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

January 26, 2001

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 1

Domestic Nonfinancial Economy ............................. .

Orders and Shipments of Capital Goods .........

Tables New Orders for Durable Goods ........... Business Capital Spending Indicators .....

..... ..... .

Chart Orders and Shipments for Nondefense Equipment

....

. ...

.... ...

1 3

....

4

The Financial Economy Table Selected Financial Market Quotations ..............

. ....

5

.1

Supplemental Notes The Domestic Nonfinancial Economy Orders and Shipments of Capital Goods New orders for total durable goods increased 2.2 percent in December. Orders were boosted by a huge increase in bookings for civilian aircraft and parts; excluding this category, orders fell 2.1 percent last month. The staff's constructed series on real adjusted durable goods orders-which strips out nondefense aircraft, defense capital goods, and industries for which reported orders actually equal shipments-was down 0.3 percent in December. For the fourth quarter as a whole, real adjusted durable goods orders fell 2 percent.

New Orders for Durable Goods (Percent change from preceding period; seasonally adjusted)

Component

Total orders Adjusted orders 2

2000 2000

Share,

Share,-

2000:H2

Q3

Q4

100.0

-3.5

-2.5

-6.6

1.8

71.0

-1.3

-2.8

-3.8

-.1

Oct.

Computers

7.0

6.8

-2.8

7.4

Communication equipment

5.0

-9.5

Other capital goods Other3

Nov

-1.1

Dec. 2.2 -.8

-15.3

-2.1

-7.6

.1

.7

14.0

.7

-6.7

-6.2

-3.9

2.6

45.0

-2.2

-1 7

-4.4

1.1

.4

.. .

-.4

-2.0

-3.6

.2

-.3

7

-14.2

-2.1

-2.0

-.2

Memo: Real adjusted orders Excluding high tech

..

1 Quarterly rate. 2. Orders excluding defense capital goods, nondefense aircraft, and motor vehicle parts. 3. Includes primary metals, most fabricated metals, most stone, clay, and glass products, electronic components, household appliances, scientific instruments, and miscellaneous durable goods. Not applicable.

New orders for nondefense capital goods excluding aircraft and parts fell 3 percent in December, pulled down by a 15.3 percent decline in bookings for office and computing equipment. New orders for communications equipment rose 0.8 percent last month; still, orders for communications equipmentwhich had dropped 7.9 percent in the third quarter of 2000-were down another 1.1 percent for the fourth quarter as a whole. Outside of the high-tech and aircraft sectors, new orders rose 2.6 percent last month. Large increases were recorded in bookings for items with long lead times-notably engines and turbines, railroad equipment, and items in the shipbuilding and ordnance category (orders in these latter two sectors are also quite volatile) In contrast,

new orders for industrial and metalworking machinery and for search and navigation equipment fell last month. For the fourth quarter as a whole, nonhigh-tech orders dropped 7 percent, and the backlog of unfilled orders fell 2.2 percent. Shipments for nondefense capital goods excluding aircraft and parts edged down 0.3 percent in December. Nominal shipments of office and computing equipment fell 6.2 percent last month and were down 2.1 percent for the fourth quarter as a whole. In contrast, shipments of communications equipment bounced back 4.5 percent in December and posted a small gain in the fourth quarter. Outside of high-tech, shipments rose 1.2 percent in December; the most notable gains were in the construction and mining equipment, railroad equipment, shipbuilding, and electrical machinery categories. However, shipments of industrial machinery posted further declines. For the quarter as a whole, shipments of non-high-tech items fell 1.2 percent. On balance, these data came in very close to the assumptions underlying the Greenbook forecast. Although computer shipments were weaker than we had expected, shipments of communications equipment were stronger. Orders were a bit weaker than we had been assuming, but this largely reflected the drop in bookings for office and computing equipment, which generally contain little leading information about future shipments of computing equipment. Today's release also contained a revision to the estimate of manufacturers' inventories in November. Manufacturers'inventories accumulated at an annual rate of $22.5 billion in November, $4.3 billion less than had been reported previously.

-

3 -

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

2000

2000 Q4

Oct.

Nov.

Dec.

.8 1.8 5.6 1.2 .1

-1.2 -1.1 -2.1 .7 -1.2

-2.3 -.3 1.3 -1.8 -.5

.5 -1.6 -1.9 -3.1 -.9

-1.2 -.3 -6.2 4.5 1.2

-5.9

n.a.

-10.6

-2.1

n.a.

