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 02/09/2012.
Confidential (FR) Class III FOMC
January 27, 2006
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 Real Gross Domestic Product ..........................................................1 GDP Prices.......................................................................................4 Manufactures’ Orders, Shipments, and Inventories.........................4 Sales of New Homes........................................................................4 Tables Real Gross Domestic Product and Related Items ............................2 Price Indexes for Gross Domestic Product ......................................5 Broad Measures of Inflation ............................................................6 Surveys of Inflation Expectations....................................................6 Orders and Shipments of Nondefense Capital Goods......................7
Charts Household Indicators .......................................................................3 Computers and Peripherals ..............................................................7 Communications Equipment............................................................7 Medium and Heavy Trucks..............................................................7 Other Equipment..............................................................................7 Fundamentals of Equipment and Software Investment ...................9 Indicators of Single-Family Housing.............................................10 The Domestic Financial Economy .........................................................11 Tables Commercial Bank Credit ...............................................................12 Selected Financial Market Quotations ...........................................13
Supplemental Notes The Domestic Nonfinancial Economy Real Gross Domestic Product (GDP) According to the BEA’s advance estimate, real GDP rose at an annual rate of 1.1 percent in the fourth quarter after having increased at a rate of 4.1 percent in the third quarter. The slowdown in the fourth quarter reflected decelerations in most major categories of spending with the notable exception of private inventory investment. Real PCE increased at an annual rate of 1.1 percent following an increase at a 4.1 percent rate in the third quarter; the deceleration was the result of a sharp drop in purchases of durable goods, as spending on motor vehicles fell. Total government spending decreased 2.4 percent in the fourth quarter; a small increase in state and local government expenditures was more than offset by a large decline in federal spending. Business fixed investment rose at an annual rate of 2.8 percent in the fourth quarter, down from the 8.5 percent pace in the third quarter; spending on both equipment and software and nonresidential structures decelerated. In the foreign sector, the BEA estimated that real exports rose at a moderate rate for a second quarter but that real imports accelerated; as a result, the arithmetic contribution of net exports to the change in real GDP was -1.2 percentage points last quarter compared with just -0.1 percentage point in the third quarter. In contrast, real private inventories are reported to have increased $25.7 billion in the fourth quarter, adding 1.5 percentage points to the change in real GDP; in the third quarter, the change in private inventory investment held down the change in real GDP by about ½ percentage point. Real output in the nonfarm business sector rose at an annual rate of 0.9 percent in the fourth quarter. Based on the data currently available, the staff estimates that productivity in the nonfarm business sector fell at an annual rate of 0.4 percent last quarter following an increase at a 4.4 percent rate in the third quarter. These estimates put the four-quarter change in nonfarm business productivity for 2005 at just under 2½ percent. On the income side of the accounts, real disposable personal income rebounded at an annual rate of 7.0 percent in the fourth quarter after having been severely restrained in the third quarter by the effects of the hurricane. The personal saving rate edged up a bit, but remained below zero. The staff currently estimates that compensation per hour increased at an annual rate of 3.2 percent in the fourth quarter, implying an increase of just under ½ percent from the fourth quarter of 2004.
-1-
-2-
Real Gross Domestic Product and Related Items (Percent change from previous period at a compound annual rate; based on seasonally adjusted data, chain-type quantity indexes) 2005:Q2
2005:Q3
2005:Q4
Final
Final
Advance
3.3
4.1
1.1
5.6
4.6
-.3
3.4
4.1
1.1
Durables
7.9
9.3
-17.5
Nondurables
3.6
3.5
5.1
Services
2.3
3.3
3.2
Business fixed investment
8.8
8.5
2.8
Nonresidential structures
2.7
2.2
.7
Equipment and software
10.9
10.6
3.5
10.8
7.3
3.5
Federal government
2.4
7.4
-7.0
State and local government
2.6
.2
.4
Exports of goods and services
10.7
2.5
2.4
Imports of goods and services
-.3
2.4
9.1
-1.7
-13.3
25.7
-614.2
-617.5
-650.3
Nominal GDP
6.0
7.6
4.2
Nominal GDI
4.7
8.0
n.a.
78.3
66.5
n.a.
Change in economic profits2
59.3
-54.5
n.a.
Profit share, excluding FR banks3
10.6
10.0
n.a.
