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.

Class III FOMC – Internal (FR)

June 23, 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 Manufacturers’ Shipments, Orders, and Inventories .......................1 Tables Orders and Shipments of Nondefense Capital Goods......................2 Charts Computers and Peripherals ..............................................................2 Communications Equipment............................................................2 Medium and Heavy Trucks..............................................................2 Non-high-tech, Nontransportation Equipment.................................2

The Domestic Financial Economy ...........................................................3 Tables Commercial Bank Credit .................................................................3 Selected Financial Market Quotations .............................................4 Charts C&I Loan Rate Spreads at Domestic Banks ....................................3 Bank Profitability.............................................................................3

Supplemental Notes The Domestic Nonfinancial Economy Manufacturers’ Shipments, Orders, and Inventories Shipments of nondefense capital goods excluding aircraft continued to edge up last month. Shipments of non-high-tech equipment increased moderately in May following two months of large gains. In high-tech categories, shipments of computers and peripherals turned up modestly last month while shipments of communications equipment declined for the first time in six months. New orders for nondefense capital goods excluding aircraft increased 1.0 percent in May after having declined 1.9 percent in April. Last month’s increase was led by a jump of 8 percent in orders for communications equipment, which unwound a fraction of the sharp drop in April. Orders of computers and peripherals, which increased 1.9 percent in May, also rebounded after having declined in April. Orders for non-high-tech equipment, which have been less volatile recently than the high-tech categories, continued to move up in May; the level of these orders in May was 2¼ percent (not at an annual rate) above the first-quarter average. Backlogs of unfilled orders for these items also continued to rise sharply. A moving average of 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—has historically had some predictive power for industrial production. In May, its three-month moving average was up 0.5 percent. The book value of manufacturing durable goods inventories (which constitute about twothirds of total manufacturing inventories) increased $12 billion in May. Shipments of total durable goods increased 2.6 percent, and the inventory-shipments ratio moved down to 1.32 months.

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-2-

Orders and Shipments of Nondefense Capital Goods (Percent change; seasonally adjusted current dollars) 2005 Category

2006

Q4

Q1

Mar.

Annual rate

Apr.

May

Monthly rate

Shipments Excluding aircraft Computers and peripherals Communications equipment All other categories

33.9 13.2 21.6 -8.9 14.5

1.4 10.6 -11.7 87.7 7.9

1.5 2.0 3.1 .7 2.0

-1.0 .8 -1.8 2.8 .9

2.1 .1 .6 -1.9 .3

Orders Excluding aircraft Computers and peripherals Communications equipment All other categories

82.8 10.0 15.5 -14.9 12.1

-25.6 16.7 -16.3 159.3 12.1

11.6 3.4 4.2 4.5 3.2

-6.3 -1.9 -3.7 -23.8 1.2

-1.9 1.0 1.9 7.9 .2

Memo: Shipments of complete aircraft1

26.9

33.1

30.8

30.2

n.a.

1. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate. n.a. Not available.

Computers and Peripherals Billions of dollars, ratio scale

13 11

Communications Equipment

Shipments Orders

13 11

9 7

May

20 17 14

Billions of dollars, ratio scale Shipments Orders

20 17 14

9

11

11

7

8

8 May

5

3

5

1999 2000 2001 2002 2003 2004 2005 2006

3

5

2

Medium and Heavy Trucks 1100 920 800

Thousands of units, ratio scale Sales of class 4-8 trucks Net new orders of class 5-8 trucks

1100

53

920 800 680

2

May

48

44

44

40

560

320

320

40

200

36

Note. Annual rate, FRB seasonals. Source. For class 4-8 trucks, Ward’s Communications; for class 5-8 trucks, ACT Research.

