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 June 30, 1989 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 Page THE DOMESTIC NONFINANCIAL ECONOMY Manufacturers' inventories . . . . . . . . . .. . . . . . . . . Sales of new single-family homes . . . . . . . . . . . . . . . . 1 3 Tables Changes in manufacturing and trade inventories . . . . . . . . . Private housing activity . . . . . . . . . . . . . . . ..... .. 2 4 THE FINANCIAL ECONOMY Tables . Monetary aggregates . . . . . . . . . . . . . . . . . . . .. Commercial bank credit and short- and . . . . . . . . . . . . . . intermediate-term business credit Selected financial market quotations . . . . . . . . . . . . . . 5 6 7 THE INTERNATIONAL ECONOMY Foreign exchange markets . . . . . . . . . . . . . . . . . . . . 8 SUPPLEMENTAL NOTES DOMESTIC NONFINANCIAL ECONOMY Manufacturers' Inventories In current-cost terms, manufacturers' inventories rose in May at an annual rate of $24.2 billion--similar to the pace seen in April and in the first quarter. Increases were widespread by industry; among major industrial groupings, only instruments and food reported significant declines. By stage of fabrication, the May accumulation was largely in work-in-process and finished goods inventories. As in the preceding several months, buildups in work-in-process stocks in the aircraft industry were a dominant factor, accounting for more than $10 billion of the total factory inventory accumulation in May. Stocks of production materials and supplies fell slightly in May, after posting a larger decline in April. Factory shipments edged down 0.2 percent in May after surging 2.6 percent in April. The manufacturers' inventory-to-shipments ratio moved up from 1.55 months in April to 1.57 months in May--still within the range observed over the past year. In addition, today's Census report also showed that new orders for all manufactured goods fell 2.5 percent in May, retracing most of the 3 percent rise registered in April. For nondefense capital goods excluding aircraft, more complete sample counts now show that bookings fell 3.6 percent in May, slightly more than the 3.2 percent drop indicated in the advance report released last week. CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates; based on seasonally adjusted data) Q3 1988 Q4 1989 Q1 1989 Apr. 76.4 53.2 23.3 19.2 33.9 23.2 10.7 38.7 41.3 25.5 5.4 7.8 -2.6 10.4 47.1 42.2 27.9 5.5 13.8 4.9 8.9 29.4 29.1 24.9 -1.5 6.1 .3 5.8 53.0 33.1 27.9 2.8 22.3 19.9 2.4 25.5 16.8 5.7 8.1 11.7 8.7 3.0 26.3 18.8 11.2 2.2 12.9 7.5 5.5 16.7 6.7 6.7 -.8 10.8 10.0 .8 2.9 -5.1 2.0 -5.4 6.2 8.0 -1.7 21.4 1.8 12.6 -4.5 13.3 19.6 -6.3 Mar. May Current-cost basis: Total Total ex. auto Manufacturing Wholesale Retail Automotive Ex. auto 24.2 Constant-dollar basis: Total Total ex. auto Manufacturing Wholesale Retail Automotive Ex. auto INVENTORIES RELATIVE TO SALES 1 (Months supply; based on seasonally adjusted data) 1988 Q3 Q4 1989 Q1 Mar. 1989 Apr. May Range in 2 preceding 12 months: Low High Current-cost basis: Total Total ex. auto Manufacturing Wholesale Retail Automotive Ex. auto 1.48 1.46 1.53 1.28 1.55 1.71 1.48 1.52 1.49 1.59 1.32 1.62 2.01 1.51 1.52 1.49 1.58 1.31 