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 II- FOMC June 26, 1998 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 Gross domestic product .............................. Personal income ................................ Consumer sentiment ............................................ Existing home sales ............................................. Insured unemployment .......................... ........... . ........... .............. 1 1 2 2 3 Tables Real Gross Domestic Product and Related Items ...................... Personal Income ................................................ Consumer Attitudes ............................................. Existing Home Sales ........................................... 4 5 6 7 Chart Labor Market Indicators .......................................... 8 THE FINANCIAL ECONOMY Tables Selected Financial Market Quotations ............................... 9 INTERNATIONAL DEVELOPMENTS Correction to Greenbook . ...................................... 10 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Gross Domestic Product According to BEA's final estimate, real GDP increased 5.4 percent at an annual rate in the first quarter of 1998. Nonfarm inventory investment rose considerably in the first quarter, providing a large boost to real GDP growth. Real final sales posted a solid 3.7 percent increase, despite a substantial drag from the foreign sector. The final estimate of first-quarter real GDP growth was 0.6 percentage point higher than that in the preliminary release, with stronger figures for final sales and inventory investment each accounting for about half of the upward revision. Within final sales, net exports and outlays for nonresidential structures more than accounted for the markup in growth. Corporate profits, on an economic basis, are now estimated to have increased nearly $10 billion in the first quarter, about $5 billion more than estimated in BEA's preliminary report. Profits (excluding Federal Reserve Banks) accounted for 9.6 percent of GNP in the first quarter, the same share as previously reported by BEA. Personal Income Total nominal personal income increased 0.5 percent in May following a 0.4 percent gain in April. Nominal disposable income also rose 0.5 percent in May, and, with prices up moderately, real disposable income increased 0.3 percent. Close to two-thirds of the May gain in personal income was attributable to an increase in wages and salaries. Among the components of nonwage income, most categories posted gains in line with those of recent months. Real personal consumption expenditures increased 0.4 percent in May. Real purchases of durable goods climbed 3.4 percent, with a surge in spending on motor vehicles and an appreciable rise in outlays for other durable goods. Spending on nondurable goods slipped 0.1 percent in May, while services expenditures moved up just 0.1 percent. The May increase in consumer spending followed downward-revised gains of 0.3 percent and 0.2 percent in March and April, respectively. All told, the level of consumer spending in May was 1.1 percent above its first quarter average. Assuming real PCE grows another 0.4 percent in June, the data in hand would put consumption for the second quarter as a whole up about 4-1/4 percent (annual rate) from the first quarter. With personal income rising a bit less than consumer outlays in May, the personal saving rate ticked down to 3.5 percent after holding steady at 3.6 percent in the three preceding months. Consumer Sentiment The Michigan SRC Index of consumer sentiment fell about 1 point in June, but remained in an extremely favorable range. Respondents were less upbeat about future business conditions than in May, with a marked decline in the index of expected near-term business conditions and a smaller dip in the index of expected business conditions over the next five years. Meanwhile, assessments of current and expected future personal financial situations were unchanged at high levels in June, and the index of appliance buying conditions moved up to its strongest reading in four months. Responses to questions that are