavailable because of a future release date.

WHOLESALE TRADE INVENTORIES: CHANGE IN BOOK VALUE (Billions of dollars; seasonally adjusted; annual rate)

Total

1987

1987

1986

Q4

Q1

Q2

Q3

July

Aug.

-4.9

8.8

14.1

.6

-5.3

-17.1

Sept. r Oct. 24.3

Durable Nondurable Excluding farm

Farm

24.6

24.9

(Previous)

-4.9 -13.4

-6.0

7.1

8.1 -4.1

1.1

1.6

6.1

4.7

-. 5

4.0

1.2

2.5

5.8

2.4

-2.9

.4

3.6 -1.1

-2.9

6.0

-3.7 -. 4 -3.3

16.5

18.3

8.1

15.4

5.4

2.8

2.7

Note: Totals may not add because of rounding.

WHOLESALE TRADE INVENTORY-TO-SALES RATIO 1987

Total Durable

Nondurable r--Revised. p--Preliminary.

1987

1987

Q4

Q1

Q2

Q3

July

Aug .

Sept.r

Oct.

1.25

1.24

1.23

1.20

1.21

1.118

1.18

1.19

1.67

1.67

1.67

1.60

1.63

1.610

1.58

1.59

.85

.83

.83

.82

.82

.79

.81

.82

RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data) Relative Importance Dec. 1986

1986

Q1

1987

1987 Q2

Q3

--Annual rate-100.0 26.3 8.6 40.6 24.5

Finished goods Consumer foods Consumer energy Other consumer goods Capital equipment Intermediate materials Exc. energy Crude food materials Crude energy Other crude materials

2

95.0 82.9 42.5 40.9 16.6

-2.3 2.9 -38.0 3.0 2.1 -4.5 .1 -1.4 -27.5 1.7

Oct.

Nov.

--Monthly rate--

4.3 -6.7 59.8 4.2 .4

3.9 12.8 5.5 -.2 1.2

2.7 -1.7 2.0 4.9 4.4

-.2 -.1 -1.0 .0 -.4

.0 .3 -.8 .0 .1

7.8 3.3

5.7 4.6

4.6 5.0

.5 .9

.4 .5

-10.3 50.0 15.9

34.8 11.4 31.9

-6.2 6.1 37.1

1.3 -1.7 4.1

-3.0 -1.1 .9

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

THE FINANCIAL ECONOMY December Senior Loan Officer Opinion Survey Summary In order to obtain additional information about the effects on bank credit of the stock market crash, a Senior Loan Officer Opinion Survey on Bank Lending Practices was conducted in early December, focusing on changes since October 19 in the supply and demand for major categories of bank credit.

According to the responses, the stock market crash has

had some damping impact on the demand for bank credit to corporate restructurings and for residential mortgages.

finance A considerable

number of respondents indicated they had become less willing to finance corporate restructurings and some banks are also now less willing to make nonresidential real estate loans.

Many non-money center banks

reported a reduced willingness to lend to brokers and dealers.

Loan

officers saw little effect so far on the quality of banks' loan portfolios, although some deterioration is foreseen. Details About 80 percent of respondents reported that, as of December 1, demand for C&I loans at their banks had not changed much since the plunge in equity prices six weeks earlier.

However, of the

banks that did find demands to have changed, those reporting weakening outnumbered those reporting strengthening by more than two to one.

The

most common reason cited for reduced demand was a cutback in financing needs for LBOs and other corporate restructurings. Over 40 percent of respondents indicated that they had become less willing to extend LBO credit in the three months ending with the survey

date; in addition, 30 percent said they were now less willing to extend credit to finance other forms of corporate restructuring.

Respondents'

willingness to make C&I loans for purposes other than corporate restructuring was unchanged on balance in the three months ending with the survey date.

Those banks that did report reduced willingness to

provide financing for corporate restructurings indicated that they have implemented this policy mainly through tightened standards of creditworthiness; several banks also mentioned reduced limits on the amounts they will lend to borrowers of a particular class of creditworthiness; very few banks indicated that reduced willingness to lend had caused them to widen spreads of loan rates over funding costs. About a third of the respondents that originate and sell C&I loans on an ongoing basis reported that their customers had become less willing to purchase loans since the stock market crash, particularly loans to finance LBOs.1

Since LBO loans have been an important part of

the market for sales of loans and loan participations, this lowered customer willingness to buy likely contributed to the reduced willingness of large banks to make such loans.

