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 February 1, 1991 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 Labor market developments . . . Purchasing managers' survey. . Consumer sentiment . . . . . . Home sales . . ..... ... .. . . . Nonresidential construction. . Erratum. . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... . . . . ... . . . . . . . . . . . . . 1 3 4 5 5 6 Tables Average hourly earnings. . . . . . . . . . . . . . . . . University of Michigan survey of consumer attitudes. . . Changes in employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Selected unemployment rates. ... . . .. . . Business capital spending indicators ... . Private housing activity . . . . . . . . . . . . . . . . Federal sector accounts. . . . . . . . . . . . . ..... . Charts Labor market indicators . . . . . . . . . . . . . . Unemployment insurance . . . . . . . . . . . . . . . Purchasing managers . . . . . . . . . . . . . . . . Average lead time. . . . . . . . . . ... . . . . . . Private housing starts . . . . . . . . . . . . . . . Nonresidential construction and selected indicators. . . . . . .. . . . . . . . . .. . . 3 4 7 7 12 13 15 . . . . . . .... . . .. . .. .. 8 9 10 11 13 14 THE FINANCIAL ECONOMY The January 1991 senior loan officer opinion survey on bank lending practices. . . . . . . . . . . . . . . . . . . .. . 16 Tables Nonmerger-related business lending . . Monetary aggregates . . . . . . . . . Commercial bank credit and short- and intermediate-term business credit . Selected financial market quotations . . . . . . . . . . .. . . . . . . .. . . . 20 21 . . . . . . . . . .. . . . . . . . . .. . 22 23 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Labor Market Developments Labor market conditions deteriorated again in January and, on balance, labor demand appears to have been somewhat weaker around the turn of the year than we previously thought. Total payroll employment fell 232,000 in January; the job loss in December, 148,000 jobs, is now estimated to have been larger than previously reported. The civilian unemployment rate edged up another 0.1 percentage point in January to 6.2 percent. Total private payroll employment fell 178,000 in January, with losses again concentrated in the goods-producing sector. Construction lost 155,000 jobs in January, but part of this steep decline appears to have been temporary. The BLS received reports that activity was disrupted by heavy rains in the South and flooding along the Ohio river valley during the survey week. January. In manufacturing, employment fell an additional 69,000 in Producers of durable goods shed 60,000 jobs with all major industries reporting losses in January. Motor vehicles and equipment took back almost all of its December gain (-13,000). 2 those industries producing nondurables. Employment fell 9,000 in Only food processing and paper 1. The downward revision totaled 72,000 in December; for private employment, it was 57,000. Most of the revision to private employment occurred in services (-23,000). In addition, employment growth in the goods-producing sector was revised down 27,000 in December with the revision almost evenly split between manufacturing and construction. 2. In both months, motor vehicle assemblies fluctuated during the month as producers attempted to adjust production to dealers' orders. Output, and probably employment, during the mid-December survey week overstated activity for the month as a whole; the reverse was true in January. Motor vehicle assemblies declined from 8.4 million units to 7.5 million units (annual rate; FRB basis) between November and December and rose to an estimated 8 million units in January. -2reported gains in January while all others, including chemicals and petroleum, reported small losses. In the private service-producing sector, employment increased 51,000 in January. But retail trade jobs more than accounted for the rise; because hiring in that industry had been slower than usual in November and December, so were January's layoffs, and on a seasonally adjusted basis, employment jumped 85,000. Smoothing through the swings of the last few months, employment in retail trade has fallen 24,000 since October. Services, which on average added 78,000 jobs per month in 1990, lost 17,000 jobs in January--in part owing to a decline of 32,000 in business services. Employment in business services