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 CLASS III (FR) FOMC November SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 7 1997 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Labor market developments. Whole inventories . . . . . . . . . . . . . . . . . . . . . . . . . . Tables Changes in employment. Selected unemployment and labor force participation rates . . . . . . . . . . . ... Average hourly earnings .. . . .. . . . . .. Changes in manufacturing and trade inventories . Selected inventory-sales ratios . . . . . . . . Charts Labor market indicators. . . . . . . . . . . Inventory-sales ratios, by major sector. . . .. . . THE FINANCIAL ECONOMY Table Selected financial market quotations . Commercial bank credit . . . . ..... . . . . . 10 . . . 11 . SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Labor Market Developments Total nonfarm payroll employment increased 284,000 in October, and the unemployment rate moved down 0.2 percentage point to 4.7 percent, its lowest level since October 1973. In the payroll survey, nearly all of last month's employment gains were concentrated in the private sector; rose only 2,000. government employment Since July, private payrolls have increased 221,000 per month on average, similar to the 212,000 per month pace set in the first half of the year. jumped By industry, factory payrolls 54,000 last month--their largest gain during the current expansion. services Within the service-producing sector, employment in the industries rose 100,000, led by sizable increases at computer services and engineering and management services establishments. Elsewhere, employment gains were generally in line with or above recent trends. The average workweek of private production or nonsupervisory workers held steady at 34.5 hours, and aggregate weekly hours increased 0.2 percent. Hours growth in manufacturing was particularly strong in October. The average workweek for manufacturing production workers rose 0.2 hour to 42.0 hours, and 2 aggregate weekly production worker hours rose 0.8 percent. In the service-producing sector, the workweek held about steady, and hours growth was considerably more moderate. Average hourly earnings of production or nonsupervisory workers rose 0.5 percent last month, following a 0.3 percent rise in September. Wage increases over the past two months have been boosted by the September 1 rise in the minimum wage hour to $5.15 per hour). (from $4.75 per Both this year's minimum wage hike and the one that occurred on October 1, 1996, contributed to the pickup in the growth of average hourly earnings to 4 percent over the past twelve months; absent the most recent hike in the minimum wage, we believe average hourly earnings would have been up about 3-3/4 percent from their level a year ago. 1. Although these two industries comprise only 4 percent of total employment, they have accounted for more than 10 percent of the jobs added in the past year. 2. Using the seasonal factors developed by the FRB staff for use in estimating industrial production, aggregate factory hours rose 0.4 percent in October. CHANGES IN EMPLOYMENT (Thousands of employees; based on seasonally adjusted data) 1995 Nonfarm payroll employment 1 Private Goods Producing Manufacturing Durable Nondurable Construction Service Producing Transportation and utilities Trade Finance, insurance, real estate Services Help supply services Total government Private nonfarm production