1.61 1.98 1.51 1.50 1.48 1.57 1.30 1.59 1.88 1.51 1.50 1.47 1.58 1.28 1.61 1.96 1.51 1.51 1.48 1.58 1.28 1.61 1.97 1.51 1.49 1.46 1.55 1.27 1.61 1.98 1.50 1.51 1.48 1.55 1.31 1.57 1.74 1.50 1.54 1.50 1.60 1.33 1.65 2.13 1.53 1.52 1.50 1.59 1.33 1.61 1.93 1.52 1.52 1.49 1.58 1.32 1.61 1.94 1.52 1.52 1.49 1.59 1.31 1.64 2.11 1.52 1.54 1.50 1.60 1.32 1.65 2.13 1.52 1.52 1.48 1.58 1.29 1.67 2.18 1.54 1.57 Constant-dollar basis: Total Total ex. auto 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. Range is for the 12-month period preceding the latest month for which data are available. Sales of New Single-Family Homes Sales of new single-family homes edged up 3 percent in May to 613,000 units at a seasonally adjusted rate, after a 9 percent increase in April. Despite these gains, the May figure remained slightly below the first quarter average and well below the levels of much of last year. The median sales price of new homes rose 14 percent from a year earlier, while the average sales price increased 19 percent. The price data are not adjusted for changes in house quality or in the regional composition of sales; these factors appear to account for much of the relatively large increase in home prices over the year ending in May. The inventory of unsold new homes was little changed in May at about a 7-3/4 months supply at the current sales rate. PRIVATE HOUSING ACTIVITY (Seasonally adjusted annual rates; millions of units) 1988 Annual All units Permits Starts 1988 Q3 ' 1989 1989 Q4 Ql Mar. Apr.r May 1.46 1.49 1.44 1.47 1.52 1.56 1.37 1.52 1.23 1.41 1.33 1.34 1.34 1.31 Single-family units Permits .99 1.08 Starts .99 1.06 1.04 1.14 .97 1.07 .87 .98 .95 1.03 .91 .98 .68 3.59 .70 3.66 .68 3.77 .62 3.48 .55 3.40 .60 3.40 .61 3.21 .46 .41 .45 .41 .48 .42 .40 .45 .36 .43 .38 .31 .42 .33 Sales New homes Existing homes Multifamily units Permits Starts estimates. p--preliminary p--preliminary estimates. r--revised. r--revised. -5MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted) 1988, 1989 Ql 1989 Q2pe 1989 Apr 1989 May Growth 1989 Q4 88Jun pe Jun 89pe ----------- Percent change at annual rates--------------------1. 2. 3. Ml M2 M3 4.3 -0.4 -5k -4.7 -15.0 -6 5.2 6.2 1.9 3.8 1 3 1.0 2.5 -3.3 -1.0 7 6 -----------Selected 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 6. 22. 23. 11 3h Levels - bil. $ May 89 Percent change at annual rates--------- components 11-A 2.5 Currency Demand deposits Other checkable deposits M2 minus M1 2 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, plus HMDAs, NSA 33 Small time deposits Thrift institutions 3 Savings deposits, SA, plus MMDAs, NSA 3 Small time deposits 17. M3 minus M2 18. 19. 20. 21. -4 4 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA -0.2 -3h 8.1 -1.2 7.0 -5.5 4 -9 1.7 -11.8 7.7 -0.7 -10 -2.6 5.5 2.6 -5.8 13.6 7.4 6.9 1.4 14.7 4.6 -4.3 11.7 31 -5.9 3.0 -6.4 -6 502.0 2.8 -14.1 7 -16 216.4 278.2 -30.2 -5 271.5 0.7 11 2299.4 38 72.5 -27 -52.8 -21.1 20.8 5.4 -8.4 22.4 -3.1 -14.0 4.3 22 5 -15 29 -1 -24 14 19.7 8.0 -15.4 34.6 -1.9 -32.5 17.5 -1.4 -0.8 -28.5 28.7 1.6 -33.1 22.7 30 6 0 14 8 -10 18 259.9 1006.7 509.5 497.2 961.2 352.3 608.9 10.0 10.8 9s 7.7 7.0 5 881.5 11.0 12.2 8.8 12.6 18.0 1.2 