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Confidential (FR) Class
II
FOMC
August 17,
RECENT DEVELOPMENTS
Prepared for the Federal Open Market Committee
By the staff of the Board of Governors of the Federal Reserve System
1983
TABLE OF CONTENTS
Section
DOMESTIC NONFINANCIAL DEVELOPMENTS
Page
II
Industrial production .......................................
Employment and unemployment....................................
Personal income and consumption...............................
Housing markets................................................
Business fixed investment......................................
Inventories...................................................
Government sectors: federal, state and local...................
Wages and labor costs.....................................
....
Prices ......................................................
1
3
5
9
11
13
15
16
20
Tables
Industrial production...........................................
Capacity utilization: manufacturing and materials..............
Changes in employment .......................................
Selected unemployment rates...................................
Personal income................................................
Retail sales...................................................
Auto sales ......................................................
Private housing activity........................................
Business capital spending indicators............................
Changes in manufacturing and trade inventories..................
Inventories relative to sales..................................
Reconciliation of mid-session review
and January budget deficit estimates........................
Hourly earnings index..........................................
Employment cost index...........................................
Negotiated wage-rate changes
under major collective bargaining agreements................
Labor productivity and costs: nonfarm business sector...........
Recent changes in producer prices...............................
Recent changes in consumer prices...............................
2
2
4
4
6
7
7
10
12
14
14
16
17
17
18
20
22
22
Charts
Factors associated with the rise in consumer spending..........
Private housing starts.........................................
Effective wage changes in major union contracts.................
Commodity Research Bureau spot market index.....................
8
10
18
24
Appendix
Annual revision of the national income and product accounts.....
Al
DOMESTIC FINANCIAL DEVELOPMENTS
III
Monetary aggregates and bank credit............................
Business finance................................................
Government finance
Federal sector..............................................
State and local sector......................................
Mortgage markets...............................................
Consumer credit................................................
3
7
9
11
14
17
Tables
Monetary aggregates............................................
Net flows into selected accounts at banks and thrifts...........
Commercial bank credit and short- and intermediate-term
business credit.............................................
Gross offerings of securities by U.S. corporations.............
Treasury and agency financing................................
Gross offerings of securities by state and local governments....
Mortgage debt........................
................
Consumer installment credit....................
..............
2
5
6
8
10
13
16
18
Charts
Ratio of tax-exempt to taxable yields...........................
Interest rates on conventional home mortgages.................
Rates on commercial bank new-auto loans
and 3-year Treasury securities..............................
INTERNATIONAL DEVELOPMENTS
13
15
20
IV
Foreign exchange markets.........................................
U.S. international financial transactions.......................
U.S. merchandise trade.........................................
..
.....
....................
......
Foreign economic developments
Major debt problem situations in developing countries............
1
4
9
13
19
Tables
International banking data.......................................
U.S. official reserve assets.....................................
Summary of U.S. international transactions.....................
U.S. merchandise trade...........................................
Oil imports.....................................................
Major industrial countries
Unemployment rates...........................................
Real GNP and IP..............................................
Consumer and wholesale prices................................
Trade and current account balances............................
4
7
8
9
11
20
21
22
23
Charts
Weighted-average exchange value of the U.S. dollar...............
Three-month interest rates.......................................
2
2
II - T - 1
August 17, 1983
SELECTED DOMESTIC NONFINANCIAL DATA
(Seasonally adjusted)
Latest data
Period
Release
date
Data
Percent change from
Three
Preceding
periods
Year
period
earlier
earlier
(At annual rate)
July
July
June
July
July
July
8-05-83
8-05-83
7-26-83
8-05-83
8-05-83
8-05-83
111.9
71.6
10.5
5.5
July
July
8-05-83
8-05-83
35.1
35.1
8.02
8.00
Manufacturing:
Average weekly hours (hr.) 1/
Unit labor cost (1967=100)
July
June
8-05-83
7-29-83
40.3
40.2
93.3
-11.5
40.1
-12.5
Industrial production (1967=100)
Consumer goods
Business equipment
Defense & space equipment
Materials
July
July
July
July
July
8-16-83
8-16-83
8-16-83
8-16-83
8-16-83
148.6
154.0
151.3
120.5
146.8
21.4
20.6
12.0
10.0
26.7
16.8
17.1
12.0
7.8
20.3
7.1
5.6
-2.3
10.0
10.4
Consumer prices all items (1967-100) June
All items, excluding food & energy June
Food
June
7-22-83
7-22-83
7-22-83
297.5
285.6
2.4
3.8
-3.7
5.3
3.8
1.7
2.6
3.1
1.5
Producer prices: (1967=100)
Finished goods
Intermediate materials, nonfood
Crude foodstuffs & feedstuffs
July
July
July
8-12-83
8-12-83
8-12-83
285.3
317.4
244.6
1.3
3.4
3.5
Personal income ($ bil.) 2/
June
7-20-83
Civilian labor force
Unemployment rate (%) 1/
Insured unemployment rate (%) 1/
Nonfarm employment, payroll (mil.)
