Greenbook/Tealbook

Prefatory Note

The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.

1

In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff.

CONFIDENTIAL (FR) FOMC CLASS III

July 1

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

1994

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY Income and consumption . Inventories . . . . . . Construction . . . . . .

. . .

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

. . . . .

1 2 2

.

4

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

5 6 6 8

Tables Personal income. . . . . . . . . . . . . . . . . University of Michigan Survey Research Center: Survey of Consumer Attitudes . . . . . . . . Changes in manufacturing and trade inventories . Inventories relative to sales. . . . .. . . . . New construction put-in-place. . . . . . . . . .

..

Chart Ratio of inventories to sales.

.

. .

.

.

.. .

.

. .

.

7

. .

9 10

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

SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Income and Consumption Nominal personal income rose $36.1 billion, or 0.6 percent in May, after an upward-revised increase of 0.6 percent in April. Private wages and salaries advanced $22 billion in May, while government wages and salaries were up $5.3 billion.

Farm

proprietors' income fell $5 billion, reflecting a drop in federal subsidy payments.

Disposable personal income increased 1.2 percent

in May, after no change in April.

The large May advance reflected a

$24 billion drop in personal tax and nontax payments.

These

payments had been boosted in April by retroactive tax payments associated with the 1993 Omnibus Budget Reconciliation Act. Excluding these payments, the increases in disposable income would have been 0.6-percent in both May and April. Real personal consumption expenditures rose 0.2 percent in May, after falling 0.6 percent in April.

Outlays for durable goods

dropped 1.4 percent last month, reflecting lower spending on motor vehicles; spending on durables excluding motor vehicles grew 0.3 percent.

Outlays for nondurable goods edged up 0.1 percent in May,

while spending on services increased 0.6 percent. The Michigan index of consumer sentiment fell slightly in June, and now stands about three points below its recent peak in January. By contrast, the preliminary June reading had shown a small improvement in sentiment during the first part of the month.

The

drop in the composite index last month reflected less optimistic views about future business conditions and less favorable appraisals of buying conditions for large household appliances.

Respondents'

assessments of their current personal financial situations were unchanged in June, while expectations of future personal financial

-2situations improved moderately.

Among question not included in the

overall index, the index of home buying conditions slipped further in June to its lowest level in more than a year.

Meanwhile, the

index of car buying conditions edged up in June, and fewer households expected unemployment to increase over the coming year. Inventories Manufacturers' inventory investment picked up in May; factory stocks expanded at a $22.9 billion annual rate (current cost) last month, following accumulations of $10.5 billion in April and an average of $9.4 billion in the first quarter.

As in April, the May

inventory buildup was concentrated in only a few industries. particular, manufacturers of machinery

In

(both industrial machinery

and electrical and electronic equipment) reported another sizable inventory accumulation ($9.8 billion), buildups over the past year.

continuing the string of

Outside of machinery, inventories held

by producers of motor vehicles, fabricated metals and food products also expanded.

With factory shipments up 0.5 percent from the April

level, the manufacturers' inventory-shipments ratio was unchanged at 1.39 months at the end of May, close to the lowest level in recent years. Construction The total nominal value of new construction put in place rose 0.9 percent in May, as moderate gains were recorded in each of the three broad construction sectors.

Residential construction spending

rose for both single-family and multifamily projects.

Despite some

recent declines in starts, single-family expenditures have been supported by relatively high costs per start and by spending on projects started earlier.

The increase in multifamily expenditures

results largely from the recent pickup in starts, which in May reached their highest level in 3-1/2 years.

Private nonresidential

-3construction spending rose moderately in May, following a larger increase in April.

Spending on public construction projects also

advanced in May, reversing their decline a month earlier.

-4PERSONAL INCOME (Average monthly change at an annual rate; billions of dollars) 1993 1993

1994

1994

Q3

Q4

Q1

Apr.

May

3.4

22.3

35.8

29.9

35.6

36.1

Wages and salaries Private

-8.3 -10.1

11.5 9.0

14.5 14.1

16.1 13.5

18.9 16.8

27.7 22.0

Other labor income

2.7

2.7

2.8

3.1

3.3

3.4

Proprietors' income Farm

3.9 1.6

.8 -1.1

15.9 10.9

.8 -1.1

5.4 4.2

-1.5 -5.0

Rent Dividend Interest

1.4 .3 .0

2.0 .4 1.9

-.7 .1 -. 5

4.1 .8 4.2

-1.4 2.4 2.5

.7 1.6 2.8

Transfer payments

4.7

3.9

4.8

3.9

5.7

3.2

1.1

3.2

1.3

1.8

Total personal income

Less: Personal contributions

for social insurance

1.2

.7

Less: Personal tax and nontax payments

-.1

3.0

4.4

4.7

36.1

-24.0

Equals: Disposable personal income

3.5

19.4

31.4

25.1

-.5

60.2

-4.2

11.7

17.3

12.4

-9.9

38.9

Memo: Real disposable income

REAL PERSONAL CONSUMPTION EXPENDITURES (Percent change from the preceding period) 1993

1993

Q3

1994 Q4

Q1

------ Annual rate----Personal consumption expenditures

1994

Apr.

