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 September 29, 2000 CURRENT ECONOMIC AND FINANCIAL CONDITIONS Supplemental Notes Prepared for the Federal Open Market Committee by the staff of the Board of Governors of the Federal Reserve System Contents Domestic Nonfinancial Economy .................. .......... 1 Real Gross Domestic Product ............................ Consumer Income and Spending ......................... 3 Prices ........................................... 6 Tables Real Gross Domestic Product and Related Items ............. Personal Income .................................. Real Personal Consumption Expenditures ................... Michigan Survey of Consumer Attitudes .................... PCE Price Indexes .................................... Corrections to the Consumer Price Index ................... Broad Measures of Inflation ... ........................ Surveys of (CPI) Inflation Expectations ................... 2 .4 4 5 7 8 10 10 The Financial Economy Table Selected Financial Market Quotations ..................... 11 Supplemental Notes The Domestic Nonfinancial Economy Real Gross Domestic Product According to BEA's final estimate, real GDP rose at an annual rate of 5.6 percent in the second quarter after having increased at a 4.8 percent pace in the first quarter. At 3.9 percent, the rise in second-quarter final sales was considerably slower than in the first quarter, but inventory accumulation swung from a large drag on GDP growth in the first quarter to a large positive contribution in the second. The deceleration in final sales in the second quarter was widespread across the broad sectors of private spending, including consumer spending, business fixed investment, and net exports. By contrast, federal government spending rose in the second quarter after having fallen in the first, although this pattern likely reflects erratic timing of defense purchases rather than any underlying movements in economic activity. The final estimate of the increase in real GDP in the second quarter was 0.3 percentage point higher than the preliminary estimate that the BEA released a month ago. The upward revisions were in net exports and the services component of personal consumption expenditures, and reflected new and revised source data. Inflation as measured by the chain price index for GDP was revised down 0.2 percentage point to 2.4 percent (annual rate) in the second quarter. Inflation as measured by the price index for personal consumption expenditures other than food and energy was revised down by 0.3 percentage point, to an annual rate of 1.4 percent, mostly because of the incorporation of new source data on brokers' commissions. The final estimate of the rise in real GDP growth in the second quarter was 0.4 percentage point higher than the staff had anticipated in the September Greenbook. About half of the difference was the result of the faster rise in real PCE, mostly in the services area. The remainder was the result of technical estimation errors related to the chain aggregation of inventories, an area where we find it difficult to replicate exactly BEA's aggregation techniques.' 1. In particular, BEA uses changes in real inventories at a fine level of disaggregation in constructing its estimate of overall GDP. By contrast, we use the changes in the BEA's estimate of the aggregatelevels of real farm and nonfarm inventories in 1996 dollars in our approximation. While this approximation works well in most circumstances, it can lead to errors when there are large swings in price deflators. In the case of farm inventories, extreme swings in price deflators are commonplace, as prices and inventories of individual commodities - which are not published by the BEA - can vary widely. Unfortunately, the second quarter was one such period: The level of deflator for farm inventory investment was negative, (a peculiar but mathematically possible occurrence) and had increased sharply from an even more negative value in the first quarter. -210-2-00 Real Gross Domestic Product and Related Items (Percent change from previous period at compound annual rates; based on seasonally adjusted data, chain-type indexes) 2000:Q1 Final 1. 2. 