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Economic
Review

FEDERAL RESERVE BANK OF ATLANTA

DECEMBER 1985

The Southeast
Global Economy

The Impact of Foreign Trade
and Investment

President
Robert P. Forrestal
Sr. Vice President and
Director of Research
Sheila L. Tschinkel
Vice President and
Associate Director of Research
B. Frank King

F i n a n c i a l Institutions and P a y m e n t s
David D. Whitehead, Research Officer
Larry D. Wall
Robert E Goudreau
Macropolicy
Robert E Keleher, Research Officer
Thomas J. Cunningham
Mary S. Rosenbaum
Jeffrey A. Rosensweig
J o s e p h A. Whitt Jr.
Pamela V. Whigham
Regional E c o n o m i c s
G e n e D. Sullivan, Research Officer
Charlie Carter
William J. Kahley
Bobbie H. McCrackin
Joel R. Parker
W. Gene Wilson

Economic
Review iJ
.

Special Issue

ISSN 0732-1813

Dear Reader.
A strong belief that the consequences of
growing world economic integration are
vital to the Southeast prompted the Federal Reserve Bank of Atlanta to sponsor a
conference late last year entitled "The
Southeast in a Global Economy." At that
conference in Atlanta we focused on the
forces bringing about closer international
economic relations, effects of globalization, and strategies for doing business in
world markets

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Following our custom, we are sharing with

readers of the Economic Review most of

the presentations delivered at the conference. The resulting articles in this special ^
issue offer a mosaic of perspectives and
opinions, fittingly capsuled by speaker ">
Stanley W. Black, III, a University of North *
Carolina professor who discussed how
global markets have affected the Southeast. "Trade," as Professor Black put it "is ^
a great harbinger of civilization."

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•

Robert P. Forrestal
President
Federal Reserve Bank of Atlanta

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VOLUME LXX, NO. 11, DECEMBER 1985, E C O N O M I C REVIEW

Table
of
Contents

FEDERAL RESERVE BANK OF ATLANTA

Introduction

Integrating Forces in the World Economy:
How Have They Affected the Southeast?

The FTC's Role in Ensuring Free Trade

Efficiency and Competition:
Is the U.S. Handicapped?

Global Economics:
A Call for International Solutions

International Financial Integration:
Implications for Monetary Policy

1985 Index

Statistical Summary
3

—•

Introduction
#

"It's a Small World" seems
more fitting now than ever before.
Americans watch live television
broadcasts, transmitted via satellites, of events occurring around
the globe: presidential summits,
musical concerts, and disasters in
progress. By punching a few buttons, we can call up on our computer monitors today's developments in the financial markets of
the world. And, by dialing a telephone, we can talk directly to
people in virtually any country.
Global integration is spreading through industry after industry. International firms are manufacturing a multitude of products
in the United States, many of them
produced in the Southeast. In
turn, southeastern manufacturers
are venturing overseas. This
"globalization" is also evident in
international banking, real estate
services, financial markets, transportation, and communication.
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DECEMBER 1985, E C O N O M I C REVIEW

At the same time, some Americans are pressuring Congress to pass legislation restricting
imports that are claiming an ever-larger share
of the U. S. market to the detriment of domestic
manufacturers. And, political leaders in other
countries are continuing their efforts to control
products coming across their boundaries.
This special issue of the Economic Review
shares the thoughts, research, and advice of
many of the experts who spoke at a conference
called "The Southeast in a Global Economy"
sponsored by the Federal Reserve Bank of Atlanta in November.
"The impact of import competition is as real
as the foreign-made goods on our retailers'
shelves, and as visible as the headlines in our
morning newspapers," as Atlanta Fed Research
Director Sheila Tschinkel observed in the conference's opening remarks. "Who among us has
not read about the prospect of $150 billion merchandise trade deficits and been dismayed by
reports that we have become a net debtor nation for the first time since World War I?"
But import competition has a positive side,
she added, explaining:
"Here in the Southeast, we have seen
foreign manufacturers put Americans to work
in the region's automobile and machinery
plants and we have watched as foreign interests
sank millions of dollars into the high-rise buildings that have helped revitalize our downtown
areas.
"Foreign nations constitute multi-billion
dollar markets for southeastern goods ranging
from farm products to telecommunications
equipment. And imports, for all the furor they
have created, clearly have helped dampen inflation."
Ms. Tschinkel pointed out that an integrated
global market "can mean more efficient use of
scarce resources, which should encourage a
higher standard of living worldwide. For consumers, lower prices mean higher real incomes
because their purchasing power is strength-

FEDERAL RESERVE BANK O F ATLANTA

ened even as they enjoy a more diversified
choice of international goods and services."
The Atlanta Fed divided "The Southeast in
a Global Economy" into subtopics to permit
closer examination. A presentation by Stanley
W. Black, III, Lurcy Professor of Economics at
the University of North Carolina, will begin this
special issue as it opened the conference,
focusing on the forces that are integrating the
economies of many nations into a world economy.
The next contributor, Terry Calvani, acting
chairman of the Federal Trade Commission, describes the FTC's role in protecting international
trade flows, stressing the United States' benefits
from free and fair trade.
Roger Kubarych, vice president and chief
economist at the Conference Board, an organization that performs research for some of this
country's largest companies, eschews sweeping
trade restrictions while declaring, "There
clearly is no level playing field in international
trade."
Henry Schechter, deputy director of
economic research at the AFL-CIO, agrees that
the playing field is not level, saying Americans
cannot compete with products fabricated in less
developed countries by workers earning 50 or
75 cents a day.
Paul Meek, a consultantto central banks and
a retired monetary advisor at the Federal Reserve Bank of New York, addresses broader impacts of the global economy on international
finance. He describes international effects of
the United States' federal budget deficits, interest rates, and foreign exchange rates.
Since our intent was to provide a thoughtprovoking forum offering diverse perspectives,
the views expressed in these presentations do
not necessarily reflect those of the Atlanta Fed
or the Federal Reserve System.
The remaining presentations from the conference will be published in the January issue
of the Economic Review.

Integrating Forces
In the World Economy:

How Have They Affected the Southeast?
Stanley W. Black, III

We in the Southeast have a long experience
with international trade. In the 18th and 19th
centuries, the Southeast was an exporter of
agricultural products such as cotton, tobacco,
indigo, and rice, and an importer of manufactured
goods, trading primarily with Europe. Therefore,
the region favored low tariffs, one of many points
of contention leading to the Civil War. The
relatively low cost of waterborne trade meant
that transatlantic trade ties were often closer
than national trade ties.
Transport costs fell dramatically over the next
100 years, but internal transport costs, by
road and rail, fell even more dramatically than
external transport costs. For these and other reasons, including relatively high tariffs up until
World War II, the internal integration of the U.S.
economy proceeded more rapidly than its integration with the rest of the world. Foreign
trade's share in the U.S. economy, measured by
the share of exports in gross national product, or
GNP—which may have been as high as 12

The author is Lurcy Professor
of North
Carolina.
6

of Economics

at the

University

percent in the colonial period—fluctuated between 5 and 10 percent, falling gradually to less
than 4 percent in the 1950s and 1960s.
Duringthe postwar period, the dollar gradually
became overvalued, as the European and Japanese economies recovered their productivity.
This kept the prices of traded goods, such as
agriculture and manufactured products, low relative to the prices of nontraded goods such as
services and construction. Increasing balance of
payments problems led to the devaluation of the
dollar in 1971 and the subsequent downward
float in 1973. In the 1970s, the cheaper dollar
stimulated exports, while rising oil prices pushed
up the costs of imports. The share of foreign
trade in the U.S. economy doubled from 6
percent to 12 percent between 1970 and 1980.
Declining transport and communication costs
have contributed to these trends, as documented
in a recent paper by Richard Cooper. 1 Transatlantic and transpacific air fares today are roughly
one-tenth of what they were in 1939 in dollars of
constant purchasing power. Freight transportation
costs have fallen as well. Communication costs
have declined even more dramatically, with
satellites providing virtually instantaneous worldwide communication by television or telephone
DECEMBER 1985, E C O N O M I C REVIEW

at a fraction of the cost formerly required by
cable.

Capital Movements
In recent years, foreign capital again has begun
to play an important role in U.S. economic
growth. From 1980 to 1982, plant and equipment
expenditures by direct foreign investors accounted for 11 percent of plant and equipment
investment by nonfinancial corporate businesses,
excluding farms.2 These funds act as a source of
jobs coming into the economy and are particularly
• focused in the Sunbelt especially the Southeast.
On the other side of the ledger, direct investment abroad by U.S. corporations fell in 1984 to
only one-third of the level of foreign direct
investment in this country. This may reflect the
increasing difficulty American firms have had
selling abroad with the strong dollar. At the same
time, the substantial foreign investment in the
U.S. economy reflects the strong markets foreign
firms have been finding here for their goods, as
well as a desire to forestall protectionist pressures
by producing goods here.

Migration
The U.S. economy has been built on immigration. Current problems relate to difficulties in
absorbing large numbers in specific areas such as
south Florida, exploitation of illegal immigrants
by unscrupulous employers, and the general
issue of whether we can hope to control our
borders, especially in light of a population explosion in Mexico.
Simple economics tells us that to maintain our
standard of livingwe need to have some limitson
immigration, while common sense tells us that
maintaining our culture also implies some limits.
Clearly, the irresistible force of a higher income is
what pulls people into our country. The evidence
shows that most immigrants soon become net
contributors to the economy, so the economic
limits on immigration presumably are rather
high. But there seem to be socio-cultural limits as
well, although I do not feel qualified to discuss
them.

Costs and Benefits of Integration
Trade as a Shock-Absorber. Through trade, we
absorb foreign shocks such as oil price fluctuations,
swings in other commodity prices, and the troubles
of our Mexican and Central American neighbors.
FEDERAL RESERVE BANK OF ATLANTA

At the same time, foreigners absorb shocks from
our economy, the world's largest As the Canadians
frequently remind us, this is like sleeping with an
elephant Foreign trade acts as an automatic
stabilizer to our economy. When a boom pulls in
imports, it holds down inflation. And when imports
fall in a slump, part of the burden of falling
demand is met by foreign suppliers.
Wider Choices. Trade brings us more types of
goods at lower cost, which improves consumer
welfare and raises what economists call X-efficiency in domestic production. This X-efficiency is
what the British don't have and what the Japanese
do—that is, the most efficient operation of a
plant with given human and technical resources.
Added Uncertainty. Along with the breadth of
choice come foreign sources of shocks including,
in today's environment, fluctuating exchange
rates and commodity prices. This increased uncertainty bears costs for risk-averse consumers
and managers.
Higher Standard of Living. Without foreign
trade, we would be a lot poorer on average.
Productivity, the source of our standard of living,
is substantially higher in our export industries
than in our import-competing industries. Data
from the 1981 Annual Survey of Manufactures
suggest that an industry with a 20 percent higher
export share pays 5.34 percent higher wages on
average.3 Data on 1978 import penetration ratios
in manufacturing industries, calculated by William
Cline, suggest that an industry with a 20 percent
higher import penetration ratio pays 3.3 percent
lower wages on average.4 Transferring labor from
low-wage, low-skilled jobs in import-competing
industries into higher-wage, higher-skilled jobs in
export industries is the process through which
increased foreign trade raises the standard of
living. The Southeast, as a low-income region to
start with, cannot afford to close off such an
important source of increased productivity.
Social Costs of Change. The difficulty is that
transforming low-productivity workers into higherproductivity workers requires expensive investments in education and training, particularly in
the younger generation of workers coming up
through school. Southeastern states seem to be
realizing this and investing more in their public
education systems in recent years, but this has
been a long-neglected problem in the region.
The older generation is more difficult to retrain.
This requires a reasonable program of adjustment assistance to trade-displaced workers, focused on moving them into new employment
7

Failure to make these investments in our
human capital brings inevitable pressure to resist
change by resorting to protectionism, thus locking
us into a low-level equilibrium trap.

Constraints on Economic Policies
Macroeconomic Policies. In the halcyon days
of the early 1970s, floating exchange rates appeared to release domestic monetary policy
from the "external constraint" in countries like
West Germany and the United Kingdom, leaving
more freedom to pursue domestic macroeconomic objectives. The United States also acted
with more freedom from balanceof-payments
worries after the 1971 devaluation and the
floating of the dollar in 1973.
In retrospect, all this extra freedom resulted in
what might be pronounced a mixed blessing, as
policymakers seemed to feel it allowed them
more freedom than was actually the case. Even
with floating rates, it is necessary to convince
foreigners to lend us the excess of our imports
over our exports. Neglecting such elementary
truths, policymakers placed too much of a burden
on exchangerate fluctuations to restore external
payments imbalances during the 1970s. And
the effect of domestic policies that such nations
as the United States and the United Kingdom
followed with this new freedom were not particularly admirable. It's not so easy to escape from
the external constraint.

"Trade is a great
harbinger of civilization,
while warfare is its
destruction."

Microeconomic Policies. Economic integration
with the rest of the world means tax policies and
regulatory policies need to be harmonized to
some extent or else trade is distorted by differences in taxes or regulations. Of course it is
8

possible that the differences simply reflect varying
preferences for pollution or safety or for the
quality of public services. In that case, a familiar
public finance theory called the Tiebout model
predicts that people will simply move to the
jurisdiction that provides the environment they
prefer.
Internationally, it seems more likely that the
firms will move, instead of the people, leading to
the problem of policy competition. W h e n
countries compete for industries by lowering
taxes or pollution standards, they may wind up
with the same industries as before but with fewer
public services and lower standards than they
would have preferred if they could have negotiated an international cooperative agreement on
harmonized policies. The same phenomenon
affects international banking and lies behind the
Eurocurrency markets.
Avoiding Conflict Trade is a great harbinger of
civilization, while warfare is its destruction. The
European Economic Community was not created
simply because it might promote intra-European
trade, but because a community that bound
together both France and Germany offered the
best guarantee against a renewal of ancient
hostilities that had torn Europe apart three times
in 100 years. Americans should remember that
hard-won wisdom and avoid cutting off the few
commercial ties we retain with the Soviet Union.
W e also should remember it as we consider
whether it is more important to try to isolate
those with whom we disagree than to continue
trading with them.
I seem to be concluding here that trade is
foreign policy. For the purpose of this conference,
it might be more useful to conclude that trade is
domestic policy. I believe my arguments also
would support that statement A healthy domestic economy requires a healthy foreign trade.
But our foreign trade today is anything but
healthy. The current account deficit, $101 billion
in 1984, is expected to reach $120 billion this
year, or about 3 percent of GNP. Some look on
this with equanimity, and accuse us Cassandras
of being mercantilists. They argue that the United
States can sustain capital inflows amounting to 3
percent of G N P indefinitely, and that this country is
now a natural capital importer. But the domestic
counterpart of that capital inflow is the federal
government deficit now running about 5 percent
of GN P. Few believe the federal deficit is sustainable at that level.
DECEMBER 1985, E C O N O M I C REVIEW

The other side of non-sustainability is the trade
deficit's inexorable pressure on domestic industry
and agriculture Import-competing industries like
textiles and footwear have mounted impressive
campaigns for protection, although their problem
is the dollar's high value, accounting for the lion's
share of the increase in our trade deficit since
1980.
Domestic industry eventually will obtain a
protectionist response from Congress unless
something else relieves the unsustainable pressure on the balance of payments. That something is
a decline in the value of the dollar.

