greenbooks · February 7, 1989

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

February 3, 1989

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

. . . . . . . Employment and unemployment Manufacturers' inventories . . . . . . . . Sales of new single-family homes . . . . . Federal sector accounts--correction . . .

. . . .

1 3 5 5

. . . . . . cost . . .

. . . .

.. . . . . . .

2 2 4 6

. . . .

Tables Changes in employment . . . Selected unemployment rates Manufacturers' inventories: Private housing activity . .

. . . . . . . . . . change in . . . . .

. . . . . . . . current . . . .

Monetary aggre'ates . . . . .. . . . . . . . . . . . . . . Commercial bank credit and short- and intermediate-term business credit . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . . ..

Federal sector accounts

. . . . . . . . . . .

. . . . . .

THE FINANCIAL ECONOMY

Tables

9 10

SUPPLEMENTAL NOTES

DOMESTIC NONFINANCIAL ECONOMY Employment and unemployment The labor market surveys indicate that labor demand was quite strong in January.

In the payroll survey, employment grew more than 400,000 last

month and the average workweek moved up 0.2 hour to 34.9 hours.

As a result

of the increased pace of hiring and the longer workweeks, aggregate hours of production workers jumped more than 1 percent in January.

In the household

survey, employment advanced more than 700,000 last month.

That gain was

accompanied by a sharp pickup in labor force growth, and the unemployment rate edged up slightly to 5.4 percent. In part, some of the strength in payroll employment seen in January may reflect temporary factors.

Construction employment rose more than 100,000,

as employers apparently did not lay off as many workers as usual for this time of year, owing to the unusually mild January weather.

And, in retail

trade, a relatively early survey week may have reduced the number of postChristmas layoffs captured in the January report.

If so, both of these

components of overall employment growth could drop back somewhat in February. Overall, however, employment gains suggest that the labor market maintained considerable momentum through mid-January.

Manufacturing

employment rose 45,000 last month, with large gains in nonelectrical machinery, transportation equipment, and food processing.

Moreover, the

factory workweek moved up 0.1 hour, suggesting that production gains remain sufficiently robust to maintain the relatively high levels of overtime seen

-2-

CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data)

1987

1988

1988 Q3

1988 Dec. Nov.

1989 Jan.

------- Average Monthly Changes-----Nonfarm payroll employment 2 Strike-adjusted

286 283

303 302

346 345

227 229

301 295

446 435

221 221

408 410

Manufacturing Durable Nondurable Construction Trade Finance and services Total government Private nonfarm production workers Manufacturing production workers Total employment Nonagricultural

38 21 16 21 68 114 28 208 30 257 252

32 21 10 27 80 122 28 216 20 189 191

46 35 12 39 81 141 20 258 30 291 311

2 7 -6 19 52 93 51 124 -3 123 105

63 38 25 24 72 126 5 237 47 213 207

66 42 24 47 103 138 72 299 53 374 374

23 13 10 23 51 136 -18 193 9 62 107

46 22 24 102 166 66 -18 386 50 702 595

Memo: 4 Average hourly earnings

3.0

3.7

5.1

3.5

4.1

-.1

1. Average change from final month of preceding period to final month of period indicated. 2. Survey of establishments. Strike adjusted data noted. 3. Survey of households. 4. Changes are from final quarter of preceding period to final quarter of period indicated at a compound annual rate. Monthly f.gures are simple percent change.

SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data)

5.5

5.3

5.4

5.3

5.4

16.9 9.7 4.8 4.8

15.3 8.7 4.2 4.3

15.2 8.7 4.2 4.3

15.3 8.5 4.1 4.4

14.6 8.7 4.1 4.2

14.1 8.7 4.2 4.2

14.8 8.7 4.1 4.1

16.4 9.3 4.0 4.1

5.3 13.0

4.7 11.7

4.7 11.9

4.8 11.3

4.6 11.3

4.6 11.2

4.6 11.6

4.6 12.0

5.8

5.2

5.1

5.0

5.1

5.0

6.1

5.4

5.3

5.4

Civilian, 16 years and older

6.2

Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older White Black

Memo: Total National 1

1989 Jan.

1988 Q3

1988

Fulltime workers

1988 Dec. Nov.

1987

1. Includes resident armed forces as employed.

-3-

over the past year.

