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 September 14, 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 Retail Sales and Consumer Sentiment .............................................1 Industrial Production........................................................................1 Business Inventories ........................................................................8 Federal Government.........................................................................8 Tables Retail and Food Service Sales..........................................................2 Reuters/University of Michigan Survey of Consumers ...................3 Selected Components of Industrial Production................................5 Capacity Utilization .........................................................................5 Nonfarm Inventory Investment........................................................9 Charts Indicators of Industrial Activity.......................................................6 Indicators of High-Tech Manufacturing Activity ............................7 Federal Government Budget ..........................................................10 The Domestic Financial Economy ...........................................................8 Tables Commercial Bank Credit ...............................................................11 Selected Financial Market Quotations ...........................................12 The International Economy ...................................................................13 Prices of Internationally Traded Goods .........................................13 U.S. Current Account ....................................................................16 U.S. International Transactions .....................................................16 Tables Prices of U.S. Imports and Exports................................................15 Summary of U.S. International Transactions.................................18 Charts Prices of U.S. Imports and Exports................................................14 ii Supplemental Notes The Domestic Nonfinancial Economy Retail Sales and Consumer Sentiment Total nominal retail sales rose 0.3 percent in August; sales in the retail control group of stores fell 0.3 percent in August after posting a robust gain of 0.7 percent in July that was larger than previously estimated. A drop in gasoline prices contributed to the decline in nominal retail control spending in August. In addition, sales fell back at nonstore retailers and were little changed at clothing outlets and at food and food services establishments. Among outlets excluded from the retail control category, sales at building material and supply stores fell, but sales at motor vehicles and parts dealers perked up in August. The Reuters/University of Michigan index of consumer sentiment in early September remained close to the low level reached in August. This month’s preliminary figure reflected a small increase in the “expected conditions” component of the overall index and essentially no change in the “current conditions” component. Among those items not included in the overall sentiment index, consumers’ expectations about the change in unemployment over the next twelve months improved slightly in early September. Households’ appraisals of buying conditions for cars strengthened but their views on buying conditions for houses remained low. Inflation expectations were little changed: The median of expected inflation over the next twelve months edged down to 3.1 percent in September, and the median of expected inflation over the next five to ten years ticked up to 3.0 percent. Industrial Production Total industrial production (IP) rose 0.2 percent in August, after averaging gains of 0.5 percent in June and July. A surge in electricity generation last month, as temperatures swung from a mild July to a very warm August, boosted the output of electric utilities and contributed about 0.5 percentage point to the rate of change in total IP last month. Following large gains in both June and July, manufacturing output decreased 0.3 percent in August; the annualized rate of change for the most recent three months was nearly 5 