Greenbook/Tealbook

Prefatory Note

The attached document represents the most complete and accurate version available based on original files from the FOMC Secretariat at the Board of Governors of the Federal Reserve System. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.

Content last modified 03/31/2011.

Class III FOMC - Internal (FR)

December 9, 2005

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 Economy ........................................................ 1 Erratum ............................................................................................1 Michigan Survey..............................................................................1 Unemployment Insurance Claims....................................................1 Wholesale Inventories......................................................................5 Tables University of Michigan Survey Research Center: Survey of Consumer Attitudes .............................................................2 Unemployment Insurance Programs................................................3 Changes in Manufacturing and Trade inventories ...........................6 Production of Domestic Light Vehicles...........................................7 Charts Unemployment Insurance ................................................................4 Book-Value Inventories Relative to Shipments and Sales ..............6 Inventories of Light Vehicles...........................................................7 Days’ Supply of Light Vehicles.......................................................7

The Domestic Financial Economy ...........................................................8 Tables Commercial Bank Credit .................................................................9 Selected Financial Market Quotations ...........................................10

Supplemental Notes The Domestic Nonfinancial Economy Erratum On page I-17 of the December 7, 2005, Greenbook, in the discussion of the “stronger aggregate demand” scenario, the text states that "the personal saving rate rises to only ½ percent by late 2007 under the baseline monetary policy." In fact, in this scenario, the saving rate rises to ¾ percent by late 2007 under the baseline monetary policy. Michigan Survey According to the preliminary report, the Michigan Survey Research Center’s (SRC) index of consumer sentiment jumped seven points in the first half of December to 88.7. Together with last month’s seven point gain, this brings the index back to its level prior to Hurricane Katrina. The December rise owed to gains in both the “expected conditions” and the “current conditions” components of the overall index. Both of the “current conditions” components and all three of the “expected conditions” components rose, with the largest gain in expectations of personal finances. Among those items not included in the overall index, consumers’ expectations about the change in unemployment over the next twelve months worsened a little, and appraisals of buying conditions for houses fell considerably. Consumers’ appraisals of buying conditions for cars improved. Mean inflation expectations rose a little in early December. The mean expected inflation over the next twelve months ticked up to 4.2 percent, and the mean expected inflation over the next five to ten years rose to 3.5 percent. In contrast, median expected inflation over the next twelve months fell a little, and median expected inflation over the next five to ten years was unchanged. Unemployment Insurance Claims Initial claims for unemployment insurance under state programs increased 6,000 to 327,000 for the week ending December 3. The four-week moving average of initial claims remained at 323,000. The level of insured unemployment under state programs fell 137,000 to 2.6 million for the week ending November 26. The insured unemployment rate ticked down to 2 percent from the previous week's downward-revised level of 2.1 percent. -1-

-2December 9, 2005

University of Michigan Survey Research Center: Survey of Consumer Attitudes Indexes of consumer sentiment (Not seasonally adjusted) 2005 Category Composite of current and expected conditions1 Current conditions1 Expected conditions1 Personal financial situation Now compared with 12 months ago2 Expected in 12 months2

May

June

July

86.9 104.9 75.3

96.0 96.5 113.2 113.5 85.0 85.5

Aug. 89.1 108.2 76.9

Oct.

Nov.

Dec.P

76.9 74.2 98.1 91.2 63.3 63.2

81.6 100.2 69.6

88.7 106.6 77.3

Sept.

109 121

122 129

122 133

117 121

103 115

96 112

103 115

116 126

95 85

109 103

112 99

102 85

62 76

68 72

83 80

96 88

Appraisal of buying conditions Cars Large household appliances2 Houses

133 163 156

139 172 146

152 172 145

147 164 140

125 151 130

119 139 125

125 157 130

133 160 117

Expected unemployment change - next 12 months

119

116

117

123

137

134

122

124

Prob. household will lose a job - next 5 years

24

23

22

23

23

22

22

19

Expected inflation - next 12 months Mean Median

3.8 3.2

4.0 3.2

3.6 3.0

3.7 3.1

5.5 4.3

5.5 4.6

4.1 3.3

4.2 3.1

Expected inflation - next 5 to 10 years Mean Median

3.5 2.9

3.1 2.8

3.3 2.9

3.3 2.8

3.8 3.1

3.8 3.2

3.3 3.0

3.5 3.0

Expected business conditions Next 12 months2 Next 5 years2

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. P Preliminary. 1. Feb. 1966 = 100. 2. Indicates the question is one of the five equally-weighted components of the index of sentiment.

