greenbooks · December 18, 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

December 15, 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 Industrial production and capacity utilization . ...... Retail trade inventories . . . . . . . . . . . . . . . . . . . Producer prices . . . . . . . . . . . . . . . . ... . ..

1 4 7

Tables Growth in selected components of industrial production . . .

. . . . . . inventories . . . . . . . . . . . .

. . . .

3 5 5 8

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

Capacity utilization in industry . Changes in manufacturing and trade Inventories relative to sales . . Recent changes in producer prices Chart Ratio of inventories to sales THE FINANCIAL ECONOMY Tables

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

9 10 11

THE INTERNATIONAL ECONOMY . U.S. merchandise trade in October . . . . . . . . . . ... . U.S. current account in 1989:Q3 . . . . . . . . . . . ... . U.S. capital account in 1989:Q3 . . . . . . . . . . . ...

12 13 14

U.S. international financial transactions in October .

. . .

U.S. merchandise trade: monthly data . . . . . . . . . .. U.S. current account . . . . . . . . . . . . . . . ..... .

12 14

Summary of U.S. international transactions ..

Tables

. . .

. . ..

SUPPLEMENTAL NOTES

DOMESTIC NONFINANCIAL ECONOMY Industrial Production and Capacity Utilization Total industrial production is estimated to have edged up 0.1 percent last month, after declines of 0.3 percent in September and 0.6 percent in October.

Abstracting from the disruptions caused by the Boeing strike and

natural disasters, IP has been down slightly, on balance, in recent months. Most of the October decline in IP is attributable to the strike against Boeing, which reduced output of aircraft and parts 16-1/2 percent in that month.

Production of aircraft in November is estimated to have retraced

about 15 percent of the October decline, as most Boeing workers were back on the job by Thanksgiving.

This provided a slight boost to November IP (less

than 0.1 percentage point).

Aircraft production is expected to return to

its pre-strike level by early next year.

In addition, the California

earthquake apparently disrupted output of computers and semiconductors in October; these effects seem to have been retraced almost fully in November. Auto assemblies declined 500,000 units in November, but this was nearly 2 Output of consumer offset by a 10 percent increase in output of trucks. goods excluding motor vehicles declined 0.2 percent last month, after a 0.6 percent increase in October.

Output of these goods advanced at a strong

pace during the first half of this year, but has slowed appreciably, on balance, in recent months. has been particularly weak.

Production of durables excluding motor vehicles Output of nondurables decelerated markedly

1. Aircraft and parts constitutes about 2-1/2 percent of total IP. 2. The current proportion of trucks in total IP is a bit more than 1 percent, only slightly less than that of autos.

-2-

GROWTH IN SELECTED COMPONENTS OF INDUSTRIAL PRODUCTION (Percent change from preceding comparable period) Share of

1989 1

total IP

19872

19882

1989 Q3

-Annual rate100.0

5.8 5.8

5.0 5.0

Excluding aircraft & parts

95.5

5.9

5.2

Final products

47.1

4.6

5.4

Total index Previous

Consumer goods Motor vehicles Durables ex. motor veh. Nondurables

24.9 2.7 3.6 18.6

6.0 8.8 3.9 6.0

Business equipment Motor vehicles Computers Other Manufacturing Civilian aircraft

16.5 1.0 4.2 11.2 3.1 .8

8.3 10.7 8.7 8.0 12.7 7.1

Durable Nondurable Energy Memo: Manufacturing Durable Nondurable

---Monthly rate---

1.1 1.3

-. 3 .0

-. 6 -. 7

-. 3

-. 1

3.5 -1.7 -3.6 -21.6 6.3 -1.2 4.1 1.4 9.5 .5 -25.0 -13.2 24.0 -6.4 6.7 5.9 7.0 5.6 22.7 18.7

-. 4

-1.2

-. 2

.4 -1.8

-1.4 -.3 -. 1 -. 7

-.1 -. 1 -. 9

-1.1 -. 1

.1 .4

-. 5

.9 -2.7 -3.0 -4.4 -2.1 -. 2

-24.6

4.7 6.7

5.2 5.4

-0.3 5.1

38.6

7.2

4.6

-. 1

1.9

-. 3

-. 2

20.2 9.7 8.7

8.0 8.1 4.5

6.9 4.1 -.1

-. 3 2.5 -2.7

4.0 2.4 -3.7

-. 4 -1.2 .9

-1.1 1.3 .4

87.6 50.8 36.8

5.9 6.0 5.7

5.6 6.0 5.1

3.4 2.8 4.3

-.4 -. 7 .1

-. 8 -1.8 .5

Construction supplies Business supplies Materials

2.7 2.7

Sept.r Oct. r Nov.e

2.7 2.5

1.4 .1 3.2

1. As of 1988. 2. From the final quarter of the previous period to the final quarter of the period indicated. r--revised e--estimated

