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 9,

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

1988

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY Wholesale inventories . . . . . . . .

. . . . . . . . . .

.

1

Table Wholesale trade inventories: change in book value . . . . . Wholesale trade inventory-to-sales ratio . . . . . . . . .

2 2

THE FINANCIAL ECONOMY Tables Monetary aggregates . . . . . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediate- term business credit . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . . . .

3 4 5

SUPPLEMENTAL NOTES

DOMESTIC NONFINANCIAL ECONOMY Wholesale inventories Wholesale inventories rose at an annual rate of $6 billion in October--quite moderate compared with the $21 billion accumulation in the third quarter.

Inventories of motor vehicles posted another fairly

sizable increase, and stocks of apparel and piece goods also rose significantly.

Elsewhere, wholesale inventory changes were generally

small. Wholesale sales rose 1.9 percent in October, with strong gains in both durable and nondurable categories.

As a result, the wholesalers'

inventory-sales ratio fell from 1.29 to 1.27--the lowest level this year.

WHOLESALE TRADE INVENTORIES: CHANGE IN BOOK VALUE (Billions of dollars; seasonally adjusted; annual rate) 1988

1988

1987

Q4

Q1

Q2

Q3

July

Aug.

Sept.r

Oct. p

21.9

26.5

13.1

21.1

27.7

22.3

13.4 2.5

6.1

15.0

22.8

-4.1

18.5

24.3

11.8

19.3

4.3

6.9

3.7

17.2

2.6

3.3

10.5

-6.0

1.7

Excluding farm

7.1

1.0

6.2

3.0

3.2

7.4

-1.6

4.2

Farm

-.1

2.7

11.0

-.4

3.1

-4.4

-2.4

Total (Previous) Durable Nondurable

.1

Note: Totals may not add because of rounding.

WHOLESALE TRADE INVENTORY-TO-SALES RATIO

1987

Total Durable

Nondurable r--Revised.

p--Preliminary.

1988

1988

r

Q4

Q1

Q2

Q3

July

Aug.

Sept.

Oct.

1.28

1.31

1.30

1.30

1.28

1.29

1.29

1.27

1.72

1.78

1.70

1.74

1.71

1.72

1.73

1.71

.86

.86

.92

.88

.88

.88

.88

n

.86

r3

MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted)

19871

1988 Q2

1988 Q3

1988 Sep

------------ Percent change at annual 1.

Ml

2.

M2

3.

M3

6.3 7.7 7.7

5.2 3.6 5.7

1988 Oct

Growth 1988 Q4 87Nov pe Nov 88pe

rates---------------------

-0.3 1.0 1.7

------------ Percent change at annual rates----------

0 6 6

4 5s 6

-

Levels bil. $ Oct 88

Selected components 4. 5. 6.

MI-A

2.8

Currency Demand deposits

7.

Other checkable deposits

8.

M2 minus M12

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, plus MMDAs, NSA3 Small time deposits Thrift institutions Savings deposits, SA, plus MMDAs, NSA 3

3.9

8.7 -1.0

3.4

-0.7

3.1

-2

505.5

7.1 0.7

7.5 -7.0

5.8 0.8

5 -7

209.5 288.6

5

277.9

8

2253.7

-38

75.7

13.6

10.6

3.3

8.2

3.1

1.4

4.1

3.0

-4.0

-37.5

-29.4

3.3 6.8 3.2 11.8 9.1 2.3 14.0

-3.1 5.1 1.2 10.2 2.7 0.4 4.5

0.0 4.0 -7.9 20.0 1.6 -10.7 10.1

2.1 8.1 -4.0 23.4 -0.1 -12.6 9.0

Small time deposits

0.9

-1.3 1.0

231.2 971.5 542.2 429.2 976.4 395.8 580.7

17. M3 minus M2 4

11.2

7.4

13.7

4.1

17.4

18. 19. 20. 21.

8.5 11.2 3.4

7.6 6.7 9.3

15.8 21.5 4.5

20.0 18.0 24.3

14.4 14.6 14.0

530.0 356.7 173.3

3.0 32.9 13.8

-30.6 28.3 19.8

-23.3 12.0 38.1

-4.3 -15.6 -10.6

12.9 26.7 -24.9

84.6 124.2 99.3

22. 23.

Large time deposits At commercial banks, net s At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA

MEMORANDA:

6

24. Managed liabilities at commercial banks (25+26)

25.

Large time deposits, gross

Nondeposit funds Net due to related foreign institutions, NSA 7 Other 28. 29. U.S. government deposits at commercial 8 banks 26. 27.

6

831.4

----- Average monthly change in billions of dollars----

6.2 3.5 2.7 2.9 -0.2 0.3

3.9 2.4

1.8 6.4 -4.6

-8.3 6.1 -14.4

0.8 4.0 -3.2

0.1 -4.7

-9.5 -4.9

-4.3 1.1

5 -1

4.8 173.0

6.2

-9

30.7

0.8

8.7

601.5 423.7 177.8

1. Amounts shown are from fourth quarter to fourth quarter. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Commercial bank savings deposits excluding IMDAs grew during October and November at rates of -2.5 percent and 19 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during October and November at rates of -8.9 percent and -1 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. Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis. 7. Consists of borrowing from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase, and other liabilities for borrowed money including borrowing from the Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estima-t 8. Consists of Treasury demand deposits and note balances at commercial banks. pe - preliminary estimate

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

Levels

1986:Q4 to

1988 P

1987: Q4

Q2

Q3

Sept.

