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 January 29, 1999 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 1 1 2 Gross Domestic Product: 1998:Q4 .......................... .... ..................... Consumer Sentiment ......... The Annual Report of the Congressional Budget Office ............ Tables Real Gross Domestic Product and Related Items ................. University of Michigan Survey Research Center: ......... Survey of Consumer Attitudes . ....... CBO Budget and Economic Projections . ...................... 4 ......... 5 6 THE FINANCIAL ECONOMY Erratum ......... ........ ................ .......... 3 Tables Selected Financial Market Quotations ........................ Commercial Bank Credit ................. ........... .... 7 8 THE INTERNATIONAL ECONOMY Erratum ......... ........................ ......... . 3 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Gross Domestic Product: 1998:Q4 Real GDP is estimated to have increased at an annual rate of 5.6 percent in the fourth quarter of 1998; for the year as a whole, real GDP rose 4.1 percent. In the fourth quarter, real final sales accelerated more than 4 percentage points to an annual rate of 6 percent, while nonfarm inventory investment declined $5.3 billion. The robust increase in final sales reflected strength in both domestic demand and exports. Real consumer spending rose at an annual rate of 4.4 percent; outlays for durables increased sharply, reflecting a surge in, motor vehicle sales. After having posting a small decline in the third quarter, outlays for producers durable equipment rose at a 21 percent pace in the fourth quarter, boosted by strength in purchases of high-tech and transportation equipment. Outlays for nonresidential structures, which declined in the first half of this year and were unchanged in the third quarter, posted a 5-1/2 percent gain last quarter. Spending for residential structures continued to climb, rising at an annual rate of 10.1 percent in the fourth quarter. Federal purchases--which rose at a 7.9 percent annual rate--were boosted by a large increase in the nondefense category. Exports declined over the first three quarters of last year, but rebounded in the fourth quarter, rising at an annual rate of 18.8 percent. At the same time, imports rose at a 16 percent rate, boosted by substantial gains in the capital goods and the automotive vehicles and parts components. All told, net exports fell $3.9 billion in the fourth quarter. The chain-weighted price index for GDP rose at an annual rate of 0.9 percent, about the same as in the previous two quarters. Consumer Sentiment According to the final report, the Michigan Survey Research Center index of consumer sentiment rose more than three percentage points in January to its highest since last August.1 Respondents had more favorable views of their current finances, and assessments of their 1. Today's report also indicates that sentiment was higher later in January than it had been earlier in the month. The overall index in the final report was almost three percentage points above the preliminary release of January 15. Respondents interviewed over the final weeks of the survey were particularly more optimistic about future business conditions and expected personal finances. -2future financial positions were little changed. Households were decidedly more optimistic about expected business conditions in January, and appraisals of buying conditions for large household appliances also improved. Among the