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 02/09/2012. Confidential (FR) Class III FOMC May 5, 2006 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 Labor Market Developments ...........................................................1 Productivity and Costs .....................................................................2 Tables Labor Output per Hour.....................................................................2 Changes in Employment ..................................................................3 Selected Unemployment and Labor Force Participation Rates .......4 Hourly Compensation and Unit Labor Costs...................................6 Charts Changes in Private Payroll Employment .........................................3 Aggregate Hours and Workweek of Production or Nonsupervisory Workers .....................................................3 Labor Market Indicators ..................................................................5 Labor Force Participation Rate and Unemployment Rate ...............4 Persons Working Part Time for Economic Reasons........................4 Job Losers Unemployed Less than 5 Weeks....................................4 Markup, Nonfarm Business .............................................................6 Markup, Nonfinancial Corporations ................................................6 Compensation per Hour ...................................................................6 The Domestic Financial Economy ...........................................................7 Consumer Credit ..........................................................................................7 Tables Commercial Bank Credit .................................................................9 Selected Financial Market Quotations ...........................................10 Charts Household Liabilities .......................................................................8 Supplemental Notes The Domestic Nonfinancial Economy Labor Market Developments Private nonfarm payrolls increased 131,000 in April—a somewhat more moderate rise than in previous months—and the March level of employment was revised down 30,000. Aggregate hours rose a solid 0.5 percent in April, and the unemployment rate was unchanged at 4.7 percent. By industry, manufacturing employment increased 19,000 last month, boosted by a gain of 12,000 in the motor vehicle and parts sector, and the March level of factory jobs was revised up 15,000. In industries related to manufacturing, wholesale trade employment continued to increase in April, but temporary-help employment was flat. In other goodsproducing industries, recent increases in energy prices continued to boost mining activity and employment, while the construction industry saw its second consecutive month of moderate job gains following large advances earlier in the year. Employment increases in services-producing industries were widespread in April, with the notable exception of retail trade, where payrolls fell 36,000; a downward revision to this industry’s level of jobs in March accounted for much of the overall revision to private payrolls. On net, retail trade employment has changed little since last summer. Elsewhere, robust job gains occurred in professional and technical services (21,000), financial activities (26,000), health care services (23,000), and leisure and hospitality (20,000). Average weekly hours of production or nonsupervisory workers on private nonfarm payrolls ticked up 0.1 hour to 33.9 hours last month. The increases in the workweek and employment led to an increase of 0.5 percent in the aggregate hours of production or nonsupervisory workers, and aggregate hours now stand 0.7 percent (not at an annual rate) above their first-quarter average. In the household survey, both the unemployment rate and the labor force participation rate were unchanged last month, at 4.7 percent and 66.1 percent respectively. Two other indicators of labor market slack—the number of individuals working part time for economic reasons as a percent of employment and the number of individuals who are out of the labor force but would like a job as a percent of the labor force—were also little changed last month, though both have moved down over the past year. -1- -2- The