greenbooks · February 5, 1991

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 1, 1991

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 Labor market developments . . . Purchasing managers' survey. . Consumer sentiment . . . . . . Home sales . . ..... ... .. . . . Nonresidential construction. . Erratum. . . . . . . . . . . .

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

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

. . . . . . . . . . .

. . . . . .

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

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

1 3 4 5 5 6

Tables Average hourly earnings. . . . . . . . . . . . . . . . . University of Michigan survey of consumer attitudes. . . Changes in employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Selected unemployment rates. ... . . .. . . Business capital spending indicators ... . Private housing activity . . . . . . . . . . . . . . . . Federal sector accounts. . . . . . . . . . . . . ..... . Charts Labor market indicators . . . . . . . . . . . . . . Unemployment insurance . . . . . . . . . . . . . . . Purchasing managers . . . . . . . . . . . . . . . . Average lead time. . . . . . . . . . ... . . . . . . Private housing starts . . . . . . . . . . . . . . . Nonresidential construction and selected indicators.

. . . . . ..

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

3 4 7 7 12 13 15

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

8 9 10 11 13 14

THE FINANCIAL ECONOMY The January 1991 senior loan officer opinion survey on bank lending practices. . . . . . . . . . . . . . . . . . . .. .

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

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

20 21

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

22 23

SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Labor Market Developments Labor market conditions deteriorated again in January and, on balance, labor demand appears to have been somewhat weaker around the turn of the year than we previously thought.

Total payroll employment fell 232,000 in

January; the job loss in December, 148,000 jobs, is now estimated to have been larger than previously reported.

The civilian unemployment rate

edged up another 0.1 percentage point in January to 6.2 percent. Total private payroll employment fell 178,000 in January, with losses again concentrated in the goods-producing sector.

Construction lost 155,000

jobs in January, but part of this steep decline appears to have been temporary.

The BLS received reports that activity was disrupted by heavy

rains in the South and flooding along the Ohio river valley during the survey week. January.

In manufacturing, employment fell an additional 69,000 in

Producers of durable goods shed 60,000 jobs with all major

industries reporting losses in January.

Motor vehicles and equipment took

back almost all of its December gain (-13,000). 2 those industries producing nondurables.

Employment fell 9,000 in

Only food processing and paper

1. The downward revision totaled 72,000 in December; for private employment, it was 57,000. Most of the revision to private employment occurred in services (-23,000). In addition, employment growth in the goods-producing sector was revised down 27,000 in December with the revision almost evenly split between manufacturing and construction. 2. In both months, motor vehicle assemblies fluctuated during the month as producers attempted to adjust production to dealers' orders. Output, and probably employment, during the mid-December survey week overstated activity for the month as a whole; the reverse was true in January. Motor vehicle assemblies declined from 8.4 million units to 7.5 million units (annual rate; FRB basis) between November and December and rose to an estimated 8 million units in January.

-2reported gains in January while all others, including chemicals and petroleum, reported small losses. In the private service-producing sector, employment increased 51,000 in January.

But retail trade jobs more than accounted for the rise; because

hiring in that industry had been slower than usual in November and December, so were January's layoffs, and on a seasonally adjusted basis, employment jumped 85,000.

Smoothing through the swings of the last few months,

employment in retail trade has fallen 24,000 since October. Services, which on average added 78,000 jobs per month in 1990, lost 17,000 jobs in January--in part owing to a decline of 32,000 in business services.

Employment in business services began slowing in 1989, and

employment in this industry now has fallen for four consecutive months with losses totaling 88,000 jobs.

Meanwhile, growth in health services in

January (39,000) continued at a pace little changed from that of 1990. Hours of production or nonsupervisory workers fell 1.9 percent in January, reflecting not only the steep decline in employment but also a sharp drop in the average workweek.

About one-third of the decline in

aggregate hours last month resulted from the plunge in construction hours. More generally, average weekly hours have been quite volatile over the past few months, rising to 34.6 hours in December then plummeting to 34.1 hours in January; the manufacturing workweek has followed a similar pattern.

balance, between November and January, aggregate hours of private production workers declined about 1-1/2 percent; manufacturing hours were down about 1-1/4 percent. According to data from the household survey, the 0.1 percentage point increase in the unemployment rate in January reflected sharp increases in

-3the rates for younger workers.

The unemployment rate for workers aged 25

and older was unchanged at 5.0 percent.

In January, the labor force

participation rate dropped back again to 66.0 percent; the participation rate had posted a small gain in December.

