, Research Paper
ECONOMIC AND FINANCIAL DEVELOPMENTS IN 2000
The enlargement of U.S. economic activity maintained considerable impulse through the early months of 2000 despite the firming in recognition markets that has occurred over the past twelvemonth. Merely late has the gait of existent activity shown marks of holding moderated from the highly rapid rate of addition that prevailed during the 2nd half of 1999 and the first one-fourth of 2000. Real GDP increased at an one-year rate of 5-1/2 per centum in the first one-fourth of 2000. Private domestic concluding gross revenues, which had accelerated in the 2nd half of 1999, were peculiarly robust, lifting at an one-year rate of about 10 per centum in the first one-fourth. Underliing that rush in domestic disbursement were many of the same factors that had contributed to the con-siderable strength of spendings in the 2nd half of 1999. The on-going influence of significant additions in existent income and wealth continued to fuel consumer spend-ing, and concern investing, which continues to be undergirded by the desire to take advantage of new, cost-saving engineerings, was farther buoyed by an accel-eration in gross revenues and net incomes tardily last twelvemonth. Export demand posted a solid addition during the first one-fourth while imports rose even more quickly to run into flourishing domestic demand. The available informations, on balance, point to another solid addition in existent GDP in the 2nd one-fourth, although they suggest that private family and concern fixed investing disbursement likely slowed perceptibly from the extraordinary first-quarter gait. Through June, the enlargement remained alert plenty to maintain labour use near the really high degrees reached at the terminal of 1999 and to raise the factory use rate to shut to its long-term norm by early spring.
Inflation rates over the first half of 2000 were elevated by an extra addition in the monetary value of imported petroleum oil, which led to crisp hikings in retail energy monetary values early in the twelvemonth and once more around midyear. Apart from energy, consumer monetary value rising prices so far this twelvemonth has been slightly higher than during 1999, and some of that acceleration may be attributable to the indirect effects of higher en-ergy costs on the monetary values of nucleus goods and services. Sustained strong additions in worker productiveness have kept additions in unit labour costs minimum despite the per-sistence of a historically low rate of unemployment.
THE HOUSEHOLD SECTOR
Consumer disbursement was exceptionally vigorous during the first one-fourth of 2000. Real personal ingestion outgos rose at an one-year rate of 7-3/4 per centum, the sharpest addition since early 1983. At that clip, the economic system was bouncing from a deep recession during which families had deferred discretional pur-chases. In contrast, the first-quarter rush in ingestion came on the heels of two old ages of really robust disbursement during which existent spendings increased at an one-year rate of more than 5 per centum, and the personal economy rate dropped aggressively.
Spendings for lasting goods, which rose at a really fast gait in 1998 and 1999, accelerated during the first one-fourth to an one-year rate of more than 24 per centum. Most notably, passing on motor vehicles, which had climbed to a new high in 1999, jumped even further in the first one-fourth of 2000 as unit gross revenues of light motor vehi-cles soared to a record rate of 18.1 million units. In add-on, families & # 8217 ; passing on calculating equipment and package rebounded after the bend of the twelvemonth ; some consumers seemingly had postponed their purchases of these goods in late 1999 before the century day of the month alteration. Spendings for nondurable goods posted a solid in-crease of 5-3/4 per centum in the first one-fourth, marked by a crisp upturn in disbursement on vesture and places. Spending for consumer services besides picked up in the first one-fourth, lifting at an one-year rate of 5-1/2 per centum. Spending was rather alert for a figure of non-energy consumer services, runing from diversion and telephone usage to securities firm fees. Besides lending to the acceleration was a recoil in out-lays for energy services, which had declined in late 1999, when conditions was unsea-sonably warm.
In recent months, the rise in consumer disbursement has moderated well from the phenomenal gait of the first one-fourth, with much of the lag in out-lays for goods. At an one-year rate of 17-1/4 million units in the 2nd one-fourth, light motor vehicles sold at a rate good below their first-quarter gait. Nonetheless, that degree of gross revenues is still historically high, and with monetary values staying damped and auto-makers go oning to utilize inducements, consumers & # 8217 ; appraisals of the motor vehicle market go on to be positive. The information on retail gross revenues for the April-to-June period indicate that consumer outgos for other goods rose markedly slower in the 2nd one-fourth than in the first one-fourth, at a gait good below the av-erage rate of addition during the predating two old ages. In contrast, personal con-sumption outgos for consumer services continued to lift comparatively briskly in April and May.
Real disposable personal income increased at an one-year rate of about 3 per-cent between December and May & # 8211 ; somewhat below the 1999 gait of 3-3/4 per centum. However, the drift to disbursement from the rapid rise in family cyberspace worth was still considerable, labour markets remained tight, and assurance was still high. As a consequence, families continued to let their disbursement to outpace their flow of cur-rent income, and the personal economy rate, as measured in the national income and merchandise histories, dropped farther, averaging less than 1 per centum during the first five months of the twelvemonth.
After holding boosted the ratio of family cyberspace worth to disposable income to a record high in the first one-fourth, stock monetary values have fallen back, proposing less drift to consumer disbursement traveling frontward. In add-on, smaller employment additions and the pickup in energy monetary values have moderated the rise in existent income of late. Al-though these developments left some imprint on consumer attitudes in June, house-holds remained comparatively cheerful about their prospective fiscal state of affairs, accord-ing to the consequences of the University of Michigan Survey Research Center ( SRC ) sur-vey. However, they became a spot less positive about the mentality for concern condi-tions and saw a slightly greater likeliness of a rise in unemployment over the approaching twelvemonth.
Housing activity stayed at a high degree during the first half of this twelvemonth. Homebuild-ers began the twelvemonth with a considerable backlog of undertakings that had developed as the exceptionally strong demand of the old twelvemonth strained capacity. As a consequence, they maintained starts of new single-family places at an one-year rate of 1.33 million units, on norm, through April & # 8211 ; fiting 1999 & # 8217 ; s robust gait. Households & # 8217 ; demand for single-family places was supported early in the twelvemonth by ongoing additions in occupations and income and the earlier runup in wealth ; those forces seemingly were sufficient to countervail the effects that higher mortgage involvement rates had on the affordability of new places. Gross saless of new places were peculiarly robust, puting a new record by March ; but gross revenues of bing units slipped below their 1999 high. As a consequence of the continued strength in gross revenues, the homeownership rate reached a new high in the first one-fourth.