Why Is the Dollar High?
Between 1980 and its peak last February, the
dollar's value rose over 80 percent relative to the
currencies of 10 industrial countries in the Federal
Reserve Board's trade-weighted index. By midSeptember the dollar had gradually declined
some 12 percent from the peak, and by October
1 it had fallen another 6 percent What led the
dollar to rise so much and then to decline?
The primary reason for the dollar's strength, in
my view, is the decline in inflation that began in
1980 in response to changes in monetary policy
put into place in 1979 and confirmed by the
election of 1980. During the 1977-1979 period
in which the dollar fell, the U.S. inflation rate rose
above the average foreign rate for the first time in
post-war history. The crucial 1981 reversal of that
ominous trend and the continuation of low
inflation ever since has inspired renewed confidence in the future value of the dollar.
However, the dollar has risen much more than
can be accounted for by differences in inflation
alone. This is made clear by the fact that the real
or inflation-adjusted value of the dollar rose over
70 percent between 1980 and February 1985.
The explanation lies partially in expectations of
future inflation rates, which also have ebbed
dramatically from 1980. But the 1981 shift in the
mix of monetary and fiscal policy is another
major factor.
For better or worse, until 1981 monetary and
fiscal policy in the United States generally worked
in tandem, expansionary together or contractive
together. Beginning with the 1981 tax reduction
and the ensuing buildup in defense spending
cuts, U.S. fiscal policy has become steadily more
expansionary, as measured by changes in the
cyclically adjusted budget deficit By contrast,
monetary policy began its anti-inflationary course
FEDERAL RESERVE BANK O F ATLANTA

in 1981, pushing the economy deep into reces-

"Domestic industry
eventually will obtain a
protectionist response
from Congress unless
something else relieves
the unsustainable
pressure on the balance
of payments."

The combination of expansionary fiscal policy
and contractive monetary policy has kept real
interest rates high in the United States, as the
federal government required an increasing share
of the total funds in credit markets to finance its
deficit
With floating exchange rates, the normal response to this increased demand for credit has
been to encourage capital inflow from abroad,
putting upward pressure on the value of the
dollar. The counterpart of the capital inflow in
the balance of payments is a current account
deficit made possible in large part by appreciation
of the dollar.
Of course, other factors also have been at
work. Tax reductions and a low-inflation climate
have induced a sharp rise in foreign direct
investment in the United States. Foreign fears of
protectionist legislation can also help explain
this fact, however, since protectionism has been
rising along with the dollar. U.S. investment
abroad, and bank lending to foreigners in particular, have been reduced sharply because of
debt-repayment problems in the developing
countries. The debt crisis itself began in 1982,
brought on by the strong dollar and declining oil
and commodity prices. Capital flight from debtor
countries has swelled the capital inflow further,
continuing the dollars appreciation. Finally, in
the exchange market as in other asset markets,
everybody loves a winner. The expectation of a
rising dollar undoubtedly has been significant in
bringing capital into dollar assets.
9

When Will The Dollar Fall?
The dollar's 12 percent decline from February
to mid-September can be explained largely by
declining U.S. interest rates as the economic
expansion has slowed sharply, reducing the private sector's demand for credit Commercial and
industrial loans at large commercial banks that
report statistics weekly have declined 2.7 percent from March through August. Credit market
borrowing by the nonfarm corporate sector fell
30 percent in the first half of 1985 from its 1984
level.
If a recession strikes, both interest rates and
the dollar can be expected to skid farther as
private credit demands fall even more sharply,
allowing interest rates to fall and the capital
inflow to shrink. At the same time, the current
account should improve as imports decline.

"After four years of vainly
fighting off protectionism
and refusing to change
the monetary-fiscal mix
that had led to the problem, the administration
suddenly decided the
market may not always be
right after all."
A preferable scenario for a decline in the dollar
relates to a shift in the mix of monetary and fiscal
policy. Some have argued that expansionary
fiscal policy combined with tight monetary policy
was a major reason for the dollar's strength, and
reversing that combination should require smaller capital inflow and weaken the dollar, even
without a recession. However, the possibility of
gradually reducing the government budget deficit without throwing the economy into recession
probably escaped us a year or two ago.
Monetary policy already has become more
expansionary in 1985 as the fiscal stimulus now
almost entirely leaks abroad. It is hard to imagine
phasing a further step-up in monetary growth .so
carefully in conjunction with gradual fiscal contraction that it will allow the effects on the
10

economy to offset each other. That requires finetuning beyond the practices of the 1960s.
Standing in contrast to that kind of fine-tuning
is the bill recently passed into law that
would require arbitrary reductions to bring the
deficit down to zero by fiscal 1991. This proposal,
as I understand it, would punish the economy
with spending cuts and tax increases in the likely
event of a rise in the budget deficit induced by a
slowdown in growth.
A more appropriate policy stance would be to
seek a gradual reduction in the cyclically adjusted
budget deficit, allowing the automatic stabilizers to play their role as needed. This undoubtedly
would require attacking some of the budgetary
sacred cows that got us into this mess in the first
place. With a stable medium-term path for fiscal
policy, monetary policy could then play an appropriate counter-cyclical supporting role.
The Group of Five Statement on Intervention.
On September 22, the finance ministers of the
five largest industrial countries met in New York
and agreed to cooperate in actions to"encourage"
what was called "orderly appreciation of the
main non-dollar currencies against the dollar"—
in other words, depreciation of the dollar. The
announced reason was that "exchange rates
should play a role in adjusting external imbalances. In order to do this, exchange rates should
better reflect fundamental economic conditions
than has been the case."
For the U.S. government, this is a major change
from the policy in place since early 1981. The
previous policy was based on the assumption
that the market was almost always right. When
the loose-fiscal, tight-monetary policy mix pushed
the dollar up and strangled domestic industry,
the Reagan administration found itself hoisted
with its own petard. After four years of vainly
fighting off protectionism and refusing to change
the monetary-fiscal mix that had led to the
problem, the administration suddenly decided
the market may not always be right after all.
As one who believes that intervention can play
a useful role in a floating exchange rate policy, I
welcome this battlefield conversion. But before
they climb into the same foxhole I'm in, I'd like to
be sure we're on the same side. According to my
line of argument, the dollar has been high primarily because of fundamental factors such as the
administration's fiscal policy, no doubt with some
bandwagon effects and other factors added on.
A change in intervention policy without a
change in the fundamental factors keeping the
DECEMBER 1985, E C O N O M I C REVIEW

can produce a lasting, significant fall in the dollar
unless it is accompanied by either a recession or
a significant change in fiscal policy. By this late
date, it may not be possible without the recession.
If the administration continues to pretend that
its budgetary cows are sacred when everybody
else's are going to be made into hamburger, I
don't believe markets will accept that the fundamental factors really have changed. In that
case, the markets will wait until the U.S. economy
has run out of gas before letting the dollar drop of
its own accord. While the dollar dropped a
noticeable 6 percent by October 1, it didn't
move much in the next month on a tradeweighted basis.
To conclude, I welcome the change in intervention policy as a refreshing switch from dogmatism
to pragmatism. But I fear it may be used as a
temporary palliative to avoid more fundamental
policy changes that could lead to a healthier
trade picture. The evils of protectionism can be
fought only with real weapons, not with mirrors.

"I doubt that sterilized
intervention alone can
produce a lasting,
significant fall in the
dollar unless it is
accompanied by either a
recession or a significant
change in fiscal policy."
dollar up is what I call using intervention as a
substitute for monetary and fiscal policy. We
may have gone from an intervention policy that is
"do nothing" to one that tries to"do everything."
I doubt that sterilized intervention alone

NOTES
' R i c h a r d N. Cooper, "Growing American Interdependence; A n Overview,"
p r e p a r e d for a c o n f e r e n c e at t h e F e d e r a l R e s e r v e B a n k of S t Louis,
O c t o b e r 11-12, 1 9 8 5 .
2
L o i s S t e k l e r a n d P e t e r Isard, "U.& International Capital F l o w s a n d the
D o l l a r R e c e n t D e v e l o p m e n t s a n d C o n c e r n s , " B o a r d of G o v e r n o r s of
the F e d e r a l R e s e r v e S y s t e m , April 1 1 , 1 9 8 5 .
3
D a t a on a v e r a g e hourly w a g e s Wj a n d e x p o r t s a s a p e r c e n t of s h i p m e n t s
Xj for 2 0 industries y i e l d s a r e g r e s s i o n of W| = 5 . 8 6 + 0 . 1 7 5 Xj with a n

FEDERAL RESERVE BANK OF ATLANTA

elasticity of 0 . 2 6 7 at the mean. D a t a from 1981 Annual Survey of
Manufactures
( W a s h i n g t o n D.C.: U . S G o v e r n m e n t Printing Office).
' D a t a o n import penetration nij a n d a v e r a g e hourly w a g e s Wj y i e l d s a
r e g r e s s i o n of Wj = 9.31 - 0 . 1 3 3 4 m s with a n elasticity of - 0 . 1 6 4 7 at t h e
mean. Import penetration data from William R. Cline, Exports
of
Manufactures
from Developing Countries (Washington D . C : T h e Brooki n g s Institution, 1984), T a b l e A-5.

The FTC's Role
In Ensuring Free Trade
Terry Calvani

We are all more conscious today of foreign
competition than we were 20 years ago. I
would like to discuss two generally accepted
truths about competition. First, the markets for
many products are becoming more international,
so monopoly and market power are harder to
attain and less substantial as threats. Second,
imports are nonetheless subject to political
constraints and limitations such as import quotas
or voluntary trade restraint agreements negotiated with foreign governments that may be
invoked at any time. How should the antitrust
agencies factor these political uncertainties
into our otherwise objective calculations of
competition and market power?
Let me expand on that question a bit Markets
have become increasingly international since
World War II. The Federal Trade Commission
(FTC) helped shape this climate of opinion,
and has in turn been influenced by it. In our
merger analyses we carefully consider international competition. We allow mergers, even
between large firms, as long as imports are
available to keep the market competitive. Similarly, in our intervention program we point out to
other agencies the benefits of free international

The author is acting chairman of the Federal Trade
Commission. The opinions expressed in this article are the author's
own, and are not necessarily those of the commission
or any
other
commissioner.

trade. Obviously, international competition analysis concerns more than foreign production;
business leaders recognize that the rules of the
game may change suddenly as political variables
come into play.

The Basis for FTC Involvement
Just how does the FTC become involved in
international trade issues in the first place? It
happens in two ways. Trade issues may be part
of a merger analysis that reaches us in the
ordinary course of business. Or they may be
issues we single out, on our own initiative, for
presentation to other agencies as part of our
advocacy program.
The field of mergers first brought international
trade to our attention. Section 7 of the Clayton
Act bans anticompetitive mergers—defined as
those whose effect "may be substantially to
lessen competition, or to tend to create a
monopoly." 1 These anticompetitive effects
cannot be assessed in a vacuum, of course.
They must be measured for particular products
and within particular geographic markets. A
key concept is the geographic market, which
refers simply to the zone of effective competition within which, due to shipping costs and
the like, firms are able to compete with one
another.
In some cases the relevant geographic market
can be international, when goods from foreign
DECEMBER 1985, E C O N O M I C REVIEW

countries enter the United States and compete
economically with similar products manufactured here. In recent years this has become
true for a great many products. 2
Once a particular market is shown to be
international, a merger between two U.S. producers obviously may be of less antitrust concern
than it would be otherwise. The presence of
foreign competition will tend to check the
market power of the merged American firm,
restraining its ability to raise prices to consumers.
Other things being equal, a merger in these
circumstances is less likely to "substantially
lessen competition," and therefore is less likely
to violate Section 7.
The commission has had several occasions
to apply this analysis in recent years. In one
instance we examined a merger between two
domestic producers of an industrial chemical.
The firms' share of the domestic market was
above the threshold for antitrust challenge, but
their share of the worldwide market was much
lower, so we decided not to file a complaint. 3
Similarly, we decided against a complaint in a
merger involving manufacturers of a certain
precision machine component when, again,
there was a well-developed export industry in
other countries.4

"The presence of foreign
competition will tend to
check the market power
of the merged American
firm, restraining its
ability to raise prices to
consumers."
The FTC also deals with international markets
in the context of our intervention program.
Under this program we appear in proceedings
before other courts and agencies, not as a
litigant, but as a concerned neutral party with
special experience and perspective to add. In
that capacity we typically file a brief, although
we have made oral arguments and crossexamined witnesses in the past.
FEDERAL RESERVE BANK OF ATLANTA

One important group of interventions generally brought before the International Trade Commission (ITC) and the Commerce Department
involves international trade. The two agencies
have an overlapping jurisdiction in this area
and, between them, possess many powers to
limit imports into the United States. The
Commerce Department has the initial responsibility for determining whether improper dumping or importation of subsidized goods has
taken place.5 If it finds either of these practices
it refers the matter to the ITC, which determines
whether domestic industries have been materially injured as a result Antidumping duties
and countervailing duties may be imposed as
remedies in such cases.
The ITC also can determine whether "unfair
methods of competition" are being used in
import commerce, and may order offending
goods be excluded from the United States
altogether.6 Finally, under the "escape clause"
in our tariff policy the ITC can determine if
rising imports have substantially injured a
domestic industry. 7 If so, the ITC can recommend the President adopt adjustment assistance
for workers in the industry, higher tariffs, or
import quotas.
These powers are great. If the agencies apply
them mistakenly, however, they could harm
consumers by excluding or restricting lowpriced imported goods. Therefore, our intervention program ensures potential costs to American consumers are weighed carefully by other
agencies in considering whether import restraints
are appropriate.
We don't recommend free trade in the abstract That's not our proper role, and in any
case the ITC and the Commerce Department
are familiar with those concepts. Rather, we
use the research capabilities of our Bureau of
Economics to provide concrete data on specific
cases, often data that formal litigants in the
case will not have brought forward. We are
then acting, in a sense, as a representative of
the general public. 8
We try to think systematically not only about
the desirability of a trade restraint in general,
but also about the costs and benefits of particular forms of restraint We have developed an
interesting, useful methodology in these briefs.
For each proposed restraint we calculate the
likely total costs to American consumers. We
also calculate the net cost to the economy by
13

deducting from this consumer cost any increased government tax or tariff revenue and
any increased profits for American industry.
Finally, we consider the adjustment costs that
would result if protection were not provided
and workers therefore had to find new jobs.
We perform these computations for periods of
one and five years, then sum up the costs and
benefits.

General Policy Views
From its experience with these individual
projects, the commission has formed four general
policies on international trade: (1) international
competition is desirable; (2)competition should
be carried out in an environment of free and fair
trade; (3) private complaints to the ITC should
not be used to harass competitors; and (4) if free
trade must be restricted, the restriction should
be done in a way that minimizes the net costs to
society.
Let me review these principles. First, competition across national boundaries is desirable.