-. 2

CAPACITY UTILIZATION IN INDUSTRY 1 (Percent of capacity; seasonally adjusted) 1967-88

1989

1973

1978-79

1988

Ave.

Nov.

Sep.

Oct.

Nov.

81.6

87.9

85.0

84.1

83.4

82.8

82.7

80.7

87.0

84.4

83.7

82.8

82.7

Primary processing Advanced processing

82.0 80.2

91.3 85.1

86.3 83.3

88.1 82.6

86.0 82.8

85.8 81.4

85.5 81.4

Durable manufacturing Primary metals Iron and steel Nonferrous metals Nonelectrical machinery Motor vehicles & parts Autos Aerosp. & misc. trans. eq.

78.8 79.9 79.0 81.5 78.2 78.2 76.1 78.1

86.2 96.6 97.9 94.2 86.6 94.5 89.3 75.4

83.5 87.8 88.2 87.1 83.2 83.6 81.7 77.6

83.0 90.4 90.2 90.7 82.8 85.5 76.7 85.6

82.1 85.3 82.4 89.2 85.8 77.2 70.7 86.9

80.4 84.5 82.6 87.0 83.9 75.4 69.8 77.7

80.7 82.1 79.9 85.1 85.5 74.9 64.3 79.1

Nondurable manufacturing Paper and products Chemicals and products Petroleum products

83.6 88.8 79.3 86.9

88.1 94.2 86.9 97.1

85.7 89.4 81.4 87.8

86.4 93.7 89.1 84.9

85.9 92.4 86.6 87.3

86.1 92.5 87.4 88.6

85.6 92.5 87.1 87.8

86.5 86.7

91.4 92.8

90.5 85.3

83.3 80.8

83.1 80.6

83.5 81.1

83.8 80.9

82.3 80.7 87.8 92.0 81.3 88.9

91.1 100.4 93.8 96.8 91.1 93.7

86.7 90.7 94.0 92.1 85.9 89.4

85.1 89.3 100.5 96.7 90.5 86.2

83.5 84.0 96.4 95.2 86.7 85.1

83.2 84.6 93.5 95.4 87.9 85.5

82.9 81.8 91.0 95.4 87.3 85.3

Total industry Manufacturing

Mining Utilities Memo: Industrial materials Raw steel Aluminum Paper materials Chemical materials Energy materials

1. Data for iron and steel, nonferrous metals, paper and products, chemicals and products, raw steel, aluminum, paper materials, and chemical materials are unpublished estimates for October.

during the third quarter, but the level of output in November was up 3-1/4 percent (annual rate) from the third-quarter average. Production of business equipment increased 1.3 percent last month; about 1 percentage point of this gain is attributable to a bounceback in computer output.

In addition, a partial rebound in output of aircraft

added about 1/4 percentage point to the business equipment index.

Excluding

motor vehicles, production of capital goods weakened considerably last summer when computer production turned down.

More recently, abstracting

from special factors, it appears to have flattened out. Production of materials declined 0.2 percent in November, the third consecutive monthly decline.

Part of this weakness stems from declines in

auto and truck assemblies, both of which are at much lower levels currently than early last summer. The manufacturing operating rate edged down 0.1 percentage point in November to 82.7 percent, and has fallen 1-3/4 percentage points since June. Retail Trade Inventories Retail inventories fell at an annual rate of $9 billion in current-cost terms in October, largely reflecting a $29 billion decline in auto dealers' stocks.

With a 0.3 percent drop in sales, the retailers' inventory-sales

ratio moved up from 1.63 to 1.65 months in October.

Excluding auto dealers,

the ratio rose from 1.52 to 1.54 months, well above the upper end of the range that has prevailed over the past year (chart).

The pickup in October

in the rate of accumulation of nonauto retail inventories was widespread. For the broad range of retail establishments in the general merchandise, apparel, and furniture and appliances (G.A.F.) grouping, inventories rose at 3. Computers currently constitute about one-fourth of the business equipment index.

