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 02/07/2013. Confidential (FR) Class III FOMC March 16, 2007 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 Industrial Production and Capacity Utilization................................1 Consumer Sentiment........................................................................5 Prices................................................................................................5 Tables Selected Components of Industrial Production................................2 Capacity Utilization .........................................................................2 Reuters/University of Michigan Survey of Consumers ...................6 Price Measures .................................................................................8 Charts Indicators of Industrial Activity.......................................................3 Indicators of High-Tech Manufacturing Activity ............................4 Consumer Sentiment........................................................................6 Expected Inflation............................................................................6 Consumer Prices ..............................................................................9 The Domestic Financial Economy .........................................................10 Tables Commercial Bank Credit ...............................................................10 Selected Financial Market Quotations ...........................................11 Charts C&I Loan Rate Spreads .................................................................10 Bank Profitability...........................................................................10 The International Economy ....................................................................12 U.S. Current Account.....................................................................12 U.S. International Financial Transactions......................................13 Table U.S. Current Account.....................................................................12 Summary of U.S. International Transactions.................................14 Supplemental Notes The Domestic Nonfinancial Economy Industrial Production and Capacity Utilization Total industrial production (IP) rose 1 percent in February. IP was revised down in November but revised up in December and in January, leaving the overall change during those three months higher by 0.2 percentage point. A surge in energy output and a partial rebound in motor vehicle assemblies accounted for the bulk of the increase last month. The swing in temperatures from a mild January to a cold February resulted in a jump of 6.7 percent in the index for utilities, which contributed ⅔ percentage point to the increase in IP; much of the gain will likely be reversed this month. Mining output was little changed in February, as declines in oil and gas extraction and coal production were offset by increases in metal mining, nonmetallic mineral mining, and oil and gas well-drilling. Manufacturing output rose 0.4 percent in February, and the rates of change for the previous two months were revised up in response to stronger output data for steel, drugs, and cigarettes. The capacity utilization rate in manufacturing rose 0.2 percentage point in February to 80.1 percent, a level that is 0.2 percentage point above its year-earlier level and 0.3 percentage point above its 1972-2006 average. Light vehicle assemblies were 10.4 million units (annual rate) in February; the increase of 500,000 units (annual rate) relative to January only reversed about half of the plunge in January. Assemblies of medium