Over the past twelve months, the

labor force has grown by less than 150,000 or less than 0.1 percent. Average hourly earnings of production or nonsupervisory workers fell 0.1 percent in January to a level 3-3/4 percent above a year earlier. Hourly earnings fell sharply in finance, insurance, and real estate-retracing most of the steep December increase.

Meanwhile, wages rose

sharply in construction and manufacturing--likely reflecting shifts in the mix of employment. AVERAGE HOURLY EARNINGS (Percentage change; based on seasonally adjusted data)

Total private nonfarm Manufacturing

1990 Q3 Q4

1990 1991 Nov. Dec. Jan.

Memo: Jan. 1990 to Jan. 1991

1989

1990

4.1

3.7

4.0

2.4

-.1

3.7

2.8

3.7

2.6

3.0

4.4

1. Changes over periods longer than one month are measured from final month of preceding period to final month of period indicated. Purchasing Managers' Survey According to reports by industrial purchasing managers, new orders declined sharply again in January despite another increase in bookings from abroad.

The net difference between the proportions of managers reporting

lower and higher orders, on a seasonally adjusted basis, was the largest since this measure moved into the negative range in July.

Production and

-4employment also continued to fall, and inventories of materials were reduced further.

Vendor deliveries speeded up noticeably, on net, and the

proportion of respondents who paid higher prices for materials dropped back for a third month and about equaled the proportion paying lower prices. According to the survey, fears of supply disruptions associated with Iraq's invasion of Kuwait had resulted in demand for early deliveries as well as rising materials prices between August and December. to subside last month.

These fears appeared

Lead times for ordering production materials and

capital goods, which have been trending down over the past two years, decreased slightly in December while lead times for maintenance, repair, and operating supplies were little changed from recent readings. Consumer Sentiment Consumer sentiment, as measured by the University of Michigan's Survey Research Center, was little changed for a third month in January.

Within

the month, however, there were sharp gyrations the attitudes of respondents reflecting the developments in the Persian Gulf. University of Michigan Survey of Consumer Attitudes (Not seasonally adjusted; Feb. 1966 = 100) Dec. 2-15 Index of Consumer Sentiment

65.5

66.0

January 23-28 16-22 75.0

61.5

All 66.8

In the first half of the month, the overall index was about unchanged from the December level.

Attitudes then improved markedly in the week

immediately following the Allied attack on Iraq and Kuwait, only to sink to a new low (for the current downturn) in the last week of the month.

Results

-5for the subperiods are based on relatively few interviews (359, 93, and 79, respectively), and thus are not as reliable statistically as results based on a full month's complement of 500 interviews. Taking the month as whole, consumers were slightly more upbeat than in December about their financial situations--both current and future--as well as about the near-term outlook for general business conditions.

Buying

conditions for large household durables were seen about as favorably in January as in December.

Expectations about the future course of inflation

also varied widely during the month, hitting their low point in the week after the initiation of hostilities.

For the month as a whole, the average

expectation for inflation over the next 12 months was 5.1 percent, down from 5.5 percent in December. Home Sales Sales of new single-family homes dropped back 7 percent in December to 463,000 units (annual rate) from a November reading that was lower than previously reported.

The weakness in demand for new homes through yearend

was consistent with the Michigan Survey's sampling of consumer attitudes toward homebuying, which trended down from July through October and remained at a relatively low level in November and December.

In the January survey,

attitudes toward homebuying apparently improved because more households perceived prices and interest rates to be low. Nonresidential Construction Nonresidential construction put-in-place increased 1/2 percent in December from the downward-revised November level.

However, even with the

uptick in December, construction outlays dropped more than 5 percent in the fourth quarter (not an annual rate), with sharp declines in every major

-6category except public utilities.

The new data are in line with BEA's

assumption for the advance estimate of fourth-quarter GNP and thus imply no significant revision to the estimated 16-1/2 percent (annual rate) decline in real spending for nonresidential construction. Erratum The federal sector accounts table has been adjusted to correctly reflect assumed foreign contribution to Operation Desert Storm.

The

correction reduces the projected FY1992 unified budget deficit from $276 billion to $266 billion. In a corresponding correction to Part 1 text, the sentence beginning on p. 5, line 12, should now read:

In particular, we now expect the unified

deficit to be about $280 billion in FY1991 and $265 billion in FY1992.

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

1990 1989

1990

1990 Q4

Nov.

1991

Dec.

Jan.

