greenbooks · September 19, 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

September 15, 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 Consumer Prices ..............................................................................1 Personal Income and Consumer Spending ......................................4 Industrial Production........................................................................4 Business Inventories ........................................................................7

Tables Consumer Price Measures................................................................2 Producer Price Measures..................................................................2 Household Sector .............................................................................5 Selected Components of Industrial Production................................6 Capacity Utilization .........................................................................6 Nonfarm Inventory Investment......................................................10

Charts Measures of Expected Inflation .......................................................3 Michigan SRC Index of Consumer Sentiment.................................5 Indicators of High-Tech Manufacturing Activity ............................8 Indicators of Industrial Activity.......................................................9 Inventory Ratios Excluding Motor Vehicles .................................10 ISM Customer Inventories: Manufacturing ..................................10

The Domestic Financial Economy .........................................................11

Table Commercial Bank Credit ...............................................................11 Selected Financial Market Quotations ...........................................12

The International Economy ....................................................................13 Prices of Internationally Traded Goods .........................................13 Non-Oil Imports.............................................................................13

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Oil ..................................................................................................13 Exports ...........................................................................................13

Table Prices of U.S. Imports and Exports................................................16

Chart Prices of U.S. Imports and Exports................................................15

Supplemental Notes The Domestic Nonfinancial Economy Consumer Prices The consumer price index rose 0.2 percent in August, down from the much larger increases seen, on average earlier this year; smaller increases in energy prices and in housing costs last month contributed to the moderation. As a result, the three-month change in the CPI moved down from 5.7 percent in May to 3.6 percent in August. Over the twelve months ending in August, the overall CPI rose 3.8 percent, up ¼ percentage point from a year earlier. Excluding food and energy, the CPI rose 0.2 percent in August for a second consecutive month. The three-month change in the core CPI was 3 percent in August while the twelve-month change stood at 2.8 percent. The index for consumer energy prices rose only 0.3 percent in August, as increases in gasoline prices early in the month were almost completely offset by the sharp downturn in prices over the remainder of the month. Available survey data for gasoline point to a sizable decline in the CPI for gasoline in the September. Consumer food prices rose 0.4 percent in August, reflecting a large increase in the prices for fresh vegetables and a rebound in the index for meats, poultry, fish, and eggs. Prices of core goods rose 0.2 percent in August, after having slipped 0.1 percent in the preceding month. Both the decline in July and the rebound in August were driven by swings in nondurable goods; in particular, apparel prices moved up 0.9 percent in August after having fallen 1.2 percent the month before. Compared with a year earlier, core goods prices were 0.6 percent higher, about the same as the increase in the preceding year. Prices of core services rose 0.2 percent last month, down from the increases of 0.4 percent per month posted in each of the previous three months. Rent of shelter rose 0.2 percent in August; the increase in owners’ equivalent rent slowed to 0.3 percent, and the index for lodging away from home declined. Prices for non-energy services have moved up 3.7 percent since August 2005, compared with an increase of 2.7 percent in the preceding year. The chained CPI or C-CPI-U rose 3.4 percent during the twelve months ending in August, 0.4 percentage point less than the change in the official index. The corresponding change in the core C-CPI-U was 2.7 percent, 0.1 percentage point less than the official core CPI. -1-

-2Consumer Price Measures (Percent change) 12-month change

3-month change

1-month change

Annual rate

Monthly rate

Aug. 2005

Aug. 2006

May 2006

Aug. 2006

July 2006

Aug. 2006

CPI Total Food Energy Ex. food and energy Core commodities Core services Chained CPI (n.s.a.) 1 Ex. food and energy 1

3.6 2.2 20.2 2.1 .7 2.7 3.0 1.8

3.8 2.4 15.1 2.8 .6 3.7 3.4 2.7

5.7 .6 35.0 3.8 1.7 4.4 ... ...

3.6 3.5 9.4 3.0 .6 4.0 ... ...

.4 .2 2.9 .2 -.1 .4 ... ...

.2 .4 .3 .2 .2 .2 ... ...

PCE prices 2 Total Food Energy Ex. food and energy Core commodities Core services Core market-based Core non-market-based

3.0 1.9 20.8 2.0 .0 2.9 1.7 3.4

3.2 2.4 15.9 2.5 .2 3.4 2.1 n.a.