workers Manufacturing production workers 1 Total employment 2 Nonagricultural Memo: Aggregate hours of private production workers (percent change) 1,3 Average workweek (hours) 1 Manufacturing (hours) 1996 Q1 1997 Q2 Aug. Q3 ---Average monthly changes--185 212 228 237 235 52 176 198 218 206 200 -33 8 19 43 15 14 52 -1 -5 14 10 8 41 11 5 15 14 18 47 -12 -10 -1 -5 -9 -6 10 24 29 4 5 12 168 178 175 191 186 -85 39 10 8 -154 8 9 28 52 61 41 48 60 -1 11 10 14 15 10 113 98 97 115 102 18 10 13 17 -17 0 -30 85 9 14 10 31 35 1997 Sept. Oct. 269 330 -9 -12 -13 1 0 339 170 32 11 126 12 -61 284 282 71 54 46 8 20 211 29 59 23 100 0 2 151 -2 168 -5 195 9 163 7 142 7 -146 23 295 -4 236 57 32 51 232 225 440 453 63 61 117 97 96 195 -89 -156 179 326 1.7 34.5 41.6 2.9 34.4 41.5 4.1 34.7 41.9 1.7 34.5 42.0 1.3 34.5 41.8 0.4 34.6 41.8 -0.1 34.5 41.8 0.2 34.5 42.0 Note. Average change from final month of preceding period to final month of period indicated. 1. Survey of establishments. 2. Survey of households. 3. Annual data are percent change from Q4 to Q4. Quarterly data are percent change from preceding period at an annual rate. Monthly data are percent change from preceding month. Aggregate Hours of Production or Nonsupervisory Workers 1982=100 Average Weekly Hours Hours 35 34.8 34.6 34.4 34.2 34 33.8 1993 1994 1995 1996 1997 1993 1994 1995 1996 1997 SELECTED UNEMPLOYMENT AND LABOR FORCE PARTICIPATION RATES (Percent; based on seasonally adjusted data) Labor force participation rate Teenagers Men, 20 years and older Women, 20 years and older 1997 Sept. 1996 5.6 5.4 5.3 4.9 4.9 4.9 4.9 4.7 17.3 4.8 4.9 16.7 4.6 4.8 17.0 4.5 4.7 15.9 4.1 4.4 16.5 4.1 4.3 16.4 4.1 4.4 16.7 4.1 4.4 15.3 4.1 4.0 66.6 66.8 67.2 67.1 67.1 67.1 67.0 66.9 53.5 76.7 65.2 52.3 76.8 65.6 52.6 77.0 65.8 51.8 77.0 65.8 50.9 76.9 66.0 50.5 77.0 66.0 50.7 76.8 66.0 50.6 76.8 65.8 Civilian unemployment rate (16 years and older) Teenagers Men Women 1997 Q2 1995 Multiple Job Holders and Self Employed Percent Percent Q1 Q3 Aug. Oct. Labor Force Participation Rate Percent S8.6 Multiple job holders Women maintaining families (right scale) S(right scale) 8.1 Oc t. S -,\, 7.1 ' - Self employed , (left scale) , 1994 1995 1996 7.6 I Oct. 6.6 I 1997 1994 I 1995 I 1996 1997 Note. As a percent of total household employment. Labor Force Participation Rate Percent Percent of Population Wanting Jobs* Percent Percent 64 60 56 52 Oct. 1980 i48 1986 1992 1998 * Data are quarterly. Seasonally adjusted by FRB staff. 1980 1984 1988 1992 1996 -4- Labor Market Indicators Help Wanted index Initial Claims for Unemployment Insurance Index, 1990=100 Thousands 550 Four-week moving average 1987 1989 1991 1993 1995 1997 Note. State programs, includes EUC adjustment. Conference Board 1987 1989 1991 1993 1995 1997 Note. Series has been adjusted to take account of structural and institutional changes, including consolidation of newspaper industry and tendency to increase hiring through personnel supply agencies. Current Job Availability Expected Change in Unemployment Index [Michigan Survey, next 12 months 1987 1989 1991 1993 1995 1997 1987 1989 1991 1993 1995 1997 Note. Percentage expecting 'more" minus percentage expecting "less" plus 100. Increase in Hiring Reporting Some Jobs Difficult to Fill Percent SBureau of National Affairs' Survey of Personnel Executives Percent Bureau of National Affairs' Survey of Personnel Executives Technical/ Professional Production/Service \A 1987 1989 1991 1993 Note. Seasonally adjusted by FRB staff. 