2

Respondents that

regularly purchase loans reported that their own willingness to buy had not changed on balance since October 19.3

1. Some respondents also indicated a reduced customer willingness to purchase broker loans. 2. The market for sales of loans and loan participations, and the importance of LBO loans in this market, are described in the summaries of the Senior Loan Officer Opinion Surveys conducted in February 1987 and June 1987. 3. Of the three respondent banks indicating that their own willingness to purchase loans had decreased, two mentioned LBO loans and one mentioned broker loans as the types of loans involved.

According to respondents, the surge in security loans in the days following October 19 stemmed from a variety of causes.

At money center

banks, the most common reasons were lack of alternative dealer financing sources and increased dealer funding needs owing to customers' inability to meet margin calls; high dealer inventories also were cited, and some brokers apparently overborrowed in order to assure liquidity.

Almost

two-fifths of respondents indicated that they had became less willing to make security loans in the three months ending with the survey date; however, this retrenchment mostly occurred at medium-sized banks, and the money center banks accounting for the bulk of this lending indicated no reduction in their willingness to lend. A sizable minority of respondents--over one-third--experienced weakening in demand for residential mortgages in the last three months. For their part, banks' willingness to make such loans was unchanged to stronger over this period.

About a fifth of respondents--mainly very

large banks--reported a reduced willingness to make nonresidential mortgages. Only a few banks responded to the invitation to describe any loan categories not explicitly covered in the survey that were affected by the stock market crash; one bank mentioned reduced demand for credit to finance risk arbitrage activities; some others indicated a reduced

4. Respondents are regularly asked to describe changes in their willingness to extend consumer credit. According to the results from the November 10, 1987 Lending Practices Survey, the number of banks indicating that they had become "more willing" to extend consumer credit in the three months ending with the survey date was somewhat below the number of banks reporting "more willingness" in earlier surveys in 1987. This may suggest that banks have become less enthusiastic about making consumer loans since the stock market crash.

willingness to make stock-secured loans to individuals and loans to real estate developers. About a quarter of the respondents expected that the stock market decline would have some negative impact on their loan portfolios.

In

virtually all cases, the degree of deterioration was expected to be minor.

The types of loans involved were diverse and included C&I loans

(including LBO loans), broker loans, auto dealer loans, and consumer loans.

A number of banks expected an impact on the quality of their

loan portfolios only if the stock market crash were followed by a recession.

Only a couple of respondents expected that fourth quarter

loan-loss provisions would be affected by the crash.

SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE UNITED STATES (Status of policy as of December 1, 1987) (Number of banks and percent of banks answering question) (By volume of total domestic assets, in $ billions, as of June 30,

1987)

How would you describe the demand for C&I loans at your bank, adjusting for normal seasonal variation, in the six weeks since the stock market crash?

1.

Much Stronger Banks

Somewhat Stronger

Pct

Banks

All Respondents 0 (0.0) $7.5 and Over 0 (0 0) Under $7.5 0 (0.0) .....................................................................................

2.

(i)

3 1 2

About Unchanged

Pct

Banks

Pct

48 (81.4) 26 (81.3) 22 (81.5)

(5.1) (3.1) (7.4)

Somewhat Weaker Banks

Pct

Much Weaker Banks

8 (13.6) 5 (15.6) 3 (11.1)

Total

Pct

0 0 0

Banks

(0.0) (0.0) (0.0)

59 32 27

If C&I loan demand has strengthened since October 19, what are the principal reasons? (More than one may apply.) a) b) c) d) e)

A reduced volume of bonds issued to pay down short-term debt Postponement of asset sales slated to pay down short-term debt Increased financing needs associated with corporate stock buy backs Increased financing needs for LBOs Increased financing needs for other corporate restructurings (such as mergers and acquisitions) f) Increased inventory financing needs g) Other

Reduced vol. of bonds Banks

Pct

Stock buybacks

Postponed asset sales Banks

Pct

Banks

0 (0.0) 0 (0 0) All Respondents 0 (0.0) 0 (0.0) 17.5 and Over 0 (0.0) (0.0) 0 Under $7.5 ---------------------------------------------------------...............................................................

