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

May 16,

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

1997

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY .

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University of Michigan Survey Research Center: Survey of Consumer Attitudes .. . . . . ..... Private housing activity . . . . . . . . . .

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Consumer sentiment Housing starts . .

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Tables

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Selected financial market quotations

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Private housing starts

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THE FINANCIAL ECONOMY Selected interest rates . Table

Chart Selected interest rates

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SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Consumer Sentiment According to the preliminary report, the Michigan SRC index of consumer sentiment surged in early May, reaching an all-time high of 104.6.

The index of expected conditions rose 6.1 points, as

households reported decidedly more favorable expectations of their personal financial situations and of business conditions in the next twelve months.

The index of current conditions slipped a bit in

early May but remained at a very high level. Among questions not included in the overall index, results were also upbeat.

The index of car buying conditions advanced strongly,

reaching the highest level since April 1994.

The index of house

buying conditions also posted a solid gain in early May.

In their

attitudes towards buying cars and homes, consumers' concerns about rising interest rates diminished in May, after increasing appreciably in April. The expected change in unemployment over the next year declined sharply, continuing a broad downward trend that began in early 1996. The mean value of expected inflation over the coming year rose 0.1 percentage point to 3.8 percent, while the median was unchanged at 3.0 percent.

Both the mean and median values of expected

inflation over the next five to ten years moved up 0.2 percentage point, to 3.8 and 3.1 percent respectively. Housing Starts Total private housing starts rose 2.6 percent in April to 1.47 million units because of a jump in construction of multifamily housing units.

Revisions boosted the starts estimates for February

and March by 32,000 units and 10,000 units, respectively.

Estimates

of permit issuance were revised back to January 1995, but most of the changes were negligible. The rise in starts at the national level almost entirely reflected an 11-1/4 percent surge in the South to one of the highest levels on record for that region. 0.7 percent.

Starts in the Midwest edged up

Starts were off about 7 percent in both the Northeast

and the West. Single-family starts were about unchanged in April at 1.12 million units, but permits for single-family construction rose nearly 3 percent.

The level of permit issuance suggests that

-2single family construction may be marginally higher than is indicated by the level of starts. Multifamily starts jumped to 355,000 units nearly 11 percent in April

However

an increase of

permits for multifamily units dropped

following a large rise in March, suggesting that the bulge

in multifamily starts likely is transitory

May 16, 1997 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES

(Not seasonally adjusted) 1996 Sep

1996 Oct

1996 Nov

1996 Dec

1997 Jan

1997 Feb

1997 Mar

1997 Apr

94.7 102.0 90.1

96.5 106.6 89.9

99.2 107.5 93.9

96.9 104.9 91.8

97.4 106.8 91.3

99.7 107.2 94.9

100.0 109.8 93.6

101.4 115.2 92.5

104.6 113.9 98.6

Personal financial situation Now compared with 12 months ago* Expected in 12 months*

109 130

115 127

121 133

117 132

116 128

114 134

119 134

132 130

125 143

Expected business conditions Next 12 months* Next 5 years*

127 105

131 103

137 108

130 107

136 103

135 113

138 105

130 113

145 109

Appraisal of buying conditions Cars Large household appliances* Houses

134 155 149

132 161 159

135 158 157

134 155 156

141 160 162

130 164 166

135 166 155

136 167 153

150 171 162

40 62

37 62

43 70

41 63

45 71

39 67

37 66

41 68

52 75

112

114

110

110

114

107

112

113

106

Mean

4.3

4.2

4.0

3.9

4.1

3.8

3.5

3.7

3.8

Median

3.2

3.0

3.0

3.0

3.0

3.0

2.8

3.0

3.0

4.1 3.2

4.2 3.0

3.7 3.0

3.9 3.0

4.0 3.1

3.7 3.1

3.6 3.0

3.6 2.9

3.8 3.1

1997 May (p)

Indexes of consumer sentiment (Feb. 1966=100) Composite of current and expected conditions Current conditions Expected conditions

Willingness to use credit Willingness to use savings Expected unemployment change - next 12 months Expected inflation - next 12 months

Expected inflation - next 5 to 10 years Mean Median

* -- 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, plus 100.

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

1996

r

1996 Q3 r

Q4

r

Q1r

1997 Feb.r

Mar.r

Apr.P

All units Starts Permits

1.48 1.43

1.49 1.42

1.42 1.38

1.45 1.43

1.55 1.44

1.44 1.46

1.47 1.45

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

1.16 1.07 .76 4.09

1.18 1.06 .79 4.09

1.09 1.01 .76 4.00

1.16 1.05 .82 4.08

1.24 1.07 .83 4.23

1.12 1.03 .81 4.11

1.12 1.06 n.a. n.a.

