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 March 26, 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 Consumer Sentiment .......................... Sales of Existing Homes ................................ ......... 1 1 Tables University of Michigan Survey Research Center: Survey of Consumer Attitudes .......................... The Market for Existing Homes ........................... 2 3 THE FINANCIAL ECONOMY Tables Selected Financial Market Quotations ........................ Commercial Bank Credit ................................ 4 5 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Consumer Sentiment According to the final report, the Michigan Survey Research Center index of consumer sentiment dropped about 2-1/2 percentage points in March but remained at a highly favorable level. Households had less favorable assessments of their current and future financial situations in March, and views on expected business conditions slipped somewhat. However, respondents were extremely upbeat about buying conditions for large household appliances: In March, this series was just one point below its historical high. Among those series not in the overall index, the index of expected unemployment change moved back up again in March, suggesting some lingering concern about labor market conditions over the next year. Appraisals of buying conditions for cars were little changed in March at a level only a bit below the January high . However, less favorable views on current mortgage rates and home prices does appear to have damped assessments of home buying conditions this month. The mean and median of expected inflation over the next twelve months rose in March to 3.1 percent and 2.7 percent, respectively. In contrast, the mean and median of expected inflation over the next five to ten years both fell this month to 3 percent and 2.7 percent, respectively. Sales of Existing Homes. Sales of existing homes edged down slightly in February to a level of 5.02 million units (annual rate). Having remained at or close to a record level for three consecutive months, this measure of activity in the housing market provides another indication that demand may be topping out. The median price of existing homes sold in February was 3.9 percent above the yearearlier level, a reading at the lower end of the range of year-to-year price changes during the past year. The year-over-year increase in the average price of existing homes, 5.3 percent, was more in line with recent trends. QI a\ on 0-l A * MA <n A il h i-mO * * m-oI I I I 10 I O1 '44 * H I m * rlZ 0 i- -I 0 I- 'i- t- m 1T-I a in MW In N in w r TA rir V- iWH H -I n V1 4 mCi I . NC - Mco Mq S014 01 n CD I r m4 i- l-I il l-I - w-40 m iy r on m0 im ani- r1 t 4 1-1 mo in ao mm mo 0 O -l 4N m 01- min mcn mm N * - 0 .0 44 0 IC mm Cmm r- 1 co0 renm ^q rmo l rmom i i- 00 mm 'am g-I r m I-m ri-i m ci o . - 01 0. . 0!W cq 0* n In 1-1 om- II I In Cf 4 -I I l in rmo i *%n* 14 ri *4 0! * a mm rq I m r 0 A -4 0 0 41 0 m -14 ino *u w 0 a o 0 0 $4*<i 4 iN 1 cn i< 0 o 0 01 u II m vio O- 10i-4 go ml T-1 a 02 1-1 I *1-1*0 O'm 1I1 M CO * h *rl . . omm I cimo I i-l cim i 14 ,--1 -I 0(10 -44 > 00 D4 H S 1 141 w-i w-w- 35 o0 o 'w %D wmw moin cici mc Nmc^ t^~l *~( « in CD IlI-lw 1-41 ** no mi 0 0r a4 Cio w-I'n mm *i* mc 01 * H o o * 0 0 0 00 a 0O 4 0 >1 .40 .4I-A *) 0 a a 0 i-l '4 I * * 44 o A r-I o aa0 O 01m 4 u ClDlwC r4 -il0 enm I-Ci- - a wO 4 00 M H I Tl 0 0 u0 o4 II 0 0 4 a OH 4 0 a H at 0 A 41i o U 4) I oo I 00 ) 400 J0 4) a 0 40 4 4 H ag 0 P* ari II I I 3V 0 C i a l 1 0 0 4aa D t I 0 0 Cf 44 0 *rl 4J1 « 0a *M $40 P . kdI .4 C *ri 0 .rl 0 d 141 *o e 000 ' 0 0 .40 0Sa a I 40 V lI HI 4 ak44 I U-1.) 44 r-I U r 0AB kwoN aM N rl u 0 *ri 0 l C6 -40$ 44 0 41 0 m id ci a 0 0h4 rl e o m rO I 0l0 U U 0 0 0H .4 4 o04rl E0g a < 0 0K a41* 0 a a o m rlrl 0 0 0M .4-.1414I 1414 *M a 4 - W 0 0'0 0 0 H J a -rl-l<@ VBA -W *l4J 1rl a oeI H1 44 0 4 * rl a00 0 0 Dfwo a *l.4 c 4)0lr0 0-4 0 0 -4E 0rr 04)4 0E~l 00ic 00" THE MARKET FOR EXISTING HOUSES 1998 1998 Q2 Q3 1998 Q4 1999 Dec. Jan. Feb. 5,020 -0.4 Sales 1 Total Percent Change 4,785 13.5 4,773 2.5 4,770 -0.1 4,910 2.9 5,030 2.7 5,040 0.2 Previously reported level 4,785 4,780 4,777 4,893 5,030 5,070 Regional Sales Northeast Midwest South West 682 1,206 1,853 1,044 690 1,197 1,840 1,043 670 1,203 1,823 1,067 673 1,247 1,937 1,057 680 1,300 1,970 1,080 710 1,280 1,970 1,080 720 1,180 2,050 1,070 Inventories Existing homes for sale 2 2,075 2,142 2,038 