In most other industries, hiring continued at about its

recent trend pace, although some weakness was evident in business services and in finance. In the household survey, the sharp advances in employment and the labor force represent a rebound from the inexplicably low rates of growth through much of 1988.

Nonetheless, even with the bigger increase in household

employment in January, payroll gains have outpaced household employment gains by a considerable amount over the past year.

The unemployment rate,

which probably is little affected by sampling errors in the household survey, has held steady at a bit less than 5-1/2 percent in recent months, after dropping about 1/2 percentage point over the first three quarters of last year. Wage rates, as measured by average hourly earnings, rose 0.6 percent in Janaury to a level nearly 4 percent above last January.

This is somewhat

more than changes seen in past months, and is, in general, consistent with other measures of wage change, most of which have shown some evidence of acceleration recently. Manufacturers' inventories Manufacturers' inventories, measured in current-cost terms, rose $28.7 billion at an annual rate in December, after an upward-revised increase of $26.3 billion in the preceding month.

As was the case over much of 1988,

the bulk of the buildup in factory stocks in December was reported by durable goods industries; in particular, industries producing nondefense capital goods accounted for $19.5 billion of the total increase.

The

December inventory rise was accompanied by a 2.4 percent gain in factory shipments.

As a result, the manufacturers' inventory-shipments ratio fell

-4-

MANUFACTURERS' INVENTORIES: CHANGE IN CURRENT COST (Billions of dollars, seasonally adjusted annual rate)

1988

Total (Previous) Durable Nondurable STAGE OF PROCESSING Materials and supplies Work in process Finished goods

188 Sept.

Oct.

Nov.r

Dec.

24.9

23.8

19.5

28.7

16.9 6.4

21.8 3.0

19.4 4.5

18.3 1.3

26.3 (23.5) 24.4 1.9

11.4 1.6 10.4

-.6 16.0 9.4

8.3 5.5 10.1

3.8 10.3 5.4

.3 18.5 7.4

-5.9 19.2 15.4

22.3

21.1

23.3

15.7 6.6

13.9 7.2

9.6 7.6 5.1

7.1 10.3 3.8

22.8 5.9

Detail may not add to totals because of rounding. r--Revised. p--Preliminary.

MANUFACTURERS' INVENTORY-SALES RATIOS

1988

Total Durable Nondurable r--Revised. p--Preliminary.

1988

Sept.

Oct.

r Nov. r

Dec. p

1.62 1.99 1.19

1.58 1.95 1.16

1.58 1.96 1.15

1.57 1.94 1.14

1.57 1.93 1.16

1.57 1.94 1.15

1.57 1.93 1.14

1.54 1.89 1.13

-5-

markedly, to 1.54 months in December--below the range observed over the past year. For the fourth quarter as a whole, factory stocks posted a $24.9 billion (annual rate) accumulation--roughly the same pace as that seen in the third quarter.

In current-cost terms, the fourth-quarter factory

inventory buildup was $3.7 billion above the BEA's assumptions incorporated in the advance estimate of GNP for 1988-Q4. Sales of new single-family homes Sales of new homes in December were nearly 670,000, about unchanged from the level recorded in November.

In contrast to the figures on single-

family starts and existing home sales, the fourth-quarter pace of new home sales edged slightly below the relatively strong pace of the third quarter. The average price of new homes was up 11-3/4 percent from a year ago, while the median price increased 8-1/4 percent from a year earlier.

These price

measures are influenced importantly by the regional composition of sales and the year-over-year changes are volatile on a monthly basis. Federal sector accounts (Correction) The attached table on the federal sector accounts is a corrected copy of the version that appears on page I-15 of the Greenbook, Part I. The CBO baseline deficit shown in the third line, columns 3 and 6, should be $155 billion in FY 1989 and $141 billion in FY 1990, instead of $144 billion in FY 1989 and $136 billion in FY 1990.

-6-

PRIVATE HOUSING ACTIVITY (Seasonally adjusted annual rates; millions of units) 1987

1988

Annual Annual All units Permits Starts

1988 Q3

1988 Q4p

Oct.

Nov.

Dec.