-5CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates;

based on seasonally adjusted data) Q1

1989 Q2

Aug.

1989 Sept.

47.1

61.2

39.1

33.4

2.4

40.0

38.3 21.4 011.5 28.3 13.6 14.7

24.2 17.6 1.4 20.1 9.1 11.1

16.0 8.2 -5.1 30.2 16.4 13.8

-3.4 -7.2 -7.7 17.3 10.4

59.0 11.7

10.1

16.2

8.4

23.5

-15.8

n.a.

-6.7 3.8 -2.1 8.4 9.0 -.6

13.4 8.3 5.2 2.6 -3.0 5.7

17.2 13.2 -.3 -4.5 -12.7 8.2

18.0 11.3 -2.7 15.0 4.3 10.7

-9.8 -9.3 -10.7

n.a. n.a.

Oct.

Current-cost basis: Total Excluding autos and aircraft 1

31.1 27.9 5.5 13.8 4.9 8.9

Manufacturing

Wholesale Retail Automotive Excluding auto

6.9

37.3 -8.9 -29.2 20.2

Constant-dollar basis: Total Excluding autos and

aircraft 1 Manufacturing

Wholesale Retail Automotive Excluding auto

4.2 -.7 4.9

n.a. n.a. n.a. n.a.

1. All manufacturing and trade excluding transportation equipment in manufacturing, and autos and auto parts at retail dealers. n.a. Not available. INVENTORIES RELATIVE TO SALES

(Months supply; based on seasonally adjusted data) 1989

1989

Oct.

Aug.

Sept.

1.54

1.50

1.51

1.52

1.50

1.51

1.53

2 Range in preceding 12 months: Low High Current-cost basis: 1.48 Total Excluding autos and 3

1.41

1.44

1.43

1.42

1.44

1.43

1.44

Manufacturing Wholesale Retail Automotive Excluding auto

1.53 1.27 1.56 1.83

1.64 1.31 1.63 2.06

1.57 1.28 1.61 1.96

1.57 1.28 1.63 2.05

1.59 1.28 1.64 2.04

1.56 1.28 1.62 2.00

1.59 1.27 1.63 2.01

1.60 1.29 1.65 2.04

1.48

1.51

1.52

1.54

Total 1.48 Excluding autos and

1.52

1.50

1.49

1.48

n.a.

1.42 1.52 1.32 1.50 1.68

1.44 1.63 1.36 1.56 1.93

1.43 1.57 1.33 1.55 1.93

1.43 1.57 1.33 1.55 1.88

1.43 1.58 1.32 1.51 1.69

1.42 1.55 1.32 1.50 1.68

1.42 1.57 1.31 1.50 1.67

n.a. n.a. n.a. n.a. n.a.

1.43

1.46

1.45

1.46

1.45

n.a.

aircraft

Constant-dollar basis:

aircraft 3 Manufacturing Wholesale Retail Automotive Excluding auto

1. Ratio of end-of period inventories to average monthly sales for the period. 2. Highs and lows are specific to each series and are not necessarily coincidental. Range is for the 12-month period preceding the latest month for which data are available. 3. All manufacturing and trade excluding transportation equipment in manufacturing, and autos and auto parts at retail dealers.

n.a.

Not available.

Ratio of Inventories to Sales (Current-cost data) Ratio

Manufacturing Oct

Manufacturing excluding

. -

transportation equipment I~

1985

1986

"\I

1987

1988

1989

WHOLESALE

Ratio 1.35

1.3

1.25

1.2 1985

1986

1987

1988

1989

RETAIL EXCLUDING AUTOS

Ratio 1.55

1.5

1.45

1985

1986

1987

1988

1989

a $6.5 billion annual rate in October.

Flat sales left the inventory-sales

ratio for stores in the G.A.F. grouping at 2.47 months in October--somewhat higher than the average of 2.43 months over the past year. For all manufacturing and trade, inventories rose at an annual rate of $40 billion in October, about the same as in the third quarter.

The

inventory-sales ratio rose to 1.53 months in October for all manufacturing and trade, and to 1.44 months when aircraft manufacturers and retail auto dealers are excluded. Producer Prices The producer price index for finished goods edged down 0.1 percent in November, held down by a 3-1/4 percent decrease in finished energy prices. Reflecting recent swings in crude oil costs, gasoline prices fell 7-3/4 percent in November, and retraced much of the large runup in September and October.

