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 some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. 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. 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Content last modified 5/20/2009. Confidential (FR) Class III FOMC September 12, 2003 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 The Domestic Nonfinancial Economy . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Personal Income and Consumer Spending . . . . . . . . . . . . . . . . . . . 1 Producer Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Tables Retail Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 University of Michigan Survey Research Center: Survey of Consumer Attitudes . . . . . . . . . . . . . . . . 3 Recent Changes in Producer Prices . . . . . . . . . . . . . . . . . . 5 Recent Changes in Producer Prices – Relative Contribution . . . . . . . . . . . . . . . . . . . . . . 5 The Domestic Financial Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Tables Commercial Bank Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Selected Financial Market Quotations . . . . . . . . . . . . . . . . 7 The International Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Trade in Goods and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Prices of Internationally Traded Goods . . . . . . . . . . . . . . . . . . . . . 9 Non-oil imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Oil ........................................9 Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Tables Net Trade in Goods and Services . . . . . . . . . . . . . . . . . . . . 8 U.S. Exports and Imports of Goods and Services . . . . . . 11 Prices of U.S. Imports and Exports . . . . . . . . . . . . . . . . . 12 Charts U.S. International Trade in Goods and Services . . . . . . . 10 Oil Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Supplemental Notes The Domestic Nonfinancial Economy Personal Income and Consumer Spending Total nominal retail sales rose 0.6 percent in August after having surged 1.3 percent in July. Sales rose 0.5 percent at motor vehicles and parts dealers but fell a touch at building material and supply stores. Nominal sales in the retail control group of stores, which excludes those outlets, advanced 0.8 percent in August. In addition, the increases in the retail control category in June and July were revised up slightly to 1 percent and 0.9 percent, respectively. These data are broadly consistent with the current-quarter estimate for real purchases of goods excluding cars and trucks that we wrote down in the September Greenbook. The increase in nominal sales within the retail control category in August was fairly broad-based. Sales at general merchandise stores, electronics and appliance outlets, gasoline stations, and food services posted strong gains. The only downturns were recorded at clothing and accessories stores and at nonstore retailers (which include electronic shopping and mail order houses). According to the preliminary report, the Michigan Survey Research Center’s (SRC) index of consumer sentiment ticked down about 1 point in early September relative to August’s final report. The SRC index has been relatively flat since June and stands well above its March low. Both the current and expected conditions components of the overall index slipped in early September. For current conditions, consumers’ assessments of buying conditions for large household appliances and of their current personal finances both dipped. For expected conditions, a drop in expected business conditions over the next twelve months was only partly offset by an improvement in consumers’ appraisals of their expected personal finances. Among those items not included in the overall index, expectations about the change in unemployment over the next twelve months deteriorated slightly, partly reversing