1.53 1.62

1.45 1.49

1.43 1.47

1.53 1.54

1.52 1.53

1.52 1.56

1.54 1.52

Single-family units 1.02 Permits Starts 1.15

1.00 1.08

.99 1.06

1.05 1.13

1.03 1.14

1.05 1.14

1.06 1.11

.67 3.53

.68 3.63

.70 3.67

.69 3.81

.72 3.67

.67 3.67

.67 4.09

.51 .47

.45 .41

.43 .40

.48 .41

.49 .40

.47 .42

.48 .41

Sales New homes Existing homes Multifamily units Permits Starts

p--preliminary estimates.

r--revised.

r r

February 2, 1989

CONFIDENTIAL FR CLASS II FEDERAL SECTOR ACCOUNTS (Billions of dollars)

FRB Staff Projection

--- Fiscal Year 1988a

____ FY1990p

FY1989p

_ Admin

CBO

FRB Staff

Admin'

CBO

1988 IVa

FRB Staff

1989

Budget receipts 3 Budget outlays Surplus/deficit(-) 3 to be financed

(On-budget) ( ff-budget) Means of financing: Borrowing Cash decrease 4 Other Cash operating balance, end of period

909 1064

976 1137

983 1138

979 1139

1059 1152

1069 1209

1068 1195

III

-155 -194 39

-161 -218 56

-155 -211 56

-159 -209 49

-93 -161 69

-141 -209 68

-127 -192 65

162

140 n.a. n.a.

139 4 16

91 0 2

141 n.a.

144 14 3

n.a.

121 0 6

n.a.

-8

224 286

285 284

249 279

236 303

253 299

313 301

265 292

254 307

-68 -73 6

-62 -77 15

1 -17 18

-30 -42 11

-66 -74 8

-46 -64 18

12 -10 22

-26 -43 17

-53 -67 13

Seasonally adjusted annual rates

NIPA FEDERAL SECTOR 964 1107 380 298 82 727 -143

Receipts Expenditures Purchases Defense Nondefense

Other expend. Surplus/deficit FISCAL INDICATORS

1029 1174 398 298 100 776 -145

1037 1177 395 302 93 782 -140

1030 1175 397 301 96 779 -146

1133 1213 413 305 108 800 -77

1133 1255 416 311 105 839 -122

1117 1246 409 303 106 837 -130

991 1143 393 298 95 750 -152

1020 1172 394 300 94 778 -152

1045 1187 398 301 97 789 -141

1062 1199 401 303 99 798 -137

1079 1217 403 300 102 815 -139

1113 1244 410 305 105 834 -131

1128 1257 411 304 107 846 -129

1146 1266 304 108 854 -120

1166 1283 413 304 109 871 -117

412

High-employment (HEB) surplus/deficit(-) Change in HEB, percent of potential GNP Fiscal impetus measure (FI), percent

a--actual

4. 5.

Not seasonally adjusted

BUDGET

1. 2. 3.

-I-

Note:

1990

III

n.a.

-164

n.a.

-137

-163

-172

-162

-158

-157

-142

-132

-116

-109

n.a.

-.5

-. 2

-. 1

-. 3

-. 2

-. 3

-. 1

.1 *

n.a.

-4.1 *

n.a.

-6.9

-2

-.4

-2.9

-3.8

-.5

-.4

p--projection

*--calendar year

n.a.--not available

Details may not add to totals due to rounding.

The Budget of the United States Government, Fiscal Year 1990 (January 1989). Budget estimates include policy proposals. Baseline budget estimates from The Economic and Budget Outlook: Fiscal Years 1990-1994 (January 1989). The OASDI surplus is excluded from the "on-budget" deficit and Includes social security (OASDI) receipts, outlays and surplus, respectively. shown separately as "off-budget", as classified under current law. Checks issued less checks paid, accrued items and changes in other financial assets and liabilities. HEB is the NIPA measure in current dollars with cyclically-sensitive receipts and outlays adjusted to a 6 percent unemployment rate. Quarterly FI is figures for change in HEB and FI are not at annual rates. Change in HEB, as a percent of nominal potential GNP, is reversed in sign. the weighted difference of discretionary federal spending and tax changes (in 1982 dollars), scaled by real federal purchases. For change in HEB and FI, (-) indicates restraint.

-8MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted)

19881

1988 3

1988

1988 Nov

1988 Dec

Growth 1989 Q4 88Jan pe Jan 89pe

------------ Percent change at annual rates-------------------1. 2. 3.

