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 October 30, 1987 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 Sales of new homes..................................... Consumer surveys...................................... Tables The market for new houses.............................. University of Michigan Index of Consumer Sentiment..... Errata ................................................. THE FINANCIAL ECONOMY Tables Monetary aggregates................................... Commercial bank credit and short- and intermediateterm business credit................................. Selected financial market quotations................... INTERNATIONAL DEVELOPMENTS Import and Export Prices............................... Page SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Sales of new homes. Sales of new homes declined about 5 percent in September to 656,000 units at an annual rate. For the third quarter as a whole, new home sales were unchanged from the second quarter, but remained 7 percent below the robust first-quarter pace. The reduction in new home sales during September reflected the 1/2 percentage point rise in interest rates on conventional fixed-rate mortgages during that month. Despite the drop in sales, the inventory of new homes was essentially unchanged in September at 359,000 units, nearly a seven-month supply at the current sales pace. The inventory figures have changed very little in the past year. The median and average prices of new homes sold in the third quarter were $108,700 and $132,700, respectively, both up about 16 percent from a year earlier. These price statistics are not adjusted for changes in house quality or location of sales. not yet available for the third quarter; Adjusted prices are second-quarter information indicated that over four-fifths of the recorded price increase was attributable to house quality improvements and to changes in the regional mix of sales. Consumer surveys The University of Michigan Survey of Consumer Attitudes showed a sizable drop in consumer confidence among those respondents polled on or after October 19. About one-third of the October sample - 1 - (153 out of - 2 - 500) were called after the stock market crash. Prior to October 19, the overall sentiment index value was running at 92.5--about the same as the September reading; after October 19, the index fell to 82.4. The 10 point drop in the index is comparable to the fall off that occurred in March 1980 after the imposition of credit controls. The drop is entirely due to changed expectations of business conditions and buying plans. The latest Michigan figures should be interpreted with caution. First, the results stand in contrast to a post-October 19 reading from the Conference Board survey, which showed little change in its index of consumer confidence. Second, within the Michigan survey, some of the post-October 19 results are puzzling. In particular, evaluations of current personal finances actually rose a bit in the latter part of the month and expected personal finances were essentially unchanged. However, despite the favorable responses on personal finances, the index of buying conditions dropped sharply. - 3 - THE MARKET FOR NEW HOUSES 1987 r 1987 Aug .r 674 675 692 656 126.8 132.7 128.7 129.6 139.8 (13.2) (15.7) (10.2) (14.5) (22.6) 92.0 104.0 108.7 (9.2) (12.9) (16.3) (10.5) (16.4) (21.7) 357 358 359 358 360 359 5.8 6.5 6.6 6.5 6.4 6.8 Q2 Q3P 748 674 112.1 (11.1) 1986 Sales Volume Thousands of units, SAAR Sales Price Average ($1,000, NSA) (Percent change from year earlier) Median ($1,000, NSA) (Percent change from year earlier) Inventory Units for sale (Thousands of units, end of period) Months' supply (At current sales rate) July 104.0 106.5 Sept.p 115.6 Months' supply data derived by Census Bureau by seasonal adjustment of the ratio of homes for sale to homes sold. It may, therefore, not agree with the seasonally adjusted components shown on the table. r--revised. p--preliminary. Note: -4 - University of Michigan Index of Consumer Sentiment 1987 August 1. Total (Feb. 1966=100) September October Post-19th Pre-19th 94.4 93.6 92.5 82.4 2. Current personal finances 122 119 117 121 3. Expected personal