"Just as internationalization has been a great
boon to competition,
private attempts to stifle
international trade can
cause great harm to
competition."
Second, this international competition should
take place in a fair market, free not only of
artificial impediments but also of artificial subsidies. Subsidies distort the marketplace and
harm allocative efficiency by encouraging the
production of too much of the subsidized
product. They also cause unwarranted harm to
competitors of the subsidized firms. For these
reasons most industrialized nations have signed
the international Agreement on Subsidies and
Countervailing Measures, which provides for
countervailing duties in such cases.9 We understand that policy and will not oppose domestic
relief against subsidized imports.
14

"The worst approach (to
restricting foreign
competition) is a quota,
which sets an absolute
limit on units of the
import that can enter the
country (and) leaves little
check against market
power."
Third, complaints to the ITC, whether charging subsidization or something else, must be
justified on the merits. Firms sometimes file
such complaints not in good faith, but to
impose delay and litigation costs on foreign
rivals. I consider this a serious matter. Just as
internationalization has been a great boon to
competition, private attempts to stifle international trade can cause great harm to competition. I urge my colleagues to treat this abuse
of process as a form of non-price predation—in
other words, as an antitrust offense. The commission recently issued a complaint charging UHaul with abusing bankruptcy court processes
to injure a rival and maintain its own market
power.10 Abuse of ITC process ought to have
similar antitrust consequences.
Finally, we recognize that nations sometimes
must restrict the flow of imports. There is more
than one way to do this, however, and I think it
should be done in a way that minimizes harm
to consumers. There is a definite order of
preference in the techniques that may be used
in dealing with excessive imports.11 The best
way is to give adjustment assistance to injured
firms and individuals, such as the costs of
retraining. This course doesn't affect the costs
or quantity of the imported product, so it
doesn't distort the efficient operation of the
market. This avenue is used with caution, however, because it might distort the efficient operation of the labor market by encouraging workers
to remain in a declining industry longer than they
should.
The next best approach is to put a tariff on
the import, which raises the price of the imported
DECEMBER 1985, E C O N O M I C REVIEW

good and diverts demand to domestic products
more expensive than a free market would
support Consumers are harmed by this, but
only to a limited extent. A tariff will raise the
price of an import by a specified amount, and
the imports are available at that higher price.
They thus will tend to set a ceiling on the prices
that domestic firms can charge.
The worst approach is a quota, which sets an
absolute limit on units of the import that can
enter the country. Supply of the import cannot
expand in response to a price increase by
domestic firms, no matter how large. This
leaves little check against market power. Moreover, a quota will tend to skew imports toward
the most expensive models of the product in
question. If there are only a limited number of
import slots, and excess demand, it makes
sense for a foreign producer to fill the slots with
the most elaborate and high-profit model. This
could be seen clearly in the fully equipped
Japanese cars imported during the heyday of
"voluntary" quotas, for example.
If a nation is determined to use a quota,
however, there is still a right and wrong way to
go about it. The right way is that, once the
quota's numerical size has been decided, the
available "slots" should be auctioned off to the
highest bidder. The surplus value of those slots
will at least be captured by the U.S. government
The alternative is to permit the slots to become
a windfall to certain foreign manufacturers.
They may get rich from it, but none of that value
accrues to the U.S. economy.

These political uncertainties were present in
the FTC's best known international case, the
CM/Toyota venture. The two firms organized a
joint venture—legally a partial merger—to produce small cars in California using American
workers and Japanese management techniques.
At the time we were considering this venture,
Japanese auto exports were subject to a "voluntary restraint agreement," a sort of politically
negotiated quota To understand the auto market we had to anticipate how that quota might
change in the future.
Ultimately I concluded that the joint venture
should be approved because it would benefit
consumers regardless of what happened to the
restraint If the quota remained, the venture
was desirable because it would increase the
domestic supply of small cars. If the quota
were ever relaxed, on the other hand, the
increasing supply of small cars could discourage
any collusion, including that attempted through
the joint venture.12

"I am troubled by the
prospect of a firm using
imports to justify a
merger before my agency
and then seeking to have
them restricted by the
International Trade
Commission."

The Political Variables
So far I have been describing a fairly rational
and tidy intellectual process. The commission
advises other agencies on the consequences of
import restraints, and reviews mergers with an
eye on import competition if this is relevant
The reality is, of course, somewhat less tidy.
And here we reach the issue with which I
began. The legal environment for imports is
partly the result of a political process. Tariffs,
quotas, currency values, and voluntary restraint
agreements can rise and fall; foreign trade is
a system with many potential variables. The
antitrust agencies must grapple with these
uncertainties and find a way to incorporate
them into our analysis.
FEDERAL RESERVE BANK OF ATLANTA

The Antitrust Division's current merger guidelines also address this question of political
uncertainty.13 They state that the division will
not exclude a foreign firm from the market
entirely just because its output is subject to
quotas. Rather, the firm will be included up to
the ceiling permitted by the quota. In addition,
the quota may be "amended" for purposes of
antitrust calculations upon a clear showing that
it is likely to be revised, or that its effects will be
dissipated by offsetting supply responses from
firms in countries not subject to the quota
This is a start in the right direction. Quotas
are presumptive ceilings on foreign competition,
but the presumption can be rebutted. This still
15

leaves many questions of application to be
resolved, of course. It also leaves questions on
issues other than quotas, such as tariffs or
exchange rates.
Let's explore those questions, beginning with
quotas. Does the United States have a quota
on the product involved? Is the quota selfadjusting, perhaps as a percentage of sales? If
not, is there a disposition to change it? Is the
quota effective in limiting imports? A single
world quota probably is effective, but national
quotas sometimes can be evaded through
triangle trades. (The goods can go to a third
country, and can then be transferred or can
free up production from that country to the
United States.) Assuming that triangle trades
are theoretically possible, does the product
lend itself to that treatment? Is it a more or less
fungible commodity like crude oil, where one
country's production can substitute for another's? Or is it specialized for a particular
national market, like automobiles, that are less
readily diverted? If the product is specialized,
is that due to national tastes that might be
overcome through advertising? Or is it due to
national legislation, such as our special automobile standards that exclude vehicles not
specifically built for the U.S. market? Or is it
specialized due to a need to mesh with the
manufacturer's existing service network, which
might again be a barrier to transshipment?
These and other questions will apply to
voluntary restraint agreements, since the foreign
government is then an independent factor in
the calculus. Will that government continue to
abide by the agreement? Will its export industries press it to find loopholes? What if there is a
change of government? How likely is that to
happen?
The tariff area is no simpler. Will Congress
impose a tariff? Modify an existing one? By how
much? What if the next election goes differently?
And what of the Commerce Department and
the ITC? Will they impose countervailing duties
or dumping penalties? Will the reviewing courts
go along?
The non-legal, business aspects of the trade
infrastructure are equally complex. Here, too
many factors will affect the future importance
of foreign competition. What are exchange
rates going to do? What will happen to interest
rates in the United States and in the producing
country? Will commerce continue to flow unimpeded, or will it be affected by military actions?
16

(This is a non-trivial question for goods such as
oil, chromium, or diamonds whose production
is concentrated in unstable regions).
And finally there are the jurisprudential questions. Should the commission consider these
issues on its own initiative? Should it ask the
parties for briefs? Who would have the burden
of prool? Must a party before the commission
take consistent positions? Or can a party argue
that a merger should go through because imports will keep the market intensely competitive,
and then go to the ITC and complain that these
same imports are harming him and should be
limited?

And What Are the Answers?
I believe there are answers to these questions,
at least at a certain level of generality. To be
sure, the commission should not try for universal
answers, since most cases will depend on their
own particular facts. Indeed, we should be
cautious about trying to answer these questions
at all. We are administrators, not seers. For
these reasons we should indulge in a general
presumption that future trade conditions will
be much like present ones.
However, we have a duty to decide even
difficult cases as best we can, assessing the
relevant facts as well as we are able. When the
facts are sufficiently suggestive, therefore, we
should set aside the presumption of continuity,
and make our best estimate of future conditions.
This may lead us to conclude that foreign
competition will be more or less important in
the future than it is now. Consequently, it may
lead us to augment or to discount this factor
from what the present "objective" numbers
may appear to show.
Some special rules may apply in the jurisprudential area. Frankly, I am troubled by the
prospect of a firm using imports to justify a
merger before my agency and then seeking to
have them restricted by the ITC. I wonder if we
might be able to apply a rule of "election of
remedies." This is a familiar principle in other
areas of the law, which states a person may
have a choice between different remedies and
may select whichever he pleases, but may not
select more than one. A party to a contract, for
example, can obtain mandatory performance
or damages for breach, but not both. Here,
perhaps, a party can respond to international
DECEMBER 1985, E C O N O M I C REVIEW

we normally will take the international trade
environment as a given. We also recognize,
however, that trade barriers are political factors
that can vary over time. When necessary, we
will consider these factors and make our best
estimate of future conditions, which may lead
us to either augment or discount the role of
foreign competition. Through this process we
hope to make the most accurate assessment of
the economic world and, ultimately, the best and
most just decisions we can.

competition through merger or through import
restraints, but not necessarily through both.

Conclusion
The FTC is aware of the growth of international
trade. We will evaluate merger cases against that
background. (We will also assess against that
background other cases involving market power,
such as monopolization suits, although these are
far less common.) In making these assessments

NOTES
1

1 5 U . S C . §18.
T h i s is d u e to the c o n f l u e n c e of s e v e r a l factors: transportation s y s t e m s
h a v e improved; the global culture h a s b e c o m e more homogeneous; more
c o u n t r i e s have r e a c h e d a technical level that a l l o w s manufacturing;
more central g o v e r n m e n t s have d e c i d e d to s u b s i d i z e export industries;
a n d the world financial s y s t e m h a s d e v e l o p e d to h a n d l e this flow of
b u s i n e s s M a r k e t s are not international for all products, of course.
S o m e are held rigorously c l o s e to h o m e b y s h i p p i n g costs, s u c h a s
concrete, or by immobility, s u c h a s office r e n t a l s S e r v i c e s s e e m to
travel l e s s well t h a n m a n u f a c t u r e d goods, s i n c e it is often impractical
to move the p e o p l e involved. A s a result, service industries s u c h a s
hospitals, rail transport, or schools, g e n e r a l l y will be e x a m i n e d within
national or local m a r k e t s only.
3
B y c o n t r a s t a n interesting minority of merger c a s e s a p p e a r to be
permissible w h e n v i e w e d solely in a d o m e s t i c context, but reveal
problems w h e n e x a m i n e d in a n international m a r k e t T h e c o m m i s s i o n
recently s a w o n e s u c h m e r g e r involving a b a s i c industrial c o m m o d i t y
T h e acquiring firm w a s merely a n importer of the commodity, a n d so.
w h e n it bought a d o m e s t i c producer, it a p p e a r e d it w o u l d not affect
concentration in U.S. production C l o s e r examination s h o w e d however,
that the acquiring firm w a s a major producer o v e r s e a s a n d a likely
potential entrant into this m a r k e t s o the merger probably did h a v e
competitive c o n s e q u e n c e s A s with ordinary d o m e s t i c mergers, a k e y
element in the a n a l y s i s is the probable foreign supply r e s p o n s e to a
limited but still significant a n d nontransitory price increase.
"A s o m e w h a t atypical c a s e of this sort w a s the G M - T o y o t a venture. T h e
c o m m i s s i o n initially w a s troubled by this p r o j e c t s i n c e it brought
together the largest U S a n d J a p a n e s e a u t o m a k e r s W e insisted that
s a f e g u a r d s b e i n c l u d e d to limit the s i z e a n d duration of the joint
venture a n d e n s u r e that it would not b e c o m e a conduit for the
e x c h a n g e of price information b e t w e e n the principals With t h e s e
c h a n g e s , w e let the venture g o forward. T h e best interpretation of this
record, I think, is to s a y the c o m m i s s i o n b e l i e v e d foreign c a r s were a
significant factor in the U.S. m a r k e t that shipping c o s t s were low
enough, relative to product value, to m a k e m a n y c a r m a k e r s effective
competitors in the United S t a t e s ; a n d that our restrictions would k e e p
the joint venture a small e n o u g h part of this market to avoid competitive
problems

1 9 U . S C . § 1 6 7 1 , 1 6 7 3 et seq A preliminary hearing is held at the I T C
before the matter is first s e n t to the C o m m e r c e D e p a r t m e n t
« S e e 19 U . S C . § 1 3 3 7 . T h e President h a s discretion to d i s a p p r o v e a n
order under this statute.

FEDERAL RESERVE BANK O F ATLANTA

' S e e 19 U . S C . § 2 2 5 1 . et seq
l n 1 9 8 2 , for example, the d o m e s t i c steel industry filed a n t i d u m p i n g
a n d countervailing duty petitions a g a i n s t E u r o p e a n competitors. T h e
industry c l a i m e d E u r o p e a n c o u n t r i e s were s u b s i d i z i n g their s t e e l firms
by, a m o n g other things, s u b s i d i z i n g the price of the d o m e s t i c c o a l t h e y
were required to use. O u r staff argued, however, that a s u b s i d y m a k i n g
this c o a l competitive o n the world m a r k e t a n d e q u a l in price to foreign
s o u r c e s the steel firms w e r e prohibited from buying, w o u l d h a v e no
effect on d o w n s t r e a m competition in the production of steel, a n d
therefore w o u l d not justify a countervailing duty. T h e r e m a y h a v e b e e n
a s u b s i d y in coal, in other w o r d s but not in steel. T h e C o m m e r c e
D e p a r t m e n t a g r e e d o n this point a l t h o u g h finding other improper
s u b s i d i e s for most major producers. T h e c a s e w a s eventually settled
before a judicial resolution of that issue.
9
S e e 19 U . S C . § 1 6 7 1 , el seq.
' " A M E R C O / U - H a u l Inc. ( N o 9 1 9 3 . J u n e 24, 1985).
" T h e c o m m i s s i o n h a s d i s c u s s e d this ranking in s e v e r a l interventions
S e e , for example, Brief of F T C , N o n - R u b b e r Footwear, Investigation No.
TA-201 - 5 5 ( I T C 1985); Brief of F T C , C a r b o n a n d C e r t a i n Alloy S t e e l
Products, Investigation N o TA-201-51 ( I T C 1984).
" T h e J u s t i c e D e p a r t m e n t h a d to f a c e a similar i s s u e in the L T V steel
merger. That merger e x c e e d e d the g u i d e l i n e s for certain c a t e g o r i e s of
steel in the d o m e s t i c m a r k e t a n d a q u e s t i o n w a s whether foreign
imports w o u l d s o l v e the problem. But imports from s o m e of the most
important steel-producing a r e a s — J a p a n a n d the E E C — w e r e a l r e a d y
subject to q u o t a s a n d voluntary restraints, a n d so couldn't i n c r e a s e in
r e s p o n s e to a price rise here, u n l e s s the q u o t a s w e r e c h a n g e d
N o n e t h e l e s s two factors eventually led the Antitrust Division to
approve the merger First L T V a r r a n g e d to divest plants c a u s i n g t h e
most t r o u b l e s o m e overlap. A n d s e c o n d , the p r e s e n c e in the market of
third-country p r o d u c e r s not subject to q u o t a s h e l p e d to lower the
c o n c e n t r a t i o n index sufficiently, e v e n without postulating a n y c h a n g e
in other nations' q u o t a s S e e U S . Department of J u s t i c e , P r e s s
R e l e a s e s C o n c e r n i n g P r o p o s e d Merger of L T V Corporation a n d
R e p u b l i c S t e e l Corporation ( F e b r u a r y 15, 1 9 8 4 a n d M a r c h 21. 1984).
8

S e e Merger G u i d e l i n e s of Department of J u s t i c e , 2 Trade R e g Rptr
( C C H ) P a r a 4 4 9 0 For a d i s c u s s i o n of the new g u i d e l i n e s s e e " F o r e i g n
C o m p e t i t i o n a n d R e l e v a n t Market Definition" under the Department of
J u s t i c e ' s Merger Guidelines, Antitrust Bulletin 2 9 9 ( G o v e r n m e n t Printing Office. S u m m e r 1985).