1995 1997 1993 1994 1995 1996 1997 11-10-97 -5- AVERAGE HOURLY EARNINGS (Percentage change; based on seasonally adjusted data) 1 1997 1997 1995 1996 Q1 02 Q3 -Annual rateTotal private nonfarm Manufacturing Durable Nondurable Contract construction Transportation and public utilities Finance, insurance, and real estate Total trade Services Aug. Sept. Oct. -Monthly rate- 2.9 4.0 3.7 3.0 4.0 .6 .3 .5 2.7 1.8 3.8 1.9 3.7 3.9 3.4 3.4 2.5 2.1 3.0 2.8 1.5 1.2 1.0 3.9 3.1 2.4 4.0 3.8 .7 .9 .5 .4 .2 .0 .2 .4 1.0 1.2 .6 .2 2.7 2.0 4.8 3.3 3.8 .4 -.1 .0 4.2 3.0 3.5 3.7 4.5 4.3 3.7 4.3 4.0 5.3 2.9 3.3 5.2 5.1 3.3 1.4 .6 .6 -.2 .5 .2 1.0 .1 .5 1. Annual and quarterlv changes are measured from the final month of the preceding period to the final month of the period indicated. Average Hourly Earnings* Twelve-month percent change 1989 1987 1985 * Production or nonsupervisory workers. 1991 1993 1995 1997 The household survey continues to point to tight labor markets. The drop in the aggregate unemployment rate was led by a 0.5 percentage point decline in the unemployment rate of women aged 25 and older; the unemployment rate for men aged 25 and older held steady, while the rate for teenagers--who account for only a small share of the labor force--dropped sharply. Household employment posted a 179,000 gain last month, with the increase concentrated largely among teenagers. The labor force participation rate held nearly steady, edging down 0.1 percentage point to 66.9 percent. Except for its bump up to 67.3 percent in March, the participation rate has fluctuated within a tenth or two of 67 percent for the past twelve months. With this month's release, the BLS also announced that its preliminary estimate of next year's benchmark adjustment to the March 1997 employment count is 475,000, or 0.4 percent of total payroll employment. In addition, the BLS reports that its bias- adjustment factor--the adjustment to the sample-based estimates that is intended to capture employment growth at establishments that are underrepresented in the sample (including new establishments and smaller establishments)--is 155,000 for the fourth quarter. Wholesale Inventories Excluding motor vehicles, the book value of wholesale inventories rose at a $32.9 billion annual rate in September, after growing at a revised $25.5 billion pace in August. Nonvehicle sales of merchant wholesalers rose 2 percent in September, and the inventory-sales ratio for wholesale trade excluding motor vehicles fell to 1.23 months--within the narrow range posted over the past year. Most categories of nondurables posted small changes in September. However, stocks in the "other nondurable goods" category--which includes tobacco--continued to accumulate, increasing at a rate of $9.5 billion. Nonetheless, the September increase was sharply lower than August when we suspect that wholesalers stocked up on tobacco products in advance of September's price increase. Among durables, wholesale inventories in the professional and commercial equipment and supplies category also contributed to the buildup, advancing $8.3 billion after having fallen in the preceding two months. This strength is consistent with the continuing strong growth in demand for office and computing equipment. Other industries that registered noteworthy stock -7- increases were machinery ($8.0 billion) and electrical goods ($4.9 billion). The September wholesale inventory