Manufacturing
Nonmanufacturing
Private nonfarm:
Average weekly hours (hr.) 1/
Hourly earnings ($) 1/
-. 6
10.0
4.1
9.5
3.8
90.3
6.5
18.7
291.3
-30.6
2,734.1
3.9
10.2
4.5
5.5
8.1
4.8
34.9
7.95
6.5
-20.8
9.6
34.9
7.70
39.1
-8.5
1.5
.7
-2.5
6.3
(Not at annual rates)
Mfgrs. new orders dur. goods ($ bil.)June
June
Capital goods industries
Nondefense
June
Defense
June
8-02-83
8-02-83
8-02-83
8-02-83
89.9
31.6
8.3
23.3
6.0
16.6
74.0
4.3
12.4
18.7
26.7
16.1
Inventories to sales ratio: 1/
Manufacturing and trade, total
Manufacturing
Trade
June
June
June
8-11-83
8-02-83
8-11-83
1.36
1.49
1.39
1.54
1.45
1.49
1.24
1.26
1.59
1.32
1.69
1.32
Mfgrs.' durable goods inventories to unfilled orders 1/ June
8-02-83
.556
.567
3.4
3.0
10.3
7.2
Ratio:
18.0
21.8
38.9
16.7
Retail sales, total ($ bil.)
GAF 3/
July
July
8-10-83
8-10-83
98.7
20.6
Auto sales, total (mil. units.) 2/
Domestic models
Foreign models
July
July
July
8-03-83
8-03-83
8-03-83
9.8
7.3
2.5
1.3
1.4
1.0
16.0
13.3
24.2
33.2
41.7
13.6
Housing starts, private (thous.) 2/
Leading indicators (1967-100)
July
June
8-16-83
7-29-83
1,741
155.9
-.6
1.0
15.6
3.6
46.9
15.1
1/ Actual data used in lieu of percent changes for earlier periods.
2/ At annual rate.
3/ Excludes mail order houses.
DOMESTIC NONFINANCIAL DEVELOPMENTS
The rapid pace of recovery seen during the second quarter extended
into July.
Industrial production and employment posted strong gains,
and housing starts remained at their advanced level.
Consumer spending,
however, flattened out in June and July, but consumers reportedly remain
optimistic.
In addition near-term indicators of business spending are
quite favorable.
Inflation has moderated as petroleum prices subsided
after a spring rebound.
Industrial Production
Industrial production advanced 1.8 percent in July with sizable
gains occurring in all major sectors.
Since the trough of the recession
in November 1982, the index of industrial production has increased
10.2 percent, nearly the same as the average change after 8 months for
postwar business cycles.
The July increase in production raised the
total industrial capacity utilization rate (manufacturing, mining, and
utilities) 1.2 percentage points to 75.8 percent--up nearly 6-1/2 percentage
points from the depressed level at the end of last year.
Output of consumer goods rose 1.7 percent in July, spurred by a
9 percent increase in auto assemblies to an annual rate of 7.4 million
units.
With stocks very lean, current production schedules call for
still further increases in August and September.
Output of business
equipment expanded further, and there was a large increase in the
production of construction supplies.
Materials output rose more than
2 percent in July with especially sharp gains in metals, paper, coal, and
parts for consumer durables.
