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 03/07/2014.

Class III FOMC - Internal (FR)

September 12, 2008

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 Retail Sales.......................................................................................1 Consumer Sentiment........................................................................1 Business Inventories ........................................................................1 Federal Government Budget ............................................................5 Producer Prices ................................................................................5

Exhibits Retail Sales.......................................................................................2 Reuters/University of Michigan Survey of Consumer Attitudes.....3 Nonfarm Inventory Investment........................................................4 Recent Federal Outlays and Receipts ..............................................6 Recent Changes in Producer Price Indexes .....................................7

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

The International Economy ........................................................................ 10 Trade in Goods and Services .........................................................11 Prices of Internationally Traded Goods .........................................13 Exhibits Trade in Goods and Services .........................................................11 U.S. International Trade in Goods and Services (chart) ................11 U.S. Exports and Imports of Goods and Services..........................12 Prices of U.S. Imports and Exports (chart) ....................................14 Prices of U.S. Imports and Exports (table) ....................................15

ii

Supplemental Notes The Domestic Nonfinancial Economy Retail Sales Total nominal retail sales decreased 0.3 percent in August; sales in the retail control group of stores fell 0.5 percent following gains in June and July that were revised down. Although a drop in gasoline prices contributed to the decrease in nominal retail control spending in August, sales fell back in a number of other categories, especially nonstore retailers and electronics and appliance stores. Given our projection for consumer prices, this nominal decline would appear to translate into a further decrease in real PCE control, albeit not as large as the declines in June and July. Among outlets excluded from the retail control, sales at building material and supply stores declined last month, but sales at motor vehicles and parts dealers increased. Consumer Sentiment The early September reading for the Reuters/University of Michigan index of consumer attitudes jumped sharply from the low levels recorded over the past several months, and inflation expectations fell; declines in gasoline prices likely contributed to both movements. This month’s preliminary sentiment figure reflected large increases in nearly all of the components, especially those included in the expected conditions subindex. Among those items not included in the overall index, consumers’ expectations about the change in unemployment over the next twelve months improved noticeably and stood at its lowest level in nearly a year. Households’ appraisals of buying conditions for cars strengthened, apparently in response to the introduction of incentive programs, but respondents’ attitudes toward purchases of homes worsened. The median of expected inflation over the next twelve months dropped more than a percentage point, to 3.6 percent, and the median of expected inflation over the next 5 to 10 years moved down to 2.9 percent, about the same as its average over the past five years. Business Inventories The book value of retail inventories, excluding motor vehicles and parts, rose at a solid pace in July. Combined with the inventory figures for manufacturing and wholesale trade, book-value inventories in the entire manufacturing and trade sector, excluding motor vehicles and parts, rose at an annual rate of $124 billion in July, a modest step-up from the second-quarter accumulation. However, because changes in book-value inventories can be heavily influenced by price changes that lead to revaluation of existing stocks, these book-value data can differ substantially from real inventory changes. The

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September 12, 2008

Retail Sales (Percent change; seasonally adjusted) 2007 Share1 Total retail trade and food services Previous estimate

Q4

2008 Q1

2008 Q2

June

July

Aug.

100.0

.9

.2 .0

.9 1.0

.1 .3

-.5 -.1

-.3

Auto and other motor vehicle dealers Building material and supply stores

16.0 7.2

-1.2 -1.7

-2.6 -2.4

-6.1 3.0

-3.0 -.6

-4.6 .3

2.0 -2.2

Retail control Previous estimate

76.8

1.6

1.1 .9

2.4 2.5

.8 1.0

.3 .4

-.5

13.3 13.1 10.1 11.6 7.0 5.4 5.0 2.4 2.5 1.7 4.6

.4 1.5 .9 9.3 1.1 -.1 -.9 -2.3 1.9 1.4 -1.5

1.0 1.3 .3 4.3 .6 1.2 .8 -2.1 -.8 -1.2 .3

2.4 1.7 1.8 5.1 4.2 1.3 1.1 -.7 2.3 2.2 1.3

.4 1.1 .2 3.2 .5 .8 -.1 -2.0 -1.1 .8 1.3

.2 .4 .4 .2 .8 .1 .4 -.4 .0 -1.5 .8

-.2 .7 .2 -2.5 -2.3 .2 -.3 .0 -1.3 .9 -.4

82.3 65.2

1.3 .5

.9 .6 .2

2.5 1.9 2.0

.7 .4 .5

.3 .3 .3

-.7 -.2

.1

-.1

1.2 1.2

-.6 -.4

-.8 -.8

n.a.