By the spring, higher mortgage involvement rates were go forthing a clearer grade on the attitudes of both consumers and builders. The Michigan SRC study reported that families & # 8217 ; appraisals of place purchasing conditions dropped between April and June to the lowest degree in more than nine old ages. Survey respondents noted that, besides higher funding costs, higher monetary values of places were going a factor in their less positive appraisal of market conditions. Purchases of bing places were little changed, on balance, in April and May from the first-quarter norm ; nevertheless, because these gross revenues are recorded at the clip of shutting, they tend to be a lagging index of demand. Gross saless of new places & # 8211 ; a more current index & # 8211 ; fell back in April and May, and home-builders reported that gross revenues dropped further in June. Possibly a mark that softer demand has begun to impact building, starts of new single-family places slipped to a rate of 1-1/4 million units in May. That degree of new homebuilding, although perceptibly slower than the robust gait that charac-terized the autumn and winter period, is merely a spot below the elevated degree that pre-vailed throughout much of 1998, when single-family starts reached their highest degree in twenty old ages. Starts of multifamily lodging units, which besides had stepped up aggressively in the first one-fourth of the twelvemonth, to an one-year rate of 390,000 units, settled back to a 340,000 unit rate in April and May.
Fueled by robust disbursement, particularly early in the twelvemonth, the enlargement of family debt remained alert during the first half of 2000, although below the really strong 1999 growing rate. Apparently, a favourable mentality for income and employment, along with lifting wealth, made families experience confident plenty to go on to pass and take on debt. Despite lifting mortgage and consumer loan rates, household debt increased at an one-year rate of about 8 per centum in the first one-fourth, and pre-liminary informations point to a similar addition in the 2nd one-fourth.
Mortgage debt expanded at an one-year rate of 7 per centum in the first one-fourth, boosted by the high degree of lodging activity. Household debt non secured by existent estate & # 8211 ; including recognition card balances and car loans & # 8211 ; posted an impressive 10 per-cent addition in the first one-fourth to assist finance a big enlargement in spendings for con-sumer durable goodss, particularly centrifugal vehicles. The moderateness in the growing of house-hold debt this twelvemonth has been driven chiefly by its mortgage constituent: Prelimi-nary informations for the 2nd one-fourth suggest that, although consumer recognition likely de-celerated from the first one-fourth, it still grew faster than in 1999.
Debt in border histories, which is mostly a family liability and is non in-cluded in reported steps of recognition market debt, has declined, on cyberspace, in recent months, following a rush from late in the 3rd one-fourth of 1999 through the terminal of March 2000. There has been no grounds that recent downdrafts in portion monetary values this twelvemonth caused serious refund jobs at the aggregative degree that might present broader systemic concerns.
The combination of rapid debt growing and lifting involvement rates has pushed the family debt-service load to degrees non reached since the late eightiess. However, with household income and net worth both holding grown quickly, and employment chances favourable, really few marks of declining recognition jobs in the family sector have emerged, and commercial Bankss have reported in recent Federal Reserve studies that they remain favourably disposed to do consumer in-stallment and mortgage loans. Indeed, fiscal indexs of the family sector have remained largely positive: The rate of personal bankruptcy filings fell in the first one-fourth to its lowest degree since 1996 ; delinquency rates on place mortgages and car loans remained low ; and the delinquency rate on recognition cards edged down farther, although it remained in the higher scope that has prevailed since the mid-1990s. However, delinquency rates may be held down, to some extent, by the rush in new loan inceptions in recent quarters because freshly originated loans are less likely to be delinquent than seasoned 1s.
THE BUSINESS SECTOR
The roar in capital disbursement extended into the first half of 2000 with few indica-tions that concerns & # 8217 ; desire to take advantage of more-efficient engineerings is decreasing. Real concern fixed investing surged at an one-year rate of about 24 per centum in the first one-fourth of the twelvemonth, bouncing aggressively from its letup at the terminal of 1999, when houses seemingly postponed some undertakings because of the century day of the month alteration. In recent months, the tendencies in new orders and cargos of nonde-fense capital goods suggest that demand has remained solid.
Sustained high rates of investing disbursement have been a cardinal characteristic determining the current economic enlargement. Business passing on new equipment and package has been propelled significantly by ongoing progresss in computing machine and information engineerings that can be applied to a widening scope of concern procedures. The ability of houses to take advantage of these emerging developments has been sup-ported by the strength of domestic demand and by by and large favourable conditions in recognition and equity markets. In add-on, because these high-technology goods can be produced progressively expeditiously, their monetary values have continued to worsen steeply, supplying extra inducement for rapid investing. The consequence has been a signifi-cant rise in the stock of capital in usage by concerns and an acceleration in the flow of services from that capital as more-advanced vintages of equipment replace older 1s. The final payment from the drawn-out period during which houses have upgraded their works and equipment has progressively shown through in the economic system & # 8217 ; s improved pro-ductivity public presentation.
Real spendings for concern equipment and package shot up at an one-year rate of about 25 per centum in the first one-fourth of this twelvemonth. That leap followed a modest addition in the concluding one-fourth of 1999 and put disbursement for concern equipment and package back on the double-digit uptrend that has prevailed throughout the cur-rent economic recovery. Concerns about possible jobs with the century day of the month alteration had the most noticeable consequence on the forms of disbursement for computing machines and peripherals and for communications equipment in the 4th and first quarters ; outgos for package were besides affected, although less so. For these catego-ries of goods overall, the impressive revival in concern purchases early this twelvemonth left small uncertainty that the implicit in strength in demand for hi-tech capital goods had been merely temporarily interrupted by the century day of the month alteration. Indeed, nominal cargos of office and calculating equipment and of communicating devices registered ample additions over the April-May period.
In the first one-fourth, concern disbursement on computing machines and peripheral equip-ment was up about 40 per centum from a twelvemonth earlier & # 8211 ; a gait in line with the tendency of the current enlargement. Spendings for communications equipment, nevertheless, acceler-ated ; the first-quarter rush brought the year-over-year addition in disbursement to 35 per centum, twice the gait that prevailed a twelvemonth earlier. Expanding Internet use has been driving the demand for new web architectures. In add-on, overseas telegram companies have been puting to a great extent in readying for their planned entry into the markets for residential and commercial telephone and broad-band Internet services.
