Greenbook/Tealbook

Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS III - FOMC December 12, 1986 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS THE DOMESTIC NONFINANCIAL ECONOMY Page Retail sales . . . . . . . . . . . . . . . . . . . . . Producer price index . . . . . . . . . . . . . . . . . Manufacturing and trade inventories . . . . . . . . . Tables Retail sales . . . . . . . . . . . . . . . . . . . . Recent changes in producer prices. . . . . . . . . . Changes in manufacturing and trade inventories . . . . . . . . . . . . . . Inventories relative to sales THE FINANCIAL ECONOMY Tables . . . . . . . . . . . . . . . . Monetary aggregates Commercial bank credit and short- and intermediateterm business credit . . . . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . . . . INTERNATIONAL DEVELOPMENTS U.S. Merchandise trade . . . . . . . . . . . . . . . . . . . 6 7 8 8 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Retail sales Total retail sales increased 0.5 percent in November, according to the advance estimate. Spending at the retail control group of stores (which excludes automotive outlets, gasoline stations, and building supply dealers) increased 0.9 percent, following two months of small changes. Within the retail control grouping, sizable jumps in outlays were reported for furniture and home furnishings (up 2.8 percent) and "other" durables (up 2.1 percent). Spending for apparel edged up, but sales in the general merchandise group fell slightly. Producer price index The producer price index for finished goods rose 0.2 percent in November, somewhat less than its average increase over the preceding three months. earlier. Food prices edged down 0.1 percent, after a large increase a month Energy prices were unchanged, as relatively small increases in gasoline and fuel prices were offset by a decline in natural gas prices. Excluding food and energy, the PPI was up 0.3 percent, after surging 0.7 percent in October; much of the slowing between October and November was in motor vehicle prices. So far this year, the PPI for finished goods excluding food and energy has increased at a 2.7 percent annual rate--the same as in 1985. At earlier stages of processing, the prices of intermediate materials (excluding foods and feeds) edged up 0.2 percent in November but were still 4.3 percent below their level of a year ago. Manufacturing and trade inventories The book value of manufacturing and trade inventories rose at an annual rate of $39.2 billion in October. The increase was predominantly the result of acummulation in auto dealers' stocks. Excluding autos, inventories in manufacturing and trade were little changed from the September level. By sector, manufacturing and wholesale inventories fell in October, but nonauto retail stocks posted an increase of $18.5 billion, as stocks rose at most types of stores. In particular, inventories at general merchandise, apparel, and furniture stores increased at a $13.3 billion annual rate in October after rising $11.7 billion in the preceding month. The two consecutive monthly increases left the inventory-sales ratio for stores in this broad category at 2.34 in October, compared with 2.23 at the end of August. range of this ratio has been 2.23 to 2.38 during the past 12 months. The RETAIL SALES (Seasonally adjusted percentage change) Q1 1986 Q2 Total sales Previous estimate1 1.1 (REAL) 2 Previous estimate1 Total less auto dealers nonconsumer stores, and gasoline stations Previous estimate1 GAF3 Durable Automotive group Furniture and appliances Other durable goods Nondurable Apparel Food General merchandise 4 Gasoline stations Q3 Sept. 1986 Oct. Nov. 1.2 4.0 3.9 5.6 5.3 -5.2 -5.0 .5 - 1.4 2.4 3.1 3.0 4.9 4.6 -5.3 -5.1 - 1.2 1.4 1.7 1.6 .1 -.2 1.4 2.7 1.8 -1.2 1.8 .8 1.1 .3 3.5 4.2 4.2 1.8 9.4 13.5 4.3 5.3 14.0 22.7 .0 .3 -12.9 -19.9 -. 