their improvement in August. Assessments of buying conditions for houses dropped to their lowest level since March while appraisals of buying conditions for cars were unchanged. In early September, the mean of expected inflation over the next twelve months jumped to 3.6 percent, and the median rose to 2.9 percent after having increased noticeably in August. Both measures are at their highest levels since March. In contrast, the mean of expected inflation over the next five to ten years slid to 2.8 percent while the median edged down to 2.6 percent, its lowest level since last September. -2September 12, 2003 Retail Sales (Percent change; seasonally adjusted) 2002 Q4 Total retail trade and food services Previous estimate Retail control1 Previous estimate Furniture and home furnishing Electronics and appliances Clothing and accessories General merchandise Food and beverage stores Gasoline stations Health & personal care Nonstore retailers2 Other retailers3 Food services Other aggregates of retail sales: Total excluding motor vehicles Previous estimate GAF 4 Previous estimate Building material and supply stores Motor vehicles and parts 2003 Q1 2003 Q2 June July Aug. .5 1.4 1.4 1.3 .9 .9 1.3 1.4 .6 1.1 1.9 .1 .1 1.0 .8 .9 .8 .8 1.3 1.4 2.7 1.0 .3 -1.0 -1.0 .3 1.0 2.1 4.7 3.5 .5 .7 .2 1.3 1.5 1.2 .8 1.0 .5 1.6 1.2 1.3 .8 .7 1.4 -1.4 1.1 .4 3.1 .7 2.2 -1.0 7.6 1.6 2.5 -.8 -6.4 1.3 -1.7 .7 1.2 1.3 1.5 .6 1.8 1.1 .0 -.3 2.7 .3 -.5 .8 1.1 2.3 2.3 .6 .5 1.4 1.1 1.7 .5 .4 1.2 1.0 1.0 .8 .7 1.3 .2 1.3 1.1 1.2 .7 1.1 .8 .6 1.2 -1.6 -.3 .4 3.5 4.3 2.6 .1 1.6 2.4 -.2 .5 1. Total retail trade and food services sales less sales at building material and supply stores and automobile and other motor vehicle dealers. 2. Includes electronic shopping and mail order houses. 3. Includes miscellaneous retailers and sporting goods, hobby, book, and music stores. 4. Comprises furniture and home furnishings, electronics and appliances, computers, clothing and accessories, sporting goods, hobby, book, music, and general merchandise. -3September 12, 2003 University of Michigan Survey Research Center: Survey of Consumer Attitudes Indexes of consumer sentiment (Not seasonally adjusted) 2003 Category Feb. Mar. Apr. May June July Aug. Sept.P Composite of current and expected conditions1 Current conditions1 Expected conditions1 79.9 95.4 69.9 77.6 90.0 69.6 86.0 96.4 79.3 92.1 93.2 91.4 89.7 94.7 86.4 90.9 102.1 83.7 89.3 99.7 82.5 88.2 98.9 81.3 102 127 96 128 111 131 97 138 102 136 110 135 109 124 108 130 66 86 63 87 87 99 120 110 111 100 106 95 111 97 100 96 Appraisal of buying conditions Cars Large household appliances2 Houses 140 145 165 141 136 153 149 139 157 160 144 175 157 143 166 160 155 169 150 150 165 150 148 155 Expected unemployment change - next 12 months 130 130 120 107 115 116 111 114 Prob. household will lose a job - next 5 years 26 24 25 26 25 24 24 26 Expected inflation - next 12 months Mean Median 3.2 2.7 3.8 3.1 2.7 2.4 2.5 2.0 2.5 2.1 2.3 1.7 2.8 2.5 3.6 2.9 Expected inflation - next 5 to 10 years Mean Median 3.1 2.7 2.9 2.8 3.1 2.7 3.1 2.8 3.0 2.7 3.2 2.7 3.0 2.7 2.8 2.6 Personal financial situation Now compared with 12 months ago2 Expected in 12 months2 Expected business conditions Next 12 months2 Next 5 years2 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. P Preliminary. 1. Feb. 1966 = 100. 