(ii)

Pct

1 ( 33.3) 1 (100.0) 0 ( 0.0)

Other core. restructuring

LBOs Banks 0 0 0

Pct (0.0) (0.0) (0.0)

Banks 0 0 0

Pct (0.0) (0.0) (0.0)

Inventory financing Pct

Banks

Other Pct

Banks

2 ( 66.7) 1 (100.0) 1 ( 50.0)

1 0 1

(33.3) ( 0.0) (50.0)

If loan demand was boosted by financing needs for corporate restructurings (choices d and e above), to what extent has this reflected a reduction in bridge loan financing available from investment banks? (No respondents)

(iii)

If C&I loan demand has weakened since October 19, what are the principal (More than one may apply.)

reasons?

a) A cutback in financing needs for LBOs b) A cutback in financing needs for other corporate restructurings (such as mergers and acquisitions) c) Reduced inventory financing needs d) Other

-----------------All Respondents $7.5 and Over Under $7.5

3.

(i)

Cutback in LBO needs --------------Pct Banks ------- ------(75.0) 6 4 (10.0) 2 (66.7)

Other corp. Inventory financing Other restructurings --------------- --------------- --------------Banks Pct Banks Pct Banks Pct -*------ ------- ------- ------- ------- ------(25.0) 2 2 (25.0) 6 (75.0) (10.0) 1 (20.0) 2 (40.0) 4 0 ( 0.0) 2 (66.7) 1 (33.3)

Total ------Banks -- *----8 5 3

How would you describe your bank's willingness to extend credit for purposes of financing LBOs now as opposed to three months ago?

Much More Willing Banks All Respondents and Over $7.5 Under $7.5

0 0 0

Pct (0.0) (0.0) (0.0)

Somewhat More Willing Banks 1 0 1

Pct (1.8) (0.0) (3.8)

Unchanged Banks 30 19 11

Pct (52.6) (61.5) (42.3)

Somewhat Less Willing Banks 26 12 14

Pct (45.6) (38.7) (53.8)

Much Less Willing

Total

Pct

Banks

Banks 0 0 0

(0.0) (0.0) (0.0)

57 31 26

As of June 30, 1987, 32 respondents had domestic assets of $7.5 billion or more; combined Note assets of these banks totalled $670 billion, compared to $810 billion for the entire panel of 60 banks and $2.5 trillion for all federally insured commercial banks.

Total Banks 3 1 2

12 (ii )

How would you describe your bank's willingness to extend credit for purposes of financing other corporate restructurings now as opposed to three months ago?

Much More Willing Banks All Respondents $7 5 and Over Under $7.5

(iii)

0 0 0

Somewhat More Willing

Pct

Banks

(0.0) (0.0) (0.0)

0 0 0

Pct

Banks

Pct

(0.0) (0.0) (0.0)

40 22 18

(69.0) (68 8) (69.2)

Somewhat Less Willing Banks

Pct

18 10 8

Much Less Willing Banks

(31.0) (31.3) (30.8)

Total

Pct

0 0 0

Banks

(0.0) (0 01 (0 0)

58 12 26

How would you describe your bank's willingness to extend C&I credit for purposes other than corporate restructurings now as opposed to three months ago?

Much More Willing Banks

Somewhat More Willing

Pct

Banks

All Respondents 0 (0.0) $7.5 and Over 0 (0.01 Under 7 .5 0 (0.0) ...............................................................................................

4.