(
i

Efficiency and Competition:
Is the U.S. Handicapped?
Roger Kubarych

What are businessmen saying about the internationalization of markets and what questions
do they ask? Clearly, they first say that the
dollar is too strong. Why? Because it undermines
their competitiveness. Every businessperson
in this country realizes that all the effort, all the
hard work, all the technical advances any wellrun company can put together in a year can be
wiped out by exchange rate changes in a week.
It's a monumental, back-breaking effort for
any kind of company to achieve a 10 percent
improvement in efficiency, yet a 10 percent
change in the exchange rate in a week is rather
ordinary these days. And so exchange rate changes
outweigh anything that can be done in the
company to improve competitiveness. U.S.
business people are at the mercy of these
unpredicted and unpredictable movements in
this important currency relationship, and they
feel threatened and vulnerable.

The author
Conference

is vice president
Board.

and chief economist

for

the

Market share can be lost because of the
change in competitiveness, particularly in Third
World markets where the loss is permanent. In
fact there's a fear of irreversibility among U.S.
businesses, a fear that a prolonged period of
overvaluation of the dollar permanently undermines the nation's position even after the
exchange rate adjusts back to more reasonable
levels.
The theory behind that is simple. During the
period when the dollar is overvalued, foreign
companies make profits that are plowed back
into their businesses. In particular, these profits
go toward increasing market share. Our businessmen have a sense that we've done permanent damage to America's export capacity by
tolerating this long period of an overvalued
dollar.
Obviously, that high dollar also pulls in imports artificially, and many companies believe
this trend to be both undesirable and possibly
irreversible. Of course, the extent and permanence of the impact depend on the particular
product.
DECEMBER 1985, E C O N O M I C REVIEW

Finally, businessmen complain, perhaps a
little less legitimately but still with quiet forcefulness, that a prolonged period of overvaluation undermines the profitability of their otherwise well-run operations abroad. If the dollar
goes to sky-high levels, common sense says
that if you have an operation in Belgium or
Germany, earning Belgian francs or German
marks, then those profits are not worth as
much. Considering the extent of American
companies with major world-wide operations—
and Coca-Cola is probably as good an example
as you can name—earnings are undercut and
the shareholders' wealth is hurt when the
exchange rates get away from the fundamentals.

"U.S. businesspeople
are at the mercy of these
unpredicted and unpredictable movements in
this important currency
relationship, and they
feel threatened and
vulnerable."
Such complaints, many of which I feel are
legitimate, did not change policy thinking in
Washington significantly until about two months
ago.
Another category of complaints from American businesspeople stems from the concern that
foreign exchange rates are too volatile—that not
only are the rates wrong, but that they fluctuate
too much. Excessive volatility makes planning
impossible. It7s difficult to go through an elaborate
planning mechanism, since scenarios must be
based on certain exchange rate assumptions.
Abrupt rate changes can wipe out those plans
instantaneously. In such an environment, the
planning process becomes less credible and,
really, not very effective.
A broader, more practical complaint that we
hear from a lot of chief executive officers is that
volatile exchange rates tempt a company to
start playing around in the financial markets
when it should be concentrating on production.
FEDERAL RESERVE BANK O F ATLANTA

Managers start thinking that the driving force in
a company's profitability is not what it produces,
but what the cash advantage may be. The sense
of superficiality worries the top leaders of
American business.
Finally, an allegation tied in with most complaints is that trade is unfair. Of course, trade is
unfair in many ways, and one businessperson's
unfairness is another's opportunity. You have
to view this with a certain amount of discretion.
But clearly there is no level playing field in
international trade, and I don't think anybody
familiar with international business will claim
that one ever existed.

Open and Closed Cases
Certainly, there is a broad appreciation by
businessmen and women the world around,
that the U.S. market is the most open. You can
go to Malaysia, you can go to Greece, you can
go to Chile, and you ask businesspeople to
name the world's most open market, and generally they answer the United States.

"Volatile exchange rates
tempt a company to start
playing around in the
financial markets when it
should be concentrating
on production."

There is no argument about this; it is a reality.
The question remains, however, precisely where
we stand in the openness spectrum. Just look
at the statistics. I recommend a booklet called
Japan 1985, An International Comparison, which
is chock-full of interesting and useful statistics. It
makes a strong case against Japan's unfair trading
practices. It points out that 84 percent of Japanese-made wrist watches are exported as are 78
percent of microwave ovens. The figure is lower
19

for bicycles, only 13 percent Japan exported
$33 billion worth of motor vehicles in the most
recent year for which they have data and imported
only $619 million worth of vehicles. That's a
pretty dramatic picture, although I will grant that
the structure of economics can be different. For
instance, the Japanese still look at the share of
manufactured goods imported into Japan as a
share of total imports, excluding oil, which means
you'll see that Japan's ratio is only 47 percent If
you do the same calculation for Germany, which
doesn't produce any oil either, the number rises
to 73 percent
I would argue, even to businessmen who
don't want to hear it, that Japan's trade restrictions themselves are not our fundamental problem. The Japanese system of "zaibatsu" involves
setting up administrative roadblocks to new
products. Every U.S. company has a war story
about trying to sell something in Japan that
Japan did not manufacture when we were
trying to penetrate the market.

"Even if we eliminate
all of Japan's direct and
indirect controls, our
problems will not end if
the exchange rates are
wrong."

All of those war stories seem to have the
same ending—our manufacturers were stalled
until the Japanese companies were able to
develop and manufacture a similar product. By
that time, we had lost the advantage of timing.
And so we encountered delay, administrative
distortion, all of the little things we do not
handle well. Such obstructions are difficult to
quantify, yet they occur frequently.
Even if we eliminate all of Japan's direct and
indirect controls, our problems will not end if
the exchange rates are wrong. Japan will have
incentives to import more—but not necessarily
from the United States. Even if Japan cancelled
20

all of its controls on beef, how much beef
would be imported from the United States at
250 yen to the dollar? None. Now at 180 or 190
yen to the dollar, which we're not too far from
now, American producers would get a real
crack at additional beef sales, if Japan removed
those controls. So, things go hand in hand.
Sophisticated businesspeople realize these
days that we must deal with exchange rates
before we start talking about trade practices.
Businessmen and women also know that
Europe is not exactly "Simon Pure." Italy, for
example, does not import Japanese cars. That
diverts much of the Japanese effort to the
world's most open market for cars, which happens to be our nation's. We see the world is
interrelated in various ways.
Finally, and probably most fundamentally,
our business community is perplexed and dazzled by the opportunities and the worries
concerning less-developed countries (LDCs).
There are many kinds of LDCs, but all of them
boast lower labor costs than the United States.
And that's a reality every American business
must confront.

Flocking to Foreign Shores
Many major U.S. companies, with wide-scale
publicity, have set up subsidiaries and manufacturing facilities in low-wage areas because
they feel they must do it. A cold-blooded
economist would say they are right—that there
is no God-given right for the American worker,
performing the same task with similar skills and
possibly less education, to earn 10 times as
much as a Korean worker.
The economist will also say that, as the
Korean worker becomes more productive, his
standard of living ought to rise. That should
offer opportunities for other businesses to sell
to the Korean workers more furniture for their
new houses and all of the other things that a
rapidly growing productivity and standard of
living should afford. But that's not happening.
The newly industrialized countries of Asia
have not expanded their demand as fast as
they've expanded their exports. Thus, we have
a major, and I think dangerous, problem dealing
with the trading practices of what you might
call the step-children of Japan.
Other groups of LDCs, particularly in Latin
America, are in the throes of an adjustment
process that puts us on hold in the short term.
DECEMBER 1985, E C O N O M I C REVIEW

It's hard to lecture Brazil, for example, about
the openness of its markets and its receptivity
to U.S. products at the same time Brazil is
desperately trying to earn foreign exchange to
repay the banks because it borrowed too much.
There is no easy way of handling such situations, I
think the best way to cope is to spread out that
debt burden. The second best way is to force
down U.S. interest rates.

The Budget Deficit
That brings us to the final problem—and I
think the U.S. business community is increasingly aware of its importance. In trying to cure
our international trade problems and put ourselves on a more solid international footing for

FEDERAL RESERVE BANK OF ATLANTA

the next 1 5 years, we have to cut the federal
budget deficit.
That huge deficit represents a tremendous
drain on our limited savings capacity and is a
major factor in keeping interest rates high. In
turn, this becomes a primary reason for the
overvalued dollar. In order to set things right
and put the American business community in a
fair position to compete, we must bring that
budget deficit down.
That won't solve the problems of Japan's
unfairness, which we'll have to keep working
on, probably for many years to come, but if we
do not start by correcting our homemade
problems, we lose any leverage to change their
policies, too.

Global Economics:
A Call for International
Solutions
Henry B. Schechter

The U.S. economy's evolution to more significant
integration in the world economy was shaped by
post-World War II conditions and new institutions designed to foster international development. When World War II ended, the United
States had a backlog of deferred consumer
demands, accumulated savings, and increased
basic industrial production capacity. That combination, plus millions of young people leaving
military service to establish households, stimulated economic activity to satisfy pent-up domestic demands. The economy also provided sufficient output to implement assistance policies to
countries whose capital resources had been
depleted by warfare.
A number of institutions were established to
foster international economic growth and stability.
The United Nations Relief and Rehabilitation
Administration helped to provide food, shelter,
and other necessities. The International Monetary
Fund (IMF) sought to maintain orderly international monetary exchange arrangements, facilitate
trade and increased output, and provide loans to

The author is Deputy Director
research
department.

of the AFL-CIO's

economic

help member countries make adjustments needed
to deal with balance of payment problems. A
sister organization of the IMF, the World Bank,
and subsequent multilateral public regional
banks, were created to make loans—generally
for longer terms than the IMF—for agriculture,
infrastructure, utilities, and other facilities and
activities to support long-term economic development
Post-war rebuilding and expansion of civilian
production facilities in many countries was aided
by this country's Marshall Plan, President Truman's
Point Four program of technical assistance for
economic development, and the Economic Cooperation Administration. During the 1970s, multilateral public banks made loans to finance increased agricultural productivity, gradually reducing dependence on the United States for
food supplies. As they regained their own growth
momentum, other industrial countriesalso made
loans and grants to aid developing countries.

The 1950s and 1960s
This country enjoyed an international trade
advantage for the first two post-war decades
because its industrial plants and equipment
DECEMBER 1985, E C O N O M I C REVIEW

remained intact during the war, while Europe
and Japan lost a good deal of their industrial
capacity. The United States realized a modest
merchandise trade balance surplus ranging between $1 billion and $7 billion annually during
the 1950s and 1960s and achieved a slightly
lower positive net balance of investment income
The positive balances for merchandise trade and
investment income more than offset sizable
outflows for military and economic aid and travel
byAmericans, so that in most of those years there
was a moderate positive balance on current
account. 1
In response to strong domestic and international economic demands, investment and economic growth increased in the United S t a t e s except for relatively minor business cycle adjustments—through most of the 1950s and 1960s.
At the end of 1969, the U.S. unemployment rate
hit a post-war low of 3.5 percent Other countries
had made significant strides in the increasing
industrial capacity, however, and by 1968-1969
our surplus of exports over imports fell to less
than $1 billion a year. We experienced merchandise trade deficits during most of the 1970s and
in every year from 1976 to the present.2

The 1970s
Throughout most of the 1970s, investment
income receipts from abroad were substantially
greater than the income payments from U.S.
investments to foreigners, so in most years the
net positive investment income outweighed the
merchandise trade deficit and the total U.S.
current account balance remained positive. However, in 1977 and 1978 we saw a negative
balanceon current account of aboutSl 5 billion a
year; in 1979 and 1982 there were small negative
balances. In 1983, the current account deficit
rose to $41 billion.3 In 1984, it was almost $102
billion, and probably will be greater in 1985,
when the merchandise trade deficit should reach
about $150 billion.4

International Lending
For the first 15 or 20 post-war years, the
developing countries depended heavily on loans
from public national and international sources,
but private banks in industrial countries also
began to expand their international lending.
FEDERAL RESERVE BANK O F ATLANTA

As debt-financed improvements in infrastructure and energy-generating capacity occurred,
developing countries could increase their mining,
and in some cases refining, of raw materials such
as copper, tin, aluminum, iron, and coal for
export to industrialized countries. They could
also begin to manufacture products for export
and for consumption by their expanding populations. A few extracted their own oil as an energy
source but many more, along with most industrialized countries, were oil importers.

"This country enjoyed
an international trade
advantage for the first
two post-war decades
because its industrial
plants and equipment
remained intact during
the war while Europe and
Japan lost a good deal
of. . . capacity."
U.S. private capital financing, in the form of
bank loans to governments and private borrowers
and direct investment by corporations and individuals, financed a good deal of the mineral
extraction and manufacturing undertaken in developing countries. The U.S. net international
investment position abroad rose from $58 billion
in 1970 to $147 billion in 1982. Total U.S. assets
abroad had grown to $839 billion by 1982; they
mostly were privately owned and included $222
billion in direct investments. Foreign assets in
this country totaled $692 billion.
By the end of 1984, U.S. assets abroad totaled
$915 billion, but foreign assets in the United
States grew to $886 billion and the net U.S.
international position shrank to $28 billion.5 This
year, the U.S. net investment position has become
negative. As foreign ownership of U.S. assets
continues to increase, so will the required dividend and interest payments to foreigners.
The negative merchandise trade balances that
this country experienced during the 1970s and
1980s were accompanied by a long-term upward
23

movement in unemployment rates. Thus the
cyclical troughs of unemployment have been 3.5
percent in 1969; 4.6 percent in 1973; 5.6 percent
in 1979; and apparently 7 percent in 1985.
Similarly, the cyclical unemployment peaks have
been 6.1 percent in 1971; 9 percent in 1975; and
10.7 percent at the end of 1982. 6 This is not a
matter of demographics, since the post-war Baby
Boomers' population bulge has passed the age of
entry to the labor force, and more frequent,
earlier retirement of men tends to offset the
entry of women. The continuing secular uptrend
in unemployment reflects an increasing economic imbalance, an imbalance related to income
levels and distribution.
As incomes in general rose in the United States
after World War II, the real incomes of families
practically doubled—some slightly less, some
slightly more. Those in the upper 20 to 40
percent developed a great deal of discretionary
income. Since the mid-1960s, the income distribution has moved toward greater inequality,
skewing toward the upper end. Thus, in the
quintile distribution of aggregate family income,
the share going to the two highest quintiles
increased from 64.3 percent in 1966 to 67.3
percent in 1984. 7 This redistribution was due
partly to changes in the relative tax burden borne
by different income groups, affecting their capacity to save and earn investment income, and a
secular rise in interest rates, both of which
worked to the advantage of higher income households.

The International Economy
While this redirection and changed distribution
of income contributed to uneven growth in the
U.S. economy, the situation worsened as this
country increasingly became a part of the international economy. The global trend is indicated
by the growing importance of international merchandise trade to the U.S. economy. In 1960,
exports amounted to about 4 percent and imports about 3 percent of gross national product
(GNP), producing a moderate trade surplus. By
1984 total U.S. international merchandise trade,
measured as a percentage of GNP, rose to 15
percent. Yet an excessive trade deficit emerged,
not a surplus; imports equaled 9 percent, but
exports only 6 percent of GNP. The United
States has suffered a merchandise trade deficit'in
each year since 1975, reaching a record $123
billion in 1984. 8
24

The world's income distribution, though, is
much more skewed than the distribution in the
United States.9 In 1984, the United States received
imports from about 100 countries. On a bilateral
basis the biggest U.S. trade deficit was with
Japan, with trade barriers and the overvalued
dollar affecting the flow. The dollar value problem
is also significant in connection with trade deficits
vis-a-vis Canada, Western Germany, and other
Western European countries. However, significant
deficits in trade with countries such as Korea,
Taiwan, Brazil, and Mexico reflect, in addition to
some trade barriers, extremely low wages that
produced low-priced goods for export to the
United States. Much of that wage differential
was captured by producers, exporters, importers,
and distributors. Low wages prevailed not only in
the larger developing countries, but also in smaller
ones such as Singapore and the Dominican
Republic Those two countries in 1984 accounted
for U.S. imports of $4.1 and $1.1 billion, respectively, and each contributed over $400 million to
our trade deficit. 10

"The United States has
suffered a merchandise
trade deficit in each year
since 1975, reaching a
record $123 billion
in 1984."