4.3 5.3 6.2

H1 n2 M3

5.2 3.8 5.5

2.4 3.8 4.9

2.0 7.0 6.9

5.5 5.2 5.6

-5

0 2

-k

24 4 Levels

-----------

Percent chnge at

anual rates------------

bil. S De 88

Selected components 4. 5. 6.

M1-A Currency Demand deposits

2.6

3.3

1.7

-0.7

5.2

-6

507.9

8.1 -1.2

7.5 0.4

6.6 -1.8

4.6 -5.0

7.4 3.8

9 -17

211.8 288.6

Other chckable deposits

7.7

8.7

3.4

6.4

6.0

-3

282.4

M2 minus M12

5.6

3.3

4.3

8.8

5.1

2283.0

-5.1

-4.0

-7.6

-12.6

75.0

79.9

7.7 6.9 1.4 14.8 4.7 -4.3 11.7

-3.1 5.5 1.0 11.6 2.3 -2.0 5.4

12 4 -12 23 -2 -13 5

240.8 988.4 544.9 443.5 971.7 389.1 582.6

10.0

12.1

9.1

6.6

7.2

842.6

11.1 12.2 8.7

13.4 18.1 4.1

11.5 13.1 7.8

5.6 7.0 2.8

8.1 13.3 -2.8

538.1 365.3 172.8

-0.8 13.3 10.3

-23.3 12.0 38.1

10.9 3.9 6.8

39.7 26.2 37.5

2.7 -36.0 20.0

87.6 122.8 103.9

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 3 Savings deposits, SA, plus MMDAs, NSA Smll time deposits Thrift institutions 3 Savings deposits, SA, plus MMOAs, NSA Smll time deposits

17. M3 minus HZ2 Large time deposits At ommercial banks, net 5 At thrift institutions Institution-only money market mutual fund shares, NSA Tere RPs, NSA Term Eurodollars, NSA

35.3 12.0 9.1 15.9 0.5 -7.0 5.4

----- Average monthly change in billions of dollars---MEMORANDA:' 24. Maneged liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds 27. Net due to related foreign institutions, SA 7 Other 28. 29. U.S. goverment deposits at commercial banksr

4.5 5.5 -1.0

4.0 3.2 0.8

8.6 1.3 7.3

-0.3 4.8 -5.1

-0.7 2.0

0.0 -1.0

-0.7 1.5

5.6 1.6

-3.2 -1.7

0 -9

6.7 206.1

0.0

0.5

-4.2

1.9

-5

24.9

642.0 429.3 212.7

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 HMDAs grew during Decembr and January at rates of -1.9 percent and -15 percent, respectively. At thrift institutions, savings deposits excluding MMOAs grew during December and January at rates of -1.5 percent and -7 percent, respectively. 4. The non-M2 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 -onth-of-quarter basis. 7. Consists of borrowing from other than commercial banks in the fore 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 estimated. 8. Consists of Treasury demand deposits and note balances at commercial banks. pe - preliminary estimate Note: The "net due to related foreign institutions" component of nondeposit funds is now measured on a seasonally adjusted basis and the "other" component of this series has been revised. Measures of the money stock have been revised to incorporate annual benchmark and seasonal adjustments. These data are to be regarded as strictly confidential until their release scheduled for February 9.

-9COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1987:Q4 to

1988 p

1988:Q4

Nov.

Dec.

p Jan.

Levels bil.$ p Jan.

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

Total loans and securities at banks Securities

7.2

4.3

4.4

6.0

2.5

2403.2

4.5

-.2

3.7

2.4

-8.9

547.7

U.S. government securities

7.2

2.3

9.5

5.7

13.8

2.0

361.5

Other securities

-.4

-4.7

-6.8

-3.7

-24.0

-29.5

186.2

8.1

5.6

4.7

7.1

5.8

1855.4

Business loans

6.5

3.2

2.2

-2.4

1.4

14.0

606.9

Security loans

-5.5

-29.4

3.3

-28.1

-22.3

-26.0

36.1

Real estate loans

13.0

12.6

11.4

13.3

7.3

8.7

668.0

Consumer loans

8.4

5.5

6.3

6.9

9.6

7.1

355.7

Other loans

0.0

-1.8

-12.8

23.3

-40.9

-26.1

188.7

5. 6.