finances 127 124 128 129 4. Near term business conditions 125 122 113 87 5. Long term business conditions 93 92 98 72 6. Buying conditions 157 162 156 134 NOTE: Figures on financial business, and buying conditions are the percent saying "good times" (or "better') minus the percent saying "bad times" (or "worse"), plus 100/ -5- Errata Shown on the next three pages are tables that were omitted from the Appendix to Part II of the Greenbook. II-A-5 of the Greenbook. These tables should follow page -6 - Table 1 Deficit Targets in the Gramm-Rudman-Hollings Balanced Budget Act (Fiscal years, billions of dollars) 1986 1987 1988 1989 1990 Original law1 172 144 108 72 36 0 Amended law 2 n.a n.a 144 136 100 64 28 0 CBO baseline deficit 221 a 157 183 192 176 165 151 n.a OMB current services deficit 221 a 159 161 166 147 123 105 n.a. 1991 1992 1993 n.a. n.a Memo: a--actual 1. The original non-automatic spending cut mechanism was supposed to go into effect if the projected "snapshop" deficit exceeded the target by more than $10 billion for 1986 through 1990. This "margin for error" was not allowed for the final year (1991). 2. The restored automatic spending cut mechanism would be triggered if the "snapshot" deficit projection exceeds the target by more than $10 billion for 1988 through 1992. This "margin for error" is not allowed for the final year (1993). Table 2 Timetable for Sequestration Procedures Action Fiscal year 1988 1989-1993 Earliest enactment date for deficit reduction actions. January 1, 1987 Jan.l (before fiscal year begins. President submits the Mid-session Review of the budget (establishing the economic and technical assumptions). Not applicable July 15 Initial OMB/CBO "snapshot." October 10 August 15 CBO issues initial report to OMB and Congress. October 15 August 20 OMB issues initial report to the President and Congress. October 20 August 25 President issues initial order. October 20 August 25 Fiscal year begins and initial order becomes effective. October 1 (order becomes effective on Oct. 20, when issued) October 1 CBO issues revised report to OMB and Congress. November 15 October 10 OMB issues revised report to the President and Congress. November 20 October 15 President issues final order, which becomes effective immediately. November 20 October 15 House and Senate majority leaders may introduce a joint resolution modifying the final order. Comptroller General issues compliance order. Within 10 sessiondays of revised OMB report December 15 Within 10 sessiondays of revised OMB report November 15 1. The amended Act also includes a procedure, not summarized on this table, that allows the President to modify, with congressional approval, the impact of a sequester order on various defense accounts. Table 3 Regular Budget Process Budget action Deadline President submits budget request. First Monday after January 3 CBO reports to budget committees on fiscal policy and budget priorities. February 15 Senate budget committee reports budget resolution to floor. April 1 Congress completes action on budget resolution. April 15 House appropriations committee reports last annual appropriations bill. June 10 Congress completes action on reconciliation legislation. June 15 House completes action on appropriation bills. June 30 -9 - MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1985:Q4 to 1986:Q4 15.3 9.0 8.9 1. M1 2. M2 3. M3 Q2 Q3 1987 July Aug. Percentage change at annual rates 6.4 -0.1 5.3 1.6 2.3 2.9 2.6 6.1 4.2 4.9 7.3 2.3 Sept.Y 0.5 5.2 5.5 Growth from Q4 1986 to Sept. 1987P 6.1 Levels in billions of dollars Sept. 1987P Selected components 4. Ml-A 5. Currency 6. Demand deposits 7. Other checkable deposits 8. 2 M2 minus M1 11. 12. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 13. 14. 15. plus MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, 16. plus MMDAs, NSA Small time deposits 9. 10. 17. 