A large part of the world has been ready and
anxious to sell to the United States but has been
in no position to buy goods of equal value. The
income levels of the vast majority of developing
countries' inhabitants could not provide a market to absorb more of the output from either
their own economies or from the United States.
The international economy, therefore, cannot
have free trade and sustained, balanced economic growth. Because of the international world
economy's imbalance, U.S. producers increasingly
have lost domestic and international market
shares for various products to producers in countries with undervalued currencies, trade barriers,
DECEMBER 1985, E C O N O M I C REVIEW

and excessively low wages that greatly restrict
marketability of U.S. output in those countries.
During the 1970s, America's international financial role expanded. Nondeveloped oil-producing
countries benefited from inflated oil prices, beginning with the 1973 price hikes, and accumulated
large surpluses of hard currencies, primarily dollars.
The surplus funds were invested in securities,
bank deposits, and real estate of the leading
industrial countries. Those countries' leading
banks then undertook to recycle the dollars by
making loans to developing countries around the
world, with large U.S. banks playing a prominent
role.

" Because of the international world economy's
imbalance, U.S.
producers increasingly
have lost domestic and
international market
shares for various
products."
The OPEC oil price shocks in 1973 and 1979
helped to set off inflationary pressures in industrial
as well as developing countries. Toward the end
of the 1970s and in the early 1980s, the United
States adopted tight monetary policies to fight
inflation, generating high interest rates. In 1981,
the United States also reduced budgetary expenditures for social programs, which combined
with high interest rates to reduce economic
demand. The U.S. economy in that year went
into a deep recession that continued through
almost all of 1982 and spread to other industrialized countries as demand fell off for products
exported to this country.
Economies of developing countries, especially
larger Latin American countries, also suffered
from a decline in U.S. demand for agricultural,
mineral, and manufactured goods. Those nations
decreased exports to this country even as their
debt service payment requirements increased,
because interest rates on their adjustable rate
loans were rising. Swelling unemployment and a
FEDERAL RESERVE BANK OF ATLANTA

deficit trade balance precipitated the combined
debt and economic crises in Latin America.
Economic declines in the United States and
developing countries fed upon each other, as
each experienced slumping demand from the
other for its exports.
The second series of significant oil price boosts
in 1979 further increased the borrowing needs of
the non-oil producing developing countries. At
the end of the 1970s and into the 1980s, under
the transmitted influence of U.S. tight money
policies, interest rates remained high in the
leading Western industrial countries. The U.S.
economy also transmitted to the rest of the
world the weakened demand effects of its 19811982 recession.
What followed highlights the interdependence
of different national economies in a world economy that has become much more integrated.
Both industrialized and less developed countries
that had been shipping a good deal to the United
States faced drastic declines in their export
trade. Consequently, Latin American production
for export was reduced and unemployment rose
significantly.

"The U.S. economy. . .
went into a deep recession that continued
through almost all of
1982 and spread to other
industrialized countries
as demand fell off for
products exported to this
country."
The Latin American countries cut back their
own imports severely, pursuant to economic
adjustment programs negotiated with the IMF.
Agreement with the IMF on such a program
almost invariably was a prerequisite before private
banks would participate in credit extensions or
debt restructuring programs. Austerity programs
that the IMF negotiated with Latin American
debtor nations restricted imports, which restrained
25

the demand for U.S. products and contributed to
growth of this country's huge negative merchandise trade balance. Resulting unemployment
contracted the U.S. market making it difficult for
debtor countries to increase exports needed for
exchange to service debts, or to attain sustained
economic growth.

"As recessions in the
industrialized countries
and the developing
countries fed upon each
other, workers bore the
brunt of economic
adjustment through
unemployment and
underemployment"
As recessions in the industrialized countries
and the developing countries fed upon each
other, workers bore the brunt of economic adjustment through unemployment and underemployment There has to be balance between production
capacity and purchasing power in domestic economies, and in the international economy as a
whole, if the national and international economies are to achieve sustained recoveries and
stable growth.

Help Wanted
While economies have become more internationalized, no qualified institution has been
created or designated to deal with the problems
arising from that change. There is a need to deal
with certain macroeconomic policies of industrialized nations that can spawn and influence
debtor countries' economic adjustment programs. Fiscal and monetary policies of the
leading industrial countries, and their resultant
interest rates, no doubt have an effect upon
the exchange rates, interest rates on loans
received, and trade positions of less developed
countries. High interest rates resulting from
U.S. domestic monetary policy designed to
bring down inflation, caused European countries
26

to adopt somewhat restrictive monetary policies
and to keep their interest rates higher than
desired to counteract the outflow of capital to
this country.
Consequently, developing countries have
suffered from high interest rates on their loans.
On the other hand, the resultant high value of
the dollar has helped them sell exports in the
United States, and elsewhere, in competition
with U.S. producers. And the United States is
suffering from a massive, growing negative
trade balance, which contributes significantly
to an economic slowdown and contraction of
the largest market for products from developing
countries.
The whole quagmire of misaligned exchange
rates and the abnormal trade imbalance cries
out for an international solution. It highlights
the contrast between our significant progress
in developing an international economy and
the lack of international institutions qualified
to address the intertwined exchange rate and
trade problems. While the IMF is charged with
encouraging exchange stability and exercises
"firm surveillance" over the exchange rate
policies of its members, it does not provide a
forum for negotiating the alignment that will
promote greater balance for international trade

"While economies have
become more internationalized, no qualified
institution has been
created or designated to
deal with the problems
arising from the
change."
In the absence of such institutional innovations, the central bank of each country will
continue to give its paramount concern to
domestic economic problems. Furthermore, as
has been suggested recently by European and
Third World officials, there is a need for international discussions on monetary policy that
DECEMBER 1985, E C O N O M I C REVIEW

parallel discussions for modified trade agreements. Since the two types of policies necessarily interact, it is essential that negotiations on
the two be coordinated. The necessary international consultations and negotiations might
be undertaken under expanded auspices of
the IMF, the Organization for Economic Cooperation and Development, or in a special forum
created for the purpose.

U.S. Competition
If the foregoing remedies are adopted and
implemented, they would encourage more
stable exchange rates and increased international trade. With respect to less developed
industrialized countries, however, the serious
competitive pricing gap with the United States
and other advanced industrial countries will
not be closed because of a huge wage gap. In
many developing countries wages amount to
only a minor fraction of those paid for compar-

"The whole quagmire
of misaligned exchange
rates and the abnormal
trade imbalance cries out
for an international
solution."

Price competition by U.S. producers with
producers in low wage countries would require
such low wages in this country that it could
cause an economic contraction and a significant
reduction in the standard of living. Allowing
low-wage products of many developing countries into the United States without any restriction
would mean increased unemployment. The
long-term upward trend in our unemployment
rate over the last 15 years already has inspired
long and deep recessions that slow economic
growth considerably.
The U.S. economy was able to grow over the
past century because, as industrial productivity

FEDERAL RESERVE BANK OF ATLANTA

improved, the increased income was distributed
widely in increased wages as well as profits.
Unionization helped this process, as the country
became increasingly industrialized. Broad distribution of income, therefore, permitted a balance between production and purchasing power
that fostered further investment and balanced
economic growth, although business cycle adjustments interrupted periodically when temporary imbalances developed.
The international economy lacks an income
distribution that fosters balanced economic
growth. Continued U.S. adherence to free trade
policies would continue the secular trend toward
progressively greater contractions of the economy. The worldwide recession of 1981-82
illustrated the effect of a U.S. economic contraction on other developed and less developed
countries.

U.S. Labor
Against this background, the U.S. labor movement has advocated import quotas for various
products that would permit less developed
countries a margin of growth without overwhelming our economy.
Advocates of pure free trade claim that
workers who lose jobs because of imports
should go elsewhere to seek work, arguing that
growth requires both labor and capital resources
to be continually reallocated to their most
efficient uses. In a more formal statement of
this thesis, it has been said that unions and
benefits for the unemployed do not allow labor
"to clear the market." In other words, labor
should be treated as a commodity. That notion
was outlawed in the United States in 1914
when the Clayton Antitrust Act was enacted
with the declaration that "labor is not a commodity," exempting unions from legal characterization as a trust. The growth of unions in the
United States during most of the intervening
70 years helped provide an income distribution
to foster a balanced economy that grew over
the long run. In countries under various degrees
of military dictatorship, whether politically of
the right or left, true freedom of labor organization and bargaining rights is not permitted,
suppressing a force that contributes to national
and international balanced economic growth.

NOTES
1

Economic
Report of the President.
February
1985. table B-98, "U.S.
International Statistics," ( G o v e r n m e n t Printing Office), p. 3 4 4
Economic
Report p. 3 4 4
3
Economic
Report p. 3 4 4 .
'Economic
Indicators.
August 1985. p r e p a r e d for the J o i n t E c o n o m i c
C o m m i t t e e of the C o n g r e s s by the C o u n c i l of E c o n o m i c Advisors, table
o n U.S. International T r a n s a c t i o n s ( G P O , 1985), p. 3 6
5
U.S. D e p a r t m e n t of C o m m e r c e , Survey of Current Business
table 2
( G P O , J u n e 1985), p. 2 7
6
U.S. D e p a r t m e n t of Labor, monthly r e l e a s e s on u n e m p l o y m e n t
'U.S. D e p a r t m e n t of C o m m e r c e , B u r e a u of the C e n s u s Money
Income
ol Households
Families and Persons in the United States: 1983 ( G P O ,
1983), p p 11, 6 0 . a n d 4 5 9
2

http://fraser.stlouisfed.org/
28
Federal Reserve Bank of St. Louis

B a s i c data from Economic
Report. 1985 t a b l e s B-1 a n d B-98, p p 2 3 2
a n d 3 4 4 , a n d Economic
Indicators, p. 36.
S e e World Development
Report 1985 p u b l i s h e d by World B a n k table
28, pp. 228-9.
10
U.S. D e p a r t m e n t of C o m m e r c e , B u r e a u of the C e n s u s Highlights
of
U S Export and Import Trade FT 9 9 0 , t a b l e s 5 a n d 8 ( G P O . D e c e m b e r
1984). p p B 2 4 - 6 a n d C 2 8 - 3 0 .
" C o m p a r a b l e hourly c o m p e n s a t i o n c o s t s in the United S t a t e s a n d
about 3 0 foreign c o u n t r i e s for all manufacturing and selected individual
manufacturing industries, are e s t i m a t e d from c o l l e c t e d information by
the U . S D e p a r t m e n t of L a b o r B u r e a u of L a b o r S t a t i s t i c s Office of
Productivity a n d T e c h n o l o g y T h e figures are available upon request.
9

DECEMBER 1985, E C O N O M I C REVIEW

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International Financial
Integration: Implications
for Monetary Policy
Paul Meek

When the Croup of Five decided in September
to intervene forcefully in the foreign exchange
markets, it was news. The U.S. government at
last was ready to recognize that the dollar's
exchange rate mattered to the United States as
well as to the rest of the world. The impact of an
overvalued dollar was already clearly visible at
home in the loss of manufacturing jobs and the
depression in American agriculture. And it was
visible abroad in the overdependence of other
countries on exports to the American market
for their own growth.
Why did the dollar rise to such heights at a
time of a rapidly growing deficit in this nation's
current transactions with other countries? The
dollar's strength can be ascribed only to an
unprecedented inflow of capital to this country
that more than financed our large balance of
payments deficit This inflow reflects both the
serious imbalance in our own domestic economic policies and the rapid integration of the
world financial system.
I want to examine that financial system and
how it interacts with national economic policymaking. My theme is that we need effective
U.S. leadership and international cooperation
to achieve adequate growth without inflation.

The author is a consultant
to central banks and a retired
monetary advisor for the Federal Reserve Bank of New York.

The mobility of capital increases the risks
involved in policymaking, but we cannot let
our fears freeze us into inaction. The world
economy can slide all too easily into financial
turmoil, self-destructive protectionism, and
economic stagnation.

The International Financial System
The present financial system rests firmly on
the dollar as the premier international currency.
About two-thirds of all official foreign exchange
reserves are held in dollars. The markets for
dollar assets are far and away the most liquid in
the world; they are linked through the foreign
exchange markets to both national money
markets and the offshore markets denominated
in deutschemarks, Swiss francs, and yen.
U.S. financial institutions and markets energize this financial system; they provide businessmen, portfolio managers, and central banks
with credit and a wide range of asset choices as
well as the techniques for managing interestrate and foreign exchange risks. But dollar
markets extend well beyond our own shores.
Commercial banks of many nations bid for
dollar deposits throughout the world and relend the funds attracted. These banks convert
dollars into other currencies on demand and
offer deposit facilities in the other major currencies as well.
DECEMBER 1985, E C O N O M I C REVIEW

Similarly, investment bankers underwrite
intermediate-term securities for corporate and
government borrowers and maintain secondary
markets for these issues. They also arrange
long-term interest rate or foreign exchange
swaps that allow corporations and governments
to manage risk better or to reduce the cost of
borrowed funds.
The importance of offshore deposit and loan
markets to the international financial system
can hardly be overstated. The Eurocurrency
market constitutes a banking system without
reserve requirements, one which can pay higher interest rates for deposits in most currencies
than regulated domestic banking systems. This
natural advantage permits offshore banks to
price loans to borrowers at lower rates than
prevail in domestic loan markets. By lending at
a mark-up over the rates they pay on deposits,
banks pass on the risk of interest rate fluctuations to the borrower.

"The mobility of capital
increases the risks
involved in policymaking,
but we cannot let our
fears freeze us into
inaction."

