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

August 18, 2000

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Supplemental Notes

Prepared for the Federal Open Market Committee by the staff of the Board of Governors of the Federal Reserve System

Contents The Domestic Nonfinancial Developments

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

Consumer Sentiment ..................

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

1 .1

U.S. International Transactions .............................

3

Trade in Goods and Services ............................

3

Implications for NIPA Real Net Exports ...................

3

Tables Michigan Survey of Consumer Attitudes .................... U.S. Exports and Imports of Goods and Services .............

2 6

Charts

U.S. International Trade in Goods and Services ..............

5

The Financial Economy .......................................... Tables Selected Financial Market Quotations ......................

7 7

Supplemental Notes The Domestic Nonfinancial Economy Consumer Sentiment According to the preliminary report, the University of Michigan Survey Research Center's overall index of consumer sentiment was little changed in early August and remained a bit above the elevated level registered, on average, over the past two years. Assessments of current conditions moved down in early August, as in the preceding two months, and now stand in the lower end of the range recorded over the past two years.1 In contrast, assessments of expected conditions held steady in early August and remained in the upper end of their range during the past two years. Among those questions not in the overall index, appraisals of buying conditions for cars popped up in August; appraisals of buying conditions for homes rose modestly, but remained well below the average seen in the winter and early spring. Expectations about changes in unemployment over the next twelve months were a shade more favorable in early August than in July. Expected inflation over the next twelve months fell somewhat in early August: The mean decreased 0.4 percentage point to 3.3 percent while the median decreased 0.3 percentage point to 2.7 percent. However, expected inflation over the next five years rose a little: The mean increased 0.2 percentage point to 3.4 percent, and the median increased 0.1 percentage point to 2.9 percent.

1. At the end of May, the current conditions index registered its second highest value since monthly readings of the series began in 1978.

August 18, 2000 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES

(Not seasonally adjusted) 1999

2000

2000

2000

2000

2000

2000

2000

Dec.

Jan.

Feb.

Mar.

Apr.

May

June

July

105.4 112.2 101.1

112.0

111.3 116.8

107.1

109.2

117.3

115.4

108.6

107.8

101.7

117.8 103.7

110.7 119.9 104.8

106.4 115.1 100.8

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

133 132

135 141

132 138

135 136

130 137

138 137

Expected business conditions Next 12 months* Next 5 years*

150 125

165 133

161 136

146 128

152 130

141 158 154

144 169 152

153 172 153

134 165 150

50 70

51 85

48 75

105

104

19

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

2000

Aug (p)

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

Appraisal of buying conditions Cars Large household appliances* Houses

Willingness to use credit Willingness to use savings Expected unemployment change - next 12 months Prob. household will lose a job - next 5 years

114.2 104.5

107.8 112.9 104.5

129 137

130 139

125 140

153 133

146 123

148 135

152 130

148 176 151

145 173 136

138 170 128

141 167 136

149 168 138

52 67

54 70

45 65

49 79

106

109

109

104

112

111

110

19

21

20

19

18

21

23

21

3.6 3.0

3.5 3.0

3.5 2.9

3.8 3.2

3.5 3.2

3.5 3.0

3.4 2.9

3.7 3.0

3.3 2.7

3.2 2.9

3.5 3.0

3.3 2.9

3.8 3.1

3.2 2.8

3.4 2.9

3.3 2.8

3.2 2.8

3.4 2.9

108.3

* -- 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.

U.S. International Transactions Trade in Goods and Services In June, the U.S. trade deficit in goods and services was $30.6 billion, not much different from the size of deficits recorded in the previous three months. For the second quarter, the deficit was $366 billion at an annual rate, $21 billion larger than in the first quarter. Net Trade in Goods and Services (Billions of dollars, seasonally adjusted) 1999

1999

Annual rate 2000

_04

01

1 02

Monthly rate 2000 Apr. I May I June

Real NIPA1 Net exports of G&S

-322.4

-352.5

-376.8

-416.1

...

...

-265.0

-305.1

-344.7

-365.7

-30.5

-345.6 80.6

-30.3

-30.6

-384.9 79.8

-423.4 -440.9 78.7 75.2

-36.9 6.4

-36.5 6.2

-36.8 6.2

Nominal BOP

Net exports of G&S

Goods, net Services, net

1. Billions of chained (1996) dollars. Source: U.S. Department of Commerce, Bureaus of Economic Analysis and Census. n.a. Not available. ... Not applicable.