Food prices increased substantially for a second month, rising

0.8 percent in November.

The November increase reflected sharp jumps in the

prices of beef and veal, pork, and dairy products that were partly offset by a 15 percent drop in the price of fresh and dried vegetables.

Excluding

food and energy, finished goods prices rose 0.2 percent, held down by a 0.3 percent decrease in prices of new cars and a 1 percent drop in prices of light trucks.

Prices of capital equipment increased 0.3 percent in

November, as declines in truck prices only partly offset widespread increases in the prices of industrial machinery and a 1.6 percent increase in the index for civilian aircraft. Prices of intermediate materials other than food and energy were unchanged in November, as they have been since the spring.

Increases in

prices of components for manufacturing and materials for nondurable manufacturing were offset by declines in prices of some industrial metals.

RECENT CHANGES IN PRODUCER PRICES

(Percentage change; based on seasonally adjusted data) 1

Relative importance Dec. 1988

1989

1989 1987

1988

------ Annual rate----100.0 25.8

Finished goods Consumer foods Consumer energy

Other finished goods Consumer goods Capital equipment Intermediate materials 2 Excluding food and energy

Crude food materials Crude energy Other crude materials

2.2' -. 2

Nov.

Oct.

-Monthly rate-

4.0 5.7

10.2 13.1

5.8 -1.3

-.3 -1.3

.4 1.4

-.1 .8

8.8

11.2

-3.6

41.0

31.8

-16.8

65.3 39.6 25.8

2.1 2.7 1.3

4.3 4.8 3.6

5.1 5.4 4.6

5.1 5.7 4.5

3.3 2.6 4.8

.1 .2 -. 3

-3.3

.2 .0 .3

94.8

5.4

5.3

8.7

2.9

-1.1

-. 1

83.4

5.2

7.2

5.5

-. 7

43.8 36.9 19.3

1.8 10.7 22.6

14.2 -9.5 7.5

16.9 48.3 10.3

-17.8 23.6 -9.3

-2.2 -6.5 -. 6

-. 6 .5 .3

1.7 .3 -2.3

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

RECENT CHANGES IN PRODUCER PRICES -- RELATIVE CONTRIBUTION 1 2 (Percentage change; based on seasonally adjusted data)

Relative importance Dec. 1988

1989 1987

1988

1989 Q3

------Annual rate----Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment

Oct.

Nov.

-Monthly rate-

100.0 25.8 8.8 65.3 39.6 25.8

2.2 -. 1 .9 1.4 1.0 .3

4.0 1.5 -.3 2.8 1.9 .9

10.2 3.3 3.2 3.3 2.1 1.2

5.8 -. 3 2.7 3.2 2.2 1.1

-. 3 -.3 -1.8 2.1 1.0 1.2

.4 .3 .0 .1 .1 -. 1

-. 1 .2 -.3 .1 .0 .1

2.2 1.2 3.7 .7

.1 -.2 .0 .0

.3 .0 .2 .0

.4 .7 .1 .3

-.4 -.2 .1 .2

.2 -. 3 .8 -. 8

.0 .1 .1 .1

.1 .1 .1 -.1

Memorandum: Beef and veal Pork Dairy products Fresh and dried vegetables

1. Data may not add due to rounding. 2. Changes are from final month of preceding period to final month of period indicated.

-9MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted)

19881

1989 Q2

1989 Q3

1989 Sep

1989 Oct

1989 Nov p

Growth Q4 88Nov 89p

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

M1 M2 3

4.3 5.2 6.9 ----------

-5.6 1.2 2.9

1.5 7.3 4.6

5.7 7.5 1.0

Percent change at annual

10.1 7.8 4.5

3.5 8.4 6.0

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

0.3 4.6 3.9

Levels bil. $ Nov 89p

Selected components 4. 5. 6.