2. Indicates the question is one of the five equally-weighted components of the index of sentiment. -4- Producer Prices The producer price index for finished goods rose 0.4 percent in August, led by an increase of 0.7 percent in food prices and a rise of 1.2 percent in energy prices. Excluding food and energy, the finished-goods PPI edged up 0.1 percent last month following July’s rise of 0.2 percent. August’s increase in the core was about in line with our expectations and left core PPI inflation at 0.4 percent on a twelve-month change basis, up 0.8 percentage point from a year earlier. Last month’s increase in the PPI for energy reflected a jump of 6.3 percent in gasoline prices as well as smaller gains in fuel oil and electricity prices; by contrast, natural gas prices fell 1.5 percent.1 Over the year ending in August, the PPI for energy rose more than 14 percent compared with a year-earlier decline of 5-1/2 percent. The August rise in food prices came on the heels of a small decline in July; large increases in prices for fresh fruit and vegetables and for beef and veal contributed importantly to last month’s jump. Over the twelve months ending in August, the PPI for food rose 5 percent after having fallen 2.3 percent over the year-earlier period. Prices for consumer goods excluding food and energy ticked up 0.1 percent last month and were essentially unchanged relative to a year earlier. The PPI for capital equipment edged up 0.1 percent as well, with increases in car and light truck prices largely offsetting a decline in prices of communications equipment. After having fallen 1 percent between August 2001 and August 2002, prices for capital goods rose 0.8 percent over the twelve months ending in August 2003, reflecting an acceleration in prices in most categories. At earlier stages of processing, the PPI for core intermediate materials edged up 0.1 percent in August and was up 1.8 percent from a year earlier. Prices of core crude material prices jumped 3.7 percent, boosted by large increases in scrap metal prices; core crude prices were up 8.3 percent relative to a year earlier. 1. Based on daily data on rack prices for gasoline, we expect to see a decline in the PPI for gasoline in September. -5Recent Changes in Producer Prices (Percent change; based on seasonally adjusted data)1 12-month change3 Weights2 Product 2003 Aug. 2002 Aug. 2003 2003 Q1 Q2 June July Annual rate Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment Aug. Monthly rate 100.0 20.7 15.0 64.4 37.7 26.7 -1.5 -2.3 -5.5 -.4 .0 -1.0 3.4 5.0 14.2 .4 .1 .8 16.8 10.1 96.8 3.5 4.1 2.9 -5.9 5.1 -27.8 -2.4 -3.0 -1.7 .5 .4 3.4 -.1 -.1 -.1 .1 -.2 .3 .2 .1 .4 .4 .7 1.2 .1 .1 .1 Intermediate materials4 Excluding food and energy 96.0 79.5 -.9 .2 4.3 1.8 24.0 6.0 -10.6 -.9 .5 .0 .1 -.1 .6 .1 Crude food materials Crude energy Other crude materials 38.7 41.0 20.3 -8.6 -1.8 9.0 11.8 38.2 8.3 18.0 579.5 19.0 10.1 -61.3 -9.4 -.5 10.7 .6 -3.0 -4.4 .8 3.7 -7.4 3.7 1. Changes are from final month of preceding period to final month of period indicated. 2. Relative importance weights for December 2002, which are based on 1997 shipment levels. Years prior to 2002 are based on 1992 shipment weights. 3. Not seasonally adjusted. 4. Excludes materials for food manufacturing and animal feeds. Recent Changes in Producer Prices -- Relative Contribution1 (Percent change; based on seasonally adjusted data)2 12-month change4 Product Weights3 Aug. 2002 Aug. 2003 2003 Q1 2003 Q2 June Annual rate Finished goods Consumer foods Consumer energy Other finished goods Consumer goods Capital equipment 100.0 20.7 15.0 64.4 37.7 26.7 -1.5 -.5 -.9 -.3 .0 -.3 3.4 1.0 2.1 .3 .0 .2 16.8 2.0 11.5 2.3 1.5 .8 July Aug. Monthly rate -5.9 1.0 -5.2 -1.5 -1.1 -.4 .5 .1 .5 -.1 -.0 -.0 1. Data may not add due to rounding. 2. Changes are from final month of preceding period to final month of period indicated. 3. Relative importance weights for December 2002, which are based on 1997 shipment levels. Years prior to 2002 are based on 1992 shipment weights. 4. Not seasonally adjusted. .1 -.0 .0 .1 .0 .1 .4 .1 .2 .1 .0 .0 -6Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total 1. Adjusted1 2. Reported 3. 4. 5. 6. Securities Adjusted1 Reported Treasury and agency Other2 Loans3 7. Total 8. Business 9. Real estate 10. Home equity 11. Other 12. 13. 