and heavy trucks fell in February for the fourth consecutive month; the level of assemblies was 30 percent below its peak last year. Overall, motor vehicles and parts production in February boosted the rate of change in total IP by about 0.2 percentage point. Production in the high-tech industries rose more than 3 percent in February, with solid output gains for each major high-tech category. Computer production jumped 5 percent; it was boosted by a surge in the production of PCs for consumer use that was likely related to the release of the new Microsoft Vista operating system. The output of communications equipment was up more than 2 percent for a second consecutive month after having slowed in the second half of last year. Semiconductor production increases were broad-based; output increased significantly for chip categories related to computing, such as microprocessors. Excluding energy, motor vehicles and parts, and high-tech products, output gains in the major market groups were mixed in February. The production of consumer goods was -1- -2- Selected Components of Industrial Production (Percent change from preceding comparable period) Proportion 2006 Component 2006 20061 (percent) Q3 2006 Q4 Dec. Annual rate Total Previous 2007 Jan. Feb. Monthly rate 100.0 100.0 3.5 3.7 4.0 4.0 -1.2 -.8 .8 .5 -.3 -.5 1.0 ... 81.8 76.3 71.5 3.4 3.9 2.5 4.4 5.5 4.0 -1.7 -1.5 -3.3 1.0 1.0 1.0 -.5 -.1 -.3 .4 .2 .0 Mining Utilities 8.6 9.6 8.1 .9 .6 4.6 3.3 -1.5 2.1 -2.5 -1.3 2.2 .1 6.7 Selected industries High technology Computers Communications equipment Semiconductors2 4.8 1.2 1.1 2.6 24.6 12.1 14.8 34.9 27.3 2.3 6.6 51.3 24.8 24.4 9.6 31.5 1.2 1.8 1.8 .7 2.1 2.8 2.2 1.7 3.2 5.1 2.4 2.7 Motor vehicles and parts 5.5 -3.8 -9.8 -4.0 1.7 -5.8 3.1 Market groups excluding energy and selected industries Consumer goods Durables Nondurables 20.9 4.0 16.9 1.8 -1.9 2.7 2.7 1.5 3.0 1.8 -7.7 4.2 .8 1.2 .7 -.4 -.7 -.3 .0 -1.1 .3 Business equipment Defense and space equipment 7.8 1.7 10.3 2.1 13.0 5.5 4.4 -3.5 2.4 .4 -2.3 .6 .0 .1 Construction supplies Business supplies 4.5 7.9 -2.3 1.0 -1.0 -.3 -9.3 -1.9 2.0 .6 -.9 -.5 -.6 -.1 26.1 14.5 11.6 2.3 2.0 2.6 2.3 2.3 2.3 -7.1 -9.4 -4.1 1.0 .7 1.3 -.1 .9 -1.4 .3 .3 .4 Manufacturing Ex. motor veh. and parts Ex. high-tech industries Materials Durables Nondurables 1. From fourth quarter of preceding year to fourth quarter of year shown. 2. Includes related electronic components. ... Not applicable. Capacity Utilization (Percent of capacity) 19722006 average 199495 high 200102 low Q2 Q3 Q4 Jan. Feb. Total industry 81.0 85.1 73.6 82.0 82.3 81.6 81.4 82.0 Manufacturing Ex. motor veh. and parts Mining Utilities 79.8 79.9 87.4 86.7 84.6 84.3 88.9 93.7 71.6 71.4 84.8 83.8 80.6 80.8 91.0 85.9 80.9 81.4 90.9 86.4 80.1 80.5 91.4 85.5 79.9 80.5 91.2 84.8 80.1 80.5 91.2 90.4 Stage-of-process groups Crude Primary and semifinished Finished 86.5 82.2 77.8 89.5 88.2 80.5 82.0 74.6 70.0 88.8 83.9 77.6 89.4 84.1 77.9 89.2 82.4 78.2 88.5 82.4 77.9 88.3 83.4 78.3 Sector 2006 2007 -3- Indicators of Industrial Activity Motor Vehicle Assemblies Utilities Output 2002 = 100 124 124 0.6 116 0.5 108 0.4 100 100 0.3 92 92 0.2 84 0.1 76 0.0 Feb. 116 Electricity Mar. + 108 Millions of units 14 Millions of units Medium and heavy trucks (left scale) 13 12 +Mar. 11 Natural gas 84 76 2002 2003 2004 2005 2006 2007 Note. March value for electricity generation is based on weekly data. IP: Construction Supplies and Durable Materials + Mar. Autos and light trucks (right scale) 10 9 2000 2002 2004 2006 Note. March values are based on latest industry schedules. IP: Equipment and Consumer Goods 2002 = 100, ratio scale 2002 = 100, ratio scale 115 125 Feb. 110 Feb. 115 Business equipment 110 105 Durable materials Feb. Construction supplies 120 100 105 Durable consumer goods 100 95 Content partially redacted. 