------------ Average monthly changes--------Nonfarm payroll employment 2

193

236

-72

-198

-267

-148

-232

162 -16 -16 -0 5 47 9 100 30

21 -49 -39 -10 -19 -4 4 78 32

106 -23 -20 -3 -14 27 8 92 129

8 -43 -44 1 -31 3 2 72 -80

-200 -107 -79 -28 -63 -68 -7 39 2

-272 -207 -161 -46 -64 -65 -10 73 5

-135 -45 -33 -12 -42 -71 -2 8 -13

-178 -69 -60 -9 -155 71 -8 -17 -54

Private nonfarm production workers Manufacturing production workers

134 -17

8 -41

94 -18

-25 -36

-182 -88

-264 -178

-135 -36

-202 -45

Total employment 3 Nonagricultural

148 148

-32 -38

1 -27

-118 -90

-103 -123

-347 -357

188 120

-652 -562

Private Manufacturing Durable Nondurable Construction Trade Finance, insurance, real estate Services Total government

1. Average change from final month of preceding period to final month of period indicated. 2. Survey of establishments. 3. Survey of households.

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

1990 1989

1990

Civilian, 16 years and older

5.3

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

1990

5.5

5.3

5.6

15.0 8.6 3.9 4.2

15.5 8.8 4.4 4.3

15.0 8.7 4.1 4.2

4.5 11.5

4.8 11.3

Fulltime workers

4.9

Memo: Total nationall

5.2

1991

Nov.

Dec.

Jan.

5.9

6.1

6.2

16.0 8.9 4.5 4.3

16.4 9.2 4.8 4.6

16.4 9.1 4.8 4.6

16.6 9.2 5.1 4.8

18.2 9.5 5.1 4.9

4.6 10.6

4.8 11.7

5.1 12.0

5.0 12.2

5.3 12.2

5.5 12.1

5.2

5.0

5.3

5.7

5.8

6.0

5.4

5.2

5.5

5.8

6.0

6.1

1. Includes resident armed forces as employed.

Labor Market Indicators Payroll Survey Aggregate Hours 1

1982.100 133

126

119

Jan. 121.7

I I 1988

1987

1988

IlIIIIIIIili 1989

IIIlliiiii

1990

112

l105

1991

1. Dota denote quartedy averages.

Diffusion Index of Employment Changes

Percent 80

S70

50 Jan. 45.1 40

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

-9-

Unemployment Insurance (Weekly data; seasonally adjusted, FRB basis <1>) Initial Claims

Thousands

1 700

Jan 19 482.7 1 550

All regular programs

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

Insured Unemployment

1991

Millions

5.0

4.5

4.0

All regular programs Jan 12 3.15

1981

1982

1983

1984

1985

<1> Only the state program components of these series are seasonally adjusted.

1986

1987

1988

1989

1990

1991

3.5

-102/1/91

Purchasing Managers * (Seasonally adjusted) Percent

Percent

New orders

Production - 25

Employment

Jan. -

1984

1986

I 1988

7I 75

1990

I 1984

1986

75 75

II 1988

1990

Percent

Percent 75

-0

Prices paid

Supplier deliveries" 25

+ A%

- 50

Inventories

1984 * Pmet

1988 repertng Increes

SPowsiv *ntr

1988

I 1990

re ntted with thoe reportng decremae.

represnt lemowr delivee.

IIIl I 1984

1986

1988

1990

-11-

2/1/91

Average Lead Time (Monthly, not seasonally adjusted) MRO SUPPLIES

Days 50

S- 30

IIIl

1980

1984

1982

1988

1986

1990

PRODUCTION MATERIALS

Days

1990

1988

1986

1984

1982

190 CAPITAL GOODS

Days 100 85 700

Jan. -

1980

1982

1984

1986

Soure: Cdulaed by FR staf from monthly purchaang mnmge

1988 reports.

I100

1990

150

-12BUSINESS CAPITAL SPENDING INDICATORS (Percentage change from preceding comparable periods; based on seasonally adjusted data)

1990

Oct.

Nov.

Dec.