began slowing in 1989, and employment in this industry now has fallen for four consecutive months with losses totaling 88,000 jobs. Meanwhile, growth in health services in January (39,000) continued at a pace little changed from that of 1990. Hours of production or nonsupervisory workers fell 1.9 percent in January, reflecting not only the steep decline in employment but also a sharp drop in the average workweek. About one-third of the decline in aggregate hours last month resulted from the plunge in construction hours. More generally, average weekly hours have been quite volatile over the past few months, rising to 34.6 hours in December then plummeting to 34.1 hours in January; the manufacturing workweek has followed a similar pattern. On balance, between November and January, aggregate hours of private production workers declined about 1-1/2 percent; manufacturing hours were down about 1-1/4 percent. According to data from the household survey, the 0.1 percentage point increase in the unemployment rate in January reflected sharp increases in -3the rates for younger workers. The unemployment rate for workers aged 25 and older was unchanged at 5.0 percent. In January, the labor force participation rate dropped back again to 66.0 percent; the participation rate had posted a small gain in December. Over the past twelve months, the labor force has grown by less than 150,000 or less than 0.1 percent. Average hourly earnings of production or nonsupervisory workers fell 0.1 percent in January to a level 3-3/4 percent above a year earlier. Hourly earnings fell sharply in finance, insurance, and real estate-retracing most of the steep December increase. Meanwhile, wages rose sharply in construction and manufacturing--likely reflecting shifts in the mix of employment. AVERAGE HOURLY EARNINGS (Percentage change; based on seasonally adjusted data) Total private nonfarm Manufacturing 1990 Q3 Q4 1990 1991 Nov. Dec. Jan. Memo: Jan. 1990 to Jan. 1991 1989 1990 4.1 3.7 4.0 2.4 .2 .5 -.1 3.7 2.8 3.7 2.6 3.0 .0 .4 .3 4.4 1. Changes over periods longer than one month are measured from final month of preceding period to final month of period indicated. Purchasing Managers' Survey According to reports by industrial purchasing managers, new orders declined sharply again in January despite another increase in bookings from abroad. The net difference between the proportions of managers reporting lower and higher orders, on a seasonally adjusted basis, was the largest since this measure moved into the negative range in July. Production and -4employment also continued to fall, and inventories of materials were reduced further. Vendor deliveries speeded up noticeably, on net, and the proportion of respondents who paid higher prices for materials dropped back for a third month and about equaled the proportion paying lower prices. According to the survey, fears of supply disruptions associated with Iraq's invasion of Kuwait had resulted in demand for early deliveries as well as rising materials prices between August and December. to subside last month. These fears appeared Lead times for ordering production materials and capital goods, which have been trending down over the past two years, decreased slightly in December while lead times for maintenance, repair, and operating supplies were little changed from recent readings. Consumer Sentiment Consumer sentiment, as measured by the University of Michigan's Survey Research Center, was little changed for a third month in January. Within the month, however, there were sharp gyrations the attitudes of respondents reflecting the developments in the Persian Gulf. University of Michigan Survey of Consumer Attitudes (Not seasonally adjusted; Feb. 1966 = 100) Dec. 2-15 Index of Consumer Sentiment 65.5 66.0 January 23-28 16-22 75.0 61.5 All 66.8 In the first half of the month, the overall index was about unchanged from the December level. Attitudes then improved markedly in the week immediately following the Allied attack on Iraq and Kuwait, only to sink to a new low (for the current downturn) in the last week of the month. Results -5for the subperiods are based on relatively few interviews (359, 93, and 79, respectively), and thus are not as reliable statistically as results based on a full month's complement of 500 interviews. Taking the month as whole, consumers were slightly more upbeat than in