greenbooks · February 2, 1993

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 CLASS

(FR)

III - FOMC

January 29,

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

1993

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY Real GDP, 1992:QIV . . . . . . . Personal income and outlays. ... Manufacturers' orders, shipments, Unemployment insurance . . . ..

. . . . . . . . . . . . . . . and inventories.. .. ....... .

.. .. . .

1 2 3 4

Tables

Real gross domestic product and related items. Real personal consumption expenditures . . . .

Personal income. . . . . . . . . .. . . . . . Business capital spending indicators . .. . . Changes in manufacturing and trade inventories Inventories relative to sales. . . . . . .. .

. .

5 6

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

7 8 11 11

. .

Charts PCE goods excluding motor vehicles .. . . . . . . . Personal saving . . . . . . . . ... . . . . . . . . Consumer sentiment . . . . . . . . . . . . . . . . . Recent data on orders and shipments. . . .. . . . . Nonresidential construction and selected indicators. . . . Ratio of inventories to sales. . . . . . ... .

. 6 . 6 . 7 . 9 . 10 .12

THE FINANCIAL ECONOMY The January 1993 Senior Loan Officer Opinion Survey . on Banking Lending Practices . . . . . . . . . ...

Tables

. . . . 19 Monetary aggregates . . . . . . . . . ... . Commercial bank credit and short- and 20 intermediate-term business credit. . . . . . . . ... Selected financial market quotations . . . . . . ... .21 THE INTERNATIONAL ECONOMY Import and export prices . . . . .

. . . . . . . ... .

Table Import and export price measures

. .

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY Real GDP.

1992:QIV

Real gross domestic product grew at a 3.8

percent annual rate

in the fourth quarter, buoyed by strong consumption, equipment spending, and

residential construction.

A decline in inventory

investment subtracted 0.7 percentage point from GDP sales

growth;

final

increased 4.5 percent. Consumer

spending contributed 2.9 percentage points to the

overall fourth-quarter

increase in demand.

The rise in consumption

was slightly faster than disposable income growth, and the personal saving rate

edged down

0.1 percentage point to 4.5 percent.

Taking

a somewhat longer perspective, the rapid growth of consumption in the second half of 1992 was accompanied by a reduction in the saving rate

from 5.1

percent in the first half to 4.6 percent in the

second. Fixed investment generally was Business

quarter. at a 12

quite strong in the fourth

equipment spending is estimated to have increased

percent annual rate, with about half of the additional

spending used for computers and related equipment. investment

in business

because these outlays years.

structures, although

The

increase in

small, was notable

generally have been declining for the past two

Spending for residential structures grew quite sharply in

the fourth quarter. pickup in starts, but

Part of this increase reflects the

recent

repairs of hurricane damage likely also played

a significant role. In the foreign sector, the fourth-quarter growth of imports was slightly faster than exports, and

real net exports fell slightly.

Computers and peripherals accounted for part of the deterioration in

-2-

real net exports, continuing a pattern that developed during the past year. The GDP fixed-weight price index rose at a 3.2 percent annual rate in the fourth quarter, while the implicit deflator increased only 1.8 percent.

Part of the discrepancy between the relatively

low deflator and the fixed-weight index is due to the strong growth of computer investment.

Another part of the discrepancy reflects

the composition of imports; the deflator for imported services in the third quarter had been temporarily lowered because of foreign reinsurance payments for hurricane damage. Personal Income and Outlays Personal income rose $50.2 billion at an annual rate in December; the revised November figures now show a decrease of $4.3 billion.

Private wages and salaries accounted for well over

one-third of the December advance, but the sizable increase in wages and salaries mainly reflected accelerated bonus payments to employees in the securities industry.

Subsidy payments to farm

proprietors and transfer payments each accounted for $10.6 billion of the December gain.

The November change in personal income was

reduced by a decline in subsidy payments to farm proprietors as well as other special factors that had temporarily boosted income in October.

Excluding special factors, personal income increased $15.0 Rental

billion in December and rose $25.7 billion in November.

income, dividend income, and nonfarm proprietors' income all showed modest gains in December, while personal interest income continued to decline. Disposable personal income grew at an annual rate of $43.8 billion in nominal terms in December, after an $8.7 billion decrease in November; in real terms, disposable personal income rose $32.3 billion in December, following a $13.3 billion decline in

-3November.