10.

Total loans

--------- Short- and Intermediate-Term Business Credit --------11

Business loans net of bankers acceptances Loans at foreign branches2

13.

Sum of lines 11 & 12

id.

Commercial paper issued by nonfinancial firms

15.

Sum of lines 13 & 14

16.

Bankers acceptances: related '

17.

6.6 30.5 7.3

15.6 8.3

3.1 24.1 3.8

-4.8 2.6

2.2

13.7

603.8

-16.8

-56.9

20.1

1.6

11.3

623.9

24.4

92.0

60.9

107.7

9.1

13.5

18.3

731.6

2.7 .0 2.5

54.0

-2.4 -16.6 -2.9

U.S. trade

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

18.

Finance company loans to business

19.

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

-6.3

-7.3

24.8

26.5

70.6

n.a.

34.2

7.6

2.2

9.9

1.9

16.1

n.a.

754.85

n.a

10.9

n.a

9.3

n.a.

232.96

n.a

4.2

n.a

3.6

n.a.

977.6 977.8

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. December data. 6. November data. n.a.--not available. p--preliminary

- 10

SELECTED FINANCIAL MARKET QUOTATIONS 1/ (percent) 1988

1987 Jan-Feb lws

2/ Oct 16

Change from:

1989

F(C Feb los Dec 14 Feb 2

POC Dec 14

Sh rt-tern rates

Federal fuads 3/

5.95

7.59

6.38

8.55

9.14

0.59

5.30 5.31 5.35

6.93 7.58

7.74

5.59 5.77 6.10

8.12 8.33

8.38 8.41

8.45

8.36

0.26 0.08 -0.09

5.81 5.73

7.9 8.65

6.41 6.45

9.28 9.11

9.03 9.07

-0.25 -0.04

5.85 5.80 5.78

9.92

9.40 9.34 9.31

9.05 9.19 9.35

-0.35

9.12

6.44 6.49 6.55

6.00 6.00

7.79 .69

6.60 6.69

9.50 9.31

9.14 9.26

-0.36 -0.05

7.50

9.25

8.50

10.50

0.00

U.S. Teasury (constant mturity) 6.34 9.52 3-year 7.01 10.24 7.29 30year

7.28

9.21 9.19

Mmnipal revenue 6/ (IBond Byer index)

6.92

9.59

7.76

7.96

7.58

Corporate-A utility Recntly of ed

8.78

11.50

9.63

10.16

10.03

-0.13

9.10 7.52

11.58 8.45

9.84 7.59

10.46 8.35

10.60 8.54

0.14 0.19

Treasry bills 4/ 1-year Commrcal pape l-mnth 3-mmth LaTe-C

tiable CD's 4/

6-nDnth

Erodollar deposits 5/ 1-ionth

3-amth Baer

prim rate

-0.15

0.04

Intrmediate- and log-term rates

IHoe mertpa

rates 7/

ARM, 1-year

1986

8.11 8.32

1987 Record

Year end hibs

9.06

1988 Lows

-0.09 -0.21 -0.24

EMC

Dec 14

Peroent charge fem:

1989

Dec 14

Feb 2

Stock prices Dow-Jones Industrial

NSE Cposite AME Composite NASDQ )

.95

.58 .27 .83

2722.42 1738.74 2134.25 2333.759.35

1.99 125. 154.72. 365.01 231. 295.00 324.52 55.26 291.88 372.77 405.16

1/ One-day qotes exept as noted. 2/ last business day prior to stock market decline on Maxday Oct. 19, 1987. closest to 3/ Avtae fr tweek rese/e de oxeptows ao ifcch are ooe%eek aerges einae an Feb. 1, rspectively. eb st observati o Is averae to date fbr naintenance period ending February 8, 1989.

. 10.01 8.69

4/ Secondary market. 5/ Average fbr statement week sst to date abun. jo. da 6/ 7/ Qotes fbr week anding Friday closest to date ahoin. e-estimate

Cite this document

APA

Federal Reserve (1989, February 7). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19890208_part1

BibTeX

@misc{wtfs_greenbook_19890208_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1989},
  month = {Feb},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19890208_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}