19.1 22.1 12.5 9.1 9.5 7.5 572.0 395.7 176.3 -0.8 13.7 9.8 10.6 5.8 53.4 5.7 0.0 91.6 127.6 101.4 2.0 12Z 2 1.4 -22.3 -3 -46.6 ----- Average monthly change in billions of dollars---MEMORANDA:6 24. Managed liabilities at commercial banks (25+26) 25. Large time deposits, gross 26. Nondeposit funds 27. Net due to related foreign institutions, SA 7 28. Other 29. U.S. government deposits at commercial 8 banks 4.6 5.8 -1.2 -0.4 2.0 0.4 -1.6 0.0 -1.5 -0.8 6.1 -6.9 -1 4 -5.1 -1.7 2 0.6 663.8 456.7 207.1 -2.9 5.8 5 8 0.0 207.1 6.2 0 27.1 1. Amounts shown are from fourth quarter to fourth quarter. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. Commercial bank savings deposits excluding MMDAs grew during May and June at rates of -20 percent and -10 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during May and June at rates of -25.9 percent and -11 percent, respectively. 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. . Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis. SConsists of borrowing 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 borrowing from the Federal Reserve and unaffiliated foreign banks, loan RPs and other minor items). Data are partially estimated. 8. Consists of Treasury demand deposits and note balances at commercial banks. pe - preliminary estimate -6COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1987:Q4 to 1988:Q4 -- 1. Total loans and securities at banks Levels 1988 Q4 Q1 1989 Mar. April May p bil.$ May p --------------------- Commercial Bank Credit --------------------7.3 6.1 7.8 6.4 2.9 7.8 2476.8 4.7 5.0 1.9 13.3 -1.1 5.2 559.9 7.4 10.4 8.7 22.8 6.2 9.7 375.2 .2 -5.1 -10.8 -5.1 -15.3 -3.9 184.7 8.1 6.4 9.5 4.4 4.2 8.5 1916.9 Business loans 6.3 4.0 9.9 -3.9 3.3 11.1 621.9 Security loans -6.2 15.3 51.4 -32.6 -103.3 -58.0 37.4 8. Real estate loans 13.4 11.0 12.5 12.7 16.3 10.5 700.9 9. Consumer loans 8.6 8.3 5.2 6.7 7.3 8.6 364.7 -5.9 -2.5 5.6 -17.9 6.3 192.0 2. Securities 3. U.S. government securities 4. Other securities 5. 6. 10. Total loans Other loans .2 --------- 11. Business loans net of bankers acceptances Loans at foreign branches Sum of lines 11 & 12 14. Commercial paper issued by nonfinancial firms 15. Sum of lines 13 & 14 16. Bankers acceptances: U.S. trade ' related Line 15 plus bankers acceptances: U.S. trade related 17. 18. Finance company loans to business 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) 4.1 10.3 -3.3 30.3 11.4 51.9 168.2 7.1 4.4 11.7 2.3 15.6 50.0 37.5 31.6 8.2 10.3 15.5 6.8 -6.8 11.0 16.7 6.9 .0 n.a. 34.95 7.4 10.3 15.5 6.8 9.2 n.a. 5 790.55 12.4 12.1 18.6 n.a. 242.55 11.5 n.a. 1033.15 6.4 2 3 hort- and Intermediate-Term Business Credit---------- 8.5 10.8 8.0 13.7 10.6 7.7 3.5 10.8 619.3 -4.9 69.1 25.7 12.8 645.0 45.6 34.7 120.9 9.8 16.2 765.9 3.6 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 5. April data. p--preliminary. n.a.