General merchandise Food and beverage stores Food services Gasoline stations Nonstore retailers2 Health & personal care Clothing and accessories Furniture and home furnishing Electronics and appliances Auto parts, acc. and tire stores Other retailers3 Other aggregates of retail sales: Total excluding motor vehicles and parts Retail control ex. gasoline station sales Previous estimate Memo: Real PCE control 4 Previous estimate

1. Share of total retail trade and food services for August. 2. Includes electronic shopping and mail order houses, direct selling establishments, and vending machine operators. 3. Includes miscellaneous retailers and sporting goods, hobby, book, and music stores. 4. PCE control is a BEA measure and has approximately the same coverage as retail control. Revisions to real PCE control are a staff translation based on the revisions to retail control. Source: Census Bureau.

Nominal Retail Control and Real PCE Control

Percent change 2.5

2.5 2.0

Nominal retail control Real PCE control

2.0

1.5

1.5

1.0

1.0

.5

.5

.0

.0

-.5

Aug. -.5 July

-1.0 -1.5

-1.0 2004

2005

2006

2007

Note. Real PCE control estimates for June and July 2008 are a staff translation based on the revisions to retail control. Source: Census Bureau.

2008

-1.5

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September 12, 2008

Reuters/University of Michigan Survey of Consumers Indexes of consumer sentiment (Not seasonally adjusted) 2008 Feb.

Mar.

Apr. May

June

July

Aug.

Sept.P

Composite of current and expected conditions1 Current conditions1 Expected conditions1

70.8 83.8 62.4

69.5 84.2 60.1

62.6 77.0 53.3

59.8 73.3 51.1

56.4 67.6 49.2

61.2 73.1 53.5

63.0 71.0 57.9

73.1 76.5 70.9

Personal financial situation Now compared with 12 months ago2 Expected in 12 months2

94 112

93 112

86 100

80 98

69 96

73 105

72 105

87 123

54 83

46 81

40 71

36 68

38 59

42 65

52 72

75 86

Appraisal of buying conditions Cars Large household appliances2 Houses

119 123 140

114 124 129

110 112 136

96 109 130

91 104 133

103 115 138

103 110 146

114 110 137

Expected unemployment change - next 12 months

141

148

154

153

159

154

150

137

Prob. household will lose a job - next 5 years

24

22

23

22

25

20

22

19

Expected inflation - next 12 months Mean Median

3.9 3.6

4.6 4.3

5.7 4.8

7.0 5.2

6.5 5.1

6.3 5.1

5.3 4.8

3.9 3.6

Expected inflation - next 5 to 10 years Mean Median

3.4 3.0

3.2 2.9

3.5 3.2

4.0 3.4

4.0 3.4

3.5 3.2

3.9 3.2

3.1 2.9

Category

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.

Consumer sentiment 1966 = 100 120

1985 = 100 160 140

Expected inflation (Reuters/University of Michigan) 6

Percent 6

5

5

110

Reuters/Michigan (right scale)

100 120

90

4

4

Median, 5 to 10 years ahead P

100

80 Sep. Sept.P

80

Sept. Sep. 3

3

2

2

70 60

60 40

Conference Board (left scale)

2002 P Preliminary.

2004

2006

Aug.