Unchanged

4 2 2

Unchanged

Pet

Banks

(6.8) (6.3) (7.4)

51 28 23

Pct

Somewhat Less Willing Banks

(86.4) (87 5) (85.2)

Pct

4 2 2

Much Less Willing Banks

(6.8) (6.3) (7 4)

Total

Pct

0 0 0

Banks 59 32 27

(0.0) (0.0) (0.0)

If your bank has become less willing to extend C&I loans (for any of the purposes above) has this policy been reflected in (more than one may apply) a) b) c) d)

More stringent standards of creditworthiness to qualify for a loan? Wider spreads over funding costs for a given degree of creditworthiness? More restrictive covenants in loan agreements? A reduction in the maximum amount your bank is willing to lend a borrower in a given risk class? e) Tighter collateral requirements? f) Other (please specify)

Tighter standards Banks All Respondents $7.5 and Over Under $7.5

5.

(i)

19 10 9

Pct (82.6) (83.3) (81.8)

Wider

More spreads restrictions

Banks 3 1 2

Pct (13.0) ( 8.3) (18.2)

Banks

Pct

4 2 2

Reduced maximum Banks

(17.4) (16.7) (18.2)

9 4 5

Tighter collateral

Pct

Banks

(39.1) (33.3) (45.5)

4 1 3

Other

Banks

Pct (17 4) ( 8.3) (27.3)

Pct

1 1 0

Total Banks

(4.3) (8.3) (0.0)

23 12 11

If you bank is involved in originating and selling C&I loans on an ongoing basis has your customers' willingness to purchase C&I loans changed (other than seasonally) since October 19?

Much More Willing

Somewhat More Willing

Unchanged

Somewhat Less Willing

Much Less Willing

Total

Pct

Banks

----------------------- ------------- ------------- ------------- ------------- -----Banks

Pct

Banks ------

------

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

0 0 0

(0.0) (0.0) (0.0)

0 0 0

All Respondents and Over $7.5 Under $7.5

Banks

Pct ( 67.6) ( 47.6) (100.0)

23 10 13

(0.0) (0.0) (0.0)

Pct

Banks

(32.4) (52.4) ( 0.0)

11 11 0

Banks ---------

------

---------

--------

0 0 0

34 21 13

(0.0) (0.0) (0.0)

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

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

(ii)

Pct

mention the particular type(s) of If customer willingness has changed, please and/or sector(s) of purchasers that are important in explaining this change.

loans

(See text)

(iii)

involved in purchasing C&I loans on an ongoing basis, If your bank is to purchase loans changed (other than seasonallly) since October 19?

Much More Willing --

Pct

Banks

------ -----

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

All Responaents and Over $7.5 Under $7.5 . . ----------------------------------------..

Unchanged

0 0 0 .

2 (0.0) 0 (0.0) 2 (0.0) ..-------------------

Pct

Banks

( 7.4) ( 0.0) (12.5)

text)

Pct

Banks

------

-----------

If your willingness has changed, please policies have changed. and why your

(See

Much Less Somewhat Less Total Willing Willing -------------

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

Banks

(iv)

Somewhat More Willing

has your willingness

22 11 11

( 81.5) (100.0) ( 68.8)

indicate what

----

Pct

------

3 0 3

(11.1) ( 0.0) (18.8)

type(s)

Banks ------

0 0 0

of C&I

Pct

Banks ----

(0.0) (0.0) (0.0)

loans

are

27 11 16

involved

13 ( )

than Security loans--defined as loans to brokers and dealers plus any other loan those to depository institutions) for the purposes of purchasing or carrying securities-If demand for this type of credit was surged in the reporting week ending October 21. for this strong at your bank in that week, can you identify the principal cause(s) increased borrowing?

(other

a) Brokers/dealers needed financing owing to the inability of some of their customers to meet margin calls b) Dealers encountered difficulties an accessing alternative sources of funding, such as the RP market c) Inventories of securities at brokers/dealers were high d) Mutual funds took down temporary credit to help finance customer share redemptions e) Other (please specify)

Inability to meet margin calls Pct

Banks All Respondents $7.5 and Over Under $7.5

(

)

Banks

(60.0) (64.3) (50.0)

12 9 3

No alternative sources

Banks

Pct

13 11 2

Mutual fund redemptions

High inventories Pct

Pct

5 4 1

(55.0) (64.3) (33.3)

11 9 2

(65.0) (78.6) (33.3)

Banks

Other Banks

Banks

(40 0) (50.0) (16 71

8 7 1

(25.0) (28.6) (16.7)

Total

Pct

20 14 6

How would you describe your bank's willingness to extend credit to brokers end dealers or to others for the purpose of purchasing or carrying securities now as opposed to tnree months ago?