.2
-2.0
7.0
-.2
-1.8
-.4
Item Gross Domestic Product Final sales Consumer spending
Residential investment
ADDENDA: Inventory investment1 Net exports of goods and services1
Statistical
discrepancy2
Real disposable personal income Personal saving rate (percent)
1. Level, billions of chained (2000) dollars. 2. Billions of dollars. 3. Economic profits as a share of GNP. n.a. not available.
-3-
Household Indicators
Changes in DPI and Wages and Salaries Percent, annual rate 12 Real disposable personal income Real wages and salaries Nominal wages and salaries
9
6
3
0
H1
2004
H2
H1
2005
Q3
-3
Q4
Note. Microsoft dividend is excluded.
Household Net Worth and Wilshire 5000 Index 15000
Ratio 7.0
13000
Dec.
11000
Wilshire 5000 (left scale)
6.0
9000
5.5
Q4
7000
5.0 Ratio of household net worth to DPI* (right scale)
5000 3000
6.5
1996
1997
1998
1999
2000
2001
2002
2003
4.5
2004
2005
2006
4.0
* Value for 2004:Q4 excludes the effect on income of the one-time Microsoft dividend in December. Value for 2005:Q4 is a staff estimate.
Personal Saving Rate 5
Percent 5
4
4
3
3
2
2
1
1
0
0 Q4
-1
-1
-2 -3
-2 1996
1997
1998
1999
2000
2001
2002
2003
Note. Value for 2004:Q4 excludes the effect on income of the one-time Microsoft dividend in December.
2004
2005
2006
-3
-4-
GDP Prices The GDP price index increased at an annual rate of 3.0 percent in the fourth quarter after having risen at a 3.3 percent rate in the preceding quarter. A fairly sharp increase in construction prices boosted the overall GDP price index, but was more than offset by a deceleration in energy prices. The slowing in energy prices also contributed to the deceleration in PCE prices, which rose at an annual rate of 2.6 percent in the fourth quarter compared with a rate of 3.7 percent in the third quarter. Core PCE prices increased 2.2 percent last quarter after having moved up at a 1.4 percent rate in the third quarter; the price index for GDP excluding food and energy also accelerated in the fourth quarter. Manufacturers’ Orders, Shipments, and Inventories New orders for nondefense capital goods excluding aircraft rose 3.5 percent in December following an upward-revised increase of 0.2 percent in November. Orders for non-hightech equipment shot up 4.6 percent after having changed little in November, and orders for computers and peripherals rose strongly for a second month; in contrast, orders for communications equipment posted their second straight large decline. Shipments of nondefense capital goods excluding aircraft jumped 3.2 percent in December following an increase of 0.6 percent in November. Increases in shipments were broad-based across categories of equipment last month. The increase of 3.8 percent in shipments of communications equipment retraced about half of the cumulative decline posted over the preceding two months while shipments of computers and other capital equipment remained on their strong upward trajectories. The book value of inventories held by manufacturers of durable goods (which constitute about two-thirds of total manufacturing inventories) increased at an annual rate of $0.7 billion in December. Shipments of total durable goods increased 3.5 percent, and the inventory-shipments ratio fell to 1.29 months. Sales of New Homes Sales of new homes moved up 3 percent in December to an annual rate of 1.27 million units on the heels of a decline of 9¼ percent in November. Sales in December were up sharply in the West and the Midwest, which more than offset declines in the South and the Northeast. All told, the level of sales in the fourth quarter was about in line with the average level during the first three quarters of 2005. The stock of new homes for sale continued to edge up in December and represented 4.9 months of sales at December’s