Demand for concern equipment outside of the hi-tech country was besides strong at the beginning of the twelvemonth. In the first one-fourth, spendings for industrial equipment rose at a alert gait for a 3rd back-to-back one-fourth as the recovery of the manu-facturing sector from the effects of the Asian crisis gained impulse. In addi-tion, investing in farm and building machinery, which had fallen steadily dur-ing most of 1999, turned up, and cargos of civilian aircraft to domestic custom-ers increased. More recent information show a farther rise in the backlog of unfilled or-ders placed with domestic houses for equipment and machinery ( other than hi-tech points and transit equipment ) , proposing that demand for these points has been good maintained. However, concern purchases of motor vehicles are likely to drop back in the 2nd one-fourth from the really high degree recorded at the beginning of the twelvemonth. In peculiar, demand for heavy trucks appears to hold been adversely affected by higher costs of fuel and deficits of drivers.
Real investing in private nonresidential constructions jumped at an one-year rate of more than 20 per centum in the first one-fourth of the twelvemonth after holding declined in 1999. Both last twelvemonth & # 8217 ; s failing and this twelvemonth & # 8217 ; s sudden and widespread resurgence are hard to explicate to the full. However, the higher degrees of disbursement on office build-ings, other commercial installations, and industrial edifices recorded early this twelvemonth would look to harmonize good with the overall strength in aggregative demand. However, the basicss in this sector of the economic system are assorted. Available information suggests that belongings values for offices, retail infinite, and warehouses have been lifting more easy than they were several old ages ago. However, office vacancy rates have come down, which suggests that, at least at an aggregative degree, the office sec-tor is non overbuilt. The vacancy rate for industrial edifices has besides fallen, but in merely a few industries, such as semiconducting materials and other electronic constituents, are capacity force per unit areas sufficiently intense to bring on important enlargement of produc-tion installations.
The ratio of stock lists to gross revenues in many nonfarm industries moved lower early this twelvemonth. Those houses that had accumulated some extra stocks toward the terminal of 1999 as a safeguard against breaks related to the century day of the month alteration seemed to hold small trouble working off those stock lists after the smooth passage to the new twelvemonth. Furthermore, the first-quarter rush in concluding demand may hold, to some extent, exceeded concerns & # 8217 ; outlooks. In current-cost footings, non-auto fabrication and trade constitutions built stock lists in April and May at a slightly faster rate than in the first one-fourth but still approximately in line with the rise in their gross revenues. As a consequence, the ratio of stock lists to gross revenues, at current cost, for these concerns was approximately unchanged from the first one-fourth. Overall, the ongo-ing downtrend in the ratios of stock lists to gross revenues during the past several old ages suggests that concerns progressively are taking advantage of new engineerings and package to implement better stock list direction.
The swing in stock list investing in the motor vehicle industry has been more marked late. Dealer stocks of new autos and light trucks were drawn down during the first one-fourth as gross revenues climbed to record degrees. Consequently, car and truck shapers kept assemblies at a high degree through June in order to keep ready supplies of popular theoretical accounts. Even though demand appears to hold softened and stock lists of a few theoretical accounts have backed up, scheduled assemblies for the 3rd one-fourth are above the elevated degree of the first half.
The economic net incomes of nonfinancial U.S. corporations posted another solid in-crease in the first one-fourth. The net incomes that nonfinancial corporations earned on their domestic operations were 10 per centum above the degree of a twelvemonth earlier ; the rise lifted the portion of net incomes in this sector & # 8217 ; s nominal end product near to its 1997 extremum. Nonetheless, with investing spread outing quickly, concerns & # 8217 ; external financ-ing demands, measured as the difference between capital outgos and in-ternally generated financess, stayed at a high degree in the first half of this twelvemonth. Busi-nesses & # 8217 ; recognition demands were besides supported by cash-financed amalgamation and acquisi-tion activity. Entire debt of nonfinancial concerns increased at a 10-1/2 per centum cartridge holder in the first one-fourth, near to the alert gait of 1999, and available information suggests that borrowing remained strong into the 2nd one-fourth.
On balance, concerns have altered the composing of their support this twelvemonth to trust more on shorter-term beginnings of recognition and less on the bond market, although the support mix has fluctuated widely in response to altering market con-ditions. After the passing of year-end, corporate borrowers returned to the bond market in volume in February and March, but subsequent volatility in the capital market in April and May prompted a tieback. In add-on, corporate bond investors have been less receptive to smaller, less liquid offerings, as has been true for some clip.
In the investment-grade market, bond issuers have responded to investors & # 8217 ; concerns about the involvement rate and recognition mentality by shortening the adulthoods of their offerings and by publishing more floating-rate securities. In the below-investment-grade market, many of the borrowers who did tap the bond market in February and March did so by publishing exchangeable bonds and other equity-related debt instruments. Subsequently, amid increased equity market volatility and grow-ing investor uncertainness about the mentality for prospective borrowers, recognition spreads in the corporate bond market widened, and issue in the below-investment-grade market dropped aggressively in April and May. Conditionss in the corpo-rate bond market calmed in late May and June, and issue recovered to shut to its first-quarter gait.
As the bond market became less hospitable in the spring, many concerns obviously turned to Bankss and to the commercial paper market for funding. Partially as a consequence, commercial and industrial loans at Bankss have expanded briskly, even as a larger per centum of Bankss have reported in Federal Reserve studies that they have been tightening criterions and footings on such loans.
Underscoring loaners & # 8217 ; concerns about the creditworthiness of borrowers, the ratio of liabilities of failed concerns to entire liabilities has increased farther so far this twelvemonth, and the default rate on outstanding debris bonds has risen farther from the comparatively elevated degree reached in 1999. Through midyear, Moody & # 8217 ; s In-vestors Service has downgraded, on cyberspace, more debt in the nonfinancial concern sector than it has upgraded, although it has placed more debt on ticker for future ascents than downgrades.
Commercial mortgage adoption has besides expanded at a robust gait over the first half of 2000, as investing in office and other commercial edifice strength-ened. Widening last twelvemonth & # 8217 ; s tendency, borrowers have tapped Bankss and life insurance companies as the funding beginnings of pick. Banks, in peculiar, have reported stronger demand for commercial existent estate loans this twelvemonth even as they have tightened criterions a spot for O.K.ing such loans. In the market for commercial mortgage-backed securities, outputs have edged higher since the beginning of the twelvemonth.
THE GOVERNMENT SECTOR
The incoming information sing the federal budget suggests that the excess in the current financial twelvemonth will excel last twelvemonth & # 8217 ; s by a considerable sum. Over the first eight months of financial twelvemonth 2000 & # 8211 ; the period from October to May & # 8211 ; the uni-fied budget recorded a excess of about $ 120 billion, compared with $ 41 billion dur-ing the comparable period of financial 1999. The Office of Management and Budget and the Congressional Budget Office are now calculating that, when the financial twelvemonth stopping points, the incorporate excess will be around $ 225 billion to $ 230 billion, $ 100 billion higher than in the preceding twelvemonth. That result would probably put the excess at more than 2-1/4 per centum of GDP, which would transcend the most recent high of 1.9 per centum, which occurred in 1951.