-11.4

-11.3

-5.8

-2.7

2.1

1.3 .1 6.8 -7.9 .0

-2.6 -4.8 -2.8 -1.1 -7.0

-13.4 -2.9 7.4 -8.8 -5.7

4.6 -2.3 -1.1 -4.2 -2.3

11.6 -3.0 -15.3 .8 2.6

Construction put in place, buildings Office Other commercial Institutional Industrial Lodging and miscellaneous

2.2 4.2 -1.1 4.2 5.1 -.8

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

.9 -4.1 3.0 2.9 4.1 -. 6

1.2 .6 -4.4 -2.1 13.7 .5

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

Rotary drilling rigs in usel

10.3

8.9

4.7

2.9

2.4

Q3 Equipment and software Shipments of nondefense capital goods Excluding aircraft and parts Office and computing equipment Communications equipment All other categories Shipments of complete aircraft Medium & heavy truck sales (units) Orders for nondefense capital goods Excluding aircraft and parts Office and computing equipment Communications equipment All other categories

Nonresidential structures

1. Percent change of number of rigs in use, seasonally adjusted. n.a. Not available.

-

4 -

Orders and Shipments for Nondefense Equipment (Billions of dollars; not at annual rate)

Office and Computing Equipment

[

16 -

Orders

-

Shipments

11.0 Unfilled orders 10.5

Shipments 15

10.0 1

Dec. 9.5 9.0

12 8.5 11

1999

8.0

10

2000

1999

'

7.5

2000

Communications Equipment 13 -

Orders

-

-Shipments

26 Unfilled orders

12

24 Dec.

S/

Dec.

/

11

22

10

20

9

18

S8

16

1999

7

2000

1999

14

2000

Non-High-Tech Equipment Excluding Aircraft -

32

Orders -

98 Unfilled orders

Shipments

31

96

Dec 30

Dec

S29 l S 28

94 ^

/

92

28

90 -

27

88

26

86

25 24 1999

2000

84 1999

2000

-

5

III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2000

Change to Jan. 25 from selected dates (percentage points)

2001

Instrument

2000 June 26

2000 Dec. 18

2001 Jan. 2

-.50

-.50

-.50

-.99 -.96

-.88 -.79

-.97 -1.17

-.90 -.92

-.80 -.75

9.00

-.50

-.50

-.50

6.50 6.11 5.99

4.78 5.29 5.61

-1.72 -.82 -.38

-.55 .12 .17

-.09 .37 .26

U.S. Treasury 10-year indexed note

4.08

3.54

-.54

-.21

-.07

Municipal revenue (Bond Buyer) 3

5.99

5.47

-.52

-. 12

-.01

7.38 7.15 8.49 11.97

6.22 6.00 771 11.88 -.40 -.41

-. 11 -.29

June 26

Dec. 18

Jan. 2

Short-term FOMC intended federal funds rate

6.50

6.50

6.50

Treasury bills 1 3-month 6-month 1-year

5.66 5.94 5.82

Commercial paper 1-month 3-month

6.56 6.56

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

6.64 6.73 6.89

5.67 5.53 5.37

Eurodollar deposits 2 1-month 3-month

6.63 6.69

5.66 5.52

Bank prime rate

9.50

Intermediate-and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year

Private instruments 10-year swap 10-year FNMA Merrill Lynch BBB 4 High yield Home mortgages (FHLMC survey rate) 5 30-year fixed 1-year adjustable

6.45 6.15

7.13 6.93

8.14 7.22

Record high

2000

Jan. 25

5.57 5.36

7.02 6.64

Change to Jan. 25 from selected dates (percent)

2001

Level

Date

Dec 18

Jan. 2

Jan. 25

Record high

2000 Dec. 18

2001 Jan. 2

11,723 1,527 5,049 606 14,752

1-14-00 3-24-00 3-10-00 3-9-00 3-24-00

10,645 1,323 2,625 463 12,178

10,646 1,283 2,292 462 11,764

10,730 1,358 2,754 499 12,539

-8.47 -11.13 -45.44 -17.67 -15.00

79 2.63 4.94 772 2.96

78 5.79 20.18 7.89 6.59

Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 1. 2. 3. 4. 5.

Secondary market. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. Most recent Thursday quote. Merrill Lynch 175 high-yield bond index composite. For week ending Friday previous to date shown.

NOTES: June 26, 2000, is the day before the final FOMC meeting during the most recent period of policy tightening. December 18, 2000, is the day before the most recent FOMC meeting. January 2, 2001, is the day before the most recent FOMC action. BA:DAM