Oct.

Nov.

bil.$ p Nov.

----------------------- Commercial Bank Credit ----------------------1.

2.

Total loans and securities at banks Securities

3.

U.S. government securities

4.

Other securities

5.

Total loans

6.

Business loans

7.

Security loans

8.

Real estate loans

9.

Consumer loans

10.

7.9

11.6

4.3

-.7

7.1

5.8

2397.6

5.0

8.3

-.2

-.4

8.3

1.7

551.3

9.6

12.1

2.3

6.8

8.9

4.1

356.3

-1.9

1.6

-4.7

-13.4

7.4

-2.5

195.0

8.9

12.6

5.6

-.8

6.8

7.0

1846.3

7.0

15.2

3.2

-4.4

7.6

-2.4

599.2

-18.4

-30.5

-113.7

69.4

-28.1

37.5

18.8

13.3

12.6

11.5

13.4

12.5

658.8

5.1

9.9

5.5

7.3

2.4

7.9

351.1

-3.1

13.8

-1.6

-18.4

-21.6

22.7

199.7

.8

Other loans

--------- Short- and Intermediate-Term Business Credit--------1.

Business loans net of bankers acceptances 2

12.

Loans at foreign branches

13.

Sum of lines 11 & 12

14.

Commercial paper issued by nonfinancial firms

15.

Sum of lines 13 & 14

16.

Bankers acceptances:

15.5

3.1

-4.0

-4.1

4.1

24.1

6.8

15.1

3.8

-1.6

12.2

-4.8

-1.3

39.9

5.7

14.7

2.6

-1.7

13.1

-7.3

-3.7

-18.6

n.a.

31. 75

11.6

n.a.

744.25

8.3

-2.2

596.0

66.0

34.1

-16.6

21.4

-1.8

9.0

-2.7

617.4

24.4 .8

95.2

712.6

U.S. trade

related '

17.

7.2

13.3

-9.5

Line 15 plus bankers acceptances: U.S. trade related

6.0

13.5

2.2

-1.8

18.

Finance company loans to business

19.3

12.1

10.9

18.2

n.a.

n.a.

227.2 6

19.

Total short- and intermediateterm business credit (sum of lines 17 & 18)

8.8

13.2

4.2

2.9

n.a.

n.a.

964.4 6

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. 5. October data. 6. September data. n.a.--not available. p--preliminary

SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) 1987 Jan.-Feb. lows Oct. 16

Feb lows

1988 FOMC Nov.1

Dec. 8

Change from: FOMC Nov. 1

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

5.95

7.59

6.38

8.31

8.58

5.30 5.31 5.35

6:93 7.58 7.74

5.59 5.77 6.10

7.34 7.47 7.49

7.98

Commercial paper 1-month 3-month

5.81 5.73

7.94 8.65

6.41 6.45

8.19 8.29

9.24 9.08

1.05 .79

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

5.85 5.80 5.78

7.92 8.90 9.12

6.44 6.49 6.55

8.19 8.40 8.41

9.32 9.20 9.19

1.13 .80 .78

Eurodollar deposits 5 1-month 3-month

6.00 6.00

7.79 8.69

6.60 6.69

8.25 8.56

8.45 9.20

1.20 .64

Bank prime rate

7.50

9.25

8.50

10.00

10.50

.50

9.52 10.23 10.24

7.28 8.11 8.32

8.33 8.68 8.76

9.03 9.02 8.97

7.76

7.70

7.96

8.20

8.24

Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 6.34 10-year 7.01 30-year 7.29 Municipal revenue (Bond Buyer)

6.92

Corporate A utility (recently offered)

8.78

11.50

9.63

9.96

10.03

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

9.10 7.52

11.58 8.45

9.84 7.59

10.22 8.13

10.44 8.26

1986

Year-end

9.58e

1988

1987 Record highs

Lows

FOMC Nov. 1

Dec. 8

Percent change from: FOMC Nov.1

Stock prices Dow-Jones Industrial 1895.95 2722.42 1738.74 2150.96 2141.71 -.43 NYSE Composite 138.58 187.99 125.91 156.98 155.37 -1.03 IMEX Composite 263.27 365.01 231.90 299.56 297.38 -.73 NASDAQ (OTC) 348.83 455.26 291.88 382.35 375.22 -1.86 1. One-day quotes except as noted. 4. Secondary market. Las- business day prior to stock market 5. Average for statement week closest 'ecline on Monday, October 19, 1987. to date shown. 3. Average for two-week maintenance period 6. Based on one-day Thursday quotes closest to date shown except lows shown which and futures-market index changes. e nne-week average ending Feb.25 and Feb.10, 7. Quotes for week ending Friday closest respectively. Last observation is average to date shown. -o date for maintenance period ending 12/14/88. e--estimate