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

August 15,

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 . . . .

Michigan (SRC) Survey of Consumer Attitudes. . Table

University of Michigan Survey Research Center: Survey of Consumer Attitudes . . . . . . ..... THE FINANCIAL ECONOMY Table Selected financial market quotations

. .

.

.

.

.

.

.

.

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY Michigan

(SRC) Survey of Consumer Attitudes

According to the preliminary report, the Michigan SRC index of consumer sentiment fell back in August, but it remained at an extremely favorable level after recording historical highs in June and July.

Indeed, despite less favorable assessments of their

current financial

situations and expected business

conditions, those

components of the index in early August remained generally above the levels during the first five months of the year.

Respondents' views

on their personal financial situations over the next 12 months were unchanged in early August.

Only households'

opinions of buying

conditions for large appliances dropped below the favorable level that prevailed earlier this year. Among questions not included

in the overall index, the

index of

expected unemployment change moved back up in August but remained relatively low.

Reported unhappiness with prices

led to the second

straight monthly decline in assessments of buying conditions for cars.

However, favorable views on mortgage

rates provided a further

boost to appraisals of buying conditions for new homes.

Households'

willingness to use savings or credit to finance a major purchase slipped somewhat in early August. The mean of expected inflation over the next 12 months fell 0.2 percentage point to 3.2 percent; percentage point

however, the median rose 0.1

in August to 2.8 percent.

inflation over the next

5 to 10 years

The mean of expected

jumped 0.4 percentage point to

3.8 percent while the median moved up from 2.9 to 3 percent.

August 15, 1997 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1997 Aug (P)

1996 Dec

1997 Jan

1997 Feb

1997 Mar

1997 Apr

1997 May

1997 Jun

1997 Jul

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

103.2 113.5 96.6

104.5 113.2 98.9

107.1 114.0 102.6

102.8 109.3 98.5

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

117 132

116 128

114 134

119 134

132 130

122 138

126 131

130 133

123 133

Expected business conditions Next 12 months* Next 5 years*

130 107

136 103

135 113

138 105

130 113

142 109

147 121

151 130

149 114

Appraisal of buying conditions Cars Large household appliances* Houses

134 155 156

141 160 162

130 164 166

135 166 155

136 167 153

150 173 160

154 168 160

136 166 165

131 160 167

41 63

45 71

39 67

37 66

41 68

49 71

43 73

49 68

46 64

110

114

107

112

113

109

108

104

108

Mean

3.9

4.1

3.8

3.5

3.7

3.7

3.5

3.4

3.2

Median

3.0

3.0

3.0

2.8

3.0

2.9

2.8

2.7

2.8

3.9 3.0

4.0 3.1

3.7 3.1

3.6 3.0

3.6 2.9

3.8 3.0

3.9 3.1

3.4 2.9

3.8 3.0

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.

-3Selected Financial Market Quotations' (Percent except as noted) 1997 Instrument

Change to Aug. 14, from:

Mar.

FOMC *

Jan. 2

low

July 2

Aug. 14

5.79

5.27

5.63

5.05 5.14 5.28

5.04 5.17 5.37

5.48 5.47

Mar.

FOMC *

Jan. 2

low

July 2

5.63

-0.16

0.36

0.00

5.04 5.10 5.33

5.20 5.20 5.26

0.15 0.06 -0.02

0.16 0.03 -0.11

0.16 0.10 -0.07

5.40 5.45

5.63 5.64

5.56 5.56

0.08 0.09

0.16 0.11

-0.07 -0.08

5.39 5.42 5.50

5.32 5.42 5.58

5.59 5.68 5.81

5.55 5.61 5.72

0.16 0.19 0.22

0.23 0.19 0.14

-0.04 -0.07 -0.09

5.38 5.44

5.31 5.44

5.56 5.63

5.50 5.63

0.12 0.19

0.19 0.19

-0.06 0.00

8.25

8.25

8.50

8.50

0.25

0.25

0.00

6.13 6.54 6.75

6.25 6.56 6.83

6.19 6.45 6.74

6.03 6.27 6.56

-0.10 -0.27 -0.19

-0.22 -0.29 -0.27

-0.16 -0.18 -0.18

U.S. Treasury 10-year indexed note

n.a.

3.36

3.63

3.57

n.a.

n.a.

-0.06

5

5.96

5.97

5.82

5.71

-0.25

-0.26

-0.11

Corporate-A utility, recently offered

7.64

7.97

7.84

7.69

0.05

-0.28

-0.15

High-yield corporate

9.72

9.49

9.38

9.16

-0.56

-0.33

-0.22

7.64 5.57

7.84 5.54

7.58 5.66

7.54 5.53

-0.10 -0.04

-0.30 -0.01

-0.04 -0.13

Short-term rates Federal funds 2 Treasury bills 3-month 6-month 1-year Commercial paper 1-month 3-month Large negotiable CDs 1-month 3-month 6-month Eurodollar deposits 4 1-month 3-month Bank prime rate Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 10-year 30-year

Municipal revenue (Bond Buyer)

Home mortgages

7

FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate Record high

1997

Percentage change to Aug. 14, from:

FOMC * Stock exchange index Dow-Jones Industrial S&P 500 Composite NASDAQ (OTC) Russell 2000

Record

FOMC *

Level

Date

Jan. 2

July 2

Aug. 14

high

Jan. 2

July 2

8259.31

8/6/97

6442.49

7722.33

7942.03

-3.84

23.28

2.84

960.32

8/6/97

737.01

891.03

924.77

-3.70

25.48

3.79

1630.44

8/6/97

1280.70

1438.25

1586.69

-2.68

23.89

10.32

420.73

8/6/97

358.96

394.13

411.87

-2.11

14.74

4.50

Wilshire 9110.42 8/6/97 7147.80 8441.43 8807.29 -3.33 23.22 4.33 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 August 20, 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 1 high-yield bond index composite. 7. Quotes for week ending Friday previous to date shown. * Figures cited are as of the close on July 1,1997.