3. Gross domestic product Final sales Consumer spending 2000:Q2 Advance 2000:Q2 Final 4.8 5.3 5.6 6.7 3.5 3.9 7.6 2.9 3.1 23.6 -5.0 4. Durables 5. Nondurables 6.0 3.4 3.6 6. Services 5.2 4.4 4.6 21.0 14.6 14.6 7. Business fixed investment -5.0 8. Equipment and software 20.6 17.8 17.9 9. Nonresidential structures 22.3 4.8 4.4 3.2 .0 1.3 16.9 17.2 6.6 -. 9 -1.1 10. Residential investment 11. Federal government consumption expenditures and investment 12. -14.2 State and Local government consumption expenditures and investment 13. Exports of goods and services 6.3 13.5 14.3 14. Imports of goods and services 12.0 19.5 18.6 33.0 72.9 72.3 ADDENDA: 15. Nonfarm inventory investment 16. Motor vehicles 1 -1.7 13.6 13.5 17. Excl. motor vehicles 1 34.7 59.3 58.8 -403.4 Net exports of goods and services 1 19. Nominal GDP 8.3 8.0 8.2 20. GDP price index 3.3 2.6 2.4 21. 22. Profit share 2 (Excluding FR banks) 9.6 9.3 9.7 9.4 9.7 9.4 23. Real disposable personal income 1.9 3.3 3.7 24. Personal saving rate (percent) .2 .2 .3 1. 2. Level, billions of chained (1996) dollars. Economic profits as a share of nominal GNP. -376.8 -408.6 18. On net, BEA's estimate of second-quarter corporate profits was little changed, as a $3 billion downward revision to domestic profits was offset by a similarsized upward revision to rest-of-world profits. Thus, corporate profits as a share of GNP (excluding profits of Federal Reserve Banks) are estimated to have been 9.4 percent in the second quarter, the same as in the preliminary release and up just slightly from the first quarter. Elsewhere on the income side of the accounts, the increase in compensation was revised up as the BEA made adjustments in reaction to new data from the unemployment insurance program. This revision suggests that there will be a large upward revision to hourly compensation in the nonfarm business sector when those data are next released (in early November); incorporating new data on hours as well, we estimate that the increase in hourly compensation will be 5.9 percent (annual rate), 0.6 percentage point higher than currently published. We estimate that the second-quarter increase in productivity in the nonfarm business sector will be revised up a bit less, 0.4 percentage point. Consumer Income and Spending Total nominal personal income increased 0.4 percent ($34 billion) in August, following a gain of 0.3 percent ($24 billion) in July. Wage and salary disbursements rose more slowly in August than over the first seven months of the year, and farm proprietors' income fell again, reflecting in part lower federal farm subsidy payments. In contrast, nonfarm proprietors' income turned up, and the increases in dividend and interest income and in transfer payments were larger in August than in July. Personal tax and nontax payments increased more than $14 billion in August following a gain of just $1 billion in July when tax payments were held down by a tax rebate in Minnesota. Real disposable personal income rose 0.3 percent in August and was up 2-3/4 percent from a year earlier. Real personal consumption expenditures rose 0.6 percent in August, and the personal saving rate fell to -0.4 percent. Real outlays for durable goods jumped 2 percent last month reflecting increases in purchases of motor vehicles, appliances, computers, audio and video equipment, and miscellaneous household furnishings. Real expenditures for nondurable goods increased 0.6 percent, held down a bit by a small decline in real outlays for gasoline. However, higher spending was reported in a number of other categories including food, beverages, apparel, toiletries, and prescription drugs. Real expenditures for services rose 0.4 percent in August, boosted by a rebound in outlays for electricity and natural gas following unseasonably cool weather in July. Small spending gains were reported in August for medical care, personal business services, and recreation services. Outlays for transportation services were unchanged last month in part because of a decline in air travel. PERSONAL INCOME (Average monthly change at an annual rate; billions of dollars) 1999 2000 2000 1999 Q4 Q1 Q2 Total personal income 36.0 49.1 55.8 39.3 24.3 34.2 Wages and salaries Private 23.7 21.0 25.0 22.7 27.7 22.1 25.9 