December about their financial situations--both current and future--as well as about the near-term outlook for general business conditions. Buying conditions for large household durables were seen about as favorably in January as in December. Expectations about the future course of inflation also varied widely during the month, hitting their low point in the week after the initiation of hostilities. For the month as a whole, the average expectation for inflation over the next 12 months was 5.1 percent, down from 5.5 percent in December. Home Sales Sales of new single-family homes dropped back 7 percent in December to 463,000 units (annual rate) from a November reading that was lower than previously reported. The weakness in demand for new homes through yearend was consistent with the Michigan Survey's sampling of consumer attitudes toward homebuying, which trended down from July through October and remained at a relatively low level in November and December. In the January survey, attitudes toward homebuying apparently improved because more households perceived prices and interest rates to be low. Nonresidential Construction Nonresidential construction put-in-place increased 1/2 percent in December from the downward-revised November level. However, even with the uptick in December, construction outlays dropped more than 5 percent in the fourth quarter (not an annual rate), with sharp declines in every major -6category except public utilities. The new data are in line with BEA's assumption for the advance estimate of fourth-quarter GNP and thus imply no significant revision to the estimated 16-1/2 percent (annual rate) decline in real spending for nonresidential construction. Erratum The federal sector accounts table has been adjusted to correctly reflect assumed foreign contribution to Operation Desert Storm. The correction reduces the projected FY1992 unified budget deficit from $276 billion to $266 billion. In a corresponding correction to Part 1 text, the sentence beginning on p. 5, line 12, should now read: In particular, we now expect the unified deficit to be about $280 billion in FY1991 and $265 billion in FY1992. CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data) 1990 1989 1990 Q2 Q3 1990 Q4 Nov. 1991 Dec. Jan. ------------ Average monthly changes--------Nonfarm payroll employment 2 193 53 236 -72 -198 -267 -148 -232 162 -16 -16 -0 5 47 9 100 30 21 -49 -39 -10 -19 -4 4 78 32 106 -23 -20 -3 -14 27 8 92 129 8 -43 -44 1 -31 3 2 72 -80 -200 -107 -79 -28 -63 -68 -7 39 2 -272 -207 -161 -46 -64 -65 -10 73 5 -135 -45 -33 -12 -42 -71 -2 8 -13 -178 -69 -60 -9 -155 71 -8 -17 -54 Private nonfarm production workers Manufacturing production workers 134 -17 8 -41 94 -18 -25 -36 -182 -88 -264 -178 -135 -36 -202 -45 Total employment 3 Nonagricultural 148 148 -32 -38 1 -27 -118 -90 -103 -123 -347 -357 188 120 -652 -562 Private Manufacturing Durable Nondurable Construction Trade Finance, insurance, real estate Services Total government 1. Average change from final month of preceding period to final month of period indicated. 2. Survey of establishments. 3. Survey of households. SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data) 1990 1989 1990 Civilian, 16 years and older 5.3 Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older White Black 1990 Q2 Q3 Q4 5.5 5.3 5.6 15.0 8.6 3.9 4.2 15.5 8.8 4.4 4.3 15.0 8.7 4.1 4.2 4.5 11.5 4.8 11.3 Fulltime workers 4.9 Memo: Total nationall 5.2 1991 Nov. Dec. Jan. 5.9 5.9 6.1 6.2 16.0 8.9 4.5 4.3 16.4 9.2 4.8 4.6 16.4 9.1 4.8 4.6 16.6 9.2 5.1 4.8 18.2 9.5 5.1 4.9 4.6 10.6 4.8 11.7 5.1 12.0 5.0 12.2 5.3 12.2 5.5 12.1 5.2 5.0 5.3 5.7 5.7 5.8 6.0 5.4 5.2 5.5 5.8 5.8 6.0 6.1 1. Includes resident armed forces as employed. Labor Market Indicators Payroll Survey Aggregate Hours 1 1982.100 133 - 126 - 119 Jan. 121.7 - I I 1988 1987 1988 IlIIIIIIIili 1989 IIIlliiiii 1990 112 l105 1991 1. Dota denote quartedy averages. Diffusion Index of Employment Changes Percent 80 S70 60 50 Jan. 45.1 40 30 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 -9- Unemployment Insurance (Weekly data; seasonally adjusted, FRB basis <1>) Initial Claims Thousands 1 700 Jan 19 482.7 1 550 All regular programs 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Insured Unemployment 1991 Millions 5.0 4.5 4.0 All regular programs Jan 12 3.15 1981 1982 1983 1984 1985 <1> Only the state program components of these series are seasonally adjusted. 