Nominal personal outlays increased $22.2 billion in

December, and the personal saving rate rose to 4.7 percent from 4.2 percent in November. Real personal consumption expenditures increased 0.4 percent in December, after little change in November.

Durable goods

expenditures were particularly strong in December accounting for almost a half of the gain in real total expenditures.

Real

expenditures for services posted a modest increase of 0.2 percent in December, while real expenditures for nondurable goods rose

0.4 percent. Manufacturers' Orders, Shipments, and Inventories New orders for durable goods rose 9.1 percent in December, one of the largest increases recorded in the 45-year history of this series.

Although part of the December increase reflected a spike in

orders for civilian aircraft, bookings also moved up for a wide range of capital goods and durable materials.

The staff's series

for real adjusted durable goods orders, a useful indicator of nearterm movements in industrial production, rose almost 6 percent last month, after smaller gains during the three preceding months. Focusing on nondefense capital goods excluding aircraft, orders increased 6.4 percent in December, led by a 23 percent rise in bookings for communication equipment.

Orders jumped as well for

railroad equipment and for search and navigation equipment, two categories that tend to be extremely volatile on a monthly basis. However, orders also increased for office and computing equipment and for most types of industrial machinery.

This report reinforces

our sense that a broadly-based firming of demand for capital equipment is in train.

At the same time, the increase in December

may have been exaggerated by the partial resolution of uncertainty regarding tax incentives for investment.

In early December,

-4Senators Bentsen and Rostenkowski announced that any new investment incentives would be retroactive that date; this statement may have unlocked capital spending projects that had been delayed in order to qualify for tax benefits provided by new legislation. Shipments of nondefense capital goods excluding aircraft and parts increased 4.7 percent in December, after little change on net over the two preceding months.

For the fourth quarter as a whole,

these shipments rose 2.6 percent in a widespread advance.

Because

the December increase in shipments was more robust than BEA had assumed, today's report implies an upward revision to spending, on the order of $3 billion, which could be allocated to real PDE and/or exports. Manufacturers' inventories, on a current cost basis, declined at an annual rate of $27-1/2 billion in November, a drawdown about $4 billion larger than that reported in the initial estimate. Unemployment Insurance Initial claims for unemployment insurance, adjusted to include those who chose to file claims under the emergency unemployment compensation

(EUC) program, stayed at a higher level for a second

week in mid-January.

The four-week moving average of EUC adjusted

claims ending January 16 stood at 370,000--about the same as during the previous four-week period. UNEMPLOYMENT INSURANCE DATA WITH EUC ADJUSTMENT 1 (In thousands; seasonally adjusted by BLS)

Initial claims All regular programs EUC effect Adjusted claims 1. Includes revised data.

Dec. 12

1992 Dec. 19

Dec. 26

Jan. 2

1993 Jan. 9

Jan. 16

368 22 390

339 22 361

297 22 319

350 24 374

372 20 392

374 22 396

-5-

REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS (Percent change from previous period at compound annual rates; based on seasonally adjusted data, measured in 1987 dollars)

1991-Q4 to 1992-Q4

1992-Q2 Final

1992-Q3 Final

1992-Q4 Advance

1. Gross domestic product

2.9

1.5

3.4

3.8

2.9

-. 1

2.8

4.5

3.2

-. 1

3.7

4.3

Final sales

Consumer spending

4. 5. 6.

Business fixed investment Producers' durable equipment Nonresidential structures

7.9 11.9 -1.4

16.1 24.1 -. 8

3.1 9.5 -11.3

9.7 11.7 4.5

Residential investment

15.0

12.6

29.1

8. 9.

-. 5 Federal government purchases State and local government purchases 1.4

-2.6 -. 3

6.8 2.0

-3.2 -. 9

10.

Exports of goods and services

3.5

-1.4

9.2

3.7

11.

Imports of goods and services

9.3

14.7

14.8

4.7

ADDENDA:

12. 13. 14.

