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 May 10, 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 Producer prices in April . . . . . . . . . . . . . . . . . . 1 Table Recent changes in producer prices . . . . . . . . . . . . . 3 Chart Unemployment insurance . . . . . . . . . . . . . . . . . 4 THE FINANCIAL ECONOMY The May 1991 senior loan officer opinion survey on bank lending practices . . . . . . . . . . . . . . . . . . S 5 Tables Nonmerger-related business lending . . . Monetary aggregates . . . . . . . . . . Commercial bank credit and short- and intermediate-term business credit . Selected financial market quotations . . . 9 . . 10 . . . . 11 12 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Producer Prices in April Producer prices of finished goods rose 0.2 percent in April, after four months of energy-related declines. Energy prices in April fell much less than in the preceding months, while food prices rose 0.4 percent, boosted by a steep climb for fresh vegetables. Prices of finished goods excluding food and energy rose 0.2 percent for the second month, after larger increases in January and February. Over the first four months of the year, this PPI measure has risen at an annual rate of 3-3/4 percent, slightly above the pace in 1990. The PPI for finished energy declined 0.3 percent in April. Refinery prices of fuel oil and gasoline fell 4.5 and 0.7 percent, respectively, while prices of residential gas turned up. Private survey data for gasoline indicate significant increases in wholesale and retail prices since the PPI pricing date. Fresh vegetable prices surged 34 percent in April, reflecting a gap in supplies that likely will be short-lived. The influence on the PPI was partly offset by declines in prices of some other foods, notably meats, chickens, and eggs. As of early May, wholesale prices of major fresh vegetables had reversed a substantial portion of the climb reflected in the April PPI. Excluding food and energy items, the PPI for finished consumer goods increased 0.4 percent in April, boosted by a hike of 2.7 percent in prices of tobacco products. Large increases also were registered for pharmaceuticals, but prices dropped back 2.2 percent for light trucks and also declined for a number of other items. Passenger car prices edged down 0.2 percent. Prices of motor vehicles had risen markedly over the preceding five months. Capital equipment prices were down 0.2 percent in April, largely reflecting the declines for motor vehicles. At earlier stages of processing, prices of intermediate materials (nonfood, nonenergy) declined 0.2 percent further in April. Prices continued to retreat for plastics and some other petroleum-based materials, as well as for products of the metals and paper industries. The PPI for crude nonfood materials less energy fell 0.5 percent, mainly reflecting declines for metal scrap. RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data) 1 Relative importance Dec. 1990 1991 1990 1989 1990 Q3 Q4 Q1 ------Annual rate----- Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment 100.0 23.7 16.8 59.5 36.4 23.1 Intermediate materials 2 Excluding food and energy 95.2 78.5 Crude food materials Crude energy Other crude materials 34.7 2.8 50.4 14.9 17.9 -3.6 2.5 .9 __ 5.7 2.6 30.7 3.5 3.7 3.4 11.3 2.3 118.7 3.5 3.5 3.6 4.6 1.9 13.4 4.0 -4.2 -7.8 305.8 5.9 19.1 .6 ___._._ ____ 5.1 1.3 21.1 3.5 3.4 3.3 4.2 2.3 -7.3 -18.8 -18.1 1991 Mar. -Monthly rate- -4.5 .6 -37.2 4.4 5.3 3.2 -. 3 .2 -3.2 .2 .2 .2 -9.5 -1.9 -1.1 -.4 1.1 -53.5 -3.0 ________ Apr. 1.2 -7.3 -1.1 -.4 -.2 -1.0 .0 -. 5 _______ 1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds. -4- Unemployment Insurance (Weekly data; seasonally adjusted, FRB basis <1>) Initial Claims Thousands 700 650 600 Apr 27 550 464.2 All regular programs 500 450 400 350 300 1983 1984 1985 1986 1987 1988 1989 1990 Insured Unemployment .. 1991 Milion. 15.0 r All regular programs 1981 1982 1983 250 1984 1985 <1> Only the state program components of these scrie are seasonally adjusted. 