Greenbook/Tealbook

Prefatory Note The attached document represents the most complete and accurate version available based on original files from the FOMC Secretariat at the Board of Governors of the Federal Reserve System. 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. Content last modified 03/31/2011. Confidential (FR) Class III FOMC January 28, 2005 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 Real GDP .........................................................................................1 Shipments and Orders for Durable Goods .......................................4 Labor Costs ......................................................................................6 Tables Real Gross Domestic Product and Related Items ............................2 Price Indexes for Gross Domestic Product ......................................3 Orders and Shipments of Nondefense Capital Goods......................5 New Orders for Durable Goods .......................................................6 Change in Employment Cost Index of Hourly Compensation for Private-Industry Workers.....................................................7 Hourly Compensation and Unit Labor Costs.................................10 Charts Computers and Peripherals ..............................................................5 Communications Equipment............................................................5 Medium and Heavy Trucks..............................................................5 Other Equipment..............................................................................5 ECI Benefits Costs...........................................................................8 Markup, Nonfarm Businesses........................................................10 Markup, Nonfinancial Corporations ..............................................10 Labor Costs for Production or Nonsupervisory Workers ..............10 The Domestic Financial Economy ...........................................................9 Tables Commercial Bank Credit ...............................................................11 Selected Financial Market Quotations ...........................................12 Supplemental Notes The Domestic Nonfinancial Economy Real GDP According to the BEA’s advance release, real GDP rose at an annual rate of 3.1 percent in the fourth quarter, following an increase of 4 percent in the third quarter. The BEA’s overall estimate of final sales was, on balance, in line with our expectations, but its estimate of private inventory investment was weaker than ours. Final sales increased at an annual rate of 2¾ percent in the fourth quarter after a rise of 5 percent in the previous quarter. Consumer spending continued to rise at a robust pace—4½ percent in the fourth quarter following an increase of 5 percent in the third quarter. Expenditures for durable goods posted another strong gain, at an annual rate of 6 ¾ percent in the fourth quarter, after having surged at an annual rate of 17¼ percent in the preceding quarter. Outlays for equipment and software also continued to rise at a brisk pace, with the gain of 15 percent in the fourth quarter off only slightly from the 17½ percent pace in the third quarter. Residential investment was little changed in the fourth quarter following a small rise in the third quarter. With data on merchandise trade for December still outstanding, the BEA estimated that exports fell at an annual rate of 3.9 percent in the fourth quarter and that imports rose at a