2002 2003 2004 2005 2006 2007 Note. Data exclude motor vehicle parts, high-tech, and aircraft parts industries. New Orders: ISM Survey and Change in Real Adjusted Durable Goods Orders (RADGO) Boeing Commercial Aircraft Completions: Actual Percent 2002 = 100 160 95 2002 2003 2004 2005 2006 2007 Note. Data exclude motor vehicles and parts, high-tech, and aircraft industries. 160 4 Diffusion index 90 140 3 120 120 2 70 100 100 1 Feb. 60 80 80 60 60 40 40 140 20 0 -20 Actual Boeing strike Jan. 20 0 -20 2002 2003 2004 2005 2006 2007 2008 Note. 1998 price-weighted index. Actual completions equal deliveries plus the change in the stock of finished aircraft. ISM (right scale) 80 0 50 Jan. -1 -2 40 RADGO (left scale) -3 -4 30 20 2002 2003 2004 2005 2006 2007 Note. The diffusion index equals the percentage of respondents reporting greater levels of new orders plus one-half the percentage of respondents reporting that new orders were unchanged. RADGO is a 3-month moving average. 10 -4- Indicators of High-Tech Manufacturing Activity Rate of Change in Semiconductor Industrial Production Day’s Supply at Major Semiconductor Companies Percent 12 10 3-month moving average MPUs 12 1998 = 100 205 10 185 8 8 6 6 4 4 Feb. 2 0 165 Other chip companies Non-MPU chips 125 105 -2 -4 -4 -6 -6 -8 -8 2002 2003 2004 2005 Note. MPU is a microprocessor unit. 2006 2007 85 Computing chip companies 1994 1996 1998 2000 Source. Financial Reports. Bookings and Billings for Semiconductor Equipment 2002 2004 2006 1.6 1.6 1.4 Millions of units, ratio scale Millions of units, ratio scale 1.0 17 0.9 Q1 0.8 Jan. 0.7 Orders PCs (right scale) 15 13 1.2 12 0.6 Shipments 16 14 1.4 1.0 65 U.S. Personal Computer and Server Sales Billions of dollars 1.8 1.8 145 2 0 -2 1.2 Q4 1.0 11 0.5 0.8 0.6 0.8 0.6 2002 2003 2004 2005 2006 Note. FRB seasonals. Source. Semiconductor Equipment and Materials International. 10 Servers (left scale) 0.4 2000 2001 2002 2003 2004 2005 2006 Note. FRB seasonals. Q1 values are Gartner’s forecasts. Source. Gartner. 9 Capital Expenditures by Selected Telecommunications Service Providers IP: Communications Equipment 2002 = 100, ratio scale Feb. Billions of dollars, ratio scale 170 150 Annual average 2007 guidance 100 90 80 70 130 60 50 110 Q4 2002 2003 2004 2005 2006 2007 90 1999 2000 2001 2002 2003 2004 2005 2006 2007 Note. FRB seasonals. Includes AT&T, Verizon, Sprint Nextel, Quest, and companies related by merger, acquisition, and spin-off. Source. SEC filings. 40 30 -5- little changed relative to January, as gains in the output of nondurable consumer goods— such as food and paper products—offset continuing declines in the production of durable consumer goods. The output of business equipment was also little changed in February; excluding commercial aircraft, business equipment output has decreased at an annual rate of nearly 2½ percent in the past three months. In February, production declines included metalworking machinery, commercial and service industry machinery, and transit equipment other than motor vehicles. The output of defense and space equipment edged up, as a decrease in the production of military aircraft was more than offset by output increases elsewhere. The production of construction supplies declined 0.6 percent in February; among its components, output for a variety of wood products, cement, concrete, and gypsum all fell. In contrast, the output of materials rose, with increases in both durable and nondurable materials. Consumer Sentiment According to