23.7 24.7 21.6 14.1 13.4 Other labor income 1.4 1.6 2.4 2.1 2.5 2.5 Proprietors' income July Aug. 3.5 8.7 8.5 3.4 -11.4 -.2 Farm -.5 .9 2.0 .7 -7.1 -4.9 Rent Dividend Interest .1 2.1 3.8 5.7 2.2 5.8 1.0 2.2 9.4 -3.0 2.0 5.2 -1.4 2.4 7.7 -.9 5.0 9.2 Transfer payments 3.3 1.8 7.2 5.5 1.5 5.5 2.0 1.7 2.6 1.7 1.6 1.0 7.9 10.8 13.4 12.2 1.0 14.2 Equals: Disposable personal income 28.1 38.4 42.3 27.0 23.4 20.0 Memo: 16.3 28.1 14.6 19.9 6.9 18.6 Less: Less: 1. Personal contributions for social insurance Personal tax and nontax payments Real disposable income1 Billions of chained (1996) dollars. REAL PERSONAL CONSUMPTION EXPENDITURES (Percent change from the preceding period) 1999 1999 Q4 2000 2000 Q1 Q2 - - - Annual rate - - July - Aug. Monthly rate Personal consumption 5.6 5.9 7.6 3.1 .4 .6 11.1 14.7 13.0 17.0 23.6 20.8 -5.0 4.4 .8 .6 2.0 1.8 Nondurable goods Excluding gasoline 5.9 6.2 7.4 7.3 6.0 7.8 3.6 3.7 .6 .4 .6 .7 Services Excluding energy 4.2 4.3 3.8 4.8 5.2 5.1 4.6 4.1 .2 .3 .4 .3 2.2 3.1 1.5 4.5 .2 1.9 .3 3.7 .0 .1 -. 4 .3 expenditures Durable goods Excluding motor vehicles Memo: Personal saving rate (percent) Real disposable income1 1. Percent changes derived from billions of chained (1996) dollars. September 29, 2000 UNIVERSITY OF MICHIGAN SURVEY RESEARCH CENTER: SURVEY OF CONSUMER ATTITUDES (Not seasonally adjusted) 2000 Jan. 2000 Feb. 2000 Mar. 2000 Apr. 2000 May 2000 June 2000 July 2000 Aug. 2000 Sept. (f) Indexes of consumer sentiment (Feb. 1966=100) 112.0 117.3 108.6 111.3 116.8 107,8 107.1 115.4 101.7 109.2 117,8 103,7 110.7 119.9 104.8 106.4 115,1 100.8 108.3 114.2 104,5 107.3 112.4 104.0 106.8 112.0 103.4 Personal financial situation Now compared with 12 months ago* Expected in 12 months* 135 141 132 138 135 136 130 137 138 137 129 137 130 139 126 139 124 132 Expected business conditions Next 12 months* Next 5 years* 165 133 161 136 146 128 152 130 153 133 146 123 148 135 151 130 149 136 Appraisal of buying conditions Cars Large household appliances* Houses 144 169 152 153 172 153 134 165 150 148 176 151 145 173 136 138 170 128 141 167 136 147 166 138 145 167 144 51 85 48 75 52 67 54 70 45 65 49 79 44 70 47 71 41 70 104 106 109 109 104 112 111 108 111 19 21 20 19 18 21 23 21 21 Expected inflation - next 12 months Mean Median 3.5 3.0 3.5 2.9 3.8 3.2 3,5 3,2 3.5 3,0 3.4 2.9 3.7 3.0 3.5 2.7 3.7 2.9 Expected inflation - next 5 to 10 years Mean Median 3.5 3.0 3.3 2.9 3.8 3.1 3.2 2.8 3.4 2.9 3.3 2.8 3.2 2.8 3.5 2.9 3.6 3.0 Composite of current and expected conditions Current conditions Expected conditions Willingness to use credit Willingness to us esavings Expected unemployment change - next 12 months Prob. household will lose a job - next 5 years * -- 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, plus 100. (or According to the final report, the overall index of consumer sentiment from the Michigan Survey Research Center edged down 1/2 point in September. 2 Still, the index remains in the middle of the narrow, elevated range recorded over the past two years. In September, consumers were not quite as optimistic about their financial situations over the next twelve months, but their assessments of their current personal finances and of buying conditions for large household appliances were little changed. The index of expected business conditions for the next twelve months inched down in September, but the index for the next five years rebounded after having dipped in August. Among those questions not included in the overall measure, respondents' views about current car buying conditions and expected unemployment conditions were slightly less favorable in September. In contrast, their views of home buying conditions turned significantly more favorable this month. Since June, the index for home buying conditions has reversed most of the decline that occurred over the first half of this year; nonetheless, the index remains considerably below the levels recorded in 1998 and the first half of 1999. Inflation expectations moved up a little in September. Both the mean and the median of expected inflation over the next twelve months increased 0.2 percentage point to 3.7 and 2.9 percent, respectively. The mean and median of expected inflation over the next five