rate of 9.1 percent; taken together, net exports subtracted 1.7 percentage points from the estimated change in real GDP. Total government spending rose at an annual rate of 0.9 percent in the fourth quarter after having increased 0.7 percent in the third quarter. Real private inventories are reported to have increased $11 billion in the fourth quarter, following a $27 billion decrease in the previous quarter. The swing to accumulation added 0.4 percentage point to the change in real GDP last quarter. The GDP price index increased at an annual rate of 2 percent in the fourth quarter. PCE prices rose 2.5 percent, and core PCE prices moved up 1.6 percent, a touch higher than we forecast in the January Greenbook. The four-quarter change in core PCE prices was 1.6 percent, up from 1.2 percent over the four quarters of 2003. On the income side of the accounts, real disposable personal income increased at an annual rate of 8.4 percent in the fourth quarter, boosted about 4½ percentage points by the special Microsoft dividend. The personal saving rate increased to 1.3 percent; excluding the Microsoft dividend, the personal saving rate was close to zero. Real output -2- Real Gross Domestic Product and Related Items (Percent change from previous period at a compound annual rate; based on seasonally adjusted data, chain-type quantity indexes) 2004:Q2 2004:Q3 2004:Q4 Final Final Advance 3.3 4.0 3.1 2.5 5.0 2.7 1.6 5.1 4.6 -.3 17.2 6.7 .1 4.7 5.8 2.7 3.0 3.7 Business fixed investment 12.5 13.0 10.3 Nonresidential structures 6.9 -1.1 -4.1 Equipment and software 14.2 17.5 14.9 16.5 1.6 .3 Federal government 2.7 4.8 1.6 State and local government 1.9 -1.7 .6 Exports of goods and services 7.3 6.0 -3.9 Imports of goods and services 12.6 4.6 9.1 61.1 34.5 45.8 -580.3 -583.2 -631.9 Nominal GDP 6.6 5.5 5.2 Nominal GDI 6.9 4.3 n.a. 56.4 90.4 n.a. Change in economic profits2 8.3 -55.9 n.a. Profit share, excluding FR banks3 9.9 9.3 n.a. Real disposable personal income 2.8 2.0 8.4 Personal saving rate (percent) 1.3 .5 1.3 Item Gross Domestic Product Final sales Consumer spending Durables Nondurables Services Residential investment ADDENDA: Inventory investment1 Net exports of goods and services1 Statistical discrepancy2 1. Level, billions of chained (2000) dollars. 2. Billions of dollars. 3. Economic profits as a share of GNP. n.a. not available. -3- Price Indexes for Gross Domestic Product (Based on seasonally adjusted data, chain-type indexes) 2004:Q2 2004:Q3 2004:Q4 Final Final Advance 3.2 1.4 2.0 3.5 1.9 2.7 3.1 1.3 2.5 3.9 2.6 2.6 26.5 4.0 16.0 1.7 0.9 1.6 2.1 1.0 1.7 1.7 0.9 1.7 0.1 -1.6 -0.6 -6.7 -9.7 -11.3 7.6 9.8 10.3 Residential investment 9.1 6.8 2.7 Government consumption expenditures and investment 4.3 3.6 4.0 Exports of goods and services 4.6 1.6 4.1 Imports of goods and services 6.4 5.1 8.1 2.8 1.3 3.0 GDP less food and energy 2.7 1.8 2.0 Gross domestic purchases less food and energy 2.5 1.7 1.9 Item Gross domestic product Gross domestic purchases Personal consumption expenditures Food and Beverages Energy Excluding food and energy Market-based components Business fixed investment Equipment and Software Computers and peripheral equipment Nonresidential structures Nonpetroleum goods ADDENDA: NOTE: Percent change from previous period at compound annual rates -4- in the nonfarm business sector rose 2.8 percent in the fourth quarter. That estimate implies that productivity in the nonfarm business sector rose at an annual rate of 1.3 percent in the fourth quarter following an increase of 