Shipments of nondefense capital goods Complete aircraft Excluding aircraft and parts Office and computing All other categories

-0.9 -3.1 -1.5 -1.0 -1.6

1.1 16.7 -0.8 -1.4 -0.7

-0.1 -6.5 0.9 4.1 0.1

-0.1 -1.2 1.3 3.5 0.7

-1.7 -2.0 -1.8 -6.4 -0.6

-0.4 -0.8 -1.5 2.4 -2.4

Weighted PDE shipments 1

-1.4

-0.1

2.3

2.8

-1.0

-1.7

Sales of heavy-weight trucks

-5.9

6.4

-10.8

-4.5

-5.8

4.0

Orders of nondefense capital goods Excluding aircraft and parts Office and computing All other categories

-5.8 -1.4 -1.2 -1.5

4.9 0.6 5.2 -0.6

4.7 -0.5 -6.2 1.0

8.7 2.7 -12.4 7.0

-14.0 -6.1 -2.4 -7.0

16.9 1.2 -4.1 2.5

Weighted PDE orders 1

-0.7

0.1

1.6

4.6

-4.8

0.4

Construction put-in-place Office Other commercial Public utilities Industrial All other

-0.5 -3.8 -3.5 -0.5 0.7 4.9

1.1 1.6 -2.5 0.0 2.3 4.5

-5.3 -7.6 -9.3 1.5 -5.7 -6.2

-2.3 -3.9 -2.3 -0.2 -1.2 -3.9

-2.1 -5.5 -4.0 0.8 -0.3 -1.6

0.5 2.9 0.2 -0.6 6.9 -4.1

Rotary drilling rigs in use

10.7

-2.8

-0.9

0.3

-2.3

1.5

4.3

n.a.

7.2

-10.1

n.a.

Producers' durable equipment

Nonresidential structures

Footage drilled 2

Note: The Census M-3 report does not provide information on complete aircraft orders. 1. Computed as the weighted sum of 25 individual equipment series (excluding aircraft) from the Census M-3 report with weights equal to the fraction of final business spending for each type of equipment. 2. From Department of Energy. Not seasonally adjusted. n.a. Not available.

-13PRIVATE HOUSING ACTIVITY (Seasonally adjusted annual rates; millions of units) 1990'

1990

Annual

Q 4P

Oct.

Nov?

Dec.p

1.10 1.19

1.09 1.20

1.04 1.13

.89 1.05

.92 1.03

.91 1.13

.85 .99

.79 .89

.80 .90

.76 .86

.68 .79

.71 .84

.67 .77

.65 .76

.54 3.30

.54 3.32

.52 3.33

.48 3.14

.48 3.05

.50 3.15

.46 3.22

Multifamily units Permits Starts

.30 .30

.29 .31

.28 .27

.22 .26

.21 .19

.24 .36

.20 .23

Vacancy ratel Rental units Owned units

9.1 7.2

8.5 7.9

9.5 6.6

9.0 6.6

n.a. n.a.

All units Permits Starts Single-family units Permits Starts Sales New homes Existing homes

n.a. n.a.

1. Percent. Owned units consist mainly of condominiums. All vacancy rate data are revise r Revised estimates. n.a. Not available. p Preliminary.

PRIVATE HOUSING STARTS (Seasonally adjusted annual rate) Millions of units

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

-14-

NONRESIDENTIAL CONSTRUCTION AND SELECTED INDICATORS * (Index, Dec. 1982 = 100, ratio scale) Total Building -I

Construction (C)

------

,""'

Permits (P), Contracts (CN), or New commltments (NC) (CN)

1979

^^^s

1981

1983

1985

1987

1989

1991

Other Commercial

Office (C)

160 120

-,-~

_~______

1983

(P)

I 1985

-4 80o

I 1987

I 1983

1989

Industrial

1985

1987

1989

1991

Institutional -- r 240

(NC)

180 120 I-

-,-

i 1983

1985

1987

1989

1991

-(C)

1983

I 1985

I 1987

I 1989

1 1991

*Six-month moving average for all series shown. For contracts, total only indudes private, while ndlvidual sectors Include private and public. New comritments are the sum of permits and contracts.

CONFIDENTIAL FR CLASS II

February 1, 1991

FEDERAL SECTOR ACCOUNTS (Billions of dollars)

Fiscal years 1990 1989a

1990a

1991

1992

IIa

1991 IIIa

IVa

1992 III

III

Not seasonally adjusted

BUDGET 2

Budget receipts2 Budget outlay. 2 Surplus/deficit(-) (On-budget) (Off-budget) Surplus excluding 3 deposit inaurance Meana of financing: Borrowing Cash decrease 4 Other