1986 1987 1988 1989 1990 1991 THE FINANCIAL ECONOMY The May 1991 Senior Loan Officer Opinion Survey on Bank Lending Practices The May 1991 Senior Loan Officer Opinion Survey on Bank Lending Practices continued a series of questions dealing with changes in the willingness of respondent banks to lend and the reasons for those changes. For the three months ending in early May, the results suggest a further tightening both of standards to approve applications for business loans and of terms on loans that are being made. However, the degree of tightening was considerably less than that reported in earlier surveys. A similar shift was reported for commercial real estate lending, as the number of banks tightening credit standards in the last three months was well below the comparable number in January. Lending standards for mortgages to finance residential homes also continued to be tightened on balance in the May survey, but again the number of banks doing so declined. For consumer credit, banks on balance reported no change in their willingness to lend in the last three months, compared with some reduced willingness to lend in the three months ending in late January. Nonmerger-Related C&I Loans Credit standards. The number of banks reporting tighter lending standards for approving loan applications for nonmerger-related purposes was substantially lower than in the survey taken in late January. This drop is part of a downtrend in the number of banks reporting tighter standards. The decline was particularly notable for branches and agencies of foreign banks, a large majority of which had reported tightening standards in the last survey. Nevertheless, in the May survey, more foreign banks than domestic banks reported tightening. For domestic banks, the reduced evidence of further restriction likely owes in part to the recent marked improvement in their ability to raise capital. With bank share prices up and with spreads of yields on bank debt over Treasury securities down, domestically chartered banks have issued a large volume of debt and equity thus far in 1991. Of those domestic banks that did report tightening in the May survey, virtually none mentioned pressures on capital positions or deteriorating loan portfolios as a reason; in earlier surveys, a number of banks had cited these factors as motivating tightening. As in previous surveys, the primary reasons given by domestic banks for tightening in May remained concerns about the economic outlook and industry-specific problems. U.S. branches and agencies of foreign banks, on the other hand, ranked capital pressures and concerns about the quality of their loan portfolios as equal in importance to concern about the economy as reasons for tightening lending standards over the late January to early May period. Price and nonprice terms of credit. The drop in the number of respondents that reported tightening their loan terms was generally somewhat smaller than the drop in the number that reported tightening standards to approve loan applications. Significant minorities of both domestic and foreign bank respondents continued to report decreases in the maximum size of credit lines and increases in spreads of loan rates over funding costs. Reaction of business borrowers. As in earlier surveys, potential customers that were turned away by banks' tightening moves most commonly ended up obtaining credit at another bank or from a nonbank source--the credit markets for large borrowers and finance companies for medium and smaller borrowers. The third most common reaction was to cut back, postpone, or cancel spending plans. Commercial Real Estate The number of banks indicating they had tightened credit standards for commercial real estate was also down in this survey. About one-fourth of domestic respondents indicated they had tightened standards for approving construction and land development loans in the last three months, down from one-half in the January survey and two-thirds in the October 1990 survey. Less than one-quarter of foreign banks reported tightening this type of credit, whereas virtually all did so in the last survey. A similar situation obtained for permanent financing, with about 20 to 25 percent of domestic and foreign bank respondents tightening standards to approve applications for various