II-1
II-2
INDUSTRIAL PRODUCTION
(Percent change from preceding period;
based on seasonally adjusted data)
1982
1983
Q1
Q4
1983
Q2
--- Annual rate----Total
-8.2
June
May
July
----Monthly rate---
10.1
18.0
1.3
1.1
1.8
-6.5
2.2
14.5
1.2
1.0
1.4
Consumer goods
-6.9
Durable
-22.2
Nondurable
-.9
Business equipment
-14.5
Defense and space equipment 16.5
5.5
29.7
-1.8
-7.6
9.8
17.5
36.4
11.2
11.2
8.1
1.5
3.2
.9
.7
.3
1.0
2.9
.3
1.2
.8
1.7
3.4
1.1
1.0
.8
-8.0
24.6
28.7
1.6
1.2
2.3
-11.3
-22.2
5.1
-7.3
20.4
30.5
18.3
2.4
22.1
34.5
19.9
-1.9
1.5
1.8
2.0
-.2
1.3
1.9
.7
.4
2.2
2.5
1.6
2.6
Final products
Construction supplies
Materials
Durable goods
Nondurable goods
Energy materials
CAPACITY UTILIZATION: MANUFACTURING AND MATERIALS
(Percent, seasonally adjusted)
1982
low
Q1
Q2
June
July1
Total industry
69.6
71.2
73.8
74.6
75.8
Manufacturing, total
Advanced processing
Motor vehicles
Primary processing
68.8
70.0
46.1
66.2
70.7
71.1
62.0
70.5
73.7
73.3
67.8
74.4
74.6
74.1
70.8
75.4
75.8
75.2
74.1
76.8
Materials, total
Durable goods materials
Metal materials
Nondurable goods materials
66.6
59.8
46.2
70.7
70.1
64.2
56.1
75.2
73.5
68.9
61.0
78.3
74.4
70.1
62.4
79.1
76.0
71.9
64.6
80.3
78.5
79.5
78.8
78.9
80.9
Energy materials
1. Estimated.
1983
II-3
Employment and Unemployment
The demand for labor continued to strengthen in July as employment
rose about one-half million and the civilian unemployment rate moved down
0.5 percentage point to 9.5 percent.
The rise in nonfarm payroll
employment in July was again widespread by industry.
Manufacturing
employment rose 160,000, the fourth consecutive large monthly increase.
In addition, the factory workweek edged up 0.1 hour.
Employment in
services grew 140,000, its largest rise, since 1975, and trade employment
edged up further after showing a 130,000 increase a month earlier.
The
cumulative cyclical rebound in payroll employment is now greater than in
any upturn since 1960, but not unprecedented compared with the 1950s.
The drop in unemployment during July reflected reductions in
joblessness for most demographic groups, with especially large declines
occurring for women.
The unemployment rate for black workers registered
its first significant decline of the recovery.
Persons unemployed for
longer than 26 weeks, typically a lagging indicator at cyclical troughs,
posted the first sizable decline since the end of last year.
The drop of
1.4 million in unemployment since the end of last year largely represents
a reduction in the number of unemployed who lost their most recent job,
while the number of jobless entrants and reentrants to the workforce
has been little changed.
The labor force participation rate edged
down in July after a rise of 0.6 percentage point a month earlier.
The
participation rate, although fluctuating on a monthly basis, has been
essentially unchanged since the first quarter of 1980.
II-4
CHANGES IN EMPLOYMENT 1
(Thousands of employees; based on seasonally adjusted data)
1981
1982
01
02
1983
May
June
- - - Average monthly changes -
July
-
-
Nonfarm payroll employment 2
Strike adjusted
-6
-7
-172
-170
50
52
339
336
331
309
411
411
487
521
Manufacturing
Durable
Nondurable
Construction
Trade
Finance and services
Total government
Private nonfarm production
workers
Manufacturing production
workers
-40
-33
-8
-21
8
59
-25
-127
-99
-28
-20
-18
31
-13
25
19
5
-19
31
55
-11
107
75
31
61
45
121
-4
117
99
18
74
27
80
31
94
55
39
81
129
130
-33
162
128
34
43
13
162
111
-7
-146
42
328
312
412
333
-47
-108
27
100
96
92
170
2
25
-49
-65
3
16
561
512
99
102
1229
1074
499
494
Total employment 3
Nonagricultural
1. Average change from final month of preceding period to final month of
period indicated.