percent. Mining output fell 0.6 percent because of decreases in the extraction of crude oil and natural gas. The utilization rate for total industry was unchanged in August, at 82.2 percent. The factory operating rate decreased 0.3 percent, to 80.7 percent, a rate that is about 1 percentage point above its 1972-2006 average but 0.4 percentage point below its recent -1- Retail and Food Services Sales (Percent change from preceding period; seasonally adjusted current dollars) Category Q1 Q2 Annual rate Total sales Retail control1 Ex. sales at gasoline stations Memo: Real PCE control2 2007 May June July Monthly rate Aug. 6.3 7.7 5.5 5.4 8.0 5.4 1.6 1.4 1.0 -.8 .0 .3 .5 .7 .8 .3 -.3 .1 4.0 .3 .6 -.1 .6 .0 1. Total sales less outlays at building material and supply stores and automobile and other motor vehicle dealers. 2. Total goods spending excluding autos and trucks. The values for June, July, and Q2 are staff estimates. The value for August is a staff forecast. Change in Real PCE Goods Change in Real PCE Services Percent 2.0 2.0 6-month 1.5 0.8 1.5 1.0 0.8 6-month 0.6 0.6 0.4 0.4 1.0 0.5 0.5 0.2 0.0 0.0 -0.0 -0.5 -0.5 -0.2 Aug. -1.0 July 0.2 -0.0 -0.2 1-month -0.4 -0.4 -1.0 -1.5 -2.0 Percent 1.0 1.0 1-month 2004 2005 2006 2007 -0.6 -0.6 -1.5 -0.8 -0.8 -2.0 -1.0 2004 2005 2006 2007 -1.0 Personal Saving Rate 6 Percent 6 4 4 2 2 July 0 0 -2 -2 -4 -4 -6 1996 1997 1998 1999 2000 2001 2002 -2- 2003 2004 2005 2006 2007 -6 September 14, 2007 Reuters/University of Michigan Survey of Consumers Indexes of consumer sentiment (Not seasonally adjusted) 2007 Category Composite of current and expected conditions1 Current conditions1 Expected conditions1 Feb. Mar. Apr. May June July Aug. Sept.P 91.3 106.7 81.5 88.4 87.1 103.5 104.6 78.7 75.9 88.3 105.1 77.6 85.3 101.9 74.7 90.4 104.5 81.5 83.4 98.4 73.7 83.8 98.3 74.4 Personal financial situation Now compared with 12 months ago2 Expected in 12 months2 119 122 111 126 119 127 113 125 110 117 115 125 103 120 105 118 Expected business conditions Next 12 months2 Next 5 years2 106 98 95 94 87 90 97 89 94 88 105 96 87 88 85 95 Appraisal of buying conditions Cars Large household appliances2 Houses 133 158 133 138 157 137 132 152 138 124 160 135 118 154 131 125 156 129 133 152 118 144 150 120 Expected unemployment change - next 12 months 125 123 129 120 125 123 131 129 Prob. household will lose a job - next 5 years 19 22 18 19 23 21 24 21 Expected inflation - next 12 months Mean Median 3.6 3.0 3.6 3.0 4.0 3.3 4.3 3.3 4.2 3.4 4.2 3.4 4.0 3.2 4.0 3.1 Expected inflation - next 5 to 10 years Mean Median 3.3 2.9 3.3 2.9 3.6 3.1 3.7 3.1 3.3 2.9 3.6 3.1 3.4 2.9 3.5 3.0 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. Expected inflation Consumer sentiment 1985 = 100 180 1966 = 100 130 160 Percent 5 5 120 4 Reuters/Michigan (right scale) 140 120 Aug. Sep.P 80 Sep.P 3 100 100 4 Median, 5 to 10 years ahead 110 90 2 2 80 Median, 12 months ahead 1 60 40 2002 2004 1 70 Conference Board (left scale) 2000 3 2006 2008 60 0 P Preliminary. 2000 2002 P Preliminary. -3- 2004 2006 2008 0 peak registered in August of last year. By stage of processing, utilization rates moved down in both the crude and the finished stages, while utilization in the primary and semifinished stage rose. The utilization rate for the crude stage—which includes oil and gas extraction—was 89.6 percent in August, and the July reading of 89.9 was the highest level since early 1998. Utilization rates for the other stages of processing were about 1 percentage point above their long-run averages. Light motor vehicle assemblies declined more than 400,000 units (annual rate) in August, to 10.7 million units. The decrease in assemblies and the associated pullback in the production of motor vehicle parts subtracted more than 0.1 percentage point from the change in total IP. Current assembly schedules suggest that about one-half of the August decline will be made up in September. Medium and heavy truck assemblies fell in August to their lowest level in more than four years, and the IP index for medium and heavy trucks was nearly 60 percent below its recent peak in July 2006. High-tech output rose a relatively modest 0.8 percent in August, but production gains in June and July