Nonfarm inventory investment 1 Motor vehicles 1 Excluding motor vehicles1

2.0 2 2.3 2 -. 3 2

6.0 3.6 2.4

9.6 5.1 4.5

3.0 1.0 2.0

15.

Farm inventory investment 1

2.4 2

1.8

5.3

4.3

16.

Net exports of goods and services 1

-43.2 2

-43.9

-52.7

-54.6

17.

Nominal GDP

5.4

4.3

5.3

5.7

18.

GDP fixed-weight price index

3.0

2.9

2.1

3.2

19.

GDP implicit price deflator

2.4

2.7

1.8

20.

Personal saving rate (percent)

4.8 2

5.3

4.6

4.5

1. 2.

Level, billions of 1987 dollars. Annual average.

REAL PERSONAL CONSUMPTION EXPENDITURES

(Percent change from the preceding period) 1992 1992

1992 Q4

Oct.

-Annual rate-

Personal consumption expenditures

Nov.

Dec.

---- Monthly rate----

3.2

3.7

4.3

Durable goods Excluding motor vehicles

9.0 9.0

9.4 18.8

12.9 4.6

2.8 .4

-1.0 -.5

1.6 1.1

Nondurable goods Excluding gasoline

2.9 3.1

2.5 2.7

5.1 6.1

1.2 1.5

-.1 -.1

.4 .4

Services Excluding energy

2.1 2.3

3.1 3.3

1.9 1.8

-. 2 -.1

.3 .2

.2 .4

Memo: Personal saving rate (percent)

4.8

4.6

4.5

4.6

4.2

4.7

PCE GOODS EXCLUDING MOTOR VEHICLES*

Billions of 1987 dollars

1360

* Quarterly averages Dec.

- 1340 1320 - 1300 1280

I I 1990

1989

PERSONAL SAVING

1260 1992

1991

Percent of disposable personal income 10 8 S-

6 Dec.

* Quarterly averages

1981

1983

1985

SOctober, November, and December are staff estimates.

1987

1989

1991

1993

CONSUMER SENTIMENT Index

Michigan Survey Conference Board Survey

1981

1983

1985

1987

1989

1991

1993

PERSONAL INCOME (Average monthly change at an annual rate; billions of dollars) 1992 1992

Total personal income

20.2

Wages and salaries

1992

9.6

14.1

35.6

-4.3

50.2

10.4

3.6

7.5

19.4

14.1

21.8

8.7

7.5

17.8

15.6

20.0

Other labor income

1.4

Proprietors' income Farm

3.9 .5

-4.2 -5.9

5.3 2.6

7.6 3.5

-13.5 -16.0

1.4 1.2 -3.9

3.7 1.2 -.8

-.6 1.5 -5.5

2.6 2.0 -.9

.1 1.5 -.8

Transfer payments

6.8

5.3

4.6

-6.1

Less: Personal contributions for social insurance

1.1

1.2

1.1

.7 6.4

Private

Rent Dividend Interest

Lass: Personal tax and nontax payments Equals: Disposable personal income Memo: Real disposable income

Nov.

Dec.

13.6 10.1 .7 2.9 -.3 10.8

2.1

3.3

4.4

5.6

4.4

18.2

6.3

9.7

30.0

-8.7

43.8

6.6

-1.9

1.9

16.6

-13.3

32.3

-8BUSINESS CAPITAL SPENDING INDICATORS (Percent change from preceding comparable period; based on seasonally adjusted data, in current dollars) 1992

1992

Oct.

Nov.

Dec.

1.4 2.6 3.8 2.3

.8 3.0 .2 3.9

3.6 2.6 .5 3.2

-.9 -1.8 -3.6 -1.3

3.1 2.1 12.2 -.6

3.8 4.7 -1.5 6.6

-12.7

-18.1

n.a.

-16.1

n.a.

Sales of heavy weight trucks

5.9

2.0

5.8

6.8

-7.0

1.4

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

-.4 .5 4.4 -.6

-3.6 2.5 2.0 2.6

6.8 3.9 1.5 4.6

3.6 -1.7 -3.6 -1.1

-9.7 .5 9.5 -2.0

17.9 6.4 1.9 7.8

.6 -6.7 3.8 -6.0 2.5 6.2

-3.7 -11.2 -2.0 -8.2 -2.1 .9

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

1.0 1.2 3.2 -2.1 -.1 2.3

2.0 1.2 .1 2.1 .2 6.1

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

-.9

14.6

9.7

4.7

5.0

-4.5

3.1

17.9

33.7

-19.9

20.1

16.1

3.1

9.7

n.a.