May

Monthly rate

3.2

4.4

4.4

5.2

-.6

.2

Durable goods Excluding motor vehicles

7.9 9.3

7.5 14.7

15.3 11.1

10.1 2.0

-1.1 .1

-1.4 .3

Nondurable goods Excluding gasoline

1.7 1.7

3.7 3.1

2.7 3.2

4.3 5.0

-.9 -1.2

.1 -.0

Services Excluding energy

2.9 3.0

4.0 3.1

2.6 2.8

4.5 4.4

-.3 -.1

.6 .3

4.0

3.8

4.0

3.5

3.9

Memo: Personal saving rate (percent)

4.7

July 1,

1994

UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1993 Oct

1993 Nov

1993 Dec

1994 Jan

1994 Feb

1994 Mar

1994 Apr

1994 May

1994 Jun (f)

Composite of current and expected conditions

82.7

81.2

88.2

94.3

93.2

91.5

92.6

92.8

91.2

Current conditions Expected conditions

98.7 72.5

98.2 70.3

102.9 78.8

106.6 86.4

108.3 83.5

101.4 85.1

108.1 82.6

106.3 84.2

104.5 82.7

104 119

107 121

113 122

115 123

114 127

105 125

116 124

111 123

111 127

126 99

121 88

117 91

119 96

Indexes of consumer sentiment (Feb. 1966=100)

Personal financial situation Now compared with 12 months ago* Expected in 12 months* Expected business conditions Next 12 months* Next 5 years* Appraisal of buying conditions Cars Large household appliances* Houses

132 151 170

139 147 172

144 153 174

148 162 174

155 167 176

147 158 176

150 164 170

143 165 167

144 160 161

Expected unemployment change - next 12 months

137

131

115

104

115

112

116

116

114

Expected inflation - next 12 months Expected inflation - next 5 to 10 years

4.0 4.8

3.6 4.5

3.8 4.8

3.5 4.8

3.7 4.7

4.4 5.4

4.5 5.0

3.9 4.6

4.1 4.8

Willingness to use credit Willingness to use savings

* -- Indicates the question is one of the five equally-weighted components of the index of sentiment. (p) - Preliminary (f)

-- Final

Note: Figures on financial, business, and buying conditions are the percent reporting 'good times' (or 'better') minus the percent reporting 'bad times' (or 'worse'), plus 100. Expected change in unemployment is the fraction expecting unemployment to rise minus the fraction expecting unemployment to fall.

CHANGES IN MANUFACTURING AND TRADE INVENTORIES

(Billions of dollars at annual rates; based on seasonally adjusted data) 1993 Q3

1994 Q4

Q1

1994 Mar.

Apr.

May

Current-cost basis Total Excluding auto dealers Manufacturing Total machinery Fabricated metal Wholesale Motor vehicles Excluding motor vehicles

16.1 23.5 -2.5 3.8 1.0 12.0 1.8 10.2

18.8 5.5 -13.1 4.5 -.8 6.1 1.6 4.5

17.2 14.6 9.4 10.8 -.9 1.8 -5.2 7.1

-14.8 -14.9 -3.6 9.4 -3.5 -12.5 -10.0 -2.5

22.8 23.8 10.5 11.1 1.2 10.4 5.8 4.6

n.a. n.a. 22.9 9.8 1.2 n.a. n.a. n.a.

Retail Excluding auto dealers

6.6 14.0

25.8 12.5

5.9 3.4

1.2 1.2

1.9 3.0

n.a. n.a.

16.4 23.5 3.1 8.5 1.5 7.0 4.8 11.8

5.4 3.0 -5.3 -.4 1.3 -1.7 11.1 8.6

11.7 2.9 5.9 -1.9 -4.9 3.0 7.7 -1.2

-11.3 -26.2 -6.9 -17.5 -9.2 -8.3 13.1 -1.7

12.3 15.4 5.1 8.3 4.8 3.5 -1.0 2.1

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

Constant-dollar basis Total Excluding auto dealers Manufacturing Wholesale Motor vehicles Excluding motor vehicles Retail Excluding auto dealers

INVENTORIES RELATIVE TO SALES 1 (Months' supply; based on seasonally adjusted data) 1993 Q3

1994

Q4

Q1

1994

Mar.

Apr.

