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 August 9, 2002 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 ............................. Productivity and Costs ................. 1 .............. Producer Prices .......................... .1 ........... Tables Labor Productivity and Costs . . ................... Producer Price Indexes . ........................ .1 2 4 The Domestic Financial Economy ........................... Tables Commercial Bank Credit ........................ Selected Financial Market Quotations ................ 5 5 6 Supplemental Notes The Domestic Nonfinancial Economy Productivity and Costs Output per hour in the nonfarm business sector increased at an annual rate of 1.1 percent in the second quarter, reflecting a 0.5 percent gain in output and a 0.7 percent decline in the hours worked of all persons. Productivity is estimated to have advanced 4.7 percent over the four quarters ending in the second quarter, up sharply from the 0.2 percent increase over the previous four quarters. After incorporating more recent data on both output and hours, we currently expect that the second-quarter increase in productivity will be revised up to 1.4 percent.1 As noted in Part 2 of the Greenbook, this report incorporated the annual revisions to the National Income and Product Accounts, the annual benchmark and other revisions to employment, and updated seasonal factors for hours. The resulting revisions were largely in line with our expectations. Compensation per hour in the nonfarm business sector rose at an annual rate of 3.6 percent in the second quarter, after an upward-revised 3.6 percent increase in the first quarter. Unit labor costs in the second quarter of this year rose at a 2.4 percent rate, following a 4.6 percent rate of decline in the first quarter. The productivity and cost measure of hourly compensation has decelerated sharply over the last two years-to just 2.4 percent over the four quarters ending in the second quarter of this year from a peak of almost 8 percent in the third quarter of 2000. We believe that part of that slowing can be attributed to a falloff in stock-option exercises. Producer Prices The producer price index for finished goods declined 0.2 percent in July. Excluding food and energy, the finished goods PPI fell 0.3 percent, leaving the core PPI 0.2 percent below its level a year earlier; last July's twelve-month increase was 1.6 percent. Prices of wholesale foods ticked down 0.1 percent last month, as large price swings for several categories of foodstuffs were offsetting. The PPI for energy also was little changed again in July. Gasoline prices rose 2.2 percent, following June's 1 percent rise, while prices for fuel oil jumped 6 percent, offsetting a similar-sized drop in the previous month. In contrast, prices for natural gas and electricity both moved lower. In all, wholesale energy prices 1. The published estimates were based on output data as of the advance estimate of real GDP and did not incorporate the revisions to hours that were included in the labor market report for July. Labor Productivity and Costs (Based on seasonally adjusted data) 2001 2002 2001:Q2 to Item 2000' 2001' Q3 Q4 Q1 Q2 P 2002:Q2 2.4 2.1 2.9 1.9 1.9 1.3 1.8 2.1 2.9 7.6 7.3 3.8 8.3 8.6 9.7 1.4 1.1 4.9 4.7 4.7 5.3 1.8 3.3 3.2 10.8 5.1 n.a. n.a. 7.3 7.2 5.9 1.5 1.4 2.1 0.9 1.0 1.0 1.4 1.5 2.9 3.8 3.6 6.9 3.9 3.6 3.0 2.5 2.4 3.4 7.3 1.4 2.5 2.7 4.1 n.a. n.a. 4.9 4.9 2.9 -0.4 -0.5 0.8 -0.9 -1.1 -1.9 -5.8 -5.4 -0.9 -4.2 -4.6 -2.6 2.4 2.4 -1.8 -2.2 -2.2 -1.8 5.4 -1.8 -0.7 -7.3 -0.9 n.a. n.a. Output per hour Total business Nonfarm business Manufacturing Nonfinancial corporations 2 Compensation per hour Total business Nonfarm business Manufacturing Nonfinancial corporations 2 Unit labor costs Total business Nonfarm business Manufacturing Nonfinancial corporations 2 NOTE: Percent change from preceding period at compound annual rate. 1. Changes are from fourth quarter of preceding year to fourth quarter of year shown. 2. The nonfinancial corporate sector includes all corporations doing business in the United States with the exception of banks, stock and commodity brokers, finance and insurance companies; the sector accounts for about two-thirds of business employment. P Preliminary declined 5-1/4 percent over the year ending in July, compared with a yearearlier decline of 1-3/4 percent. The PPI for core consumer goods dropped 0.4 percent in July, following a 0.3 percent increase in June. Last month's decline in core consumer prices was led by a 1-1/2 percent drop in prices of cars and light trucks, which partly reflected an increase in buyer incentives. Car prices were down 3 percent from a year earlier, while light truck prices were down more than 4 percent. Elsewhere, apparel prices declined 0.4 percent, partly reversing June's 0.5 percent increase. Overall, the PPI for core consumer goods has decelerated 2 percentage points over the past year, and the July twelve-month increase in this series stood at 0.2 percent. Prices for capital equipment fell 0.4 percent in July. In addition to the decline in car and light truck prices, July saw a decline of 1 percent in prices for communications equipment and a 3.8 percent drop in computer prices. With