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 March 18, 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 Consumer Sentiment........................................................................1 Tables University of Michigan Survey Research Center: Survey of Consumer Attitudes.............................................2 The Domestic Financial Economy ...........................................................1 Tables Commercial Bank Credit .................................................................3 Selected Financial Market Quotations .............................................4 The International Economy ....................................................................... 5 Prices of Internationally Traded Goods ...........................................5 Non-oil imports....................................................................5 Oil. .......................................................................................5 Exports. ................................................................................5 U.S. Current Account.......................................................................7 U.S. International Financial Transactions........................................8 Tables Prices of U.S. Imports and Exports..................................................6 U.S. Current Account.......................................................................7 Summary of U.S. International Transactions...................................9 Chart Oil Prices..........................................................................................6 Supplemental Notes The Domestic Nonfinancial Economy Consumer Sentiment According to the preliminary report, the Michigan Survey Research Center’s (SRC) index of consumer sentiment decreased 1.2 points in early March to 92.9, a bit below its average over the previous twelve months. The March decline reflected a slight weakening in both components of the index. Within the “current conditions” component, consumers’ assessments of their current personal financial situation moved lower, while assessments of buying conditions for large household appliances were unchanged. Within the “expected conditions” component, consumers’ assessments of expected business conditions over the next twelve months receded. But assessments of expected business conditions over the next five years edged up, and expected personal financial conditions retraced some of last month’s decrease. Among the items not included in the overall index, consumers’ expectations about the change in unemployment over the next twelve months worsened slightly. Consumers’ appraisals of buying conditions for houses and appraisals of buying conditions for cars both dropped to their lowest levels since 2001. While the mean of expected inflation over the next twelve months climbed to 4 percent, the median rose less, to 3.2 percent. The mean of expected inflation over the next five to ten years inched up to 3.2 percent, while the median was unchanged at 2.8 percent. The Domestic Financial Economy -2- March 18, 2005 University of Michigan Survey Research Center: Survey of Consumer Attitudes Indexes of consumer sentiment (Not seasonally adjusted) 2004 Category Composite of current and expected conditions1 Current conditions1 Expected conditions1 2005 Aug. Sept. Oct. Nov. Dec. 95.9 107.9 88.2 94.2 91.7 103.7 104.0 88.0 83.8 92.8 104.7 85.2 97.1 106.7 90.9 Feb. Mar.P 95.5 94.1 110.9 109.2 85.7 84.4 92.9 107.3 83.6 Jan. Personal financial situation Now compared with 12 months ago2 Expected in 12 months2 121 133 113 128 112 127 113 124 112 130 123 133 121 127 116 131 Expected business conditions Next 12 months2 Next 5 