not included in the overall index were mixed in June. The index of unemployment expectations deteriorated for the second consecutive month, but it remained at the favorable end of the range observed since the mid-1980s. The index of car buying conditions jumped to its highest level in a year, but the index of home buying conditions edged down further. The mean and median values of expected inflation over the next twelve months each ticked up 0.1 percentage point in June to 3.2 percent and 2.7 percent, respectively. The mean value of expected inflation over the next five to ten years held steady at 3.3 percent; the median value moved up 0.1 percentage point to 2.9 percent. Existing Home Sales Sales of existing homes rose 1.0 percent in May to 4.82 million units at an annual rate, a strong level that is exceeded only by the record high recorded in March of this year.' The preliminary estimate of existing home sales in April was not revised. The median price of existing homes increased 6.0 percent in May, year over year, and the average price rose 6.1 percent. Both increases are fairly well in line with the rise in prices earlier in the year. These price series do not adjust for compositional changes in the structural characteristics and amenities of homes sold. The repeat sales price index for existing homes rose 1. The turnover rate of existing homes (sales in relation to the stock of homes) has also been very high although it still is below the range of the late 1970's. 5.1 percent, year over year, in the first quarter (most recent data). This index is calculated by Fannie Mae and Freddie Mac from price data obtained when houses are sold repeatedly or refinanced, and therefore holds constant some of the compositional shifts that can affect the median and average prices. Insured Unemployment Initial claims for unemployment insurance under state programs for the week ended June 20 rose 34,000 to 364,000. Preliminary reports suggest that layoffs associated with the two UAW strikes in Flint, Michigan boosted the level of claims last week by approximately 40,000; earlier layoffs likely boosted claims during the week ended June 13 by about 10,000. The fourweek moving average of initial claims also jumped last week to 337,000. The level of insured unemployment rose 66,000 during the week ended June 13, to 2.17 million. Although at least some of the furloughed auto workers are eligible for unemployment insurance payments, insured unemployment for the week ended June 13 was likely unaffected because the claims would not have been processed by then. The insured unemployment rate held steady at 1.8 percent during the week ended June 13. 6-29-98 Real Gross Domestic Product and Related Items (Percent change from previous period at compound annual rates; based on seasonally adjusted data, chain-type indexes) 1. 2. 3. 1996:Q4 to 1997:Q4 1997:Q4 Final 1998:Q1 Preliminary 1998:Q1 Final 3.7 3.7 4.8 5.4 3.1 2.3 3.4 3.7 3.6 2.5 6.1 6.0 1.9 15.9 15.0 6.5 6.6 Gross domestic product Final sales Consumer spending 4. Durables 6.8 5. Nondurables 1.4 6. Services 4.0 4.4 4.0 4.0 9.0 -. 8 17.2 17.8 12.9 -. 3 27.5 26.4 7. Business fixed investment 8. Producers' durable equipment 9. Nonresidential structures -1.2 -. 7 -2.3 -7.4 -3.0 16.9 10. Residential investment 5.6 9.1 16.1 11. Federal government consumption expenditures and investment -. 7 -2.3 -9.8 -10.0 12. Defense -. 8 1.0 -18.4 -18.6 13. Nondefense -. 6 -8.6 10.1 9.8 2.0 1.8 .9 .8 10.2 14.4 8.3 5.3 -3.0 17.7 -1.2 17.1 57.82 3.22 54.62 64.5 8.2 56.3 91.8 -. 5 92.3 96.7 2.6 94.1 8.02 9.8 8.9 9.0 14. 15. 16. State and local government consumption expenditures and investment Exports of goods and services Imports of goods and services ADDENDA: 17. 18. 19. Nonfarm inventory investment ' Motor vehicles 1 Excl. motor vehicles 1 20. Farm inventory investment 1 21. Net exports of goods and services ' 22. Nominal GDP 5.6 23. GDP price index 1.8 24. 25. Profit share 3 (Excluding FR banks) 26. 27. 1. 2. 