Much More Willing Banks All Respondents $7.5 and Over Under 57.5

Somewhat More Willing Banks

Pct

0 0 0

Pct

1 1 0

(0.0) (0.0) (0.0)

Unchanged Pct

Banks 28 18 10

(2.1) (3.7) (0.0)

Somewhat Less Willing Pct

Banks

(59.6) (66.7) (50.0)

Total

Pct

Banks

(4 3) (3 7) (5 0)

47 27 20

Banks 2 1 1

(34.0) (25.9) (45.0)

16 7 9

Much Less Willing

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

7.

How would you describe the demand for new mortgage applications for single family homes at your bank, adjusting for normal seasonal variation, since the stock market crash?

Much Stronger Banks 0 0 0

All Respondents $7.5 and Over Under $7.5

8.

(i)

Pct

Banks 2 0 2

(0.0) (0.0) (0.0)

Pct

Banks

(3.7) (0.0) (8.3)

Pct

32 (59.3) 18 (60.0) 14 (58.3)

Somewhat Weaker Banks

Pct

Much Weaker

15 (27.8) 9 (30.0) 6 (25.0)

Total

Pct

Banks

Banks

5 ( 9.3) 3 (10.0) 2 ( 8.3)

54 30 24

Please indicate your bank's willingness to extend credit secured by residential estate now as opposed to three months ago.

Much More Willing Banks All Respondents $7.5 and Over Under $7.5

(ii)

About Unchanged

Somewhat Stronger

0 0 0

Pct (0.0) (0.0) (0.0)

Somewhat More Willing Banks 5 4 1

Pct ( 8.9) (13.3) ( 3.8)

Unchanged Banks 51 26 25

Pct (91.1) (86.7) (96.2)

Somewhat Less Willing Banks 0 0 0

Pct (0.0) (0.0) (0.0)

real

Much Less Willing

Total

Pct

Banks

Banks 0 0 0

(0.0) (0.0) (0.0)

56 30 26

Please indicate your bank's willingness to extend credit secured by nonresidential real estate now as opposed to three months ago. Much More Willing Banks

All Respondents 47.5 end Over Under $7.5

0 0 0

Pct (0.0) (0.0) (0 0)

Somewhat More Willing Banks 1 1 0

Pct (1.8) (3.2) (0.0)

Unchanged Banks 45 22 23

Pct (78.9) (71.0) (88.5)

Somewhat Less Willing Banks 11 8 3

Pct (19.3) (25.8) (11.5)

Much Less Willing

Banks 0 0 0

Pct (0.0) (0.0) (0.0)

Total Banks 57 31 26

14

9.

Has the stock market crash importantly affected either the demand for, or your bank's willingness to supply, any type(s) of bank credit not covered in the above questions? If so, please explain. (See text)

10.

Do you expect the stock market crash and its ramifications quality of your bank's loan portfolio? Yes Banks All Respondents $7.5 and Over Under $7.5

If so, effect

to have any impact on the

No Pct

13 (22.8) 6 (18.8) 7 (28.0)

Total

Banks

Pct

Banks

44 26 18

(77.2) (81.3) (72.0)

57 32 25

please indicate what types of loans are likely to be affected and if the expected is minor, moderate, or substantial.

(See text) Do you expect any impact

on your bank's loan

loss provisions for the fourth quarter?

Yes Banks All Respondents $7.5 and Over Under 7.5

2 1 1

No Pct

(3.5) (3.1) (4.0)

Banks

Total Pct

55 (96.5) 31 (96.9) 24 (96.0)

Banks 57 32 25

MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1985:Q4 to

1987

1986:04 .--....

1. 2. 3.