991 1144 -153 -206 53

1031 1252 -220 -277 57

1115 1398 -283 -347 64

1193 1459 -266 -335 69

230 310 -80 -94 14

319 331 -12 -41 29

254 312 -58 -65 7

254 341 -87 -97 10

253 344 -91 -107 16

331 358 -27 -50 23

278 356 -78 -93 15

264 373 -109 -116 7

275 359 -84 -104 20

355 362 -7 -33 26

298 364 -66 -82 16

280 361 -81 -91 9

-131

-162

-192

-172

-74

-41

-72

-71

-49

-85

-61

-42

-68

140 3 10

263 1 -44

298 0 -15

251 5 10

90 8 -18

41 -16 -13

69 -6 -6

99 8 -20

67 6 17

46 -9 -10

86 -4 -3

99 15 -5

60 5 19

35 -20 -8

57 5 4

81 10 -10

Cash operating balance, end of period

Seasonally adjusted annual rates

NIPA FEDERAL SECTOR Receipts Expenditures

Purchases Defense Nondefense Other expend. Surplus/deficit FISCAL INDICATORS

a--actual

1. 2. 3. 4. 5.

1092 1249

1166 1331

1263 1399

1081 1249

1106 1272

1126 1272

1135 1300

1157 1333

1175 1343

1199 1348

1222 1371

1257 1401

1276 1408

1295 1414

1318 1435

400

415

446

451

411

422

426

439

446

449

453

452

450

449

301 99 774 -136

307 107 835 -158

330 116 885 -165

326 126 947 -136

307 103 838 -168

310 112 850 -166

313 113 846 -146

327 112 862 -165

333 113 887 -176

332 118 894 -168

329 120 899 -149

327 122 921 -148

328 125 948 -144

325 127 956 -132

322 129 964 -119

318 131 985 -116

-149

-150

-109

-82

-166

-154

-127

-123

-114

-107

-90

-92

-90

-78

-66

-64

-.8

-.5

-.2

-.5

-.1

-.2

-.1

-.3

-.2

-2.3

1.2

-.8

1.4

-4.3

-.5

-. 6

-2.2

-.7

-.8

-.6

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

Note:

1038 1174

-3.5 *

-3.4 *

-3.1 *

-3.7 *

*--calendar year

Details may not add to totals due to rounding.

Staff projections. CBO's January deficit estimates are $298 billion in FY1991 and $284 billion in FY1992. OMB's baseline deficit estimates made for the Budget Summit (September 1990), in combination with their preliminary estimates of the savings in the recent budget agreement, imply deficits of $255 billion in FY1991 and $233 billion in FY1992. The OASDI surplus Budget receipts, outlays, and surplus/deficit include social security (OASDI) receipts, outlays and surplus, respectively. is excluded from the "on-budget" deficit and shown separately as "off-budget", as classified under current law. The Postal Service deficit is included in off-budget outlays beginning in FY1990. ONB's September CBO's January deficit estimates, excluding deposit insurance spending, are $194 billion in FY1991 and $186 billion in FY1992. deficit projections, excluding deposit insurance spending, are $158 billion in FY1991 and $153 billion in FY1992. Other means of financing are 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 and 2.3% Change in HEB, as a percent Quarterly figures for change in HEB and FI are not at annual rates. potential output growth in the forecast period. FI is the weighted difference of discretionary federal spending and tax changes (in 1982 dollars), of nominal potential GNP, is reversed in sign. restraint. (-) indicates and FI, in BEB For change scaled by real federal purchases.

-16-

THE FINANCIAL ECONOMY The January 1991 Senior Loan Officer Opinion Survey on Bank Lending Practices The January 1991 Senior Loan Officer Opinion Survey on Bank Lending Practices asked a series of questions aimed at gauging changes in commercial banks' lending policies with respect to financing nonmerger-related business activities, commercial and residential real estate, and consumer expenditures generally.

The results suggest a further overall tightening of

business credit terms in the last three months.

The number of domestically

chartered banks reporting additional firming in the last three months, while significant, was somewhat fewer than the number that reported tightening in At U.S. branches and agencies of foreign banks, by

the October 1990 survey.

contrast, the pace of tightening appears to have accelerated since October. Domestic banks also have tightened somewhat their lending to the household sector in the last three months, both with respect to mortgage financing and consumer credit generally. Nonmerger-Related C&I Loans Credit standards.

Roughly one-third of domestically chartered

respondents indicated that they had tightened credit standards for approving loan applications from large, medium, and small commercial and industrial firms in the October-January period.

(In the preceding three-month period,

almost half had reported such tightening.)

As in previous surveys, the most

important factors behind the tightening were a deterioration in the economic outlook and industry specific problems. pressures on capital positions.

Of somewhat lesser importance were

However, a number of banks also cited a

deterioration in their loan portfolios, a possible indication of anticipated

-17capital pressures.