types of nonfarm nonresidential real estate loans. In January, these percentages were in the 40 to 50 percent range for domestic banks and the 80 to 90 percent range for foreign banks. Household Loans Residential mortgages. Just over one-fifth of domestic respondents reported that they had tightened credit standards for approving mortgage applications from individuals to purchase homes, down from one-third in the January survey. rising demand: This tightening apparently took place in an environment of Two-thirds of respondents indicated that the demand for residential mortgages had risen in the last three months compared to the preceding three months, after accounting for normal seasonal variations. Consumer loans. The willingness of respondent banks to make consumer loans was about unchanged on balance in the late January to early May -8- period, with a few banks reporting increased willingness and a few reporting decreased willingness. In the previous survey, respondent banks on balance reported becoming somewhat less willing to lend to consumers during the preceding three months. -9Table 1 Nonmerger-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 Jan.91-May 91 Maximum size of credit lines Aug.90-Oct.90 Oct.90-Jan.91 Jan.91-May 91 Cost of credit lines Aug.90-Oct.90 Oct.90-Jan.91 Jan.91-May 91 Spreads of loan over base rates Aug.90-Oct.90 venants Large Medium Small Memo: Branches & agencies of foreign banks Oct.90-Jan.91 Jan.91-May 91 Aug.90-Oct.90 Oct.90-Jan.91 Jan.91-May 91 Collateral requirements Aug.90-Oct.90 Oct.90-Jan.91 Jan.91-May 91 1. The middle market is often categorized as consisting of firms with annual sales between $50 and "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. $250 million. -10(based on seasonally MONETARY AGGREGATES adjusted data unless otherwise noted) 1990 1990' ----------1. 2. 3. 94 1991 Ql 1991 Feb 1991 Mar Growth 1991 Q4 90Apr pe Apr 91pe Percent change at annual rates--------------------- Ml MZ M3 3.4 2.1 1.0 ----------- 5.8 3.6 4.3 14.1 8.7 10.8 53 4¼ 3% Levels bil. $ Mar 91 Percent change at annual rates------------ Selected components 4. 5. Currency 6. Demand deposits 7. 8. 9. 10. 11. 12. 13. '4. 4.9 5.7 15.1 11.0 -0.6 11.1 -0.7 15.3 -2.5 16.7 14.5 3.5 0.7 6.0 11.8 3.7 1.7 2.8 3.2 -20.3 11.4 9.9 7.5 -5.5 -2.2 -7.3 11.2 7.8 4.1 11.5 -8.1 -7.4 -8.6 -6.4 -3.5 -9.5 -3.5 -23.9 -12.9 -8.4 -26.3 20.2 -12.0 -12.1 30.4 -25.9 15.9 Mi-A Other checkable deposits M2 minus Ml 2 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares Commercial banks 3 Savings deposits plus MMDAs Small time deposits Thrift institutions 3 Savings deposits plus MMDAs Small time deposits 17. M3 minus HZ 4 Large time deposits 5 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares Term RPs, NSA Term Eurodollars, NSA 12.4 -3 542.0 7.5 4.3 0 -6 256.7 277.2 16.6 3 300.9 6.9 6.9 4 2535.4 -37.7 -10.0 -8.4 2 70.6 19.4 8.3 7.5 6.9 -6.6 -0.6 -10.2 14.1 11.5 15.1 8.0 -3.3 8.5 -10.5 18.0 7.1 20.1 -17.4 0.9 11.7 -32.1 9.6 21.6 -31.5 -11.2 -4.2 -36.6 511.0 399.5 111.4 49.9 -29.9 10.2 84.9 -12.2 16.7 23.3 -43.8 -16.4 142.0 84.4 72.0 365.9 1202.7 594.7 608.0 894.8 345.0 549.8 10.7 17.0 4.6 -3.1 15.9 -14.7 -11 795.3 ----- Average monthly change in billions of dollars--MEMORANDA: 6 24. Managed liabilities at commercial banks 125+26) Large time deposits, gross Nondeposit funds Net due to related foreign institutions 7 Other 28. 29. U.S. government deposits at commercial 8 banks 25. 26. 27. -0.1 -2.6 2.4 -2.4 -3.9 1.6 -1.4 6.3 -7.7 -2.3 9.5 -11.8 -0.5 0.3 -0.8 2.2 0.2 4.4 -2.8 -1.5 -6.2 -8.6 -3.0 5.2 -6.2 0.3 -0.5 3.1 7.7 0.4 715.3 450.7 264.6 1 -2 -12 30.0 234.5 33.8 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 March and April at rates of 15.3 institutions, savings deposits excluding MMDAs grew percent and 17 percent, respectively. At thrift during March and April at rates of 14.1 percent and 21 percent, respectively. 4. The non-M2 component of M3 is seasonally adjusted as a whole. institutions. 