were revised up considerably, and the annualized rate of increase in the most recent three months was a very solid 30 percent. Although semiconductors decelerated in August, production had surged in the preceding two months, with gains widespread across chip types. Downstream from semiconductors, the production of computers and peripherals rose tepidly in August, which continued a series of modest gains that followed robust increases in PC output in the first part of the year; the earlier strength resulted from consumer PC sales spurred by the release of Microsoft Vista. Conversely, communications equipment production has averaged increases of 1½ percent in the last three months, after a weak second quarter. Excluding energy, motor vehicles and parts, and high-tech products, IP declined 0.2 percent in August. Among final products, both durable consumer goods and nondurable consumer goods fell 0.3 percent; production of durables was restrained by decreases in furniture and carpeting while declines among nondurables were widespread. Business equipment also declined 0.3 percent, as an increase in civilian aircraft was more than offset by broadly based decreases in industrial and other equipment, where output had popped up in July. Both construction supplies and business supplies were little changed in August for a second consecutive month. Within construction supplies, continued increases in products associated with nonresidential construction offset declines in supplies more likely used in residential construction. Materials output was also flat in August, after a sizable increase -4- Selected Components of Industrial Production (Percent change from preceding comparable period) Proportion 2006 Component 2007 20061 (percent) Q1 2007 Q2 June Annual rate Total Previous July Aug. Monthly rate 100.0 100.0 3.5 3.5 1.1 1.1 3.5 3.3 .6 .6 .5 .3 .2 ... 81.9 76.3 71.5 3.4 3.9 2.5 .8 1.4 .9 4.4 3.8 3.0 .7 .6 .4 .7 .7 .6 -.3 -.1 -.2 8.6 9.6 8.0 .3 -4.8 8.7 -.1 -.8 .4 -.6 .8 -1.7 -.6 5.3 20.5 4.0 4.8 -1.4 -.1 -.3 2.3 High technology Computers Communications equipment Semiconductors2 4.8 1.2 1.1 2.6 24.6 12.1 14.8 34.8 9.2 32.8 27.7 -6.9 16.5 39.4 8.3 9.4 2.5 1.0 1.5 3.9 3.3 .3 .8 6.3 .8 .6 2.1 .3 Motor vehicles and parts 5.5 -3.8 -7.5 13.4 2.6 .7 -2.6 69.1 20.9 4.0 16.9 2.4 1.8 -1.9 2.7 .1 1.0 -3.6 2.1 3.4 2.1 4.2 1.6 .4 .6 1.0 .4 .5 .3 .3 .3 -.2 -.3 -.3 -.3 Business equipment Defense and space equipment 7.8 1.7 10.2 2.0 -3.3 -2.2 4.3 -2.4 .5 1.7 1.3 .6 -.3 -.7 Construction supplies Business supplies 4.5 7.9 -2.2 1.0 -3.0 .0 5.7 1.3 1.1 .3 .0 .1 .0 .0 26.1 14.5 11.6 2.3 2.0 2.6 1.1 1.3 1.0 4.7 6.3 2.6 .2 .2 .1 .7 1.0 .3 .0 .0 -.1 Manufacturing Ex. motor veh. and parts Ex. high-tech industries Mining Utilities Selected industries Energy Total ex. selected industries Consumer goods Durables Nondurables 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 2006 Q4 Q1 Q2 July Aug. Total industry 81.0 85.1 73.6 81.5 81.3 81.7 82.2 82.2 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 80.1 80.5 91.3 85.0 79.8 80.3 90.0 86.4 80.3 80.6 89.9 85.9 81.0 81.2 90.8 83.6 80.7 80.9 90.2 87.9 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 89.1 82.3 78.2 88.7 82.2 78.0 89.2 82.3 78.6 89.9 82.5 79.2 89.6 83.1 78.8 Sector -5- 2007 Indicators of Industrial Activity Weekly Production Index excluding Motor Vehicles and Electricity Generation Utilities Output 2002 = 100 Index Monthly aggregate of weekly index Weekly index 10.5 116 10.0 112 9.5 Aug. Electricity 108 104 104 100 8.5 96 100 Aug. 92 7.0 96 92 88 7.5 112 108 9.0 8.0 116 88 Natural gas 84 84 80 80 76 Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July 2005 2006 2007 Note. One index point equals 1 percent of 2002 total industrial output. 