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) CLASS II FOMC

March

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

24,

1995

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY Business investment. . .. . . Projection for 1995:Q01 . . .

. .

. .

.

. .

. .

. .

. .

. .

. .

.. . ...

Business capital spending indicators . . . . . Changes in manufacturing and trade inventories

. .

. .

Orders and shipments of nondefense capital goods Nonresidential construction and permits. . . . . . . . Inventory-sales ratio, by major sector . .

. . .

.

. .

1 2

. .

. .

3 6

. .

. .

4 5 7

.

8

.

9

Tables

Charts

.

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

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY Business

Investment

With the receipt of revised data on manufacturers' shipments and orders for January and preliminary data for February, the outlook for current-quarter equipment investment has noticeably.

In particular

and computing machines

the January drop in shipments of office

(OCM) reported previously is now shown to

have been much smaller

and February shipments

been up 5-3/4 percent

(Note:

this point and. thus, orders

improved

are reported to have

The detail on OCM is unpublished at

is strictly confidential )

Moreover, new

for OCM spurted almost 8 percent in February after a 1 1/4

percent rise in January;

the previous report for January had shown

these orders dropping 4-1/4 percent Shipments

of nondefense capital goods, excluding aircraft and

computers, continued to trend up at a strong pace, advancing 2 percent last month, after a 2-1/2 percent gain in January

In

February, orders for these goods retraced only about half of their Thus,

sizable January gain.

orders continued to

shipments, and backlogs were still rising. that saw particularly large

run ahead of

A number of industries

increases in orders in January-

including construction equipment, metalworking machinery, and electrical industrial apparatus- -reported partial retrenchments in their level of bookings

last month.

However

orders for

communications equipment fell 12 percent after a smaller drop in January;

as a result

these orders have retraced a good part of the

run-up posted over the second half of 1994. For nonresidential

structures, February's data on permits

showed a third monthly decline, suggesting that some softening of the uptrend of the past

two years may be under way

-2Manufacturers' inventory investment in January was revised down $3.2 billion at an annual rate to $45.7 billion. Projection for

1995:Q1

The new information on shipments and orders of nondefense capital goods would lead us to raise our projection of real outlays for producers' durable equipment by $5 billion.

(This would

increase the growth rate for PDE from 7 percent to 10-3/4 percent, at an annual rate.

The change for computing equipment would go from

-7 percent to +5-3/4 percent.)

But, given the relatively high

levels of inventory investment we penciled in for February and March, we would be inclined to offset the bulk of the additional PDE by reducing the projected accumulation of nonfarm stocks.

BUSINESS CAPITAL SPENDING INDICATORS (Percent change from preceding comparable period; based on seasonally adjusted data, in current dollars) 1994

1994

1995

Q2

Q3

Q4

Dec.

Jan.

Feb.

2.3 4.6 1.7 5.4

3.4 3.2 2.5 3.4

2.7 3.3 4.9 2.9

.2 .8 -1.5 1.4

2.2 1.5 -1.8 2.5

3.0 2.8 5.7 2.0

-33.1

n.a.

n.a.

.7

-14.4

n.a.

Sales of heavy trucks

5.3

1.3

8.2

-8.2

17.3

-5.0

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

.2 4.2 6.7 3.5

3.3 3.4 3.3 3.5

3.4 2.7 2.0 2.9

-7.4 -1.5 -2.9 -1.1

10.9 7.8 1.2 9.7

.1 -2.0 7.9 -4.5

Construction put-in-place Office Other commercial Institutional Industrial Public utilities Lodging and miscellaneous

3.6 3.7 11.9 7.4 6.6 -4.5 -.6

2.4 2.8 1.9 -1.3 3.5 5.4 -4.6

6.2 9.3 4.2 2.3 7.0 8.8 7.1

.1 .0 4.0 4.5 -7.4 -1.0 2.8

-.7 2.8 2.0 1.1 3.6 -9.8 9.0

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

Rotary drilling rigs in use

2.3

-2.1

-5.3

-1.7

.1

2.2

9.2 6.1 20.6

14.1 18.1 1.6

16.1 18.2 9.3

n.a. n.a. 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

Memo: Business fixed investment 2 Producers' durable equipment 2 Nonresidential structures 2

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

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

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. Based on constant-dollar data; percent change, annual rate. n.a. Not available.

-4-

Orders and Shipments of Nondefense Capital Goods Office and Computing Equipment Billions of dollars

Months

19

-

Ratio, unfilled orders to shipments

I

1991

I

1992

I

1993

14

I

1994

1

1995

I

1991

I

1992

I

1993

I

1994

I

1995

Other Equipment (Ex. Aircraft and Computing Equipment) Billions of dollars -

1991

1992

1993

1994

1995

Months 30

-

1991

1992

1993

1994

1995

Nonresidential Construction and Permits (Six-month moving average, Dec. 1982 = 100) Total Building Ratio scale, index

Construction

'A

1

3 I

A.

