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 August 16, 1996 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 NONFINANCIAL ECONOMY Housing markets . Consumer sentiment Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Tables Private housing activity . . . . . . . . . . . University of Michigan Survey Research Center: . . . . ... Survey of consumer attitudes . Charts Private housing starts .. . Indicators of housing demand . . . . . . ... . . . ... . . . THE FINANCIAL ECONOMY Tables Selected financial market quotations . . . Commercial bank credit . . . . . . . . . . . . . . . . . . . . . . 6 7 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Housing Markets Single-family housing starts fell to 1.13 million units in July from a revised level of 1.20 million units for June that is slightly lower than the preliminary estimate. The decline in single-family homebuilding in July is consistent with recent indications of slackening in demand such as the August report from the National Association of Homebuilders on new home sales in early August. The final results of that survey showed a somewhat larger decline in builders' ratings of new home sales than was indicated in the preliminary figures that were cited in the Greenbook. Multifamily housing starts increased 18 percent in July, offsetting a decline in June and continuing the oscillating pattern that has prevailed so far this year. At the regional level, starts in July decreased 4 percent in the South and fell 12 percent in the West. Starts rose 2 percent in the Northeast and jumped 17 percent in the Midwest, where construction bounced back from a low reading in June. Consumer Sentiment According to the preliminary report, the Michigan SRC index of consumer sentiment was about unchanged in early August at a level that is at the high end of the relatively favorable range seen since early 1994. Respondents expressed somewhat more upbeat views of their current and future personal financial situations, but somewhat less positive views of appliance-buying conditions and expected business conditions. Among results not included in the overall index, the indexes of expected unemployment, home-buying conditions, and car-buying conditions all held about steady at their relatively favorable July levels. Consumers' willingness to use credit to finance large purchases was unchanged, but their willingness to use savings was down sharply. The mean value of expected inflation over the coming year held steady in early August at 4.3 percent while the median value moved up 0.2 percentage point to 3.1 percent. The mean and median values of expected inflation over the next five to ten years were unchanged at 4.2 percent and 3.1 percent, respectively. -2- Note The staff forecast presented in Part 1 incorporates staff estimates of the likely revisions to the NIPA data where published BEA estimates are not final. A discussion of the staff estimates for 1996:Q2 is found at the beginning of the nonfinancial developments section of Part 2. Private Housing Activity (Millions of units; seasonally adjusted annual rate) 1995 1995 1996 Q4 Q1 Q2 r May r June r JulyP All units Starts Permits 1.35 1.33 1.41 1.44 1.47 1.41 1.49 1.44 1.48 1.45 1.47 1.42 1.46 1.45 Single-family units Starts Permits New home sales Existing home sales 1.08 1.00 0.67 3.80 1.13 1.08 0.68 3.98 1.16 1.08 0.75 3.95 1.19 1.10 0.76 4.22 1.14 1.10 0.78 4.28 1.20 1.09 0.73 4.18 1.13 1.07 n.a. n.a. Multifamily units Starts