2002 2003 2004 2005 2006 76 2007 Motor Vehicle Assemblies Manufacturing Capacity Utilization Millions of units Millions of units Percent Aug. 85 0.7 82 0.6 14 Autos and light trucks (right scale) 13 0.5 79 12 0.4 76 73 1998 2000 2002 2004 2006 2008 0.1 Note. Horizontal line is 1972-2006 average. + Percent 2002 2003 2004 2005 2006 2007 Note. September values are based on latest industry schedules. Percent Percent 23 30 4 22 29 3 28 2 July 21 Imports / domestic absorption (right) 27 19 26 18 25 17 24 16 14 Exports / shipments (left) 2001 2002 2003 9 Diffusion index 90 ISM (right scale) 2004 2005 2006 2007 80 70 1 Aug. July 0 15 10 New Orders: ISM Survey and Change in Real Adjusted Durable Goods Orders (RADGO) Trade Shares 20 Sept. Medium and heavy trucks (left scale) 0.2 70 11 + 0.3 -1 23 -2 22 -3 21 -4 60 50 40 30 RADGO (left scale) -6- 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 Indicators of High-Tech Manufacturing Activity Enterprise Spending on Voice and Data Networking Equipment IP: Communications Equipment 2002 = 100, ratio scale Millions of dollars 13 200 Q2 180 Aug. 12 160 140 11 120 10 100 9 2003 2004 2005 Source. Synergy Research Group. 2006 2007 8 2000 1.0 0.9 2002 2003 2004 2006 80 2007 2002 = 100, ratio scale Millions of units, ratio scale 17 Q2 16 Q3 0.8 2005 IP: Business and Consumer Computers U.S. Personal Computer and Server Sales Millions of units, ratio scale 2001 Aug. 240 15 Consumer 14 0.7 190 140 13 PCs (right scale) 12 0.6 340 290 Business 90 11 0.5 Servers (left scale) 0.4 10 2001 2002 2003 2004 2005 2006 2007 Note. FRB seasonals. Q3 value for PCs is Gartner’s forecast. Source. Gartner. 9 2001 2002 2003 2004 2005 2006 2007 Note. Excludes computer storage and peripherals. Bookings and Billings for Semiconductor Equipment MPU Shipments and Intel Revenue Billions of dollars, ratio scale Billions of dollars 1.8 11 10 1.8 1.6 Q3 1.6 July 9 Intel revenue 40 Q2 1.4 1.4 8 1.2 Bookings 1.2 7 1.0 Billings 1.0 6 0.8 0.8 Worldwide MPU shipments 2000 2001 2002 2003 2004 2005 2006 2007 Note. FRB seasonals. Q3 Intel revenue is the range of the company’s guidance as of September 10, 2007. Source. Intel and Semiconductor Industry Association. 5 0.6 -7- 2002 2003 2004 2005 2006 2007 Note. FRB seasonals. Source. Semiconductor Equipment and Materials International. 0.6 in July, with both durable and nondurable materials little changed from their monthearlier levels. Business Inventories The book value of retail inventories, excluding motor vehicles and parts, rose at a modest rate for a second month in July. Combined with the inventory figures for manufacturing and wholesale trade, book-value inventories in the entire manufacturing and trade sector, excluding motor vehicles and parts, rose at an annual rate of $38 billion in July; this pace of inventory investment represents a sizable step-down from the second-quarter accumulation. The book-value inventory-sales ratio in this category edged down to 1.20 in July. Federal Government According to the Monthly Treasury Statement, the federal government recorded a deficit (adjusted for routine payment timing shifts and financial transactions) in August of $70 billion—a little wider than in the same month last year and consistent with the staff’s expectation. Although the deficit has leveled off over the past four months, the adjusted deficit for the twelve months ending in August was $185 billion, about $85 billion less than its level in the year-earlier period. Receipts in August were 4 percent above their level a year earlier and continued to decelerate from the brisk pace seen in recent years. Individual income and payroll tax revenues, which made up the bulk of receipts in August, were 6½ percent above their year-earlier level. In contrast, the small amount of corporate tax payments typically made in August was lower than its level a year earlier. Outlays in August were up 5 percent from their year-earlier level, consistent with the slower pace of spending over the past year. Defense spending in August was 2½ percent above its year-earlier level and was in line with the staff’s expectation. The Domestic Financial Economy -8- Nonfarm Inventory Investment (Billions of dollars; seasonally adjusted annual rate) 2006 Measure and sector 2007 Q4 Q1 Q2 May June July 13.6 -16.8 30.4 -5.8e -14.7 8.9 -1.4 -10.2 8.9e n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts 14.8 -1.8 5.3 11.3 1.1 -5.0 4.3 1.8 11.2 -3.9 6.4 8.7 14.8 -3.8 -.8 19.3 1.1 e -7.5 e 1.9 6.6 n.a. n.a. n.a. n.a. Book-value inventory investment (current dollars) Manufacturing and trade ex. wholesale and retail motor vehicles and parts Manufacturing Wholesale trade ex. motor vehicles & parts