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Price Indexes for Gross Domestic Product (Based on seasonally adjusted data, chain-type indexes) 2005:Q2
2005:Q3
2005:Q4
Final
Final
Advance
2.6
3.3
3.0
3.3
4.2
3.3
3.3
3.7
2.6
3.5
1.3
2.6
28.6
50.0
9.0
1.7
1.4
2.2
1.5
1.1
1.8
1.9
2.5
3.7
-0.7
-1.8
-1.2
-14.9
-14.4
-13.3
9.9
16.5
19.5
Residential investment
4.3
6.5
7.1
Government consumption expenditures and investment
3.7
6.7
4.9
Exports of goods and services
3.7
2.9
2.9
Imports of goods and services
8.2
9.4
5.1
1.6
-0.0
5.5
GDP less food and energy
2.4
2.8
3.1
Gross domestic purchases less food and energy
2.1
2.5
2.9
Item Gross domestic product Gross domestic purchases Personal consumption expenditures Food and Beverages Energy Excluding food and energy Market-based components Business fixed investment Equipment and Software Computers and peripheral equipment Nonresidential structures
Nonpetroleum goods ADDENDA:
NOTE: Percent change from previous period at compound annual rates
-6-
Broad Measures of Inflation (Percent change, Q4 to Q4) Measure
2002
2003
2004
2005
Product prices GDP price index Less food and energy
1.7 1.9
2.0 1.7
2.9 2.8
3.0 2.8
Nonfarm business chain price index
1.1
1.1
2.7
3.1
Expenditure prices Gross domestic purchases price index Less food and energy
1.9 1.7
2.0 1.7
3.4 2.7
3.4 2.6
PCE price index Less food and energy
1.8 1.6
1.7 1.3
3.1 2.2
3.0 1.9
PCE price index, market-based components Less food and energy
1.7 1.4
1.6 1.0
2.8 1.7
3.0 1.7
CPI Less food and energy
2.2 2.1
1.9 1.2
3.4 2.1
3.7 2.1
Chained CPI Less food and energy
1.8 1.7
1.7 .8
2.9 1.8
3.0 1.7
Median CPI Trimmed mean CPI
3.0 2.1
2.0 1.7
2.3 2.2
2.4 2.5
Surveys of Inflation Expectations (Percent) University of Michigan 1 year 2
5 to 10 years 3
Actual CPI inflation 1
Mean
Median
Mean
Median
Professional forecasters (10-year) 4
2004:Q1 Q2 Q3 Q4
1.8 2.9 2.7 3.3
3.1 4.0 3.3 3.4
2.7 3.3 2.9 3.0
3.4 3.3 3.1 3.1
2.9 2.8 2.8 2.8
2.5 2.5 2.5 2.5
2005:Q1 Q2 Q3 Q4
3.0 2.9 3.8 3.7
3.6 3.9 4.3 4.6
3.0 3.2 3.5 3.7
3.2 3.3 3.5 3.5
2.8 2.9 2.9 3.1
2.5 2.5 2.5 2.5
Sept. Oct. Nov. Dec. 2006:Jan.
4.7 4.3 3.5 3.4 n.a.
5.5 5.5 4.1 4.1 3.5
4.3 4.6 3.3 3.1 3.0
3.8 3.8 3.3 3.5 3.3
3.1 3.2 3.0 3.1 2.9
2.5 ... ... 2.5 ...
Period
1. Percent change from the same period in the preceding year. 2. Responses to the question: By about what percent do you expect prices to go up, on average, during the next 12 months? 3. Responses to the question: By about what percent per year do you expect prices to go up, on average, during the next 5 to 10 years? 4. Quarterly CPI projections compiled by the Federal Reserve Bank of Philadelphia. ... Not applicable. n.a. Not available.
-7-
Orders and Shipments of Nondefense Capital Goods (Percent change; seasonally adjusted current dollars) 2005 Indicators
Q3
Q4
Oct.
Annual rate
Nov.
Dec.
Monthly rate
Shipments Excluding aircraft Computers and peripherals Communications equipment All other categories
1.8 3.2 -6.6 30.8 2.3
34.3 14.9 29.5 -11.5 15.8
4.5 1.7 5.7 -2.2 1.5
3.4 .6 2.7 -5.5 .9
4.6 3.2 5.3 3.8 2.8
Orders Excluding aircraft Computers and peripherals Communications equipment All other categories
-15.6 4.0 -10.7 23.2 4.8
83.7 10.3 14.2 -19.0 13.3
6.7 1.1 -2.0 10.8 .7
22.2 .2 8.1 -8.9 -.1
-.6 3.5 1.5 -3.6 4.6
Memo: Shipments of complete aircraft1
26.2
n.a.
28.8
26.6
n.a.
1. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate. n.a. Not available.
Computers and Peripherals
Communications Equipment
Billions of dollars, ratio scale
13 12
Shipments Orders
10
13 12 10
Dec. 8
8
6
6
Billions of dollars, ratio scale
20 17 14
Shipments Orders
11
11
8
8 Dec.
5
4
1999
2000
2001
2002
2003
2004
2005
2006
4
2
1999
2000
Medium and Heavy Trucks 950 800 700
Dec.