4.8 1.8 40.4 3.1 1.4 3.8 3.0 3.3

2.9 3.0 10.3 2.3 -.3 3.4 2.0 n.a.

.3 .2 3.2 .1 -.2 .3 .1 .3

.2 .3 .3 .2 .2 .2 .2 n.a.

Measures

1. Higher-frequency figures are not applicable for data that are not seasonally adjusted. 2. PCE prices in August are staff estimates. ... Not applicable.

Producer Price Measures (Percent change) 12-month change

Measures PPI Total finished goods Food Energy Ex. food and energy Core consumer goods Capital equipment Intermediate materials Ex. food and energy Crude materials Ex. food and energy

July 2005

July 2006

4.7 1.4 15.4 2.8 3.0 2.6 6.8 4.6 7.9 -2.7

4.2 1.1 16.3 1.3 1.3 1.4 8.9 7.9 6.6 34.4

3-month change

1-month change

Annual rate

Monthly rate

Apr. 2006 .5 -7.4 3.3 2.6 2.7 2.5 1.7 3.8 -33.1 39.6

July 2006

June 2006

July 2006

3.3 2.9 10.0 .8 .5 1.4 9.7 11.1 14.2 43.3

.5 1.4 .7 .2 .2 .3 .7 .8 -1.7 1.7

.1 -.3 1.3 -.3 -.3 -.2 .5 .7 3.1 1.3

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Measures of Expected Inflation Survey Measures (Michigan SRC) 12

Percent

Percent 12

Quarterly

Monthly

Sep. Sep.

Median, 5 to 10 years ahead 6 Q3

1975

1980

1985

1990

1995

2000

Inputs to Models of Inflation

2005

4 2

Median, 12 months ahead

0 1970

2005

Percent

Quarterly

2006

Percent

Quarterly

8 3

FRB/US long-run expectations measure for CPI inflation*

Q4 2

4 Distributed lag of core CPI inflation**

Q4 2

0 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2005 2006 * For 1991 forward, the median projection for CPI inflation over the next 10 years from the Survey of Professional Forecasters; for 1981 to 1991, a related survey conducted by Richard Hoey; and for the period preceding 1981, a model-based estimate constructed by Board staff. ** Derived from one of the reduced-form Phillips curves used by Board staff.

Inflation Compensation from TIPS 5

Weekly

4 3 5 to 10 years ahead

3 Q3

Next 5 years

Sep. 12

2 1

Percent

Quarterly

0 0 2001 2002 2003 2004 2005 2006 2005 2006 Note. Based on a comparison of an estimated TIPS yield curve to an estimated nominal off-the-run Treasury yield curve, with an adjustment for the indexation-lag effect since March 2004.

-4-

According to the preliminary reading for September from the Michigan Survey Research Center’s (SRC) survey, both year-ahead and longer-term inflation expectations fell back from their elevated readings in August. The median of expected inflation over the next twelve months moved down from 3.8 percent to 3.1 percent. Expected inflation over the next five to ten years moved down from 3.2 percent to 2.9 percent, its average over the past ten years. Personal Income and Consumer Spending Nominal sales in the retail control group of stores rose a modest 0.2 percent in August following a downward-revised gain of 0.6 percent in July. Across types of stores, changes in nominal spending were mixed in August. Some―such food and beverage stores and food services outlets―posted solid gains, while others―such as gasoline stations and furniture and home furnishing outlets―saw moderate declines. We now estimate that real outlays in the control category of personal consumption expenditures increased 0.2 percent in July and edged down 0.1 percent in August. The preliminary report from the Michigan SRC showed that consumer sentiment rose in early September from an August level that was held down by a slump in the first half of the month. The increase in early September reflected a strengthening in the “expected conditions” component of the overall index that more than offset a weakening in the “current conditions” component of the overall index. Among those items not included in the overall sentiment index, consumers’ expectations about the change in unemployment over the next twelve months improved noticeably. In addition, the appraisal of buying conditions for cars edged up, while the appraisal of buying conditions for homes edged down. Industrial Production Industrial production edged down 0.1 percent in August, and its manufacturing component moved sideways after having risen 0.4 percent in July. In August, the output of motor vehicles and parts increased 1.0 percent. Excluding motor vehicles and parts, manufacturing production edged down 0.1 percent; in the previous two months, gains averaged ¾ percent. The output of mines dipped 0.3 percent in August, mainly because crude oil and natural gas extraction decreased. 1 The output of utilities also fell in August as electricity usage moderated following several months of above-average temperatures. 1

The decline in crude oil and natural gas extraction reflected, at least in part, the production cuts at Prudhoe Bay.