The Eurobanking system expanded rapidly
in response to emerging credit demands in the
world economy in the 1960s and 1970s. After
the first oil shock, banks syndicated loans to
governments on a grand scale, recycling OPEC
deposits to industrial countries needing to pay
for oil. As the 1970s moved on, banks reached
out to developing countries in increasing volume, helping them to maintain imports and
economic growth at a faster pace than their
own resources would have allowed. As reported
by the Bank for International Settlements (BIS),
net new international bank credits rose from
$40 billion in 1975 to $160 billion five years
later, when the deep recession of the early
1980s drastically scaled back lending.
FEDERAL RESERVE BANK O F ATLANTA

In the last few years international bond sales
have risen as bank lending declined. Industrial
countries have become chief borrowers as
developing countries were squeezed out of
the world credit market. Last year, securities
offerings raised $84 billion in net new money,
about equaling the reduced volume of new
bank credit. New issues this year are running
about 50 percent higher than last.
As detailed in the BIS annual report, banks
are active borrowers, extending the maturities
of their liabilities to compensate for stretching
out their sovereign credits. Floating rate notes
are a favorite means of improving the match
with their assets, as are fixed rate issues converted to a floating rate basis through interest
rate swaps. Corporate and government issuers
also are active, often repaying bank debt with
the proceeds. Borrowers frequently used multiyear currency swaps to convert liabilities from
the currency in which borrowings are most
attractive to dollars or another currency.
Japanese and European investors sought out
high-quality bonds from industrial countries in
the active markets of New York, London, and
Tokyo. Savings generated by world economic
recovery fueled the integration of world markets and investors' demand created a borrowers'
market. Highly regarded corporate and sovereign borrowers could obtain intermediate-term
funds at historically low spreads above U.S.
government issues. Insistent Japanese demand
for U.S. government securities fostered active
secondary markets in both London and Tokyo,
while making a success of several foreigntargeted issues sold by the U.S. Treasury.
The international financial system adapted
rapidly to recent economic turbulence. Futures
contracts in U.S. and British government securities facilitated rapid portfolio changes and let
dealers maintain functioning markets even
when prices were volatile. Futures contracts in
foreign exchange also brought in many new
participants to share the risks of rapid movements in rates.
Banks have joined investment bankers in
developing interest rate swaps and extending
the term of foreign exchange swaps, which
helps to integrate domestic and international
debt markets and increase their own efficiency.
Bank credit lines in the form of note issuance
and other credit facilities eased the growth of
the international debt markets.
31

"The international credit
explosion of the late
1970s fanned the spread
of inflation and affected
wage contracts, pricing
decisions, and consumer
attitudes in many
countries."
Telecommunications make the global village
a reality in the finance field. Traders turn to
computer screens throughout the world to
follow the federal funds rate and the latest U.S.
economic data. Economists present the implications of new developments for interest and
exchange rates almost immediately-over the
information networks. Key international currencies trade virtually around the clock. Investors can tap an active secondary market in
U.S. Treasury securities at almost any hour,
facilitating portfolio shifts in this most liquid
and widely held of debt securities. Finally,
automated systems keep abreast of ownership
changes that mirror asset decisions and the
distribution of marketable debt.

Policymaking and the International
Financial System
How is the world different these days for
policymakers? First, big swings in credit flows
to sovereign governments can exert a powerful
influence on the world economy through their
impact on national economic policies. Secondly, the increased mobility of capital makes U.S.
monetary policy even more important to the
world's economic performance. Yet, given the
buildup in U.S. foreign liabilities, that same
mobility poses bigger risks to policymakers.
On the first point, by the late 1970s the
competitive outpouring of credits to sovereign
governments had undermined financial discipline for a large number of countries. The
International Monetary Fund (IMF) had little
32

clout Even today its loans of $40 billion compare with $1.4 trillion in credits outstanding in
the Euromarkets. The international credit explosion of the late 1970s fanned the spread of
inflation and affected wage contracts, pricing
decisions, and consumer attitudes in many
countries. Monetary policymakers were slow
to realize the extensive change in business and
consumer behavior. Consequently, monetary
growth, economic activity, and inflation ran
well ahead of their forecasts.
When governments turned to fighting inflation, the resultant tightening of monetary policy and high interest rates affected industrial
countries first The flow of international credit
did not subside immediately, however; bank
lending kept rolling after the second oil shock
as developing countries borrowed still more to
pay the even higher oil bills while trying to

"The international
financial system can no
more be left to manage
itself than domestic
systems. The present
system . . . allows human
enthusiasms and
depressions to overreach
themselves."
Only as the deep recession in the industrial
countries cut demand in world markets and
commodity prices broke sharply did banks and
overextended developing countries confront
the full burden of future debt service. Loans to
developing countries fell from $84 billion in
1981 to merely $14 billion last year, and most
of that was extended as part of various refinancing packages. In the belt-tightening, developing
countries drastically cut imports, one source of
the United States' deteriorating trade picture.
The international financial system can no
more be left to manage itself than domestic
systems. The present system, like most national
financial systems, allows human enthusiasms
and depressions to overreach themselves. But
DECEMBER 1985, E C O N O M I C REVIEW

national policymakers have yet to develop
clear, coordinated strategies for dealing with
excessive swings in high-powered credit to
sovereign governments.
We are all too apt to see the world through
national glasses. Recall how most U.S. economists decried the exuberantly expansive U.S.
fiscal policy set in motion by the administration
in 1981. In retrospect though, this policy, for all
the dangers it poses over the long term, provided the vital spark to production that enabled
the world financial structure to survive the
disinflation then in process. The United States
stepped into world credit markets to finance
the growth touched off by the burgeoning
federal deficit It replaced the developing countries as an outlet for world savings and thereby
spurred economic recovery. Without that fiscal
stimulus, a disastrous cycle of international
debt repudiation and financial distress might
well have devastated world trade and output
as happened in the 1930s.
Nonetheless, our loose fiscal—tight monetary policy mix left a legacy that must be faced.
We have already accumulated huge debts to
the rest of the world and experienced a steep
appreciation of the dollar. The United States
dissipated in short order the net creditor position built up over the previous 70 years. Gerald
Corrigan, president of the Federal Reserve
Bank of New York, has projected a $500 billion
net debtor position by 1990.
To be sure, the decline in inflation, the high
level of real interest rates, and the strong
economy permitted us to attract foreign private capital on such a scale that the dollar
appreciated through early 1985. But this year
we have learned—like the United Kingdom
and Switzerland before us—that maintaining
an overvalued exchange rate ultimately undermines economic growth and the industrial
base.
Integration of the world financial system
strengthened the reach and .power of U.S.
monetary policy but also added to the risks
faced by policymakers. The mobility of capital
ensures that the Federal Reserve's disinflationary policy strongly affects foreign markets,
exchange rates, and economic policies. But the
need to finance the large current account
deficit is a source of vulnerability to the United
States as Treasury Secretary James Baker seeks
to renew U.S. leadership in the economic
sphere.
FEDERAL RESERVE BANK OF ATLANTA

Integrated financial markets react much more
rapidly to information on the world economy
or official policies than do markets for goods
and services. The availability of 24-hour markets
in foreign exchange and U.S. government securities, as well as in futures and options, permit
participants to change their asset portfolios
rapidly at little cost. Traders in both asset and
foreign exchange markets respond quickly to
incoming information, whose predictive power
is often modest—for example, knee-jerk reactions to surprises in weekly money supply data
More importantly, traders and investors in
these integrated markets try to spot a trend and
ride it Both the dollars depreciation in the late
1970s and its appreciation since exemplify the
human tendency to go too far first in one
direction and then in the other.

"The United States
dissipated in short order
the net creditor position
built up over the previous
70 years."

National policymakers in most other countries are all too familiar with the harsh disciplines that financial markets can impose on
nations perceived to have overly expansive
policies. Potential capital flows have grown
beyond the ability of central banks, individually or collectively, to sustain currency relationships that appear untenable to the market. The
scale of capital outflows from Latin America in
1981 and 1982, for example, foretold the
inevitability of harsh domestic measures even
before the availability of international credits
ran out
In conducting monetary policy, the Federal
Open Market Committee must always bear in
mind the speed with which market perceptions
of the dollar can change. A rapid depreciation
could increase domestic prices if the world
economy was strong. Yet there are downside
33

risks in sustaining interest rates and the dollar
at levels that may keep world growth well
below its potential.

The World Situation
Policymakers face a difficult challenge in
managing the world economy. The IMF calculates that industrial countries need to maintain
real growth at their productive potential of
about 3 percent if developing countries are to
reduce their external debt ratios significantly
over time. Growth in these countries could
then be at 4.5 to 5 percent annually, diminishing
further the risk of a country defaulting.
The question is whether growth in 1986 will
be strong enough. In 1985 the slowdown in
industrial country growth to about 3 percent
has been accompanied by a decline of 11
percent in non-oil commodity prices. Growth
in Latin American and African developing countries is projected at less than 2.5 percent for the
year.
The first reason for doubt springs from the
lack of zip in our own outlook for 1986. Even if
we do grow at 3 percent in real terms, the
external stimulus may be small. Our trade
deficit seems unlikely to exceed by much the
record $150 billion forecast for 1985. The
country has reached the political tolerance
limit for displacing domestic agriculture and
industry through an overvalued exchange rate.
If the dollar declines further in foreign exchange markets, the lower stimulus to world
growth will come through operation of the
price system, a result much to be desired. But
further protectionist moves also seem likely.
Treasury Secretary James Baker is to be commended for recognizing the importance of restoring the dollar to a more viable level, improving
American agriculture and industry's opportunities to compete. Given the risks of future overshooting on the downside in the exchange rate, it
seems prudent for the United States to build up
a $20 to $30 billion reserve in foreign currencies.
Such a reserve should be employed cooperatively
with other countries only if the dollar begins to
drop steeply or becomes clearly undervalued.
However, we know from experience that intervention cannot substitute for balanced domestic
policies that keep demand within bounds.'
A second handicap to necessary growth in
the world economy is developing countries'
34

limited access to new credit. The fact that
international business is finding credit readily
available for leveraged buy-outs and restructuring balance sheets seems unlikely to provide
the same impetus to world demand in the near
term as sovereign credits to developing countries. Secretary Baker appears to be on the right
track in trying to persuade bankers that net
new lending is in order for developing countries pursuing appropriate domestic policies.
All told, growth ata3 percent pace in industrial
countries for 1986 may not support adequate
progress in the developing world. How can
official action improve the outlook?
The most popular answer around the world is
that the United States should cut its fiscal deficit.
Such action would remove the burden on American monetary policy to maintain real interest
rates at levels needed to finance the country's
excessive consumption. The resultant decline in
interest rates and rise in credit flows could
encourage investment worldwide and reduce
the debt service charges now restraining growth
in many countries. Moreover, the dollar's decline
in exchange markets would help stimulate the

"We know from experience that intervention
cannot substitute for
balanced domestic policies that keep demands
within bounds."

The prescription is sound, but progress is
agonizingly slow. The President expresses rhetorical interest in the goal, but has not given
Treasury Secretary Baker adequate leeway to
make real progress. The gap between receipts
and expenditures seems certain to remain much
too wide as long as military spending cannot be
touched nor taxes raised.
American policymakers argue now, as in the
late 1970s, that other countries should adopt
DECEMBER 1985, E C O N O M I C REVIEW

more expansive fiscal policies. European unemployment hangs around 11 percent even
while governments strive to reduce fiscal deficits. Japan and several other countries of east
Asia have been overly dependent on exports to
the United States for their growth. Surely these
countries could stimulate their own economies
with little fear of kindling inflation, since inflationary expectations are not widespread. The
case for more stimulative policies abroad is
plausible, especially if the United States begins
to reduce its own deficits; but, we should not
expect too much from this effort in 1986.

"The gains on inflation
are hard won and we
should be no more
anxious than our
European and Japanese
friends to let the inflation
genie back out of the
bottle."
What are the possibilities for flexible use of
monetary policy while we await some sensible
action from the administration and Congress?
Could other countries spur expansion? Until
early 1985, the stumbling block was the strength
of the dollar. Still worried about inflation, most
industrial countries were reluctant early in the
year to see their currencies depreciate further
against the dollar after its peak Generally they
have brought their interest rates down with ours
in 1985. If the dollar is still overvalued by 1 5 to
20 percent, as most commentators think, cutting
their rates relative to ours would strengthen the
dollar and increase the trade account dragon the
U.S. economy. The Bank of Japan's recent efforts
to bolster the yen by raising domestic interest

FEDERAL RESERVE BANK O F ATLANTA

rates must indicate the importance they attach
to keeping American protectionism at bay—it is
not a policy designed to bolster either their
domestic economic outlook or that of the world.
Is there room then for the Federal Reserve to
ease up a bit here while Congress and the
administration gather courage to do what is
indispensably necessary? The gains on inflation
are hard won and we should be no more anxious
than our European and Japanese friends to let
the inflation genie back out of the bottle. But is
there much risk? The high prices of the late 1970s
have brought forth an increased supply of most
internationally traded commodities. The vigor of
growth in the narrow measure of the nation's
money supply, M l , would argue against further
monetary ease. But monetary policy would have
been disastrous in several recent periods had it
been guided solely by that aggregate The broader
aggregates have been behaving reasonably. O n
balance, a probing move toward ease—say a cut
of one-half percentage point in the discount
rate—appears warranted to guard against a shortfall in world growth.
Is there a significant risk that the dollar might
fall precipitously further because the markets
conclude the Federal Reserve is abandoning its
concern with inflation? This seems unlikely. The
Federal Reserve has built up well-deserved credibility as an inflation-fighter over the past five
years. The risk would be even less if we could
arrive at an informal understanding with other
leading countries that they will lower their rates
relative to ours if the dollar declines too rapidly.
They have as much interest as we in avoidingthe
reemergence of an undervalued dollar or a
revival of inflationary psychology. And they are
more accustomed than we to basing policy on
exchange rate considerations.
The greatest need is to reduce the size of the
U.S. fiscal deficit. But there does seem to be
room for a probing move toward ease by the
Federal Reserve. The great virtue of monetary
policy is its flexibility. Now is the time to use it,
knowing we can reverse direction in short order
if the world economy picks up speed too rapidly.

x>\®

^ ^ INTER STAT E BANKING
Strategies for a New Era
Conference

Proceedings

With interstate banking an accepted fact in many states, indeed in several regions the financial
community needs to consider a new realm of practical and theoretical concerns In November 1984, a
Federal Reserve Bank of Atlanta conference explored the interests and strategies needed to compete
with financial services firms expanding over state lines Blue-ribbon panelists tackled the issues of large
versus small bank strategies marketing innovations legal questions and consumers' worries The
recently published essays will inform and challenge anyone interested in the future of banking. To order
your copy, please fill out the coupon below.
Order from: GREENWOOD PRESS, 88 Post Road West, P.O. Box 5007, Westport, CT 06881
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How to Compete
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Payments in the
Financial Services Industry

Growth Industries
In the 1980s

http://fraser.stlouisfed.org/ Proceedings of conferences sponsored by the Federal Reserve Bank of Atlanta
Federal Reserve Bank of St. Louis

1 9 8 5 Index
Compiled by George Briggs

AGRICULTURE
Agricultural Banks in the
Southeast
How Are They Faring?
Keith Keplinger. W. G o n e Wilson,
Sylvester J o h n s o n a n d D a v i d D. Whitehead,
May, 4.
The Cattle Cycle: A Pattern Cone Awry.
Charles Lokey. )r. a n d W, G e n e Wilson,
October, 38
Farmland Price Behavior: A Study in Diversity.
W. G e n e W i l s o n a n d G e n e D. Sullivan, April, 20.
Farm Programs: How Important to the Southeast!
W, G e n e Wilson, G e n e D. Sullivan a n d
Charles Lokey, )r„ August. 29.
Trends in Florida Citrus.
W. G e n e W i l s o n a n d A n n Pegg, April, 27.

BANK CAPITAL
Affiliated Bank Capital.
Larry D. Wall, April, 12.
Regulation of Bank's Equity Capital.
Larry D. Wall, November, 4.

The Thrift Charter A Valuable
Alternative
lor Commercial
Banks!
Sylvester Johnson, October, 26.
Upstate New York: Tough Markets lor City
B. Frank King, June/July, 30.

Using a Trade-Weighted
Currency
Index
D a v i d L Deephouse, June/July, 36.
Banks.

FEDERAL BUDGET
The Federal Budget Process:
Lisa E. Rockoff, May, 34

How it Works.

FINANCIAL STRUCTURE

Nonbank Banks: What Next!
B. Frank King, May, 40.

FOREIGN INVESTMENT

Foreign Direct Investment-A
Bonus
for the Southeast.
William ). Kahley, June/July, 4.