the preliminary report, the Reuters/University of Michigan index of consumer sentiment edged down in early March, with declines in both the “expected conditions” and the “current conditions” components of the overall index. Among those items not included in the overall sentiment index, consumers’ expectations about the change in unemployment over the next twelve months improved a little. In addition, consumers’ appraisals of buying conditions for both cars and homes strengthened. The median of expected inflation over the next twelve months held at 3 percent in March, and the median of expected inflation over the next five- to-ten years held at 2.9 percent. Prices The producer price index for finished goods rose 1.3 percent in February, reflecting large increases in food and energy prices. Increases in the PPI for finished energy were widespread across components, with gasoline and fuel oil posting the sizable increases. The PPI for finished food rose 1.9 percent in February, as cold weather in western states boosted prices for fruits and vegetables. Excluding food and energy, the PPI for finished goods rose 0.4 percent, following increases of 0.2 percent in each of the previous two months. One contributor to the step-up in core PPI inflation was a second steep monthly rise in tobacco prices.1 Among the PPIs for services, which are not included in the headline index, the price index for doctors’ services jumped 3 percent last month, while the index for hospital services edged down 0.2 percent (both not seasonally adjusted). These indexes, along with other indicators, are used by the BEA to construct the PCE price index for medical services. 1 An analyst at the BLS commented that cigarette manufacturers appear to have boosted prices in anticipation of an increase in payouts associated with the tobacco settlement. -6March 16, 2007 Reuters/University of Michigan Survey of Consumers Indexes of consumer sentiment (Not seasonally adjusted) 2006 Category 2007 Feb. Mar.P 91.3 106.7 81.5 88.8 103.6 79.3 123 127 119 122 111 124 105 97 118 107 106 98 97 97 140 156 134 140 161 132 136 166 141 133 158 133 140 157 142 122 121 121 115 125 123 23 22 23 22 20 19 22 4.6 3.8 3.6 3.1 3.7 3.1 3.3 3.0 3.5 2.9 3.6 3.0 3.6 3.0 3.7 3.0 3.5 3.2 3.2 3.0 3.5 3.1 3.5 3.0 3.4 3.0 3.5 3.0 3.3 2.9 3.4 2.9 Aug. Sept. Oct. Nov. Dec. 82.0 103.8 68.0 85.4 96.6 78.2 93.6 107.3 84.8 92.1 106.0 83.2 91.7 96.9 108.1 111.3 81.2 87.6 109 112 99 122 118 131 119 125 119 124 75 84 99 92 113 97 112 97 Appraisal of buying conditions Cars Large household appliances2 Houses 124 160 117 128 151 116 137 160 129 Expected unemployment change - next 12 months 130 125 Prob. household will lose a job - next 5 years 19 Expected inflation - next 12 months Mean Median Expected inflation - next 5 to 10 years Mean Median Composite of current and expected conditions1 Current conditions1 Expected conditions1 Personal financial situation Now compared with 12 months ago2 Expected in 12 months2 Expected business conditions Next 12 months2 Next 5 years2 Jan. 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. Consumer sentiment Expected inflation 1985 = 100 180 1966 = 100 130 160 Percent 5 5 120 4 Reuters/Michigan (right scale) 140 120 100 Feb. 100 90 Mar.P 80 4 Median, 5 to 10 years ahead 110 3 Mar.P 2 2 80 Median, 12 months ahead 1 60 40 P Preliminary. 2002 2004 1 70 Conference Board (left scale) 2000 3 2006 60 2008 0 2000 P Preliminary. 