average hourly earnings of production or nonsupervisory workers on private nonfarm payrolls increased 0.5 percent in April. Last month’s gain brings the increase over the last three months to an annual rate of 5.2 percent and the increase over the past twelve months to 3.8 percent, up from an increase of 2.7 percent over the preceding twelve months. Productivity and Costs The staff has updated its estimate of output per hour in the nonfarm business sector, and we now show an increase at an annual rate of 3.6 percent in the first quarter. Our estimate is noticeably higher than the one published by the Bureau of Labor Statistics (BLS) on Thursday. The BLS report was based on the advance estimate of output published with the first-quarter GDP data; we have incorporated the incoming information on output—notably, the March data on outlays for construction put-in-place and manufacturers’ inventories—that suggests a larger gain in first-quarter real GDP. Labor Output per Hour (Percent change from preceding period at an annual rate; seasonally adjusted) Sector Nonfarm business All persons All employees2 Nonfinancial corporations3 2004:Q1 2005:Q1 to to 2005:Q1 2006:Q11 3.0 3.1 5.4 2.5 2.2 n.a. 2005 2006 Q2 Q3 Q4 2.4 2.3 4.6 4.2 3.1 4.1 -.3 -.9 4.6 Q11 3.6 4.6 n.a. 1. Staff estimates. 2. Assumes that the growth rate of hours of non-employees equals the growth rate of hours of employees. 3. 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. n.a. Not available. We estimate that compensation per hour in the nonfarm business sector increased at an annual rate of 5¾ percent in the first quarter. Quarterly changes in this measure of worker compensation have fluctuated noticeably, and, in the first quarter, hourly compensation was up 3¾ percent from a year earlier. That pace marks a considerable step-down from the rate of increase over the preceding four quarters, which appeared to include a bulge in stock option exercises and large bonuses at the end of 2004. -3- Changes in Employment (Thousands of employees; seasonally adjusted) 2005 Measure and sector 2005 Q3 2006 Q4 Q1 Feb. Average monthly change Nonfarm payroll employment (establishment survey) Private Manufacturing Construction Wholesale trade Retail trade Transportation and utilities Information Financial activities Professional and business services Temporary help services Nonbusiness services1 Total government Total employment (household survey) Memo: Aggregate hours of private production workers (percent change)2 Average workweek (hours)3 Manufacturing (hours) Mar. Apr. Monthly change 165 152 -6 25 7 13 6 -1 12 41 14 51 14 221 155 132 -15 16 5 4 3 3 19 51 21 43 23 228 179 171 12 30 7 11 6 -2 17 41 18 44 8 115 185 178 2 28 13 4 3 2 21 28 -5 71 6 287 200 168 -1 34 9 -11 8 8 24 29 -4 63 32 183 200 179 1 6 12 23 -7 0 19 49 10 67 21 384 138 131 19 10 11 -36 11 -2 26 28 -1 56 7 47 2.3 33.8 40.6 2.2 33.8 40.6 2.1 33.8 40.9 3.0 33.8 41.0 .2 33.8 41.0 .2 33.8 41.1 .5 33.9 41.1 1. Nonbusiness services comprises education and health, leisure and hospitality, and "other." 2. Establishment survey. Annual data are percent changes from Q4 to Q4. Quarterly data are percent changes from preceding quarter at an annual rate. Monthly data are percent changes from preceding month. 3. Establishment survey. Changes in Private Payroll Employment Aggregate Hours and Workweek of Production or Nonsupervisory Workers Thousands 500 500 Hours 35.0 2002 = 100 106 3-month moving average 400 400 300 300 Apr. 200 200 100 100 104 Aggregate hours (right scale) 34.5 102 Apr. 34.0 0 100 98 0 96 -100 -100 -200 -200 -300 -300 -400 1998 2000 2002 2004 2006 -400 Workweek (left scale) 33.5 94 92 33.0 1998 2000 2002 2004 2006 90 -4- Selected Unemployment and Labor Force Participation Rates (Percent; seasonally adjusted) 2005 Rate and group 2006 2005 Q3 Q4 Q1 Feb. Mar. Apr. Civilian unemployment rate Total Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 5.1 16.6 8.8 3.8 4.2 5.0 16.1 8.6 3.8 4.2 5.0 16.1 8.5 3.7 4.2 4.7 15.5 8.1 3.6 3.9 4.8 15.4 8.5 3.7 3.9 4.7 15.7 7.6 3.6 3.8 4.7 14.6 8.2 3.6 3.9 Labor force participation rate Total Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 66.0 43.7 74.6 75.4 59.4 66.2 43.8 74.6 75.6 59.5 66.1 43.4 74.8 75.3 59.6 66.0 43.7 74.0 75.5 59.4 66.1 43.8 74.5 75.4 59.4 66.1 43.9 73.9 