Retail trade ex. motor vehicles & parts 39.4 7.3 17.5 14.6 33.9 4.8 22.0 7.2 60.7 21.6 20.6 18.4 69.6 24.7 16.6 28.3 35.2 13.7 10.3 11.2 Real inventory investment (chained 2000 dollars) Total nonfarm business Motor vehicles Nonfarm ex. motor vehicles 38.1 10.0 19.3 8.7 e Staff estimate of real inventory investment based on revised book-value data. n.a. Not available. Source. For real inventory investment, BEA; for book-value data, Census Bureau. ISM Customer Inventories: Manufacturing Inventory Ratios ex. Motor Vehicles Months 1.9 1.9 1.8 Index 60 60 55 55 1.8 Staff flow-of-goods system 1.7 1.7 1.6 Aug. 1.6 50 50 Aug. 1.5 1.5 1.4 1.4 1.3 1.3 45 45 40 40 Census book-value data 1.2 1.1 July 2000 2000 2002 2002 2004 2004 2006 2006 2008 2008 1.2 1.1 35 Note. Flow-of-goods system covers total industry ex. motor vehicles and parts, and inventories are relative to consumption. Census data cover manufacturing and trade ex. motor vehicles and parts, and inventories are relative to sales. 2000 2000 2002 2002 2004 2004 2006 2006 2008 2008 35 Note. A number above 50 indicates inventories are "too high." -9- Federal Government Budget (Unified basis; adjusted for payment-timing shifts and financial transactions; data from Monthly Treasury Statement) Surplus or Deficit (-) Billions of dollars 300 300 12-month moving sum 200 200 100 100 0 0 -100 -100 Aug. -200 -200 -300 -300 -400 -400 -500 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Outlays and Receipts 2005 2006 2007 -500 2008 Percent change from year earlier 20 20 12-month moving sum 15 15 Outlays 10 10 Aug. 5 5 0 0 -5 -5 Receipts -10 -15 -10 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -15 2008 Recent Federal Outlays and Receipts (Billions of dollars except as noted) August 12 months ending in August 2006 2007 Percent change Outlays Net interest National defense Major transfers1 Other 225.1 21.2 47.6 115.3 34.3 236.2 22.8 48.8 126.0 39.8 4.9 7.6 2.5 9.3 16.0 2,651.6 222.6 524.6 1,416.9 450.4 2,750.4 238.0 557.8 1,510.2 425.7 3.7 6.9 6.3 6.6 -5.5 Receipts Individual income and payroll taxes Corporate Other 159.9 132.4 6.8 20.6 166.5 141.1 4.3 21.1 4.2 6.6 -36.3 2.2 2,381.0 1,821.3 338.6 221.1 2,565.6 1,975.6 379.4 210.7 7.8 8.5 12.1 -4.7 Surplus or deficit (-) -65.2 -69.6 ... -270.6 -184.8 ... Function or source 1. Includes Social Security, Medicare, Medicaid, and income security programs. ... Not applicable. -10- 2006 2007 Percent change Commercial Bank Credit (Percent change, annual rate, except as noted; seasonally adjusted) Type of credit Total Level1 Aug. 2007e 2005 2006 Q1 2007 Q2 2007 July 2007 Aug. 2007e 10.5 9.5 8.9 9.4 9.7 16.3 8,451 Loans2 Total To businesses Commercial and industrial Commercial real estate 11.6 10.7 9.7 9.4 9.5 19.0 6,350 13.5 17.0 16.4 13.6 7.9 10.3 11.0 11.5 18.8 2.2 31.8 8.1 1,288 1,530 To households Residential real estate Revolving home equity Other Consumer Originated3 Other4 11.9 13.3 11.4 3.1 .7 8.3 7.2 1.5 9.4 5.2 6.4 11.1 9.5 3.5 11.7 7.5 8.0 13.2 6.4 .1 8.6 5.2 2.2 13.3 5.1 5.8 4.9 12.0 15.6 16.2 1.1 9.2 -1.6 4.1 9.1 70.5 1,838 462 1,375 770 1,161 925 7.5 2.4 17.5 5.9 1.2 13.7 6.6 2.1 13.3 9.4 -6.8 33.3 10.1 8.5 12.1 8.2 -1.4 20.7 2,101 1,186 915 Securities Total Treasury and agency Other5 Note. Yearly annual rates are Q4 to Q4; quarterly and monthly annual rates use corresponding average levels. Data have been adjusted to remove the effects of mark-to-market accounting rules (FIN 39 and FAS 115), the consolidation of certain variable interest entities (FIN 46), the adoption of fair value accounting (FAS 159), and the effects of sizable thrift-to-bank and bank-to-thrift structure activity in October 2006 and March 2007 respectively. Data also account for breaks caused by reclassifications. 1. Billions of dollars. Pro rata averages of weekly (Wednesday) levels. 2. Excludes interbank loans. 3. Includes an estimate of outstanding loans securitized by commercial banks. 4. Includes security loans and loans to farmers, state and local governments, and all others not elsewhere classified. Also includes lease financing receivables. 5. 