10.0 2.7 -2.3 7.5 6.6 6.7 11.6 0.0 -8.1 28.5 14.0 6.9 0.8 14.7 -0.5 3.2 -1.7 495.7 6.3 6.9 8.1 194.5 -4.8 0.8 4.5 6.2 9.5 4.7 255.5 4.0 2.9 6.3 6.9 2123.3 3.2 48.2 32.4 79.8 1.1 2.7 17.2 2.9 20.9 0.3 216.5 907.6 -3.8 6.2 1.7 540.4 367.2 923.3 -24.3 17.3 6.8 -1.1 -1.4 3 16.0 -4.2 4.3 0.8 -4.6 5.0 -2.4 7.9 3.8 -2.9 11.0 3.4 0.7 6.3 5.0 3 12.0 -1.2 9.7 1.0 -4.0 10.5 -7.6 13.0 -4.3 12.6 8.7 12.1 12.6 1.6 11.7 M3 minus M24 -9.3 -10.0 11.3 294.1 418.0 505.2 6.8 747.3 Large time deposits 3.0 9.3 6.3 -0.3 4.4 6.9 469.4 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA 2.7 3.4 18.3 -8.4 4.4 10.4 -4.6 8.8 0.0 13.5 1.9 17.3 314.2 155.2 30.3 31.1 3.2 -11.4 70.7 -0.5 1.9 23.3 26.3 31.0 -5.6 -42.9 0.0 2.3 93.2 -38.8 16.9 65.8 80.7 108.1 98.1 -- Average monthly change in billions of dollars -MEMORANDA: 24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds 27. Net.due to related foreign institutions, NSA 28. 29. 6 Other U.S. government deposits at commercial banks 7 2.0 0.6 1.4 6.9 6.3 0.6 2.0 -0.8 2.8 8.5 -1.1 -7.4 4.6 -1.0 5.6 9.9 -0.3 10.2 544.8 370.5 174.3 0.6 1.5 4.2 -5.8 6.3 12.2 10.9 0.8 -0.9 -1.4 -1.6 -0.7 -2.0 163.4 0.4 3.4 -1.5 -3.2 4.4 -5.8 23.3 1. Dollar amounts shown under memoranda 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 (MMDAs) not seasonally adjusted. Commercial bank savings deposits excluding MHDAs increased during August at a rate of a 9.5 percent and were unchanged for September. At thrift institutions, savings deposits excluding MMDAs increased during August at a rate of 9.0 percent and decreased at a 3.0 percent rate in September. 4. The non-M2 component of M3 is seasonally adjusted as a whole. 5. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 6. Consists of borrowings from other than commercial banks in the form 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 RPs and other minor items). Data are partially estimated. 7. Consists of Treasury demand deposits and note balances at commercial banks. p--preliminary. - 10 - COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1985:Q4 to 1986:Q4 92 Q3 1987 July Atuidi Sept. Levels in bil. of dollars Sept. ------ Commercial Bank Cr«1dit --------------------1. 2. Total loans and securities at banks Securities 9.8 7 .7 7.3 1.3 10.8 9.7 2206.7 14.2 .4 8.5 3.0 315.8 6.4 526.3 11.3 331.7 -1.8 194.6 3. U.S. government securities 11.9 3 .3 18.7 11.0 33.0 4. Other securities 18.0 6 .l -7.9 -9.8 -] 12.2 8.4 8 .7 7.0 0.8 9.2 10.7 1680.4 6.6 4 .6 1.9 -5.2 0.2 10.6 560.5 5. Total loans 6. Business loans 7. Security loans -3.7 40 .7 26.5 -14.2 66.2 27.3 45.0 8. Real estate loans 14.1 19 .3 13.6 13.8 16.1 10.4 556.2 9. Consumer loans 7.3 0 .5 6.5 3.1 8.8 7.6 318.9 Other loans 5.4 0 .2 0.0 -17.4 4.2 13.3 199.8 10. ----- 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 nonfinancial firms 15. Sums of lines 13 & 14 16. Bankers acceptances: related 17. 4.0 1.4 -4.8 -1.7 10.9 -14.7 25.5 45.9 73.6 -41.6 16.7 3.4 2.1 -3.4 9.1 570.9 17.6 5.1 -11.4 -14.9 0.6 -16.6 0.4 -4.8 -1.7 23.8 22.5 46.2 6.1 1.5 -3.1 554.2 78.2 7.8 649.1 27.4 -6.7 35.7 -2.3 -0.2 7.1 684.8 16.7 15.2 n.a. 191.3 (Aug) 3.2 n.a. 872.1 (Aug) U.S. trade -3.9 Line 15 plus bankers acceptances: U.S. trade related 18. Finance company loans to business 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 4.4 3 11.7 17.9 n.a. 5.8 8.6 n.a. 1.8 1. Average of Wednesdays. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Based on average of data for current and preceding ends of month. 4. Consists of acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. n.a.--not available. p--preliminary. - 11 SELECTED FINANCIAL MARKET QUOTATIONS1 (Percent) 1987 Spring FOMC highs Sept. 32 Sept. 22 Change from: FOMC Oct. 163 Oct. 27 Oct. 16 Sept. 22 Short-term rates 6.90 6.85 7.20 7.59 7.09 -.50 -.11 6.02 6.28 6.80 6.19 6.30 6.98 6.49 6.75 7.11 6.93 7.58 7.74 5.23 6.01 6.37 -1.70 -1.57 -1.37 -1.26 -.74 -.74 Commercial paper 1-month 3-month 6.96 7.16 6.88 6.97 7.34 7.44 7.94 8.65 7.04 7.38 -.90 -1.27 -.30 -.06 Large negotiable CDs s 1-month 3-month 6-month 7.07 7.33 7.65 6.90 7.01 7.35 7.36 7.43 7.80 7.92 8.90 9.12 7.03 7.51 7.58 -.89 -1.39 -1.54 -.33 .08 -.22 Eurodollar deposits 1-month 3-month 7.05 7.36 7.01 7.11 7.36 7.44 7.79 8.69 7.86 8.81 .07 .12 .50 1.37 Bank prime rate 8.25 8.25 8.75 9.25 9.00 -.25 .25 U.S. Treasury (constant maturity) 3-year 8.35 10-year 8.92 30-year 9.07 8.48 9.29 9,47 8.64 9.37 9.53 9.52 10.23 10.24 8.06 8.92 9.04 Municipal revenue (Bond Buyer) 8.68 8.47 8.65 9.59 9.01 -.58 Corporate A utility (recently offered) 10.27 10.60e 10.96e 11.50 10.70e -.80 -.26 Home mortgage rates S&L fixed-rate S&L ARM, 1-yr. 10.81 8.01 10.63 7.84 10.99 7.99 11.58 8.45 11.36 8.37 -.22 -.08 .37 .38 Federal funds' Treasury bills 3-month 6-month 1-year Intermediate- and long-term rates 1986 Highs Stock prices Dow-Jones Industrial NYSE Composite AMEX Composite NASDAQ (OTC) 1955.57 145.75 285.19 411.16 -1.46 -1.31 -1.20 -.58 -.45 -.49 Record highs 1987 FOMC Sept. 22 Oct. 27 Change from: Record FOMC Sept. 22 highs 2722.42 187.99 365.01 455.26 2568.05 178.48 351.33 437.90 1846.49 130.51 238.52 296.34 -32.17 -30.58 -34.65 -34.91 1. One-day quotes except as noted. 