years2 114 108 116 110 113 97 115 104 122 114 114 97 114 98 105 100 Appraisal of buying conditions Cars Large household appliances2 Houses 144 158 156 148 155 162 152 158 155 138 158 155 154 165 160 147 165 158 144 162 151 135 162 146 Expected unemployment change - next 12 months 106 105 105 106 103 111 111 114 Prob. household will lose a job - next 5 years 22 22 28 23 22 23 23 22 Expected inflation - next 12 months Mean Median 3.1 2.8 3.2 2.8 3.6 3.1 3.3 2.8 3.4 3.0 3.5 2.9 3.3 2.9 4.0 3.2 Expected inflation - next 5 to 10 years Mean Median 3.1 2.7 3.1 2.8 3.2 2.8 3.1 2.7 3.1 2.8 3.2 2.7 3.1 2.8 3.2 2.8 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. -3- 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, Feb. 2005 ($ billions) 2003 H1 2004 Q3 2004 Q4 2004 Jan. 2005 Feb. 2005 5.9 5.6 11.8 10.4 5.2 5.8 6.3 6.3 14.0 11.1 20.0 18.4 6,704 6,850 8.6 7.2 8.9 4.8 16.9 11.6 17.9 2.0 -8.1 -4.8 -4.4 -5.6 1.0 1.3 -11.3 22.3 30.6 18.9 31.1 .2 36.4 29.4 34.6 21.6 1,834 1,979 1,211 768 4.9 -9.4 11.1 30.8 8.8 5.4 5.8 6.7 9.9 -3.9 15.8 39.9 12.4 7.9 4.0 9.9 10.3 7.0 8.3 37.2 3.7 19.9 12.3 12.4 8.3 6.0 12.9 37.3 8.7 -1.8 2.3 4.6 8.0 22.4 12.1 20.8 10.4 10.5 11.6 -29.0 13.9 12.1 11.8 4.7 13.1 -.9 -16.3 40.1 4,871 920 2,588 407 2,181 679 1,044 683 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. -4- III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004 Change to Mar. 17 from selected dates (percentage points) 2005 Instrument June 28 Dec. 31 Feb. 1 Mar. 17 2004 June 28 2004 Dec. 31 2005 Feb. 1 1.00 2.25 2.25 2.50 1.50 .25 .25 1.36 1.74 2.18 2.52 2.47 2.70 2.73 2.99 1.37 1.25 .55 .47 .26 .29 Commercial paper (A1/P1 rates)2 1-month 3-month 1.28 1.45 2.29 2.28 2.51 2.69 2.75 2.95 1.47 1.50 .46 .67 .24 .26 Large negotiable CDs1 3-month 6-month 1.53 1.82 2.50 2.72 2.71 2.94 2.99 3.24 1.46 1.42 .49 .52 .28 .30 Eurodollar deposits3 1-month 3-month 1.29 1.51 2.32 2.49 2.53 2.68 2.80 2.97 1.51 1.46 .48 .48 .27 .29 Bank prime rate 4.00 5.25 5.25 5.50 1.50 .25 .25 Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year 2.88 3.97 4.90 3.08 3.63 4.34 3.28 3.70 4.24 3.72 4.12 4.57 .84 .15 -.33 .64 .49 .23 .44 .42 .33 U.S. Treasury indexed notes 5-year 10-year 1.56 2.23 1.02 1.67 1.18 1.66 1.22 1.73 -.34 -.50 .20 .06 .04 .07 Municipal revenue (Bond Buyer)5 5.37 5.04 4.90 4.99 -.38 -.05 .09 Private instruments 10-year swap 10-year FNMA6 10-year AA7 10-year BBB7 5-year high yield7 5.21 5.30 5.59 6.18 8.30 4.65 4.61 4.98 5.38 7.34 4.53 4.48 4.87 5.28 7.46 4.91 4.77 5.20 5.58 7.61 -.30 -.53 -.39 -.60 -.69 .26 .16 .22 .20 .27 .38 .29 .33 .30 .15 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.21 4.19 5.77 4.10 5.63 4.23 5.95 4.20 -.26 .01 .18 .10 .32 -.03 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high 2004 Change to Mar. 17 from selected dates (percent) 2005 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Level Date Dec. 31 Feb. 1 Mar. 17 Record high 2004 Dec. 31 2005 Feb. 1 11,723 1,527 5,049 655 14,752 1-14-00 3-24-00 3-10-00 12-28-04 3-24-00 10,783 1,212 2,175 652 11,971 10,552 1,189 2,069 628 11,722 10,626 1,190 2,016 625 11,745 -9.35 -22.08 -6.06 -4.45 -2.38 -1.45 -1.79 -7.31 -4.01 -1.89 .71 .07 -2.53 -.43 .20 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 most recent policy tightening began. February 1, 2005, is the day before the most recent FOMC announcement. _______________________________________________________________________ -5- The International Economy Prices of Internationally Traded Goods Non-oil imports. In February, the prices of U.S. imports of non-oil goods and of core goods rose 0.2 and 0.3 percent, respectively. Higher prices for food, feeds, and beverages, consumer goods, and non-petroleum industrial supplies