600 500
950
2002
2003
2004
2005
2006
800
52
2
54 52
Dec.
48
48
44
44
40
500 400
300
300
40
200
36
1999 2000 2001 2002 2003 2004 2005 2006 Note. Annual rate, FRB seasonals. Source. For class 4-8 trucks, Ward’s Communications; for class 5-8 trucks, ACT Research.
Shipments Orders
700 600
Dec.
Billions of dollars, ratio scale
54
400
200
2001
5
Other Equipment
Thousands of units, ratio scale Sales of class 4-8 trucks Net new orders of class 5-8 trucks
20 17 14
1999
2000
2001
2002
2003
2004
2005
2006
36
-8-
sales pace. The average price of new homes was 4 percent lower in December than a year earlier, and the median price of new homes in December was down 3½ percent from the previous year. 1
1
These estimated rates of change should be interpreted cautiously because the Census Bureau began using a new sample frame in January 2005 which has characteristics that differ considerably from the previous year.
-9-
Fundamentals of Equipment and Software Investment
Real Business Output 4-quarter percent change 8
8
6
6
4
Q4
4
2
2
0
0
-2
-2
-4
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
-4
User Cost of Capital 3
High-Tech
4-quarter percent change
3
0
0
-3
-3 Q4
-6
15
Non-High-Tech
4-quarter percent change
10
10
5
5
-6 0
-9
-9
-12
-12
-15
1990 1992 1994 1996 1998 2000 2002 2004 2006
-15
-5
-10
-5
1990 1992 1994 1996 1998 2000 2002 2004 2006
-10
NABE Capital Spending Diffusion Index
4-quarter percent change
Index
25
25
48
20
20
36
15
15 Q3
36
24
24
12
12
0
0
10 5
0
0
-5
-5
-12
-10
-24
1990 1992 1994 1996 1998 2000 2002 2004 2006
48
Q4
5
-10
0 Q4
Real Corporate Cash Flow
10
15
-12 -24 1990 1992 1994 1996 1998 2000 2002 2004 2006 Note. The diffusion index equals the percentage of respondents planning to increase spending minus the percentage of respondents planning to reduce spending. Source. NABE Industry Survey.
- 10 -
Indicators of Single-Family Housing Existing Home Sales
New Home Sales
6500
Thousands of units 6500
6000
6000
Thousands of units 1500
1500
1300
5500
5500
5000
5000
4500
4500
4000
1999
2000
2001
2002
2003
2004
2005
2006
4000
1300
Dec.
Dec. 1100
1100
900
900
700
Source. National Association of Realtors.
1999
2000
2001
2002
2003
2004
2005
700
2006
Source. Census Bureau.
Homebuying Indicators
Mortgage Rates Percent 9
9 Fixed rate
Dispersion index 120 MBA purchase index (right scale) Michigan homebuying attitudes (left scale) 100
8
8
7
7
80
6
Jan.
6
60
5
Jan.
5
40
4
20
3
0
Index 575 525 475
Jan. 20
425 375 325
1-year ARM rate
Jan.
4 3
1999 2000 2001 2002 2003 2004 2005 2006 Note. The January readings are based on data through January 25, 2006. Source. Freddie Mac.
10
10 Dec.
5
5
0
0
Percent change, annual rate 25
25
Constant quality Average price of homes sold
20
20
15
15
10
10 Q4
5 0
Dec.
-5 -5
1999
2000
2001
2002
2003
2004
225
Prices of New Homes
Percent change from year earlier 20 Repeat transactions, purchase-only index Average price of homes sold 15 Q3
15
1999 2000 2001 2002 2003 2004 2005 2006 2007 Note. MBA index is a 4-week moving average. Source. Mortgage Bankers Association and Michigan Survey.
Prices of Existing Homes 20
275
2005
Source. For repeat transactions, OFHEO; for average price, National Association of Realtors.
2006
-5
-10
5 0 -5
1999
2000
2001
2002
2003
2004
2005
2006
Note. Average price is a 12-month moving average with a missing value in January 2005. Constant quality price index is a 4-quarter moving average. Both series are seasonally adjusted by Board staff. Source. Census Bureau.