75.6 59.3 66.1 43.4 74.1 75.6 59.4 Labor Force Participation Rate and Unemployment Rate Percent 67.6 67.4 Percent 7.0 Participation rate (left scale) 6.5 67.2 6.0 67.0 66.8 5.5 66.6 5.0 66.4 Apr. 4.5 66.2 66.0 4.0 Unemployment rate (right scale) 3.5 65.8 65.6 1996 1997 1998 1999 2000 Persons Working Part Time for Economic Reasons 2002 2003 2004 3.0 2005 Job Losers Unemployed Less than 5 Weeks Percent 4.0 (As a percent of household employment) 4.0 2001 (As a percent of household employment) Percent 1.4 1.3 3.5 3.5 3.0 3.0 1.2 1.1 1.0 Apr. Apr. 2.5 0.9 2.5 0.8 2.0 1996 1998 2000 2002 2004 2006 2.0 1996 1998 2000 2002 2004 2006 0.7 -5- Labor Market Indicators Layoff Announcements Unemployment Insurance 250 Thousands 250 200 200 150 150 100 100 Millions 4.0 Thousands 550 Insured unemployment (left scale) 500 3.5 3.0 450 2.5 April 22 2.0 Apr. 50 50 400 1.5 Initial claims (right scale) 350 1.0 April 29 300 0.5 0 1996 1998 2000 2002 2004 2006 0 0.0 2000 2001 2002 2003 2004 2005 250 2006 Note. Seasonally adjusted by FRB staff. Source. Challenger, Gray, and Christmas, Inc. Exhaustion Rate and Long-Term Unemployed Percent 50 Labor Market Tightness Percent of labor force 1.8 1.6 45 Index 150 Percent 40 Job availability* (right scale) 35 130 1.4 40 Exhaustion rate* (left scale) 1.2 35 Apr. 0.8 30 Unemployed Mar. more than 26 weeks (right scale) 25 20 1.0 1996 1998 2000 2002 2004 2006 Apr. 30 110 25 90 20 Hard to fill** (left scale) 0.6 0.4 0.2 15 10 50 1996 1998 2000 2002 2004 2006 30 *Proportion of households believing jobs are plentiful, minus the proportion believing jobs are hard to get, plus 100. **Percent of small businesses surveyed with at least one "hard to fill" job opening. Source. For job availability, Conference Board; for hard to fill, National Federation of Independent Business. *The exhaustion rate is the number of individuals who were receiving unemployment insurance benefits but reached the end of their potential eligibility expressed as a percent of individuals who began receiving such benefits 6 months earlier. Net Hiring Plans Expected Labor Market Conditions Percent 30 30 Index 120 120 Conference Board Manpower, Inc. 25 25 Q2 20 Apr. 15 100 5 1996 1998 2000 Apr. 80 10 National Federation of Independent Business (3-month moving average) 100 20 15 10 0 70 80 Michigan SRC 60 60 5 2002 2004 Note. Percent planning an increase in employment minus percent planning a reduction. 2006 0 40 1996 1998 2000 2002 2004 2006 Note. The proportion of households expecting labor market conditions to improve, minus the proportion expecting conditions to worsen, plus 100. 40 -6- Hourly Compensation and Unit Labor Costs (Percent change from preceding period at compound annual rate; based on seasonally adjusted data) 2004:Q1 2005:Q1 to to 2005:Q1 2006:Q1e Category 2005 2006 Q2 Q3 Q4 e Q1 e Compensation per hour Nonfarm business Nonfinancial corporations 1 6.4 6.7 3.8 n.a. 1.3 1.1 5.5 6.3 2.7 2.5 5.8 n.a. Unit labor costs Nonfarm business Nonfinancial corporations 1 3.4 1.2 1.3 n.a. -1.0 -3.4 1.2 2.1 3.0 -2.0 2.1 n.a. Note. Figures that include the most recent quarter are based on published data rather than the staff forecast. 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. n.a. Not available. e Staff estimate. Markup, Nonfarm Business Markup, Nonfinancial Corporations Ratio 1.66 1.64 1.66 Ratio 1.59 Q4 1.59 1.64 1.57 1.62 1.62 1.55 1.55 1.60 1.60 1.53 1.53 1.58 1.58 1.51 1.51 1.56 1.49 1.54 1.47 1.52 1.45 Q1* 1.56 Average, 1968-present 1.54 1.52 1990 1992 1994 1996 1998 2000 2002 2004 2006 Average, 1968-present 1.57 1.49 1.47 1990 1992 1994 1996 1998 2000 2002 2004 2006 Note. The markup is the ratio of output price to unit labor costs. * Values for 2005:Q4 and 2006:Q1 are staff estimates. 1.45 Note. The markup is the ratio of output price to unit labor costs. Compensation per Hour (Percent change from year-earlier period) Percent 8 8 7 7 6 6 Productivity and costs 5 5 4 4 Q1* 3 3 ECI 2 2 1 1 0 1990 1991 1992 1993 1994 1995 1996 1997 * P&C values for 2005:Q4 and 2006:Q1 are staff estimates. 