2. Survey of establishments. Strike-adjusted data noted.
3. Survey of households.
SELECTED UNEMPLOYMENT RATES
(Percent; based on seasonally adjusted data)
1983
May
June
1981
1982
Q1
Q2
Civilian, 16 years and older
7.6
9.7
10.4
10.1
10.1
10.0
9.5
Teenagers
20-24 years old
Men, 25 years and older
Women, 25 years and older
19.6
12.2
5.1
5.9
23.2
14.8
7.5
7.3
22.8
15.8
8.4
7.8
23.3
15.0
8.2
7.6
23.0
15.5
8.2
7.6
23.6
14.3
7.8
7.9
22.8
13.6
7.6
7.2
White
Black and other
6.7
14.2
8.6
17.3
9.1
18.5
8.8
18.8
8.9
18.6
8.6
18.9
8.2
17.9
7.3
9.6
10.3
9.9
9.9
9.7
9.4
7.5
9.5
10.2
9.9
10.0
9.8
9.3
Fulltime workers
Memo:
Total nationall
1. Includes resident Armed Forces as employed.
July
II-5
Personal Income and Consumption
The strong gains in employment recently have generated sizable
increases in wage and salary disbursements, and labor income probably
showed another hefty advance in July.
For the second quarter as a
whole, however, real disposable income rose moderately at a 3 percent
annual rate, about the same as in the previous quarter.
Personal outlays in the second quarter climbed much faster than
income and the saving rate fell from a downward-revised 5.4 percent in
the first quarter to 3.9 percent.
Real personal consumption expenditures
rose at a 10 percent annual rate in the second quarter with sharp increases
for all major spending categories.
A number of factors appear to have
combined to produce this strong performance.
Declining interest rates
stimulated expenditures on consumer durables--particularly for big
ticket items such as autos--and with the return of house sales to prerecession levels came a pickup in purchases of furnishings and appliances.
In addition, the rapid rise in the stock market over the past year has
added substantially to personal wealth and probably contributed to a
greater willingness to spend out of accumulated savings.
The pace of the expansion in consumer spending on goods leveled
off in June and July, after considerable gains in the preceding three
months.
Total retail sales were unchanged in July with a small decline
at the GAF grouping of stores.
Unit auto sales also were unchanged in
July at a relatively strong 9.7 million unit annual rate.
But, even
though the financing concessions by domestic producers have become less
generous and remain directed at the less popular smaller cars, domestic
sales rose somewhat in early August.
II-6
PERSONAL INCOME
(Based on seasonally adjusted data)
1981
1982
Q1
02
1983
Apr.
May
June
- - Percentage changes at annual rates1 - Total personal income
Wage and salary
disbursements
Private
Disposable personal income
Nominal
Real
11.1
4.6
4.0
8.9
9.2
13.4
8.4
8.5
3.6
2.8
6.4
6.4
10.0
10.8
11.4
13.0
15.6
14.7
11.1
3.4
5.1
.2
5.2
2.9
8.6
3.0
11.8
1.3
8.8
5.7
6.0
7.3
11.3
4.4
-.7e
2
- - Changes in billions of dollars - -
Total personal income
Wage and salary disbursements
Private
Manufacturing
Other income
Transfer payments
Less:
18.9
10.6
8.4
21.3
20.4
30.1
13.5
8.8
7.0
1.0
5.1
3.4
-.6
8.3
6.9
3.7
15.5
14.2
4.1
15.3
21.2
16.0
3.4
10.1
12.5
3.3
11.3
2.8
6.0
4.2
1.3
-.3
6.7
.2
5.9
.7
9.9
1.2
.5
1.2
.9
.8
1.0
Personal contributions
for social insurance
Disposable personal income
Nominal
Real
Memorandum:
Personal saving rate
14.0
5.6
15.8
2.0
10.0
1.0
9.1
2.1
15.9
2.0
22.3
1.2
16.8
5.1
6.6
5.8
5.4
3.9
4.6
3.8
4.2
-1.4
8.5
-.6e
3.3
1. Changes over periods longer than one quarter are measured from final
quarter of preceding period to final quarter of period indicated. Changes
for quarterly periods are compounded rates of change; monthly changes
are not compounded.
2. Average monthly changes are from the final month of the preceding
period to the final month of period indicated; monthly figures are changes
from the preceding month.
e--staff estimate.