1.8 percent in the third quarter. Shipments and Orders for Durable Goods The advance GDP report incorporated the data on shipments of nondefense capital goods that were released on Thursday; those data were, on balance, just a touch stronger than we had expected. Excluding aircraft, shipments rose 2.2 percent in December, more than offsetting the previous month’s decline. Shipments of computers and peripheral equipment moved up 1.6 percent in December but deliveries of communications gear dropped 5.7 percent to their lowest level since August 2003. In the non-high-tech category, shipments ramped up 3.4 percent, as shipments in industrial machinery partially recovered from the previous month’s plunge and shipments of metalworking machinery posted the second largest gain in the twelve-year history of the series. New orders for nondefense capital goods excluding aircraft moved up 1.8 percent in December following a 0.9 percent increase in November. Orders of computing equipment rose 8.8 percent while bookings in the volatile communications sector fell 3.8 percent on the heels of an even larger drop in November. Outside of the high-tech sector, bookings increased 1.1 percent, as orders of industrial machinery retraced part of the precipitous drop posted in November and manufacturers of metalworking machinery recorded historically unprecedented gains in orders. The staff’s constructed series on real adjusted durable goods orders rose 1.9 percent in December. This series––which strips out nondefense aircraft, defense capital goods, and industries for which reported orders actually equal shipments––has historically been a useful indicator of near-term activity in the industrial sector. The book value of manufacturing durable goods inventories (which constitute about twothirds of the total manufacturing inventories) decreased at an annual rate of $1.4 billion in December, the first decumulation in this category in more than a year. Shipments of total durable goods rose 2.1 percent in December, and the inventory-shipments ratio dropped to 1.38 months. -5Orders and Shipments of Nondefense Capital Goods (Percent change; seasonally adjusted current dollars) 2004 Indicators Q3 Q4 Oct. Annual rate Nov. Dec. Monthly rate Shipments Excluding aircraft Computers and peripherals Communications equipment All other categories 14.1 15.0 10.9 11.8 16.2 8.1 7.9 39.3 -18.9 6.8 2.2 2.4 8.5 -.4 1.6 -2.5 -1.8 -2.9 1.2 -2.0 3.3 2.2 1.6 -5.7 3.4 Orders Excluding aircraft Computers and peripherals Communications equipment All other categories 25.5 14.1 5.6 -10.9 19.7 2.2 3.5 32.7 -27.6 3.2 -3.2 -4.0 -9.8 .8 -3.4 7.5 .9 5.9 -7.6 1.1 -1.9 1.8 8.8 -3.8 1.1 Memo: Shipments of complete aircraft1 27.8 n.a. 30.3 23.8 n.a. 1. From Census Bureau, Current Industrial Reports; billions of dollars, annual rate. n.a. Not available. Computers and Peripherals Communications Equipment Billions of dollars, ratio scale 12 Shipments Orders 11 12 11 10 10 Dec. Billions of dollars, ratio scale 21 18 Shipments Orders 15 21 18 15 12 12 8 9 9 7 7 6 6 6 9 9 8 5 1999 2000 2001 2002 2003 2004 2005 5 3 Dec. 1999 2000 Medium and Heavy Trucks 890 740 650 560 Dec. Dec. 890 740 650 560 2003 2004 2005 3 Shipments Orders 48 Dec. 51 48 45 380 42 42 290 39 39 200 36 470 380 290 1999 2000 2001 2002 2003 2004 2005 Note. Annual rate, FRB seasonals. Source. For class 4-8 trucks, Ward’s Communications; for class 5-8 trucks, ACT Research. Billions of dollars, ratio scale 51 45 470 200 2002 Other Equipment Thousands of units, ratio scale Sales of