5 -.4 .3 -. 7 2.8 2.1 .8 1.5 1.4 1.4 -4.3 -. 2 3.9 -. 4 1.5 -11.5 .7 1.0 .9 1.1 -4.3 .1 -1.4 1.6 -1.7 1.2 .4 -. 3 .9 .6 -.4 .7 .3 1.1 -.2 .6 .3 .3 .9 - .1 .6 1. Based on incomplete sample counts approximately one month ago. 2. General merchandise, apparel, furniture and appliance stores. 3. General merchandise excludes mail order nonstores; mail order sales are also excluded in the GAF grouping. 4. General merchandise excludes mail order nonstores; mail order sales are also excluded in the GAF grouping. -Data are unavailable because of a future release date. RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data)1 Relative Importance Dec. 1985 1985 Q1 1986 Q2 1986 Oct. Nov. Q3 --Annual rateFinished goods Consumer foods Consumer energy Other consumer goods Capital equipment 100.0 24.5 12.5 40.3 22.7 1.8 .5 -.3 2.7 2.7 -12.5 -8.1 -66.9 2.5 .7 .4 5.9 -22.3 2.0 2.3 Intermediate materials 2 Exc. energy 95.3 79.6 .0 -.1 -11.8 -1.0 Crude food materials Crude energy Other crude materials 52.7 30.1 17.2 -24.7 -51.3 -.2 -6.4 -4.9 -4.3 -Monthly rate-- .7 13.0 -36.9 2.2 2.2 .3 .9 -4.3 .8 .5 .2 -.1 .0 .3 .3 -5.3 -1.3 -.8 2.0 -.3 .1 .2 .2 1.6 -29.1 7.0 20.1 -13.3 -18.1 2.6 -.9 1.7 -.2 -.7 1.6 1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds. CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates) Q1 1986 Q2 Q3 Aug. 20.1 -9.3 4.5 24.9 15.1 9.8 2.9 -4.6 6.9 .6 -1.4 2.0 -3.4 -7.3 4.3 -. 4 -12.7 12.3 -21.0 -13.7 -. 1 -7.2 -14.3 7.0 -24.9 -10.8 1.6 -15.7 -43.8 28.1 39.2 -4.5 -15.7 59.4 40.9 18.5 29.8 -5.3 6.8 28.3 17.2 11.0 1.6 1.0 4.6 -4.0 -1.8 -2.3 -11.0 -5.2 8.3 -14.0 -21.5 7.5 -17.3 -19.0 10.7 -8.9 -12.4 3.5 -41.4 -6.3 -2.3 -32.9 -50.3 17.4 ------- 1986 Sept.r Oct.p Book Value Basis: Total Manufacturing Wholesale Retail Automotive Ex. auto Constant Dollar Basis: Total Manufacturing Wholesale Retail Automotive Ex. auto INVENTORIES RELATIVE TO SALES Q01 Book Value Basis: 1 1986 Q2 Q3 Aug. 1.36 1.42 1.21 1.39 1.39 1.39 1.37 1.44 1.22 1.42 1.37 1.33 1.41 1.19 1.34 1.20 1.39 1.50 1.69 1.29 1.40 1.33 1.42 1.52 1.70 1.30 1.44 1.56 1.41 1.47 1.69 1.26 1.35 1.13 1.43 1986 Sept.r Oct.P Cyclical Reference Points 2 82 high 81 low Total Manufacturing Wholesale Retail Automotive Ex. Auto 1.39 1.60 1.06 1.37 1.57 1.31 1.54 1.77 1.28 1.46 1.90 1.413 1.38 1.43 1.20 1.47 1.78 1.38 1.39 1.43 1.23 1.45 1.70 1.38 1.58 1.88 1.26 1.38 1.54 1.31 1.72 2.04 1.45 1.49 1.90 1.453 1.55 1.72 1.31 1.52 1.83 1.44 1.54 1.70 1.32 1.48 1.74 1.41 1.60 1.36 1.41 1.17 1.45 1.62 1.40 Constant Dollar Basis: Total Manufacturing Wholesale Retail Automotive Ex. auto 1. Ratio of end-of-period inventories to average monthly sales for the period. 2. Highs and lows are specific to each series and are not necessarily coincidental. 3. Peak occurred in January 1985 for this series. r-Revised estimates. p-Preliminary estimates. MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) to 19Rs4A -1. 2. 3. Ml M2 M3 11.9 8.7 7.7 fl2 (~7 1986 <;- rr December 12, 1 1986 Growth from Oct. Nov.p Q4 1985 to Nov. 1986P Percentage change at annual rates 15.8 10.5 9.0 17.3 11.1 10.2 9.6 7.3 8.8 14.0 10.6 6.7 20.9 6.6 5.6 Levels in billions of dollars Nov. 1986P Selected components A. Currency 7.5 6.2 7.1 4.7 10.0 6.6 182.2 5. Demand deposits 8.6 15.2 14.4 1.6 4.1 21.3 298.4 6. Other checkable deposits 22.3 25.6 30.8 25.1 31.3 32.7 226.4 7. M2 7.7 8.7 9.1 6.4 9.4 1.7 2066.7 20.0 -1.8 29.4 -32.2 72.7 -21.8 75.6 9.3 9.1 27.3 5.7 14.0 6.3 10.2 7.1 26.7 4.9 -0.6 5.7 206.6 889.4 19.0 -0.6 5.1 13.2 -3.1 7.3 18.6 -9.0 5.8 20.6 -10.9 1.2 20.0 -15.8 2.4 18.6 -12.4 2.6 525.5 363.9 896.1 13.7 -0.4 13.8 2.6 18.8 -3.8 10.5 -6.0 19.5 -11.3 16.8 -8.7 405.7 490.4 3.8 3.4 6.3 14.7 -9.1 1.8 680.5 -1.8 -8.8 11.0 -0.8 -2.5 2.7 -2.1 -2.6 -2.2 -10.7 -9.4 -13.0 0.5 10.3 -16.1 443.4 281.6 161.8 39.2 19.3 6.1 30.9 13.6 -5.0 53.5 39.7 49.0 1.4 1.5 -44.1 -1.4 66.1 13.7 84.4 82.4 79.5 naus M12 8. 9. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 3 plus HMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, 3 plus MMDAs, NSA Small time deposits 10. 11. 12. 13. 14. 15. 16. M3 4 imnus M2 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Tern RPs, NSA Tem Eurodollars, NSA 11.1 -4.0 -4.9 - MEMDRANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 6 27. Other 28. Average monthly change in billions of dollars - 0.4 1.1 -5.5 -2.6 -2.9 4.4 0.9 3.5 4.5 -0.4 4.9 -4.9 -2.4 -2.5 3.1 1.0 2.1 483.7 341.1 142.6 -1.7 -1.2 -0.2 3.6 5.3 -0.4 -2.9 0.4 5.4 -3.3 -22.5 165.1 U.S. goverment deposits at commercial 7 banks 0.2 0.9 -0.8 2.9 -2.8 13.3 26.5 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly changes are calculated on an end-month-of-quarter basis. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMOas), not sesonally adjusted. Commercial bank savings deposits excluding MXMAs increased during October and November 1986 at rates of 41.7 percent and 37.9 percent, respectively. At thrift institutions, savings deposits excluding MMAs Increased during October and November 1986 at rates of 26.5 percent and 27.7 percent, respectively. 4. The non-M2 component of M3 is seasonally adjusted as a whole. 5. Net of large-denomination tim deposits held by money market mutual funds and thrift institutions. 6. Consists o borrowings from other than commercial banks In the for of federal funds purchased, securities sold under agreements to repurchase, and other liabilities for borrowed money (including borrowings from the Federal Reserve and unaffiliated foreign banks, loan RP eand other minor items). Data are partially estimated. 7. Consists of Treasury demand deposits and note balances at commrcial banks. p--preliminary COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT 1 (Percentage changes at annual rates, based on seasonally adjusted data) Levels in bil. of dollars 1986 Q1 Q2 Q3 Sept. Oct. Nov.P NovemberP Commercial Bank Credit 1. 2. Total loans and securities at banks Securities 3. U.S. 4. Other securities 5. government securities Total loans 9.3 3.9 13.5 2.2 9.0 2049.3 2.0 4.9 31.9 3.1 8.9 500.4 -5.3 7.9 28.4 21.6 21.6 305.0 12.8 0.7 37.3 -23.9 -10.4 11.6 3.6 7.8 1.8 9.1 1549.3 5.3 2.0 2.8 4.7 13.3 519.8 102.7 -62.7 17.9 -132.4 21.3 40.2 195.0 6. Business loans 7. Security loans 8. Real estate loans 13.1 13.3 13.6 11.1 14.0 476.3 9. Consumer loans 11.0 6.7 5.6 3.9 5.4 311.2 0. Other loans 7.3 -1.6 9.2 -0.5 -7.0 202.2 Short- and Intermediate-Term Business Credit 11. Business loans net of bankers acceptances 2 12. Loans at foreign branches 13. Sum of lines 11 & 12 14. Commercial paper issued by 3 nonfinancial fims 15. Sums of lines 13 & 14 16.. Bankers acceptances: related4 .' 17. U.S. 5.2 1.0 2.7 3.1 4.5 13.9 514.7 0.0 -21.5 9.1 13.5 -26.7 0.0 17.6 5.1 0.2 2.9 3.4 3.4 13.4 532.3 -14.4 -10.3 10.6 -5.6 23.9 -4.1 86.9 2.1 -1.3 4.0 2.2 6.3 11.0 619.2 -6.2 16.3 3.6 3.6 -10.7 n.a. 33.2 (Oct) 1.7 -0.3 3.9 2.4 5.4 n.a. 646.8 (Oct) 16.4 3.8 -2.5 -15.0 0.0 u.a. 157.5 (Oct) 4.6 0.5 2.6 -1.2 4.5 n.a. 804.3 (Oct) trade Line 15 plus bankers acceptances: U.S. trade related 18. Finance cumpany loans to busines 19. Total short- and Intemediatete- business credit (sua of lines 17 A 18) 4 n.a.--not available. p-preliminary 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Average of Wednesdays. 4. Based on average of current and preceding ends of sonth. 