The swing in the federal budget from shortage to excess has been an of import factor in keeping national economy. The rise in federal economy as a per centum of gross national merchandise from -3.5 per centum in 1992 to 3.1 per centum in the first one-fourth of this twelvemonth has been sufficient to countervail the bead in personal economy that occurred over the same period. As a consequence, gross economy by families, concerns, and gov-ernments has stayed above 18 per centum of GNP since 1997, compared with 16-1/2 per centum over the predating seven old ages. The deeper pool of national economy, along with the continued willingness of foreign investors to finance our current history shortage, remains an of import factor in incorporating additions in the cost of capital and prolonging the rapid enlargement of domestic investing. With longer-run projec-tions demoing a lifting federal authorities excess over the following decennary, this beginning of national economy could go on to spread out.
The recent good intelligence on the federal budget has been chiefly on the re-ceipts side of the leger. Nonwithheld revenue enhancement grosss were really robust this spring. Both concluding payments on personal income revenue enhancement liabilities for 1999 and concluding corporate revenue enhancement payments for 1999 were up well. So far this twelvemonth, the withheld revenue enhancement and societal insurance parts on this twelvemonth & # 8217 ; s net incomes of persons have besides been strong. As a consequence, federal grosss during the first eight months of the financial twelvemonth were about 12 per centum higher than they were during the year-earlier period.
While grosss have accelerated, federal outgos have been lifting merely a small faster than during financial 1999 and go on to worsen as a portion of nominal GDP. Nominal spendings for the first eight months of the current financial twelvemonth were 5-1/4 per centum above the year-earlier period. Increases in discretional disbursement have picked up a spot so far this twelvemonth. In peculiar, defence disbursement has been running higher in the aftermath of the addition in budget authorization enacted last twelvemonth. The Con-gress has besides boosted agricultural subsidies in response to the failing in farm income. While nondiscretionary disbursement continues to be held down by diminutions in net involvement payments, classs such as Medicaid and other wellness plans have been lifting more quickly of late.
As measured by the national income and merchandise histories, existent federal ex-penditures for ingestion and gross investing dropped aggressively early this twelvemonth after holding surged in the 4th one-fourth of 1999. These broad quarter-to-quarter swings in federal disbursement appear to hold occurred because the Department of De-fense speeded up its payments to sellers before the century day of the month alteration ; existent bringings of defence goods and services were likely drum sander. On norm, existent de-fense disbursement in the 4th and first quarters was up reasonably from the aver-age degree in financial 1999. Real nondefense spendings continued to lift easy.
With current budget excesss coming in above outlooks and big sur-pluses projected to go on for the foreseeable hereafter, the federal authorities has taken extra stairss aimed at continuing a high degree of liquidness in the market for its securities. Expanding on attempts to concentrate its worsening debt issue in fewer extremely liquid securities, the Treasury announced in February its purpose to publish merely two new five- and ten-year notes and merely one new thirty-year bond each twelvemonth. The auctions of five- and ten-year notes will stay quarterly, alternat-ing between new issues and smaller reopenings, and the bond auctions will be semi-annual, besides jumping between new and smaller reopened offerings. The Treasury besides announced that it was cut downing the frequence of its annual measure auctions from monthly to quarterly and cutting the size of the monthly biennial note auctions. In add-on, the Treasury eliminated the April auction of the thirty-year inflation-indexed bond and indicated that the size of the ten-year inflation-indexed note of-ferings would be modestly reduced. Meanwhile, expectancy of even larger excesss in the aftermath of the surprising strength of incoming revenue enhancement grosss so far in 2000 led the Treasury to denote, in May, that it was once more cutting the size of the monthly biennial note auctions. The Treasury besides noted that it is sing extra alterations in its auction agenda, including the possible riddance of the annual measure auctions and a decrease in the frequence of its biennial note auctions.
Early on in the twelvemonth, the Treasury unveiled the inside informations of its antecedently an-nounced reverse-auction, or debt redemption, plan, whereby it intends to retire seasoned, less liquid, debt securities with excess hard currency, enabling it to publish more & # 8220 ; on-the-run & # 8221 ; securities. The Treasury noted that it would purchase back every bit much as $ 30 billion this twelvemonth. The first operation took topographic point in March, and in May the Treasury announced a agenda of two operations per month through the terminal of July of this twelvemonth. Through midyear, the Treasury has conducted eight redemption operations, re-deeming a sum of $ 15 billion. Because an of import end of the redemption plan is to assist prevent farther additions in the mean adulthood of the Treasury & # 8217 ; s pub-licly held debt, the full sum redeemed so far has corresponded to securities with staying adulthoods at the long terminal of the output curve ( at least 15 old ages ) .
State AND LOCAL GOVERNMENTS
In the province and local sector, existent ingestion and investing expenditures regis-tered another strong one-fourth at the beginning of this twelvemonth. In portion, the unseasona-bly good conditions appears to hold accommodated more building disbursement than normally occurs over the winter. However, some of the recent rise is an extension of the increase in disbursement that emerged last twelvemonth, when existent spendings rose 5 per centum after holding averaged around 3 per centum for the preceding three old ages. Higher fed-eral grants for main road building have contributed to the pickup in disbursement. In add-on, many of these legal powers have experienced solid betterments in their financial conditions, which may be leting them to set about new disbursement enterprises.
The bettering financial mentality for province and local authoritiess has affected both the issue and the quality of province and local debt. Borrowing by provinces and municipalities expanded sluggishly in the first half of this twelvemonth. In add-on to the favourable budgetary image, lifting involvement rates have reduced the demand for new capital funding and well limited returning issue. Credit ascents have outnumbered downgrades by a significant border in the province and local sector.
THE EXTERNAL SECTOR
Trade AND THE CURRENT ACCOUNT
The shortages in U.S. external balances have continued to acquire even larger this twelvemonth. The current history shortage reached an one-year rate of $ 409 billion in the first one-fourth of 2000, or 4-1/4 per centum of GDP, compared with $ 372 billion and 4 per-cent in the 2nd half of 1999. Net payments of investing income were a spot less in the first one-fourth than in the 2nd half of last twelvemonth owing to a ample addition in income grosss from direct investing abroad. Most of the enlargement in the current history shortage occurred in trade in goods and services. In the first quar-ter, the shortage in trade in goods and services widened to an one-year rate of $ 345 billion, a considerable enlargement from the shortage of $ 298 billion recorded in the 2nd half of 1999. Trade informations for April suggest that the shortage may hold in-creased further in the 2nd one-fourth.