years inched up 0.1 percentage point to 3.6 and 3.0 percent, respectively. Prices The price index for personal consumption expenditures was unchanged in August. Over the past twelve months, the PCE price index rose 2.4 percent compared with a 1.7 percent increase over the preceding twelve-month period. Faster energy price inflation accounts for most of that acceleration in overall PCE prices. Excluding food and energy items, PCE prices rose 0.1 percent in August and were up 1.7 percent over the past twelve months--up about 1/4 percentage point from the year-earlier figure. This acceleration in core PCE prices is less pronounced than in the core CPI (on a current-methods basis). Having discovered a programming error that affected the indexes for residential rent and owners' equivalent rent, as well as the higher-level aggregates that depend on them, the BLS released corrected CPI data for the first eight months of this year. The upper portion of the table below presents the corrected levels of the affected indexes in August 2000. As can be seen, 2. In contrast, the preliminary report showed an increase in the index of 1-1/2 points during the first two weeks of September. The decline in the index for the month as a whole suggests a moderate deterioration in attitudes in the second half of the month. -7- PCE PRICE INDEXES (Percent changes) From twelve months earlier Aug. 1999 Aug. 2000 2000 Q1 2000 Q2 July -Annual rate- Aug. -Monthly rate- 2.4 3.5 2.1 .0 2.7 2.4 2.3 .2 13.7 35.1 13.0 -3.0 1.7 2.2 1.4 Commodities -. 3 -1.4 .6 -. 2 Services 2.7 3.8 1.8 .3 CPI 1 3.4 4.1 3.7 -. 1 CPI less food and energy1 2.6 2.3 3.0 .2 All items Food and Beverages Energy PCE less food and energy .1 Memo: 1. Data for 1998 are on a current-methods basis the corrections to the top-line indexes amount to less than 0.1 percentage point, and the revisions to the rent components themselves amount to 0.2 percentage point. Corrections to the Consumer Price Index Index levels, August 2000 (NSA) Current Total CPI . IRevision Previous (eren (percent) 172.8 172.7 .06 181.7 181.6 .06 202.7 202.3 .20 Owners' equivalent rent 199.2 198.8 .20 Residential rent 184.6 184.2 .22 Excluding food and energy Rent of Shelter Twelve-month percent changes With revised 1999 data Aug. 2000 Total CPI Previous Aug. 1999 As published Aug. 2000 Aug. 1999 3.3 2.3 3.4 3.4 2.3 2.3 2.5 2.0 2.6 2.5 1.9 1.9 3.2 2.9 3.4 3.2 2.8 2.8 Owners' equivalent rent Previous 2.8 2.8 3.0 2.8 2.6 2.6 Residential rent Previous 3.6 3.1 3.8 3.5 3.0 3.0 Excluding food and energy Previous Rent of Shelter Previous The published data present a misleading impression about the timing of these corrections, however. Although the programming errors affected data back to January 1999, BLS only revised data for this calendar year.3 That is, BLS put the levels of this year's indexes in their proper place, but did not change the 3. The current-methods CPI series shown on the table, "Broad Measures of Inflation," on page 10 incorporates both the published revisions to the CPI for 2000 as well the revisions that would have been made to the CPI for 1999 had the BLS revision covered the entire period over which the programming error affected the data. It presents our best guess of a consistently measured, error-free series. These current-methods CPI data are confidential. index levels for 1999; thus, there is now a discontinuity in the published series between December 1999 and January 2000. The lower portion of the table presents twelve-month changes based on both the new published data and the unpublished data that incorporates revisions to 1999. As can be seen, the series with revised 1999 data, which adjust for the discontinuity, suggests that the acceleration in the core CPI between 1999 and 2000 - from 2 percent a year ago to 2.5 percent in the most recent twelve months - is slightly smaller than the published data would indicate. However, the 2 percent rise now shown for 1999 is a tenth higher than the previous data had indicated. The BEA uses these CPI rent estimates as source data for the housing components of PCE prices, and the corrected CPIs will be brought into the NIPAs with next summer's annual revision. 