2. Day prior to increase in discount rate on Sept. 4, 1987. 3. Last business day prior to stock market decline on Monday, Oct. 19, 1987. 4. Average for two-week reserve maintenance periods closest to date shown, except Sept. 3 which is one-week average ending Sept. 2, and last observation, which is the averaae to date -28.10 -26.88 -32.11 -32.33 for the week ending Oct. 28, 1987. 5. Secondary market. 6. Averages for statement week closest to date shown. 7. One-day quotes for closest Thursday. 8. Quotes for week ending Friday closest to date shown. e--estimate. INTERNATIONAL DEVELOPMENTS Import and Export Prices Price increases for U.S. exports and imports slowed somewhat during the third quarter, according to data released on October 29 by the Bureau of Labor Statistics. Import prices rose at an annual rate of 7 percent in the third quarter, while export prices increased 1.2 percent. BLS IMPORT AND EXPORT PRICE MEASURES 1 (percentage change from previous period, annual rates) 1986 Exports Imports Oil Non-oil Food Chemicals Crude Materials Intermediate mfg. products Machinery and transport eq. Passenger Cars Miscellaneous mfg. articles !1 Q3 -6.6 Q4 4.9 3.2 -37.5 12.1 17.9 0.4 12.1 10.4 94.3 2.4 -13.3 -0.8 1.6 28.6 200.6 10.4 -17.9 12.1 20.2 10.0 1.6 8.2 10.0 7.0 7.4 14.3 13.0 8.2 19.3 0.4 18.3 1. Not seasonally adjusted, surveyed las --^ -- * - 4.1 - 1987 Q2 - 198703 - ~ - Q3 -3- _ -- _-- 19860 - Q^ " 5.4 11.7 1.2 17.0 10.8 7.4 12.6 10.0 7.0 16.1 5.3 3.2 3.2 11.7 15.5 78.5 7.1 -5.8 6.5 10.7 15.6 15.6 10.2 0.8 -1.2 7.0 14.3 5.7 9.4 49.7 7.4 4.9 13.9 month of each quarter. Prices of non-oil imports rose 5.3 percent at an annual rate in the third quarter. This rate was down from the 10.8 recorded in the second quarter. percent increase Prices of crude materials accelerated, partly the consequence of large increases in the prices of wood and rubber imports. Prices for machinery and transport equipment rose only 0.8 percent in the third quarter, the smallest quarterly increase since March 1985. From March 1985 to June 1987 the quarterly increases had averaged 10 percent. The decline in the price of passenger cars more noticeably - 12 - - 13 - reflects the effects of a slight appreciation of the dollar during the calculation period. Prices of imported fuel rose 16.1 percent in the third quarter after sharper increases in the three previous quarters. Prices of crude oil imports rose 21.1 percent over the quarter, while prices of products declined 0.4 percent. The disparity between the movements in the prices of crude oil and products is partly explained by the longer delivery lag, due to generally greater shipping distances for crude oil. The rise in export prices was smaller than in the previous three quarters. Prices of food exports were down 20.2 percent, and prices of chemicals, after rising at an annual rate of over 21 percent in the previous six months, rose just 4.1 percent over the quarter. Coal prices rose 11.7 percent in the third quarter, the largest quarterly increase in more than five years. The BLS prices are part of the data used to calculate the GNP export and import deflators. The BLS prices for the third quarter are consistent with estimates used by the Bureau of Economic Analysis for the recent GNP press release. 

Federal Reserve (1987, November 2). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19871103_part3

@misc{wtfs_greenbook_19871103_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1987},
  month = {Nov},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19871103_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}