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 III FOMC

August 16, 1996

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 NONFINANCIAL ECONOMY Housing markets

.

Consumer sentiment Note . . . . . . .

.

.

.

.

.

.

.

.

.

.

.

.

.

.

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

.

.

2

Tables Private housing activity . . . . . . . . . . . University of Michigan Survey Research Center: . . . . ... Survey of consumer attitudes . Charts Private housing starts .. . Indicators of housing demand

. .

. .

. .

... . .

.

... . .

.

THE FINANCIAL ECONOMY Tables Selected financial market quotations . . . Commercial bank credit . . . . . . . . . .

. .

. .

. .

. .

. . . .

6 7

SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Housing Markets Single-family housing starts fell to 1.13 million units in July from a revised level of 1.20 million units for June that is slightly lower than the preliminary estimate.

The decline in single-family

homebuilding in July is consistent with recent indications of slackening in demand such as the August report from the National Association of Homebuilders on new home sales in early August.

The

final results of that survey showed a somewhat larger decline in builders' ratings of new home sales than was indicated in the preliminary figures that were cited in the Greenbook. Multifamily housing starts increased 18 percent in July, offsetting a decline in June and continuing the oscillating pattern that has prevailed so far this year. At the regional level, starts in July decreased 4 percent in the South and fell 12 percent in the West.

Starts rose 2 percent in

the Northeast and jumped 17 percent in the Midwest, where construction bounced back from a low reading in June. Consumer Sentiment According to the preliminary report, the Michigan SRC index of consumer sentiment was about unchanged in early August at a level that is at the high end of the relatively favorable range seen since early 1994.

Respondents expressed somewhat more upbeat views of

their current and future personal financial situations, but somewhat less positive views of appliance-buying conditions and expected business conditions. Among results not included in the overall index, the indexes of expected unemployment, home-buying conditions, and car-buying conditions all held about steady at their relatively favorable July levels.

Consumers' willingness to use credit to finance large

purchases was unchanged, but their willingness to use savings was down sharply. The mean value of expected inflation over the coming year held steady in early August at 4.3 percent while the median value moved up 0.2 percentage point to 3.1 percent.

The mean and median values

of expected inflation over the next five to ten years were unchanged at 4.2 percent and 3.1 percent, respectively.

-2-

Note The staff forecast presented in Part 1 incorporates staff estimates of the likely revisions to the NIPA data where published BEA estimates are not final.

A discussion of the staff estimates

for 1996:Q2 is found at the beginning of the nonfinancial developments section of Part 2.

Private Housing Activity (Millions of units; seasonally adjusted annual rate) 1995 1995

1996

Q4

Q1

Q2 r

May r

June r

JulyP

All units Starts Permits

1.35 1.33

1.41 1.44

1.47 1.41

1.49 1.44

1.48 1.45

1.47 1.42

1.46 1.45

Single-family units Starts Permits New home sales Existing home sales

1.08 1.00 0.67 3.80

1.13 1.08 0.68 3.98

1.16 1.08 0.75 3.95

1.19 1.10 0.76 4.22

1.14 1.10 0.78 4.28

1.20 1.09 0.73 4.18

1.13 1.07 n.a. n.a.

Multifamily units Starts Permits

0.28 0.33

0.28 0.36

0.31 0.33

0.30 0.34

0.33 0.35

0.27 0.33

0.32 0.38

Mobile Homes Shipments

0.34

0.35

0.35

0.37

0.37

0.37

n.a.

Note. p Preliminary. r Revised. n.a Not available.

Private Housing Starts (Seasonally adjusted annual rate) Millions of units -

2.4

July

1.6

Total

I

I

1977

I

1979

1

I

1981

I

I-

1

1983

1

1985

I

1

1987

I

I

1989

I

1991

I

I

1993

I

1995

I

I

-408/16/96

Indicators of Housing Demand (Seasonally adjusted; FRB seasonals) Builders' Rating of New Home Sales

Diffusion index

Aug. -

I I

1

1988

I

I

1989

-

1990

1991

1992

I

I

1993

1994

I

1995

8

1996

Note. The index iscalculated from National Association of Homebuilders data as the proportion of respondents rating current sales as good to excellent minus the proportion rating them as poor.

MBA Index of Mortgage Loan Applications for Home Purchase Index --- Aug. 9

1990

1991

1992

1993

1994

1996

1995

Note. MBA index equals 100 on March 16, 1990, for NSA series.

Consumer Homebuying Attitudes Diffusion index

7 Aug. (p)

I

I

1988

I

1989

I

1990

I

1991

1992

1993

1994

1995

Note. The homebuying attitudes index is calculated from Survey Research Center data as the proportion of respondents rating current conditions as good minus the proportion rating such conditions as bad.

1996

250

August 16, 1996 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES

(Not seasonally adjusted) 1995 Dec

1996 Jan

1996 Feb

1996 Mar

1996 Apr

1996 May

1996 Jun

1996 Jul

1996 Aug (p)

Indexes of consumer sentiment (Feb. 1966=100) 91.0

89.3

88.5

93.7

102.4

105.8 78.7

105.4 86.2

92.7 107.8 83.0

89.4 105.1

83.7

105.2 77.8

112 126

115 131

111 120

112 130

118 127

114 122

115

95

104 80

133 153 157

122 159 152

129 161 163

134 161 168

125 162 157

127 159 159

45 70

36 65

40 65

47 71

45 64

Expected unemployment change - next 12 months

122

135

131

123

Expected inflation - next 12 months Mean Median

3.3 2.7

4.0 2.9

3.6 2.8

Expected inflation - next 5 to 10 years Mean Median

3.9 3.1

4.2 3.1

4.2 3.2

Composite of current and expected conditions Current conditions

Expected conditions Personal financial situation Now compared with 12 months ago* Expected in 12 months* Expected business conditions Next 12 months* Next 5 years*

92.4

94.7 107.5 86.5

94.5 107.4 86.3

115 129

117 134

122

116

97

96

137 155 153

138 164 161

138 161 162

37 64

54 66

38 67

38 60

124

121

123

115

115

4.2 2.9

4.5 3.0

4.9 3.0

4.2 2.9

4.3 2.9

4.3 3.1

4.3 3.2

4.1 3.0

4.8 3.2

4.0 3.1

4.2 3.1

4.2 3.1

79.2

105.4

84.0

118 128

Appraisal of buying conditions Cars

Large household appliances* Houses 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' '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.