U.S. exports of existent goods and services rose at an one-year rate of 6-1/4 per-cent in the first one-fourth, following a strong addition in exports in the 2nd half of last twelvemonth. The pickup in economic activity abroad that began in 1999 continued to back up export demand and partially offset negative effects on monetary value fight of U.S. merchandises from the dollar & # 8217 ; s past grasp. By market finish, U.S. exports to Canada, Mexico, and Europe increased the most. By merchandise group, ex-port enlargement was concentrated in capital equipment, industrial supplies, and con-sumer goods. Preliminary information for April suggest that growing of existent exports re-mained strong.
The measure of imported goods and services continued to spread out quickly in the first one-fourth. The addition in imports, at an one-year rate of 11-3/4 per centum, was the same in the first one-fourth as in the 2nd half of 1999 and reflected both the go oning strength of U.S. domestic demand and the effects of past dollar appre-ciation on monetary value fight. Imports of consumer goods, automotive merchandises, semiconducting materials, telecommunications equipment, and other machinery were particu-larly robust. Datas for April suggest that the 2nd one-fourth got away to a strong start. The monetary value of non-oil goods imports rose at an one-year rate of 1-3/4 per centum in the first one-fourth, the 2nd back-to-back one-fourth of ample monetary value additions follow-ing four old ages of monetary value diminutions ; non-oil import monetary values in the 2nd one-fourth posted merely moderate additions.
A figure of developments impacting universe oil demand and supply led to a fur-ther increase in the topographic point monetary value of West Texas intermediate ( WTI ) petroleum this twelvemonth, along with considerable volatility. In the aftermath of the dip of universe oil monetary values dur-ing 1998, the Organization of Petroleum Exporting
States ( OPEC ) agreed in early 1999 to production restraints that, by late in the twelvemonth, restored monetary values to their 1997 degree of about $ 20 per barrel. Subsequently, continued recovery of universe de-mand, combined with some supply breaks, caused the WTI topographic point monetary value to spike above $ 34 per barrel during March of this twelvemonth, the highest degree since the Gulf War more than nine old ages before. Oil monetary values dropped back temporarily in April, but in May and June the monetary value of rough oil moved back up once more, as demand was boosted farther by strong planetary economic activity and by reconstructing of oil stocks. In late June, despite an proclamation by OPEC that it would hike production, the WTI topographic point monetary value reached a new high of about $ 35 per barrel, but by early July the monetary value had settled back to about $ 30 per barrel.
Capital flows in the first one-fourth of 2000 continued to reflect the comparatively strong public presentation of the U.S. economic system and minutess associated with planetary corporate amalgamations. Foreign private purchases of U.S. securities remained alert & # 8211 ; good above the record gait set last twelvemonth. In add-on, the mix of U.S. securities purchased by aliens in the first one-fourth showed a continuance of last twelvemonth & # 8217 ; s tendency toward smaller retentions of U.S. Treasury securities and larger retentions of U.S. bureau and corporate securities. Private-sector aliens sold more than $ 9 billion in Treas-ury securities in the first one-fourth while buying more than $ 26 billion in bureau bonds. Despite a assorted public presentation of U.S. stock monetary values, foreign portfolio pur-chases of U.S. equities exceeded $ 60 billion in the first one-fourth, more than half of the record one-year sum set last twelvemonth. U.S. purchases of foreign securities remained strong in the first one-fourth of 2000.
Foreign direct investing flows into the United States were robust in the first one-fourth of this twelvemonth every bit good. As in the past two old ages, direct investing in-flows have been elevated by the extraordinary degree of cross-border amalgamation and acquisition activity. Portfolio flows have besides been affected by this activity. For ex-ample, in recent old ages, many of the largest acquisitions have been financed by barters of equity in the foreign geting house for equity in the U.S. house being ac-quired. The Bureau of Economic Analysis estimates that U.S. occupants acquired $ 123 billion of foreign equities in this manner last twelvemonth. Separate informations on market minutess indicate that U.S. occupants made net purchases of Nipponese equities but sold European equities. The latter gross revenues likely reflect a rebalancing of portfo-lios after stock barters. U.S. direct investing in foreign economic systems has besides re-mained strong, transcending $ 30 billion in the first one-fourth of 2000. Again, a signifi-cant part of this investing was associated with cross-border amalgamation activity.
Capital influxs from foreign official beginnings in the first one-fourth of this twelvemonth were ample & # 8211 ; $ 20 billion, compared with $ 43 billion for all of 1999. As was the instance last twelvemonth, the addition in foreign official militias in the United States in the first one-fourth was concentrated in a comparatively few states. Partial information for the 2nd one-fourth of 2000 show a little functionary escape.
THE LABOR MARKET
EMPLOYMENT AND LABOR SUPPLY
The labour market in early 2000 continued to be characterized by significant occupation creative activity, a historically low degree of unemployment, and ample progresss in productiv-ity that have held labour costs in cheque. The rise in overall nonfarm paysheet employ-ment, which totaled more than 1-1/2 million over the first half of the twelvemonth, was swelled by the federal authorities & # 8217 ; s hiring of intermittent workers to carry on the decennial nose count. Apart from that impermanent encouragement, which accounted for about one-quarter of the net addition in occupations between December and June, nonfarm paysheet em-ployment increased an norm of 190,000 per month, slightly below the robust gait of the predating four old ages.
Monthly alterations in private paysheets were uneven at times during the first half the twelvemonth, but, on balance, the gait of hiring, while still solid, appears to hold mod-erated between the first and 2nd quarters. In some industries, such as con-struction, the form appears to hold been exaggerated by unseasonably high lev-els of activity during the winter that accelerated engaging that typically would hold occurred in the spring. After a robust first one-fourth, building employment de-clined between April and June ; on norm, engaging in this industry over the first half of the twelvemonth was merely a spot slower than the rapid gait that prevailed from 1996 to 1999. However, employment additions in the services industry, peculiarly in concern and wellness services, were smaller in the 2nd one-fourth than in the first while occupation cutbacks occurred in finance, insurance, and existent estate after four and one-half old ages of steady enlargement. However, strong domestic demand for consumer dur-ables and concern equipment, along with support for exports from the pickup in economic activity abroad, led to a grading off in fabricating employment over the first half of 2000 after about two old ages of diminution. And, with consumer disbursement brisk, employment at retail constitutions, although fluctuating widely from month to month, remained by and large on a solid uptrend over the first half.