1986 1987 1988 1989 1990 1991 3.5 -102/1/91 Purchasing Managers * (Seasonally adjusted) Percent Percent 75 75 50 50 New orders Production - 25 - +e 0 25 0 25 Employment - 25 - 50 Jan. - I - I 1984 I I 1986 I 1988 I 50 I - 7I 75 1990 I 1984 1986 I l 75 75 II 1988 1990 Percent Percent 75 - -0 - 75 Prices paid Supplier deliveries" 25 25 + A% fl . + 0 - 0 25 - - 25 - 50 - - 50 Inventories I I 1984 * Pmet I 1988 repertng Increes SPowsiv *ntr I I 1988 I 1990 75 re ntted with thoe reportng decremae. represnt lemowr delivee. IIIl I 1984 1986 1988 1990 I 75 -11- 2/1/91 Average Lead Time (Monthly, not seasonally adjusted) MRO SUPPLIES Days 50 40 S- 30 - IIIl l 1980 I 1984 1982 I Il I 1988 1986 10 1990 PRODUCTION MATERIALS Days 1990 1988 1986 1984 1982 190 CAPITAL GOODS Days 100 85 700 - Jan. - I 1980 I I 1982 20 I I 1984 I I I 1986 Soure: Cdulaed by FR staf from monthly purchaang mnmge I 1988 reports. I100 1990 150 -12BUSINESS CAPITAL SPENDING INDICATORS (Percentage change from preceding comparable periods; based on seasonally adjusted data) 1990 1990 Q2 Q3 Q4 Oct. Nov. Dec. Shipments of nondefense capital goods Complete aircraft Excluding aircraft and parts Office and computing All other categories -0.9 -3.1 -1.5 -1.0 -1.6 1.1 16.7 -0.8 -1.4 -0.7 -0.1 -6.5 0.9 4.1 0.1 -0.1 -1.2 1.3 3.5 0.7 -1.7 -2.0 -1.8 -6.4 -0.6 -0.4 -0.8 -1.5 2.4 -2.4 Weighted PDE shipments 1 -1.4 -0.1 2.3 2.8 -1.0 -1.7 Sales of heavy-weight trucks -5.9 6.4 -10.8 -4.5 -5.8 4.0 Orders of nondefense capital goods Excluding aircraft and parts Office and computing All other categories -5.8 -1.4 -1.2 -1.5 4.9 0.6 5.2 -0.6 4.7 -0.5 -6.2 1.0 8.7 2.7 -12.4 7.0 -14.0 -6.1 -2.4 -7.0 16.9 1.2 -4.1 2.5 Weighted PDE orders 1 -0.7 0.1 1.6 4.6 -4.8 0.4 Construction put-in-place Office Other commercial Public utilities Industrial All other -0.5 -3.8 -3.5 -0.5 0.7 4.9 1.1 1.6 -2.5 0.0 2.3 4.5 -5.3 -7.6 -9.3 1.5 -5.7 -6.2 -2.3 -3.9 -2.3 -0.2 -1.2 -3.9 -2.1 -5.5 -4.0 0.8 -0.3 -1.6 0.5 2.9 0.2 -0.6 6.9 -4.1 Rotary drilling rigs in use 10.7 -2.8 -2.8 -0.9 0.3 -2.3 1.5 4.3 n.a. 7.2 -10.1 n.a. Producers' durable equipment Nonresidential structures Footage drilled 2 Note: The Census M-3 report does not provide information on complete aircraft orders. 1. Computed as the weighted sum of 25 individual equipment series (excluding aircraft) from the Census M-3 report with weights equal to the fraction of final business spending for each type of equipment. 2. From Department of Energy. Not seasonally adjusted. n.a. Not available. -13PRIVATE HOUSING ACTIVITY (Seasonally adjusted annual rates; millions of units) 1990' 1990 1990 Annual Q2 Q3 Q 4P Oct. Nov? Dec.p 1.10 1.19 1.09 1.20 1.04 1.13 .89 1.05 .92 1.03 .91 1.13 .85 .99 .79 .89 .80 .90 .76 .86 .68 .79 .71 .84 .67 .77 .65 .76 .54 3.30 .54 3.32 .52 3.33 .48 3.14 .48 3.05 .50 3.15 .46 3.22 Multifamily units Permits Starts .30 .30 .29 .31 .28 .27 .22 .26 .21 .19 .24 .36 .20 .23 Vacancy ratel Rental units Owned units 9.1 7.2 8.5 7.9 9.5 6.6 9.0 6.6 n.a. n.a. All units Permits Starts Single-family units Permits Starts Sales New homes Existing homes n.a. n.a. n.a. n.a. 1. Percent. Owned units consist mainly of condominiums. All vacancy rate data are revise r Revised estimates. n.a. Not available. p Preliminary. PRIVATE HOUSING STARTS (Seasonally adjusted annual rate) Millions of units 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 -14- NONRESIDENTIAL CONSTRUCTION AND SELECTED INDICATORS * (Index, Dec. 1982 = 100, ratio scale) Total Building -I -- Construction (C) ------ ,""' Permits (P), Contracts (CN), or New commltments (NC) (CN) r , ', 1979 i, %1 ^\ ^^^s I 1981 1983 1985 1987 1989 1991 Other Commercial Office (C) - 160 120 -,-~ I _~______ 1983 (P) I 1985 .t -4 80o -' I I 1987 I I I I 1983 1989 Industrial 1985 1987 1989 1991 Institutional -- r 240 - (NC) , - 180 120 I- - -,- (C) - 60 i 1983 1985 1987 1989 1991 90 -(C) 1983 I 1985 i I 1987 I I 1989 t 1 1991 *Six-month moving average for all series shown. For contracts, total only indudes private, while ndlvidual sectors Include private and public. New comritments are the sum of permits and contracts. CONFIDENTIAL FR CLASS II February 1, 1991 1 FEDERAL SECTOR ACCOUNTS (Billions of dollars) Fiscal years 1990 1989a 1990a 1991 1992 Ia IIa 1991 IIIa IVa I II 1992 III IV I II III IV Not seasonally adjusted BUDGET 2 Budget receipts2 Budget outlay. 