(or

Selected Financial Market Quotations 1 (Percent except as noted)

1996 Instrument

Change to Aug. 15, from:

Feb.

FOMC,

July

Feb.

FOMC,

July

low

July 2

high

Aug. 15

low

July 2

high

5.37

5.39

5.24

0.09

-0.13

-0.15

5.18 5.27 5.48

5.21 5.40 5.64

5.05 5.13 5.33

0.29 0.46 0.78

-0.13 -0.14 -0.15

-0.16 -0.27 -0.31

5.48 5.50

5.50 5.59

5.40 5.41

0.13 0.29

-0.08 -0.09

-0.10 -0.18

5.38 5.45 5.64

5.44 5.59 5.83

5.32 5.39 5.54

0.11 0.27 0.55

-0.06 -0.06 -0.10

-0.12 -0.20 -0.29

5.34 5.47

5.38 5.56

5.28 5.38

0.15 0.25

-0.06 -0.09

-0.10 -0.18

8.25

8.25

8.25

0.00

0.00

0.00

6.40 6.80 6.94

6.62 7.06 7.19

6.17 6.62 6.82

1.19 1.04 0.80

-0.23 -0.18 -0.12

-0.45 -0.44 -0.37

Municipal revenue (Bond Buyer)s

6.20

6.24

5.98

0.31

-0.22

-0.26

Corporate-A utility, recently offered

7.99

8.23

7.81

0.63

-0.18

-0.42

10.12

10.36

10.01

0.44

-0.11

-0.35

8.29 5.98

8.42 6.01

7.88 5.89

0.94 0.70

-0.41 -0.09

-0.54 -0.12

Short-term rates Federal funds2 Treasury bills3 3-month 6-month 1-year Commercial paper 1-month 3-month Large negotiable CDs3 1-month 3-month 6-month Eurodollar deposits4 1-month 3-month Bank prime rate Intermediate- and Long-term Rates U.S. Treasury (constant maturity) 3-year 10-year 30-year

High-yield corporate 6 Home mortgages' FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate

Record high

Stock exchange index

FOMC,

July

1996 Record

FOMC,

Level

Date

July 2

low

Aug. 15

high

July 2

low

5778.00

5/22/96

5720.38

5346.55

5665.78

-1.94

-0.95

5.97

NYSE Composite

363.74

5/24/96

351.01

336.07

354.22

-2.62

0.91

5.40

S&P 500 Composite

678.51

5/24/96

673.60

626.65

662.28

-2.39

-1.68

5.69

1249.15

6/5/96

1191.36

1042.37

1134.69

-9.16

-4.76

8.86

Dow-Jones Industrial

NASDAQ (OTC)

-2.52 5/24/96 6649.91 6099.34 6482.40 -4.09 Wilshire 6758.69 1. One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is the average for the maintenance period ending August 14, 1996. 3. Secondary market. 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. Merril Lynch Master IIhigh-yield bond index composite. 7. Quotes for week ending Friday previous to date shown.

6.28

COMMERCIAL BANK CREDIT (Percentage change; seasonally adjusted annual rate) 1 Level,

Type of credit 1995

1996 Q1

1996 May

1996 Q2

1996 Jun

1996 Jul

Jul 1996 (billions of $)

1. Total loans and securities

8.7

5.3

2.5

1.3

1.5

1.0

3,671.3

2.

3.5

.6

-3.1

7.8

-10.2

-6.4

974.8

-11.1

-.3

707.7

Securities

3.

U.S. government

-3.1

-2.5

.6

15.0

4.

Other2

25.6

8.4

12.0

-10.0

-7.9

-22.5

267.1

7.1

4.6

-1.1

5.9

3.7

2,696.5

11.5

7.3

5.0

3.6

4.9

5.5

741.4

8.5

4.9

3.2

1.9

3.6

1.4

1,103.5

5.

Loans 3

6.

Business

7.

Real estate

8.

Home equity

5.2

5.6

-.5

-6.0

-6.0

6.0

79.8

9.

Other

8.7

4.8

3.6

2.5

4.2

1.1

1,023.7

10.

Consumer

6.7

4.9

-5.9

12.4

4.5

512.0

13.7

9.4

-.7

16.9

9.2

667.3

-3.3

-8.0

-46.1

-7.3

-26.3

80.3

21.2

13.0

-2.4

10.4

16.9

259.3

11.

Adjusted 4

12.

Security

13.

Other 5

17.6

18.4

1. Monthly levels are pro rata averages of Wednesday data. Quarterly and annual levels (not shown) are simple averages of monthly levels and levels for the fourth quarter respectively. Growth rates shown are percentage changes in consecutive levels, annualized but not compounded. 2. Includes municipal securities, foreign government securities, corporate bonds, equities, and trading account assets. 3. Excludes interbank loans. 4. Includes estimates of consumer loans that have been securitized by banks and are still outstanding. 5. Includes loans to nonbank financial institutions, farmers, state and local governments, banks abroad, foreign governments, and all others not elsewhere classified. Also includes lease financing receivables.