II-7
RETAIL SALES
(Percent change from previous period;
based on seasonally adjusted data)
1982
Q4
Ql
1983
May
Q2
- - Quarterly rate -
-
-
-
June
July
Monthly rate - -
Total sales
2.8
.3
5.7
3.1
.3
.0
(Real)1
2.4
.3
4.8
2.7
.5
--
Total, less autos and
nonconsumption items
1.0
.6
2.8
2.3
-.1
.2
Total, less autos,
nonconsumption items,
and gasoline
1.2
1.3
2.7
2.0
.0
.3
GAF 2
1.8
1.2
4.2
3.1
.7
-.8
7.7
11.8
.4
-2.6
12.0
17.3
4.7
5.2
.7
1.4
-.8
-1.0
Durable goods
Automotive
Furniture &
appliances
Nondurable goods
Apparel
Food
General merchandise 3
Gasoline
2.6
3.2
3.4
1.0
-1.9
1.5
.7
.2
.6
2.1
-.7
.3
-.4
-.3
1.2
-4.3
3.0
7.7
2.3
3.1
3.7
2.4
3.8
2.2
3.7
4.8
.1
.4
-.9
1.8
-.7
.3
-.4
1.0
-1.8
-.2
1. BCD series 59.
2. General merchandise, apparel, and furniture and appliance stores.
3. General merchandise excludes mail-order nonstores; mail-order sales
are also excluded in the GAF composite sales summary.
AUTO SALES
(Millions of units; seasonally adjusted annual rates)
03
Total
1982
04
Q1
Q2
1983
May June
July
Aug.
7.8
8.6
8.5
9.1
9.1
9.7
9.7
n.a.
Foreign-made
2.2
2.5
2.4
2.3
2.3
2.5
2.5
n.a.
U.S.-made
5.6
6.1
6.1
6.8
6.9
7.2
7.3
7.6
Small
2.6
2.8
2.5
3.0
2.9
3.3
3.0
n.a.
Intermediate/Standard
2.9
3.3
3.6
3.9
4.0
3.8
4.2
n.a.
Note: Components may not add to totals due to rounding.
n.a.--not available.
1. August represents the first ten-day sales only.
II-8
FACTORS ASSOCIATED WITH
THE RISE IN CONSUMER SPENDING
1982Q4=1
I
House sales, new
and existing
/
/
/
1.35
/
1.25
7
/
S/
/
-
1.15
//
1.05
Index of current personal
financial situation, Michigan
Survey .
Consumer auto loan
0.95
rate (inverse)
0.85
Value of common
stock (real)
1982-Q2
1982-Q3
I
I
1982-Q4
I
1983-Q1
0.75
1983-Q2
II-9
Consumers remained very confident in July according to both the
Michigan Survey Research Center and the Conference Board.
The Michigan
Survey's index of sentiment edged up to 93.9 in July, the highest level
since 1972, while the Conference Board's index of consumer confidence
moved down just slightly from a high June level.
Although the Michigan
survey reported a sharp increase in respondents expecting higher interest
rates, it also reported more optimistic expectations for the economy in
the long-run and a greater willingness to incur debt than at any time
during the last three years.
Housing Markets
Private housing starts were little changed from June to
July at a seasonally adjusted annual rate of 1-3/4 million units--4
percent below the recent high in May.
During July, a 12 percent reduction
in single-family starts was largely offset by a sharp rise in multi-family
units.
As in the case of starts, permits for single-family units were
down, but that decline was swamped by an increase in multi-family permits.
Combined sales of new and existing houses in the second quarter
averaged 3.5 million units (annual rate), 52 percent above the cyclical
low in the third quarter of last year.
In June, however, sales of new
houses fell 3 percent, following three months of expansion, and inventories
of unsold houses, both new and existing, increased somewhat.
Sales of
existing houses continued to rise during the month, but at a much slower
pace than the average over the first five months of the year; early
indicators, suggest some weakening in these sales in July.
Reported prices of houses sold so far in 1983 have consistently
been above year-earlier figures.
However, this appears to reflect changes
II-10
PRIVATE HOUSING ACTIVITY
(Seasonally adjusted annual rates, millions of units)
1983
May
June
July 1
1.64
1.69
1.64
1.81
1.76
1.75
1.82
1.74
.85
1.08
.93
1.11
.94
1.18
1.01
1.15
.93
1.01
.41
1.99
.61
2.58
.64
2.85
.66
2.90
.64
2.93
n.a.
n.a.