-5-

Household Sector Retail and Food Services Sales (Percent change from preceding period; seasonally adjusted current dollars) 2005 Q4

Category Total sales Retail control1 Ex. sales at gasoline stations Memo: Real PCE control2

Q1 Annual rate

2006 Q2 June

July Aug. Monthly rate

2.2 6.9 7.8

13.4 8.9 9.4

3.3 8.1 4.9

-.5 .2 .2

1.4 .6 .5

.2 .2 .4

4.8

8.7

1.1

-.1

1. Total sales less outlays at building material and supply stores and automobile and other motor vehicle dealers. 2. Total goods spending excluding autos and trucks. Values for June, July, August, and Q2 are staff estimates.

Michigan SRC Index of Consumer Sentiment 105

1966 = 100 105

100

90 Sep.(p)

2002

2003

2004

2005

2006

-6Selected Components of Industrial Production (Percent change from preceding comparable period) Proportion 2005

Component

2006

20051

(percent)

2006 Q2

June

Annual rate Total Previous

July

Aug.

Monthly rate

100.0 100.0

3.0 3.0

5.1 5.1

6.6 6.2

1.1 .8

.4 .4

-.1 ...

80.8 73.7 68.9

4.2 4.4 2.9

5.3 5.9 5.2

5.1 5.4 4.3

.9 .7 .6

.4 .8 .8

.0 -.1 -.2

Mining Utilities

9.8 9.5

-6.8 2.9

26.3 -14.3

10.4 15.9

.9 2.6

.6 1.0

-.3 -.8

Selected industries High technology Computers Communications equipment Semiconductors2

4.8 .8 1.2 2.8

25.7 12.0 25.4 29.9

15.2 10.6 30.5 10.0

20.9 16.3 39.2 14.2

2.4 1.4 1.6 3.0

1.3 1.2 .1 1.9

.3 1.4 -2.2 1.3

Motor vehicles and parts

7.1

2.3

-.2

2.2

3.2

-4.9

1.0

Market groups excluding energy and selected industries Consumer goods Durables Nondurables

21.0 4.1 16.9

2.3 2.6 2.2

.9 -2.5 1.7

2.7 -.4 3.5

.3 .1 .3

.7 .7 .8

-.1 .3 -.2

Business equipment Defense and space equipment

8.0 2.0

9.6 9.2

8.4 6.7

13.1 3.9

1.2 .7

2.7 .9

.3 .3

Construction supplies Business supplies

4.4 7.8

6.5 2.7

3.1 3.7

-1.0 3.7

.2 .6

.7 .6

-.1 -.6

24.4 13.7 10.7

.6 3.6 -3.1

9.7 9.0 10.6

4.3 6.2 1.8

.4 .4 .3

.5 .8 .1

-.2 -.1 -.4

Manufacturing Ex. motor veh. and parts Ex. high-tech industries

Materials Durables Nondurables

1. From fourth quarter of preceding year to fourth quarter of year shown. 2. Includes related electronic components. ... Not applicable.

Capacity Utilization (Percent of capacity) 19722005 average

19942005 high

200102 low

2005 Q4

July

Aug.