July's decline, computer prices have fallen 26 percent from a year earlier, compared with a decline of 21 percent over the preceding year. At earlier stages of processing, prices for core intermediate goods rose 0.2 percent last month, but remain 0.3 percent lower than their year-earlier level. Prices for core crude materials rose 1.7 percent in July; these prices started to increase around the beginning of this year, and are now nearly 7 percent higher than they were a year earlier. Producer Price Indexes (Percent) From 12 months earlier From 3 months earlier 2002 July 2001 July 2002 April 2002 July 2002 June July 1.4 -1.1 4.1 -2.0 0.1 -0.2 2.8 -1.3 -6.3 -0.6 0.1 -0.1 -1.7 -5.2 40.8 -8.6 0.0 0.1 1.6 -0.2 0.5 -0.5 0.2 -0.3 Excluding tobacco 0.9 -0.5 -0.3 -0.6 0.2 -0.4 Core consumer goods Excluding tobacco 2.2 1.1 0.2 -0.2 1.3 -0.1 -0.5 -0.6 0.3 0.3 -0.4 -0.4 Capital equipment 0.8 -0.8 -0.6 -1.1 0.1 -0.4 Intermediate materials Excluding food and energy -0.2 -0.5 -1.5 -0.3 7.9 2.4 -0.6 1.8 0.2 0.2 0.2 0.2 Crude materials -7.3 -6.2 35.1 -5.5 -3.6 0.6 -9.2 6.9 16.5 30.1 1.6 1.7 Total finished goods Food Energy Excluding food and energy Excluding food and energy Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total 1. Adjusted1 2. Reported 3. 4. 5. 6. Securities Adjusted' Reported Treasury & Agency Other 2 Loans3 Total 7. 8. Business 9. Real estate 10. Home equity 11. Other 12. 13. 14. Consumer Adjusted4 Other 5 Level, July 2002 ($ billions) 2002 Q2 2002 May 2002 June 2002 July 2002 4.2 5.1 1.1 -1.4 5.2 5.4 9.4 12.6 5.5 9.8 6.6 11.0 5,418 5,599 9.4 12.5 5.3 23.0 7.7 -2.1 .7 -5.7 13.7 13.7 24.2 .2 16.1 27.4 30.8 22.6 5.7 21.2 16.8 27.3 9.6 25.0 10.9 44.2 1,411 1,591 907 684 2.5 -3.6 7.1 19.9 6.1 -1.2 -6.1 3.9 25.6 1.9 2.4 -8.1 6.7 39.6 3.4 7.0 -5.7 15.0 50.2 11.2 5.4 -7.9 14.7 41.5 11.7 5.6 -15.0 19.4 44.7 16.6 4,008 988 1,870 192 1,677 3.8 7.4 -. 1 4.9 4.8 -13.4 4.8 4.1 5.3 5.9 11.6 5.8 -1.3 3.7 6.0 -4.4 -2.5 6.8 567 919 584 2001 Ql Note. All data are 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 are percentage changes in consecutive levels, annualized but not compounded. The conversion from a thrift to a commercial bank charter added approximately $37 billion to the assets and liabilities of domestically chartered commercial banks in the week ending May 8, 2002. 1. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FIN 115). 2. Includes private mortgage-backed securities, securities of corporations, state and local governments, and foreign governments and any trading account assets that are not Treasury or Agency securities, including revaluation gains on derivative contracts. 3. Excludes interbank loans. 4. Includes an estimate of outstanding loans securitized by commercial banks. 5. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. Selected Financial Market Quotations (One-day quotes in percent except as noted) 2000 Change to Aug. 8 from selected dates (percentage points) 2002 2002 2001 2000 2001 2002 June 26 Sept. 10 June 25 Aug. 8 June 26 Sept. 10 June 25 FOMC intended federal funds rate 6.50 3.50 1.75 1.75 -4.75 -1.75 .00 Treasury bills I 3-month 6-month 5.66 5.94 3.19 3.13 1.70 1.77 1.59 1.56 -4.07 -4.38 Commercial paper (A1/P rates) 1-month 3-month 6.56 6.56 3.42 3.24 1.75 1.74 1.69 1.65 -4.87 -4.91 -1.73 -1.59 Large negotiable CDs I 1-month 3-month 6-month -4.91 -5.04 -5.22 -1.73 -1.57 -1.57 Eurodollar deposits 2 1-month 3-month -4.91 -5.02 -1.69 Bank prime rate -4.75 -1.75 -4.46 -1.69 -.83 -1.51 -.48 U.S. Treasury 10-year indexed note -1.48 -.65 Municipal revenue (Bond Buyer) 4 -.63 .11 -2.46 -2.18 -1.67 -1.06 1.20 -.70 Instrument Short-term -1.59 Intermediate- and long-term U.S. Treasury 2-year 10-year 30-year 3 Private instruments 10-year swap 10-year FNMA 10-year AA 5 10-year BBB 5 High yield 6 Home mortgages (FHLMC survey rate)7 30-year fixed 1-year adjustable 6.89 5.64 6.63 4.60 -. 16 -.67 -. 33 .23 .78 6.43 4.45 Change to Aug. 8 from selected dates (percent) Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russel' 2000 Wilshi;e 5000 I. 2. 3. 4. 5. 6. 7. 11,723 1,527 5,049 606 14,752 1-14-00 3-24-00 3-10-00 3-9-00 3-24-00 9,606 1,093 1,695 441 10,104 9.127 976 1,424 452 9,252 8,712 905 1,317 390 8,547 Record high 2001 Sept. 10 2002 June 25 -25.68 -40.72 -73.92 -35.68 -42.06 -9.30 -17.12 -22.35 -11.55 -15.41 -4.54 -7.24 -7.55 -13.84 -7.61 Secondary market. Bid rates for Eurodollar deposits collected around 9:30 a.m Eastern time. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. Most recent Thursday quote. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. Memll Lynch Master II high-yield bond. For week ending Fnday previous to date shown. NOTES: June 26. 2000, is the day before the FOMC meeting that ended the most recent period of policy tightening September 10. 2001. is the day before the terrorist attacks June 25. 2002. is the day before the announcement after the most recent FOMC meeting. BA:DAM 

Federal Reserve (2002, August 12). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20020813_part1

@misc{wtfs_greenbook_20020813_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2002},
  month = {Aug},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20020813_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}