class 4-8 trucks Net new orders of class 5-8 trucks 2001 6 1999 2000 2001 2002 2003 2004 2005 36 -6- New Orders for Durable Goods (Percent change from preceding period except as noted; seasonally adjusted) Component Proportion, 2004: H2 (percent) 2004 Q3 2004 Q4 Oct. Annual rate Nov. Dec. Monthly rate Total orders 100 10.3 3.9 -1.0 1.8 .6 Adjusted orders1 Computers Communication equipment Other capital goods Other2 75.2 4.6 3.1 24.2 43.2 6.6 5.6 -10.9 19.7 1.5 6.7 32.7 -27.6 3.2 9.1 -2.0 -9.8 .8 -3.4 -.5 2.0 5.9 -7.6 1.1 2.7 2.2 8.8 -3.8 1.1 2.5 ... ... 3.3 3.9 3.2 1.9 -2.3 -1.8 1.9 1.5 1.9 1.3 Memo: Real adjusted orders Excluding high tech 1. Orders excluding defense capital goods, nondefense aircraft, and motor vehicle parts. 2. Primary metals; most fabricated metals; most stone, clay, and glass products; household appliances; scientific instruments; and miscellaneous durable goods. ... Not applicable. Labor Costs The employment cost index of hourly compensation for private industry workers rose at an annual rate of 3 percent over the three months ending in December, after having posted a 3.5 percent increase over the previous three-month period. For the twelve months ending in December, private-industry hourly compensation advanced 3.8 percent, about ¼ percentage point less than during 2003. The wages and salaries component of the ECI moved up at an annual rate of 1.5 percent in the three months through December, the smallest quarterly increase since March 1999. Over the twelve months of 2004, wages increased 2.4 percent, ½ percentage point less than during 2003. Benefits costs increased at an annual rate of 6 percent in the three months of 2004—a pickup from September’s low rate, but still a bit below the average percentage increase over the past two years. Over the twelve months of 2004, benefit costs rose nearly 7 percent, compared with about 6½ percent for 2003. Most benefit categories posted relatively restrained gains last year. In particular, health insurance costs rose 7¼ percent during 2004, down from double-digit increases posted in 2002 and 2003. However, -7- Change in Employment Cost Index of Hourly Compensation for Private-Industry Workers 2003 Industry and occupational group Total hourly compensation Wages and salaries Benefits By industry Construction Manufacturing Transportation and public utilities Wholesale trade Retail trade FIRE Services By occupation White collar Blue collar Service occupations Memo: State and local governments 2004 Dec. Mar. June Sept. Quarterly change (compound annual rate) 1 Dec. 3.1 2.0 5.6 4.3 2.5 10.9 4.0 2.2 7.1 3.5 3.5 4.0 3.0 1.5 6.0 3.0 2.7 3.5 9.4 2.2 3.3 2.9 5.0 1.2 2.3 2.9 1.9 4.1 1.6 3.8 6.1 2.6 1.7 3.6 4.3 5.8 2.6 4.0 2.4 3.7 2.3 6.6 1.0 2.6 3.5 1.4 -.7 2.5 2.6 3.7 3.3 3.5 2.7 3.8 6.7 4.7 3.0 4.1 3.6 4.2 3.6 1.9 3.2 3.1 1.9 3.2 3.9 4.4 1.9 4.0 12-month change Total hourly compensation Excluding sales workers Wages and salaries Excluding sales workers Benefits By industry Construction Manufacturing Transportation and public utilities Wholesale trade Retail trade FIRE Services By occupation White collar Sales Nonsales Blue collar Service occupations Memo: State and local governments 1. Seasonally adjusted by the BLS. 4.0 4.1 3.0 3.1 6.4 3.9 3.9 2.6 2.6 7.0 4.0 4.0 2.6 2.5 7.3 3.7 3.9 2.6 2.5 6.8 3.8 3.9 2.4 2.5 6.9 3.4 4.1 3.5 4.7 3.0 4.7 2.9 5.0 2.4 5.0 3.3 3.2 3.3 7.4 3.6 4.0 2.5 3.5 3.3 3.8 4.3 2.7 4.0 3.0 4.0 4.3 3.4 2.7 2.6 3.8 3.9 2.7 2.3 2.8 3.8 4.1 3.2 4.3 4.0 3.2 3.6 3.5 3.7 4.5 3.2 3.7 3.7 3.7 4.6 3.4 3.6 3.5 