2 Surplus/deficit(-) (On-budget) (Off-budget) Surplus excluding 3 deposit inaurance Meana of financing: Borrowing Cash decrease 4 Other 991 1144 -153 -206 53 1031 1252 -220 -277 57 1115 1398 -283 -347 64 1193 1459 -266 -335 69 230 310 -80 -94 14 319 331 -12 -41 29 254 312 -58 -65 7 254 341 -87 -97 10 253 344 -91 -107 16 331 358 -27 -50 23 278 356 -78 -93 15 264 373 -109 -116 7 275 359 -84 -104 20 355 362 -7 -33 26 298 364 -66 -82 16 280 361 -81 -91 9 -131 -162 -192 -172 -74 17 -41 -72 -71 0 -49 -85 -61 16 -42 -68 140 3 10 263 1 -44 298 0 -15 251 5 10 90 8 -18 41 -16 -13 69 -6 -6 99 8 -20 67 6 17 46 -9 -10 86 -4 -3 99 15 -5 60 5 19 35 -20 -8 57 5 4 81 10 -10 41 40 40 35 18 35 40 32 26 36 40 25 20 40 35 25 Cash operating balance, end of period Seasonally adjusted annual rates NIPA FEDERAL SECTOR Receipts Expenditures Purchases Defense Nondefense Other expend. Surplus/deficit FISCAL INDICATORS a--actual 1. 2. 3. 4. 5. 1092 1249 1166 1331 1263 1399 1081 1249 1106 1272 1126 1272 1135 1300 1157 1333 1175 1343 1199 1348 1222 1371 1257 1401 1276 1408 1295 1414 1318 1435 400 415 446 451 411 422 426 439 446 449 449 449 453 452 450 449 301 99 774 -136 307 107 835 -158 330 116 885 -165 326 126 947 -136 307 103 838 -168 310 112 850 -166 313 113 846 -146 327 112 862 -165 333 113 887 -176 332 118 894 -168 329 120 899 -149 327 122 921 -148 328 125 948 -144 325 127 956 -132 322 129 964 -119 318 131 985 -116 -149 -150 -109 -82 -166 -154 -127 -123 -114 -107 -90 -92 -90 -78 -66 -64 0 0 -.8 -.5 .3 -.2 -.5 -.1 -.2 -.1 -.3 0 0 -.2 -.2 0 -2.3 1.2 -.8 1.4 -4.3 .7 -.5 -. 6 -2.2 -.7 -.8 -.6 5 High-employment (HEB) surplus/deficit(-) Change in HBB, percent of potential GNP Fiscal impetus measure (rI), percent Note: 1038 1174 -3.5 * -3.4 * -3.1 * -3.7 * *--calendar year Details may not add to totals due to rounding. Staff projections. CBO's January deficit estimates are $298 billion in FY1991 and $284 billion in FY1992. OMB's baseline deficit estimates made for the Budget Summit (September 1990), in combination with their preliminary estimates of the savings in the recent budget agreement, imply deficits of $255 billion in FY1991 and $233 billion in FY1992. The OASDI surplus Budget receipts, outlays, and surplus/deficit include social security (OASDI) receipts, outlays and surplus, respectively. is excluded from the "on-budget" deficit and shown separately as "off-budget", as classified under current law. The Postal Service deficit is included in off-budget outlays beginning in FY1990. ONB's September CBO's January deficit estimates, excluding deposit insurance spending, are $194 billion in FY1991 and $186 billion in FY1992. deficit projections, excluding deposit insurance spending, are $158 billion in FY1991 and $153 billion in FY1992. Other means of financing are checks issued less checks paid, accrued items; and changes in other financial assets and liabilities. HEB is the NIPA measure in current dollars with cyclically-sensitive receipts and outlays adjusted to a 6 percent unemployment rate and 2.3% Change in HEB, as a percent Quarterly figures for change in HEB and FI are not at annual rates. potential output growth in the forecast period. FI is the weighted difference of discretionary federal spending and tax changes (in 1982 dollars), of nominal potential GNP, is reversed in sign. restraint. (-) indicates and FI, in BEB For change scaled by real federal purchases. -16- THE FINANCIAL ECONOMY The January 1991 Senior Loan Officer Opinion Survey on Bank Lending Practices The January 1991 Senior Loan Officer Opinion Survey on Bank Lending Practices asked a series of questions aimed at gauging changes in commercial banks' lending policies with respect to financing nonmerger-related business activities, commercial and residential real estate, and consumer expenditures generally. The results suggest a further overall tightening of business credit terms in the last three months. The number of domestically chartered banks reporting additional firming in the last three months, while significant, was somewhat fewer than the number that reported tightening in At U.S. branches and agencies of foreign banks, by the October 1990 survey. contrast, the pace of tightening appears to have accelerated since October. Domestic banks also have tightened somewhat their lending to the household sector in the last three months, both with respect to mortgage financing