The supply of labour increased easy in recent old ages relative to the demand for workers. The labour force engagement rate was unchanged, on norm, at 67.1 per centum from 1997 to 1999 ; that degree was merely 0.6 per centum point higher than at the beginning of the enlargement in 1990. The stableness of the engagement rate over the 1997-99 period was slightly surprising because the inducements to come in the work force seemed powerful: Hiring was strong, existent rewards were lifting more quickly than earlier in the enlargement, and persons perceived that occupations were plentiful. However, the robust demand for new workers alternatively led to a significant diminution in unemployment, and the civilian idle rate fell from 5-1/4 per centum at the beginning of 1997 to merely over 4 per centum at the terminal of 1999.
This twelvemonth, the labour force engagement rate ratcheted up aggressively over the first four months of the twelvemonth before dropping back in recent months as employ-ment slowed. The spike in engagement early this twelvemonth may hold been a response to ready handiness of occupation chances, but Census hiring may besides hold temporarily attracted some persons into the work force. On cyberspace, growing of labour demand and supply have been more balanced so far this twelvemonth, and the unemployment rate has held near its thirty-year depression of 4 per centum. At midyear, really few marks of a signifi-cant moderation in labour market force per unit areas have surfaced. Employers reacting to vari-ous private studies of concern conditions report that they have been unable to engage as many workers as they would wish because skilled workers are in short supply and competition from other houses is acute. Those concerns about engaging have per-sisted even as new claims for unemployment insurance have drifted up from really low degrees in the past several months, proposing that some employers may be mak-ing work force accommodations in response to slower economic activity.
Labor COSTS AND PRODUCTIVITY
Reports by concerns that workers are in short supply and that they are under force per unit area to increase compensation to be competitory in engaging and retaining employ-ees became more intense early this twelvemonth. However, the available statistical indica-tors are supplying slightly assorted and inconsistent signals of whether a wide ac-celeration in pay and benefit costs is emerging. Hourly compensation, as measured by the employment cost index ( ECI ) for private nonfarm concerns, increased aggressively during the first one-fourth to a degree more than 4-1/2 per centum above a twelvemonth earlier. Before that leap, year-over-year alterations in the ECI compensation series had remained near to 3-1/2 per centum for three old ages. However, an alternate step of compensation per hr, calculated as portion of the productiveness and cost series, which has shown higher rates of addition than the ECI in recent old ages, slowed in the first one-fourth of this twelvemonth. For the nonfarm concern sector, compen-sation per hr in the first one-fourth was 4-1/4 per centum higher than a twelvemonth before ; in the first one-fourth of 1999, the four-quarter alteration was 5-1/4 per centum.
Part of the acceleration in the ECI in the first one-fourth was the consequence of a crisp increase in the pay and salary constituent of compensation alteration. While higher rates of straight-time wage were widespread across industry and occupational groups, the most dramatic addition occurred in the finance, insurance, and existent es-tate industry where the year-over-year alteration in rewards and wages jumped from about 4 per centum for the period stoping in December 1999 to about 8-1/2 per centum for the period stoping in March of this twelvemonth. The sudden spike in rewards in that sec-tor could be related to committees that are tied straight to activity degrees in the industry and, therefore, would non stand for a permanent influence on pay rising prices. For other industries, rewards and wages accelerated reasonably, which might look plausible in visible radiation of studies that employers are sing deficits of some types of skilled workers. However, the uptrend in pay rising prices that surfaced in the first-quarter ECI has non been so readily evident in the monthly informations on aver-age hourly net incomes of production or nonsupervisory workers, which are available through June.
Although mean hourly net incomes increased at an one-year rate of 4 per centum be-tween December and June, the June degree of hourly rewards stood 3-3/4 per centum higher than a twelvemonth earlier, the same as the addition between June 1998 and June 1999.
While employers in many industries appear to hold kept pay increases mod-erate, they may be confronting greater force per unit areas from lifting costs of employee bene-fits. The ECI step of benefit costs rose close to 3-1/2 per centum during 1999, a per centum point faster than during 1998 ; these costs accelerated aggressively further in the first one-fourth of this twelvemonth to a flat 5-1/2 per centum above a twelvemonth earlier. Much of last twelvemonth & # 8217 ; s pickup in benefit costs was associated with faster rates of addition in employer parts to wellness insurance, and the first-quarter ECI figures indicated another increase in this constituent of costs. Private study information and available steps of monetary values in the wellness attention industry suggest that the upturn in the employer costs of wellness attention benefits is associated with both higher costs of wellness attention and employers & # 8217 ; willingness to offer attractive benefit bundles in order to vie for workers in a tight labour market. Indeed, employers have been describing that they are heightening compensation bundles with a assortment of benefits in order to engage and retain employees. Some of these offerings are included in the ECI ; for case, the ECI study for the first one-fourth noted a pickup in supple-mental signifiers of wage, such as overtime and nonproduction fillips, and in paid leave. However, other benefits cited by employers, including stock options, engaging and re-tention fillips, and price reductions on shop purchases, are non measured in the ECI. The productiveness and costs step of hourly compensation may capture more of the non-wage costs that employers incur, but even for that series, the best es-timates of employer compensation costs are available merely after concern studies for unemployment insurance and revenue enhancement records are tabulated and folded into the an-nual alterations of the national income and merchandise histories.
Because concerns have realized ample additions in worker productiveness, com-pensation additions have non generated important force per unit area on overall costs of pro-duction. Output per hr in the nonfarm concern sector posted another solid ad-vance in the first one-fourth, lifting to a flat 3-3/4 per centum above a twelvemonth earlier and countervailing much of the rise in hourly compensation over the period. For nonfinancial corporations, the subset of the nonfarm concern sector that excludes types of concerns for which end product is measured less straight, the 4 per centum year-over-year addition in productivity held unit labour costs unchanged.
With the farther robust additions in labour productiveness late, the mean rise in end product per hr in the nonfarm concern sector since early 1997 has stepped up further to 3 per centum from the 2 percent gait of the 1995-97 period. What has been peculiarly impressive is that the acceleration of productiveness in the past several old ages has exceeded the pickup in end product growing over the period and, therefore, does non look to be merely a cyclical response to more quickly lifting demand. Rather, concerns are likely recognizing significant and permanent final payments from their investing in equipment and processes that embody the technological progresss of the past several old ages.
