greenbooks · May 9, 2006

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

May 5, 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 Labor Market Developments ...........................................................1 Productivity and Costs .....................................................................2 Tables Labor Output per Hour.....................................................................2 Changes in Employment ..................................................................3 Selected Unemployment and Labor Force Participation Rates .......4 Hourly Compensation and Unit Labor Costs...................................6 Charts Changes in Private Payroll Employment .........................................3 Aggregate Hours and Workweek of Production or Nonsupervisory Workers .....................................................3 Labor Market Indicators ..................................................................5 Labor Force Participation Rate and Unemployment Rate ...............4 Persons Working Part Time for Economic Reasons........................4 Job Losers Unemployed Less than 5 Weeks....................................4 Markup, Nonfarm Business .............................................................6 Markup, Nonfinancial Corporations ................................................6 Compensation per Hour ...................................................................6

The Domestic Financial Economy ...........................................................7 Consumer Credit ..........................................................................................7 Tables Commercial Bank Credit .................................................................9 Selected Financial Market Quotations ...........................................10 Charts Household Liabilities .......................................................................8

Supplemental Notes The Domestic Nonfinancial Economy Labor Market Developments Private nonfarm payrolls increased 131,000 in April—a somewhat more moderate rise than in previous months—and the March level of employment was revised down 30,000. Aggregate hours rose a solid 0.5 percent in April, and the unemployment rate was unchanged at 4.7 percent. By industry, manufacturing employment increased 19,000 last month, boosted by a gain of 12,000 in the motor vehicle and parts sector, and the March level of factory jobs was revised up 15,000. In industries related to manufacturing, wholesale trade employment continued to increase in April, but temporary-help employment was flat. In other goodsproducing industries, recent increases in energy prices continued to boost mining activity and employment, while the construction industry saw its second consecutive month of moderate job gains following large advances earlier in the year. Employment increases in services-producing industries were widespread in April, with the notable exception of retail trade, where payrolls fell 36,000; a downward revision to this industry’s level of jobs in March accounted for much of the overall revision to private payrolls. On net, retail trade employment has changed little since last summer. Elsewhere, robust job gains occurred in professional and technical services (21,000), financial activities (26,000), health care services (23,000), and leisure and hospitality (20,000). Average weekly hours of production or nonsupervisory workers on private nonfarm payrolls ticked up 0.1 hour to 33.9 hours last month. The increases in the workweek and employment led to an increase of 0.5 percent in the aggregate hours of production or nonsupervisory workers, and aggregate hours now stand 0.7 percent (not at an annual rate) above their first-quarter average. In the household survey, both the unemployment rate and the labor force participation rate were unchanged last month, at 4.7 percent and 66.1 percent respectively. Two other indicators of labor market slack—the number of individuals working part time for economic reasons as a percent of employment and the number of individuals who are out of the labor force but would like a job as a percent of the labor force—were also little changed last month, though both have moved down over the past year.

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The average hourly earnings of production or nonsupervisory workers on private nonfarm payrolls increased 0.5 percent in April. Last month’s gain brings the increase over the last three months to an annual rate of 5.2 percent and the increase over the past twelve months to 3.8 percent, up from an increase of 2.7 percent over the preceding twelve months. Productivity and Costs The staff has updated its estimate of output per hour in the nonfarm business sector, and we now show an increase at an annual rate of 3.6 percent in the first quarter. Our estimate is noticeably higher than the one published by the Bureau of Labor Statistics (BLS) on Thursday. The BLS report was based on the advance estimate of output published with the first-quarter GDP data; we have incorporated the incoming information on output—notably, the March data on outlays for construction put-in-place and manufacturers’ inventories—that suggests a larger gain in first-quarter real GDP.

Labor Output per Hour (Percent change from preceding period at an annual rate; seasonally adjusted)

Sector Nonfarm business All persons All employees2 Nonfinancial corporations3

2004:Q1 2005:Q1 to to 2005:Q1 2006:Q11 3.0 3.1 5.4

2.5 2.2 n.a.

2005

2006

2.4 2.3 4.6

4.2 3.1 4.1

-.3 -.9 4.6

Q11 3.6 4.6 n.a.

1. Staff estimates. 2. Assumes that the growth rate of hours of non-employees equals the growth rate of hours of employees. 3. All corporations doing business in the United States except banks, stock and commodity brokers, and finance and insurance companies. The sector accounts for about two-thirds of business employment. n.a. Not available.

We estimate that compensation per hour in the nonfarm business sector increased at an annual rate of 5¾ percent in the first quarter. Quarterly changes in this measure of worker compensation have fluctuated noticeably, and, in the first quarter, hourly compensation was up 3¾ percent from a year earlier. That pace marks a considerable step-down from the rate of increase over the preceding four quarters, which appeared to include a bulge in stock option exercises and large bonuses at the end of 2004.