-3Unemployment Insurance Programs (In Thousands) 2005 Item

Oct. 22

Oct. 29

Nov. 5

Nov. 12

Nov. 19

Nov. 26

Dec. 3

334 330

328 325

332 328

308 305

342 337

323 321

330 327

2810 2846 2784 2765 2797 2740 0 0 0

2646 2603 NA

NA NA NA

Seasonally adjusted1 Initial Claims All regular programs2 State programs Insured unemployment All regular programs3 State programs Extended benefits4

2842 2838 2795 2790 0 0

State-insured Unemployment rate5

2.2

2.2

2.2

2.2

2.1

2.0

NA

Initial Claims (Four-week moving avg.) All regular programs2 State programs

371 367

354 351

338 335

326 322

327 324

326 323

326 323

340 284 369 2364 2564 2302

291 2715

443 NA

Not seasonally adjusted Regular state programs Initial claims Insured unemployment

305 294 2379 2416

1. Only data for regular state programs are seasonally adjusted. 2. Includes federal employees and ex-servicemen. 3. Includes federal employees, railroad workers, and ex-servicemen. 4. Includes state and federal emergency extended benefits. 5. Percent of covered employees receiving regular state benefits.

-4-

Unemployment Insurance (Weekly data; Seasonally adjusted)

Initial Claims

Thousands

600 550 500 450 400

Dec. 3 327

300

State programs Incl. EUC Adjustments<1> 1992

1994

1996

350

1998

2000

2002

2004

Insured Unemployment

2006

250

Millions

4.4 4.2 4.0 3.8 3.6

Incl. EUC Adjustment<2>

3.4 3.2 3.0 2.8 Nov. 26 2.6

2.6 2.4

State Programs

2.2 2.0

1992

1994

1996

1998

2000

2002

2004

<1> Beginning July 18, 1992, includes initial claims filed under the emergency unemployment benefits program by individuals also eligible to file under regular programs. The EUC program ended on April 30, 1994. <2> Includes staff estimate of emergency benefits recipients who are also eligible to file under regular programs.

2006

1.8

-5-

Wholesale Inventories The book value of wholesale inventories rose at an annual rate of $8 billion in October following a $24 billion accumulation in September. Excluding motor vehicles, inventories at wholesalers rose only $0.2 billion in October, and the inventory-sales ratio in this category edged down to 1.11 months. Stocks held by wholesalers of durable goods increased at an annual rate of $25 billion in October. In contrast, stocks held by wholesalers of nondurable goods slid at an annual rate of $17 billion, pulled down by run-offs at wholesalers of drug and pharmaceutical products.

-6Changes in Manufacturing and Trade Inventories (Billions of dollars; seasonally adjusted book value; annual rate) 2005 Sector

Q1

Q2

Q3

Aug.

Sept.

Oct.

88.6

18.7

23.9

57.9

79.8

n.a.

92.0

29.1

37.2

33.8

42.4

n.a.

Manufacturing Ex. aircraft

42.6 38.1

.9 4.0

8.3 5.2

-13.3 -4.2

5.7 -1.8

31.9 25.8

Wholesale trade Motor vehicles and parts Ex. motor vehicles and parts

30.5 -1.1 31.6

20.2 7.9 12.4

16.1 -1.4 17.5

20.6 -5.2 25.8

23.6 1.3 22.3

7.7 7.5 .2

Retail trade Motor vehicles and parts Ex. motor vehicles and parts

15.5 -2.3 17.7

-2.4 -18.3 15.8

-.5 -11.9 11.4

50.6 29.3 21.3

50.4 36.1 14.3

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

Manufacturing and trade Ex. wholesale and retail motor vehicles and parts

n.a. Not available.