2008

50 40

Median, 12 months ahead 1 0

1

2002 P Preliminary.

2004

2006

2008

0

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Nonfarm Inventory Investment (Billions of dollars; seasonally adjusted annual rate) 2007 Measure and sector

2008

Q4

Q1

Q2

May

June

July

-20.6 -21.3 .7

-17.9 -15.3 -2.6

-52.9 -10.2 -42.7

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

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

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

Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts

6.1 2.9 -3.3 6.5

5.6 13.7 .0 -8.2

-22.6 -24.5 4.9 -2.9

-36.2 -23.5 2.2 -14.9

-12.9 e -7.5e 4.1 e -9.4 e

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

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

70.4 34.7 23.0 12.7

95.8 60.5 39.0 -3.7

97.5 39.3 48.5 9.6

78.1 38.3 45.9 -6.1

136.2 81.6 42.8 11.8

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

124.4 31.0 62.1 31.3

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

ISM Customers’ Inventories: Manufacturing

Inventory Ratios ex. Motor Vehicles Months

1.9 1.8

1.9

Index

60

1.8

Staff flow-of-goods system

55 1.7 Aug.

1.6

1.5

1.5

1.4

1.4

1.3

1.3

1.2

1.2 Census book-value data

1.1

Aug.

1.7

1.6

2000 2000

2002 2002

2004 2004

60

55

50

50

45

45

40

40

July 2006 2006

2008 2008

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.

1.1

35

2000 2000

2002 2002

2004 2004

2006 2006

2008 2008

Note. A number above 50 indicates inventories are "too high." Source. Manufacturing ISM Report on Business.

35

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ratio of book-value inventories to sales (excluding motor vehicles) held steady at 1.16 in July. Federal Government Budget According to the Monthly Treasury Statement, the federal government recorded a deficit (adjusted for routine payment timing shifts and financial transactions) in August of $91 billion—wider than in the same month last year and a little above our expectation. The adjusted deficit for the 12 months ending in August was $403 billion, more than $210 billion larger than it was in the same year-earlier period. Receipts in August were almost 6 percent below their level a year earlier, probably reflecting the slowing pace of economic activity. Individual income and payroll tax revenues, which made up the bulk of receipts in August, were 4 percent below their yearearlier level. The small amount of corporate tax payments typically made in August was also lower than its level a year earlier. Outlays in August were up 5 percent from their year-earlier level, which left the cumulative increase in spending for the 12 months ending in August a little slower than the brisk pace in the preceding 12 months. Defense spending in August was almost 7 percent above its year-earlier level and was in line with the staff’s expectation. Producer Prices The producer price index for finished goods declined 0.9 percent in August reflecting a sizable drop in energy prices. The PPI for finished food rose 0.3 percent, and excluding food and energy, the PPI for finished goods rose a modest 0.2 percent last month. However, prices for capital goods other than motor vehicles and high-tech equipment posted another large increase. In addition, cost pressures continued to be evident at earlier stages of processing. The PPI for intermediate materials excluding food and energy rose 1.7 percent in August following increases of 1.2 percent and 2 percent in June and July, respectively. Last month’s price increases were again concentrated in chemicals, plastics, and other energy-intensive materials. The Domestic Financial Economy

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Federal Government Budget (Unified basis; adjusted for payment-timing shifts and financial transactions; data from Monthly Treasury Statement)

Surplus or Deficit (-)

Billions of dollars

300

300 12-month moving sum

200

200

100

100

0

0

-100

-100

-200

-200

-300

-300

-400 -500

-400

Aug. 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Outlays and Receipts

2006

2007

2008

-500

2009

Percent change from year earlier

20

20 Receipts

12-month moving sum 15

15

10

10

5

5

Outlays

Aug.

0

0

-5

-5

-10

-10

-15

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

-15

2009

Recent Federal Outlays and Receipts (Billions of dollars except as noted)

August

12 months ending in August

2007

2008

Percent change

Outlays Net interest National defense Major transfers1 Other

235.8 22.8 48.9 124.2 39.9

247.8 25.1 52.1 134.3 36.2

5.1 10.2 6.7 8.1 -9.3

2,750.3 238.0 557.7 1,509.1 445.5

2,939.4 247.9 615.2 1,633.9 442.4

6.9 4.2 10.3 8.3 -.7

Receipts Individual income and payroll taxes Corporate income taxes Other

166.5 141.1 4.3 21.1

157.0 135.3 3.9 17.8

-5.7 -4.1 -9.7 -15.7

2,565.6 1,975.5 379.4 210.7

2,536.8 1,985.7 327.4 223.7

-1.1 .5 -13.7 6.1

Surplus or deficit (-) Memo: Unadjusted surplus or deficit (-)

-69.2

-90.8

...