accumulation was substantially above the BEA's assumption of $12.3 billion. If other data come in as the BEA assumed, overall inventory investment in 1997:Q3 would be revised up about $7 billion, about twice what the staff assumed in our Greenbook estimate. CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates: based on seasonally adjusted data) 1997 Q1 1997 Q2 Q3 July Aug. Sept. 35.8 51.5 n.a. 18.4 30.2 n.a. 30.9 16.5 9.1 14.3 11.5 5.0 2.1 2.8 48.9 25.1 19.8 19.1 14.3 7.4 -2.1 9.6 n.a. 17.3 12.1 15.6 13.8 n.a. n.a. n.a. 17.6 21.3 15.9 -22.1 -16.9 19.1 5.9 13.2 27.0 22.1 12.0 31.0 25.5 -22.9 -2.2 -20.7 n.a. 8.3 8.3 37.7 32.9 n.a. n.a. n.a. Book value basis Total Excluding wholesale and retail motor vehicles Manufacturing Excluding aircraft Wholesale Excluding motor vehicles Retail Auto dealers Excluding auto dealers SELECTED INVENTORY-SALES RATIOS (Months' supply, based on Census book-value data, seasonally adjusted) Cyclical reference points 1990-91 1995-96 High Low Range over preceding 12 months High Low September 1997 1.58 1.37 1.39 1.35 1.37 1.55 1.34 1.35 1.32 1.34 Manufacturing Primary metals Nonelectrical machinery Electrical machinery Transportation equipment Motor vehicles Aircraft Nondefense capital goods Textile Petroleum Home goods & apparel 1.75 2.08 2.48 2.08 2.93 .97 5.84 3.09 1.71 .94 1.96 1.36 1.49 1.80 1.41 1.48 .56 4.15 2.31 1.44 .75 1.67 1.38 1.70 1.87 1.48 1.61 .62 4.73 2.39 1.54 .84 1.72 1.34 1.59 1.72 1.33 1.49 .56 4.09 2.23 1.47 .75 1.65 1.34 1.60 1.72 1.29 1.57 .58 4.37 2.21 1.49 .79 1.68 Merchant wholesalers Less motor vehicles Durable goods Nondurable goods 1.36 1.31 1.83 .96 1.24 1.22 1.53 .93 1.26 1.23 1.56 .95 1.22 1.20 1.50 .92 1.26 1.23 1.54 .96 Retail trade Manufacturing and trade Less wholesale and retail motor vehicles 1.61 1.50 1.53 1.48 1.48 Less automotive dealers 1.48 1.43 1.45 1.41 1.41 Automotive dealers General merchandise 2.21 2.43 1.68 2.21 1.79 2.26 1.68 2.10 1.67 2.07 Apparel GAF 2.56 2.44 2.42 2.23 2.56 2.27 2.43 2.14 2.45 2.09 Note. September 1997 ratios for manufacturing and wholesale: August 1997 ratios for retail trade. Inventory-Sales Ratios, by Major Sector (Book value) Manufacturing Ratio - 1.9 - At Total \ - Excluding aircraft and parts I I i 1981 i 1983 I 1 1985 I 1987 1 i 1989 " I I 1991 1 1.65 - 1.4 ,Z , 1979 2.15 ,-'- '. ""' l I I I 1993 I 1995 Sept. ',.. I 1.15 I 1997 Wholesale Excluding Motor Vehicles Ratio 1.5 1.4 - 1.3 Sept. -1.2 1.1 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Retail Ratio 2.8 2.6 1.7 , - group (left scale) .. ,GAF tt i 1.6 m t - 1,5 2.2- Aug. _ 1.4 Total excluding autos (right scale) 2 1.8 9 0979 1 981 1981 193 1983 195 1985 I 19I 1987 19 I 1989 19 I 1991 1993 1993 1995 1995 1 1997 -10Selected Financial Market Quotations' (Percent except as noted) 1997 Instrument Mar. Change to Nov. 6. from: FOMC* Mar. FOMC * low Sep. 30 0.13 0.30 -0.07 0.13 -0.04 Jan. 2 low 5.79 5.27 -0.19 5.05 5.14 5.28 5.04 5.17 5.37 0.12 -0.04 -0.14 5.48 5.47 5.40 5.45 0.02 0.06 5.39 5.42 5.50 5.32 5.42 5.58 0.19 0.26 0.23 5.38 5.44 5.31 5.44 0.12 0.19 8.25 8.25 0.25 6.13 6.54 6.75 6.25 6.56 6.83 -0.37 -0.64 -0.60 -0.49 -0.66 -0.68 -0.12 -0.20 U.S. Treasury 10-year indexed note n.a. 3.36 3.53 0.17 -0.07 Municipal revenue (Bond Buyer) 6 5.96 5.97 -0.31 -0.32 Corporate-A utility, recently offered 7.64 7.97 -0.27 -0.60 High-yield corporate 7 9.72 9.49 -0.67 -0.44 7.64 5.57 7.84 5.54 -0.40 -0.11 -0.60 -0.08 Sep. 30 Nov. 6 Jan. 2 Short-term rates