4 We expect that the corrections will result in a slight upward revision to PCE prices at that time. However, those revisions should have no effect on real PCE or GDP, because the housing components of PCE are based on real (not nominal) source data. 4. The NIPAs will not be affected by the break in the series between December 1999 and January 2000 because the BEA uses the current-methods CPIs, which will be revised to incorporate the corrections to the data in 1999 as well as 2000. -10- BROAD MEASURES OF INFLATION (4-quarter percent change) 1997 1998 1999 2000 Q2 Q2 Q2 Q2 Product prices GDP chain price index 2.1 1.2 1.5 2.1 2.2 1.3 1.6 2.0 2.2 0.8 1.3 1.7 Gross domestic purchases chain price index Less food and energy 1.8 1.8 0.8 1.0 1.5 1.5 2.4 1.8 PCE chain price index Less food and energy 2.0 2.1 1.0 1.3 1.7 1.6 2.4 1.6 CPI Less food and energy 2.3 2.5 1.6 2.2 2.1 2.1 3.3 2.4 Current-methods CPI Less food and energy 2.0 2.2 1.4 2.1 2.0 2.0 3.3 2.4 Median CPI Trimmed mean CPI 2.9 2.5 2.9 2.0 2.6 1.8 2.5 2.4 Less food and energy 1 Nonfarm business chain price index Expenditure prices 1. Excluding housing. SURVEYS OF (CPI) INFLATION EXPECTATIONS (Percent) University of Michigan 1 year 5 to 10 years Professional forecasters (10-year)4 Actual inflation1 Mean 1998-Q4 1.5 2.7 2.4 3.2 2.8 2.5 1999-Q1 Q2 Q3 Q4 1.7 2.1 2.3 2.6 3.0 3.1 3.1 3.5 2.6 2.7 2.7 2.9 3.3 3.3 3.4 3.3 2.8 2.8 2.9 2.9 2.3 2.5 2.5 2.5 2000-Q1 Q2 3.2 3.3 3.6 3.5 3.0 3.0 3.5 3.3 3.0 2.8 2.5 2.5 3.6 2.9 3.4 2.9 2.5 Q3 2 Median 2 Mean 3 Median 3 Apr. May June 3.1 3.2 3.7 3.5 3.5 3.4 3.2 3.0 2.9 3.2 3.4 3.3 2.8 2.9 2.8 2.5 July Aug. Sept. 3.7 3.4 3.7 3.5 3.7 3.0 2.7 2.9 3.2 3.5 3.6 2.8 2.9 3.0 2.5 1. CPI; percent change from the same period in the preceding year. 2. Responses to the question: By about what percent do you expect prices to go up, on the average, during the next 12 months? 3. Responses to the question: By about what percent per year do you expect prices to go up, on the average, during the next 5 to 10 years? 4. Compiled by the Federal Reserve Bank of Philadelphia. -11- Selected Financial Market Quotations (One-day quotes in percent except as noted) Change to Sept. 28 from 1999 2000 Instrument selected dates (percentage points) FOMC* June 29 May 15 Aug. 22 Sept. 28 Short-term FOMC intended federal funds rate 4.75 6.00 6.50 650 Treasury bills 1 3-month 6-month 1-year 4.70 4.92 4.89 5.94 6.24 6.05 Commercial paper 1-month 3-month 5.18 5.12 6.47 6.59 Large negotiable CDs 1 1-month 3-month 6-month 5.21 5.32 5.43 6.55 6.74 6.97 Eurodollar deposits 2 1-month 3-month 5.13 5.25 6.53 6.72 Bank prime rate 7.75 9.00 Intermediate-and long-term U.S. Treasury (constant maturity) 2-year 10-year 30-year 5.68 5.93 6.07 6.88 6.47 6.17 U.S. Treasury 10-year indexed note 4.01 4.21 Municipal revenue (Bond Buyer) 3 5.62 6.23 6.81 6.59 7.60 10.53 7.82 7.70 8.86 11.94 7.63 5.93 8.52 6.96 Private instruments 10-year swap 10-year FNMA Merrill Lynch BBB High yield4 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 1999 2000 FOMC* June 29 May 15 Aug. 22 .50 .00 .05 -.12 .04 .00 1.40 1.44 .00 -.03 .00 .09 1.75 .50 .00 -.24 -.04 .23 -.38 .09 .27 1.34 -.62 .31 -.06 .06 5 7.96 7.21 7.90 7.27 Change to Sept. 28 from selected dates (percent) Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 11,723 1,527 5,049 606 14,752 1-14-00 3-24-00 3-10-00 3-9-00 3-24-00 10,808 1,452 3,608 498 13,438 11,080 1,499 3,953 516 13,970 10,824 1,458 3,778 524 13,786 -7.67 -4.53 -25.16 -13.58 -6.54 .15 .41 4.73 5.22 2.59 -2.31 -2.75 -4.42 1.43 -1.31 1. Secondary market. 2. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. 3. Most recent Thursday quote. 4. Merrill Lynch 175 high-yield bond index composite. 5. For week ending Friday previous to date shown. * Data are as of the close on August 21, 2000. NOTE. June 29, 1999 is the day before the beginning of the most recent sequence of policy tightenings. May 15, 2000 is the day before the most recent tightening. BA:DAM 

Federal Reserve (2000, October 2). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20001003_part2

@misc{wtfs_greenbook_20001003_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2000},
  month = {Oct},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20001003_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}