M1-A Currency Demand deposits

2.5

-3.3

1.2

1.9

8.1 -1.2

4.1 -8.7

3.7 -0.4

5.5 -0.9

2.2

12.7

9.3

8.1

Other checkable deposits

7.7

M2 minus M12

5.5

Overnight RPs and Eurodollars, NSA SGeneral purpose and broker/dealer money market mutual fund shares, NSA SCommercial banks Savings deposits, SA, plus HItAs, NSA 9 3 Small time deposits SThrift institutions Savings deposits, SA, plus MMOAs, NSA" Small time deposits . M3 minus M24 Large time deposits s At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA

HEMORANOA:

24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds Net due to related foreign 27. institutions 7 Other 28. 29. U.S. government deposits at commercial 8 banks

-9.8 3.5

-5.7

-24.2

7.4 6.9 1.4 14.7 4.6 -4.3 11.7

-1.7

506.7

1.6 13.4

3.3 -6.4

220.3 278.9

13.0

12.8

283.3

7.1

10.0

2409.1

1.1

-41.7

19.9

-16.3

72.5

21.0 5.4 -14.9 29.0 -1.1 -24.6 14.0

36.5 6.9 3.6 10.4 4.0 -6.0 9.8

39.1 7.4 10.2 4.7 -0.4 4.1 -2.9

27.3 11.1 9.4 12.9 -5.8 4.8 -11.8

33.0 13.8 22.5 4.9 -0.1 9.6 -5.8

309.8 1054.8 537.1 517.7 967.9 354.4 613.4

10.2

9.2

-4.9

-22.3

-7.8

-3.1

848.4

11.0 12.2 8.8

14.0 17.8 5.8

-1.6 1.9 -9.5

-11.4 -3.6 -29.3

-6.0 6.4 -34.3

-1.9 8.1 -27.2

560.0 400.6 159.4

-0.8 14.5 11.2

12.2 2.8 -6.7

34.1 -32.2 -13.5

-17.9 -43.7 -46.7

-4.8 -35.9 -43.5

40.1 6.5 15.9

102.0 110.9 91.6

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

5.0 3.3 1.7

9.0 4.0 4.9

3.4 -0.3 3.7

5.8 -2.4 8.2

11.7 1.3 10.4

5.5 2.0 3.5

713.1 461.3 251.8

-0.4 2.1

-0.2 5.1

0.6 3.0

0.4 7.8

0.3 10.1

-1.2 4.7

8.7 243.1

0.0

2.4

-1.2

0.9

-3.9

0.4

20.3

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 IHDAs grew during October and November at rates of 5.9 percent and 14.3 percent, respectively. At thrift institutions, savings deposits excluding HMDAs grew during October and November at rates of 3.8 percent and 7.6 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. .. Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis. 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 estimated. 8. Consists of Treasury demand deposits and note balances at commercial banks. p - preliminary

-10COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1 1987:Q4 to 1988:Q4 ----------

1. Total loans and securities at banks

7.6

4.8

Securities

U.S. government securities

Other securities

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

bil.$

Oct.

Nov.p

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

5.2

8.0

6.2

15.2

4.0

2584.0

.7'

1.6

4.7

27.1

6.9

577.7

5.4

7.0

40.9

17.5

397.4

-8.2

-6.2

-1.3

-15.8

180.3

8.5

6.5

9.9

6.6

11.8

3.1

2006.2

6.8

4.6

8.3

8.1

641.5

14.0

11.7

13.7

12.9

11.9

10.7

747.7

7.3

Total loans

Levels 1989 Sept.

Business loans

Real estate loans

Consumer loans

8.5

6.1

9.1

7.4

8.3

377.0

Security loans

-5.7

-21.1

-6.8

21.1

50.2

-25.5

41.4

1.2

10.6

-6.0

23.0

-21.4

198.6

10.

-. 4

Other loans

.--------

11.

Business loans net of bankers acceptances

6.9

Loans at foreign branches 2

7.6

Sum of lines 11 & 12

14.

Commercial paper issued by nonfinancial firms

15.

Sum of lines 13 & 14

16.

Bankers acceptances:

30.3

15.5 8.6

4.6 32.8

7.9 -83.3

-. 2

6.6

-192.8

-51.7

1.1 .0

637.4 20.0

5.6

4.1

-7.5

4.8

1.3

657.5

38.2

10.3

41.0

-4.7

15.2

128.3

10.5

5.1

3.1

3.5

785.7

-1.1

-6.7

-23.7

n.a.

-. 1

2.1

n.a.

818.3

12.6

n.a.

259.0'

n.a.

1077.3'

U.S. trade -6.8

17.