Producers' durable equipment

Shipments of nondefense capital goods Excluding aircraft and parts Office and computing All other categories Shipments of complete aircraft1

Nonresidential structures Construction put-in-place Office Other commercial Industrial Public utilities All other Rotary drilling rigs in use Footage drilled 2 Memo: Business fixed investment 3

1. From the Current Industrial Report "Civil Aircraft and Aircraft Engines." Monthly data are seasonally adjusted using FRB seasonal factors constrained to BEA quarterly seasonal factors. Quarterly data are seasonally adjusted using BEA seasonal factors. 2. From Department of Energy. Not seasonally adjusted. 3. Based on constant-dollar data; percent change, annual rate. n.a. Not available.

-9-

RECENT DATA ON ORDERS AND SHIPMENTS Office and Computing Equipment Billions of dollars

Orders Shipments

1987

1988

1989

1990

1991

Other Equipment (excluding aircraft and computers)

Billions of dollars

SOrders ---S

1987

Shipments

1988

1989

1992

1990

1991

-10-

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

Construction (C) ------ Permits (P), Contracts (CN), or New commitments (NC)

1980

1982

1984

1986

Office

1984

1988

1990

Other Commercial

1986

1988

1990

1992

Industrial

1984

1986

1988

1990

1992

Institutional

1 1984

1992

1986

1988

1990

1992

1984

I 1986

(C)

i 1988

1 1 1990

1 1 I . 1992

*Six-month moving average for all series shown. For contracts, total only includes private, while individual sectors include private and public. New commitments are the sum of permit and contracts.

-11CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates; based on seasonally adjusted data) 1992 Q1

1992 Q3

Sep.

Oct.

Nov.

Current-cost basis Total Excluding auto dealers Manufacturing Defense aircraft Nondefense aircraft Excluding aircraft Wholesale Retail Automotive Excluding auto dealers

-7.9 -13.7 -11.2 -1.0 -3.1 -7.1 -1.2 4.5 5.8 -1.3

22.7 16.1 -1.5 -4.4 -3.5 6.3 6.1 18.1 6.6 11.5

14.3 16.7 6.1 -9.5 3.6 12.1 -1.1 9.3 -2.3 11.7

-18.2 -12.2 -14.5 -13.3 5.0 -6.1 -13.8 10.1 -6.0 16.1

16.0 23.4 -8.2 3.4 -1.6 -9.9 21.5 2.7 -7.5 10.2

12.3 8.2 -27.4 -10.0 -2.1 -15.4 22.4 17.3 4.2 13.2

-13.2 -18.0 -8.7 -4.9 .5 4.8 -4.4

7.4 1.9 -6.5 2.1 11.8 5.5 6.3

10.1 8.5 3.9 -3.5 9.7 1.6 8.1

-23.9 -19.9 -16.0 -15.1 7.2 -4.0 11.2

-31.9 -22.6 -5.5 -16.2 -10.3 -9.3 -1.0

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

Constant-dollar basis Total Excluding auto dealers Manufacturing Wholesale Retail Automotive Excluding auto dealers

INVENTORIES RELATIVE TO SALES 1 (Months supply; based on seasonally adjusted data) 1992 Q1

1992 Q3

Sep.

Oct.

Nov.

Current-cost basis Total Excluding auto dealers Manufacturing Defense aircraft Nondefense aircraft Excluding aircraft Wholesale Retail Automotive Excluding auto dealers

1.52 1.50 1.62 5.84 4.58 1.45 1.36 1.54 1.85 1.46

1.51 1.49 1.57 5.86 4.60 1.41 1.36 1.57 1.90 1.48

1.50 1.48 1.57 5.37 5.19 1.41 1.32 1.56 1.86 1.48

1.50 1.47 1.56 5.25 5.21 1.41 1.33 1.55 1.84 1.47

1.49 1.47 1.57 5.57 5.01 1.41 1.33 1.52 1.72 1.46

1.48 1.47 1.54 5.46 4.63 1.39 1.34 1.53 1.76 1.47

1. Ratio of end of period inventories to average monthly sales for the period.

-12-

RATIO OF INVENTORIES TO SALES (Current-cost data) Ratio 2.1

Manufacturing

Excluding aircraft

*'"A.