2002 2004 2006 0 2008 -7- At earlier stages of processing, prices for core intermediate materials rose 0.2 percent last month. The increase brought the twelve-month change in this index to 3.7, 1 percentage point less than the year-earlier increase. Part of this slowdown has reflected a deceleration in the prices for a number of energy-intensive goods, including chemicals and plastics. The consumer price index rose 0.4 percent in February, led by increases of 0.8 percent in food prices and 0.9 percent in consumer energy prices. Excluding food and energy, the CPI rose 0.2 percent last month after having risen 0.3 percent in January. Based on our translation of the February CPI and PPI data, we estimate that core PCE prices rose 0.3 percent last month. Recent increases in the core CPI have pushed up the three-month change in the index from the relatively low rates seen at the end of 2006; a swing in core goods price inflation—which had been coming in unusually low late last year—accounts for the recent pickup. Over the twelve months ending in February, the core CPI rose 2.7 percent, 0.6 percentage point higher than a year earlier; a sharp acceleration in shelter rents over this period more than accounted for the acceleration in the core index. Last month’s increase in the CPI for energy was boosted by a jump of 5 percent in prices for natural gas; by contrast, prices for motor fuel rose only 0.3 percent, and electricity prices were unchanged.2 Nevertheless, energy prices have actually declined slightly over the twelve months ending in February, down from an increase of 20 percent over the year-earlier period. The effects of cold weather on prices of fruits and vegetables showed through to the March rise in the CPI as well as the PPI. However, the twelve-month change ending in February in retail food prices was up only slightly from a year earlier. The pickup in core goods prices in recent months has been broad-based, with especially large accelerations in prices for tobacco, apparel, and motor vehicles. Smoothing through these higher-frequency movements, core goods prices have been flat over the past year after remaining unchanged over the preceding year as well. As of February, rent of shelter had accelerated 1¾ percentage points over the preceding twelve months; by contrast, prices for core services excluding shelter had decelerated ¼ percentage point. 2 Available survey data point to a large increase in gasoline prices in March. -8- Price Measures (Percent change) 12-month change Feb. 2006 Feb. 2007 CPI Total Food Energy Ex. food and energy Core goods Core services Shelter Other services Chained CPI (n.s.a.) 1 Ex. food and energy 1 3.6 2.8 20.1 2.1 .0 2.9 2.6 3.3 3.2 1.8 2.4 3.1 -1.0 2.7 .0 3.8 4.3 3.0 2.2 2.4 PCE prices 2 Total Food and beverages Energy Ex. food and energy Core goods Core services Shelter Other services Core market-based Core non-market-based 3.0 2.5 19.8 2.0 -.5 3.0 2.7 3.2 1.6 3.9 PPI Total finished goods Food Energy Ex. food and energy Core consumer goods Capital equipment Intermediate materials Ex. food and energy Crude materials Ex. food and energy 3.9 -1.0 17.3 1.7 1.7 1.6 8.0 4.7 12.6 11.9 Measures 3-month change 1-month change Annual rate Monthly rate Nov. 2006 Feb. 2007 Jan. 2007 Feb. 2007 -3.7 2.1 -44.5 1.8 -2.5 3.5 4.2 2.3 ... ... 4.0 6.1 14.9 2.6 .7 3.5 3.8 3.1 ... ... .2 .7 -1.5 .3 .1 .3 .3 .3 ... ... .4 .8 .9 .2 .1 .3 .3 .3 ... ... 2.3 3.0 -1.0 2.4 .1 3.4 4.4 3.1 2.2 n.a. -2.0 1.9 -45.9 1.7 -1.7 3.1 4.2 2.7 1.4 3.0 3.8 5.4 15.0 2.9 .7 3.7 3.7 3.8 2.5 n.a. .2 .7 -1.6 .3 .2 .3 .3 .3 .2 .4 .4 .7 .8 .3 .1 .4 .3 .5 .3 n.a. 2.5 6.8 .0 1.8 1.6 2.2 2.5 3.7 9.3 17.9 -4.1 -.5 -23.3 2.5 2.2 3.3 -6.5 -1.0 -1.2 -3.8 6.4 19.0 3.7 3.0 3.4 2.7 4.0 .7 21.5 21.4 -.6 1.1 -4.6 .2 .2 .2 -.7 .0 -6.3 1.6 1.3 1.9 3.5 .4 .5 .3 1.1 .2 8.9 2.7 1. Higher-frequency figures are not applicable for data that are not seasonally adjusted. 