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Changes in Employment (Thousands of employees; seasonally adjusted) 2005 Measure and sector

2005

2006 Q4

Feb.

Average monthly change Nonfarm payroll employment (establishment survey) Private Manufacturing Construction Wholesale trade Retail trade Transportation and utilities Information Financial activities Professional and business services Temporary help services Nonbusiness services1 Total government Total employment (household survey) Memo: Aggregate hours of private production workers (percent change)2 Average workweek (hours)3 Manufacturing (hours)

Mar.

Apr.

Monthly change

165 152 -6 25 7 13 6 -1 12 41 14 51 14 221

155 132 -15 16 5 4 3 3 19 51 21 43 23 228

179 171 12 30 7 11 6 -2 17 41 18 44 8 115

185 178 2 28 13 4 3 2 21 28 -5 71 6 287

200 168 -1 34 9 -11 8 8 24 29 -4 63 32 183

200 179 1 6 12 23 -7 0 19 49 10 67 21 384

138 131 19 10 11 -36 11 -2 26 28 -1 56 7 47

2.3 33.8 40.6

2.2 33.8 40.6

2.1 33.8 40.9

3.0 33.8 41.0

.2 33.8 41.0

.2 33.8 41.1

.5 33.9 41.1

1. Nonbusiness services comprises education and health, leisure and hospitality, and "other." 2. Establishment survey. Annual data are percent changes from Q4 to Q4. Quarterly data are percent changes from preceding quarter at an annual rate. Monthly data are percent changes from preceding month. 3. Establishment survey.

Changes in Private Payroll Employment

Aggregate Hours and Workweek of Production or Nonsupervisory Workers Thousands 500

500

Hours 35.0

2002 = 100 106

3-month moving average 400

400

300

300 Apr.

200

100

104

Aggregate hours (right scale)

34.5

102

Apr. 34.0 0

100 98

0 96

-100

-200

-300

-400

1998

2000

2002

2004

2006

-400

Workweek (left scale)

33.5

94 92

33.0

1998

2000

2002

2004

2006

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Selected Unemployment and Labor Force Participation Rates (Percent; seasonally adjusted) 2005 Rate and group

2006

2005

Feb.

Mar.

Apr.

Civilian unemployment rate Total Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older

5.1 16.6 8.8 3.8 4.2

5.0 16.1 8.6 3.8 4.2

5.0 16.1 8.5 3.7 4.2

4.7 15.5 8.1 3.6 3.9

4.8 15.4 8.5 3.7 3.9

4.7 15.7 7.6 3.6 3.8

4.7 14.6 8.2 3.6 3.9

Labor force participation rate Total Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older

66.0 43.7 74.6 75.4 59.4

66.2 43.8 74.6 75.6 59.5

66.1 43.4 74.8 75.3 59.6

66.0 43.7 74.0 75.5 59.4

66.1 43.8 74.5 75.4 59.4

66.1 43.9 73.9 75.6 59.3

66.1 43.4 74.1 75.6 59.4

Labor Force Participation Rate and Unemployment Rate

Percent 67.6 67.4

Percent 7.0

Participation rate (left scale)

6.5

67.2

6.0

67.0 66.8

5.5

66.6

5.0

66.4

Apr. 4.5

66.2 66.0

4.0

Unemployment rate (right scale)

3.5

65.8 65.6

1996

1997

1998

1999

2000

Persons Working Part Time for Economic Reasons

2002

2003

2004

3.0

2005

Job Losers Unemployed Less than 5 Weeks

Percent 4.0

(As a percent of household employment)

4.0

2001

(As a percent of household employment)

Percent 1.4 1.3

3.5

3.0

1.2 1.1 1.0 Apr.

Apr.

2.5

0.9

2.5

0.8 2.0

1996

1998

2000

2002

2004

2006

2.0

1996

1998

2000

2002

2004

2006

0.7

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Labor Market Indicators

Layoff Announcements

Unemployment Insurance

250

Thousands 250

200

150

100

Millions 4.0

Thousands 550 Insured unemployment (left scale) 500

3.5 3.0

450

2.5

April 22

2.0

Apr.

400

1.5

Initial claims (right scale)

350

1.0

April 29 300

0.5 0

1996

1998

2000

2002

2004

2006

0.0

2000

2001

2002

2003

2004

2005

250

2006

Note. Seasonally adjusted by FRB staff. Source. Challenger, Gray, and Christmas, Inc.