and consumer credit generally. Nonmerger-Related C&I Loans Credit standards. Roughly one-third of domestically chartered respondents indicated that they had tightened credit standards for approving loan applications from large, medium, and small commercial and industrial firms in the October-January period. (In the preceding three-month period, almost half had reported such tightening.) As in previous surveys, the most important factors behind the tightening were a deterioration in the economic outlook and industry specific problems. pressures on capital positions. Of somewhat lesser importance were However, a number of banks also cited a deterioration in their loan portfolios, a possible indication of anticipated -17capital pressures. Regulatory pressures also were mentioned by some banks as a reason for tighter credit standards. Over 85 percent of U.S. branches and agencies of foreign banks reported tightening credit standards in the last three months, up from about 70 percent in the October survey. At foreign banks, pressures on capital positions along with a deterioration in the economic outlook were given as the primary reasons for tightening. Price and nonprice terms of credit. A large number of domestic respondent banks indicated that in the last three months they had raised the cost of business credit. Over one-half of these banks indicated that they had increased both the cost of credit lines and of the loans taken down under lines for their large and medium-sized customers. These banks also reduced the maximum size of credit lines they were making available. (A similar number had reported taking such steps in the October survey.) More than one-third of domestic banks also reported tightening collateral requirements and covenants in the October-January period. Among foreign banks, a large majority of branch and agency respondents reported tightening the cost and terms on the loans they made in the last three months. Reactions of business borrowers. Commercial and industrial firms that have been turned away or discouraged from borrowing at respondent banks over the last three months most commonly have ended up borrowing at another bank. Respondent banks report that some other customers have obtained credit from nonbank sources. Some large customers tapped credit markets, issuing commercial paper or bonds, while middle-market and small firms borrowed from finance companies. A number of firms, however, responded to the tightening by cancelling or postponing planned borrowing, presumably reducing their -18spending plans as well. Domestic banks reported that this reaction was more common for smaller and medium sized firms than for large firms. A relatively large proportion of foreign banks reported that cancellation or postponement of borrowing was a common customer reaction. Effect of reserve requirement change. The January survey also examined the degree to which commercial and industrial loans have been priced to explicitly account for that part of funding cost attributable to the reserve requirement on nonpersonal time and savings deposits and net Eurocurrency liabilities. The reserve requirement was reduced in two equal steps from 3 percent to zero in the maintenance periods ending December 26 and January 9. This reduces the cost to banks of funding their loans and would imply some increase in bank profitability. The gain would be attenuated, however, to the extent that some bank loans have explicitly included in their loan rates the reserve requirement cost of funding them. For such loans, the savings from the drop in reserve requirements will be passed on immediately to borrowers. According to respondents, around 25 percent of the C&I loans at domestic banks and 30 percent of loans at foreign banks are priced in this way. Almost one-half of domestic respondents reported that they had tightened their standards for making construction and land development loans over the last three months, compared to two-thirds that so reported in the last survey. As they had in the October survey, nearly all of the foreign banks reported tightening lending standards for this type of credit in the January survey. With regard to permanent real estate financing, a bit under one-half of domestic banks said that they had tightened standards on loans secured by -19- commercial buildings, industrial structures and other nonfarm