5. Net of large denomination time deposits held by money market mutual funds and thrift Dollar amounts shown under memoranda are calculated on an end-month-of-quarter basis. Consists of borrowing from other than commercial banks in the form of federal funds purchased, securities for borrowed money (including borrowing from the sold under agreements to repurchase, and other liabilities 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 1. 2. 3. -11COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 11989:Dec. to 1990:Dec. 1 1990 Q4 1991 Q1 Feb. Mar. Apr. Levels bil.$ Apr. ---------------------1. 2. Total loans and securities at banks Securities Commercial Bank Credit --------------------- 5.3 2.3 4.0 6.3 6.8 -. 1 2751.5 8.6 .5 12.5 7.4 25.7 10.5 654.8 3. U.S. government securities 13.9 3.6 15.0 10.3 34.8 19.1 479.1 4. Other securities -3.1 -7.4 5.9 .0 2.0 -12.8 175.7 4.3 2.9 1.5 6.0 1.1 -3.4 2096.6 5. Total loans 6. Business loans 1.9 3.1 -. 7 .4 3.5 -9.9 640.0 7. Real estate loans 9.5 6.1 3.4 6.6 3.6 5.4 850.8 8. Consumer loans 1.3 .6 -2.6 5.8 -4.8 -3.8 374.1 9. Security loans 4.1 -7.8 -15.8 2.8 -117.2 27.8 39.7 -1.8 -4.6 11.6 21.0 19.4 -19.7 193.2 10. Other loans -------Business loans net of bankers acceptances 12. Loans at foreign branches 2 13. Sum of lines 11 & 12 14. Commercial paper issued by nonfinancial firms 1.9 Short- and Intermediate-Term Business Credit---------- 3.2 19.3 37.0 2.5 4.4 .2 -3.1 .1 1.9 4.0 -10.0 634.0 -13.7 -9.2 -51.2 24.7 1.3 3.4 -3.2 -11.6 658.7 12.9 150.2 808.9 12.2 -3.2 -5.1 4.2 3.0 -.9 -1.8 2.2 -7.1 -9.6 17.8 -24.3 -7.3 -69.5 n.a. Line 15 plus bankers acceptances: U.S. trade related 3.6 3.5 -1.8 -2.0 -.6 n.a. 845.4 18. Finance company loans to business 13.1 12.0 4.5 3.3 2.0 n.a. 294.3 s 19. Total short- and intermediateterm business credit (sum of lines 17 & 18) -. 2 -. 6 .0 n.a. 1139.7 5 15. Sum of lines 13 & 14 16. Bankers acpeptances: related' 17. -15.1 U.S. trade 30.95 5 5.9 5.6 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 5. March data. shipment and storage of goods. p'" liminary. int available -121 SELECTED FINANCIAL MARKET QUOTATIONS (percent) 1989 March highs 1990 Dec lows Aug highs 1991 FOMC Mar 26 May 9 Change from: Aug 90 FOMC highs Mar 26 Short-term rates Federal funds 2 9.85 8.45 8.21 6.13 5.78 -2.43 -0.35 Treasury bills 3 3-month 6-month 1-year 9.09 9.11 9.05 7.53 7.29 7.11 7.59 7.51 7.45 5.86 5.86 5.99 5.48 5.63 5.76 -2.11 -1.88 -1.69 -0.38 -0.23 -0.23 Commercial paper 1-month 3-month 10.05 10.15 8.51 8.22 8.10 8.05 6.36 6.29 5.92 5.93 -2.18 -2.12 -0.44 -0.36 Large negotiable CDs 3 1-month 3-month 6-month 10.07 10.32 10.08 8.52 8.22 8.01 8.14 8.18 8.25 6.33 6.33 6.42 5.87 5.92 6.04 -2.27 -2.21 -0.46 -0.41 -0.38 Eurodollar deposits 4 1-month 3-month 10.19 10.50 8.38 8.25 8.13 8.19 6.31 6.31 5.88 5.94 -2.25 -2.25 -0.43 -0.37 Bank prime rate 11.50 10.50 10.00 9.00 8.50 -1.50 -0.50 U.S. Treasury (constant maturity) 3-year 9.88 7.69 10-year 9.53 7.77 30-year 9.31 7.83 8.50 9.05 9.17 7.40 8.13 8.31 7.12 8,02 8.21 -1.38 -1.03 -0.96 -0.28 -0.11 -0.10 Municipal revenue (Bond Buyer) -2.26 Intermediate- and long-term rates 7.95 7.28 7.80 7.33 7.09 -0.71 -0.24 Corporate--A utility recently offered 10.47 9.29 10.50 9.58 9.45 -1.05 -0.13 Home mortgage rates 6 S&L fixed-rate S&L ARM, 1-yr. 11.22 9.31 9.69 8.34 10.29 8.39 9.59 7.44 9.47 7.23 -0.82 -1.16 -0.12 -0.21 1989 Record highs Date Lows Jan 3 1991 FOMC Mar 26 May 9 Percent change from: Record highs 1989 lows FOMC Mar 26 38.54 36.03 20.02 31.50 34.61 1.93 1.91 2.64 4.02 2.18 Stock prices Dow-Jones Industrial 3004.46 NYSE Composite 213.21 AMEX Composite 397.03 NASDAQ (OTC) 511.31 Wilshire 3731.48 4/17/91 2144.64 2914.85 2971.15 4/17/91 154.00 205.55 209.48 10/10/89 305.24 356.92 366.36 4/17/91 378.56 478.57 497.81 4/17/91 2718.59 3581.55 3659.59 1/ One-day quotes except as noted. 2/ Average for two-week reserve maintenance period closest to date shown. Last observation is average to date for the maintenance period ending May 15, 1991. -1.11 -1.75 -7.72 -2.64 -1.93 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, May 13). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19910514_part3

@misc{wtfs_greenbook_19910514_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1991},
  month = {May},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19910514_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}