15.3 9.0 8.9

MI M2 M3

02

Percentage 6.4 2.3 4.3

03

Sent

-

Oct. Oct-

change at annual rates 0.0 0.3 15.0 3.1 5.7 7.2 5.7 4.9 8.0

Nov. NOV5

Growth from 04 1986 to Nov. 1967 P

.7

-6.6

-0.1 4.7 Levels in billions of dollars Oct. 1967

Selected componnt 10.0

2.7

-2.2

-1.9

19.1

-6.2

501.0

7.5

6.6

6.7

8.1

10.5

13.5

198.4

0.0

-8.1

-9.3

25.7

-18.8

295.7

28.5

14.0

4.6

4.7

7.5

-7.9

255.5

6.9

0.9

4.3

7.6

4.3

16.1

-24.3

18.0

56.1

39.1

79.9

17.3

-1.1

6.1

11. 12.

Overnight RPs and gurodollars, NSA General purpose and broker/dealer money mwrket mutual fund shares, NSA Commrcial banks Savings deposits, SA,

6.8

-1.4

1.7

20.9 0.3

15.5 2.4

12.6 7.4

221.6 915.1

3 plus NMDAs, NMSA Small tim deposits Thrift institutions

16.0 -4.2

0.8 -4.6

-2.4 8.0

-3.8

-8.4

-5.4

13. 14.

4.3

5.0

3.6

6.2 1.3

18.6 0.4

25.4 2.6

534.2 380.9 924.8

15.

Savings deposits, SA, 9.7 1.0

-3.9 10.2

-9.7 10.3

15.2 13.3

-25.3 25.2

404.1 520.7

12.2

11.8

5.5

11.1

23.3

766.0

4.

11-A

5.

Currency

6.

Demand deposits

11.6

7.

Other checkable deposits

8.

M2 minus M12

9. 10.

plus NMAs, NSA 3 Small time deposits M3 minus M24

-1.2 8.7

18.

Large tim

19. 20. 21.

5 At commercial banks, net At thrift institutions Institution-only money market imtual fund shares, NSA Teor RPs, MSA Term eurodollars, NSA

22. 23.

12.0

deposits

2.2

2137.5 79.9

3.0

9.3

6.2

5.4

18.7

24.7

486.0

2.7 3.4

18.3 -8.4

4.1 10.7

-0.4 17.2

13.0 29.4

23.8 27.2

323.3 162.7

30.3 31.1 3.1

-11.4 73.0 -0.0

1.9 26.4 15.8

-38.8 18.9 57.6

13.4 -30.6 -19.1

101.5 31.4 -27.3

88.5 109.7 90.3

-- Average monthly change in billions of dollars -)MORAIDA: 24. Managed liabilities at comercial banks (25+26) 25.

Large tim

26. 27.

Nondeposit funds Net due to related foreign

28. 29.

Other U.S. government deposits at commrcial

deposits, gross

institutions, MSA 6

7

banks 1.

2.1 0.6 1.5

5.9 6.3 0.6

1.3 7.2

12.4 -0.4 12.8

-1.1

-3.3

4.3

-3.6

7.3

0.6

1.5

12.2

-0.6

1.0

-0.9

-0.6

-0.9

-0.6

0.4

3.4

-1.5

-5.8

12.3

Dollar amounts shown under memoranda are calculated on an end-montb-of-quarter

2. Nontransactions M2 is

6.2

2.9 -0.8 3.7

557.4 385.0

172.4 6.7 165.7 38.6

basis.

seasonally adjusted as a whole.

3. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (144Is) not seasonally adjusted. Comercial bank savings deposits excludinq MMDA decreased in October and November at rates of 3.4 percent. At thrift institutions, savings deposits excluding MMAs ded in October and November at rates of 9.9 percent and 22.1 percent, respectively. non-M2 component of M3 is seasonally adjusted as a whole. st of large-denomination time deposits held by money market mutual funds and thrift institutions. 6. Consists of borrowings from other than commrcial banks in the form of federal funds purchased, securities sold under agreements to repurchase, and other liabilities for borrowed money (including borrowings from the Federal eserve and unaffiliated foreign banks, loan RPs and other minor items). Data arx partially estimated. 7. Consists of Treasury demand deposits and note balances at coiercial banks. pe--preliminary estimate.

COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1985:Q4 to 1986:04

Q2

Q3

1987 Sept.

Nov.P

Oct.