nonresidential mortgages, down from around 60 percent in the last survey. Most foreign banks reported tightening standards for this type of credit in January. Households Loans Residential mortgages. Almost one-third of domestic respondents indicated that they had tightened standards for residential mortgages in the last three months, compared to 25 percent of banks that reported tightening in the October survey. higher downpayments. Tighter standards most commonly took the form of Over 60 percent of respondents indicated that the demand for residential mortgages also had declined in the October-to-January period. Consumer loans. The January survey revealed some increase in the number of banks reporting that they had become less willing to make consumer installment loans. Whereas in recent surveys over 90 percent of banks had indicated no change in willingness to lend, this share fell to just over 80 percent in the January report, with the remainder indicating they had become less willing to lend. -20Table 1 Non Merger-Related Business Lending (Percent of domestic respondent banks reporting tighter lending standards or terms) Size of borrowing firm Criterion Survey period Standards for approving loan applications Aug.90-Oct.90 Oct.90-Jan.91 Maximum size of credit lines Aug.90-Oct.90 Cost of credit lines Aug.90-Oct.90 Oct.90-Jan.91 .oreads of loan over base rates Aug.90-Oct.90 Covenants Aug.90-Oct.90 Large Medium Small Memo: Branches & agencies of foreign banks Oct.90-Jan.91 Oct.90-Jan.91 Oct.90-Jan.91 Collateral requirements Aug.90-Oct.90 Oct.90-Jan.91 1. The middle market is often categorized as consisting of firms with annual sales between $50 and $250 million. "Large" firms are those larger than middle-market firms and "small" businesses are those that are smaller. Not all respondents used the same criteria to distinguish among size of customers. -21MONETARY AGGREGATES (based on seasonally adjusted data unless otherwise noted) 1990 19901 03 1990 94 1990 Nov 1990 Dec Growth 1991 04 90Jan pa Jan 9 1pe ------------ Percent change at annual rates--------------------1. 2. H3 P? 3. M3 3.7 2.9 1.5 3.4 2.3 1.1 3.1 0.3 0.1 2.9 1.7 0.2 1 2 1 Iu Levels ------------ Percent change at annual rates------------ bil, S Dec 90 Selected components 4. 5. 6. 7. M1-A Currency Demand deposits Other checkable deposits 4.6 6.0 4.8 2.3 2.5 2 10.9 -0.7 11.2 1.3 10.9 -0.9 4.9 0.0 6.9 -1.3 26 -19 246.3 276.8 3.5 -0.3 0.7 4.5 3.7 0 293.8 1.9 -0.6 1.3 1 2505.2 -86.2 -60.4 -34 531.5 8. 2Zminus M12 3.8 2.6 9. 10. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares Commercial banks 3 Savings deposits plus MMtAs Small time deposits Thrift institutions 3 Savings deposits plus MMOAs Small time deposits 2.8 5.9 11.4 10.0 7.5 12.4 -5.4 9.9 11.4 7.4 15.5 -9.0 11.2 7.9 4.0 11.7 -7.5 4.6 2.7 2.5 2.9 -2.5 16.4 11.2 4.4 17.9 -12.8 30 5 3 8 -7 347.7 1176.0 577.6 598.4 906.0 -2.2 -4.9 -7.4 -5.6 -11.9 -4 338.9 -7.2 -11.4 -7.6 -0.4 -13.6 -9 567.1 16 781.3 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. M3 minus M24 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares Term RPs, NSA Term Eurodollars, NSA -22.2 73.6 -6.4 -4.0 -3.6 -0.5 -6.1 -9.7 -3.9 -23.9 -8.9 -2-3 -27.3 -14.1 -9.7 -26.6 -10.0 -14.8 -6.5 -39.4 504.5 383.7 120.9 20.2 -12.7 -10.1 21.6 0.8 12.2 30.4 -28.8 26.6 9.0 -5.0 25.3 51.8 -75.9 1.7 125.7 88.8 72.7 -3.4 -30.0 ----- Average monthly change in billions of dollars---MEMORANDA;: 24. Managed liabilities at commercial banks (25+26) 25. Large tim deposits, gross 26. Nondeposit funds 27. Net due to related foreign institutions 7 Other 28. 29. U.S. government deposits at commercial bankss 1. 2. 3. -0.1 -2.5 2.4 0.8 -2.6 3.4 -2.0 -3.7 1.7 -0.4 -2.5 2.1 -9.6 -3.2 -6.4 719.0 432.5 286.5 2.2 0.3 1.5 2.0 4.7 -3.0 0.2 1.9 4.8 -11.3 -1 -14 33.4 253.0 0.3 1.8 -0.5 2.9 -0.8 1 24.4 Amounts shown are from fourth quarter to fourth quarter. Nontransactions M2 is seasonally adjusted as a whole. Commercial bank savings deposits excluding MMDAs grew during December and January at rates of 7.3 percent and 11 percent, respectively. At thrift institutions, savings deposits excluding MMDAs grew during December and January at rates of -8.5 percent and -5 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. 6. Dollar amounts show under memoranda are calculated on an end-month-of-quarter basis. 