May

Current-cost basis Total Excluding auto dealers Manufacturing Total machinery Fabricated metal Wholesale Motor vehicles Excluding motor vehicles Retail Excluding auto dealers

1.46 1.44 1.49 1.81 1.65 1.34 1.63 1.31 1.52 1.48

1.43 1.41 1.42 1.74 1.58 1.34 1.68 1.30 1.51 1.47

1.41 1.39 1.40 1.75 1.53 1.31 1.47 1.29 1.50 1.47

1.39 1.37 1.38 1.72 1.52 1.29 1.45 1.28 1.47 1.45

1.40 1.38 1.39 1.72 1.53 1.31 1.46 1.30 1.49 1.46

n.a. n.a. 1.39 1.71 1.53 n.a. n.a. n.a. n.a. n.a.

1.55 1.54 1.60 1.421.60 1.40 1.60 1.55-

1.52 1.50 1.53 1.42 1.65 1.40 1.57 1.54

1.49 1.48 1.51 1.39 1.46 1.38 1.56 1.53

1.47 1.46 1.49 1.37 1.43 1.36 1.54 1.51

r.49 1.48 1.50 1.39 1.45 1.39 1.56 1.52

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

Constant-dollar basis Total Excluding auto dealers Manufacturing Wholesale Motor vehicles Excluding motor vehicles Retail Excluding auto dealers

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

-7-

RATIO OF INVENTORIES TO SALES (Current-cost data) Ratio:) 2.2

MANUFACTURING

E a-

1.95

1.7

ErTotal

Excluding aircraft

*

1.45

" '-s "'I.'-

I

I

I

I

_

1

I

I ________~_

I

I

I

1987

I

I

I

I

I

1.2

1993

1989

Ratio 1.5

1.4

1.3

1.2

1.1 1993

1991

1989

1987

1985

1983

1981

1979

Ratio

Ratio

m1

2.7 -

RETAIL GAF group r. I i

2.5 1

D In

I

-

l,

,

n'

,,

2.3

2.3

Total excluding auto

. I

1979

..

I

I

1981

i I

I

1

-1I

1985

i

I

*

1987

I

I

1989

I

1991

I

I

1993

I

NEW CONSTRUCTION PUT IN PLACE Billions of dollars, seasonally

1923 04r

-adiusted annual rate 1994 1994 01r Mar. r Apr. Appr.

Percent change

from prior month2 1994

MavP

Apr.

May

Current dollars Total Private Residential Single family Multifamily Nonresidential Industrial Office Commercial

489.3 359.3 222.5 143.3 11.1 136.8 19.6 15.7 30.1

490.1 365.8 233.3 152.6 11.4 132.5 19.9 15.7 28.3

496.0 371.7 236.8 155.0 12.0 134.9 19.9 17.0 29.6

508.5 382.7 241.2 157.1 12.7 141.5 22.0 15.8 30.6

499.5 377.1 238.8 156.3 12.6 138.3 21,3 16.5 30.6

504.2 379.6 240.6 156.9 13.2 139.0 21.6 16.4 30.6

0.7 1.5 0.8 0.9 4.7 2.5 7.1 .2.7 3.1

0.9 0.7 0.8 0.3 5.0 0.5 1.4 -0.7 0.1

Public State & local Federal

130.0 115.9 14.2

124.3 109.6 14.8

124.4 110.8 13.5

125.9 113.1 12.7

122.4 109.1 13,3

124.6 110.8 13.7

"1.6 .1.6 1.4

1.8 1.6 3.1

'412.2 299.3 112.9

409.1 302.2 106.9

413.1 306.3 106.7

422.4 314.9 107.5

416.3 311.2 105.1

419.1 312.2 106.9

0.8 1.6 15

1987 dollars Total Private Public

1 Contains components not shown separately. 2. Percent changes calculated from more digits than shown in table. r -revised, I -preliminary

July i 1994 Mortgage and Consumer Finance

-9COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage change at annual rate, based on seasonally adjusted data) Dec. Type of credit

Level,

1992

1994

1994

to Dec. 1993

Ql

Q2 p

1994

Apr.

1994

May

1994

Jun. p

May

1994 ($billions)

Commercial bank credit

1. Total loans and securities

5

10.1

2.0

2

3,197.9

2. Securities

8.5

17.2

7

21.2

-1.9

1

965.4

3.

U.S.

9.6

11.5

2

18.0

-10.6

-0

752.1

4.

Other

4.4

39.5

23

33.8

29.4

5

213.2

2

2,232.6

government

5. Loans

4.0 8

6.

Business

7.

Real estate

4.5

.1

4

8.

Consumer

9.0

10.6

12

9.

Security

35.1

-18.3

-. 6

6.5

10.