Exhaustion Rate and Long-Term Unemployed Percent 50

Labor Market Tightness

Percent of labor force 1.8 1.6

Index 150

Percent 40 Job availability* (right scale)

130

1.4 40

Exhaustion rate* (left scale)

1.2

Apr.

0.8

Unemployed Mar. more than 26 weeks (right scale)

25 20

1.0

1996

1998

2000

2002

2004

2006

Apr. 30

110

Hard to fill** (left scale)

0.6 0.4 0.2

15 10

1996

1998

2000

2002

2004

2006

*Proportion of households believing jobs are plentiful, minus the proportion believing jobs are hard to get, plus 100. **Percent of small businesses surveyed with at least one "hard to fill" job opening. Source. For job availability, Conference Board; for hard to fill, National Federation of Independent Business.

*The exhaustion rate is the number of individuals who were receiving unemployment insurance benefits but reached the end of their potential eligibility expressed as a percent of individuals who began receiving such benefits 6 months earlier.

Net Hiring Plans

Expected Labor Market Conditions Percent 30

Index 120

120 Conference Board

Manpower, Inc. 25

25 Q2

Apr.

100

1996

1998

2000

Apr. 80

National Federation of Independent Business (3-month moving average)

100

20 15

80 Michigan SRC

2002

2004

Note. Percent planning an increase in employment minus percent planning a reduction.

2006

1996

1998

2000

2002

2004

2006

Note. The proportion of households expecting labor market conditions to improve, minus the proportion expecting conditions to worsen, plus 100.

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Hourly Compensation and Unit Labor Costs (Percent change from preceding period at compound annual rate; based on seasonally adjusted data) 2004:Q1 2005:Q1 to to 2005:Q1 2006:Q1e

Category

2005

2006

Q4 e

Q1 e

Compensation per hour Nonfarm business Nonfinancial corporations 1

6.4 6.7

3.8 n.a.

1.3 1.1

5.5 6.3

2.7 2.5

5.8 n.a.

Unit labor costs Nonfarm business Nonfinancial corporations 1

3.4 1.2

1.3 n.a.

-1.0 -3.4

1.2 2.1

3.0 -2.0

2.1 n.a.

Note. Figures that include the most recent quarter are based on published data rather than the staff forecast. 1. All corporations doing business in the United States except banks, stock and commodity brokers, and finance and insurance companies. The sector accounts for about two-thirds of business employment. n.a. Not available. e Staff estimate.

Markup, Nonfarm Business

Markup, Nonfinancial Corporations Ratio

1.66 1.64

1.66

Ratio

1.59

1.64

1.57

1.62

1.55

1.60

1.53

1.58

1.51

1.56

1.49

1.54

1.47

1.52

1.45

Q1*

1.56

Average, 1968-present

1.54 1.52

1990 1992 1994 1996 1998 2000 2002 2004 2006

Average, 1968-present

1.57

1.49 1.47

1990 1992 1994 1996 1998 2000 2002 2004 2006

Note. The markup is the ratio of output price to unit labor costs. * Values for 2005:Q4 and 2006:Q1 are staff estimates.

1.45

Note. The markup is the ratio of output price to unit labor costs.

Compensation per Hour (Percent change from year-earlier period) Percent 8

Productivity and costs

4 Q1*

ECI 2

1990

1991

1992

1993

1994

1995

1996

1997

* P&C values for 2005:Q4 and 2006:Q1 are staff estimates.

1998

1999

2000

2001

2002

2003

2004

2005

2006

-7-

The Domestic Financial Economy Consumer Credit Consumer credit increased at an annual rate of 2¾ percent in the first quarter. Revolving credit was about unchanged in March while nonrevolving credit rose at a pace of 2½ percent.

-8-

Household Liabilities Mortgage Rates

Mortgage and Consumer Debt Percent

Percent change from year earlier 9

Weekly

16 Mortgage

14 12

30-year FRM

May 3 1-year ARM

8 6

4 4

Mar.

Consumer credit

3 1996 1998 2000 Source. Freddie Mac.

2002

2004

2006

0 1996

Financial Obligations Ratio

1998

2000

2002

2004

2006

Cumulative Household Bankruptcy Filings Percent of households

Percent 19.0

Quarterly, n.s.a.

2.0

Weekly

1.8

2005-06*

e Q1

1.6

18.5

1.4

2003-04 2004-05

1.2 1.0

18.0

0.8 0.6

17.5

0.4 0.2

17.0 1996 1998 2000 e Staff estimate.

2002

2004

Apr. June Aug. Oct. Dec. Feb. * Through April 29. Source. Lundquist Consulting, Inc.

2006

Consumer Credit Delinquency Rates

Apr.