--------------1985:Q4 Commercial Bank Credit ---

1.

2.

Total loans and securities at banks Securities

Levels in bil. of dollars p Nov.

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

9.8

7.7

7.3

9.7

10.4

-0.8

2224.3

14.2

4.4

8.5

6.4

0.5

2.6

527.8

3.

U.S. government securities

11.9

3.3

18.7

11.3

2.2

-3.6

331.3

4.

Other securities

18.0

6.1

-7.9

-1.8

-2.5

13.6

196.5

8.4

8.9

7.0

10.7

13.5

-2.0

1696.5

4.6

1.9

10.6

11.4

5.

Total loans

6.

Business loans

6.6

7.

Security loans

-3.7

40.7

26.5

27.3

10.7

-185.0

38.4

8.

Real estate loans

14.1

19.3

13.6

10.4

17.5

13.8

570.8

9.

Consumer loans

7.3

1.2

6.5

7.6

5.6

Other loans

5.4

0.2

0.0

13.3

22.2

10.

----- Short11.

Business loans net of bankers acceptances

6.3

12. Loans at foreign branches 2 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.

-8.6 5.8

-0.8 4.9

4.0

4.9 -30.6

567.3

321.7 198.3

and Intermediate-Term Business Credit

1.4

-17.2

28.2

3.5

2.1

17.6

3.4

-11.4

10.9

11.0

4.3

561.3

-41.6

21.6

7.1

17.1

9.3

11.4

4.4

578.4

-3.1

1.5

10.7

79.0

657.4

5.1

0.5

7.8

10.2

5.1

23.8

23.7

-3.3

26.8

n.a

36.6 (Oct)

6.0

1.6

7.2

11.0

n.a

691.2 (Oct)

17.9

14.2

10.0

18.7

n.a.

195.9

12.7

n.a.

887.1 (Oct)

U.S. trade -3.9

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)

4.4 3

11.7

5.8

8.6

4.3

7.8

(Oct)

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 data for 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. n.a.--not available. p--preliminary.

1 SELECTED FINANCIAL MARKET QUOTATIONS (Percent)

Change from:

1987 Jan.-Feb. Sept. 3 lows

Oct. 16

FOMC Nov. 3

Dec. 10

Oct. 16

FOMC Nov. 3

Short-term rates Federal funds 4 Treasury bills5 3-month 6-month 1-year

5.95

6.85

7.59

6.81

6.84

-. 75

5.30 5.31 5.35

6.19, 6.30 6.98

6.93 7.58 7.74

5.63 6.08 6.42

5.92 6.47 6.81

-1.01 -1.11

Commercial paper 1-month 3-month

5.81 5.73

6.88 6.97

7.94 8.65

6.93 7.36

7.83 7.71

-.11 -. 94

Large negotiable CDs 5 1-month 3-month 6-month

5.85 5.80 5.78

6.90 7.01 7.35

7.92 8.90 9.12

6.93 7.46 7.51

7.91 7.77 7.80

-.01 -1.13 -1.32

Eurodollar deposits 6 1-month 3-month

6.00 6.00

7.01 7.11

7.79 8.69

7.08 7.73

8.04 7.84

.25 -.85

Bank prime rate

7.50

8.25

9.25

9.00

8.75

-.50

U.S. Treasury (constant maturity) 6.34 3-year 7.01 10-year 7.29 30-year

8.48 9.29 9.47

9.52 10.23 10.24

8.02 8.91 9.03

8.29 9.23 9.40

-1.23 -1.00 -.84

Municipal revenue (Bond Buyer)

6.92

8.47

9.59

8.78

8.57

-1.02

-.21

Corporate A utility (recently offered)

8.78

10.60e

11.50

10.60e

10.51e

-.99

-.09

Home mortgage rates S&L fixed-rate S&L ARM, 1-yr.