The value of exports of goods and services in June jumped sharply with increases recorded in all major trade categories, particularly semiconductors, computers, and other machinery. For the second quarter, nominal exports of goods and services rose at an annual rate of 14 percent. Almost all of the increase was in capital goods. Exports of high tech goods (computers, semiconductors, and telecommunications equipment) and other machinery rose strongly. The increase in aircraft exports in the second quarter reversed a decline in the first quarter when Boeing was on strike. The value of imports of goods and services also grew strongly in June, particularly oil (both price and quantity), automotive products (reversing declines in May), and computers and semiconductors. For the second quarter, the nominal value of imports of goods and services jumped at an annual rate of 17 percent. The sharpest increases were in oil (mostly quantity), consumer goods, and capital equipment. Implications for NIPA Real Net Exports U.S. trade data for June, and revisions for May, suggest that NIPA real net exports in 2000:Q2 could be $6-1/2 billion (seasonally adjusted, annual rate) stronger (smaller deficit) than estimated in the August Greenbook. Both exports and imports were substantially higher in the second quarter than we anticipated,

-4with real exports $15 billion stronger and real imports $8-1/2 billion stronger. A rough estimate suggests that BEA's Advance NIPA estimate for net exports could revised by similar amounts.

US. International Trade in Goods and Services Contribution of Net Exports to Real GDP Growth Percentage points, s.a.a

3

*-

2 2 0

1992

1994

1996

-3

S I

1998

2000

-4

BilS, s.a.a.r. Net rade in computers and semiconductors

/

o0

- -21 -2C Net automotive trade Swith Canada and Mexico 1992

1994

1996

1998

Selected Imports

1. Excludes agriculture and gold. 2. Excludes computers and semiconductors.

1. Excludes oil and gold. 2. Excludes computers and semiconductors. 3. Excludes Canada and Mexico.

2000

----

----

--

U.S. Exports and Imports of Goods and Services (Billions of dollars, s.a.a.r., BOP basis) Levels 2000

Exports of G&S

2000 May June QI Q2 1020.1 1054.9 1038.8 1086.8

Amount Change _ 2000 2000 June Q2 May Q1 21.5 34.7 -0.2 48.0

734.9 52.5 9.6 672.8

767.2 52.9 3.7 710.6

753.0 53.8 2.7 696.5

797.9 54.0 5.2 738.8

14.6 2.5 0.9 11.2

32.3 0.4 -5.9 37.8

43.6 51.2 52.5 179.0

52.9 55.3 59.6 189.4

56.5 52.4 57.8 182.0

55.5 57.1 65.1 196.5

-9.4 3.4 1.2 7.2

9.2 4.1 7.1 10.4

-1.0 4.7 7.3 14.5

80.3 47.5 15.9 17.0

80.1 45.0 17.3 17.8

78.8 44.5 17.1 17.3

84.6 46.9 18.4 19.2

2.8 0.2 2.2 0.4

-0.2 -2.5 1.4 0.8

5.8 2.5 1.3 1.9

148.8 87.3 30.0

154.1 88.7 30.4

152.1 86.0 31.0

158.3 93.7 28.1

3.3 3.7 -1.1

5.3 1.4 0.4

0.1 -0.6 -0.5

6.2 7.7 -2.9

285.2

287.6

285.8

288.8

7.0

2.4

-2.4

3.0

Imports of G&S

1364.8 1420.6 1402.5 1454.2

61.1

55.7

-2.5

51.7

Goods imports Petroleum Gold Other goods

1158.3 1208.1 1190.7 1240.1 108.0 117.3 113.7 129.2 4.2 3.0 2.3 9.6 1040.6 1087.8 1074.7 1106.7

53.0 22.3 0.3 30.4

49.8 9.3 -6.6 47.2

-2.8 4.6 -0.0 -7.4

49.4 15.5 1.8 32.1

Goods exports Agricultural Gold Other goods Aircraft & pts Computers Semiconductors Other cap gds Automotive to Canada to Mexico to ROW Ind supplies Consumer goods All other Services exports