INDUSTRY STUDIES

BANK EARNINGS
Bank and Thrift Profitability:
Does Strategic Planning Really Pay!
David D. W h i t e h e a d a n d Benton E. Gup,
October, 14.
Profitability: S E. Banks Fare Better than Most.
Larry D. Wall, |une/|uly, 18.

Changing
Patterns: Reshaping
the
Southeastern
Textile - Apparel
Complex.
D a v i d M. Avery a n d G e n e D. Sullivan,
November, 34.
Why are Business and Professional
Services
Growing so Rapidly!
Bobbie H. McCrackin, August, 13.

INTERNATIONAL E C O N O M Y

BANK SURVEILLANCE
Bank Safety Risks and
Responsibilities.
Robert P. Forrestal, August, 4.

D E P O S I T O R Y INSTITUTIONS
Agricultural Banks in the
Southeast
How are they Faring!
Keith Keplinger, W G e n e Wilson,
Sylvester Johnson a n d D a v i d D. Whitehead,
May, 4.
Bank and Thriit Profitability:
Does Strategic Planning Really Pay!
D a v i d D W h i t e h e a d a n d Benton E. Gup,
October, 14.

FEDERAL RESERVE BANK O F ATLANTA

Efficiency and
Competition:
Is the U. S
Handicapped!
Roger Kubarych, D e c e m b e r , 18.
The FTC's Role in Ensuring Free Trade.
Terry Calvani, D e c e m b e r . 12.
Global Economics A Call for International
Solutions.
H e n r y B. Schechter, D e c e m b e r , 6.
The Global Economy. A Closer Look.
Christopher Paul Beshouri, August, 49.
Integrating Forces in the World
Economy
How Have They Affected the
Southeast!
Stanley W. Black. Ill, D e c e m b e r , 6.
International Financial
Integration:
Implications
for Monetary
Policy.
Paul Meek, D e c e m b e r , 30.
Introduction.
Robert P. Forrestal, D e c e m b e r , 4.

INTERSTATE BANKING

Concentration
in Local and National
Markets.
Stephen A Rhoades, March, 28.
Congressional
Update and
Outlook
on Interstate
Banking.
John T. Collins, March, 23.
Florida's Interstate Banking
Debate
Larry A Frieder, May, 20.
Going Interstate by Franchises or Networks.
Gerald Eickhoff, January, 32.
Interstate Banking's Impact
Upon
Financial System Risk.
Robert A Eisenbeis, March, 31.
Interstate Banking: Probability or Reality!
D a v i d D. Whitehead, March, 6.
Large Banks' Strengths and
Weaknesses.
Richard W. Nelson, January. 21.
An Overview of Acquirer's Strategic
Choices
John Danforth, January, 12.
Preparing for Interstate
Banking:
Maximizing A Bank's Value.
Edward E. Furash, January, 6.
Prices Paid tor Banks.
David C. Cates, January, 36
Small Banks' Strengths and
Weaknesses.
Julian E. Fant, Jr., January, 27.
States' Interstate Banking
Initiatives.
Robert A Richard, March, 20
Strategies for Potential
Acquirees.
Jon Burke, January, 16

MONETARY POLICY
International
Financial
Integration:
Implications for Monetary
Policy.
Paul Meek, D e c e m b e r , 30.
Lags in the Effect oi Monetary PolicyMary Susan Rosenbaum, November, 20.

NATIONAL E C O N O M Y
The U. S. Economy in 7985 and
Robert P. Forrestal, April, 4.

Beyond.

NONBANK BANKS
Nonbank Banks: What Next!
B. Frank King, May, 40.

REGIONAL E C O N O M Y
Alabama:
Heart of Dixie" Slackens Beat.
Charlie Carter, February, 58.
Changing Patterns: Reshaping the
Southeastern
Textile-Apparel
Complex
D a v i d M. Avery a n d C o n e D. Sullivan.
N o v e m b e r , 34.
farm Programs: How Important to the
Southeast
W G e n e Wilson, G e n e D Sullivan a n d
Charles Lokey, Jr. August, 29.
Florida: S u n n y with a Few Clouds.
D a v i d M. Avery a n d B. Frank King,
February. 12.
Foreign Direct Investment-A
Bonus
lor the Southeast.
William ). Kahley, lune/July, 4
Georgia' Stong but Moderating
Growth.
Joel Parker a n d M e h m e t llgaz.
February. 23.
Louisiana: Slow Speed
Ahead.
William J. Kahley a n d Gustavo A U r e d a ,
February. 47.
Integrating Forces in the World
Economy
How Have They Affected the Southeast>
Stanley W. Black, III, D e c e m b e r , 6.
Mississippi: Moving Ahead but Slowly.
W G e n e W i l s o n a n d G e n e D. Sullivan,
February. 69.
Southeastern
Economic
Outlook.
G e n e D. Sullivan, William ). Kahley a n d
O t h e r Staff M e m b e r s . February, 4.
Tennessee: Slower Growth
Ahead.
Bobbie H M c C r a c k i n , February 34.

REPURCHASE AGREEMENTS

Controlling Credit Risk Associated with Repos
Know your
Counterparty.
Gary H a b e r m a n a n d Catherine Piche',
September. 28
Custodial Arrangements
and
Other Contractual
Considerations.
D o n Ringsmuth, September, 40.
The Government
Securities
Market:
Playing Field for Repos.
Richard Syron a n d Sheila L Tschinkel,
September. 10.
Identifying and Controlling Market Risk.
Sheila L Tschinkel. September, .35
Overview.
Sheila L Tschinkel. September, 5.
State and Local Governments'
Use of Repos:
A Southeastern
Perspective.
Bobbie H. McCrackin, A. E. Martin a n d
William B. Estes, III, September, 20.

RETAIL SALES
Retail Sales: A Primer.
R. Mark Rogers, April, 28

TEXTILES

Changing Patterns: Reshaping the
Southeastern
Textile - Apparel
Complex.
D a v i d M. Avery a n d G e n e D. Sullivan.
November, 34

U. s. SECURITIES MARKET

Controlling Credit Risk Associated with Repos:
Know Your
Counterparty.
Gary H a b e r m a n a n d Catherine Piche',
September. 28.
Custodial Arrangements
and
other Contractual
Considerations.
D o n Ringsmuth. September, 40
The Government
Securities
Market
Playing Field for Repos.
Richard Syron a n d Sheila L Tschinkel,
September. 10.
Identifying and Controlling Market Risk.
Sheila L Tschinkel. September, 35.
Overview.
Sheila L Tschinkel, September, 5.
State and Local Governments
Use of Repos:
A Southeastern
Perspective.
Bobbie H. M c C r a c k i n , A E. Martin a n d
William B. Estes, III, September, 20.

STRATEGIC PLANNING

Bank and Thrift
Profitability
Does Strategic Planning Really Payi
D a v i d D. W h i t e h e a d a n d Benton E. C u p ,
October, 14.

U. S. TRAVEL DEFICIT
The Dollar and the U.S. Travel Deficit
Jeffrey A Rosensweig, October, 4.

DECEMBER 1985, E C O N O M I C REVIEW

FINANCE
rlr*ir*ir*i

OCT
1984

ANN.
%
CHG.

1,522,129 1 ,532.
1,414,002
329,421
321.,895
308,345
107,131
107.,531
90,212
426,536
429.,354
358,365
696,603
710.,547
695,481
64,834
65.,467
57,705
7,590
6.,700
6,159
57,206
57.,832
39,309

+ 8
+ 7
+19
+19
+ 0
+12
+23
+46

Savings & Loans**
Total Deposits
NOW
Savings
Time

OCT
1985

SEPT
1985

ANN.
%
CHG.

OCT
1985

SEPT
1985

OCT
1984

744.,128
26.,549
177.,029
542.,021
SEP
636.,914
65,,738

737,730
25,294
176,318
537,643
AUG
632,356
67,057

701.,480
20.,365
163.,565
520.,264
SEP
617.,5/4
40,,705

+ 6
+30
+ 8
+ 4

98,993
3,819
22,479
72,488
SEP
92,529
5,182

97,788
3,932
22,135
70,445
AUG
92,186
5,173

93 ,740
3 ,157
20 ,782
69 ,458
SEP
74 ,309
4 ,732

+ 6
+21
+ 8
+ 4

6,518
252
1,129
5,180
SEP
5,753
417

6,455
231
1,103
5,151
AUG
5,603
406

5 ,927
166
913
4 ,880
SEP
4 ,265
177

+10
+52
+24
+ 6

63,847
2,391
15,443
45,452
SEP
56,652
3,421

63,119
2,627
15,174
43,645
AUG
56,663
3,409

60,049
2.,184
14,238
42.,789
SEP
43.,626
3,,009

8,612
505
1,887
6,363
SEP
10,493
479

8,445
446
1,882
6,256
AUG
10,426
483

8,,174
283
1.,804
6,,222
SEP
8,,950
462

+ 5
+78
+ 5
+ 2

10,918
327
2,398
8,290
SEP
10,279
298

10,796
320
2,356
8,246
AUG
10,303
307

10.,773
267
2.,294
8,,348
SEP
9,126
568

+ 1
+22
+ 5
- 1

2,099
75
333
1,709
SEP
2,610
242

1,929
61
322
1,597
AUG
2,544
267

1,,605
49
283
1,,448
SEP
2,038
175

+31
+53
+18
+18

6,999
269
1,289
5,486
SEP
6,742
325

7,044
247
1,298
5,550
AUG
6,647
301

7,,212
208
1,,250
5,,793
SEP
6,304
342

- 3
+29
+ 3
- 5

$ millions
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

Mortgages Outstanding
Mortgage Commitments

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

175,473
37,981
14,229
52,786
72,580
7,573
712
6,588

177,232
36,728
14,148
47,960
82,437
7,469
687
6,583

160 ,6Ub
35 ,450
11 ,429
41 ,024
76 ,866
6 ,447
555
5 ,753

+ 9
+ 7
+24
+29
- 6
+17
+28
+15

Savings & Loans**
Total Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

17,310
3,969
1,365
3,691
8,809
1,167
135
966

17,915
3,894
1,394
3,722
9,320
1,153
135
948

17 ,102
3 ,726
1 ,063
3 ,289
9,525
975
96
853

+ 1
+ 6
+28
+12
- 8
+20
+40
+13

Savings & Loans**
Total Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

64,482
13,871
6,034
22,133
24,248
3,357
353
2,840

63,972
13,080
5,836
22,158
24,380
3,363
336
2,875

bb.,24b
12.,338
4.,683
19,290
21,180
2,,888
283
2,,473

+15
+12
+29
+15
+14
+16
+25
+15

Savings & Loans**
Total Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

^2/\555
7,681
1,921
7,471
11,881
1,532
117
1,433

28,305'
7,547
1,992
7,554
12,520
1,531
109
1,428

24.,828
7,,255
1,,556
5.,917
11.,517
1,,373
181
1,,279

fil
+ 6
+23
+26
+ 3
+12
+50
+12

Savings & Loans**
Total Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

28,019
5,368
1,733
6,646
14,786
272
17
186

28,22?
5,332
1,750
6,663
14,960
192
18
184

2b,, 3 ^
5,443
1,,499
5,,438
14,,469
181
16
177

+ 6
- 2
+16
+22
+ 2
+50
+ 6
+ 5

Savings & Loans**
Total Deposits
NOW
Savings
Time

Comnercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

13,019
2,554
989
2,582
7,208

13,205
2,455
975
2,607
7,432

Ì2, 23Ì
2,,315
817
2,,304
7,,110

+ 6
+10
+22
+13
+ 4

Savings & Loans**
Total Deposits
NOW
Savings
Time

Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time

25,088
4,538
2,187
5,145
13,290
1,245
90
1,163

25,613
4,420
2,201
5,256
13,825
1,230
89
1,148

2 3 ,,826
4 ,,373
1,,811
4 ,,786
13,065
1,,030
70
971

Mortgages Outstanding
Mortgage Commitments

+ 5
+ 4
+21
+ 8
+ 2
+21
+29
+20

Savings & Loans**
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments

+ 3
+61

+25
+10

+35
+136

+
+
+
+

6
9
8
6

+30
+14

+17
-48

+28
+38

+ 7
- 5

Notes: All deposit data are extracted from the Federal Reserve Report of Transaction Accounts, other Deposits and Vault Cash (FR2900), and
are reported for the average of the week ending the 1st Monday of the m o n t h . This d a t a , reported by institutions with over $15 million in
deposits and $2.2 million of reserve requirements as of June 1 9 8 4 , represents 95% of deposits in the six state area. The annual rate of
change is based on most recent data over December 3 1 , 1980 b a s e , annualized. The major differences between this report and the "call report"
are size, the treatment of interbank deposits, and the treatment of float. The data generated from the Report of Transaction Accounts is for
banks over $15 million in deposits as of December 3 1 , 1979. The total deposit data generated from the Report of Transaction Accounts eliminates
interbank deposits by reporting the net of deposits "due to" and "due from" other depository institutions. The Report of Transaction Accounts
subtracts cash in process of collection from demand deposits, while the call report does n o t . Savings and loan mortgage data are from the Feder;
Home Loan Bank Board Selected Balance Sheet D a t a . The Southeast data represent the total of the six states. Subcategories were chosen on a
selective basis and do not add to total.
* = fewer than four institutions reporting.
Digitized
** =for
S&LFRASER
deposits subject to revisions due to reporting changes.

http://fraser.stlouisfed.org/
FEDERAL RESERVE BANK OF ATLANTA
Federal Reserve Bank of St. Louis

CONSTRUCTION
ANN.
% .
CHG.

OCT
1985

SEP
1985

OCT
1984

Nonresidential Building Permits - $ Mil.
Total Nonresidential
68,821
Industrial Bldgs.
8,946
Offices
16,994
Stores
10,921
Hospitals
2,250
Schools
1,161

67,822
8,897
16,803
10,671
2,252
1,210

59,673
8,159
14,401
9,201
1,694
916

+15
+10
+18
+19
+33
+27

Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - $ M i l .
Total Nonresidential
11,468
Industrial Bldgs.
1,201
Offices
2,584
Stores
2,262
Hospitals
452
Schools
155

11,317
1,189
2,525
2,207
438
162

9,228
925
2,210
1,820
322
113

+24
+30
+17
+24
+40
+37

Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

nonresidential bui laing permits - » n i l .
Total Nonresidential
681
Industrial Bldgs.
71
Offices
149
Stores
155
Hospitals
49
Schools
11

654
74
131
152
47
13

745
185
99
130
19
7

- 9
-62
+51
+19
+158
+57

Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

nonresidential dui laing rermits - J f i n .
Total Nonresidential
5,909
Industrial Bldgs.
565
Offices
1,185
Stores
1,238
Hospitals
236
Schools
49

5,817
565
1,123
1,204
236
54

4,566
441
1,042
1,035
149
48

+29
+28
+14
+20
+58
+ 2

Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.

1,999
296
546
318
27
20

1,749
170
589
257
49
14

+12
+82
-19
+28
-35
+36

Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

1,399
52
410
256
65
56

1,114
30
280
213
80
34

+26
+67
+54
+23
-22
+68

Residential Building Permits
Value - $ Mil.
Residential Permits - T h o u s .
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.

Nonresidential Building Permits - $ M i l .
Total Nonresidential
296
Industrial Bldgs.
21
Offices
56
Stores
58
Hospitals
16
Schools
8

293
23
50
59
16
8

246
15
34
53
9
3

+20
+40
+65
+ 9
+78
+167

Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ M i l .