-184.6

-402.7

...

-117.0

-111.9

...

-218.2

-370.5

...

Function or source

1. Includes Social Security, Medicare, Medicaid, and income security programs. ... Not applicable.

2007

2008

Percent change

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September 12, 2008

Recent Changes in Producer Price Indexes (Percent change) 12-month change2

Product

Weights1

Aug. 2007

Aug. 2008

3-month change May 2008

Aug. 2008

Annual rate PPI finished goods

2008

May

June

July

Aug.

Monthly rate

100.0

2.3

9.6

10.8

8.6

1.4

1.8

1.2

-.9

Food

21.3

5.1

9.1

8.5

8.8

.7

1.5

.3

.3

Energy Gasoline Fuel oil Residential natural gas Residential electricity Other energy

21.7 7.4 1.0 3.0 7.4 2.9

.4 -5.1 -6.4 -.2 3.4 -2.3

27.4 43.1 64.1 25.4 6.2 45.1

32.6 23.9 118.0 70.6 11.9 49.8

18.1 21.3 3.1 47.2 11.8 2.9

4.8 9.3 8.0 4.0 .8 3.1

6.0 9.0 12.4 6.6 .8 7.5

3.1 -.2 3.7 8.8 2.0 7.2

-4.6 -3.5 -13.6 -5.0 .1 -12.6

Finished goods ex. food and energy Consumer goods ex. food and energy Nondurables ex. food and energy Apparel Tobacco products Other nondurables

57.0 35.3 21.2 1.5 3.4 16.3

2.2 2.5 3.2 .8 6.1 3.3

3.6 3.9 5.6 1.3 4.8 6.2

3.9 4.2 6.0 1.9 9.9 5.7

4.6 4.6 6.0 2.4 .3 7.5

.3 .4 .8 .0 2.3 .5

.2 .3 .3 -.1 .0 .4

.7 .6 .6 .3 .0 .7

.2 .2 .6 .4 .1 .7

14.1 2.1 3.0 9.1

1.6 .7 3.1 1.5

2.0 2.7 -2.8 3.2

1.7 -3.1 -.3 3.6

3.2 14.0 -11.0 5.6

-.1 -1.3 -.7 .3

.3 2.2 -1.8 .5

.6 1.4 .8 .4

-.1 -.3 -1.9 .4

21.7 1.3 2.3 .9 .1 1.6 15.5

1.8 .7 3.1 5.3 -23.7 .4 2.5

3.2 2.7 -2.8 2.3 -17.1 2.1 4.4

2.9 -3.1 -.3 1.3 -17.2 1.2 4.3

4.8 14.0 -11.0 2.7 -11.1 1.5 7.1

.1 -1.3 -.7 .1 .2 .3 .4

.3 2.2 -1.8 -.1 -.2 -.2 .5

.8 1.4 .8 .9 -1.5 .5 .8

.1 -.3 -1.9 -.2 -1.2 .1 .5

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

3.7 2.9 .1

1.0 3.2 1.5

.9 3.1 4.6

1.8 2.4 -1.6

.2 .2 .6

.0 .2 .1

.1 .2 .2

.3 .2 -.7

Intermediate materials ex. food and energy Materials for nondurable manufacturing Materials for durable manufacturing Components for manufacturing Other intermediate materials

72.7 15.2 8.6 15.1 33.7

1.6 3.9 2.7 .6 .7

12.5 31.8 14.8 4.1 7.4

17.9 28.2 46.7 4.4 12.9

21.7 68.3 15.1 8.3 10.5

1.5 2.4 3.5 .5 1.0

1.3 2.7 1.7 .4 .8

2.0 5.4 1.5 1.1 .9

1.7 5.2 .4 .5 .7

Crude food materials Crude energy Other crude materials

32.8 50.9 16.4

23.9 -7.7 13.5

15.3 59.1 33.2

9.7 216.2 89.5

-7.1 -32.1 5.2

.6 12.5 2.7

3.5 5.4 -.2

.1 6.9 3.4

-5.2 -19.4 -1.9

Durables Passenger cars Light trucks Other durables Capital equipment Passenger cars Light trucks Heavy trucks Computers Communication equipment Other capital equipment Memo: Physicians3 Hospitals3 Applications software

1. Relative importance weights for December 2007, which are based on 2002 shipment levels. 2. Not seasonally adjusted. 3. Seasonally adjusted by FRB staff. Source: Bureau of Labor Statistics.