Ratess of addition in the broader steps of monetary values moved up further in early 2000. After holding accelerated from 1 per centum during 1998 to 1-1/2 per centum last twelvemonth, the chain-type monetary value index for GDP & # 8211 ; monetary values of goods and services that are produced domestically & # 8211 ; increased at an one-year rate of 3 per centum in the first quar-ter of this twelvemonth. The upswing in rising prices for goods and services purchased by con-sumers, concerns, and authoritiess has been slightly greater: The chain-type monetary value index for gross domestic purchases rose at an one-year rate of 3-1/2 per centum in the first one-fourth after holding increased about 2 per centum during 1999 and merely 3/4 per centum during 1998.
The pass-through of the steep rise in the cost of imported petroleum oil that be-gan in early 1999 and continued into the first half of this twelvemonth has been the princi-pal factor in the acceleration of the monetary values of goods and services purchased. The consequence of higher energy costs on domestic monetary values has been most evident in indexes of monetary values paid by consumers. After holding risen 12 per centum during 1999, the chain-type monetary value index for energy points in the monetary value index for personal ingestion ex-penditures ( PCE ) jumped at an one-year rate of 35 per centum in the first one-fourth of 2000 ; the first-quarter rise in the energy constituent of the CPI was similar.
Swings in energy monetary values continued to hold a noticeable consequence on overall steps of consumer monetary values in the 2nd one-fourth. After universe oil monetary values dropped back temporarily in the spring, the domestic monetary value of motor fuel dropped in April and May, and consumer monetary values for energy, as measured by the CPI, retraced some of the first-quarter addition. As a consequence, the overall CPI was little changed over the two months. However, with monetary values of petroleum oil holding climbed once more, the bounce-back in monetary values of motor fuel led to a crisp addition in the CPI for energy in June. In add-on, with strong demand pressing against available supplies, consumer monetary values of natural gas continued to lift quickly in the 2nd one-fourth. In contrast to the steep rise in energy monetary values, the CPI for nutrient has risen somewhat less than other non-energy monetary values so far this twelvemonth.
Higher crude oil costs besides fed through into higher manufacturer costs for a figure of intermediate stuffs. Rising monetary values for inputs such as chemicals and pigments contributed significantly to the acceleration in the manufacturer monetary value index for intermediate stuffs excepting nutrient and energy from about 1-3/4 per centum during 1999 to an one-year rate of 3-1/2 per centum over the first half of this twelvemonth. Upward force per unit area on input monetary values was besides evident for building stuffs, although these have eased more late. Monetary values of imported industrial supplies besides picked up early this twelvemonth owing to higher costs of crude oil inputs.
Core consumer monetary value rising prices has besides been running a small higher so far this twelvemonth. The chain-type monetary value index for personal ingestion expenditures other than nutrient and energy increased at an one-year rate of 2-1/4 per centum in the first one-fourth compared with an addition of 1-1/2 per centum during 1999. Based on the monthly es-timates of PCE monetary values in April and May, nucleus PCE monetary value rising prices looks to hold been merely a small below its first-quarter rate. After holding risen merely over 2 percent be-tween the 4th one-fourth of 1998 and the 4th one-fourth of 1999, the CPI exclud-ing nutrient and energy increased at an one-year rate of 2-1/4 per centum in the first quar-ter of 2000 and at a 2-3/4 per centum rate in the 2nd one-fourth. In portion, the rise in nucleus rising prices likely reflects the indirect effects of higher energy costs on the monetary values of a assortment of goods and services, although these effects are hard to quantify with preciseness. Furthermore, monetary values of non-oil imported goods, which had been worsening from late 1995 through the center of last twelvemonth, continued to tendency up early this twelvemonth.
The pickup in nucleus rising prices, as measured by the CPI, has occurred for both consumer goods and services. Although monetary value additions for nondurable goods excepting nutrient and energy moderated, monetary values of consumer durable goodss, which had fallen between 1996 and 1999, were little changed, on balance, over the first half of this twelvemonth. The CPI continued to register steep diminutions for family electronic goods and computing machines, but monetary values of other types of consumer durable goodss have increased, on cyberspace, so far this twelvemonth. The rate of addition in the monetary values of non-energy consumer services has besides been slightly faster ; the CPI for these points increased at an one-year rate of 3-1/2 per centum during the first two quarters of this twelvemonth compared with a rise of 2-3/4 per centum in 1999. Larger increases in the CPI steps of rent and of medical services have contributed significantly to this acceleration. Another factor has been a steeper rise in airfares, which have been boosted in portion to cover the higher cost of fuel.
In add-on to somewhat higher nucleus consumer monetary value rising prices, the national in-come and merchandise histories step of monetary values for private fixed investing goods shows that the downtrend in monetary values for concern fixed investing points has been interrupted. Most notably, diminutions in the monetary values of calculating equipment became much smaller in the concluding one-fourth of last twelvemonth and the first one-fourth of this twelvemonth. A series of breaks to the supply of constituent inputs to calculating equipment has combined with exceptionally strong demand to cut the rate of monetary value diminution for computing machines, as measured by the chain-type monetary value index, to an one-year rate of 12 per-cent tardily last twelvemonth and early this twelvemonth & # 8211 ; half the gait of the predating three and one-half old ages. At the same clip, monetary values of other types of equipment and package continued to be little changed, and the chain-type index for nonresidential struc-tures investing remained on a moderate uptrend. In contrast, the farther upward force per unit area on building costs at the beginning of the twelvemonth continued to force the monetary value index for residential building higher ; after holding accelerated from 3 per centum to 3-1/2 per centum between 1998 and 1999, this index increased at an one-year rate of 4-1/4 per centum in the first one-fourth of 2000.
Although existent rising prices moved a spot higher over the first half of 2000, in-flation outlooks have been little changed. Households reacting to the Michi-gan SRC study in June were sensitive to the inauspicious consequence of higher energy monetary values on their existent income but seemed to believe that the inflationary daze would be ephemeral. The median of their expected alteration in CPI rising prices over the com-ing 12 months was 2.9 per centum. Furthermore, they remained optimistic that infla-tion would stay at about that rate over the longer tally, describing a 2.8 per centum median of expected rising prices during the following five to ten old ages. In both cases, their outlooks are basically the same as at the terminal of 1999, although the year-ahead outlooks are above the lower degrees that had prevailed in 1997 and early 1998.