7. Consists of borrowing from other than comercial 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 -22COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1989:Q4 to 1990:Q4 Levels bil.$ Dec. 1990 Q3 Q4 Oct. Nov. Dec. ---------- Commrcial Ban k Credit--------------------1. 2. Total loans and securities at banks Securities 5.2 5.8 1.6 .9 1.5 2.5 2719.8 8.9 6.5 -2.4 3.3 -2.5 -7.8 623.1 .3 -11.4 447.7 3. U.S. government securities 14.3 7.8 .2 11.8 4. Other securities -2.9 3.1 -8.7 -18.1 4.1 5.6 2.8 5. Total loans .3 -9.5 1.4 175.4 2.7 5.6 2096.7 6. Business loans 2.1 .9 2.3 -2.6 5.5 3.9 654.5 7. Real estate loans 9.0 6.4 6.9 8.1 5.1 7.4 829.2 8. Consumer loans 2.1 3.1 .6 -. 3 -2.8 5.0 381.9 9. Security loans -1.0 88.4 -16.7 -47.3 -43.5 42.1 41.3 Other loans -3.0 7.7 -3.8 -11.3 3.2 -3.2 189.8 10. Sheort- and Intermediate-Ter m Business Credit---------11. Business loans net of bankers acceptances 2 12. Loans at foreign branches 13. Sum -f lines 11 4 12 14. Commercial paper issued by nonfinancial firms 15. Sum of lines 13 5 14 16. Bankers acceptances: related , 17. 2.0 1.1 2.0 -2.6 20.3 28.8 30.3 25.2 2.6 2.0 3.0 -1.6 16.4 16.8 -3.2 19.0 4.9 4.6 1.9 2.2 .1 -11.3 -27.6 18.9 12.1 44.0 4.2 3.5 2.5 2.5 n.a. 20.7 n.a. a.a. 7.6 n.a. 5.4 19.8 3.4 43.7 646.5 25.6 5.8 4.8 -24.1 -4.0 150.5 3.2 822.6 672.1 U.S. trade Line 15 plus bankers acceptances: U.S. trade related 18. Finance company loans to business 19. Total short- and intermediateterm business credit (su of lines 17 a 18) 3 .0 853.7 10.6 4.6 31.1 287.9 2.3 n.a. 1139.35 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. November data. p--preliminary. n.a.--not available -23SELECTED FINANCIAL MARKET QUOTATIONS (percent) ---- ---- ---- --------- -- -- - -- - -- - -- - -- - -- - -- - -- -- - -- - -- - -- - -- - -- - -- 1989 1990 1991 Change from: March Dec Aug highs lows highs Dec 18 Jan 31 Dec 89 lows FOMC Aug 90 FOMC highs Dec 18 Short-term rates Federal funds 2 9.85 8.45 8.21 7.43 7.55 -0.90 -0.66 0.12 Treasury bills" 3-month 6-month 1-year 9.09 9.11 9.05 7.53 7.59 6.73 6.19 -1.34 7.29 6.72 6.58 6.20 -1.09 6.13 -0.98 -1.40 -1.31 -1.32 -0.54 -0.52 7.11 7.51 7.45 Commercial paper 1-month 3-month 10.05 10.15 8.51 8.22 8.10 8.05 8.28 7.79 6.99 6.95 -i.52 -1.27 -1.11 -1.10 -1.29 -0.84 Large negotiable CDs 3 1-month 3-month 6-month 10.07 10.32 10.08 8.52 8.14 8.26 8.22 8.01 8.18 8.25 7.86 7.60 6.82 6.88 6.88 -1.70 -1.34 -1.13 -1.32 -1.30 -1.37 -1.44 -0.98 -0.72 10.19 10.50 8.38 8.25 8.13 8.19 8.38 7.94 6.88 6.94 -1,50 -1.31 -1.25 -1.25 -1.50 -1.00 11.50 10.50 10.00 10,00 9.50 -1.00 -0.50 -0.50 U.S. Treasury (constant maturity) 3-year 9.88 7.69 7.77 9.53 10-year 7.83 30-yea 9.31 8.50 9.05 9.17 7.28 7.99 8.15 7.30 8.03 8.21 -0.39 -1.20 -1.02 0.02 0.04 0.06 Municipal revenue (Bond Buyer) Eurodollar deposits 4 1-month 3-month Bank prime rate -0.45 Intermediate- and long-term rates 0.26 0.38 -0.96 7.95 7.28 7.80 7.28 7.24 -0.04 -0.56 -0.04 Corporate--A utility recently offered 10.47 9.29 10.50 9.89 9.78 0.49 -0.72 -0.11 Home mortgage rates 6 S6L fixed-rate S&L ARM, 1-yr. 11.22 9.31 9.69 10.29 9.56 9.61 -0.08 -0.68 8.34 8.39 7.91 7.69 -0.65 -0.70 0.05 -0.22 1989 Record highs Date Lows Jan 3 1990 1991 FOMC Dec 18 Jan 31 Percent change from: Record highs 1989 lows FOMC Dec 18 Stock prices -8.78 27.59 4.17 7/16/90 2144.64 2626.73 2736.39 -6.73 154.98 180.19 187.59 21.04 4.11 7/16/90 4.03 4.10 10/10/89 305.24 305.03 317.54 -20.02 AMEX Composite 378.56 370.17 414.20 -14.73 485.73 10/9/89 9.41 11.89 NASDAQ (OTC) Wilshire -7.89 19.38 5.03 3523.47 10/9/89 2718.59 3089.85 3245.35 --------- ------------- --" - - -- - - - - - - - - - - - -- - - - - - - - - - - - -- - - - - - - - - - - Dow-Jones Industrial 2999.75 NYSE Composite 201.13 397.03 One-day quotes except as noted. Average for two-week reserve maintenance period closest to date shown. Last observation is average to date for the maintenance period ending February 6, 1991. 3/ Secondary market. 4/ Bid rates for Eurodollar deposits at 11 a.m. London time. 5/ Based on one-day Thursday quotes and futures market index changes. 6/ Quotes for week ending Friday closest to date shown. 

Federal Reserve (1991, February 5). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19910206_part2

@misc{wtfs_greenbook_19910206_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1991},
  month = {Feb},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19910206_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}