3. -214.7 -208.4 5.2 5.8 6.6 1.4 1.0 1.2 10.02 9.72 10.0 9.7 9.9 9.6 9.9 9.6 Real disposable personal income 3.7 4.5 4.7 4.5 Personal saving rate (percent) 3.92 3.9 3.7 3.6 Level, billions of chained (1992) dollars. Annual average. Economic profits as a share of nominal GNP. -146.52 -159.1 PERSONAL INCOME (Average monthly change at an annual rate; billions of dollars) 1997 1998 1998 1996 1997 Q3 Q4 Q1 Apr. May Total personal income 32.5 32.2 24.0 38.3 35.3 28.6 38.3 Wages and salaries Private 21.2 19.6 21.2 19.0 16.2 13.9 30.6 28.8 24.2 21.4 16.8 14.6 24.3 22.3 Other labor income .5 .9 1.1 1.2 2.2 .8 2.0 -. 2 .7 -1.7 1.7 -. 3 Proprietors' income Farm 1.2 1.2 1. 1.4 -3.2 5.0 2.0 22 4.1 2.1 .7 -. 3 .1 -1.1 -. 5 1.8 2.6 Dividend Interest 2.8 2.2 3.0 2.4 2.1 1.8 2.1 2.1 2.0 2.4 2.1 2.0 2.1 1.9 Transfer payments 4.2 4.5 3.1 3.7 6.9 .9 3.6 Less: Personal contributions for social insurance 1.4 1.5 1.0 2.0 2.4 1.0 1.6 9.2 7.7 4.9 8.7 12.1 6.4 10.4 23.3 24.4 19.2 29.6 23.2 22.3 27.8 9.6 16.1 9.8 22.8 17.2 12.1 14.8 Rent Less: Personal tax and nontax payments Equals: Disposable personal income Memo: Real disposable income 1 1. Billions of chained (1992) dollars. REAL PERSONAL CONSUMPTION EXPENDITURES (Percent change from the preceding period) 1997 1997 Q3 - Personal consumption expenditures - 1998 Q4 - Annual rate - Q1 - 1998 Apr. - May Monthly rate 3.6 5.6 2.5 6.0 .2 .4 Durable goods Excluding motor vehicles 6.8 8.4 18.4 11.8 1.9 4.5 15.0 20.3 .2 -.1 3.4 1.7 Nondurable goods Excluding gasoline 1.4 1.3 4.3 4.7 -1.2 -1.6 6.6 7.0 .4 .4 -. 1 -. 1 Services Excluding energy 4.0 4.2 3.9 4.4 4.4 4.4 4.0 4.9 .2 .3 .1 .1 3.9 3.7 3.5 2.6 3.9 4.5 3.6 4.5 3.6 .2 3.5 .3 Memo: Personal saving rate (percent) Real disposable incomel 1. Percent changes derived from billions of chained (1992) dollars. June 26, 1998 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 1997 Oct 1997 Nov 1997 Dec 1998 Jan 1998 Feb 1998 Mar 1998 Apr 1998 May 1998 Jun (f) 105.6 109.8 102.8 107.2 114.9 102.3 102.1 111.4 96.1 106.6 113.5 102.2 110.4 120.0 104.2 106.5 113.7 101.9 108.7 115.5 104.3 106.5 113.9 101.7 105.6 115.4 99.3 Personal financial situation Now compared with 12 months ago* Expected in 12 months* 124 136 130 138 123 136 124 141 142 145 128 134 131 138 130 134 130 134 Expected business conditions Next 12 months* Next 5 years* 154 125 151 123 142 109 148 123 155 121 158 119 162 121 158 118 150 116 Appraisal of buying conditions Cars Large household appliances* Houses 141 161 164 140 169 163 135 166 161 145 171 172 149 170 170 146 167 176 145 169 178 148 166 172 152 170 171 37 69 46 69 39 75 55 74 56 78 49 82 51 70 54 78 50 68 Expected unemployment change - next 12 months 100 108 114 106 99 100 97 102 105 Expected inflation - next 12 months Mean Median 3.2 2.8 3.4 2.9 3.4 2.8 2.8 2.3 2.6 2.4 2.9 2.5 2.7 2.4 3.1 2.6 3.2 2.7 Expected inflation - next 5 to 10 years Mean Median 3.6 3.0 3.8 3.1 3.9 3.1 3.4 2.9 3.2 2.9 3.3 2.8 3.2 2.7 3.3 2.8 3.3 2.9 Indexes of consumer sentiment (Feb. 1966-100) Composite of current and expected conditions Current conditions Expected conditions 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' (or '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, plus 100. THE MARKET FOR EXISTING HOUSES 1997 Sales 1 Total Percent Change Regional Sales Northeast Midwest South West 1997 Q3 4,215 4,253 3.1 3.3 632 1,067 1,575 942 637 1,067 1,603 2,065 1998 1998 Q1 Mar. Apr. 4,380 4,677 4,890 4,770 4,820 3.0 6.8 2.5 -2.5 1.0 947 650 1,103 1,653 973 690 1,170 1,810 1,003 740 1,240 1,890 1,020 710 1,210 1,810 1,030 710 1,180 1,840 1,090 2,132 2,065 2,259 2,259 2,029 2,270 Q4 Inventories Existing homes for sale 2 Months' supply 3 5.5 Prices 4 Average Percent change 154.2 6.0 157.4 6.3 155.7 7.5 156.0 5.9 157.2 6.6 159.7 6.2 162.4 6.1 Median Percent change 124.1 5.0 126.6 5.0 124.9 125.9 5.5 127.1 5.9 128.2 6.2 130.5 6.0 Repeat Sales Index 5 Percent change 148.8 149.9 5.2 151.9 153.5 5.1 ND ND ND ND 4.6 6.2 5.3 Note: Annual and quarterly levels are averages of monthly data. 1. Thousands of units, seasonally adjusted annual rate, except where noted. Percent change is from previous comparable period. 2. Thousands of units, seasonally adjusted, end of period stock. 3. At current sales rate; expressed as the ratio of seasonally adjusted inventories to seasonally adjusted sales. 