Regulatory pressures also were mentioned by some banks

as a reason for tighter credit standards. Over 85 percent of U.S. branches and agencies of foreign banks reported tightening credit standards in the last three months, up from about 70 percent in the October survey.

At foreign banks, pressures on capital

positions along with a deterioration in the economic outlook were given as the primary reasons for tightening. Price and nonprice terms of credit.

A large number of domestic

respondent banks indicated that in the last three months they had raised the cost of business credit.

Over one-half of these banks indicated that they

had increased both the cost of credit lines and of the loans taken down under lines for their large and medium-sized customers.

These banks also

reduced the maximum size of credit lines they were making available.

similar number had reported taking such steps in the October survey.)

than one-third of domestic banks also reported tightening collateral requirements and covenants in the October-January period.

Among foreign

banks, a large majority of branch and agency respondents reported tightening the cost and terms on the loans they made in the last three months. Reactions of business borrowers.

Commercial and industrial firms that

have been turned away or discouraged from borrowing at respondent banks over the last three months most commonly have ended up borrowing at another bank. Respondent banks report that some other customers have obtained credit from nonbank sources.

Some large customers tapped credit markets, issuing

commercial paper or bonds, while middle-market and small firms borrowed from finance companies.

A number of firms, however, responded to the tightening

by cancelling or postponing planned borrowing, presumably reducing their

-18spending plans as well.

Domestic banks reported that this reaction was more

common for smaller and medium sized firms than for large firms.

relatively large proportion of foreign banks reported that cancellation or postponement of borrowing was a common customer reaction. Effect of reserve requirement change.

The January survey also

examined the degree to which commercial and industrial loans have been priced to explicitly account for that part of funding cost attributable to the reserve requirement on nonpersonal time and savings deposits and net Eurocurrency liabilities.

The reserve requirement was reduced in two equal

steps from 3 percent to zero in the maintenance periods ending December 26 and January 9. This reduces the cost to banks of funding their loans and would imply some increase in bank profitability.

The gain would be

attenuated, however, to the extent that some bank loans have explicitly included in their loan rates the reserve requirement cost of funding them. For such loans, the savings from the drop in reserve requirements will be passed on immediately to borrowers.

According to respondents, around

25 percent of the C&I loans at domestic banks and 30 percent of loans at foreign banks are priced in this way. Almost one-half of domestic respondents reported that they had tightened their standards for making construction and land development loans over the last three months, compared to two-thirds that so reported in the last survey.

As they had in the October survey, nearly all of the foreign

banks reported tightening lending standards for this type of credit in the January survey. With regard to permanent real estate financing, a bit under one-half of domestic banks said that they had tightened standards on loans secured by

-19-

commercial buildings, industrial structures and other nonfarm nonresidential mortgages, down from around 60 percent in the last survey.

Most foreign

banks reported tightening standards for this type of credit in January. Households Loans Residential mortgages.

Almost one-third of domestic respondents

indicated that they had tightened standards for residential mortgages in the last three months, compared to 25 percent of banks that reported tightening in the October survey. higher downpayments.

Tighter standards most commonly took the form of Over 60 percent of respondents indicated that the

demand for residential mortgages also had declined in the October-to-January period. Consumer loans.

The January survey revealed some increase in the

number of banks reporting that they had become less willing to make consumer installment loans.

Whereas in recent surveys over 90 percent of banks had

indicated no change in willingness to lend, this share fell to just over 80 percent in the January report, with the remainder indicating they had become less willing to lend.

-20Table 1 Non Merger-Related Business Lending (Percent of domestic respondent banks reporting tighter lending standards or terms)

Size of borrowing firm Criterion

Survey period

Standards for approving loan applications

Aug.90-Oct.90 Oct.90-Jan.91

Maximum size of credit lines

Aug.90-Oct.90

Cost of credit lines

Aug.90-Oct.90 Oct.90-Jan.91

.oreads of loan over base rates

Aug.90-Oct.90

Covenants

Aug.90-Oct.90

Large

Medium

Small

Memo: Branches & agencies of foreign banks

Oct.90-Jan.91

Collateral requirements

Aug.90-Oct.90 Oct.90-Jan.91

1. The middle market is often categorized as consisting of firms with annual sales between $50 and $250 million. "Large" firms are those larger than middle-market firms and "small" businesses are those that are smaller. Not all respondents used the same criteria to distinguish among size of customers.

-21MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted)

1990 19901

1990

1990 Nov

1990 Dec

Growth 1991 04 90Jan pa Jan 9 1pe

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

H3 P?