Book-Value Inventories Relative to Shipments and Sales Ratio

Retail trade ex. motor vehicles and parts

1.6

1.6

1.5

1.5 Manufacturing

1.4

1.4

1.3

Sept.

1.3

1.2

Oct.

1.2

Wholesale trade ex. motor vehicles and parts

1.1 1.0

1992

1993

1994

1995

1996

1997

1998

1999

Oct.

2000

2001

2002

2003

2004

2006

1.0

Inventory-Consumption Ratios, Flow-of-Goods System

ISM Customer Inventories: Manufacturing

Days’ supply

Index 60

60

55

55

58

58

56

56

54 50

2005

1.1

54

Total

50

Average, 1996 to present

52 45

52

45 Nov.

50

50 Oct.

40

35

40

2000

2001

2002

2003

2004

2005

35

Note. A number above 50 indicates inventories are "too high."

48 46

48

Total ex. motor vehicles and parts

2000

2001

2002

2003

2004

2005

46

-7Production of Domestic Light Vehicles (Millions of units at an annual rate except as noted; FRB seasonals) 2005 Item

2004

U.S. production1 Autos Light trucks

Q3

2006 Q4

Q1

2005 Sept.

Oct.

Nov.

11.7 4.3 7.4

11.7 4.3 7.4

11.4 4.4 7.0

11.3 4.6 6.7

12.1 4.4 7.7

11.9 4.4 7.5

11.2 4.4 6.8

Days’ supply2 Autos Light trucks

74 59 83

58 44 68

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

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

65 44 82

80 51 104

74 50 93

Inventories3 Autos Light trucks

3.22 1.02 2.20

2.75 .82 1.94

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

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

2.75 .82 1.94

2.97 .87 2.10

3.03 .90 2.12

Memo: U.S. production, total motor vehicles4

12.0

12.1

11.9

11.7

12.5

12.4

11.6

Note. Components may not sum to totals because of rounding. 1. Production rates for the fourth and first quarters reflect the latest schedules from Ward’s Communications. 2. Quarterly values are calculated with end-of-period stocks and average reported sales. 3. End-of-period stocks. 4. Includes medium and heavy trucks. n.a. Not available.

Inventories of Light Vehicles Millions of units 3.4 3.2 Nov.

3.0 2.8 2.6 2.4

1998

1999

2000

2001

2002

2003

2004

2.2

2005

Note. FRB seasonals. Monthly totals.

Days’ Supply of Light Vehicles Days 90 80 Nov. 70 * 60 50 1998

1999

2000

2001

* Constructed using 6-month moving average of sales.

2002

2003

2004

2005

40

-8-

The Domestic Financial Economy

-9Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total 1. Adjusted1 2. Reported 3. 4. 5. 6.

Securities Adjusted1 Reported Treasury and agency Other2

7. 8. 9. 10. 11. 12. 13. 14.