2,075 2,075 2,095 1,908 5.4 5.4 5.2 5.0 4.9 5.0 4.6 Prices 4 Average Percent change 162.9 5.6 163.7 6.3 165.7 5.3 162.9 4.6 163.0 3.5 161.8 3.2 162.0 5.3 Median Percent change 130.6 5.2 130.9 5.8 132.6 4.8 131.0 4.9 130.5 3.7 131.3 4.1 129.3 3.9 Repeat Sales Index 5 Percent change 155.2 5.4 154.3 5.8 156.4 5.5 157.7 4.8 ND ND ND ND ND ND Months' supply 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. March 25, 1999 11:29:41 Selected Financial Market Quotations March 26, 1999 (One-day quotes in percent except as noted) Change to Mar. 25 from selected dates (percentage points) 1999 1998 Instrument Oct. 15 Dec. 31 FOMC* Feb. 3 Mar. 25 Oct. 15 Dec. 31 FOMC* Feb. 3 Short-term Federal funds FOMC intended rate Realized rate 1 5.00 5.40 4.75 4.58 4.75 4.65 4.75 4.97 -.25 -.43 .00 .39 .00 .32 Treasury bills 2 3-month 6-month 1-year 4.05 4.12 4.06 4.37 4.39 4.33 4.42 4.41 4.38 4.39 4.38 4.52 .34 .26 .46 .02 -.01 .19 -.03 -.03 .14 Commercial paper 1-month 3-month 5.27 5.13 4.90 4.84 4.79 4.76 4.82 4.80 -.45 -.33 -.08 -.04 .03 .04 Large negotiable CDs 2 1-month 3-month 6-month 5.35 5.31 5.10 5.01 4.97 4.97 4.87 4.88 4.90 4.86 4.89 4.96 -.49 -.42 -.14 -. 15 -.08 -.01 -.01 .01 .06 Eurodollar deposits 3 1-month 3-month 5.34 5.28 4.94 4.94 4.81 4.81 4.81 4.88 -.53 -.40 -. 13 -.06 .00 .07 Bank prime rate 8.25 7.75 7.75 7.75 -.50 .00 .00 Intermediate- and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year 4.13 4.58 5.02 4.54 4.65 5.09 4.70 4.79 5.24 5.02 5.21 5.59 .89 .63 .57 .48 .56 .50 .32 .42 .35 U.S. Treasury 10-year indexed note 3.69 3.88 3.76 3.89 .20 .01 .13 Municipal revenue (Bond Buyer) 4 5.21 5.26 5.17 5.29 .08 .03 .12 Corporate bonds, Moody's seasoned Baa 7.26 7.23 7.32 7.53 .27 .30 .21 11.29 10.52 10.49 10.64 -.65 .12 .15 6.49 5.36 6.77 5.58 6.74 5.57 7.01 5.75 .52 .39 .24 .17 .27 .18 High-yield corporate 5 Home mortgages (FHLMC survey rate) 6 30-year fixed 1-year adjustable Record high 1998 Stock exchange index Dow-Jones Industrial S&P 500 Composite NASDAQ (OTC) Russell 2000 Wilshire 5000 Change to Mar. 25 from selected dates (percent) 1999 Level Date Dec. 31 FOMC* Feb. 3 Mar. 25 9,997.62 1,316.55 2,510.09 491.41 11,932.09 3-18-99 3-18-99 2-1-99 4-21-98 3-18-99 9,181.43 1,229.23 2,192.69 421.96 11,317.59 9,274.12 1,261.99 2,463.42 421.73 11,588.71 9,836.39 1,289.99 2,434.80 392.99 11,702.00 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. 2. 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 February 2, 1999. Record high -1.61 -2.02 -3.00 -20.03 -1.93 Dec. 31 FOMC* Feb. 3 7.13 4.94 11.04 -6.87 3.40 6.06 2.22 -1.16 -6.81 .98 -5- Commercial Bank Credit (Percent change; seasonally adjusted annual rate) 1998 1999 1. Bank credit: Reported 11.2 9.0 16.6 4.2 -5.6 Level, Feb Feb Feb 1999 (billions of $) 4,508.0 -4.1 2. Adjusted' 10.4 7.8 15.3 3.9 -5.3 -2.7 4,394.2 3. Securities: Reported 14.9 12.7 24.6 4.2 -13.8 -10.2 1,207.3 12.3 8.5 20.1 2.9 -13.7 -5.2 1,093.5 6.2 0.9 10.4 3.5 2.4 -1.8 793.6 34.7 38.0 52.8 5.5 -43.2 -26.1 413.7 9.8 7.6 13.7 4.2 -2.5 -1.9 3,300.7 11.3 13.0 15.5 -2.9 -3.7 -0.3 942.1 6.7 1.9 8.7 12.6 4.4 3.1 1,331.4 1998 Type of credit Adjusted 1 4. 5. U.S. government 6. Other 2 7. Loans 3 8. Business 9. Real estate Q3 Q4 Dec Jan 10. Home equity 0.1 -1.6 -3.3 -1.2 -5.0 -1.2 96.4 11. Other 7.2 2.2 9.6 13.9 5.2 3.3 1,235.0 -1.5 -7.1 2.6 7.0 5.3 0.7 504.3 6.0 4.3 6.3 9.3 1.6 0.2 757.9 29.9 28.7 34.3 -6.2 -24.5 -19.6 522.9 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. Internal FR BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM DIVISION OF RESEARCH AND STATISTICS Date: March 25, 1999 To: Federal Open Market Committee From: Mike Prell Subject: Greenbook Part 1 Correction Strictly Confidential (FR) -- Class II FOMC The last sentence on page I-2 should have ended "...while the market price-earnings multiple, measured on trailing earnings, will remain around its current level." The current text mentions a further rise in the P-E ratio. Our projection does indeed show a moderate decline in economic profits from the current level, but it probably doesn't imply much change in the 12-month moving average of earnings used to calculate conventional market PEs. 

Federal Reserve (1999, March 29). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19990330_part2

@misc{wtfs_greenbook_19990330_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1999},
  month = {Mar},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19990330_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}