Total industry

81.0

85.0

73.9

80.5

81.1

82.0

82.7

82.4

Manufacturing Ex. motor veh. and parts Mining Utilities

79.8 79.9 87.3 86.7

84.5 84.3 89.0 93.7

72.0 71.8 85.6 83.7

79.8 79.8 82.7 86.9

80.3 80.5 87.9 83.5

80.8 81.0 90.4 86.5

81.2 81.7 91.9 89.3

81.0 81.4 91.7 88.5

Stage-of-process groups Crude Primary and semifinished Finished

86.4 82.1 77.9

89.4 88.1 80.5

83.2 74.6 70.8

81.3 82.6 78.3

85.8 82.3 78.9

88.2 82.9 79.7

89.3 84.0 79.9

89.1 83.6 79.8

Sector

2006

-7-

The production of high-technology products edged up just 0.3 percent in August following more rapid gains in the previous three months. Computer production continued at a sluggish pace, increasing 1.4 percent. The production of communications equipment appears to be moderating following large gains in the first half of the year: After little change in July, the output of communications equipment fell 2.2 percent last month. Semiconductor production also rose more slowly in August, as a decrease in the output of printed circuit boards and printed circuit assemblies subtracted from the gains among producers of semiconductor chips. Coming on the heels of widespread strength, the rates of change in production for market groups excluding energy, motor vehicles and parts, and high-technology products fell back or decelerated in August. The output of durable consumer goods rose while the production of nondurable consumer goods edged down 0.2 percent. The gains in business equipment slowed, increasing 0.3 percent in August after July’s upwardly revised rate of 2.7 percent while the output of defense and space equipment rose 0.3 percent. The output of materials slipped 0.2 percent in August, and the production of business supplies fell 0.6 percent. The output of construction supplies also edged down, as decreases in plastics, air conditioners, and several wood-related series offset increases in the output of construction steel, concrete products, paving and roofing materials, and electric lighting equipment. The factory operating rate edged down 0.2 percentage point in August, to 81.0 percent, but it is still 1.2 percentage points above its 1972-2005 average. Operating rates also fell in August for both mining and utilities. By stage of process, the rates at the crude stage of processing decreased for the first time this year; the rates for primary and semifinished processing and for finished processing also slipped. Business Inventories The book value of inventories in manufacturing and trade, excluding motor vehicles and parts, increased at an annual rate of $81 billion in July after having risen $110 billion in June. The inventory-sales ratio in this category ticked up to 1.19 months in July.

-8-

Indicators of High-Tech Manufacturing Activity

Communications Equipment and Computer IP

U.S. Personal Computer and Server Sales

2000 = 100, ratio scale

145 135 125 115

Aug.

Computers

1.0

Millions of units, ratio scale

0.9

18 17

0.8

105 95 85

0.7 0.6

PCs (right scale)

75 0.5

Servers (left scale) 12

65 Communications equipment 2000

2001

2002

2003

2004

2005

2006

0.4

Capital Expenditures by Telecommunications Service Providers

2000 2001 2002 2003 2004 2005 2006 Note. FRB seasonals. Q3 value is a Gartner forecast for PCs. Source. Gartner.

CIO Magazine IT Hardware Future Spending

Diffusion Index Index

Billions of dollars, ratio scale 130 120 110 100 90 80

Annual average 2006 guidance

75 Last month of each quarter

70 June

45 2001 2002 2003 2004 2005 2006 Note. The average of diffusion indexes for future spending on computer hardware, data networking equipment, telecom equipment, and storage systems. Source. CIO Magazine. Monthly through 2005. As of 2006, the survey is collected only on the last month of each quarter.

1999 2000 2001 2002 2003 2004 2005 2006 Note. FRB seasonals. Does not include capital expenditures of cable television companies. Source. SEC filings.

Rate of Change in Semiconductor Industrial Production

Bookings and Billings for Semiconductor Equipment

1.6

Billions of dollars 1.8 July 1.6

1.4

Percent 14 12

14 3-month moving average

10 MPUs

Aug.

0 -2

Non-MPU chips

1.2

Orders

1.2

2 0 -2

-4 -6

1.8

1.0

Shipments

0.8

1.0 0.8

-4 2002 2003 2004 2005 Note. MPU is a microprocessor unit.

2006

-6

0.6

2002 2003 2004 2005 2006 Note. FRB seasonals. Source. Semiconductor Equipment and Materials International.

0.6

-9-

Indicators of Industrial Activity

Motor Vehicle Assemblies

Energy IP Millions of units 14

Millions of units 0.6 0.5

2002 = 100 106

Medium and heavy trucks (left scale) 13

+ 0.4

106

Petroleum refining

102

94 Sept.

0.3

Aug. Natural gas extraction

12 86

0.2

0.0

86 Crude oil

+ 11

0.1

Autos and light trucks (right scale) 1999 2000 2001 2002 2003 2004 2005 2006 2007 Note. September values are based on latest industry schedules.

70 70 July Jan. July Jan. July Jan. July Jan. July Jan. 2002 2003 2004 2005 2006

New Orders: ISM, FRB New York, and FRB Philadelphia Surveys

Utilities Output 2002 = 100 116 112

Diffusion index 116 112

Electricity

108

75 ISM 70

108 Aug.

104

100

Natural gas

76 Jan. July Jan. July Jan. July Jan. July Jan. July Jan. 2002 2003 2004 2005 2006

Sept.