14. Consumer Adjusted4 Other5 Level, Apr. 2003p ($ billions) Q4 2002 Q1 2003 Feb. 2003 Mar. 2003 Apr.p 7.1 7.1 12.4 11.8 7.4 8.1 13.9 15.3 7.0 6.0 8.0 4.4 5,834 6,017 13.3 12.7 19.2 4.4 16.1 13.5 25.2 -2.6 11.9 14.0 17.1 9.5 26.3 29.8 30.3 29.1 11.1 7.3 11.2 1.4 14.3 1.5 26.7 -36.6 1,575 1,757 1,081 677 5.0 -6.9 13.1 36.7 10.8 11.1 -4.0 20.4 24.7 19.9 5.8 -5.9 13.4 26.2 11.9 9.4 -9.7 17.9 25.4 17.1 5.5 -8.7 7.3 38.3 3.6 5.7 -2.5 7.9 19.9 6.4 4,259 944 2,103 233 1,870 5.5 4.1 1.4 8.6 4.9 8.5 4.2 7.7 .3 2.2 7.4 17.8 -6.1 .5 33.4 -3.7 -.3 20.2 589 950 623 2002 2003 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. p Preliminary. -7- III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2001 Change to Sept. 11 from selected dates (percentage points) 2003 Instrument Sept. 10 May 5 Aug. 11 Sept. 11 2001 Sept. 10 2003 May 5 2003 Aug. 11 Short-term FOMC intended federal funds rate 3.50 1.25 1.00 1.00 -2.50 -.25 .00 Treasury bills 1 3-month 6-month 3.19 3.13 1.11 1.14 0.94 1.04 0.94 1.00 -2.25 -2.13 -.17 -.14 .00 -.04 Commercial paper (A1/P1 rates) 1-month 3-month 3.42 3.24 1.21 1.20 1.04 1.04 1.02 1.04 -2.40 -2.20 -.19 -.16 -.02 .00 Large negotiable CDs 1 1-month 3-month 6-month 3.46 3.26 3.24 1.26 1.24 1.22 1.07 1.07 1.12 1.07 1.08 1.12 -2.39 -2.18 -2.12 -.19 -.16 -.10 .00 .01 .00 Eurodollar deposits 2 1-month 3-month 3.41 3.26 1.25 1.21 1.05 1.07 1.06 1.06 -2.35 -2.20 -.19 -.15 .01 -.01 Bank prime rate 6.50 4.25 4.00 4.00 -2.50 -.25 .00 Intermediate- and long-term U.S. Treasury3 2-year 10-year 30-year 3.59 5.14 5.55 1.56 4.09 4.97 1.83 4.56 5.46 1.71 4.51 5.36 -1.88 -.63 -.19 .15 .42 .39 -.12 -.05 -.10 U.S. Treasury 10-year indexed note 3.28 2.18 2.31 2.23 -1.05 .05 -.08 Municipal revenue (Bond Buyer) 4 5.25 5.09 5.42 5.32 .07 .23 -.10 5.62 5.68 6.30 7.11 12.72 4.29 4.39 4.83 5.84 9.54 4.80 4.96 5.24 6.17 9.69 4.77 4.89 5.22 6.11 9.05 -.85 -.79 -1.08 -1.00 -3.67 .48 .50 .39 .27 -.49 -.03 -.07 -.02 -.06 -.64 6.89 5.64 5.70 3.74 6.34 3.80 6.44 3.98 -.45 -1.66 .74 .24 .10 .18 Private instruments 10-year swap 10-year FNMA5 10-year AA 6 10-year BBB 6 High-yield 7 Home mortgages (FHLMC survey rate) 8 30-year fixed 1-year adjustable Record high Change to Sept. 11 from selected dates (percent) 2003 Stock exchange index Dow-Jones Industrial S&P 500 Composite Nasdaq (OTC) Russell 2000 Wilshire 5000 Level Date May 5 Aug. 11 Sept. 11 Record high 2003 May 5 2003 Aug. 11 11,723 1,527 5,049 606 14,752 1-14-00 3-24-00 3-10-00 3-9-00 3-24-00 8,532 927 1,504 410 8,817 9,217 981 1,662 459 9,431 9,460 1,016 1,846 507 9,853 -19.31 -33.46 -63.43 -16.28 -33.21 10.88 9.70 22.74 23.82 11.75 2.63 3.65 11.11 10.49 4.47 1. Secondary market. 2. Bid rates for eurodollar deposits collected around 9:30 a.m. Eastern time. 3. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. 4. Most recent Thursday quote. 5. Constant maturity yields estimated from Fannie Mae domestic non-callable coupon securities. 6. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. 7. Merrill Lynch Master II high-yield bond. 8. For week ending Friday previous to date shown. _______________________________________________________________________ NOTES: September 10, 2001 is the day before the terrorist attacks. May 5, 2003 is the day before the May FOMC meeting. August 11, 2003 is the day before the most recent FOMC meeting. _______________________________________________________________________ -8- The International Economy Trade in Goods and Services The U.S. international trade deficit in July was $40.3 billion, which was about the same as in June but smaller than recorded during the previous three months (revised). The value of exports of goods and services rose 2.0 percent in July, a third consecutive month of solid increases in both goods and services. Within goods, the largest increases were in agricultural products, aircraft, and automotive products. Exports of computers and semiconductors also rose, but other capital goods declined. In