Nonresidential Building Permits - Ì M i l .
Total Nonresidential
1,217
Industrial Bldgs.
185
Offices
287
Stores
220
Hospitals
57
Schools
11

1,155
179
265
218
47
11

808
84
166
132
16
7

+51
+120
+73
+67
+256
+57

Residential Building Permits
Value - $ M i l .
Residential Permits - Thous.
Single-family units
Multifamily units
Total Building Permits
Value - $ Mil.

OCT
1985

SEP
1985

OCT
1984

ANN.
%
CHG.

81,324

79,881

74,558

+ 9

942.6
764.9

930.5
758.1

932.4
752.7

+ 1
+ 2

150,146

147,702

134,231

+12

14,495

14,286

13,968

+ 4

195.7
161.9

192.9
161.4

191.2
176.4

+ 2
- 8

25,964

25,603

23,197

+12

530

523

462

+15

9.7
7.6

9.7
7.4

8.3
7.6

+17
0

1,211

1,176

1,207

+ 0

8,237

8,105

8,102

+ 2

103.8
97.7

101.7
98.1

104.6
99.1

- 1
- 1

14,146

13,922

12,669

+12

3,070

3,031

2,818

+ 9

46.5
25.1

46.5
24.1

43.4
28.0

+ 7
-10

5,035

5,029

4,567

+10

12-month cumulative rate

nuriresioentiai bui iding permits Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools

) phi,
1,966
309
475
328
32
19

nonresidential o u n o i n g hermits - Ì Ml 1 .
Total Nonresidential
1,399
Industrial Bldgs.
50
Offices
432
Stores
263
Hospitals
62
Schools
57

794

805

1,074

-26

11.8
7.5

11.9
7.9

15.4
14.4

-23
-48

2,194

2,205

2,188

+ 0

334

333

371

-10

5.9
2.3

6.0
2.2

6.1
5.5

- 3
-58

631

627

617

+ 2

1,530

1,489

1,141

+34

18.0
21.7

17.1
21.7

13.4
21.8

+34
- 0

2,747

2,644

1,949

+41

NOTES:
Data supplied by the U . S . Bureau of the Census, Housing Units Authorized By Building Permits and Public Contracts, C-40.
Nonresidential data excludes the cost of construction for publicly owned buildings. The southeast data represent the total of the six
states.

http://fraser.stlouisfed.org/
4 0Reserve Bank of St. Louis
Federal

DECEMBER 1985, E C O N O M I C REVIEW

GENERAL
LATEST C U R R .
DATA
PERIOD

personal income
(Sbil. - SAAR)
Taxable Sales - S b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal Income
($bil. - SAAR)
T a x a b l e Sales - $ b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
K i l o w a t t Hours - m i l s .

Personal Income
($bil. - SAAR)
Taxable Sales - S b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt H o u r s - m i l s .

Personal Income
($bi1. - SAAR)
Taxable Sales - $ b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
K i l o w a t t Hours - m i l s .

Personal Income
(Sbil. - SAAR)
Taxable Sales - S b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal income
(Sbil. - S A A R )
Taxable Sales - S b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

Personal Income
(Sbil. - SAAR)
Taxable Sales - S b i l .
Plane P a s s . A r r . (000's)
Petroleum P r o d , (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - m i l s .

ANN.
%.
CHG.

PREV.
PERIOD

YEAR
AGO

NOV

3,190.7
N.A.
N.A.
8,900.7

3,159.8
N.A.
N.A.
8,961.0

2,989.3
N.A.
N.A.
8,849.5

NOV
OCT

326.6
183.8

325.5
205.7

315.3
181.7

SEP
NOV

388.9
N.A.
3,836.5
1,525.0

361.9
N.A.
4,945.4
1,524.0

352.5
N.A.
3,856.1
1,505.0

- 1
+ 1

ÜCI

N.A.
30.4

N.A.
34.8

N.A.
29.3

+ 4

SEP
NOV

42.1
N.A.
120.7
58.0

41.8
N.A.
147.8
58.0

39.5
N.A.
110.1
53.0

+10
+ 9

OCT

N.A.
4.0

N.A.
4.7

N.A.
4.0

2Q
NOV
SEP
NOV

149.8
92.2
1,635.6
36.0

147.5
91.4
2,270.6
37.0

138.5
83.0
1,708.6
36.0

+ 8
+11
- 4
0

NOV
OCT

173.9
9.7

173.5
10.4

168.3
8.6

+ 3
+13

71.6
N.A.
1,980.8
N.A.

66.4
N.A.
1,535.1
N.A.

+ 9

SEP

72.3
N.A.
1,612.1
N.A.

OCT
OCT

333.0
4.8

331.4
5.2

317.8
4.6

+ 5
- 8

49.7
N.A.
301.7
1,344.0

47.0
N.A.
311.6
1,326.0

+ 5

StP
NOV

49.5
N.A.
260.2
1,347.0

-16
+ 2

OCT

N.A.
4.9

N.A.
5.9

N.A.
5.0

- 2

SEP
NOV

23.5
N.A.
31.4
84.0

23.8
N.A.
41.2
85.0

22.4
N.A.
34.5
90.0

OCT

N.A.
2.1

N.A.
2.4

N.A.
2.0

51.7
N.A.
176.5
N.A.

51.3
N.A.
203.3
N.A.

48.7
N.A.
156.2
N.A.

N.A.
4.9

N.A.
6.2

N.A.
5.1

2Q
SEP

OCT

+ 1
+ 4
1

+10

+ 7

+ 5

+ 5
- 9
- 7

+ 5

+ 6
+13

- 4

ANN.
NOV
%
1984 C H G .

NOV
1985

OCT (R)
1985

Agriculture
Prices Rec'd by Farmers
Index (1977=100)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler P r i c e s (i per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)

126
83,247
61.1
31.8
4.92
182

123
81,282
60.2
27.7
4.85
181

136
77,280
59.4
30.8
6.02
220

- 7
+ 8
+ 3
+ 3
-18
-17

Agriculture
Prices Rec'd by Farmers
Index (1977=100)
Broiler Placements (thous.)
Calf Prices (Î per cwt.)
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per t o n )

111
31,302
57.3
30.9
4.89
176

110
31,821
56.1
26.6
5.00
182

130
29,091
54.3
29.5
6.09
211

-15
+ 8
+ 6
+ 5
-20
-17

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: O C T , O C T )
1,637
Broiler Placements (thous.)
10,438
Calf Prices ($ per c w t . )
57.5
Broiler Prices (t per lb.)
30.0
Soybean Prices ($ per bu.)
5.08
Broiler Feed Cost ($ per ton)
171

10,760
55.4
25.5
5.01
176

1,747
9,568
53.4
29.5
6.12
185

- 6
+ 9
+ 8
+ 2
-17
- 8

3,701
1,935
57.2
29.0
6.12
235

-1?
+ 9
+ 8
+ 7
-17
- 2

2,985
11,809
47.3
28.5
6.05
250

-11
+ 6
+15
+ 7
-17
-28

1,023
N.A.
54.6
30.0
6.05
255

+ ?
+ 6
+ a
-28
- 6

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: O C T , O C T )
Broiler Placements (thous.)
Calf Prices ($ per c w t . )
Broiler Prices (t per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)

3,272
2,117
61.8
31.0
5.08
230

2,014
58.7
26.0
5.01
230

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: O C T , OCT)
2,654
Broiler P l a c e m e n t s (thous.)
12,565
Calf Prices ($ per cwt.)
54.2
Broiler P r i c e s (t per lb.)
30.5
Soybean Prices ($ per bu.)
5.01
Broiler Feed C o s t ($ per ton)
180

12,827
53.1
26.0
4.84
182

Agriculture
Farm Cash Receipts - I m i l .
(Dates: O C T , OCT)
1,041
Broiler Placements (thous.)
N.A.
Calf Prices ($ per c w t . )
58.0
Broiler P r i c e s (t per lb.)
32.5
Soybean Prices ($ per bu.)
4.34
Broiler Feed Cost ($ per t o n )
240

56.4
28.5 5.02
230

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: O C T , O C T )
Broiler Placements (thous.)
Calf Prices ($ p e r c w t . )
Broiler P r i c e s (t per lb.)
Soybean P r i c e s ($ per bu.)
Broiler Feed Cost ($ per t o n )

1,661
6,182
58.9
33.0
4.95
144

6,220
57.8
29.5
5.07
137

1,420
5,779
58.1
31.5
6.23
165

+17
+ 7
+ 1
+ 5
-21
-13

Agriculture
Farm Cash Receipts - $ m i l .
(Dates: O C T , OCT)
Broiler Placements (thous.)
Calf Prices ($ per cwt.)
Broiler Prices (i per lb.)
Soybean Prices ($ per bu.)
Broiler Feed Cost ($ per ton)

1,581
N.A.
53.4
29.0
5.25
174

1,368
N.A.
53.4
28.5
5.91
183

+16

54.6
25.0
4.93
178

0
+ 2
-11
- 5

NOTES:
Personal Income data supplied by U . S . Department of C o m m e r c e . Taxable Sales are reported as a 12-month cumulative t o t a l . Plane
Passenger Arrivals are collected from 26 a i r p o r t s . Petroleum Production data supplied b y U . S . Bureau of M i n e s . Consumer Price Index data
supplied b y Bureau of Labor S t a t i s t i c s . A g r i c u l t u r e data supplied b y U . S . Department of A g r i c u l t u r e . Farm Cash Receipts data are reported
as cumulative for the calendar year through the month s h o w n . Broiler placements are an average w e e k l y r a t e . The S o u t h e a s t data represent
the total of the six s t a t e s . N . A . = not a v a i l a b l e . The annual percent change calculation is based on m o s t recent data over prior year.
K
J
R = revised.

http://fraser.stlouisfed.org/
FEDERAL RESERVE BANK OF ATLANTA
Federal Reserve Bank of St. Louis

EMPLOYMENT
ANN.
OCT
1985

Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. W k l y . Earn. - $

@ ! M I F

Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. A v g . W k l y . Hours
Mfg. A v g . W k l y . Earn. - $

15,403
14,301
1,102
7.3
N.A.
N.A.
41.2
346

SEP
1985

^ufJaKp
107,867
7,984
7.1
N.A.
N.A.
40.8
389

OCT
1984

% .

________
106,262
7,989
7.3
N.A.
N.A.
40.5
374

+ 2
- 1

15,401
14,215
1,185
8.1
N.A.
N.A.
41.3
347

15,123
13,934
1,188
8.0
N.A.
N.A.
40.8
330

+ 2
+ 3
- 7

1,808
1,666
142
8.3
N.A.
N.A.
41.3
356

1,787
1,642
145
8.9
N.A.
N.A.
41.3
353

1,816
1,626
191
11.0
N.A.
N.A.
40.9
331

- 0
+ 2
-26

5,263
4,981
280
4.6
N.A.
N.A.
41.8
328

5,301
4,959
342
6.4
N.A.
N.A.
41.8
332

5,151
4,790
361
6.3
N.A.
N.A.
40.7
313

+ 2
+ 4
-22

Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured U n e m p l . Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $

2,875
2,683
191
6.9
N.A.
N.A.
41.1
330

2,862
2,665
197
7.2
N.A.
N.A.
41.1
330

2,834
2,671
163
6.0
N.A.
N.A.
40.7
314

+ 1
+ 0
+17

Civilian Labor Force - thous.
Total Employed - thous.
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. A v g . W k l y . E a r n . - $

2,023
1,803
220
11.2
N.A.
N.A.
41.5
432

2,019
1,800
219
11.1
N.A.
N.A.
41.6
434

1,964
1,776
187
9.8
N.A.
N.A.
41.0
413

+ 3
+ 2
+18

MISSISSIPPI
Civilian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $

1,035
108
10.4
N.A.
N.A.
40.6
295

1,037
112
10.8
N.A.
N.A.
40.8
296

2,131
161
8.0
N.A.
N.A.
40.9
338

2,112
170
8.7
N.A.
N.A.
41.1
339

"~
ALABAMA
Civi1ian Labor Force - thous.
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
M f g . A v g . W k l y . Hours
Mfg. Avg. Wkly. Earn. - $

usassssm

"nvrrfimSISS^^SPflSuF!^
Total Employed - thous
Total Uemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured U n e m p l . Rate - %
M f g . A v g . Wkly. Hours
M f g . A v g . W k l y . Earn. - $
NOTES:

108,428
7,917
7.1
N.A.
N.A.
40.7
388

— — :

+ 0
+ 4

+ 1
+ 5

—

^SBfll

+ 1
+ 8

+ 3
+ 5

+ 1
+ 5

+ 1
+ 5
"

985
108
10.9
N.A.
N.A.
40.4
281

+ 4
+ 5
0

+ 0
+ 5
• •

SEP
1985

OCT
1984

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
Trans. Com. & P u b . U t i l .

19,467
5,017
23,544
16,558
22,375
5,989
5,367

19,513
5,021
23,499
16,073
22,226
5,994
5,378

19,673
4,648
22,582
16,233
21,165
5,722
5,272

+
+
+
+
+
+

1
8
4
2
6
5
2

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & R e a l . E s t .
Trans. C o m . & P u b . U t i l .

12,866
2,293
802
3,179
2,298
2,698
736
733

12,797
2,295
799
3,163
2,258
2,688
734
731

12,486
2,330
780
3,042
2,216
2,558
702
726

+
+
+
+
+
+
+

3
2
3
5
4
5
5
1

zmzz

H H H H H H I
Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real.. E s t .
Trans. C o m . & Pub.. U t i l .

348
70
295
304
236
66
73

1,395
349
70
295
293
235
66
73

1,398
361
66
296
295
230
63
73

+
+
+
+
+

1
4
6
0
3
3
5
0

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real,. Est.
Trans. Com. & Pub.. U t i l .

4,478
518
339
1,169
715
1,154
322
250

4,447
516
335
1,161
707
1,148
320
249

4,273
510
336
1,123
669
1,076
304
245

+
+
+
+
+
+
+
+

5
2
1
4
7
7
6
2

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real., Est.
Trans. C o m . & Pub.. U t i l .

2,630
549
156
682
451
485
137
162

2,618
547
156
679
440
487
137
163

2,528
554
141
633
445
456
131
159

+ 4
- 1
+11
+ 8
+ 1
+ 6
+ 5
+ 2

1,609
184
120
383
323
315
83
119

+
+
+
+
-

i-mamttrnm^.

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real.. Est.
Trans. C o m . & Pub.. U t i l .

1,597
175
114
384
329
318
84
114

1,594
176
114
381
326
319
84
114

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real.. Est.
T r a n s . C o m . & Pub . U t i l .

856
221
42
186
193
130
35
41

852
220
42
186
191
129
35
40

Nonfarm Employment - thous.
Manufacturing
Construction
Trade
Government
Services
F i n . , Ins. & Real . E s t .
Trans. C o m . & Pub . U t i l .

1,898
482
81
463
306
375
92
93

I I H E
2,086
178
8.8
N.A.
N.A.
40.8
327

ANN.
%
CHG

OCT
1985

CHG

1
5
5
0
2
1
1
4

841
221
39
180
189
128
35
40

+ 2
0
+ 8
+ 3
+ 2
+ 2
0
+ 3

500
78
427
295
353
86
90

+
+
+
+
+
+

H S | S I
+ 2
-10

+ 0
+ 3

487
82
461
301
370
92
92

4
4
8
4
6
7
3

All labor force dara are from Bureau of Labor Statistics reports supplied by state agencies.
Only the unemployment rate data are seasonally adjusted.
The Southeast data represent the total of the six states.

DECEMBER 1985, E C O N O M I C REVIEW