2.2 2.8 -0.6 0.0

45.0 0.2 2.5 42.3

Aircraft & pts Computers Semiconductors Other cap gds

23.2 83.8 43.2 173.9

24.7 90.0 46.4 187.5

24.5 88.0 45.9 187.4

24.5 91.5 50.2 189.6

-0.9 0.1 1.5 8.8

1.5 6.1 3.1 13.5

-0.5 -2.4 2.9 1.8

-0.0 3.5 4.4 2.2

Automotive from Canada from Mexico from ROW

193.3 66.1 38.9 88.3

195.2 63.3 40.7 91.2

187.4 60.7 39.2 87.5

200.1 66.2 42.4 91.6

5.3 0.8 5.0 -0.5

1.9 -2.8 1.8 2.9

-10.6 -2.3 -1.3 -7.0

12.7 5.5 3.1 4.1

Ind supplies Consumer goods Foods All other

168.4 260.5 44.6 49.6

171.6 171.1 276.4 276.4 45.6 45.6 48.4 50.5

174.5 277.5 46.1 52.7

6.3 7.6 0.0 1.6

3.2 15.9 1.1 0.9

1.9 1.1 0.4 -2.0

3.5 1.1 0.5 4.3

206.6

212.5

211.8

214.1

8.1

5.9

0.3

2.3

11.35 12.00 Oil quantity (mb/d) 25.98 25.40 Oil import price ($/bbl) 1. Change from previous quarter or month.

12.11 25.44

12.11 25.44

0.75 3.83

0.65 -0.58

0.32 0.11

0.00 0.00

Services imports Memo:

Source: U.S. Department of Commerce, Bureaus of Economic Analysis and Census.

-7Selected Financial Market Quotations (One-day quotes in percent except as noted) 1999 Instrument

FOMC* June 30

Change to Aug. 17 from selected dates (percentage points)

2000 FOMC** IFOMC*** May 16 1 June 28

Aug. 17

FOMC* I FOMC** June 30 May 16

FOMC*** June 28

I

Short-term FOMC intended federal funds rate

6.00

6.50

6.50

Treasury bills 3-month 6-month 1-year

5.94 6.24 6.05

5.67 5.96 5.82

6.09 6.07 5.89

Commercial paper 1-month 3-month

6.47 659

6.56 6.58

6.47 6.47

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

6.55 6.74 6.97

6.66 6.74 6.89

6.55 6.61 6.75

Eurodollar deposits 2 1-month 3-month

6.53 6.72

6.66 6.72

Bank prime rate

9.00

Intermediate-and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year U.S. Treasury 10-year indexed note Municipal revenue (Bond Buyer)

3

Private instruments 10-year swap 10-year FNMA Merrill Lynch BBB 4 High yield Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable

1.75

.50

.00

.00 -.12

-.09 -.11

6.53 6.59

.00 -.13

-.13 -.13

9.50

9.50

.50

.00

6.88 6.47 6.17

6.50 6.10 5.95

6.30 5.81 5.72

4.21

4.08

4.02

.01

-.19

-.06

6.23

5.99

5.76

.14

-.47

-.23

7.82 7.70 8.86 11.94

7.33 7.15 8.49 11.98

7.09 8.25 11.81

852 6.96

8.14 7.22

8.04 7.28

.41 1.35

-.48 .32

-.10 .06

5

Y

Record high Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000

Change to Aug. 17 from selected dates (percent)

2000

Level

Date

1,527 5,049 606 14,752

3-24-00 3-10-00 3-9-00 3-24-00

FOMC** IFOMC*** May 16 June 28 1,452 3,608 498 13,438

1,451 3,859 508 13,537

Aug. 17

Record high

1,496 3,941 516 13,941

-2.06 -21.94 -14.79 -5.50

FOMC** I FOMC*** May 16 June 28 2.07 6.19 2.11 2.53

1. Secondary market. 2. Bid rates for Eurodollar deposits collected around 9:30 am. Eastern time. 3. Most recent Thursday quote. 4. Merrill Lynch 175 high-yield bond index composite 5. For week ending Friday previous to date shown. * Data are as of the close on June 29, 1999. ** Data are as of the close on May 15,2000. *** Data are as of the close on June 27. 2000

BA:DAM