3.6 4.5 3.1 3.5 2.6 3.8 4.4 2.9 3.3 3.3 3.4 3.4 3.5 -8- ECI Benefits Costs (confidential) (Private-industry workers; 12-month change) Insurance Costs Supplemental Pay 20 15 Percent 20 30 15 20 Health Percent 30 20 Nonproduction bonuses Total 10 10 10 5 5 0 0 0 -10 -5 -20 Total 10 Dec. -5 1990 1995 2000 2005 Paid Leave Dec. 0 -10 1990 1995 2000 -20 2005 Retirement and Savings Percent 8 8 Percent 30 30 Dec. 6 4 6 20 20 4 10 10 2 0 0 0 -10 Dec. 2 0 1990 1995 2000 2005 Workers’ Compensation Insurance 10 Dec. 5 0 0 -5 -5 1990 1995 2000 2005 2000 2005 -10 25 Percent 25 Dec. 20 20 15 15 10 10 5 5 0 0 -5 -5 10 5 -10 1995 State Unemployment Insurance Percent 15 15 1990 -10 -10 1990 1995 2000 2005 -10 -9- employer costs for defined benefit pension plans rose sharply last year, boosting the twelve-month change in retirement and savings costs to 26 percent from 12½ percent in 2003.1 The advance estimate of compensation included in the GDP release also suggests a slower rate of increase in hourly compensation at the end of 2004. The staff estimates that compensation per hour in the nonfarm business sector rose at an annual rate of 3.6 percent in the fourth quarter of 2004, bringing the change over the four quarters of the year to 3.8 percent. The Domestic Financial Economy (Tables attached) 1 Because not all companies report their pension costs in the ECI each quarter, some of the rise in pension costs recorded in 2004 might actually have occurred in 2003. - 10 - Hourly Compensation and Unit Labor Costs (Percent change from preceding period at compound annual rate; based on seasonally adjusted data) 2004 2003:Q4 to 2001 2002 2003 Q2 Q3 Q4 e 2004:Q4 e Compensation per hour Nonfarm business Nonfinancial corporations 1 3.5 3.7 2.9 2.5 5.4 5.0 5.9 5.5 3.6 4.0 3.6 n.a. 3.8 n.a. Unit labor costs Nonfarm business Nonfinancial corporations 1 .3 1.7 -.6 -2.4 -.2 -1.5 1.9 2.2 1.8 -.3 1.5 n.a. .9 n.a. Category Note. Annual changes are from fourth quarter of preceding year to fourth quarter of year shown. 1. All corporations doing business in the United States except banks, stock and commodity brokers, and finance and insurance companies. The sector accounts for about two-thirds of business employment. e Staff estimates. Markup, Nonfinancial Corporations Markup, Nonfarm Businesses 1.66 1.66 1.59 1.59 1.64 1.57 1.57 1.62 1.62 1.55 1.60 1.60 1.53 1.58 1.58 1.51 Q3 1.64 Q3 1.55 1.53 1.51 Average, 1968-present 1.56 Average, 1968-present 1.54 1.52 1990 1992 1994 1996 1998 2000 2002 2004 1.56 1.49 1.49 1.54 1.47 1.47 1.52 1.45 1990 1992 1994 1996 1998 2000 2002 2004 1.45 Note. Markup defined as ratio of output price to unit labor costs. Note. Markup defined as ratio of output price to unit labor costs. Labor Costs for Production or Nonsupervisory Workers (12-month change) 4.5 Percent 4.5 4.0 4.0 3.5 3.5 3.0 3.0 ECI wages and salaries Dec. 2.5 Average hourly earnings 2.0 2.0 1.5 1.0 2.5 1.5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1.0 - 11 - 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 Adjusted1 Reported Treasury and agency Other2 7. 8. 9. 10. 11. 12. 13. 14. Loans3 Total Business Real estate Home equity Other Consumer Adjusted4 Other5 Level, Jan. 2005e ($ billions) 2003 2004 Q3 2004 Q4 2004 Dec. 2004 Jan.e 2005 5.9 5.6 8.9 8.3 4.9 5.4 6.4 6.2 3.8 4.1 13.5 10.7 6,587 6,740 8.6 7.3 8.8 5.0 6.7 5.1 5.0 5.2 -7.7 -4.8 -4.0 -6.2 2.2 2.1 -10.7 23.4 2.5 3.7 3.3 4.5 30.9 19.6 31.6 1.3 1,784 1,936 1,180 756 4.9 -9.4 11.1 30.8 8.8 5.4 5.8 6.7 9.6 .7 13.6 43.3 9.5 8.6 6.0 9.0 9.8 5.8 8.0 37.1 3.4 19.6 12.4 11.7 7.9 4.9 12.8 37.3 8.6 -1.6 3.0 3.6 4.2 11.0 10.6 15.9 9.7 14.6 11.6 -37.6 7.1 22.4 11.6 18.4 10.3 10.9 11.0 -33.3 4,803 906 2,562 404 2,158 680 1,061 656 Note. Data are adjusted to remove estimated effects of consolidation related to FIN 46 and 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. 1. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FAS 115). 2. Includes private mortgage-backed securities, securities of corporations, state and local governments, 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. e Estimated. - 12 - III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2003 2004 2005 Instrument Change to Jan. 27 from selected dates (percentage points) Dec. 31 June 28 Dec. 13 Jan. 27 2003 Dec. 31 2004 June 28 2004 Dec. 13 Short-term FOMC intended federal funds rate 1.00 1.00 2.00 2.25 1.25 1.25 .25 Treasury bills 1 3-month 6-month .93 1.00 1.36 1.74 2.21 2.44 2.40 2.65 1.47 1.65 1.04 .91 .19 .21 Commercial paper (A1/P1 rates)2 1-month 3-month 1.00 1.05 1.28 1.45 2.29 2.39 2.46 2.65 1.46 1.60 1.18 1.20 .17 .26 Large negotiable CDs 1 1-month 3-month 6-month 1.06 1.09 1.16 1.30 1.53 1.82 2.36 2.45 2.65 2.54 2.69 2.91 1.48 1.60 1.75 1.24 1.16 1.09 .18 .24 .26 Eurodollar deposits 3 1-month 3-month 1.04 1.07 1.29 1.51 2.33 2.42 2.52 2.67 1.48 1.60 1.23 1.16 .19 .25 Bank prime rate 4.00 4.00 5.00 5.25 1.25 1.25 .25 Intermediate- and long-term U.S. Treasury4 2-year 10-year 30-year 1.83 4.40 5.22 2.88 4.90 5.55 2.98 4.27 4.87 3.29 4.31 4.71 1.46 -.09 -.51 .41 -.59 -.84 .31 .04 -.16 U.S. Treasury 10-year indexed note 2.00 2.23 1.65 1.71 -.29 -.52 .06 Municipal revenue (Bond Buyer) 5 5.04 5.37 4.99 4.90 -.14 -.47 -.09 Private instruments 10-year swap 10-year FNMA6 10-year AA 7 10-year BBB 7 5-year high yield 7 4.66 4.72 5.05 5.74 7.94 5.21 5.30 5.59 6.18 8.30 4.55 4.53 4.87 5.34 7.29 4.59 4.55 4.94 5.36 7.51 -.07 -.17 -.11 -.38 -.43 -.62 -.75 -.65 -.82 -.79 .04 .02 .07 .02 .22 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 5.85 3.72 6.21 4.19 5.68 4.18 5.66 4.18 -.19 .46 -.55 -.01 -.02 .00 Record high 2004 2005 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Change to Jan. 27 from selected dates (percent) Level Date June 28 Dec. 13 Jan. 27 Record high 2004 June 28 2004 Dec. 13 11,723 1,527 5,049 655 14,752 1-14-00 3-24-00 3-10-00 12-28-04 3-24-00 10,357 1,133 2,020 584 11,056 10,638 1,199 2,149 638 11,790 10,467 1,175 2,047 617 11,563 -1.71 -23.10 -59.45 -5.75 -21.61 1.07 3.64 1.35 5.62 4.59 -1.61 -2.01 -4.72 -3.31 -1.92 1. Secondary market. 2. Financial commercial paper. 3. Bid rates for Eurodollar deposits collected around 9:30 a.m. eastern time. 4. Derived from a smoothed Treasury yield curve estimated using off-the-run securities. 5. Most recent Thursday quote. 6. Constant maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 7. Derived from smoothed corporate yield curves estimated using Merrill Lynch bond data. _______________________________________________________________________ NOTES: June 28, 2004, is the day before the beginning of the current tightening period. December 13, 2004, is the day before the most recent FOMC meeting. _______________________________________________________________________ 

Federal Reserve (2005, February 1). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20050202_part2

@misc{wtfs_greenbook_20050202_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2005},
  month = {Feb},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20050202_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}