-10
- 11 -
The Domestic Financial Economy
- 12 -
Commercial 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), Jan. 2006e
2004
2005
2005: Q3
2005: Q4
Dec. 2005
Jan.e 2006
8.9 8.4
10.4 9.7
9.6 9.7
5.8 5.3
8.5 7.5
5.9 6.2
7,242 7,382
6.6 5.2 4.9 5.6
7.4 5.1 -.3 13.4
.5 1.7 -5.4 12.0
-.7 -2.0 -9.7 8.8
-5.4 -7.9 -9.1 -6.0
1.9 3.5 9.5 -4.5
1,852 1,992 1,142 851
9.8 1.2 14.0 43.8 9.8 8.8 5.9 7.9
11.5 13.5 14.0 11.1 14.5 3.0 .4 8.2
12.9 11.8 17.0 10.9 18.2 4.9 3.4 6.4
8.1 9.5 8.3 -1.9 10.2 -4.5 -4.9 17.3
13.3 14.7 10.6 -1.6 12.8 -8.3 7.9 42.5
7.3 22.0 7.7 -4.7 9.9 7.5 3.3 -14.1
5,390 1,034 2,916 435 2,482 691 1,055 749
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. e Estimated.
- 13 -
III-T-1
Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004
2005
2006
Instrument
Change to Jan. 26 from selected dates (percentage points)
June 28
Dec. 31
Dec. 12
Jan. 26
2004 June 28
2004 Dec. 31
2005 Dec. 12
1.00
2.25
4.00
4.25
3.25
2.00
.25
1.36 1.74
2.18 2.52
3.83 4.19
4.34 4.38
2.98 2.64
2.16 1.86
.51 .19
Commercial paper (A1/P1 rates)2 1-month 3-month
1.28 1.45
2.29 2.28
4.26 4.37
4.47 4.54
3.19 3.09
2.18 2.26
.21 .17
Large negotiable CDs1 3-month 6-month
1.53 1.82
2.50 2.72
4.46 4.61
4.62 4.75
3.09 2.93
2.12 2.03
.16 .14
Eurodollar deposits3 1-month 3-month
1.29 1.51
2.32 2.49
4.35 4.47
4.55 4.65
3.26 3.14
2.23 2.16
.20 .18
Bank prime rate
4.00
5.25
7.00
7.25
3.25
2.00
.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
4.48 4.47 4.67
4.51 4.46 4.61
1.63 .49 -.29
1.43 .83 .27
.03 -.01 -.06
U.S. Treasury indexed notes 5-year 10-year
1.56 2.25
1.03 1.65
2.11 2.20
1.97 2.09
.41 -.16
.94 .44
-.14 -.11
Municipal general obligations (Bond Buyer)5
5.01
4.49
4.49
4.42
-.59
-.07
-.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
5.09 4.97 5.39 6.00 8.33
5.04 4.92 5.38 5.96 8.20
-.17 -.38 -.21 -.22 -.10
.39 .31 .40 .58 .86
-.05 -.05 -.01 -.04 -.13
Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable
6.21 4.19
5.77 4.10
6.30 5.15
6.12 5.20
-.09 1.01
.35 1.10
-.18 .05
Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month
Record high
2004
2005
2006
Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000
Change to Jan. 26 from selected dates (percent)
Level
Date
Dec. 31
Dec. 12
Jan. 26
Record high
2004 Dec. 31
2005 Dec. 12
11,723 1,527 5,049 728 14,752
1-14-00 3-24-00 3-10-00 1-26-06 3-24-00
10,783 1,212 2,175 652 11,971
10,768 1,260 2,261 690 12,655
10,809 1,274 2,283 728 12,874
-7.79 -16.60 -54.78 .00 -12.73
.25 5.11 4.94 11.80 7.54
.39 1.06 .98 5.65 1.73
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. December 12, 2005, is the day before the most recent FOMC meeting. _______________________________________________________________________
Cite this document
Federal Reserve (2006, January 30). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20060131_part2
@misc{wtfs_greenbook_20060131_part2,
author = {Federal Reserve},
title = {Greenbook/Tealbook},
year = {2006},
month = {Jan},
howpublished = {Greenbooks, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/greenbook_20060131_part2},
note = {Retrieved via When the Fed Speaks corpus}
}