9.10 7.52

10.63 7.84

11.58 8.45

10.97 8.20

10.60 7.95

-. 98

-.37

-.50

-.25

-. 93

-. 25

Intermediate- and long-term rates

1986 Record highs

1987 FOMC Nov. 3

Change from: FOMC Record highs Nov. 3

Dec. 10 Year end Stock prices 1855.44 -31.85 -5.50 2722.42 1963.53 Dow-Jones Industrial 1895.95 -6.45 131.07 -30.28 140.11 138.58 187.99 NYSE Composite -33.96 -5.66 365.01 255.49 241.04 AMEX Composite 263.27 -6.19 -33.93 320.66 300.81 348.83 455.26 NASDAQ (OTC) 5. Secondary market. 1. One-day quotes except as noted. 6. Averages for statement week closest 2. Day prior to increase in discount rate on to date shown. September 4, 1987. 3. Last business day prior to stock market 7. One-day quotes for closest Thursday. decline on Monday, October 19, 1987. 8. Quotes for week ending Friday 4. Average for two-week reserve maintenance closest to date shown. period closest to date shown, except Jan.-Feb. e--estimate. low, which is one-week average ending Feb. 25, and Sept. 3 which is one-week average ending Sept. 2. Last observation is average to date for maintenance period ending Dec. 16, 1987.

INTERNATIONAL DEVELOPMENTS

U.S. Merchandise Trade in October. The U.S. merchandise trade deficit in October was $17.6 billion (n.s.a., CIF valuation;

$212 billion at an annual rate), according to

figures released today by the Commerce Department.

The deficit was

larger than in any previous month, and reflects, in part, large seasonal swings in both exports and imports. Exports in October were 3.7 percent higher than in September (n.s.a.); September.

this is about the same rate of increase as recorded in About half of the rise was in agricultural exports,

especially soybeans.

There is a strong seasonal surge in agricultural

exports each October; on a seasonally adjusted basis, agricultural exports are estimated to be about the same in October as in September. The rise in nonagricultural exports in October (n.s.a.) appears to have Growth occured in shipments of a variety of

been less than seasonal.

products to Canada while there was a drop in exports of commercial aircraft. Imports were 12.3 percent higher in October than in September.

A

small part of the increase was in oil imports; the volume of oil rose to 7.5 mbd from 7.1 mbd in September and the average price of oil increased About 90 percent of the October increase was

about 10 cents per barrel.

in non-oil products, particularly passenger cars from Japan, Canada, and Korea, and machinery imports. of other imported goods.

There were also increases in a wide range

A good part of the increase in non-oil imports

can be attributed to a normal seasonal rise that occurs each October.

RESTRICTED (FR)

December 10, 1987

U.S. Merchandise Trade (Billions of dollars, annual rates) Census Basis (Revised) Not seasonally adjusted Exports 1/ Imports Balance (CIF) (CIF) (1) (2) (3) 224 346 -122 -134 352 219 227 383 -156

Years 1984 1985 1986

Quarters -1 1986 2 3 4 1987

212* 221* 207* 226*

- 1 2 3

364 384 386 398

-152* -163* -179* -172*

388 420 434

-157 -171 -185

BOP Basis Seasonally adjusted Exports 2/ Imports Balance (4) 220 216 224

(6) -113 -122 -144

355 362 375 382

-140 -135 -148

228 240

383 393

-155 -158

n.a.

n.a.

Months 1986 - Jan.

(5) 332 338 369

-154

n.a.

RESTRICTED 3/ 380 -167 380 -153 -145 389

Feb. Mar.

344 405 416

-143 -172 -155

213 227 244

Apr. May June

402 418 442

-156 -168 -189

238 234 249

386 394 416

-148 -160 -167

450

-198 -188 -169 -212

267 256 261

431

-164 -158 -155

July Aug. Sept Oct.

252 243 252 261

431 421 473

n.a.

414 416 n.a.

n.a.

*/Does not include data for undocumented exports to Canada ($10 billion in 1986). 1./ Beginning with the August press release, adjustments have been added to Census basis data for undocumented exports to Canada. These adjustments are available for the months of 1987 and only for annual data for previous years. 2. BOP basis data (and GNP data) have always included estimates for undocumented exports to Canada. The new Census basis adjustment should improve the BOP-basis estimate. 3./Monthly data on a BOP basis are for official use only. SOURCE: U.S. Department of Commerce.