were the main contributors to the price increase. The price index for foods, feeds and beverages rose 1.3 percent in February, following no change in the previous month. Prices for consumer goods rose 0.2 percent, down from the 0.5 percent increase in January. (Within consumer goods, apparel prices fell 0.1 percent.) Prices for imported capital goods (excluding computers and semiconductors) rose 0.2 percent, whereas prices for imported automotive products were unchanged. For both computers and semiconductors, import prices fell in February. The average level of imported core goods prices in January and February was 4½ percent at an annual rate above the fourth-quarter level. All of the major categories, except automotive products, registered substantial price gains. In particular, both capital goods (excluding computers and semiconductors) and consumer goods experienced increases in their inflation rates of more than 2 percentage points. Oil. The BLS price of imported oil rose 3.9 percent in February. The spot price of West Texas Intermediate crude oil rose 2.4 percent in February—averaging about $48 per barrel. The spot price began to increase late in the month and continued to rise in March, closing at a nominal record of $56.47 per barrel on March 16. The increase in oil prices largely reflects indications that oil demand will remain stronger than previously anticipated and remarks by OPEC that imply the cartel is targeting a higher level of oil prices. In addition, concerns about future supplies from Iraq, Iran, Nigeria, Venezuela, and Russia also continue to support oil prices. Exports. In February, the prices of U.S. exports of total goods and of core goods were unchanged. A sharp 0.9 percent decline in agricultural products was offset by a 0.2 percent increase in industrial supplies. Export prices for consumer goods edged lower. Prices of exported computers ticked up, whereas prices for semiconductors declined. The average level of exported core goods prices in January and February was 5¼ percent at an annual rate above the fourth-quarter level. Price increases were widespread across -6- Prices of U.S. Imports and Exports (Percentage change from previous period) Annual rate 2004 2005 Q3 Q4 Q1e Monthly rate 2004 2005 Dec. Jan. Feb. ----------------------- BLS prices --------------------7.9 7.3 -0.0 -1.4 0.7 0.8 57.1 35.1 -19.0 -11.5 3.4 3.9 1.5 3.2 3.9 0.4 0.3 0.2 Merchandise imports Oil Non-oil Core goods* Cap. goods ex comp & semi Automotive products Consumer goods Foods, feeds, beverages Industrial supplies ex oil 2.4 1.6 1.7 -0.4 3.3 8.3 4.2 2.6 2.4 1.2 10.7 11.1 4.6 5.5 0.4 3.6 6.1 8.8 0.4 0.5 0.1 0.3 1.1 0.8 0.4 0.8 0.0 0.5 0.0 0.3 0.3 0.2 0.0 0.2 1.3 0.3 Computers Semiconductors -9.0 -4.4 -7.5 -4.9 -4.4 -2.0 -0.3 -0.2 -0.6 -0.2 -0.6 -0.2 -0.1 3.6 4.1 0.1 0.9 0.0 0.6 1.3 0.9 2.3 -31.0 14.5 4.8 3.3 1.2 0.1 -11.5 17.1 5.3 4.2 1.6 2.9 -2.0 10.6 0.1 0.3 0.1 0.2 -1.1 0.3 1.1 0.8 0.3 0.6 0.6 1.9 0.0 0.0 0.0 -0.1 -0.9 0.2 -7.6 -3.9 -9.2 -1.5 -6.5 -0.9 -0.7 0.3 -1.0 -0.3 0.1 -0.3 Merchandise exports Core goods* Cap. goods ex comp & semi Automotive products Consumer goods Agricultural products Industrial supples ex ag Computers Semiconductors Chain price index Imports of goods & services Non-oil merchandise Core goods* --------------------5.1 7.9 1.3 3.2 2.3 4.2 Exports of goods & services Total merchandise Core goods* 1.6 1.2 1.8 3.8 3.9 5.0 NIPA prices --------------------n.a. ... ... ... n.a. ... ... ... n.a. ... ... ... n.a. n.a. n.a. ... ... ... ... ... ... ... ... ... */ Excludes computers and semiconductors. e/ Average of two months. n.a. Not available. ... Not applicable. Oil Prices Dollars per barrel Spot West Texas Intermediate