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. e Estimated. -11- III-T-1 Selected Financial Market Quotations (One-day quotes in percent except as noted) 2004 2006 Change to Sept. 13 from selected dates (percentage points) 2007 Instrument June 28 June 29 Aug. 6 Sept. 13 2004 June 28 2006 June 29 2007 Aug. 6 1.00 5.25 5.25 5.25 4.25 .00 .00 1.36 1.74 4.88 5.06 4.74 4.72 3.97 4.11 2.61 2.37 -.91 -.95 -.77 -.61 Commercial paper (A1/P1 rates)2 1-month 3-month 1.28 1.45 5.27 5.37 5.26 5.29 5.24 5.38 3.96 3.93 -.03 .01 -.02 .09 Large negotiable CDs1 3-month 6-month 1.53 1.82 5.47 5.59 5.34 5.27 5.68 5.50 4.15 3.68 .21 -.09 .34 .23 Eurodollar deposits3 1-month 3-month 1.29 1.51 5.33 5.49 5.33 5.35 5.76 5.75 4.47 4.24 .43 .26 .43 .40 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 4.49 4.52 4.82 4.13 4.19 4.59 1.25 .22 -.31 -1.13 -.96 -.69 -.36 -.33 -.23 U.S. Treasury indexed notes5 5-year 10-year 1.60 2.26 2.51 2.61 2.43 2.48 2.06 2.19 .46 -.07 -.45 -.42 -.37 -.29 Municipal general obligations (Bond Buyer)6 5.01 4.71 4.51 4.46 -.55 -.25 -.05 Private instruments 10-year swap 10-year FNMA7 10-year AA8 10-year BBB8 10-year high yield8 5.21 5.38 5.60 6.25 8.41 5.81 5.59 6.20 6.74 8.74 5.44 5.34 6.12 6.57 9.21 5.13 5.04 6.09 6.47 8.98 -.08 -.34 .49 .22 .57 -.68 -.55 -.11 -.27 .24 -.31 -.30 -.03 -.10 -.23 Home mortgages (FHLMC survey rate) 30-year fixed 1-year adjustable 6.21 4.19 6.78 5.82 6.59 5.65 6.31 5.66 .10 1.47 -.47 -.16 -.28 .01 Short-term FOMC intended federal funds rate Treasury bills1 3-month 6-month Record high 2006 Change to Sept. 13 from selected dates (percent) 2007 Stock exchange index Dow Jones Industrial S&P 500 Composite Nasdaq Russell 2000 Wilshire 5000 Level Date June 29 Aug. 6 Sept. 13 Record high 2006 June 29 2007 Aug. 6 14,000 1,553 5,049 856 15,701 7-19-07 7-19-07 3-10-00 7-13-07 7-13-07 11,191 1,273 2,174 714 12,846 13,469 1,468 2,547 766 14,723 13,425 1,484 2,601 780 14,909 -4.11 -4.45 -48.48 -8.81 -5.04 19.96 16.58 19.62 9.24 16.06 -.33 1.11 2.11 1.82 1.26 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. Derived from a smoothed Treasury yield curve estimated using all outstanding securities and adjusted for the carry effect. 6. Most recent Thursday quote. 7. Constant-maturity yields estimated from Fannie Mae domestic noncallable coupon securities. 8. 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. August 6, 2007, is the day before the most recent FOMC announcement. -12- _______________________________________________________________________ Supplemental Notes The International Economy Prices of Internationally Trade Goods Non-oil imports. In August, prices of U.S. imports of core goods rose 0.2 percent, the same rate recorded in July. Higher prices for material-intensive goods led the way. Prices for imported foods jumped, albeit not as much as in July, and a decline in prices for building materials offset increases in other categories of nonfuel industrial supplies. Prices for imported finished goods rose 0.2 percent for the second straight month, with prices for all of the major categories of finished goods rising by approximately the same amount. Prices for imported computers and semiconductors were both up for the month, while prices for imported natural gas plunged. The average level of core import prices in July and August was 3 percent at an annual rate above the second-quarter average. Prices for material-intensive goods were up 5½ percent, lifted by higher prices for foods, whereas prices for finished goods increased 2 percent. Prices for semiconductors were up after a steep second-quarter decline, and prices for imported natural gas fell more than 40 percent at an annual rate from the second-quarter average. Oil. The BLS price index of imported oil fell 1¼ percent in August, following a 6½ percent increase in July. The spot price of West Texas Intermediate (WTI) crude oil closed at a new record nominal high of $80.09 per barrel on September 13. In recent days, the spot price of WTI has moved higher on reports of a third straight week of larger-than-expected U.S. inventory draws, a pipeline bombing in Mexico, and Hurricane activity that materialized late in the week and led to disruptions in Gulf refining activity. Exports. Prices of U.S. exports of core goods rose 0.2 percent in August; prices for July were revised down