.''

.1. 1980

1982

1984

1986

1988

1990

1992

Ratio

1.5

Wholesale - 1.4

1.3

S1.2 1

-I

1980

-- )1 -

1982

1984

I-

1 --

1986

1988

1990

1.1

1992

Ratio

Ratio 1.7

2.7

Retail

;, ,

. fV'A',

GAF group

1.5

2.3 -

1.4

Total excluding auto

2.1

1980

1982

1984

1986

1988

1990

1992

-13THE FINANCIAL ECONOMY The January 1993 Senior Loan Officer Opinion Survey on Bank Lending Practices The January 1993

Senior Loan Officer Opinion Survey on Bank

Lending Practices posed questions about: standards

changes in bank lending

and terms, the demand for bank loans by businesses and

households, bank capital levels,

the maturity of bank securities

holdings, and the effects of bank regulation on small business lending.

Fifty-eight domestic commercial banks and eighteen U.S.

branches and agencies

of foreign banks participated in the survey.

A large majority of respondents reported no and

standards on commercial and industrial loans

estate loans.

A large fraction of respondents

that the demand for November.

changes in terms and commercial real

indicated, however,

loans by businesses has increased since

A small fraction of respondents indicated that they had

eased standards on home mortgage loans, and similar fractions reported an increase in their willingness to make loans to individuals over the last three months.

In contrast to the November

survey, which showed a strong increase in household credit demand, about as many respondents

reported weaker demand as reported

stronger demand for residential mortgages, home equity lines

credit, and consumer loans. The questions

on capital ratios provide some evidence on the

importance of capital constraints for bank lending. August and November surveys,

almost all

As in the

of the respondents claimed

that they were fairly comfortable or very comfortable with their bank's capital position. respondents

Nonetheless, more than a third of the

reported taking actions over the last quarter to improve

their capital positions.

Less than 10 percent of the respondents

indicated that their lending terms and standards were tighter result of capital concerns.

as a

-14A new set of questions asked for information on the remaining maturities of banks' securities holdings.

A majority of the

respondents reported that their Treasury securities and CMOs had remaining maturities of one to three years and their mortgage passthrough securities had an average remaining maturity of three to seven years.

Nearly a third of the respondents reported that the

desired average maturity of investment account assets had declined over the past year, with most of them indicating that the change was the result of either existing or anticipated rules regarding the reporting of capital gains and losses resulting from changes in the market value of these assets.

More than 60 percent of the

respondents reported a decline in the average remaining maturity of their investment portfolio over the past year. In response to the new questions on the effects of regulation on small business lending, about two-thirds of the banks reported that some features of FIRREA, FDICIA, or other regulations have a disproportionate impact on lending to small businesses.

particular, respondents indicated that the FIRREA requirement that real estate loans of over $100,000 be supported by an appraisal of the property had an adverse impact on small borrowers. Business Lending Nonmerger-related commercial and industrial loans.

As has been

the case since last May's survey, most domestic banks reported unchanged standards for approving commercial and industrial loans since the November survey.

They noted a very small net tightening

of standards on loans to large and medium-sized borrowers, and a similarly small net easing of standards on loans to small businesses. As in the last three surveys, most domestic banks reported that lending terms on commercial and industrial loans and lines of credit

-15were basically unchanged.

Net changes in the sizes of credit lines

were very small and conflicting.

Credit line costs increased

slightly for large borrowers, but changed little for medium-sized and small borrowers.

Spreads of loan rates over base rates, which

had narrowed in the November survey for medium-sized and small firms, narrowed slightly for medium-sized firms in January, although no net change occurred for small and large firms.

As in the August

and November surveys, the use of loan covenants for large and medium-sized borrowers showed a small net increase.