Loans3 Total Business Real estate Home equity Other Consumer Adjusted4 Other5

Level ($ billions), Nov. 2005

2004

Q1 2005

Q2 2005

Q3 2005

Oct. 2005

Nov. 2005

8.9 8.4

14.6 12.3

10.2 10.0

8.8 9.0

2.7 1.1

4.3 3.8

7,135 7,278

6.6 5.2 4.8 5.8

23.7 14.9 20.2 6.7

5.6 5.2 -5.6 22.4

.0 1.1 -6.0 11.4

.2 -5.4 -7.9 -2.0

-3.5 -4.7 -17.8 13.3

1,852 1,995 1,139 855

9.8 1.3 14.0 43.9 9.8 8.8 5.9 7.9

11.3 16.8 13.5 18.6 12.6 8.3 4.9 -1.3

12.0 13.8 14.2 14.1 14.3 3.1 -2.6 9.7

12.1 12.2 15.6 11.7 16.3 4.7 4.3 5.6

3.6 9.2 7.6 -4.9 9.9 -18.5 -22.4 1.8

7.0 11.1 5.1 .0 6.1 2.4 .7 12.9

5,283 1,007 2,853 436 2,417 692 1,045 731

Note. Data are adjusted to remove estimated effects of consolidation related to FIN 46 and for breaks caused by reclassifications. Monthly levels are pro rata averages of weekly (Wednesday) levels. Quarterly levels (not shown) are simple averages of monthly levels. Annual levels (not shown) are levels for the fourth quarter. Growth rates are percentage changes in consecutive levels, annualized but not compounded. 1. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FAS 115). 2. Includes private mortgage-backed securities, securities of corporations, state and local governments, foreign governments, and any trading account assets that are not Treasury or agency securities, including revaluation gains on derivative contracts. 3. Excludes interbank loans. 4. Includes an estimate of outstanding loans securitized by commercial banks. 5. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables.

- 10 III-T-1

Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004

Change to Dec. 8 from selected dates (percentage points)

2005

Instrument June 28

Dec. 31

Oct. 31

Dec. 8

2004 June 28

2004 Dec. 31

2005 Oct. 31

1.00

2.25

3.75

4.00

3.00

1.75

.25

1.36 1.74

2.18 2.52

3.89 4.12

3.85 4.12

2.49 2.38

1.67 1.60

-.04 .00

Commercial paper (A1/P1 rates)2 1-month 3-month

1.28 1.45

2.29 2.28

4.01 4.13

4.24 4.36

2.96 2.91

1.95 2.08

.23 .23

Large negotiable CDs1 3-month 6-month

1.53 1.82

2.50 2.72

4.22 4.43

4.44 4.61

2.91 2.79

1.94 1.89

.22 .18

Eurodollar deposits3 1-month 3-month

1.29 1.51

2.32 2.49

4.08 4.25

4.33 4.47

3.04 2.96

2.01 1.98

.25 .22

Bank prime rate

4.00

5.25

6.75

7.00

3.00

1.75

.25

Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year

2.88 3.97 4.90

3.08 3.63 4.34

4.45 4.46 4.67

4.39 4.37 4.58

1.51 .40 -.32

1.31 .74 .24

-.06 -.09 -.09

U.S. Treasury indexed notes 5-year 10-year

1.56 2.25

1.03 1.65

1.81 2.00

2.06 2.16

.50 -.09

1.03 .51

.25 .16

Municipal general obligations (Bond Buyer)5

5.01

4.49

4.56

4.49

-.52

.00

-.07

Private instruments 10-year swap 10-year FNMA6 10-year AA7 10-year BBB7 5-year high yield7

5.21 5.30 5.59 6.18 8.30

4.65 4.61 4.98 5.38 7.34

5.05 4.97 5.37 5.97 8.34

5.03 4.89 5.31 5.92 8.35

-.18 -.41 -.28 -.26 .05

.38 .28 .33 .54 1.01

-.02 -.08 -.06 -.05 .01

Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable

6.21 4.19

5.77 4.10

6.31 5.09

6.32 5.16

.11 .97

.55 1.06

.01 .07

Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month

Record high

2004

Change to Dec. 8 from selected dates (percent)

2005

Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000

Level

Date

Dec. 31

Oct. 31

Dec. 8

Record high

2004 Dec. 31

2005 Oct. 31

11,723 1,527 5,049 691 14,752

1-14-00 3-24-00 3-10-00 12-2-05 3-24-00

10,783 1,212 2,175 652 11,971

10,440 1,207 2,120 647 12,063

10,755 1,256 2,246 685 12,606

-8.26 -17.78 -55.50 -.77 -14.55

-.26 3.62 3.26 5.16 5.30

3.02 4.05 5.95 5.97 4.50

1. Secondary market. 2. Financial commercial paper. 3. Bid rates for Eurodollar deposits collected around 9:30 a.m. eastern time. 4. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. 5. Most recent Thursday quote. 6. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 7. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. _______________________________________________________________________ NOTES: June 28, 2004, is the day before the most recent policy tightening began. October 31, 2005, is the day before the most recent FOMC meeting. _______________________________________________________________________