3.7 2.9 1.5

3.4 2.3 1.1

3.1 0.3 0.1

2.9 1.7 0.2

Levels

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

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

bil, S Dec 90

Selected components 4. 5. 6.

M1-A Currency Demand deposits

Other checkable deposits

4.6

6.0

4.8

2.3

2.5

10.9 -0.7

11.2 1.3

10.9 -0.9

4.9 0.0

6.9 -1.3

26 -19

246.3 276.8

3.5

-0.3

0.7

4.5

3.7

293.8

1.9

-0.6

1.3

2505.2

-86.2

-60.4

-34

531.5

2Zminus M12

3.8

2.6

9. 10.

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

2.8

5.9

11.4 10.0 7.5 12.4 -5.4

9.9 11.4 7.4 15.5 -9.0

11.2 7.9 4.0 11.7 -7.5

4.6 2.7 2.5 2.9 -2.5

16.4 11.2 4.4 17.9 -12.8

30 5 3 8 -7

347.7 1176.0 577.6 598.4 906.0

-2.2

-4.9

-7.4

-5.6

-11.9

-4

338.9

-7.2

-11.4

-7.6

-0.4

-13.6

-9

567.1

781.3

11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

M3 minus M24 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares Term RPs, NSA Term Eurodollars, NSA

-22.2

73.6

-6.4

-4.0

-3.6

-0.5

-6.1

-9.7 -3.9 -23.9

-8.9 -2-3 -27.3

-14.1 -9.7 -26.6

-10.0

-14.8 -6.5 -39.4

504.5 383.7 120.9

20.2 -12.7 -10.1

21.6 0.8 12.2

30.4 -28.8 26.6

9.0 -5.0 25.3

51.8 -75.9 1.7

125.7 88.8 72.7

-3.4 -30.0

----- Average monthly change in billions of dollars---MEMORANDA;: 24. Managed liabilities at commercial banks (25+26) 25. Large tim deposits, gross 26. Nondeposit funds 27. Net due to related foreign institutions 7 Other 28. 29. U.S. government deposits at commercial bankss 1. 2. 3.

-0.1 -2.5 2.4

0.8 -2.6 3.4

-2.0 -3.7 1.7

-0.4 -2.5 2.1

-9.6 -3.2 -6.4

719.0 432.5 286.5

2.2 0.3

1.5 2.0

4.7 -3.0

0.2 1.9

4.8 -11.3

-1 -14

33.4 253.0

0.3

1.8

-0.5

2.9

-0.8

24.4

Amounts shown are from fourth quarter to fourth quarter. Nontransactions M2 is seasonally adjusted as a whole. Commercial bank savings deposits excluding MMDAs grew during December and January at rates of 7.3 percent and 11 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during December and January at rates of -8.5 percent and -5 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 show under memoranda are calculated on an end-month-of-quarter basis. 7. Consists of borrowing from other than comercial 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. pe - preliminary estimate

-22COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1989:Q4 to 1990:Q4

Levels bil.$ Dec.

1990 Q3

Oct.

Nov.

Dec.

---------- Commrcial Ban k Credit--------------------1.

Total loans and securities at banks Securities

5.2

5.8

1.6

1.5

2.5

2719.8

8.9

6.5

-2.4

3.3

-2.5

-7.8

623.1

-11.4

447.7

U.S. government securities

14.3

7.8

11.8

Other securities

-2.9

3.1

-8.7

-18.1

4.1

5.6

2.8

Total loans

-9.5

1.4

175.4

2.7

5.6

2096.7

Business loans

2.1

2.3

-2.6

5.5

3.9

654.5

Real estate loans

9.0

6.4

6.9

8.1

5.1

7.4

829.2

Consumer loans

2.1

3.1

-. 3

-2.8

5.0

381.9

Security loans

-1.0

88.4

-16.7

-47.3

-43.5

42.1

41.3

Other loans

-3.0

7.7

-3.8

-11.3

3.2

-3.2

189.8

10.

Sheort- and Intermediate-Ter m Business Credit---------11.

Business loans net of bankers acceptances 2

12.

Loans at foreign branches

13.

Sum -f lines 11 4 12

14.

Commercial paper issued by nonfinancial firms

15.

Sum of lines 13 5 14

16.

Bankers acceptances: related ,

17.

2.0

1.1

2.0

-2.6

20.3

28.8

30.3

25.2

2.6

2.0

3.0

-1.6

16.4

16.8

-3.2

19.0

4.9

4.6

1.9

2.2

-11.3

-27.6

18.9

12.1

44.0

4.2

3.5

2.5

n.a.