Multifamily units
Permits
Starts
.45
.40
.61
.62
.71
.58
.70
.62
.75
.61
.88
.73
Mobile home shipments
.24
.28
.30
.30
.31
n.a.
S____
Q2 _
1982
Q1
1.00
1.06
1.46
1.69
Single-family units
Permits
Starts
.55
.66
Sales
New homes
Existing homes
All units
Permits
Starts
1. Preliminary estimates.
n.a.--not available.
PRIVATE HOUSING STARTS
(Seasonally adjusted annual rate)
Millions
of units
-12.
Total
""/"'.
__
\ V\4\
Multifamily
\
-1.6
I
/
,/
V
/
V
197
1979
198
1980
-
•
C
19
Single-Family
*
1981
" ,/'l.
'
*
-
%% .N\A%*
1
1
98I
1982
1
11
98311
1983
II-11
in the quality and regional composition of houses sold.
Through the
first six months of the year, new houses were sold for prices averaging
about 6 percent above the comparable figures for the previous year;
prices of existing homes were up about 2 percent.
After adjusting for
the influences of quality and regional mix of the new units, prices
appeared to be virtually unchanged from year-earlier levels.
Business Fixed Investment
A cyclical recovery in capital spending apparently began in the
second quarter of 1983 with business fixed investment rising 4.6 percent
in real terms, after six quarters of decline.
The turnabout came with a
substantial increase in purchases of durable equipment as investment in
structures continued to slide.
Real expenditures on equipment, about two-thirds of total outlays,
rose about 14 percent at an annual rate in the second quarter, the largest
one-quarter advance in five years.
The pickup in equipment spending in
the second quarter was broadly-based.
Although a little more than
40 percent of the increase in expenditures was for office and store
machinery and communications equipment, purchases of heavy industrial
machinery also rose substantially.
In addition, spending on motor vehicles
rose further following the upturn in the first quarter.
Investment in nonresidential structures remained weak, with real
outlays down at an annual rate of 14 percent in the second quarter.
The
declines were pervasive, affecting both industrial and commercial building,
as well as institutional construction.
Nonresidential construction has,
however, increased a little in each of the last two months, and the decline
in oil and gas well drilling appears to have ended with the stabilization
II-12
BUSINESS CAPITAL SPENDING INDICATORS
(Percentage change from preceding comparable period;
based on seasonally adjusted data)
1982
Q4
1983
Apr.
Q1
Q2
-3.8
.0
4.3
.4
-2.3
6.5
-6.0
.2
5.2
.8
-.5
4.0
1.5
-.1
14.1
12.8
-1.3
4.3
-.7
3.7
9.4
3.3
-1.1
1.3
5.77
5.56
5.39
5.38
5.54
5.22
4.23
4.12
3.98
3.99
4.04
3.88
162
173
180
171
168
200
-.3
-4.6
-4.0
-2.8
1.1
2.5
-4.5
21.5
-5.5
-11.3
20.6
4.2
May
June
Producers' durable equipment
Nondefense capital goods
Shipments
Excluding aircraft &
parts
Nondefense capital goods
Orders
Excluding aircraft &
parts
Addenda:
Ratio of unfilled orders
to shipments
Excluding aircraft &
parts
Sales of heavy-weight
trucks (thousands of
units)
Nonresidential structures
Nonresidential construction
Value of contracts for
private nonresidential
building
II-13
of crude oil prices and reported reductions in the costs of drilling.
Shipments of nondefense capital goods rose 6-1/2 percent in June to a
level about 3-1/2 percent above the second-quarter average.
Moreover,
advance indicators for equipment spending are very positive.
New orders
for nondefense capital goods continued their upward trend in June; these
orders were up 14 percent between the first and second quarters.
In
June the backlog of unfilled orders edged up for a third month, suggesting
a further boost to shipments in coming months.
Inventory Investment
Strong shipments and sales in June contributed to a moderate
inventory contraction, as the book value of manufacturing and trade
inventories fell at an annual rate of $8 billion in June.
Most of the
June inventory decline occurred in the manufacturing sector where
there were widespread increases in shipments.
Although inventory-sales
ratios for some sectors, particularly primary metals and nonelectrical
machinery, continued to be high relative to prerecession experience, for
most industries these ratios declined to very low levels in June.
In the trade sector, strong sales also reduced inventories at the
wholesale level as stocks fell at a $6 billion annual rate in June after
a downward-revised $20 billion runoff in May.