4. Price levels are expressed in thousands of dollars and are not seasonally adjusted. Percent changes are from the previous comparable period a year earlier. 5. The index equals 100 in the first quarter of 1987. ND--data not reported on a monthly basis. June 25, 1998 Labor Market Indicators Initial Claims for Unemployment Insurance Net Hiring Strength Thousands 450 Percent 4-week moving average - 400 June 20 - 350 (337) - - I S I I 1995 1993 I 1997 I 300 250 1999 1988 1990 1992 1994 1996 1998 Note. Percent planning an increase in employment minus percent planning a reduction. Note. State programs, includes EUC adjustment. Reporting Some Jobs Difficult to Fill Reporting Positions Hard to Fill Percent Percent BNA's Survey of Personnel Executives ---- Technical/Professional SPro(' tion/Service ------ Of,.. ,,. erical Q2 1988 1990 1992 1994 1996 1998 t18 1990I 1988 1990 1 1992 I 1994 I I 1996 Index, 1990=100 '990 1992 1998 Expected Change in Unemployment Help Wanted Index 1988 19 1994 1996 1998 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. Index 1988 1990 1992 1994 1996 1998 Note. Percentage expecting "more" minus percentage expecting 'less" plus 100. Selected Financial Market Quotations' (Percent except as noted) 1997 1998 Instrument Chane to June 25, from: FOMC * FOMC * 30 Jan. 2 May 19 June 25 Sep. 30 Jan. 2 May 19 Federal funds intended rate 2 realized rate 3 5.50 5.51 5.50 5.44 5.50 5.56 5.50 5.45 0.00 -0.06 0.00 0.01 0.00 -0.11 Treasury bills 4 3-month 6-month 1-year 4.93 5.08 5.18 5.18 5.19 5.18 5.05 5.17 5.17 4.89 5.09 5.13 -0.04 0.01 -0.05 -0.29 -0.10 -0.05 -0.16 -0.08 -0.04 5.51 5.48 5.56 5.54 5.50 5.50 5.54 5.48 0.03 0.00 -0.02 -0.06 0.04 -0.02 5.59 5.67 5.72 5.64 5.69 5.71 5.56 5.60 5.68 5.58 5.60 5.65 -0.01 -0.07 -0.07 -0.06 -0.09 -0.06 0.02 0.00 -0.03 5.56 5.63 5.59 5.69 5.53 5.59 5.50 5.56 -0.06 -0.07 -0.09 -0.13 -0.03 -0.03 8.50 8.50 8.50 8.50 0.00 0.00 0.00 5.88 6.12 6.41 5.62 5.67 5.86 5.59 5.64 5.92 5.53 5.46 5.66 -0.35 -0.66 -0.75 -0.09 -0.21 -0.20 -0.06 -0.18 -0.26 U.S. Treasury 10-year indexed note 3.61 3.70 3.76 3.73 0.12 0.03 -0.03 Municipal revenue (Bond Buyer) 6 5.63 5.41 5.48 5.36 -0.27 -0.05 -0.12 Corporate-A utility, recently offered 7.44 6.96 7.13 6.93 -0.51 -0.03 -0.20 High-yield corporate7 9.02 9.04 9.02 9.18 0.16 0.14 0.16 7.28 5.51 7.03 5.50 7.19 5.71 6.96 5.68 -0.32 0.17 -0.88 0.18 -0.23 -0.03 ________Sep. Short-term rates Commercial paper 1-month 3-month Large negotiable CDs 4 1-month 3-month 6-month Eurodollar deposits 5 1-month 3-month Bank prime rate Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 10-year 30-year Home mortgages FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate Record high 1998 Percentage change to June 25, from: FOMC * Record FOMC * May 19 Level Date Jan. 2 May 19 June 25 high Jan. 2 Dow-Jones Industrial 9211.84 5/13/98 7965.04 9050.91 8935.58 -3.00 12.19 -1.27 S&P 500 Composite 1130.54 4/22/98 975.04 1105.82 1129.28 -0.11 15.82 2.12 NASDAQ (OTC) 1917.61 4/22/98 1581.53 1831.62 1863.25 -2.83 17.81 1.73 491.41 4/21/98 436.52 467.61 450.16 -8.39 3.12 -3.73 Stock exchange index Russell 2000 Wilshire 10782.75 4/22/98 9327.71 10485.71 10591.97 -1.77 13.55 1.01 1. One-day quotes except as noted. 2. FOMC's intended rate. 3. Average for two-week reserve maintenance period ending on or before date shown. Most recent observation is average for current maintenance period to date. 4. Secondary market. 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 May 18,1998. -10INTERNATIONAL DEVELOPMENTS Correction to Greenbook After the Greenbook went to press, we learned of some reporting errors in the foreign official intervention data. As a consequence, we have reliable data on official activity since the May FOMC meeting for Canada, Germany, and Japan only. 

Federal Reserve (1998, June 30). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19980701_part3

@misc{wtfs_greenbook_19980701_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1998},
  month = {Jun},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19980701_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}