20.7

n.a.

a.a.

7.6

n.a.

5.4 19.8

3.4 43.7

646.5 25.6

5.8

4.8

-24.1

-4.0

150.5

3.2

822.6

672.1

U.S. trade

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

18.

Finance company loans to business

19.

Total short- and intermediateterm business credit (su of lines 17 a 18)

853.7

10.6

4.6

31.1

287.9

2.3

n.a.

1139.35

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

-23SELECTED FINANCIAL MARKET QUOTATIONS (percent) ---- ---- ---- --------- -- -- - -- - -- - -- - -- - -- - -- - -- -- - -- - -- - -- - -- - -- - -- 1989 1990 1991 Change from: March

Dec

Aug

highs

lows

highs Dec 18

Jan 31

Dec 89 lows

FOMC

Aug 90 FOMC highs Dec 18

Short-term rates Federal funds 2

9.85

8.45

8.21

7.43

7.55

-0.90

-0.66

0.12

Treasury bills" 3-month 6-month 1-year

9.09 9.11 9.05

7.53

7.59

6.73

6.19

-1.34

7.29

6.72 6.58

6.20

-1.09

6.13

-0.98

-1.40 -1.31 -1.32

-0.54 -0.52

7.11

7.51 7.45

Commercial paper 1-month 3-month

10.05 10.15

8.51 8.22

8.10 8.05

8.28 7.79

6.99 6.95

-i.52 -1.27

-1.11 -1.10

-1.29 -0.84

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

10.07 10.32 10.08

8.52

8.14

8.26

8.22 8.01

8.18 8.25

7.86 7.60

6.82 6.88 6.88

-1.70 -1.34 -1.13

-1.32 -1.30 -1.37

-1.44 -0.98 -0.72

10.19 10.50

8.38 8.25

8.13 8.19

8.38 7.94

6.88 6.94

-1,50 -1.31

-1.25 -1.25

-1.50 -1.00

11.50

10.50

10.00

10,00

9.50

-1.00

-0.50

U.S. Treasury (constant maturity) 3-year 9.88 7.69 7.77 9.53 10-year 7.83 30-yea 9.31

8.50 9.05 9.17

7.28 7.99 8.15

7.30 8.03 8.21

-0.39

-1.20 -1.02

0.02 0.04 0.06

Municipal revenue (Bond Buyer)

Eurodollar deposits 4 1-month 3-month

Bank prime rate

-0.45

Intermediate- and long-term rates

0.26 0.38

-0.96

7.95

7.28

7.80

7.28

7.24

-0.04

-0.56

-0.04

Corporate--A utility recently offered

10.47

9.29

10.50

9.89

9.78

0.49

-0.72

-0.11

Home mortgage rates 6 S6L fixed-rate S&L ARM, 1-yr.

11.22 9.31

9.69

10.29

9.56

9.61

-0.08

-0.68

8.34

8.39

7.91

7.69

-0.65

-0.70

0.05 -0.22

1989

Record highs

Date

Lows Jan 3

1990

1991

FOMC Dec 18 Jan 31

Percent change from:

Record highs

1989 lows

FOMC Dec 18

Stock prices

-8.78 27.59 4.17 7/16/90 2144.64 2626.73 2736.39 -6.73 154.98 180.19 187.59 21.04 4.11 7/16/90 4.03 4.10 10/10/89 305.24 305.03 317.54 -20.02 AMEX Composite 378.56 370.17 414.20 -14.73 485.73 10/9/89 9.41 11.89 NASDAQ (OTC) Wilshire -7.89 19.38 5.03 3523.47 10/9/89 2718.59 3089.85 3245.35 --------- ------------- --" - - -- - - - - - - - - - - - -- - - - - - - - - - - - -- - - - - - - - - - - Dow-Jones Industrial 2999.75

NYSE Composite

201.13 397.03

One-day quotes except as noted. Average for two-week reserve maintenance period closest to date shown. Last observation is average to date for the maintenance period ending February 6, 1991.

3/ Secondary market. 4/ Bid rates for Eurodollar deposits at 11 a.m. London time. 5/ Based on one-day Thursday quotes and futures market index changes.

6/ Quotes for week ending Friday closest to date shown.

Cite this document

APA

Federal Reserve (1991, February 5). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19910206_part2

BibTeX

@misc{wtfs_greenbook_19910206_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1991},
  month = {Feb},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19910206_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}