0.0

Mortgage Delinquency Rates Percent

Percent 6

Credit card loans in securitized pools

Monthly*

9 5

8 Subprime Feb.

Feb. Auto loans at captive finance companies

5 3

4 3

Mar. 2

Prime Feb.

1 1996 1998 2000 2002 2004 2006 Source. For credit cards, Moody’s; for auto loans, Federal Reserve.

1 0

2001

2002

2003

2004

2005

2006

Note: 90 days or more delinquent, or in foreclosure. Source. LoanPerformance. * Data are year-end prior to September 2003.

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Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted)

Type of credit Total Adjusted1 Reported Securities Adjusted1 Reported Treasury and agency Other2 Loans3 Total Business Real estate Home equity Other Consumer Adjusted4 Other5

Level (billions of dollars), Apr. 2006e

2004

2005

2005: Q4

2006: Q1

Mar. 2006

Apr.e 2006

8.9 8.4

10.4 9.6

5.8 5.2

10.5 10.0

12.2 10.2

12.9 14.7

7,518 7,655

6.6 5.2 4.9 5.6

7.4 5.0 -.2 13.0

-.6 -2.4 -9.9 8.3

8.5 6.7 8.0 5.0

14.6 7.2 4.2 11.4

24.5 30.5 11.0 57.0

1,968 2,106 1,193 913

9.8 1.3 14.0 43.8 9.8 8.8 5.7 7.8

11.5 13.4 14.0 11.1 14.5 3.0 .6 8.2

8.1 9.5 8.4 -1.9 10.2 -4.3 -4.3 17.4

11.2 16.5 9.8 -2.5 12.0 4.2 8.2 16.2

11.3 7.2 9.9 3.6 11.1 20.1 15.3 14.5

8.8 19.6 8.3 -9.7 11.3 8.5 3.9 -4.0

5,549 1,070 2,993 431 2,563 711 1,083 776

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.

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III-T-1

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

2005

Change to May 4 from selected dates (percentage points)

2006

Instrument June 28

Dec. 30

Mar. 27

May 4

2004 June 28

2005 Dec. 30

2006 Mar. 27

1.00

4.25

4.75

3.75

.50

.00

1.36 1.74

3.99 4.22

4.51 4.62

4.68 4.82

3.32 3.08

.69 .60

.17 .20

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

1.28 1.45

4.23 4.37

4.76 4.84

4.97 5.04

3.69 3.59

.74 .67

.21 .20

Large negotiable CDs1 3-month 6-month

1.53 1.82

4.49 4.65

4.92 5.02

5.12 5.24

3.59 3.42

.63 .59

.20 .22

Eurodollar deposits3 1-month 3-month

1.29 1.51

4.36 4.52

4.82 4.96

5.06 5.14

3.77 3.63

.70 .62

.24 .18

Bank prime rate

4.00

7.25

7.50

7.75

3.75

.50

.25

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

2.88 3.97 4.90

4.43 4.35 4.47

4.76 4.68 4.80

5.01 5.02 5.23

2.13 1.05 .33

.58 .67 .76

.25 .34 .43

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

1.56 2.25

2.03 2.10

2.14 2.25

2.30 2.49

.74 .24

.27 .39

.16 .24

Municipal general obligations (Bond Buyer)5

5.01

4.38

4.43

4.63

-.38

.25

.20

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

4.92 4.82 5.25 5.84 8.28

5.23 5.02 5.57 6.11 8.16

5.68 5.40 6.01 6.50 8.23

.47 .10 .42 .32 -.07

.76 .58 .76 .66 -.05

.45 .38 .44 .39 .07

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

6.21 4.19

6.21 5.16

6.35 5.51

6.59 5.67

.38 1.48

.38 .51

.24 .16

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

Record high

2005

Change to May 4 from selected dates (percent)

2006

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

Level

Date

Dec. 30

Mar. 27

May 4

Record high

2005 Dec. 30

2006 Mar. 27

11,723 1,527 5,049 778 14,752

1-14-00 3-24-00 3-10-00 4-19-06 3-24-00

10,718 1,248 2,205 673 12,518

11,250 1,302 2,316 754 13,158

11,439 1,312 2,324 775 13,318

-2.42 -14.09 -53.97 -.48 -9.72

6.73 5.12 5.38 15.08 6.40

1.68 .82 .36 2.74 1.22

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. March 27, 2006, is the day before the most recent FOMC meeting. _______________________________________________________________________

Cite this document

APA

Federal Reserve (2006, May 9). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20060510_part3

BibTeX

@misc{wtfs_greenbook_20060510_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2006},
  month = {May},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20060510_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}