2. PCE prices in February 2007 are staff estimates. ... Not applicable. n.a. Not available. -9- Consumer Prices (12-month change except as noted) PCE Prices CPI and PCE ex. Food and Energy Percent 4 Total PCE 3 Percent 4 4 3 3 Feb.* 2 2 2 1 1 0 0 4 0 Core PCE 2000 2001 2002 2003 2004 2005 2006 2007 * Staff estimate. Feb.* 2 PCE 1 3 CPI CPI chained 2000 2001 1 2002 2003 2004 2005 2006 2007 0 * PCE for February is a staff estimate. PCE excluding Food and Energy PCE Goods and Services Percent 3 Percent 3 4 4 Feb.* 3 3 Feb.* 2 2 Services ex. energy 2 2 1 1 Feb.* 0 1 1 Market-based components -1 -2 0 2000 2001 2002 2003 2004 2005 2006 2007 0 -3 * Staff estimate. -1 Goods ex. food and energy 2000 2001 -2 2002 2003 2004 2005 2006 2007 -3 * Staff estimate. PCE excluding Food and Energy CPI excluding Food and Energy Percent 5 3-month change, annual rate 4 0 Percent 5 5 4 4 5 4 3-month change, annual rate 3 3 3 3 Feb.* Feb. 2 2 2 2 1 1 1 1 0 0 0 0 -1 -1 -1 2000 2001 2002 * Staff estimate. 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007 -1 The Domestic Financial Economy - 10 - Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total2 Level,1 Feb. 2007* 2005 H1 2006 Q3 2006 Q4 2006* Jan. 2007 Feb. 2007 10.5 11.9 9.1 3.0 5.9 10.0 7,979 Loans3 Total To businesses Commercial and industrial Commercial real estate 11.6 11.6 10.8 6.3 6.9 9.4 5,994 13.1 17.1 16.3 15.6 20.2 13.6 9.7 7.1 3.5 7.8 6.5 13.6 1,177 1,459 To households Residential real estate Revolving home equity Consumer Originated4 Other5 12.0 13.3 3.1 .7 8.6 7.7 .1 6.7 7.4 12.0 7.3 3.9 6.5 5.1 4.5 2.2 1.3 .3 4.8 14.5 5.0 4.0 12.1 10.5 9.3 5.7 -6.3 -.5 1.7 23.2 1,765 453 742 1,138 850 7.6 5.4 .0 13.5 12.7 13.3 8.3 20.0 4.4 4.0 6.1 1.7 -6.5 -4.0 -3.5 7.1 2.8 -5.2 2.3 -14.2 11.8 9.9 3.4 17.7 1,985 2,147 1,200 976 Securities Adjusted2 Reported Treasury and agency Other6 Note. Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data are adjusted to remove estimated effects of consolidation related to FIN 46 and for breaks caused by reclassifications. 1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels. 2. Adjusted to remove effects of mark-to-market accounting rules (FIN 39 and FAS 115). 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. 6. 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. * Adjusted to remove the effects of a consolidation of a sizable volume of thrift assets onto a commercial bank’s books in October 2006. C&I Loan Rate Spreads* All Banks Bank Profitability Basis points Percent 250 Percent 2.0 Quarterly 20 Quarterly, SAAR Weighted average 200 Return on equity (right scale) Q4 1.5 15 150 1.0 Q1 Adjusted weighted average** 10 Return on assets (left scale) 100 0.5 5 Q1 50 1997 1999 2001 2003 2005 2007 * Spread over banks’ estimated cost of funds. ** Adjusted for changes in nonprice loan characteristics. Source. Survey of Terms of Business Lending. 1993 1996 Source. Call Report. 1999 2002 2005 - 11 - III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004 2006 Change to Mar. 15 from selected dates (percentage points) 2007 Instrument June 28 June 29 Jan. 30 Mar. 15 2004 June 28 2006 June 29 2007 Jan. 30 1.00 5.25 5.25 5.25 4.25 .00 .00 1.36 1.74 4.88 5.06 5.00 4.98 4.91 4.91 3.55 3.17 .03 -.15 -.09 -.07 Commercial paper (A1/P1 rates)2 1-month 3-month 1.28 1.45 5.27 5.37 5.25 5.24 5.25 5.24 3.97 3.79 -.02 -.13 .00 .00 Large negotiable CDs1 3-month 6-month 1.53 1.82 5.47 5.59 5.32 5.35 5.30 5.29 3.77 3.47 -.17 -.30 -.02 -.06 Eurodollar deposits3 1-month 3-month 1.29 1.51 5.33 5.49 5.32 5.36 5.32 5.34 4.03 3.83 -.01 -.15 .00 -.02 Bank prime rate 4.00 8.25 8.25 8.25 4.25 .00 .00 Intermediate- and long-term U.S. Treasury4 2-year 5-year 10-year 2.88 