60 55

Aug. FRB Philadelphia

50 45

FRB New York

2003 2004 2005 2006 Note. The diffusion index equals the percentage of respondents reporting greater levels of new orders plus one-half the percentage of respondents reporting that new orders were unchanged.

IP: Business Equipment and Construction Supplies

Capacity Utilization by Stage of Processing

135

2002 = 100, ratio scale 135

125

Percent of capacity 92 Crude

Business equipment

87 Aug.

Aug.

115

82 115 77

105

Primary and semifinished

Construction supplies Finished 95

2000 2001 2002 2003 2004 2005 2006 Note. Data exclude energy, motor vehicles and parts, and high-technology industries.

1998 2000 2002 2004 Note. Horizontal lines are 1972-2005 averages.

2006

- 10 Nonfarm Inventory Investment (Billions of dollars; seasonally adjusted annual rate) 2005 Measure and sector

2006

38.6 23.4 15.2

Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts Book-value inventory investment (current dollars) Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts

Real inventory investment (chained 2000 dollars) Total nonfarm business Motor vehicles Nonfarm ex. motor vehicles

May

June

July

36.8 8.5 28.3

56.1 e 3.2 e 52.9 e

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

16.9 .5 9.9 6.6

22.7 7.6 7.9 7.2

38.9 e 12.9 e 19.0 e 7.0 e

44.7 e 3.6 e 23.7 e 17.4 e

34.6 e 10.8 e 15.3 e 8.6 e

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

56.2 23.3 20.7 12.2

53.3 23.5 17.9 12.0

109.1 48.3 43.2 17.5

116.2 39.7 48.6 27.9

110.2 52.6 38.9 18.7

80.5 36.4 33.4 10.7

e Staff estimates of real inventory investment based on revised book-value data. n.a. Not available. Source. For real inventory investment, BEA. For book-value data, Census Bureau.

ISM Customer Inventories: Manufacturing

Inventory Ratios ex. Motor Vehicles Months 1.9 1.8

1.9

Index

1.8

Staff flow-of-goods system

1.7

1.6

1.6 Aug.

1.5

Average, 1996 to present

1.5 Aug.

1.4

1.3

1.1

1.3 Census book-value data

1.2

July

1999 2000 2001 2002 2003 2004 2005 2006 2007 Note. Flow-of-goods system covers total industry ex. motor vehicles and parts, and inventories are relative to consumption. Census data cover manufacturing and trade ex. motor vehicles and parts, and inventories are relative to sales.

1.2 1.1

1999 2000 2001 2002 2003 2004 2005 2006 2007

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

The Domestic Financial Economy

- 11 -

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

Total2

2004

2005

Q1 2006

Q2 2006

July 2006

Aug. 2006

Level Aug. 2006

8.9

10.5

10.8

12.9

12.0

5.4

7,782

Loans3 Total To businesses Commercial and industrial Commercial real estate

9.7

11.6

11.2

11.9

11.1

8.7

5,777

1.2 11.7

13.2 17.1

14.7 16.1

17.5 14.6

17.5 14.5

29.3 9.0

1,146 1,389

To households Residential real estate Revolving home equity Consumer Originated4 Other5

15.7 43.8 8.8 6.0 7.4

12.0 13.3 3.1 .5 8.4

6.3 2.8 3.1 8.3 16.4

8.8 -2.7 10.2 5.6 7.9

14.5 17.5 3.2 3.3 -3.5

-6.9 -10.4 8.8 6.6 13.4

1,726 447 728 1,102 788

6.6 5.2 4.9 5.7

7.6 5.3 .0 13.3

9.6 7.4 8.4 6.1

15.6 18.3 8.0 32.2

14.5 7.8 10.9 3.7

-4.2 2.7 7.0 -2.7

2,006 2,154 1,218 936

Securities Adjusted2 Reported Treasury and agency Other6

Note. Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data are adjusted to remove estimated effects of consolidation related to FIN 46 and for breaks caused by reclassifications. 1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels. 2. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FAS 115). 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. 6. 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.