For small

borrowers, however, the use of covenants was little changed. Collateral requirements were little changed over the past quarter for large and small firms, but showed a small net tightening for medium-sized firms. U.S. branches and agencies of foreign banks reported unchanged standards and slightly tighter terms over the past quarter, similar to their responses in the last two surveys.

The branches and

agencies reported small net increases in spreads, and very small net increases in credit line costs and in the use of loan covenants. Real estate loans.

Domestic respondents reported virtually no

changes in standards on commercial real estate loans, but a small net tightening of standards for commercial office buildings.

As in

November, U.S. branches and agencies of foreign banks reported a small net tightening of standards on real estate loans of all types. Demand.

In contrast to recent surveys, nearly a third of the

domestic respondents reported stronger loan demand by businesses of all sizes.

The new demand was attributed to increased inventory

financing needs as well as increased investment.

Some respondents

also reported decreased competition from other banks.

U.S. branches

and agencies of foreign banks reported a smaller net increase in the demand for loans.

-16-

Lending to Households As in the last two surveys, respondents reported increased willingness to lend to households.

The fraction reporting an

increased willingness to lend, however, has fallen in each of the surveys since August.

Also as in the last two surveys, a small net

easing of standards on residential mortgages was indicated.

contrast to the increases reported on the last two surveys, the respondents reported little change in the demand for consumer loans or for mortgages. Capital Ratios The responses to the questions on capital adequacy indicate that the respondents' capital positions have continued to improve since the November survey.

More than 90 percent of the domestic

banks reported that both their risk-based capital ratio and their tier-1 leverage ratio were either "fairly comfortable" or "very comfortable."

As in November, none of the respondents reported that

either ratio was tight, as a few banks did in the August survey. More than 10 percent of the respondents reporting comfortable capital levels said that they took a more aggressive lending stance as a result, a small increase since November.

About a third of the

respondents reported taking steps over the last quarter to improve their capital positions, down from a half in the November survey. Most of those taking such steps issued capital, and 10 percent increased loan sales and securitizations.

Only 7 percent reported

that they maintained tight lending standards and terms over the last quarter in order to bolster their capital, down from 12 percent in November. In contrast to the domestic commercial banks, the U.S. branches and agencies of foreign banks reported somewhat weaker capital positions for their parents.

Most of the branches and agencies

-17continued to report that their parent's capital position was only "adequate," and three institutions reported a fairly tight capital position--up from just one in November.

About a third of the

respondents reported that they maintained tight lending standards in order to strengthen their parent firm's capital position, a somewhat lower fraction than in November.

Of the five branches and agencies

that reported "comfortable" or "very comfortable" capital positions, none reported lending more aggressively as a result. Maturity of Investments The survey asked respondents for the average remaining maturity of various classes of security investments.

The responses suggest

that banks' securities are generally of short to medium maturity, and that these maturities have been reduced over the past year. Most respondents indicated that the average maturity of their U.S. Treasury securities was in the one-to-three-year range, and another 20 percent reported an average maturity under one year. backed obligations longer maturities.

Mortgage-

(CMOs and mortgage pass-through securities) had A majority of respondents reported average

maturities of one to three years for CMOs, and another 30 percent reported three to five years.

The average maturity of mortgage

pass-through securities was generally reported to be between three and seven years, with about equal numbers reporting three to five years and five to seven years. More than 60 percent of the domestic respondents reported that the average maturity of their institution's investment portfolio had declined over the past year.

In addition, a third of the

respondents indicated that their bank's desired average maturity had declined in recent months.

This decline was attributed primarily to

regulations or anticipated regulations affecting the reporting of capital gains and losses on securities holdings, although some

-18respondents also reported that the shorter desired maturities were intended to reduce their bank's interest rate exposure.

contrast, a small number of banks indicated that they had lengthened the desired maturity of their securities holdings in the last few months to take advantage of the steep yield curve. Most of the foreign branches and agencies indicated that they did not hold any mortgage-backed securities.

Their holdings of

Treasury securities, however, had even shorter average maturities than those of domestic commercial banks, with half of the respondents reporting maturities under a year and a third maturities between one and three years.

Only two of the branches and agencies

reported holding CMOs or mortgage pass-through securities.