--not available SELETED FINANCIAL MARKET QUOTATIONS 1/ (percent) 1988 1987 2/ Change from: 1989 Feb FCM lows May 16 Jun 29 Oct 16 Feb 88 FCMC lows May 16 Short-term rates Federal funds 3/ 7.59 6.38 9.79 9.69 3.31 -0.10 Treasury bills 4/ onth 6-fnth 1-year 6.93 7.58 7.74 5.59 5.77 6.10 8.23 7.95 2.36 7 6.41 Comerncial paper 1-month 3-month Lar 1.97 1.54 -0.28 -0.54 -0.59 9.49 9.36 2.95 -013 6.44 6.49 6.55 9.51 9.48 9.47 9.39 9.20 9.02 2.95 2.71 2.47 -0.12 -0.28 -0.45 6.45 5 tiable CD's 4/ nh 7.74 7.64 9.12 8.28 8.23 9.37 9.12 2.67 .25 Earodollar deposits 5/ 1-month 8.00 9.06 6.44 6.50 9.56 9.50 9.38 9.25 2.94 2.75 -0.18 -0.25 Bak prime rate 9.25 8.50 11.50 11.00 2.50 -0.50 7.28 8.90 8.82 8.14 8.12 8.09 0.86 0.01 -0.23 -0.76 -0.70 -0.75 3-~lnth Intermediate- and long-term rates U.S. Treasury (constant maturity) 9.52 3-year 10.23 10.24 8.11 8.32 9.59 7.76 7.64 7.34 -0.42 -0.30 Corporate-A utility ecently offered 11.50 9.63 10.12 9.59 -0.04 -0.53 Hone nortge rates 7/ Fixed-rate ARM, 1-year 11.58 8.45 9.84 7.59 10.93 9.36 10.19 9.00 0.35 1.41 -0.74 -0.36 10-year 30-year Mnicipal revenue 6/ (Bond Bjyer index) 1989 1987 Record highs 8.84 FMC Lows May 16 Jun 29 Percent change from: Record FOC highs May 16 Stock prices Dow-Jones Industrial 2722.42 NYSE Composite AMEX Cposite C) NASDAQ 187.99 365.01 55.26 1738.74 2453.45 2458.27 125.91 175.92 178.75 231.90 349.92 30.61 37.91 291.88 435. -9.70 -4.92 -1.21 -3.81 4/ 1/ One-day quotes except as noted. 5/ 2/ Last business day prior to stock market decline on Monday Oct. 19, 1987. 6/ 3/ Average for two-week reserve maintenance period closest to date shown except Feb. low dwich is the average to the statement 7/ week ended Feb. 10, 1988. Last observation is average for maintenance period ending June 28, 1989. 0.20 1.61 3.05 0.52 Secondary market. Bid rates for Eurodollar deposits at 11 a.m. London time. Based on one-day hlrsday quotes and fbtures-market index changes. QOotes for week ending Friday closest to date shown. Foreign Exchange Markets On June 29, the Bundesbank announced 1/2 point increases in its discount and Lombard rates to 5 percent and 7 percent, respectively. The Bundesbank said that the rate increases were aimed at strengthening the mark's purchasing power. The Bundesbank also reaffirmed its 1989 target for M3 growth of "about 5 percent", saying that it aimed for as moderate a money growth rate as possible for the rest of the year. Through May, M3 growth has been 5.4 percent at an annual rate. The German Economics Ministry supported the decision to raise rates with an announcement that German consumer price inflation would exceed the target range of 2 to 2-1/2 percent for 1989. The Swiss National Bank followed the German move by raising its discount rate by a full percentage point, to 5-1/2 percent, but did not change the flexible Swiss Lombard rate. The Bank of France announced 1/2 point increases in its intervention rate and its 5-10 day RP rate to 8-3/4 percent and 91/2 percent, respectively. The central banks of Austria, Belgium, Denmark, and the Netherlands also followed with hikes in their official interest rates. The Bank of Japan and the Bank of England left their official rates unchanged. 

Federal Reserve (1989, July 5). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19890706_part1

@misc{wtfs_greenbook_19890706_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1989},
  month = {Jul},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19890706_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}