questions not in the overall index, the index of expected unemployment change fell 9 percentage points in January; compared with this last three months, this marked a considerable improvement of views on labor market conditions over the next year. In addition, appraisals of buying conditions for homes and cars remained at extremely favorable levels in January. Expected inflation continued to creep up. The mean and median of expected inflation over the next year each increased 0.2 percentage point in January to 3 percent and 2.7 percent, respectively. The mean of expected inflation over the next 5 to 10 years increased 0.3 percentage point in January to 3.5 percent, and the median edged up to 3 percent--both readings are their highest since December 1997. The Annual Report of the Congressional Budget Office The Congressional Budget Office's annual report on the economic and budget outlook, released on January 29, projects a budget surplus of $107 billion for the current fiscal year (FY1999) under current law. This projection expects the continuation of the strong growth in receipts experienced over the last five years; indeed, in the current fiscal year, receipts are forecast to rise to 20.7 percent of GDP, a post-war high. On the spending side, outlays are estimated to edge down this year to 19.5 percent of GDP, the lowest level since the mid-1970s. CBO expects the surplus to total $131 billion in FY2000. Over the coming decade, budget surpluses are projected to rise steadily, cumulating to more than $2-1/2 trillion and reaching 2.8 percent of projected GDP in FY2009. The onbudget balance, which excludes social security and the postal service, moves into surplus in FY2001 and trends up over the next decade, cumulating to nearly $800 billion. An implication of the rising budget surpluses is that federal debt held by the public is projected to decline to 22 percent of GDP by FY2005--below its previous post-war low--and to less than 10 percent of GDP by FY2009. The projections assume that discretionary spending will equal the statutory caps on such spending each year through FY2002, when the caps expire, and will increase with inflation thereafter. The budget projections are based on a path of real GDP growth that hovers around 2.3 to 2.4 percent per annum, except in 2000 when it is forecast to be 1.7 percent. THE FINANCIAL ECONOMY Erratum On page III-A-2 of the Appendix to the Domestic FinancialDevelopments section of the Greenbook, the last sentence in the third paragraph should read: By contrast, over half of the branches and agencies of foreign banks--which have been tightening credit standards and terms much more than domestic banks for several months-would tighten on 60 percent or more of their outstanding commitments. THE INTERNATIONAL ECONOMY Erratum In the table on page IV-23 of the InternationalDevelopments section of the Greenbook, the German current account balance should be + $24.3 billion. -41-29-99 Real Gross Domestic Product and Related Items (Percent change from previous period at compound annual rates; based on seasonally adjusted data, chain-type indexes) 1998:Q2 Final 1998:Q3 Final 1998:Q4 Advance 1. Gross domestic product 1.8 3.7 5.6 2. 4.6 2.8 6.0 6.1 4.1 4.4 3. Final sales Consumer spending 4. Durables 11.2 2.4 21.4 5. Nondurables 5.3 2.1 3.2 6. Services 5.4 5.4 1.7 12.8 -. 