Multifamily units Starts Permits

.32 .36

.31 .36

.33 .38

.30 .38

.32 .37

.32 .42

.36 .38

Mobile homes Shipments

.36

.37

.35

.35

.35

.36

n.a.

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

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

I A

1

1977

I

I

I

1979

I

I

I

I

1981

1983

1985

I

I

I

1987

I 1

1989

I

I

I

1991

I

1993

I

I

I

1995

I Apr.

f

I

1997

-5THE FINANCIAL ECONOMY Selected Interest Rates Attached are

the charts on selected interest rates usually

printed on the back of the green Greenbook Part

2 financial

sheet at the beginning of the

section

Selected Interest Rates Short-Term Percent

Percent 8 Daily FOMC 3/25 - 7 : * *

*

.

Federal funds -

:

S

...

-

6

.*

5..

Three-month T-bill 4

3

I

I

I

3/28

4/4

4/11

I 1991

1992

1993

1994

1995

1996

1997

3/21

I 4/18 1997

I

I

1

4/25

5/2

5/9

Long-Term Percent

Percent Weekly/Daily FOMC 3/25

Corporate bond (weekly)

Mortgage rate (weekly)

Thirty-year T-bond (daily)

1991

1992

1993

1994

1995

1996

1997

3/21

3/28

4/4

4/11

4/18 1997

4/25

5/2

5/9

2

Selected Financial Market Quotations' (Percent except as noted) 1996 Instrument

1997

Change to May 15, from:

Feb.

July

FOMC,*

Feb.

July

FOMC,*

low

high

Mar. 25

May 15

low

high

Mar. 25

5.15

5.39

5.29

5.51

0.36

0.12

0.22

4.76 4.67 4.55

5.21 5.40 5.64

5.25 5.35 5.53

4.99 5.31 5.51

0.23 0.64 0.96

-0.22 -0.09 -0.13

-0.26 -0.04 -0.02

5.27 5.12

5.50 5.59

5.61 5.66

5.62 5.70

0.35 0.58

0.12 0.11

0.01 0.04

5.21 5.12 4.99

5.44 5.59 5.83

5.56 5.63 5.77

5.60 5.71 5.89

0.39 0.59 0.90

0.16 0.12 0.06

0.04 0.08 0.12

5.13 5.13

5.38 5.56

5.50 5.56

5.56 5.69

0.43 0.56

0.18 0.13

0.06 0.13

8.25

8.25

8.25

8.50

0.25

0.25

0.25

4.98 5.58 6.02

6.62 7.06 7.19

6.45 6.72 6.94

6.39 6.67 6.88

1.41 1.09 0.86

-0.23 -0.39 -0.31

-0.06 -0.05 -0.06

n.a.

n.a.

3.47

3.57

n.a.

n.a.

0.10

Municipal revenue (Bond Buyer)5

5.67

6.24

6.06

5.91

0.24

-0.33

-0.15

Corporate-A utility, recently offered

7.18

8.23

8.11

7.98

0.80

-0.25

-0.13

9.57

10.36

9.66

9.58

0.01

-0.78

-0.08

6.94 5.19

8.42 6.01

7.94 5.71

7.91 5.82

0.97 0.63

-0.51 -0.19

-0.03 0.11

Short-term rates Federal funds 2 Treasury bills 3 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 U.S. Treasury indexed bond

High-yield corporate

6

Home mortgages 7 FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate

1996

Record high

Percentage change to May 15, from:

1997 July

FOMC,*

Record

July

FOMC,*

Level

Date

low

Mar. 25

May 15

high

low

Mar. 25

Dow-Jones Industrial

7333.55

5/15/97

5346.55

6905.25

7333.55

0.00

37.16

6.20

S&P 500 Composite

841.88

5/15/97

626.65

790.89

841.88

0.00

34.35

6.45

1388.06

1/22/97

1042.37

1242.64

1353.58

-2.48

29.86

8.93

370.65

1/22/97

307.78

349.48

364.04

-0.68

19.61

4.17

Stock exchange index

NASDAQ (OTC) Russell 2000

Wilshire 7924.24 5/15/97 6099.34 7501.44 7924.24 0.00 29.92 5.64 1. One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is the average to date for maintenance period ending May 21,1997. 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. Merrill Lynch Master II high-yield bond index composite. 7. Quotes for week ending Friday previous to date shown. * Figures cited are as of the close on March 24, 1997.