Import unit value 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 60 55 50 45 40 35 30 25 20 15 10 5 -7- categories, with the exception of agricultural products, which fell. Prices for industrial supplies posted the largest increase. U.S. Current Account In the fourth quarter of 2004, the U.S. current account deficit widened $88 billion to $752 billion at an annual rate, equivalent to 6¼ percent of GDP. The change was concentrated in the trade balance on goods and services, which fell $61 billion. The balances on income and transfers also declined. The widening of the trade deficit occurred as an $84 billion rise in imports outweighed a $23 billion increase in exports. Nearly half of the gain in imports reflected a surge in oil imports as both oil prices and import volumes strengthened. U.S. Current Account (Billions of dollars, seasonally adjusted annual rate) Other Goods and Investment income and Period services, income, transfers, net net net Annual 2003 -496.5 38.8 -72.9 2004 -617.1 29.8 -78.7 Quarterly 2004:Q1 Q2 Q3 Q4 -555.4 -605.3 -623.4 -684.2 53.9 25.9 25.3 14.2 -88.4 -79.5 -65.3 -81.6 Current account balance -530.7 -665.9 -589.9 -658.8 -663.4 -751.6 Changes Q1-Q4 -53.4 -16.2 -12.5 -82.1 Q2-Q1 -49.9 -28.0 9.0 -68.9 Q3-Q2 -18.1 -0.6 14.2 -4.6 Q4-Q3 -60.8 -11.1 -16.3 -88.2 Source: U.S. Department of Commerce, Bureau of Economic Analysis. The surplus on net investment income fell $11 billion as a rise in receipts was outpaced by higher payments. Payments and receipts were both lifted by higher earnings on direct investment positions and higher average interest rates. In addition, U.S. dividend payments to foreigners were boosted by Microsoft’s special dividend in the quarter. -8- Net transfer payments to foreigners rose more than $16 billion in the fourth quarter. This strong increase reflected a rebound from the unusually low level in the third quarter, which was held down by sizable inflows of insurance claims to cover hurricane-related losses. U.S. International Financial Transactions The March 16 balance of payments press release included new data for the fourth quarter of 2004. U.S. direct investment abroad (line 6 of the Summary of U.S. International Transactions table) increased to $101 billion in the fourth quarter, owing in large part to the reincorporation in the United States of News Corporation Ltd. (Australia). For the year, record reinvested earnings helped to raise direct investment outflows to $249 billion from $174 billion in 2003. Foreign direct investment into the United States (FDIUS) was little changed during the fourth quarter at $36 billion (line 7); for the year it increased to $116 billion from $40 billion in 2003, due to new equity investment and reinvested earnings. The increase in U.S. direct investment abroad during 2004 was roughly offset by increased FDIUS, resulting in net direct investment outflows of approximately $135 billion in both 2003 and 2004. The re-incorporation of News Corporation has four balance of payments components which net to zero. The most visible is increased U.S. direct investment abroad (USDIA), reflecting the newly-formed Delaware corporation’s holdings of the Australian corporation. A small part of this USDIA is offset by new foreign direct investment into the United States, reflecting the Murdoch trust’s interests in the new Delaware corporation. In addition, private equity holdings in the Australian corporation were swapped for equity in the new entity. U.S. residents had an estimated $22 billion swapped, which reduced U.S. equity claims on foreigners (line 5c); and foreigners were estimated to have had about $23 billion in foreign equity swapped for U.S. equity (included in line 