I 'I

1983

1984

1985

1986

1987

1988

Office

1983

1990

1991

1992

y

g

g

1993

1994

1995

Other Commercial

1985

1987

1989

1991

1993

1995

Industrial

1983

1989

i

l

l

I

I

I

I

I

I

I

1982

1983

1985

1987

1989

1991

1993

1995

1987

1989

1991

1993

1995

Institutional

1985

1987

1989

1991

1993

1995

1983

1985

CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at book value and annual rates; based on seasonally adjusted data) 1994 Q2 Total Excluding wholesale and retail motor vehicles Manufacturing Computers Excluding computers Wholesale Excluding motor vehicles Retail Automotive Excluding auto dealers

Q3

1994 Q4

Nov.

1995 Dec.

Jan.

75.6

70.6

57.3

60.1

32.3

96.3

58.9 13.3 1.2 12.2 23.0 16.6 39.4 10.4 29.0

53.4 13.7 -3.0 16.7 22.7 23.0 34.2 17.5 16.7

54.9 21.1 -1.0 22.1 25.3 25.8 10.9 2.9 8.0

55.9 23.1 -. 8 23.9 22.2 24.4 14.7 6.3 8.5

28.1 21.9 -4.8 26.6 12.3 17.5 -1.9 9.4 -11.3

57.2 45.7 9.1 36.5 17.4 8.1 33.2 29.7 3.5

39.0 35.6 .7 16.0 10.8 22.3 -1.9 24.2

39.6 31.6 4.5 15.2 15.9 19.9 7.9 12.0

32.8 22.2 2.5 13.7 14.4 16.6 11.2 5.4

30.8 23.3 5.9 11.7 13.9 13.2 9.3 3.9

5.5 -6.3 -1.6 .7 5.3 6.4 15.7 -9.3

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

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

INVENTORIES RELATIVE TO SALES 1 (Months supply; based on seasonally adjusted data at book value) 1994 Q2 Total Excluding wholesale and retail motor vehicles Manufacturing Computers Excluding computers Wholesale Excluding motor vehicles Retail Automotive Excluding auto dealers

Q3

1994 Q4

Nov.

1995 Dec.

Jan.

1.41

1.41

1.39

1.39

1.37

1.38

1.39 1.39 1.66 1.38 1.33 1.30 1.54 1.67 1.50

1.38 1.36 1.51 1.36 1.32 1.30 1.55 1.75 1.50

1.37 1.35 1.41 1.35 1.32 1.30 1.53 1.66 1.49

1.37 1.34 1.45 1.34 1.32 1.30 1.53 1.64 1.49

1.35 1.32 1.42 1.32 1.29 1.28 1.53 1.65 1.49

1.35 1.33 1.55 1.32 1.32 1.29 1.53 1.71 1.48

1.46 1.51 1.43 1.41 1.39 1.56 1.57 1.55

1.46 1.50 1.41 1.40 1.40 1.57 1.63 1.55

1.44 1.49 1.39 1.40 1.39 1.56 1.62 1.54

1.44 1.49 1.38 1.40 1.39 1.55 1.58 1.54

1.42 1.47 1.37 1.39 1.38 1.55 1.62 1.53

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

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

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

-7-

Inventory-Sales Ratio, by Major Sector (Book value) Manufacturing Ratio -2.25

2

1.75

1.5 Jan. I

I

I

1980

I

I

1982

I

I

1984

I

I

I

1986

1988

I

I

I

1990

-

I

I

1992

-

1.25

I

1994

Wholesale Excluding Motor Vehicles Ratio

-

-

1.5

-

1.4

Jan. -

1.3

- 1.2 1.1

I

I

I

I

1982

1980

I

I

I

I

1984

I

I

II

1988

1986

I

I

I

1

1994

1992

1990

Retail Ratio 1.7 -

Ratio 2.7GAF group (left scale) 2.5 -

I, ,'"

,]

-

-

'

',

,

2.3

"

'-!

Jan.-

1.6

1

1if

1 Jan.

-

Total excluding auto (right scale)

2.1

1Q

I 1982

1984

1986

I1 I 1988

I

1 1990

1.4

1.3 1992

1994

SELECTED FINANCIAL MARKET QUOTATIONS (Percent except as noted) 1993

Instrument

i 1994

Oct lows

SHORT-TERM RATES 2 Federal funds 3 Treasury bills 3-month 6-month 1-year

1995

I Change to Mar 23,

1995:

IFOMC,*I I From Oct 931 From 31Feb 1 IMar 231 lows I Feb 3

Feb

I From FOMC,* I Feb 1

3.07

3.07

5.55

5.97

2.90

2.90

0.42

3.01

3.13

5.83 6.13 6.41

2.70 2.77 2.75

-0.12

3.27 3.52

5.71 5.86 5-98

2.58

3.09 3.23

2.59

-0.27

2.46

-0.43

3.13 3-23

3.16 3.25

6.09 6.24

6.04 6.14

2.91 2.91

2.88

-0.05

2.89

-0.10

3.08

3.11

6.03

6.01

2.93

2.90

-0.02

3.22

3.25

6.23

6.12

2.90

2.87

-0.11

3.23

3.41

6.59

6.30

3.07

2.89

-0.29

Eurodollar deposits 1-month 3-month

3.-06 3.25

3.06 3.25

6.00 6.19

6.00 6.13

2.94 2.88

2.94 2.88

0-00 -0.06

Bank prime rate

6.00

6.00

8.50

9-00

3.00

3.00

0.50

4.06 5.19 5.78

4.60 5.81 6.31

7.39 7.60 7-71

6.87 7.21 7.47

2.81 2.02 1.69

2.27 1.40 1.16

-0.52 -0.39 -0.24

5.41

5.49

6.78

6.34

0.93

0.85

-0.44

6.79

7.35

8.69

8.39

1.60

1.04

-0.30

6.74 4.14

6.97 4.12

9.13 6.75

8.38 6.44

1.64

1.41 2.32

-0.75 -0.31

Commercial paper 1-month

3-month Large negotiable CDs 1-month 3-month 6-month 4

INTERMEDIATE- AND LONG-TERM RATES U.S. Treasury

(constant maturity)

3-year 10-year 30-year Municipal revenue (Bond Buyer) Corporate--A utility,

recently offered 6 Home mortgages FHLMC 30-yr. fixed rate FHLMC 1-yr. adjustable rate

S1989

I

Record high

I

I

F

2.30

Percentage change to Mar 23:

1995

From

Stock exchange index

I

Level

_ ___.

Dow-Jones Industrial NYSE Composite NASDAQ (OTC)

Wilshire

I I_

4083-68 268.05 810-49 4868.95

Date

I Low, I FOMC,*

I

I

record

I Jan- 31

I Mar.23

I

high

I

I

1 3/20/95 2144.64 3/20/95 154.00 378.56 3/20/95 3/20/95 2718.59

1. 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 Mar 29,

Feb 1

1995.

3. Secondary market* Figures are as of the close on Jan 31, 1995-

3843-.86 255.93 755.20 4631.40

From 1989 low

4087.83 267.92 811.39

0.10

90.61

-0.05

73.97

0.11

114.34

4865.05

-0.08

78.95

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.

i I I

From FOMC,* Feb 1

6.35 4.68 7.44 5.04

COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT

(Percentage change; seasonally adjusted annual rate) 1

Type of credit

1994

1994

1994

03

Q4

1994 Dec

1995 Jan

1995 Feb

Level, Feb 1995 (billions of $)

Commercial bank credit 1. Total loans and securities

6.8

7.2

4.3

7.1

11.3

4.2

3,363.5

2.

4.9

1.3

-7.2

-4.9

-2.2

-10.8

938.2

0.0

-4.0

-11.3

-7.0

1.8

-8.0

715.8

24.6

20.0

6.6

1.0

-14,7

-19.6

222.4

7,6

9.7

9.1

12.1

16.7

10.1

2,425.3

Securities

3.

U.S. government

4.

Other

5.

Loans

6.

Business

9,5

10.6

10.9

9.9

23.8

22.0

670.9

7.

Real estate

6.3

8.7

7.6

9.3

18.0

8.9

1,021.0

8.

Consumer

14.7

16.5

14.7

14.3

13.1

2.6

455.6

9.

Security

-15.0

-19.5

-9.7

30.1

-27.7

-18.4

70.8

4.0

8.9

5.8

19.7

12.9

3.5

206.9

10.

Other

Short- and intermediate-term business credit 11. Business loans net of bankers acceptances

9.6

10.9

11.4

10.3

24.7

23.8

663.4

12. Loans at foreign branches 2

5.1

12.6

-3.5

15.9

26.2

20.5

23,8

13. Sum of lines 11 and 12

9.4

10.9

11.0

10.3

24.9

23.5

687.2

14. Commercial paper issued by nonfinancial firms

1.2

4.5

25.0

37.3

12.3

20.1

170.3

15. Sum of lines 13 and 14

7.7

9.8

13.6

15.5

22.5

22.8

857.5

16. Bankers acceptances, U.S. traderelated 3 ,4

-8.3

-11.5

-25.7

-50.5

-26.4

n.a.

17.8

17. Loans at finance companies 4

12.2

5.2

17.0

20.0

22.7

n.a.

360.75

8.7

8.0

14.0

15.8

21.7

n.a.

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

1,220.0

1. Except as noted, levels are averages of Wednesday data and percentage changes are based on averages of Wednesday data. For years, "percentage change" is percentage change in quarterly average from fourth quarter of preceding year to fourth quarter of specified year. For quarters, it is the percentage change in quarterly average from preceding quarter to specified quarter, annualized. Data are adjusted for breaks caused by reclassification. 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. Levels and changes are based on averages of month-end data. 5,January 1995, n.a. Not available.

5

5