1998 1999 2000 2001 2002 2003 2004 2005 2006 0 -7- The Domestic Financial Economy Consumer Credit Consumer credit increased at an annual rate of 2¾ percent in the first quarter. Revolving credit was about unchanged in March while nonrevolving credit rose at a pace of 2½ percent. -8- Household Liabilities Mortgage Rates Mortgage and Consumer Debt Percent Percent change from year earlier 9 Weekly 16 Mortgage 8 Q4 14 12 30-year FRM 7 May 3 1-year ARM 10 6 8 6 5 4 4 Mar. Consumer credit 3 1996 1998 2000 Source. Freddie Mac. 2002 2004 2006 0 1996 Financial Obligations Ratio 2 1998 2000 2002 2004 2006 Cumulative Household Bankruptcy Filings Percent of households Percent 19.0 Quarterly, n.s.a. 2.0 Weekly 1.8 2005-06* e Q1 1.6 18.5 1.4 2003-04 2004-05 1.2 1.0 18.0 0.8 0.6 17.5 0.4 0.2 17.0 1996 1998 2000 e Staff estimate. 2002 2004 Apr. June Aug. Oct. Dec. Feb. * Through April 29. Source. Lundquist Consulting, Inc. 2006 Consumer Credit Delinquency Rates Apr. 0.0 Mortgage Delinquency Rates Percent Percent 6 Credit card loans in securitized pools 10 Monthly* 9 5 8 Subprime Feb. 4 6 Feb. Auto loans at captive finance companies 7 5 3 4 3 Mar. 2 2 Prime Feb. 1 1996 1998 2000 2002 2004 2006 Source. For credit cards, Moody’s; for auto loans, Federal Reserve. 1 0 2001 2002 2003 2004 2005 2006 Note: 90 days or more delinquent, or in foreclosure. Source. LoanPerformance. * Data are year-end prior to September 2003. -9- Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total Adjusted1 Reported Securities Adjusted1 Reported Treasury and agency Other2 Loans3 Total Business Real estate Home equity Other Consumer Adjusted4 Other5 Level (billions of dollars), Apr. 2006e 2004 2005 2005: Q4 2006: Q1 Mar. 2006 Apr.e 2006 8.9 8.4 10.4 9.6 5.8 5.2 10.5 10.0 12.2 10.2 12.9 14.7 7,518 7,655 6.6 5.2 4.9 5.6 7.4 5.0 -.2 13.0 -.6 -2.4 -9.9 8.3 8.5 6.7 8.0 5.0 14.6 7.2 4.2 11.4 24.5 30.5 11.0 57.0 1,968 2,106 1,193 913 9.8 1.3 14.0 43.8 9.8 8.8 5.7 7.8 11.5 13.4 14.0 11.1 14.5 3.0 .6 8.2 8.1 9.5 8.4 -1.9 10.2 -4.3 -4.3 17.4 11.2 16.5 9.8 -2.5 12.0 4.2 8.2 16.2 11.3 7.2 9.9 3.6 11.1 20.1 15.3 14.5 8.8 19.6 8.3 -9.7 11.3 8.5 3.9 -4.0 5,549 1,070 2,993 431 2,563 711 1,083 776 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. - 10 - III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004 2005 Change to May 4 from selected dates (percentage points) 2006 Instrument June 28 Dec. 30 Mar. 27 May 4 2004 June 28 2005 Dec. 30 2006 Mar. 27 1.00 4.25 4.75 4.75 3.75 .50 .00 1.36 1.74 3.99 4.22 4.51 4.62 4.68 4.82 3.32 3.08 .69 .60 .17 .20 Commercial paper (A1/P1 rates)2 1-month 3-month 1.28 1.45 4.23 4.37 4.76 4.84 4.97 5.04 3.69 3.59 .74 .67 .21 .20 Large negotiable CDs1 3-month 6-month 1.53 1.82 4.49 4.65 4.92 5.02 5.12 5.24 3.59 3.42 .63 .59 .20 .22 Eurodollar deposits3 1-month 3-month 1.29 1.51 4.36 4.52 4.82 4.96 5.06 5.14 3.77 3.63 .70 .62 .24 .18 Bank prime rate 4.00 7.25 7.50 7.75 3.75 .50 .25 Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year 2.88 3.97 4.90 4.43 4.35 4.47 4.76 4.68 4.80 5.01 5.02 5.23 2.13 1.05 .33 .58 .67 .76 .25 .34 .43 U.S. Treasury indexed notes 5-year 10-year 1.56 2.25 2.03 2.10 2.14 2.25 2.30 2.49 .74 .24 .27 .39 .16 .24 Municipal general obligations (Bond Buyer)5 5.01 4.38 4.43 4.63 -.38 .25 .20 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 4.92 4.82 5.25 5.84 8.28 5.23 5.02 5.57 6.11 8.16 5.68 5.40 6.01 6.50 8.23 .47 .10 .42 .32 -.07 .76 .58 .76 .66 -.05 .45 .38 .44 .39 .07 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.21 4.19 6.21 5.16 6.35 5.51 6.59 5.67 .38 1.48 .38 .51 .24 .16 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high 2005 Change to May 4 from selected dates (percent) 2006 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Level Date Dec. 30 Mar. 27 May 4 Record high 2005 Dec. 30 2006 Mar. 27 11,723 1,527 5,049 778 14,752 1-14-00 3-24-00 3-10-00 4-19-06 3-24-00 10,718 1,248 2,205 673 12,518 11,250 1,302 2,316 754 13,158 11,439 1,312 2,324 775 13,318 -2.42 -14.09 -53.97 -.48 -9.72 6.73 5.12 5.38 15.08 6.40 1.68 .82 .36 2.74 1.22 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. March 27, 2006, is the day before the most recent FOMC meeting. _______________________________________________________________________ 

Federal Reserve (2006, May 9). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20060510_part3

@misc{wtfs_greenbook_20060510_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2006},
  month = {May},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20060510_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}