July, services receipts were boosted by increases in travel and passenger fares, continuing the rebound from the lows associated with SARS and the Iraq war. With the release of July data, the monthly value of services receipts was revised down in the first six months of the year by an average of about $200 million per month. As a result, nominal services receipts fell 6½ percent (a.r.) in the first quarter of 2003, almost twice as much as previously published. In the second quarter, services receipts, which previously remained flat, edged down ½ percent (a.r.). Nominal imports of goods and services rose 1.6 percent in July, reflecting a moderate rise in goods imports and a continuing rebound in services payments (largely from travel and passenger fares). The increase in imported goods in July was the largest rise since March, with consumer goods, oil, and industrial supplies accounting for most of the increase. The monthly value of services payments was revised beginning in January 2003. The first quarter was revised down and the second quarter was revised up. As a result, nominal services payments rose 3 percent (a.r.) in the first quarter, less than half the growth rate published before the revision. In the second quarter, services payments declined -9- 1¾ percent (a.r.), compared with the previously published decline of nearly 6 percent (a.r.). Prices of Internationally Traded Goods Non-oil imports. In August, the prices of U.S. imports of non-oil goods and of core goods both fell 0.2 percent, following revised July growth rates of 0.0 and 0.1 percent, respectively. Within core goods, the largest price changes were in industrial supplies and foods, feeds and beverages. After a 0.9 percent increase in July, prices of foods, feeds and beverages fell 0.4 percent in August, led by lower prices for vegetables. The 0.6 percent decline in the price of industrial supplies was the result of a lower price for natural gas, which offset increases in metals, building materials, and paper. In other major trade categories within core goods, prices generally edged down, with the exception of automotive products which rose slightly. The prices of U.S. imports of computers continued to decline in August, and semiconductor prices also fell. Oil. The BLS price of imported oil rose 3.9 percent in August, following a revised 4.5 percent increase in July. The spot price of West Texas Intermediate (WTI) crude oil was also higher in August, averaging $31.60 per barrel, up about 80 cents from July. Thus far in September, the spot price has fallen, closing at $28.83 per barrel on September 11. The recent decline may reflect the lack of supply disruptions from tropical storms and heightened market concern about expected increases in non-OPEC oil supply. However, prices remain elevated, relative to historical norms, owing to the slow return of Iraqi exports and low global oil inventories. Exports. In August, for the second consecutive month, the prices of U.S. exports of total goods and of core goods both fell 0.1 percent. Falling prices of agricultural products, particularly soybeans and corn, were responsible for much of the August decline. However, from the first week of August when the BLS collected their price data to the end of the month, the spot prices of soybeans and corn each rose about 9 percent. Export prices also moved down slightly for consumer goods but edged upward for industrial supplies. The prices of U.S. exports of computers fell 0.5 percent; prices of semiconductors were unchanged. - 10 - - 11 - - 12 - 

Federal Reserve (2003, September 15). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20030916_part1

@misc{wtfs_greenbook_20030916_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2003},
  month = {Sep},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20030916_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}