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

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)

7.8 3

12.3

8.9

6.9 10.4

14.7

11.4

4.9

14.1

7.0

18.1

4.2

4.6

34.8'

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 6f month. 4. Consists of acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. 5. October data. p--preliminary. n.a.--not available

-11-

SELECTED FINANCIAL MARKET QUOTATIONS 1/ (percent)

1987

Change frm:

1989 March Hfis

Oct 16

Mr 89 FOM figbs Nov 14

FCC Nov 14 Dec 14

Short-term rates

7.59

Federal fmds 3/

Treasury bills 4/

9.85

8.57

8.50

-1.35 -0.07

9.09

7.66 743

7.62 7.39

-1.47 -0.04 -1.72 -0.0 -184 0.01

9.11 9.05

1-year Camoercial paper

.94

I-mnth

7.20

7.21

10.05

8.43

8.65 8.35

-1.40 -1.80

0.22 0.00

10.07

8.39

-1.36 -11

0.32 0.05 0.03

.65 10.15

10.32

8.35

8.36

8.41

10.08

8.18

8.21

10.19

8.44

8.25

8.75

10.50

8.50

-1.44 -2.00

0.31 0.25

11.50

10.50

-1.00

0.00

US. Treasury (constant maturity) 9.52 3-year 10.23 10-year 10.24 30-year

9.88 9.53 9.31

7.5 7.7 7.90

7.70 .79 7.85

-2.18

-0.05

-1.46

-0.05

Municipal reverne 6/ (Bol r Byer index)

9.59

7.95

7.45

7.29

-0.66

-0.16

Corporate-A utility Rectly oered

11.50

10.47

9.27

9.33

-1.14

0.06

Home n1rtarge rates 7/ Fixed-rate AFM, 1-year

11.58 8.45

11.22

9.79

9.76

852

8.39

-1.46 -0.92

-0.03 -0.13

1-mnth

3-month

9.25

Bark prime rate

Intermediate- and long-term rates

9.31

Percent charge ftom:

1989

1987 fHiis

-1.74

Lows

FOC Oct 12 Nov 14 Dec 14

1987 Hi s

PFUC 1987 1989 Lws Oct 12 Nov 14

Stock prices Dow-Jones Irxstrial

NSE Coxposite

AMC aosite NASDAQ

Wilshire

2722.2

1738.74 2759.84 2610.25 2753.63

365.01 455.26

231.90 395.01 371.52 37.82 .48 291.88 482.19 454.03

187.99

3299.44

125.91

196.98 187.51

193.7

2188.11 3485.24 3308.81 3396.59

1/ One-day qotes except as noted. 2/ Last b9nss day prior to stock market decline On Monxay Oct. 19, 1987.

A~Ree

fbr two-week reserve maintenan

period closest to

date au . Last obseration is aerage fr the maintenance period ending Deceber 13, 1989.

1.15 58.37

-0.23

5.49

3.24 62.49 -1.71 53.31

-4.81

-5.95 -5.84

3.45

3.18 54.05

2.94 55.23

-5.06

1.43 -1.44

2.65

4/ Secondary market. 5/ Bld rates fbr Eurdollar deposits at 11 a.m. London time.

6/ Based on one-day Thursday quotes

and Afturesaarket index charges. 7/ Qwotes fbr week ending Friday closest to date shwn.

-12-

INTERNATIONAL DEVELOPMENTS U.S. Merchandise Trade in October The U.S. merchandise trade deficit was $10.2 billion in October (on a seasonally adjusted Census basis, customs valuation), compared with a revised $8.5 billion deficit in September. Most of the widening of the deficit in October resulted from a sharp increase in imports of industrial supplies.

While the October

U.S. MERCHANDISE TRADE: MONTHLY DATA (Billions of dollars, seasonally adjusted; Census customs basis)

Total

Exports Nonag. Ag.

Total

Imports Oil Non-oil (nsa) 34.2 2.9 35.2 2.9 3.3 36.4

Balance -9.2 -10.5 -10.8

1988-Oct. Nov. Dec.

27.9 27.6 28.9

3.1 3.2 3.3

24.8 24.3 25.6

37.1 38.1 39.7

1989-Jan. Feb. Mar.

29.0 28.8 30.1

3.2 3.4 3.9

25.7 25.4 26.2

37.9 38.2 39.5

3.5 3.2 3.7

34.4 35.0 35.9

-8.9 -9.4 -9.5

Apr. May Jun.