53

May

440

1999 2000 2001 2002 2003 2004 2005 2006

Billions of dollars, ratio scale Shipments Orders

48

440

200

1999 2000 2001 2002 2003 2004 2005 2006

Non-high-tech, Nontransportation Equipment

680 560

5

1999 2000 2001 2002 2003 2004 2005 2006

36

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The Domestic Financial Economy 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 HELOCs Other Consumer Adjusted4 Other5

Level (billions of dollars), May 2006

2004

2005

2005: Q4

2006: Q1

Apr. 2006

May 2006

8.9 8.4

10.4 9.8

6.0 5.9

11.1 10.1

13.4 14.5

14.2 18.3

7,624 7,788

6.6 5.2 4.9 5.7

7.3 5.3 -.1 13.4

-1.5 -1.3 -8.8 9.3

10.8 7.4 8.4 6.0

27.3 30.5 11.2 56.7

4.9 20.5 -3.4 51.6

1,983 2,147 1,193 954

9.8 1.3 13.9 43.7 9.7 8.8 5.9 7.7

11.6 13.1 14.1 11.3 14.7 3.1 .7 8.4

8.7 10.3 8.9 -1.6 10.9 -2.9 -3.7 17.2

11.2 14.8 10.5 -2.2 12.8 3.2 8.3 16.2

8.5 18.5 9.9 -9.9 13.3 7.8 1.4 -9.5

17.5 22.2 10.9 -7.5 13.9 11.5 2.9 42.5

5,641 1,088 3,037 428 2,608 716 1,085 801

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.

C&I Loan Rate Spreads at Domestic Banks

Bank Profitability Basis points

Percent 260

Percent

2.5

Quarterly

25 Quarterly, s.a.a.r.

240 Weighted average

Q2

220

2.0

20

Return on equity (right scale)

200 1.5

15

180 Adjusted weighted average*

Q2

160

Q1 1.0

140 120

10

Return on assets (left scale)

0.5

5

100 1997

1999

2001

2003

2005

Note. Spread over banks’ estimated cost of funds. * Adjusted for changes in nonprice loan characteristics. Source. Survey of Terms of Business Lending.

1993

1996

Source. Call Report.

1999

2002

2005

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III-T-1

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

2005

Change to June 22 from selected dates (percentage points)

2006

Instrument June 28

Dec. 30

May 9

June 22

2004 June 28

2005 Dec. 30

2006 May 9

1.00

4.25

4.75

5.00

4.00

.75

.25

1.36 1.74

3.99 4.22

4.76 4.84

4.79 5.04

3.43 3.30

.80 .82

.03 .20

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

1.28 1.45

4.23 4.37

4.98 5.07

5.24 5.34

3.96 3.89

1.01 .97

.26 .27

Large negotiable CDs1 3-month 6-month

1.53 1.82

4.49 4.65

5.12 5.24

5.42 5.54

3.89 3.72

.93 .89

.30 .30

Eurodollar deposits3 1-month 3-month

1.29 1.51

4.36 4.52

5.08 5.16

5.32 5.45

4.03 3.94

.96 .93

.24 .29

Bank prime rate

4.00

7.25

7.75

8.00

4.00

.75

.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

5.01 5.00 5.19

5.27 5.15 5.27

2.39 1.18 .37

.84 .80 .80

.26 .15 .08

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

1.56 2.25

2.03 2.10

2.25 2.43

2.51 2.62

.95 .37

.48 .52

.26 .19

Municipal general obligations (Bond Buyer)5

5.01

4.38

4.63

4.68

-.33

.30

.05

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

5.64 5.38 5.98 6.47 8.21

5.78 5.49 6.13 6.70 8.74

.57 .19 .54 .52 .44

.86 .67 .88 .86 .46

.14 .11 .15 .23 .53

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

6.21 4.19

6.21 5.16

6.58 5.62

6.71 5.75

.50 1.56

.50 .59

.13 .13

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

Record high

2005

Change to June 22 from selected dates (percent)

2006

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

Level

Date

Dec. 30

May 9

June 22

Record high

2005 Dec. 30

2006 May 9

11,723 1,527 5,049 782 14,752

1-14-00 3-24-00 3-10-00 5-5-06 3-24-00

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

11,640 1,325 2,338 781 13,457

11,019 1,246 2,123 688 12,540

-6.00 -18.45 -57.95 -12.00 -14.99

2.81 -.22 -3.73 2.20 .18

-5.33 -6.00 -9.21 -11.87 -6.81

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. May 9, 2006, is the day before the most recent FOMC meeting. _______________________________________________________________________