The inventory-sales
ratio, at 1.15 in June, was close to the pre-recesssion level.
In the
retail sector, inventories rose $10 billion at an annual rate in June.
Coupled with the moderate increase in retail sales, the inventorysales ratio held constant during the month.
Auto inventories have been
especially lean--reportedly constraining sales--and production is
scheduled to rise significantly.
II-14
CHANGES IN MANUFACTURING AND TRADE INVENTORIES
(Billions of dollars at annual rates)
Book value basis
Total
Manufacturing
Durable
Nondurable
Wholesale trade
Retail trade
Automotive
Constant dollar basis
Total
Manufacturing
Wholesale trade
Retail trade
Automotive
1981
1982
Q1
33.3
18.2
11.7
6.5
4.6
10.4
2.1
-14.2
-17.4
-11.0
-6.4
1.8
1.4
.1
-34.9
-30.4
-23.3
-7.1
-8.8
4.3
1.5
5.3
2.0
.9
2.4
-.2
-8.2
-8.4
.6
-.5
-.4
-14.5
-12.3
-5.3
3.1
.2
1983
Apr.
Mayr
JuneP
7.1
-.5
1.0
-1.4
-5.0
12.5
2.5
18.9
1.1
5.2
-4.1
10.9
6.9
7.0
10.3
9.0
11.0
-2.0
-19.7
21.0
-.6
-8.0
-11.5
-13.4
1.9
-6.1
9.6
1.1
------
-2.1
-1.0
-1.0
-.1
1.0
15.2
5.7
-3.0
2.5
-2.5
---
Q2
--
INVENTORIES RELATIVE TO SALES 1
Cyclical
reference points 2
June 1981 1982 peak
Ql
Q2
1983
Apr.
Mayr
JuneP
Book value basis
Total
Manufacturing
Durable trade
Nondurable trade
Wholesale trade
Retail trade
Automotive
1.42
1.59
2.07
1.11
1.14
1.39
1.79
1.54
1.78
2.48
1.18
1.31
1.45
1.92
1.46
1.61
2.16
1.09
1.25
1.40
1.66
1.39
1.53
2.04
1.03
1.19
1.36
1.45
1.44
1.58
2.11
1.06
1.27
1.36
1.51
1.39
1.54
2.06
1.03
1.19
1.34
1.43
1.36
1.49
1.97
1.01
1.15
1.34
1.41
Constant dollar basis
Total
Manufacturing
Wholesale trade
Retail trade
Automotive
1.63
1.92
1.38
1.37
1.70
1.77
2.14
1.53
1.45
1.79
1.65
1.95
1.42
1.40
1.50
------
1.64
1.92
1.45
1.38
1.48
1.59
1.87
1.36
1.35
1.37
--
1. Ratio of end-of-period inventories to average monthly sales for the
period.
2. Peaks are specific to each series and are not necessarily coincident.
r--revised estimates.
p--preliminary estimates.
II-15
The Government Sectors--Federal, State, and Local
The federal deficit, on an NIPA basis, declined $18 billion to a
level of $165 billion (seasonally adjusted, annual rates) in the second
quarter.
The smaller deficit is largely due to a quickening of revenue
collection as expenditures were little changed.
The revenue increase
primarily reflects the recent rise in corporate profits and profits tax
accruals, as well as the rise in the motor fuels excise tax on April 1.
Preliminary data for July indicate that the recent strength in tax
collection has continued into the third quarter, after allowing for the
July 1 personal tax cut.
The effects of recent legislation and of previously enacted changes,
however, will tend to increase the deficit in the near-term.
Most important
is the final 10 percent cut in withholding on wage and salary income
mandated by the Economic Recovery Tax Act of 1981.
In addition, the
legislation that raised the motor fuels tax in the second quarter and
last spring's jobs bill both provide increased funding for highway and
mass transit construction.
In contrast, the deficit will be held down
by the deferral under the Social Security Amendments of 1983 of the cost
of living adjustments for Social Security from July 1 to the end of the
year.
The Administration released its Mid-Session Review of the 1984 Budget
in late July.
The federal unified budget deficit is now projected to
recede from $210 billion in the current fiscal year to $180 billion next
year and $82 billion at the end of the official planning horizon in 1988.