U.S. FINANCIAL MARKETS
Conditionss in markets for private recognition firmed on balance since the terminal of 1999. Against a background of continued economic verve in the United States and a tighter pecuniary policy stance, private adoption rates are higher, on net, particu-larly those charged to riskier borrowers. In add-on, Bankss have tightened footings and criterions on most types of loans. Higher existent involvement rates & # 8211 ; as measured based on rising prices outlooks derived from studies and from outputs on the Treas-ury & # 8217 ; s inflation-indexed securities & # 8211 ; history for the majority of the addition in involvement rates this twelvemonth, with short-run existent rates holding increased the most. Rising mar-ket involvement rates and heightened uncertainnesss about corporate chances, espe-cially with respect to the high-tech sector, have on occasion dampened flows in the corporate bond market and have weighed on the equity market, which has, at times, experienced considerable volatility. Through mid-July, the broad-based Wilshire 5000 equity index was up about 3 per centum for the twelvemonth.
As the twelvemonth began, with concerns related to the century day of the month alteration out of the manner, participants in the fixed-income market turned their attending to the marks of con-tinued strength in domestic labour and merchandise markets, and they rapidly priced in the possibility of a more aggressive tightening of pecuniary policy. Both private and Treasury outputs rose well. In the latter portion of January, nevertheless, Treasury outputs plummeted, particularly those on longer-dated securities, as the proclaimed de-tails of the Treasury & # 8217 ; s debt redemption plan and upwards revised prognosiss of federal budget excesss led investors to concentrate progressively on the chances for a diminishing supply of Treasury securities. A rise in both nominal and inflation-indexed Treasury outputs in response to strong economic informations and tighter pecuniary policy in April and May was partially offset by supply factors and by occasional safe oasis flows from the volatile equity market. Since late May, market involvement rates have declined as market participants have interpreted the incoming economic informations as grounds that pecuniary policy might non hold to be tightened every bit much as had been antecedently expected. On balance, while Treasury measure rates and outputs on shorter-dated notes have risen 15 to 80 footing points since the beginning of the twelvemonth, intermediate- and long-run Treasury outputs have declined 5 to 55 footing points. In the corporate debt market, by contrast, bond outputs have risen 10 to 70 footing points so far this twelvemonth.
Prognosiss of steep diminutions in the supply of longer-dated Treasuries have combined with tighter pecuniary policy conditions to bring forth an upside-down Treasury output curve, get downing with the biennial adulthood. In contrast, output curves else-where in the U.S. fixed-income market by and large have non inverted. In the involvement rate barter market, for case, the output curve has remained level to upward inclining for adulthoods every bit long as 10 old ages, and the same has been true for output curves for the most actively traded corporate bonds. However, private output curves are flatter than usual, proposing that, although supply considerations have played a potentially of import function in the inversion of the Treasury output curve this twelvemonth, in-vestors & # 8217 ; prognosiss of future economic conditions have besides been a lending fac-tor. In peculiar, private output curves are consistent with prognosiss of a modera-tion in economic growing and outlooks that the economic system will be on a sustainable, non-inflationary path, with small farther pecuniary policy tightening.
The gulf between longer-term Treasury and private outputs as a conse-quence of supply factors in the Treasury market is falsifying readings from output spreads. For case, taken at face value, the spread of BBB corporate outputs over the output on the ten-year Treasury note would propose that conditions in the corpo-rate bond market so far in 2000 are worse than those during the fiscal market convulsion of 1998. In contrast, the spread of the BBB output over the ten-year barter rate pigments a really different image, with spreads up this twelvemonth but below their extremums in 1998. Although the barter market is still non every bit liquid as the Treasury secu-rities market, and barter rates are on occasion capable to supply-driven deformations, such deformations have been less marked and more ephemeral than those affect-ing the Treasury securities market of late, doing barter rates a better benchmark for judging the behaviour of other corporate outputs.
Aware that distortions to Treasury outputs are likely to go more pro-nounced as more federal debt is paid down, market participants have had to look for options to the pricing and fudging functions traditionally played by Treasuries in U.S. fiscal markets. In add-on to involvement rate barters, which have featured conspicuously in the list of options to Treasuries, debt securities issued by the three government-sponsored lodging bureaus & # 8211 ; Fannie Mae, Freddie Mac, and the Federal Home Loan Banks & # 8211 ; have been used in both pricing and hedge. The three lodging bureaus have continued to publish a significant volume of debt this twelvemonth in an effort to capture benchmark position, and the debut in March of hereafters and options contracts based on five- and ten-year notes issued by Fannie Mae and Freddie Mac may assist heighten the liquidness of the bureau securities market. None-theless, the market for bureau debt has been affected by some uncertainness this twelvemonth sing the bureaus & # 8217 ; particular relationship with the authorities. Both the Treasury and the Federal Reserve have suggested that it would be appropriate for the Congress to see whether the particular standing of these establishments contin-ues to advance the public involvement, and pending statute law would, among other things, restructure the inadvertence of these bureaus and review their lines of recognition with the U.S. Treasury.
The execution of pecuniary policy, excessively, has had to accommodate to the antici-pated paydowns of marketable federal debt. Acknowledging that there may be limita-tions on its ability to trust every bit much as antecedently on minutess in Treasury securi-ties to run into the modesty demands of depositaries and to spread out the supply of cur-rency, the FOMC decided at its March 2000 meeting to ease until its first meeting in 2001 the Trading Desk & # 8217 ; s ability to go on to accept a broader scope of collateral in its redemption minutess. The initial blessings to assist spread out the collateral pool were granted in August 1999 as portion of the Federal Reserve & # 8217 ; s ef-forts to better manage possible breaks to fiscal markets related to the century day of the month alteration.
At the March 2000 meeting, the Committee besides initiated a survey to see alternate plus categories and choice standards that could be appropriate for the System Open Market Account ( SOMA ) should the size of the Treasury securities market continue to worsen. For the period before the completion and reappraisal of such a survey, the Committee discussed, at its May meeting, some alterations in the direction of the System & # 8217 ; s portfolio of Treasury securities in an environment of diminishing Treasury debt. The alterations aim to forestall the System from coming to keep high and lifting proportions of new Treasury debt issues. They will besides assist the SOMA to restrict any farther prolongation of the mean adulthood of its portfolio while go oning to run into long-term modesty demands to the greatest extent possible through straight-out purchases of Treasury securities. The SOMA will crest the rollover of its bing retentions at Treasury auctions and will prosecute in secondary market purchases harmonizing to a agenda that efficaciously will ensue in a greater percent-age of retentions of shorter-term security iss