significantly and are now reported to have fallen slightly. Prices for agricultural exports jumped for the third consecutive month, although prices for exported grains, which had been surging in recent months, fell. Meat prices continued to soar. Prices for nonagricultural industrial supplies inched up after a steep decline in July; prices for exported metals fell, but this was largely offset by higher prices for chemical exports. Prices for exported finished goods decelerated in August and rose only slightly. Prices for exported computers and semiconductors moved down slightly. The average level of core export prices in July and August was 2 percent at an annual rate above the second-quarter average. Prices for agricultural products were up more than -13- Prices of U.S. Imports and Exports Merchandise Imports Categories of Core Imports 12-month percent change 12-month percent change 8 6 Core goods 15 Material-intensive goods 4 2 Non-oil goods 2000 2002 2004 2006 20 10 Finished goods 5 0 0 -2 -5 -4 -10 -6 2000 Oil 2002 2004 2006 -15 Natural Gas Dollars per barrel 85 75 300 2000=100 Import price index (left scale) 250 65 55 45 Spot WTI 35 15 2002 2004 30 25 200 20 150 15 100 10 25 Import unit value 2000 Dollars per million BTU 2006 5 50 0 Merchandise Exports Spot Henry Hub (right scale) 2000 2002 2004 2006 5 0 Categories of Core Exports 12-month percent change 12-month percent change 8 6 15 Material-intensive goods 4 Core goods 20 2 10 Finished goods 5 0 0 -2 -5 -4 -10 Total goods 2000 2002 2004 2006 -6 2000 -14- 2002 2004 2006 -15 Prices of U.S. Imports and Exports (Percentage change from previous period) Annual rate 2007 Q1 Q2 Q3e Merchandise imports Oil Non-oil Core goods1 Monthly rate 2007 June July Aug. ----------------------- BLS prices --------------------1.8 15.1 9.2 1.1 1.3 -.3 -3.2 88.6 45.9 4.7 6.4 -1.3 2.6 3.8 1.7 .3 .1 -.1 3.4 4.6 3.0 .3 .2 .2 Finished goods Cap. goods ex. comp. & semi. Automotive products Consumer goods 1.8 3.1 .3 1.9 1.4 3.0 .9 .4 1.9 3.3 1.2 1.5 .2 .4 .1 .1 .2 .4 .1 .2 .2 .2 .2 .2 Material-intensive goods Foods, feeds, beverages Industrial supplies ex. fuels 6.4 9.8 3.8 12.3 8.4 12.2 5.6 8.7 n.a .5 .3 -.1 .3 1.3 .4 .4 .7 n.a -9.5 -6.8 33.6 -7.7 -16.2 13.0 -.8 2.8 -44.5 -.5 .5 -.6 .2 .1 -7.9 .2 .4 -12.9 7.2 6.1 1.5 .4 -.1 .2 9.3 7.3 1.9 .4 -.0 .2 3.6 4.4 1.7 3.4 2.4 2.6 .9 3.2 1.9 2.3 .8 2.0 .1 .1 .1 .1 .3 .4 .1 .3 .1 .2 .1 .1 17.0 27.8 14.1 13.7 6.9 16.4 1.8 15.7 -1.6 .8 2.7 .4 -.4 1.4 -1.0 .3 1.0 .1 -12.8 -.8 -10.8 4.0 -3.4 .1 -.1 .1 -.7 .0 -.1 -.1 Computers Semiconductors Natural gas Merchandise exports Core goods2 Finished goods Cap. goods ex. comp. & semi. Automotive products Consumer goods Material-intensive goods Agricultural products Industrial supples ex. ag. Computers Semiconductors --------------------- NIPA prices --------------------Chain price index Imports of goods & services Non-oil merchandise Core goods1 1.0 2.1 2.7 11.8 2.5 3.4 n.a n.a n.a ... ... ... ... ... ... ... ... ... Exports of goods & services Total merchandise Core goods2 3.6 3.5 6.0 5.2 4.8 7.1 n.a n.a n.a ... ... ... ... ... ... ... ... ... 1. Excludes computers, semiconductors, and natural gas. 2. Excludes computers and semiconductors. e/ Average of two months. n.a. Not available. ... Not applicable. -15- 15 percent over the second-quarter average, while prices for nonagricultural industrial supplies were down, and the rate of deflation for computer export prices slowed. U.S. Current Account The U.S. current account deficit was $763 billion (a.r.) in the second quarter of 2007, $25 billion narrower than in the first quarter (revised). About $18 billion of the narrowing was due to decreased net unilateral transfers to foreigners, primarily those associated with military and other U.S. Government grants. The remaining $8 billion of the narrowing was the result of increased net investment income. There were increases in all categories of income payments and receipts, including interest, dividend, and direct investment income, but receipts moved up more than payments. On net there was little movement in the trade balance on goods and services. While the surplus on services increased, this was offset by an increase in the deficit on