Permits 0.28 0.33 0.28 0.36 0.31 0.33 0.30 0.34 0.33 0.35 0.27 0.33 0.32 0.38 Mobile Homes Shipments 0.34 0.35 0.35 0.37 0.37 0.37 n.a. Note. p Preliminary. r Revised. n.a Not available. Private Housing Starts (Seasonally adjusted annual rate) Millions of units - 2.4 July 1.6 Total I I 1977 I 1979 1 I 1981 I I- 1 1983 1 1985 I 1 1987 I I 1989 I 1991 I I 1993 I 1995 I I -408/16/96 Indicators of Housing Demand (Seasonally adjusted; FRB seasonals) Builders' Rating of New Home Sales Diffusion index Aug. - I I 1 1988 I I 1989 - 1990 1991 1992 I I 1993 1994 I 1995 8 1996 Note. The index iscalculated from National Association of Homebuilders data as the proportion of respondents rating current sales as good to excellent minus the proportion rating them as poor. MBA Index of Mortgage Loan Applications for Home Purchase Index --- Aug. 9 1990 1991 1992 1993 1994 1996 1995 Note. MBA index equals 100 on March 16, 1990, for NSA series. Consumer Homebuying Attitudes Diffusion index 7 Aug. (p) I I 1988 I 1989 I 1990 I 1991 1992 1993 1994 1995 Note. The homebuying attitudes index is calculated from Survey Research Center data as the proportion of respondents rating current conditions as good minus the proportion rating such conditions as bad. 1996 250 August 16, 1996 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1995 Dec 1996 Jan 1996 Feb 1996 Mar 1996 Apr 1996 May 1996 Jun 1996 Jul 1996 Aug (p) Indexes of consumer sentiment (Feb. 1966=100) 91.0 89.3 88.5 93.7 102.4 105.8 78.7 105.4 86.2 92.7 107.8 83.0 89.4 105.1 83.7 105.2 77.8 112 126 115 131 111 120 112 130 118 127 114 122 115 95 104 80 133 153 157 122 159 152 129 161 163 134 161 168 125 162 157 127 159 159 45 70 36 65 40 65 47 71 45 64 Expected unemployment change - next 12 months 122 135 131 123 Expected inflation - next 12 months Mean Median 3.3 2.7 4.0 2.9 3.6 2.8 Expected inflation - next 5 to 10 years Mean Median 3.9 3.1 4.2 3.1 4.2 3.2 Composite of current and expected conditions Current conditions Expected conditions Personal financial situation Now compared with 12 months ago* Expected in 12 months* Expected business conditions Next 12 months* Next 5 years* 92.4 94.7 107.5 86.5 94.5 107.4 86.3 115 129 117 134 122 116 97 96 137 155 153 138 164 161 138 161 162 37 64 54 66 38 67 38 60 124 121 123 115 115 4.2 2.9 4.5 3.0 4.9 3.0 4.2 2.9 4.3 2.9 4.3 3.1 4.3 3.2 4.1 3.0 4.8 3.2 4.0 3.1 4.2 3.1 4.2 3.1 79.2 105.4 84.0 118 128 Appraisal of buying conditions Cars Large household appliances* Houses Willingness to use credit Willingness to use savings Indicates the question is one of the five equally-weighted components of the index of sentiment. * -- (p) -- Preliminary (f) -- Final Note: Figures on financial, business, and buying conditions are the percent reporting 'good times' 'better') minus the percent reporting 'bad times' (or 'worse'), plus 100. Expected change in unemployment is the fraction expecting unemployment to rise minus the fraction expecting unemployment to fall. (or Selected Financial Market Quotations 1 (Percent except as noted) 1996 Instrument Change to Aug. 15, from: Feb. FOMC, July Feb. FOMC, July low July 2 high Aug. 15 low July 2 high 5.37 5.39 5.24 0.09 -0.13 -0.15 5.18 5.27 5.48 5.21 5.40 5.64 5.05 5.13 5.33 0.29 0.46 0.78 -0.13 -0.14 -0.15 -0.16 -0.27 -0.31 5.48 5.50 5.50 5.59 5.40 5.41 0.13 0.29 -0.08 -0.09 -0.10 -0.18 5.38 5.45 5.64 5.44 5.59 5.83 5.32 5.39 5.54 0.11 0.27 0.55 -0.06 -0.06 -0.10 -0.12 -0.20 -0.29 5.34 5.47 5.38 5.56 5.28 5.38 0.15 0.25 -0.06 -0.09 -0.10 -0.18 8.25 8.25 8.25 0.00 0.00 0.00 6.40 6.80 6.94 6.62 7.06 7.19 6.17 6.62 6.82 1.19 1.04 0.80 -0.23 -0.18 -0.12 -0.45 -0.44 -0.37 Municipal revenue (Bond Buyer)s 6.20 6.24 5.98 0.31 -0.22 -0.26 Corporate-A utility, recently offered 7.99 8.23 7.81 0.63 -0.18 -0.42 10.12 10.36 10.01 0.44 -0.11 -0.35 8.29 5.98 8.42 6.01 7.88 5.89 0.94 0.70 -0.41 -0.09 -0.54 -0.12 Short-term rates Federal funds2 Treasury bills3 3-month 6-month 1-year Commercial paper 1-month 3-month Large negotiable CDs3 1-month 3-month 6-month Eurodollar deposits4 1-month 3-month Bank prime rate Intermediate- and Long-term Rates U.S. Treasury (constant maturity) 3-year 10-year 30-year High-yield corporate 6 Home mortgages' FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate Record high Stock exchange index FOMC, July 1996 Record FOMC, Level Date July 2 low Aug. 15 high July 2 low 5778.00 5/22/96 5720.38 5346.55 5665.78 -1.94 -0.95 5.97 NYSE Composite 363.74 5/24/96 351.01 336.07 354.22 -2.62 0.91 5.40 S&P 500 Composite 678.51 5/24/96 673.60 626.65 662.28 -2.39 -1.68 5.69 1249.15 6/5/96 1191.36 1042.37 1134.69 -9.16 -4.76 8.86 Dow-Jones Industrial NASDAQ (OTC) -2.52 5/24/96 6649.91 6099.34 6482.40 -4.09 Wilshire 6758.69 1. One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is the average for the maintenance period ending August 14, 1996. 3. Secondary market. 4. Bid rates for Eurodollar deposits at 11 a.m. London time. 5. Most recent observation based on one-day Thursday quote and futures market index changes. 6. Merril Lynch Master IIhigh-yield bond index composite. 7. Quotes for week ending Friday previous to date shown. 6.28 COMMERCIAL BANK CREDIT (Percentage change; seasonally adjusted annual rate) 1 Level, Type of credit 1995 1996 Q1 1996 May 1996 Q2 1996 Jun 1996 Jul Jul 1996 (billions of $) 1. Total loans and securities 8.7 5.3 2.5 1.3 1.5 1.0 3,671.3 2. 3.5 .6 -3.1 7.8 -10.2 -6.4 974.8 -11.1 -.3 707.7 Securities 3. U.S. government -3.1 -2.5 .6 15.0 4. Other2 25.6 8.4 12.0 -10.0 -7.9 -22.5 267.1 7.1 4.6 -1.1 5.9 3.7 2,696.5 11.5 7.3 5.0 3.6 4.9 5.5 741.4 8.5 4.9 3.2 1.9 3.6 1.4 1,103.5 5. Loans 3 6. Business 7. Real estate 8. Home equity 5.2 5.6 -.5 -6.0 -6.0 6.0 79.8 9. Other 8.7 4.8 3.6 2.5 4.2 1.1 1,023.7 10. Consumer 6.7 4.9 -5.9 12.4 4.5 512.0 13.7 9.4 -.7 16.9 9.2 667.3 -3.3 -8.0 -46.1 -7.3 -26.3 80.3 21.2 13.0 -2.4 10.4 16.9 259.3 11. Adjusted 4 12. Security 13. Other 5 17.6 18.4 1. Monthly levels are pro rata averages of Wednesday data. Quarterly and annual levels (not shown) are simple averages of monthly levels and levels for the fourth quarter respectively. Growth rates shown are percentage changes in consecutive levels, annualized but not compounded. 2. Includes municipal securities, foreign government securities, corporate bonds, equities, and trading account assets. 3. Excludes interbank loans. 4. Includes estimates of consumer loans that have been securitized by banks and are still outstanding. 5. Includes loans to nonbank financial institutions, farmers, state and local governments, banks abroad, foreign governments, and all others not elsewhere classified. Also includes lease financing receivables. 

Federal Reserve (1996, August 19). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19960820_part3

@misc{wtfs_greenbook_19960820_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1996},
  month = {Aug},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19960820_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}