Bank Profitability

C&I Loan Rate Spreads* All Banks

Basis points

Percent 250

Percent

2.0

Quarterly

20 Quarterly, SAAR

Weighted average

200

Return on equity (right scale)

1.5

150 1.0

10 Return on assets (left scale)

Adjusted weighted average**

100 0.5

50 1997

1999

2001

2003

2005

* 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

- 12 III-T-1

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

2005

Change to Sept. 14 from selected dates (percentage points)

2006

Instrument June 28

Dec. 30

Aug. 7

Sept. 14

2004 June 28

2005 Dec. 30

2006 Aug. 7

1.00

4.25

5.25

4.25

1.00

.00

1.36 1.74

3.99 4.22

4.99 5.00

4.82 4.92

3.46 3.18

.83 .70

-.17 -.08

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

1.28 1.45

4.23 4.37

5.29 5.32

5.24 5.26

3.96 3.81

1.01 .89

-.05 -.06

Large negotiable CDs1 3-month 6-month

1.53 1.82

4.49 4.65

5.40 5.46

5.35 5.39

3.82 3.57

.86 .74

-.05 -.07

Eurodollar deposits3 1-month 3-month

1.29 1.51

4.36 4.52

5.36 5.43

5.30 5.37

4.01 3.86

.94 .85

-.06 -.06

Bank prime rate

4.00

7.25

8.25

4.25

1.00

.00

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

4.97 4.83 4.97

4.85 4.72 4.87

1.97 .75 -.03

.42 .37 .40

-.12 -.11 -.10

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

1.56 2.25

2.03 2.10

2.23 2.32

2.37 2.37

.81 .12

.34 .27

.14 .05

Municipal general obligations (Bond Buyer)5

5.01

4.38

4.49

4.30

-.71

-.08

-.19

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

5.21 5.38 5.60 6.25 8.41

4.92 4.84 5.27 5.82 8.30

5.47 5.31 5.92 6.45 8.62

5.29 5.15 5.77 6.33 8.49

.08 -.23 .17 .08 .08

.37 .31 .50 .51 .19

-.18 -.16 -.15 -.12 -.13

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

6.21 4.19

6.21 5.16

6.55 5.69

6.43 5.60

.22 1.41

.22 .44

-.12 -.09

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

Record high

2005

Change to Sept. 14 from selected dates (percent)

2006

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

Level

Date

Dec. 30

Aug. 7

Sept. 14

Record high

2005 Dec. 30

2006 Aug. 7

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

11,219 1,276 2,073 696 12,767

11,527 1,316 2,229 728 13,180

-1.67 -13.83 -55.85 -6.94 -1.65

7.56 5.45 1.06 8.08 5.29

2.75 3.18 7.54 4.53 3.24

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. August 7, 2006, is the day before the most recent FOMC announcement. _______________________________________________________________________

The International Economy Prices of Internationally Traded Goods Non-oil imports. In August, import prices of non-oil goods and core goods rose 0.5 and 0.3 percent, respectively. These increases reflected higher prices for material-intensive goods, with a 13.6 percent increase in natural gas prices providing an additional boost to the price index for non-oil goods. After falling 1.0 percent in July, prices for non-fuel industrial supplies resumed the upward pace of earlier months, with an increase of 0.5 percent in August. This increase reflected higher prices for metals which offset lower prices for chemicals and building materials. Food prices were also up, increasing 2.5 percent. In comparison, prices for imported finished goods were little changed. Prices for imported computers rose 0.2 percent, whereas prices for semiconductors were flat. The average level of core import prices in July and August was 3½ percent at an annual rate above the second-quarter average, as prices were higher in all major sub-categories. Prices for material-intensive goods were up 7¾ percent (a.r.), whereas prices for finished goods increased at a 2¼ percent (a.r.) pace. Oil. The BLS price index of imported oil rose 2.3 percent in August. The spot price of West Texas Intermediate (WTI) crude oil averaged around $73 per barrel in August and has averaged $66.50 per barrel thus far in September. In early August, the spot price of WTI surged to $77 per barrel following the disruption of supplies from Alaska’s Prudhoe Bay. Since then, oil prices have fallen sharply. Market participants appear to have taken a more benign view of supply, reflecting the cease-fire between Israel and Hezbollah, a partial resumption of production from the Prudhoe Bay oil field, forecasts predicting fewer hurricanes this season, and a perception that punishment of Iran for its nuclear program is not imminent. The spot price of WTI closed at $63.98 per barrel on September 13. Exports. In August, prices of U.S. exports of total goods and core goods increased 0.4 and 0.7 percent, respectively. Prices for nonagricultural industrial supplies increased 1.5 percent in August, reflecting higher prices for chemicals, metals, and fuels. Agricultural export prices rose 1.0 percent. Within finished goods, prices for both capital goods (excluding computers and semiconductors) and consumer goods were up 0.2 percent in August. In contrast, prices of exported computers and semiconductors fell 1.6 and 2.0 percent, respectively. - 13 -