5. Consists of acceptances that finance U.S. Imports, U.S. exports and domestic shipment and storage of goods. SELECTED FINANCIAL MARKET QUOTATIONS 1/ (percent) Change from: 1986 1984 1985 Highs March highs June 11.63 8.58 6.90 10.67 10.77 11.13 8.80 6.52 FOMC June FOMC highs Nov 5 5.94 5.96 -0.94 0.02 9.25 6.57 6.62 5.26 5.36 5.43 5.49 5.49 -1.03 5.51 -1.11 0.23 0.13 0.08 11.42 11.35 8.94 9.12 6.87 6.81 5.78 5.69 6.03 -0.84 5.90 -0.91 0.25 0.21 11.52 11.79 12.30 8.89 9.29 9.92 6.88 6.91 6.97 5.68 5.67 5.67 6.04 -0.84 5.87 -1.04 5.85 -1.12 0.36 0.20 0.18 Eurodollar deposits 4/ 1-month 3-month 11.89 8.89 7.01 5.85 6.30 -0.71 0.45 0.21 Bank prime rate 13.00 10.50 8.50 7.50 7.50 -1.00 U.S. Treasury (constant maturity) 11.22 3-year 13.49 13.99 10-year 12.02 30-year 11.97 13.94 7.86 8.39 6.39 -1.47 7.12 -1.27 7.38 -0.55 -0.06 7.93 6.45 7.24 7.58 highs Nov 5 Dec 11 Short-term rates Federal funds 2/ Treasury bills 3/ 1-year Commercial paper 1-month 3-month 9.13 Large negotiable CD's 3/ 12.20 9.58 7.01 5.84 6.05 -0.96 Intermediate- and long-term rates 4unicipal revenue 5/ (Bond Buyer index) -0.12 -0.20 11.44 10.25 8.57 7.30 7.34 -1.23 0.04 Corporate-A utility 6/ Recently offered 15.30 13.23 9.70 9.27 9.05 -0.65 -0.22 13.29 10.76 989 9. -1.46 -0.59 -0.21 HeDrtgge rates 6/ S&L fixed-rate S&L ARM, 1-yr. 14.68 12.31 11.14 8.65 1984 1985 1986 Lows trch Record lows highs 7.98 7.77 -0.88 1986 FMC Nov 5 Dec 11 Peroent chadge fram: Record highs FOMC Nov 5 Stock prices Dow-Jcnes Industrial 1086.57 NEE Ccposite AME Camposite NADAQ (OTC) 85.13 187.16 225.30 1247.35 1955.57 1899.04 1923.65 -1.63 102.46 222.28 276.18 145.75 141.91 142.02 -2.56 285.19 267.21 264.73 -7.17 411.16 362.08 357.73 -12.99 1/ Ce-day quotes except as noted. 2/ Averages for two-week reserve maintenance period closest to date shown. Last observation is the average to date for the maintenance period endirg December 17, 1986. 3/ Seondary markcet. 1.30 0.08 -0.93 -1.20 4/ Averages for statement week closest to date shown. 5/ Thursday quotes. 6/ Friday quotes. e-estimate U.S. Merchandise Trade The U.S. merchandise trade deficit was $37.7 billion ($151 billion at an annual rate) in the third quarter of 1986 on a balance-of-payments basis; this was a slightly larger deficit than recorded in the second quarter (revised). There was a 2 percent increase in imports, mostly from foreign cars, consumer goods, business machines and paper; the value of oil imports was little changed, with a drop in price offset by an 18 percent jump in volume. Exports rose slightly; most of the rise was in agricultural products, especially wheat, cotton, rice and corn. [Staff note: These revised dataare very similar to the estimated figures reported in the December Greenbook.] U.S. Merchandise Trade Billions of dollars, annual rates Balance-of-payments basis, seasonally adjusted Exports Years 1984 1985 Imports Census Balance Unrevised, NSA CIF Value Total. Ag. (1) (2) (3) (4) (5) 220 38 182 332 57 275 -112 215 30 185 339 51 288 -124 -123 -149 Nonag. Total Oil Nonoil (6) Balance (7) (8) Quarters 1984 - 4 224 37 187 341 57 283 -117 -108 1985 - 1 2 3 4 221 216 210 211 33 30 28 29 188 186 183 182 322 337 337 360 42 55 50 57 280 282 287 304 -100 -121 -127 -149 -125 -152 1 2r 3r 215 221 221 28 25 26 186 196 195 360 363 372 40 31 32 320 332 340 -146 -143 -151 -174 -162 -176 1986 - Department Source: U.S. Department of Commerce of Commerce -153 -164 

Federal Reserve (1986, December 15). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19861216_part2

@misc{wtfs_greenbook_19861216_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1986},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19861216_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}