Federal funds 2 Treasury bills 3 3-month 6-month I-year -0.23 Commercial paper" 1-month 3-month -0.01 0.03 Large negotiable CDs 3 1-month 3-month 6-month Eurodollar deposits ' 1-month 3-month Bank prime rate Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 10-year 30-year -0.24 Home mortgages' FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate SRecord high 7.24 5.46 1997 Percenta e change to Nov. 6, from: FOMC * Stock exchange index -0.04 -0.05 Record FOMC * Level Date Jan. 2 Sep. 30 Nov. 6 high Jan. 2 Sep. 30 Dow-Jones Industrial 8259.31 8/6/97 6441.49 7991.43 7683.24 -6.97 19.28 -3.86 S&P 500 Composite 983.12 10/7/97 736.01 953.34 938.03 -4.59 27.45 -1.61 1745.85 10/9/97 1279.70 1694.98 1623.44 -7.01 26.86 -4.22 465.21 10/13/97 357.96 451.31 442.83 -4.81 23.71 -1.88 NASDAQ (OTC) Russell 2000 Wilshire 9486.69 10/7/97 7146.80 9215.39 9081.73 -4.27 27.07 -1.45 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 maintenance period ending November 5, 1997. 3. Secondary market. 4. As of September 2, 1997, commercial paper rates are those collected by the Depository Trust Company; prior rates are averages of offering rates at several large dealers. 5. Bid rates for Eurodollar deposits at 11 a.m. London time. 6. Most recent observation based on one-day Thursday quote and futures market index changes. 7. Merrill Lynch Master II high-yield bond index composite. 8. Quotes for week ending Friday previous to date shown. * Figures cited are as of the close on September 29, 1997. -11- Commercial Bank Credit (Percent change; seasonally adjusted annual rate) 1997 Type of credit 1. Bank credit: Reported Adjusted 1 2. 1997 1996ct Q2 Q3 Level, Aug Sep Oct p 1997 p (billions of $) 4.0 7.6 5.6 3.0 5.5 6.3 3,997.6 4.5 9.4 4.7 0.8 8.8 6.4 3,912.0 3. Securities: Reported -1.5 2.5 2.4 -7.6 5.2 6.7 1,031.9 4. Adjusted' 0.0 9.1 -1.5 -17.6 18.9 7.3 946.4 5. U.S. government -0.7 10.1 -2.2 -20.2 12.9 9.6 727.4 6. Other 2 -3.7 -15.0 13.7 22.6 -13.3 0.0 304.5 6.1 9.5 6.7 6.8 5.6 6.1 2,965.6 7. Loans 3 8. Business 8.6 8.0 8.7 11.6 16.4 7.9 841.3 9. Real estate 4.0 12.2 7.1 5.6 6.6 2.6 1,207.8 10. Home equity 7.1 20.3 15.4 11.6 15.3 15.1 96.8 11. Other 3.8 11.5 6.4 5.1 5.9 1.5 1,111.0 5.5 -2.8 -0.4 0.9 -9.5 -13.6 507.5 10.8 0.5 1.7 5.9 -4.5 -5.0 695.1 7.9 21.8 10.9 7.9 -0.6 38.8 409.1 12. Consumer: Reported Adjusted 4 13. 14. Other 5 Note. Adjusted for breaks caused by reclassifications. Monthly levels are pro rata averages of weekly (Wednesday) levels. Quarterly levels (not shown) are simple averages of monthly levels. Annual levels (not shown) are levels for the fourth quarter. Growth rates shown are percentage changes in consecutive levels, annualized but not compounded. 1. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FASB 115). 2. Includes securities of corporations, state and local governments, and foreign governments and any trading account assets that are not U.S. govemment securities. 3. Excludes interbank loans. 4. Includes an estimate of outstanding loans securitized by commercial banks. 5. Includes security loans, loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. p Preliminary. 

Federal Reserve (1997, November 11). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19971112_part3

@misc{wtfs_greenbook_19971112_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1997},
  month = {Nov},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19971112_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}