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

Level1 Aug. 2008

H1 2007

H2 2007

Q1 2008

Q2 2008

July 2008

Aug. 2008

6.2

11.3

6.0

3.6

1.9

5.3

9,060

Total Loans2 Total To businesses Commercial and industrial Commercial real estate

7.2

11.5

9.5

4.4

.9

5.4

6,848

6.9 6.2

26.2 10.3

15.5 9.9

13.0 10.2

5.8 -9.2

-.1 4.7

1,511 1,657

To households Residential real estate Revolving home equity Other Consumer Originated3 Other4

8.8 3.0 10.7 2.9 3.1 9.6

-1.1 6.5 -3.7 10.8 9.2 19.9

3.4 11.5 .7 8.8 8.2 12.1

3.3 16.1 -1.3 6.0 6.9 -16.2

-5.6 12.1 -12.3 11.0 5.9 14.3

9.3 6.0 10.4 8.3 2.2 5.6

1,856 522 1,335 842 1,251 982

3.3 -5.0 14.5

10.7 -4.3 28.9

-4.2 -11.2 3.0

.9 8.4 -6.6

4.9 15.4 -6.2

5.0 42.8 -36.1

2,212 1,187 1,025

Securities Total Treasury and agency Other5

Note. Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data have been adjusted to remove the effects of mark-to-market accounting rules (FIN 39 and FAS 115), the initial consolidation of certain variable interest entities (FIN 46), the initial adoption of fair value accounting (FAS 159), and the effects of sizable thrift-to-bank and bank-to-thrift structure activity in October 2006, March 2007, and October 2007. Data also account for breaks caused by reclassifications. 1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels. 2. Excludes interbank loans. 3. Includes an estimate of outstanding loans securitized by commercial banks. 4. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. 5. Includes private mortgage-backed securities; securities of corporations, state and local governments, and foreign governments; and any trading account assets that are not Treasury or agency securities. Source. Federal Reserve.

C&I Loan Rate Spreads

Return on Assets at Commercial Banks Basis points

Percent

240

Quarterly

220

2.0

Quarterly, s.a.a.r. 25 largest banks All other banks 1.5

Weighted average

Q3

200 1.0

180 Q2

160

Weighted average adjusted*

0.5

Q3

140 0.0

1998

2000

2002

2004

2006

2008

Note. Spreads over market interest rate on an instrument of comparable maturity on loans less than $25 million (2006$). *Adjusted for changes in nonprice loan characteristics. Source. Survey of Terms of Business Lending.

1992

1996

Source. Call Report.

2000

2004

2008

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III-T-1

Selected Financial Market Quotations (One-day quotes in percent except as noted) 2007

Change to Sept. 11 from selected dates (percentage points)

2008

Instrument Aug. 6

June 24

Aug. 4

Sept. 11

2007 Aug. 6

2008 June 24

2008 Aug. 4

5.25

2.00

2.00

2.00

-3.25

.00

.00

4.74 4.72

1.80 2.20

1.72 1.93

1.58 1.81

-3.16 -2.91

-.22 -.39

-.14 -.12

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

5.26 5.29

2.36 2.78

2.41 2.72

2.30 2.67

-2.96 -2.62

-.06 -.11

-.11 -.05

Large negotiable CDs1 3-month 6-month

5.34 5.27

2.80 3.17

2.80 3.10

2.80 3.08

-2.54 -2.19

.00 -.09

.00 -.02

Eurodollar deposits3 1-month 3-month

5.33 5.35

2.70 3.00

2.60 3.00

2.60 3.00

-2.73 -2.35

-.10 .00

.00 .00

Bank prime rate

8.25

5.00

5.00

5.00

-3.25

.00

.00

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

4.49 4.52 4.82

2.80 3.55 4.29

2.49 3.25 4.15

2.17 2.86 3.81

-2.32 -1.66 -1.01

-.63 -.69 -.48

-.32 -.39 -.34

U.S. Treasury indexed notes5 5-year 10-year

2.43 2.48

1.10 1.76

1.15 1.71

1.25 1.66

-1.18 -.82

.15 -.10

.10 -.05

Municipal general obligations (Bond Buyer)6

4.51

4.76

4.74

4.54

.03

-.22

-.20

Private instruments 10-year swap 10-year FNMA7 10-year AA8 10-year BBB8 10-year high yield8