- 14 -

The average level of core export prices in July and August was 7 percent at an annual rate above the second quarter average, as prices increased in all major sub-categories. Much of the increase can be attributed to the 14 percent increase in the prices of materialintensive goods, as prices of both agricultural products and nonagricultural industrial supplies rose sharply. The import and export price data for August came in quite close to our expectations. As a result, we have not revised our outlook for trade prices from the September Greenbook.

- 15 -

Prices of U.S. Imports and Exports Merchandise Imports

Categories of Core Imports 12-month percent change

12-month percent change

8 6

Core goods

15 Material-intensive goods

Non-oil goods 1998

2000

2002

2004

2006

Finished goods

-2

-5

-4

-10

-6

1998

Oil

2000

2002

2004

2006

-15

Natural Gas Dollars per barrel

300

2000=100

Dollars per million BTU

75 65 55 45 Spot WTI

250

200

150

Import price index (left scale)

100 Import unit value

15 1998

2000

2002

2004

2006

Merchandise Exports

50 0

Spot Henry Hub (right scale) 1998

2000

2002

2004

2006

5 0

Categories of Core Exports 12-month percent change

12-month percent change

8 6

15 Material-intensive goods

Core goods

Finished goods

-2

-5

-4

-10

Total goods

1998

2000

2002

2004

2006

-6

1998

2000

2002

2004

2006

-15

- 16 -

Prices of U.S. Imports and Exports (Percentage change from previous period) Annual rate 2006 Q1 Q2 Q3e Merchandise imports Oil Non-oil Core goods1 Finished goods Cap. goods ex. comp. & semi. Automotive products Consumer goods Material-intensive goods Foods, feeds, beverages Industrial supplies ex. fuels Computers Semiconductors Natural gas Merchandise exports Core goods2 Finished goods Cap. goods ex. comp. & semi. Automotive products Consumer goods Material-intensive goods Agricultural products Industrial supples ex. ag. Computers Semiconductors

Monthly rate 2006 June July Aug.

----------------------- BLS prices --------------------.1 12.8 8.7 .1 1.0 .8 6.8 79.2 34.3 -1.1 5.1 2.3 -1.2 1.0 2.9 .4 .0 .5 2.2

3.9

3.4

.7 1.7 -.8 .8

.8 2.5 1.0 -.4

2.2 2.8 1.4 2.2

.2 .6 .2 .1

.3 .2 .2 .4

.0 .1 .0 .0

9.6 5.5 11.8

14.9 -.7 20.7

7.8 7.0 7.6

1.8 -.1 2.4

-.7 .0 -1.0

1.0 2.5 .5

-6.9 2.4 -65.2

-7.6 -.3 -63.8

-4.6 4.3 -1.0

-.6 .4 -8.2

-.6 .9 -1.1

.2 .0 13.6

2.9

6.7

5.4

3.6

8.0

7.0

2.6 4.0 1.0 1.4

2.8 3.0 1.9 3.0

2.2 2.0 1.4 3.1

.2 .1 .2 .3

.3 .3 .2 .3

.1 .2 .0 .2

5.2 -1.4 7.2

15.7 2.0 20.2

14.0 18.2 13.1

1.9 2.5 1.7

.8 1.9 .5

1.4 1.0 1.5

1.2 -7.9

-3.7 -5.9

-7.2 -10.1

-.8 -.4

-.6 -1.2

-1.6 -2.0

--------------------- NIPA prices ---------------------

Chain price index Imports of goods & services Non-oil merchandise Core goods1

-.7 -1.8 1.6

9.6 .7 3.8

----

Exports of goods & services Total merchandise Core goods2

2.3 2.8 3.7

6.1 6.0 6.8

----

1. Excludes computers, semiconductors, and natural gas. 2. Excludes computers and semiconductors. e/ Average of two months. n.a. Not available. ... Not applicable.

Cite this document

APA

Federal Reserve (2006, September 19). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20060920_part1

BibTeX

@misc{wtfs_greenbook_20060920_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2006},
  month = {Sep},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20060920_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}