30.8 30.5 31.3

3.7 3.5 3.3

27.1 27.0 28.0

39.0 40.5 39.3

4.0 4.7 4.2

35.0 35.8 35.1

-8.3 -10.1 -8.0

Jul. Aug. Sept.

30.5 30.6 30.7

3.3 3.0 3.2

27.2 27.5 27.4

38.7 40.7 39.2

4.3 4.3 4.0

34.4 36.4 35.2

-8.2 -10.1 -8.5

Oct.

31.0

3.2

27.8

41.2

4.4

36.8

-10.2

r-Revised

p-Preliminary

increase in imports of industrial supplies largely reverses declines in the previous three months, the rate of those imports in October was still about 3 percent higher than the rate recorded in either the first or second quarters.

Among the different categories, the strength of

imports of paper, steel, and textiles were most notable.

Smaller

increases were recorded in October for food and oil imports.

The

-13-

average price of oil imports rose 4 percent (about 70 cents per barrel) while the quantity increased about 1/2 percent.

Prices of imports of

non-oil industrial supplies declined slightly on average in October. Exports showed a small (1 percent or less) increase in October for the third month in a row.

Exports of aircraft declined sharply, while

exports of automotive products and industrial supplies rose. U.S. Current Account in 1989:03 The U.S. current account deficit narrowed to $91 billion (saar) in the third quarter, from $128 billion (revised) in the second quarter (table below).

Nearly all of the improvement was attributable to a

swing from reported capital losses to reported capital gains on net direct investment assets (line 6), reflecting changes in the exchange value of the dollar. Excluding capital gains and losses, the current account narrowed by $6 billion in the third quarter, entirely the result of increased net service receipts (lines 7-10 in the table).

The largest increases

resulted from recovery of insured losses (from Hurricane Hugo) from foreign reinsurers (part of line 10), and increased military sales (line 9).

There were also smaller increases in direct investment income other

than capital gains (line 7) and in net portfolio income (line 8). Outlook for the Current Account.

Incorporating the new information

for services into the staff forecast would result in a small positive adjustment to the outlook -- attributable to increased net service receipts of about $3 billion for 1990 and $2 billion for 1991.

-14-

U.S. CURRENT ACCOUNT (Billions of dollars, annual rates, seasonally adjusted)

1. Trade Balance Exports 2. Imports 3. 4. Investment Income, net 1 5. Direct Investment, net 6. Capital Gains or Losses Other Direct Investment 7. Portfolio Income, net 8. 9. Military, net 10. Other Services, net 11. Unilateral Transfers 12. 13.

Current Account Balance: Published Excluding Capital Gains and Losses

$ Change 03-02

1989 Q1

1989 02-r

1989 Q3-p

-113.5 351.7 465.2

-110.2 365.7 475.9

-111.0 366.3 477.3

-0.8 0.6 1.4

-9.7 23.9 -13.9 37.8 -33.5

-24.5 12.2 -21.1 33.3 -36.7

10.4 46.0 10.9 35.1 -35.5

34.9 33.8 32.0 1.8 1.2

-6.0 21.7 -14.1

-6.1 23.9 -11.5

-3.9 28.3 -14.6

2.2 4.4 -3.2

-121.6

-128.3

-90.8

37.6

-107.7

-107.2

-101.6

5.6

1. Gains or losses on net financial assets includes both realized capital gains (or losses) resulting from the sale of assets for more (or less) than book value, and unrealized gains (or losses) largely resulting from the revaluation at current exchange rates of assets and liabilities denominated in foreign currencies. Plus - gains; minus - losses.

r-Revised

p-Preliminary

U.S. Capital Account in 1989:03 U.S. direct investment abroad increased sharply in the third quarter of 1989; but the increase was more than accounted for by the movement from unrealized currency translation losses to gains.

(See

line 6 of the Summary of U.S. International Transactions table that follows.)

Foreign direct investment in the United States (line 7)

dropped off further from the very high rates recorded early in the year;

-15SUMMARY OF U.S. INTERNATIONAL TRANSACTIONS (Billions of dollars)

Private Capital Banks 1. Change in net foreign positions of banking offices in the U.S. (+ - inflow) Securities 2. Private securities 1 transactions, net a) foreign net purchases 2 (+) of U.S. corporate bonds b) foreign net purchases (+) of U.S. corporate stocks c) U.S. net purchases (-) of foreign securities 3.