-1.8

Other

-36

13.7

4

606.4

2.8

6

944.6

18.2

7

410.7

-92.2

-9

8.0

9.4

-26

77.5

-13.5

-22

193.3

Short- and intermediate-term business credit 11. Business loans net of bankers acceptances 12. Loans at foreign branches

2

13. Sum of lines 11 and 12 14. Commercial paper issued by nonfinancial firms 15. Sum of lines 13 and 14 16. Bankers acceptances, U.S. trade-related3 ,4

17.

Loans at finance companies4

18. Total (sum of lines 15, 16, and 17)

-2.1

8

11.4

19

45.1

-12.1

-7.4

-2.5

7.8

B

-12.2

-7

4.4

16.3

12.6 -11.0

-14.3

-1.1

-12.2

-.5 -1.2

4

596.9

-5

22.4

3

619.3

6

149.7

4

769.1

n.a.

11.4

n.a.

n.a.

9.4

n.a.

15.3

n.a.

n.a.

317.0

5.6

n.a.

10.0

n.a.

n.a.

1,104.4

17.9

21.2

1. Except as noted, levels are averages of Wednesday data and percentage changes are based on averages of Wednesday data; data are adjusted for breaks caused by reclassification; changes are measured from preceding period to period indicated. 2. Loans to U.S. firms made by foreign branches of domestically chartered banks. 3. Acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. 4. Changes are based on averages of month-end data. 5. April 1994. p Preliminary. n.a.

Not available.

5

-10III-T-1 SELECTED FINANCIAL MARKET QUOTATIONS (Percent except as noted)

Instrument

FOMC.* 3 May 17 Jun 30

Mid-Oct lows I Feb -

J-

Change to Jun 30, 1994;

1994

I

1993

----

----

!

i

--- From Mid-Oct lows

From Feb 3

From FOMC., May 17 --------

[

;----------

SHORT-TERM RATES

Federal funds

3 07

3.07

3.73

4.41

.34

.. 34

0.68

Treasury bills 3-month 6-month I-year

3.01 3.09 3.23

3.13

4.15

4.15

3.27 3.52

4.65 5.11

4.65 5.22

1.14 S.56 1 .99

1.02 2.38 1.70

0.00 0.00 0.11

Commercial paper 1-month 3-month

3.13 3 .23

3.16 3.25

4.37 4.70

4.50 4.74

.. 37 1.51

1.34

1.49

0.13 0.04

3.08 3.22 3.23

3.11 3.25

4.28 4.61

4.44 4.73

1 .36 1.51

3.41

5.05

5.11

1.88

1.33 1.48 1.70

0.16 0.12 0.06

3.06 3 .25

3.06

4.25

4.44

4-63

4.75

1.38 1.50

. 38

3.25

1.50

0.19 0.12

6.00

6.00

6.75

.25

L.25

1.25

0.50

4.06

4.60

6.40

6.52

5.19

5.81

7.24

7.34

5.78

6.31

7.46

7.63

2.46 2.15 1 .85

1.92 1 53 .32

0.12 0.10 0.17

Municipal revenue (Bond Buyer;

5.41

5.49

6.60

6.56

1.15

1.07

-0.04

Corporate--A utility. recently offered

6.79

7.35

8.20

8.41

1.62

1 .06

0.21

Home mortgages 6, FHLMC 30-yr fixed rate -yr adjustable rate FHLMC

6.74 4.14

6.97 4.12

8.77 5.54

8.46 5.41

1.72 1.27

1.49 1.29

-0.31 0. 13

Large negotiable CDs

1-month

3-month 6-month Eurodollar deposits -month - month

Bank prime rate INTERMEDIATE

AND LONG-TERM RATES

U.S Treasury 3-year

'constant maturity)

10-year 30-year 5

I

1989

1

Percentage change to Jun 30:

1994

Record high Stock exchange index SLevel Dow-Jones Industrial NYSE Composite NASDAQ (OTC) Wilshire

3978.36 267.71 803.93 4804.31

Date

Low. Jan. 3

1/31/94 2144.64 2/2/94 154.00 3/18/94 378.56 2/2/94 2718.59

,. One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is average to date for maintenance period ending Jul 6. 1994. 3 Secondary market Rates are as of the close on May 16.

1994.

FOMC' May 17

Jun 30

3671.50 245.78 711.91 4404.46

3624,96 245.16 705.96 4395.22

From

From

record high

1989 low

-8.88 -8.42 -12.19 -8.52

69.02 59.19 86.49 61.67

4. Bid rates for Eurodollar deposits at 11 a.m. London time. 5. Most recent observation based on one-day Thursday quote and futures market index changes. 6. Quotes for week ending Friday previous to date shown.

From FOMC,. May 17 -1.27 -0.25 -0.84 -0.21