4d). The statistical discrepancy (last line) was positive $5 billion for the fourth quarter and positive $52 billion for the year. A positive statistical discrepancy indicates some combination of over-reporting of the current account deficit or under-reporting of net capital inflows. -9- Summary of U.S. International Transactions (Billions of dollars, not seasonally adjusted except as noted) 2003 Official financial flows 1. Change in foreign official assets in the U.S. (increase, +) a. G-10 countries b. OPEC countries c. All other countries 2. Change in U.S. official reserve assets (decrease, +) Private financial flows Banks 3. Change in net foreign positions of banking offices in the U.S.1 Securities2 4. Foreign net purchases of U.S. securities (+) a. Treasury securities b. Agency bonds c. Corporate and municipal bonds d. Corporate stocks3 5. U.S. net acquisitions (-) of foreign securities a. Bonds b. Stock purchases c. Stock swaps3 Other flows (quarterly data, s.a.) 6. U.S. direct investment (-) abroad 7. Foreign direct investment in U.S. 8. Foreign holdings of U.S. currency 9. Other (inflow, + )4 U.S. current account balance (s.a.) Capital account balance (s.a.) Statistical discrepancy (s.a.) 5 2004 2004 Q2 Q3 Q4 250.1 363.3 137.0 71.5 71.9 82.8 29.5 18.6 248.6 360.5 136.4 114.7 162.7 96.8 6.1 12.1 3.3 127.9 185.7 36.4 70.4 46.2 -2.1 26.3 71.5 20.1 3.2 48.1 82.1 -.4 7.7 74.8 28.8 -3.7 .6 31.9 14.8 .4 3.2 11.2 .4 .7 .7 3.8 56.8 101.0 … … 16.1 7.0 -68.1 94.3 182.9 1.2 12.6 5.8 55.3 81.7 69.5 5.6 45.5 62.2 .4 19.8 35.4 6.7 54.6 13.1 9.9 14.5 17.2 -27.9 -13.8 -36.5 22.4 -23.1 -6.6 -16.5 .0 -2.1 5.5 -7.6 .0 -173.8 -248.5 -48.0 -55.9 -43.3 -101.3 39.9 115.5 10.5 32.9 35.9 36.3 16.6 14.8 -1.8 8.8 2.6 5.3 69.7 -56.6 -7.0 -44.6 5.4 -10.5 -530.7 -665.9 -147.5 -164.7 -165.9 -187.9 … … … … … … … … … … … … … … 1.5 Q1 2.8 .6 1.1 295.6 252.2 1.4 93.0 -39.9 35.6 64.7 -5.8 369.0 521.6 114.0 120.0 -10.1 96.3 224.7 245.0 40.4 60.4 -90.5 -88.8 21.9 3.2 -95.0 -101.1 -17.4 9.1 -3.1 -12.0 -1.5 51.9 94.8 149.6 42.9 63.2 1.9 33.3 44.2 49.5 5.7 3.6 -7.1 11.9 -19.0 .0 -0.4 9.4 -33.3 8.3 -28.9 -12.7 -0.3 0.5 -17.7 -20.5 -3.2 -16.7 -.6 -0.4 37.5 Dec. 2005 Jan. -0.4 4.5 NOTE. Data in lines 1 through 5 differ in timing and coverage from the balance of payments data published by the Department of Commerce. Details may not sum to totals because of rounding. 1. Changes in dollar-denominated positions of all depository institutions and bank holding companies plus certain transactions between broker-dealers and unaffiliated foreigners (particularly borrowing and lending under repurchase agreements). Includes changes in custody liabilities other than U.S. Treasury bills. 2. Includes commissions on securities transactions and therefore does not match exactly the data on U.S. international transactions published by the Department of Commerce. 3. Includes (4d) or represents (5c) stocks acquired through non-market means such as mergers and reincorporations. 4. Transactions by nonbanking concerns and other banking and official transactions not shown elsewhere plus amounts resulting from adjustments made by the Department of Commerce and revisions in lines 1 through 5 since publication of the quarterly data in the Survey of Current Business 5. Consists of transactions in nonproduced nonfinancial assets and capital transfers. n.a. Not available. ... Not applicable. 

Federal Reserve (2005, March 21). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20050322_part2

@misc{wtfs_greenbook_20050322_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2005},
  month = {Mar},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20050322_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}