Foreign net purchases (+) of U.S. Treasury obligations

1989

1987

1988

Year

1988 Q4

47.5

21.3

-0.4

9.6

-1.4

0.3

36.4

15.5

5,8

3.4

5.8

3.7

26.4

26.9

6.4

9.0

8.8

16.8

0.4

1.3

-2.0

-6.9

-11.8

-1.9

-7.3

20.6

47.7

Aug.

Sept.

13.8

8.4

6.3

-2.8

0.1

1.6

1.7

3.3

6.2

5.8

1.4

1.7

4.2

0.1

3.7

5.1

0.9

2.5

1.3

-3.5

-3.0

-6.2

-10.8

-0.7

-2.5

-2.3

3.5

5.5

8.7

2.4

12.9

11.7

5.4

-0.2

40.2

-2.0

10.7

8.0

-5.6

12.6

10.3

3.0

-0.6

Oct.

Official Capital

4. Changes in foreign official reserves assets in U.S. (+ - increase)

By area G-10 countries (incl. Switz.)

38.8

15.5

-6.8

5.3

-9.5

6.0

5.6

-0.6

-3.7

OPEC

-8.9

-3.4

-0.8

0.7

0.3

4.6

3.3

0.5

-0.6

All other countries

17.8

28.0

5.7

4.6

3.6

2.1

1.3

-3.1

3.6

43.2

41.7

-3.8

-5.9

4.5

-1.6

9.1

-3.6

Other 6. 7. 8. 9. 10.

By type U.S. Treasury securities 3 Other Changes in U.S. official reserve assets (+ = decrease) 4 transactions (Quarterly data) U.S. direct investment (-) abroad Foreign direct investment (+) in U.S. 5 Other capital flows (+ = inflow) U.S. current account balance Statistical discrepancy

-44.2 46.9 5.7 -143.7 1.9

-17.5 58.4

1.8

-7.4

-4.9 11.9

2.2 -126.5 -10.6

-32.3

-127.2

-30.3

1.8 24.0

11.9

4.6

-1.3

3.4

2.3

-4.0

-9.7 4.1

-12.1

-8.9 -5.5 -5.8 23.0 19.2 13.3 2.5 2.1 2.4 -28.7 -30.4 -32.1 -19.4 1.7 33.5

12.8

10.6

-1.2

-0.1

-0.3

-1.8

-6.0

-1.2

-4.0

-2.3

n.a.

5.2

-11.0 11.4 -8.5 -22.7 -2.6

MEMO:

U.S. merchandise trade balance -- part of line 9 (Balance of payments basis, seasonally adjusted)

-159.5

-32.0

-28.4 -27.6

-27.8

1. These data have not been adjusted to exclude commissions on securities transactions and, therefore, do not match exactly the data on U.S. international transactions as published by the Department of Commerce.

2. Includes all U.S. bonds other than Treasury obligations. 3. Includes deposits in banks, commercial paper, acceptances, borrowing under repurchase agreements, and other securities. 4. Seasonally adjusted. Includes U.S. government assets other than official reserves, transactions by nonbanking concerns, and other banking and cial transactions not shown elsewhere. In addition, it includes amounts resulting from adjustments to the data made by Department of Commerce and revisions to the data in lines 1 through 5 since publication of the quarterly data in the Survey of Current Business. *--Less than $50 million. NOTE: Details may not add to total because of rounding.

-16-

intercompany debt flows between foreign banks and their finance affiliates in the United States were responsible for much of the decline in inflows in the third quarter.

A single transaction (the merger of

SmithKline and Beecham) accounted for more than half of the increase in foreign equity in U.S. affiliates.

The statistical discrepancy (line

10) fell sharply from the revised second quarter level. U.S. International Financial Transactions in October Data currently available for October show net capital inflows through securities transactions.

It is interesting to note that during

this month of turbulence in financial markets, private foreigners continued to add on balance to their holdings of U.S. stocks (line 2b); they also added net to their holdings of corporate and U.S. government agency bonds (line 2a), but not to their holdings of U.S. Treasury securities (line 3).

Inflows that had been recorded by banks in

September were partially reversed in October.

Foreign monetary

authorities reduced their holdings of reserve assets in the United States, reflecting heavy intervention sales by the G-10 countries.

Cite this document

APA

Federal Reserve (1989, December 18). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19891219_part2

BibTeX

@misc{wtfs_greenbook_19891219_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1989},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19891219_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}