They

reported average remaining maturities of three to five years and over five years for the CMOs and three to five years and over ten years for the mortgage pass-through securities.

Of the small number

of branches and agencies responding to the question, one-third indicated that the maturity of their investment portfolios had shortened over the past year. The Effects of Regulation on Small Business Lending More than 60 percent of the respondents reported that some features of FIRREA, FDICIA, or other regulations had a disproportionate impact on lending to small businesses.

More than

80 percent of those reporting a regulatory problem pointed to the FIRREA requirement for an appraisal in all real estate loans over $100,000.

They argued that the cost of an appraisal does not vary

with the size of the loan, and so the appraisal cost--which is passed through to the borrower--raises costs as a fraction of the

loan's size for small loans.

Many of the respondents suggested

raising the minimum loan size requiring an appraisal, or other changes that would reduce the burden of this requirement.

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

1992 1

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

14.3 1.9 0.5

M2 M3

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

1992 Q3

1992 Q4

1992 Nov

Percent change at annual 11.6 0.8 0.0

16.6 3.0 0.4

15.7 2.7 0.6

1992 Dec

Growth 1993 Q4 91Jan pe Jan 93pe

rates--------------------8.8 -0.6 -3.2

7 -3 -6

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

13% 1½ 0 Levels bil. S Dec 92

Selected components 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

M1-A Currency Demand deposits Other checkable deposits M2 minus M1

Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares Commercial barks Savings deposits (including MMDAs) Small time deposits Thrift institutions Savings deposits (including MMDAs) Small time deposits

17. M3 minus M2

Large time deposits 4 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares Term RPs, NSA

Term Eurodollars, NSA

MEMORANDA:

24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds 27. Net due to related foreign institutions 6 28. Other 29. U.S. government deposits at commercial 7 banks

13.7

12.2

15.3

10.1

7.3

9.1 18.0

11.1 13.3

10.5 19.6

7.5 12.5

10.8 4.9

10 2

292.4 340.9

15.4

10.8

19.3

25.4

11.3

385.2

-2.4

-3.3

-2.4

-2.5

-4.5

-8

0.4

14.0

-1.6

-6.5

-3.4 -0.1 14.5 -15.8 -5.5 14.8 -21.5

-7.3 -1.6 10.9 -17.4 -4.8 9.2 -18.9

-1.0 0.2 12.9 -17.2 -5.7 8.7 -21.1

-6.1

-3.5

-16.2 -15.3 -19.6 18.2 8.7 -18.1

641.4

2475.8

-21.1

-35

72.7

-2.4 -1.7 10.3 -18.5 -4.6 9.9 -21.0

-7.2 -1.2 5.7 -11.7 5.6 -21.4

-10 -5 -2 -10 -7 3 -18

348.8 1263.0 756.1 506.9 793.3 429.9 363.4

-12.4

-10.3

-16.1

-20

674.8

-17.9 -18.6 -14.7

-16.7 -18.0 -11.3

-18.3 -16.2 -29.1

-10.0 -7.0 -21.0

358.4

32.8 3.2 -19.5

-19.3 26.2 -7.1

-9.7 34.6 17.0

-39.6 -4.4 -4.8

202.3 81.8 49.8

-6.9

291,1 67.3

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

679.0 366.6 312.4

-2.0 -4.6 2.6

0.9 -3.4 4.2

-3.0 -5.5 2.6

-0.5 -4.4 3.9

-0.4 -4.7 4.3

2.7 -0.1

0.6 3.6

3.2 -0.6

3.2 0.8

2.8 1.5

2 -1

71.4 241.0

-0.5

-0.2

-1.2

-0.8

-0.3

20.4

Amounts shown are from fourth quarter to fourth quarter. Nontransactions M2 is seasonally adjusted as a whole. The non-MZ component of M3 is seasonally adjusted as a whole. institutions. Net of large denomination time deposits held by money market mutual funds and thrift 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 for borrowed money (including borrowing from the sold under agreements to repurchase, and other liabilities Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated. 7. Consists of Treasury demand deposits and note balances at commercial banks. pe - preliminary estimate 1. 2. 3. 4. 5. 6.

-20-

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