7 16.7 7. Business fixed investment 8. Producers' durable equipment 18.8 9. Nonresidential structures -2.3 .2 5.5 15.0 9.9 101 -1.0 21 0 10. Residential investment 11. Federal government consumption expenditures and investment 7.3 -1.4 7.9 State and local government consumption expenditures and investment 1.8 3.1 2.1 -2.8 188 9.3 2.3 16.0 29.9 47.0 -22.5 52.4 -9.0 41 7 8.2 56.0 33.5 -245.2 -259.0 -262.9 2.7 4.7 65 .9 1.0 9 2.6 3.2 3 6 .4 .2 0 12. 13. 14. Exports of goods and services Imports of goods and services -7.7 ------------------------------------------ ADDENDA: 15. 16. 17. Nonfarm inventory investment ' Motor vehicles ' Excl. motor vehicles ' 18. Net exports of goods and services ' 19. Nominal GDP 20. GDP price index 21. Real disposable personal income 22. Personal saving rate (percent) 1. Level, billions of chained (1992) dollars. vr- St in H or- 4 o in o I 0oH I k CO oo m 0r4 -i C o10n r W mr- N n r o> 0 MrI4 C C4r I I 4.) S em -: '2 0a O 0° m m m - r-4H -4H min r-c fn N OD 0 0 cn d 0 e 0a m-o-" mL a a .4 0 *rl 0 H E4 0Inm lr-o o to n o N N N mN (m 0 en H n rn H 0 I % -i 4H 1-4H or-I o H HH N HH r-4 %A - N4 l 0 0 -I mm * * 0O II oH 11 I mm 11 v rq - .I r- 10 TI MM M a ur-- I o *N> 0m n m co II m 04 * o 0 r. OM 0 e U -H 0 S V - tul * *0, O t *(' 0 OW mm in i rI a4 O n r- aH m 0I - in o Nr- o mCI mena moI - H-I 0*O S -. O 4. *rl ri 0 0 rI I I 0 w S. m1 D > 1 m00 UH Hr- o CO mm H- t-I a'0 o r- O W D - H r-I > 0 I £ 0) -.0 4 ) 0 iH 0 0 0 o mo 0 J,1 Hno - - H- H H 0.4 H l N 0 4 0 0 0 S-4 o ulow -H H m %D% H -1 -H H S* * *) m -I t e S mm O O 0 I r- aM1 O a I m H 0C m0 0 rq Sr-- 0 4) ':1 0>1 I ID1 r.I I a O.1.0 -w a 0 d 4S H***0U 0 o-. *V o * H 0 E-n MO1 O k Io II Io I 0 0 4J 00 0 0 A a o 0 Ha 43 00 p40 0 * 0o 1 0 0 rl r V I A) -r4 U A N I0 -1 41 4 a 43 0 o 0 b0 a * w 0 0 rl Vrl 4- 0 0 0 r! I x04 I I II 0 to aU ou -4 0 *o+ 4J O II 4J -4) -d 1 U m RID a Wd 0 0 D mm 0 0 0az u 0 U at U 0 J^ p,% H H -H H *4 * a0 r-I 44 -4 a k 1 0 4J10 -. Oa r! 40r:O r4 0 -.H 4J *d 5eee Agg Y 0 -4 t43 4 0C0 40OZ l4J4 aa a oi a -io)a 0a a0 CBO BUDGET AND ECONOMIC PROJECTIONS 1 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2611 2255 355 143 212 2727 2346 381 164 217 Budget Projections (Billions of dollars; fiscal years) Receipts Outlays Surplus On-Budget Off-Budget 1815 1707 107 -19 127 1870 1739 131 -7 138 1930 1779 151 6 145 2015 1806 209 55 153 2091 1881 209 48 161 2184 1951 234 63 171 2288 2032 256 72 183 2393 2086 306 113 193 2500 2166 333 130 204 Economic Assumptions (Calendar years) ----------------- Percent change, year over year----------------4.1 2.3 2.5 Nominal GDP Real GDP CPI-U 3.8 1.7 2.6 4.3 2.2 2.6 4.5 2.4 2.6 4.6 2.4 2.6 4.6 2.4 2.6 4.6 2.4 2.6 4.5 2.4 2.6 4.5 2.3 2.6 4.5 2.3 2.6 4.4 2.3 2.6 -------------------- Percent, annual average--------------------4.6 5.1 5.4 5.6 5.7 5.7 5.7 5.7 5.7 5.7 5.7 Three-month 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 Ten-year 5.1 5.3 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 Unemployment rate Yield on selected Treasuries 1. The projections assume that revenues and mandatory outlays evolve according to Discretionary spending is laws in effect at the time the projections were made. assumed to be in compliance with the statutory caps through 2002 and to grow at the rate of inflation in succeeding years. The on-budget surplus excludes the surplus of social security and the Postal Service (which are off-budget). Source. Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 2000-2009. January 1999. cbobud.txt (01-29-99) -7III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 1999 1998 Change to Jan. 28 from selected dates (percentage points) FOMC* FOMC* Instrument June 30 Nov. 16 Dec. 22 Jan. 28 June 30 Nov. 16 Dec. 22 Short-term Federal funds FOMC intended rate Realized rate 1 5.50 5.51 5.00 5.08 4.75 4.82 4.75 4.80 -.75 -.71 -.25 -.28 .00 -.02 Treasury bills 2 3-month 6-month 1-year 4.97 5.04 5.10 4.41 4.42 4.34 4.42 4.43 4.33 4.38 4.29 4.31 -.59 -.75 -.79 -.03 -.13 -.03 -.04 -.14 -.02 Commercial paper 1-month 3-month 5.54 5.47 5.13 5.09 5.37 5.01 4.79 4.75 -.75 -.72 -.34 -.34 -.58 -.26 Large negotiable CDs 2 1-month 3-month 6-month 5.60 5.61 5.68 5.19 5.31 5.12 5.58 5.15 5.00 4.86 4.86 4.86 -.74 -.75 -.82 -.33 -.45 -.26 -.72 -.29 -.14 Eurodollar deposits 3 1-month 3-month 5.56 5.59 5.19 5.31 5.50 5.13 4.81 4.81 -.75 -.78 -.38 -.50 -.69 -.32 Bank prime rate 8.50 8.00 7.75 7.75 -.75 -.25 .00 Intermediate- and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year 5.49 5.44 5.62 4.56 4.85 5.28 4.56 4.64 5.07 4.58 4.67 5.11 -.91 -.77 -.51 .02 -.18 -.17 .02 .03 .04 U.S. Treasury 10-year indexed note 3.76 3.80 3.79 3.75 -.01 -.05 -.04 Municipal revenue (Bond Buyer) 4 5.36 5.28 5.21 5.24 -.12 -.04 .03 Corporate bonds, Moody's seasoned Baa 7.11 7.37 7.23 7.23 .12 -. 14 .00 High-yield corporate 5 9.20 10.62 10.49 10.45 1.25 -.17 -.04 Home mortgages (FHLMC survey rate) 6 30-year fixed 1-year adjustable 6.96 5.68 6.93 5.56 6.69 5.55 6.78 5.57 -. 18 -.11 -.15 .01 .09 .02 Record high Level Date Nov. 16 FOMC* Dec. 22 Jan. 28 9,643.32 1,275.09 2,477.34 491.41 11,702.09 1-8-99 1-8-99 1-28-99 4-21-98 1-8-99 9,011.25 1,135.87 1,861.68 390.42 10,383.89 8,988.85 1,202.84 2,138.03 401.83 10,956.28 9,281.33 1,265.37 2,477.34 423.97 11,620.80 Stock exchange index Dow-Jones Industrial S&P 500 Composite NASDAQ (OTC) Russell 2000 Wilshire 5000 1999 1998 1. Average for two-week reserve maintenance period ending on or before date shown. Most recent observation is average for current maintenance period to date. 1. Secondary market. 3. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. 4. Most recent Thursday quote. 5. Merrill Lynch Master II high-yield bond index composite. 6. For week ending Friday previous to date shown. * Data are as of the close on December 21, 1998. Change to Jan. 28 from selected dates (percent) Record high -3.75 -.76 .00 -13.72 -.69 Nov. 16 FOMC* Dec. 22 3.00 11.40 33.07 8.59 11.91 3.25 5.20 15.87 5.51 6.07 Commercial Bank Credit (Percent change; seasonally adjusted annual rate) 1999 1998 Type of credit SQ3 1. Bank credit: Reported Adjusted 1 2. 3. Securities: Reported Adjusted 1 4. 5. U.S. government 6. Other 2 7. Loans 3 8. Business 9. Real estate 1998 Q4 Nov Dec Level, Jan Jan p 1999 p (billions of $) 11.2 9.0 16.7 10.6 5.6 -3.4 4,536.1 10.4 7.9 15.3 17.8 4.1 -2.0 4,416.8 15.0 12.7 24.9 8.8 8.9 -16.3 1,218.9 12.3 8.5 20.0 37.4 3.2 -12.1 1,099.7 6.1 0.9 10.2 25.4 3.2 1.5 793.8 35.0 38.0 54.1 -20.6 19.3 -48.2 425.1 9.8 7.6 13.7 11.3 4.3 1.4 3,317.2 11.4 12.7 16.0 10.5 -2.7 0.1 945.3 6.6 1.9 8.6 19.9 12.5 2.5 1,325.3 10. Home equity 0.4 -1.6 -2.0 3.7 -1.2 -6.2 96.7 11. Other 7.2 2.1 9.5 21.3 13.7 3.2 1,228.7 -1.6 -7.1 2.5 4.8 7.2 2.9 503.0 6.1 4.3 6.5 5.9 11.5 7.9 763.1 29.9 29.5 33.7 -1.8 -5.7 -0.4 543.5 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. government 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 (1999, February 2). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19990203_part1

@misc{wtfs_greenbook_19990203_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1999},
  month = {Feb},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19990203_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}