goods. U.S. Current Account (Billions of dollars, seasonally adjusted annual rate) Goods and Investment Other Current Period services, income, income and account net net transfers, net balance Annual 2005 -714.4 54.5 -94.9 -754.8 2006 -758.5 43.2 -96.1 -811.5 Quarterly 2006:Q3 Q4 2007:Q1 Q2 Change Q3-Q2 Q4-Q3 Q1-Q4 Q2-Q1 -797.2 -707.7 -710.3 -710.8 30.0 45.3 36.2 44.2 -102.1 -89.4 -114.3 -96.6 -869.3 -751.8 -788.4 -763.2 -26.9 89.5 -2.6 -0.4 -19.2 15.3 -9.1 7.9 -0.8 12.7 -24.9 17.8 -47.0 117.6 -36.6 25.2 Source: U.S. Department of Commerce, Bureau of Economic Analysis. U.S. International Financial Transactions The second-quarter balance of payments data include preliminary estimates for direct investment flows and the BEA’s figures for foreign securities transactions. The new data report inflows through foreign acquisitions of U.S. securities to be $229 billion in the second quarter (line 4 of the Summary of U.S. International Transactions Table), compared with $206 billion estimated in the Greenbook. The difference reflects -16- adjustment factors applied by BEA that differ from their usual methodology. The largest adjustment is to agency bonds (line 4b), with net purchases of nearly $29 billion, up $14 billion from the Greenbook estimate. There are also upward adjustments to Treasury securities (line 4a), corporate bonds (line 4c), and corporate stocks (line 4d). Preliminary data for U.S. direct investment abroad (line 6) indicate a slight decline in net outflows to $72 billion in the second quarter. Inter-company debt investment and net equity capital investment abroad slowed, but were partially offset by a pickup in reinvested earnings. Direct investment into the United States (line 7) surged in the second quarter to $74 billion. The increase was mostly accounted for by a shift from a decrease to an increase in net inter-company debt investment in the United States and a pickup in net equity capital investment in the United States. Reinvested earnings also increased. The statistical discrepancy (the last line of the table) in the second quarter is positive $40 billion, indicating some combination of over-reporting of the current account deficit or under-reporting of net financial inflows. -17- Summary of U.S. International Transactions (Billions of dollars, not seasonally adjusted except as noted) 2005 272.0 443.6 2006 Q3 Q4 109.6 85.9 257.9 12.8 14.0 231.1 441.2 21.4 45.2 374.6 108.6 6.6 13.1 88.9 84.5 10.0 -6.8 81.2 149.9 9.1 12.0 124.8 71.7 6.2 0.4 69.1 33.7 1.6 -1.4 33.5 45.7 6.7 -0.4 39.4 14.1 2.4 1.0 1.4 -0.1 0.0 -0.2 -0.1 505.3 389.6 145.4 139.3 32.2 79.2 ... ... 15.4 136.1 60.8 29.6 -23.7 6.8 -44.4 67.4 573.9 133.7 37.0 311.2 92.0 533.3 -35.1 17.1 402.5 148.8 117.6 -15.9 0.3 97.3 35.9 149.4 22.5 -11.6 109.6 28.8 159.7 45.5 -35.9 105.6 44.4 229.2 -8.7 29.0 103.5 105.4 62.9 8.2 11.2 16.3 27.2 -1.9 1.6 -11.7 -10.2 18.4 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 -290.4 -152.5 -119.1 -18.8 -52.9 -44.8 -8.0 0.0 -118.4 -53.8 -52.2 -12.4 -86.7 -42.9 -39.6 -4.2 -81.9 -41.1 -40.8 0.0 -23.5 -8.9 -14.6 0.0 -7.2 0.2 -7.5 0.0 Other flows (quarterly data, s.a.) 6. U.S. direct investment (-) abroad 7. Foreign direct investment in the U.S. 8. Net derivatives (inflow, +) 9. Foreign acquisitions of U.S. currency 10. Other (inflow, +) 4 7.7 109.0 n.a. 19.0 -22.6 -235.4 180.6 28.8 12.6 24.0 -49.0 43.0 15.1 1.1 9.6 -66.1 45.6 -1.2 8.4 92.0 -81.4 11.9 14.8 -1.6 39.2 -71.5 73.6 n.a. 3.3 -80.4 ... ... ... ... ... ... ... ... ... ... -754.8 -4.1 -18.5 -811.5 -3.9 -17.8 -217.3 -0.5 -37.1 -187.9 -0.6 -36.6 -197.1 -0.6 15.7 -190.8 -0.6 40.4 ... ... ... ... ... ... 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 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 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.) 2006 Q1 149.8 2007 Q2 Jun 71.7 33.6 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. -18- Jul 45.6 

Federal Reserve (2007, September 17). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_20070918_part3

@misc{wtfs_greenbook_20070918_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {2007},
  month = {Sep},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_20070918_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}