3.97 4.90 5.26 5.15 5.28 4.98 4.85 4.95 4.61 4.43 4.62 1.73 .46 -.28 -.65 -.72 -.66 -.37 -.42 -.33 U.S. Treasury indexed notes 5-year 10-year 1.56 2.25 2.49 2.61 2.46 2.48 2.04 2.19 .48 -.06 -.45 -.42 -.42 -.29 Municipal general obligations (Bond Buyer)5 5.01 4.71 4.32 4.13 -.88 -.58 -.19 Private instruments 10-year swap 10-year FNMA6 10-year AA7 10-year BBB7 10-year high yield7 5.21 5.38 5.60 6.25 8.41 5.81 5.59 6.20 6.74 8.74 5.40 5.20 5.76 6.29 8.19 5.08 4.93 5.53 5.99 8.11 -.13 -.45 -.07 -.26 -.30 -.73 -.66 -.67 -.75 -.63 -.32 -.27 -.23 -.30 -.08 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.21 4.19 6.78 5.82 6.34 5.54 6.14 5.42 -.07 1.23 -.64 -.40 -.20 -.12 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high 2006 Change to Mar. 15 from selected dates (percent) 2007 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Level Date June 29 Jan. 30 Mar. 15 Record high 2006 June 29 2007 Jan. 30 12,787 1,527 5,049 829 14,797 2-20-07 3-24-00 3-10-00 2-22-07 2-20-07 11,191 1,273 2,174 714 12,846 12,523 1,429 2,449 798 14,439 12,160 1,392 2,379 784 14,112 -4.90 -8.85 -52.88 -5.53 -4.63 8.66 9.38 9.40 9.70 9.86 -2.90 -2.56 -2.86 -1.80 -2.26 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. June 29, 2006, is the day the most recent policy tightening ended. January 30, 2007, is the day before the most recent FOMC announcement. _______________________________________________________________________ The International Economy - 12 - U.S. Current Account As reported in the Balance of Payments data, released March 14, the U.S. current account deficit was $783 billion (a.r.) in the fourth quarter of 2006, $134 narrower than in the third quarter of 2006 (revised). The trade deficit narrowed by $91 billion, as goods imports decreased and goods exports increased. The decrease in goods imports was more than accounted for by a drop in imports of petroleum and petroleum products. The increase in goods exports was largely accounted for by increased exports of capital goods, particularly civilian aircraft. The surplus on services increased slightly, as the increases in services receipts, primarily from “other” private services, travel, and royalties and license fees, were greater than the increases on services payments, primarily for “other” private services. Net unilateral transfers to foreigners declined slightly, driven by decreases in private remittances and other transfers, and in U.S. Government grants. The investment income balance was positive $19 billion (a.r.) in the fourth quarter, returning to a net inflow after several negative quarters. Interest, dividend and direct investment income receipts each increased in the fourth quarter, while total income payments were unchanged, as increases in interest and dividend payments were almost exactly offset by a sharp decline in direct investment payments. U.S. Current Account (Billions of dollars, seasonally adjusted annual rate) Other Goods and Investment income Current Period services, income, and account net net transfers, balance net Annual 2005 -716.7 17.6 -92.4 -791.5 2006 -765.3 -0.8 -90.6 -856.7 Quarterly 2006:Q1 Q2 Q3 Q4 Change Q1-Q4 Q2-Q1 Q3-Q2 Q4-Q3 -766.6 -774.5 -805.6 -714.4 -3.9 -2.4 -15.5 18.6 -84.7 -93.9 -96.4 -87.4 -855.1 -870.9 -917.5 -783.2 12.4 -7.9 -31.1 91.2 -1.5 1.5 -13.1 34.1 26.4 -9.3 -2.5 9.0 37.3 -15.7 -46.7 134.3 Source: U.S. Department of Commerce, Bureau of Economic Analysis. - 13 - U.S. International Financial Transactions The financial flows associated with the current account are presented in the Summary of U.S. International Transactions table. Foreign official flows into the United States continued robustly in the fourth