5.44 5.34 6.12 6.57 9.21

4.84 4.98 6.54 7.00 10.13

4.66 4.82 6.62 7.17 10.57

4.22 4.28 6.48 7.10 10.63

-1.22 -1.06 .36 .53 1.42

-.62 -.70 -.06 .10 .50

-.44 -.54 -.14 -.07 .06

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

6.59 5.65

6.45 5.27

6.52 5.22

5.93 5.21

-.66 -.44

-.52 -.06

-.59 -.01

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

Record high

Change to Sept. 11 from selected dates (percent)

2008

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

Level

Date

June 24

Aug. 4

Sept. 11

Record high

2008 June 24

2008 Aug. 4

14,165 1,565 5,049 856 15,807

10-9-07 10-9-07 3-10-00 7-13-07 10-9-07

11,807 1,314 2,368 708 13,421

11,284 1,249 2,286 704 12,738

11,434 1,249 2,258 719 12,716

-19.28 -20.20 -55.27 -15.98 -19.56

-3.17 -4.96 -4.65 1.57 -5.26

1.33 .00 -1.20 2.11 -.18

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. Derived from a smoothed Treasury yield curve estimated using all outstanding securities and adjusted for the carry effect. 6. Most recent Thursday quote. 7. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 8. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. _______________________________________________________________________ NOTES: August 6, 2007, is the day before the August 2007 FOMC meeting. June 24, 2008, is the day before the June 2008 FOMC monetary policy announcement. August 4, 2008, is the day before the most recent FOMC monetary policy announcement. _______________________________________________________________________

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The International Economy Trade in Goods and Services The U.S. international trade deficit widened to $62.2 billion in July, as a large increase in imports of goods and services more than offset a strong increase in exports.

In July, exports rose 3.3 percent, supported by a surge in exports of automotive products. Exports of consumer goods, industrial supplies, capital goods, and services also increased briskly. In contrast, agricultural products fell back after jumping up in June. The value of imports of goods and services surged 3.9 percent in July, led by a strong increase in imports of oil (both on account of higher volumes as well as an increase in price). Imports of industrial supplies, capital goods, and services also increased. In contrast, imports of automotive products and consumer goods edged down. Revisions to previously published data led to a slight downward revision to nominal export growth in first half of the 2008, primarily due to lower exports of services, and a slight upward revision to nominal import growth over the same period.

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Prices of Internationally Traded Goods Non-oil imports. In August, prices of core imports rose just 0.2 percent, down sharply from increases near 1 percent in previous months. Much of the deceleration reflected slower rates of increase for prices of material-intensive imports, consistent with the recent easing of many primary commodity prices. Prices of imported finished goods also slowed noticeably in August to a monthly rate of only 0.1 percent. Relative to the second quarter, core import prices for the July-August period were up 6.8 percent at an annual rate, marking a noticeable step-down from the previous two quarters. Price increases for material-intensive goods accounted for the lion’s share of the July-August increase, although finished goods prices also contributed. Oil. The BLS price index for imported oil declined 12.8 percent in August, reflecting the steep fall in spot oil prices since mid-July. The spot price of West Texas intermediate crude oil averaged $117 per barrel in August and has continued to decline and closed at $100.68 on September 11. Exports. Core export prices declined 2 percent in August, the first monthly decline in nearly two years. The fall in core export prices was entirely attributable to a drop in prices for material-intensive goods; agricultural export prices fell 9.6 percent and those for nonagricultural industrial supplies fell 2.5 percent. In contrast, prices for exported finished goods rose 0.2 percent in August, similar to recent rates of increase. The average price of core exports in July and August rose at an annual rate of 7.6 percent from the second quarter, down from double-digit rates of increase in the first half of the year.

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