quarter, but net private financial inflows moderated. Strong foreign net purchases of U.S. securities were partially offset by a surge in U.S. net acquisitions of foreign securities and a decline in net direct investment inflows. The decline in net direct investment inflows is associated with a noticeable drop in direct investment inflows. Although the total value of foreign acquisitions of U.S. firms hit a five-year high in the fourth quarter, reinvested earnings fell substantially. The fall in reinvested earnings owes in part to lower earnings by direct investors in the United States (reflected in smaller direct investment payments in the current account) and a significant drop in the retention rate. With respect to other flows, foreign acquisitions of U.S. currency moved up in line with typical seasonal demand. Other inflows, which largely reflect quarterly reported banking and nonbanking positions, moved to a moderate inflow in the quarter. To balance the international transactions accounts, the statistical discrepancy measured $32 billion for the quarter, remaining positive for the fourth consecutive quarter. This positive statistical discrepancy indicates some combination of under-recorded net financial inflows or over-recorded net imports of goods and services and other transactions measured in the current account balance. - 14 - Summary of U.S. International Transactions (Billions of dollars, not seasonally adjusted except as noted) 2005 2006 Q2 77.8 2006 Q3 80.2 Q4 70.9 Dec 50.6 2007 Jan 38.8 Official financial flows 1. Change in foreign official assets in the U.S. (increase, +) a. G-10 countries + ECB b. OPEC c. All other countries 214.7 304.0 Q1 75.1 200.6 -21.3 7.5 214.5 301.6 -36.5 30.4 307.7 74.6 -8.4 12.0 71.1 78.3 -18.7 13.9 83.1 79.2 -6.0 11.4 73.7 69.5 -3.4 -6.9 79.8 50.4 -4.4 -1.9 56.8 38.8 1.3 7.5 30.0 2. Change in U.S. official reserve assets (decrease, +) 14.1 2.4 .5 -.6 1.0 1.4 .2 .0 570.7 415.2 96.1 75.8 149.5 93.7 ... ... 15.4 103.1 .9 58.3 39.3 4.5 -28.7 -22.7 611.3 178.1 66.9 274.3 92.0 707.7 39.0 103.7 416.7 148.3 198.2 -2.5 39.6 97.1 63.9 176.2 19.3 33.0 104.0 19.9 156.5 -7.4 28.1 99.9 35.9 176.7 29.5 3.0 115.7 28.6 9.4 -2.1 -4.0 26.7 -11.1 73.3 9.8 8.8 33.7 21.1 5. U.S. net acquisitions (-) of foreign securities a. Bonds b. Stock purchases c. Stock swaps 3 -197.0 -53.1 -139.9 -4.0 -286.1 -150.3 -118.9 -16.8 -57.5 -14.7 -38.8 -4.0 -57.9 -34.7 -20.8 -2.4 -52.6 -43.5 -9.2 .0 -118.0 -57.4 -50.2 -10.4 -50.2 -30.3 -20.0 .0 -19.3 -5.5 -13.8 .0 Other flows (quarterly data, s.a.) 6. U.S. direct investment (-) abroad 7. Foreign direct investment in the U.S. 8. Foreign acquisitions of U.S. currency 9. Other (inflow, +) 4 -9.1 109.8 19.4 20.9 -248.9 183.6 12.6 -56.9 -61.9 45.7 1.9 -31.2 -47.4 46.8 1.1 -101.3 -65.4 61.6 1.1 8.9 -74.2 29.4 8.4 66.7 ... ... ... ... ... ... ... ... -791.5 -4.4 10.4 -856.7 -3.9 141.4 -213.8 -1.8 44.3 -217.7 -1.0 65.1 -229.4 -.6 .2 -195.8 -.6 31.8 ... ... ... ... ... ... Private financial flows Banks 3. Change in net foreign positions of banking offices in the U.S. 1 Securities 2 4. Foreign net purchases (+) of U.S. securities a. Treasury securities b. Agency bonds c. Corporate and municipal bonds d. Corporate stocks 3 U.S. current account balance (s.a.) Capital account balance (s.a.) 5 Statistical discrepancy (s.a.) 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 (2007, March 20). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20070321_part3

@misc{wtfs_greenbook_20070321_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2007},
  month = {Mar},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20070321_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}