The assumption of stronger economic growth (revised upward from 3.1 percent
II-16
to 5.5 percent over the four quarters of 1983) accounts for most of the
revision since the January budget projection (see table).
RECONCILIATION OF MID-SESSION REVIEW AND
JANUARY BUDGET DEFICIT ESTIMATES
(Unified budget, fiscal years, billions of dollars)
1983
1984
1985
1986
1987
1988
January budget estimate
Changed due to:
-208
-189
-194
-148
-142
-117
Economic assumptions
Policy
Technical reestimates
Mid-Session Review estimate
9
-4
-7
-210
24
-9
-6
-180
29
*
-5
-170
33
-7
-7
-129
36
-5
-7
-118
47
-4
-8
-82
*Less than $1/2 billion.
In the state and local government sector, activity over the past
few months has generally shown little change.
However, construction
spending, which has declined 10 percent since the start of the year,
could begin to pick up.
The high volume of recently-issued debt, more
favorable construction costs, and increased federal highway aid may
well signal an incipient rise in building and repair activity.
On the
revenue side, the recovery in economic activity generated a rapid rise in
personal and indirect business taxes in the second quarter.
Wages and Labor Costs
In spite of the recovery in labor demand, wage increases
continued to moderate during the first half of the year.
Both the hourly
earnings index, which covers wages paid to production and nonsupervisory
workers, and the more comprehensive employment cost index for all private
nonfarm employees rose at about a 4-1/2 percent annual rate during the
first half of 1983, roughly 1-1/2 to 2 percentage points less than
II-17
HOURLY EARNINGS INDEX 1
(Percentage change at annual rates;
based on seasonally adjusted data) 2
Total private nonfarm
Manufacturing
Durable
Nondurable
Contract construction
Transportation and
public utilities
Total trade
Services
1981
1982
8.3
1983
May
June
July
4.5
1.6
2.9
Q1
Q2
6.0
5.3
3.4
8.8
8.8
8.7
8.4
6.1
6.1
6.3
5.2
4.5
4.0
5.1
6.1
1.3
5.1
.3
5.3
3.1
4.8
-.1 -11.4
.7
-.8
3.5
1.4
2.7
3.0
2.3
-4.1
8.5
7.0
9.1
6.1
4.8
6.6
8.3
4.6
3.6
3.4
5.0
6.4
1.8
2.3
3.9
7.9
2.1
2.2
5.1
5.8
6.9
1. Excludes the effect of interindustry shifts in employment and
fluctuations in overtime hours in manufacturing.
2. Changes over periods longer than one quarter are measured from
final quarter of preceding period to final quarter of period indicated.
Quarterly changes are compounded annual rates; monthly changes are not
compounded.
EMPLOYMENT COST INDEX 1
(Percent change at annual rates) 2
1983
1981
1982
Total private nonfarm
8.8
By occupation:
White collar
Blue collar
Service workers
By bargaining status:
Union
Nonunion
Q1
02
6.3
3.9
5.3
9.1
8.6
8.3
6.4
5.6
8.5
4.3
4.5
-2.1
6.6
3.8
5.9
9.6
8.5
6.5
6.1
5.8
2.5
4.5
5.8
1. Figures are for wage and salary rates of all employees on private
nonfarm payrolls and exclude the effects of employment shifts among
occupations and industries as well as the influence of premium pay for
overtime, work on weekends, and shift differentials.
2. Changes are measured from final month of the preceding period to the
final month of the period indicated; quarterly changes are compound
rates. Seasonal adjustment by FRB staff.
II-18
NEGOTIATED WAGE-RATE CHANGES
UNDER MAJOR COLLECTIVE BARGAINING SETTLEMENTS 1
(Percent change)
All Industries
First-year adjustments
Average over life of contract
Workers affected (in thousands)
Contracts with COLAS
First-year adjustments
Average over life of contract
Workers affected (in thousands)
Contracts without COLAs
First-year adjustments
Average over life of contract
Workers affected (in thousands)
Same parties
as during 1983
1983
under prior
First
1982 settlements 6 month
1980
1981
9.5
7.1
9.8
7.9
3.8
3.6
3787
2382
3298
1241
8.0
5.0
8.0
5.5
2.2
2.1
-2.7
.8
2268
659
2204
548
11.7
10.3
10.6
8.8
7.0
6.6
3.8
4.3
1489
1723
1094
693
8.4
6.7
.9
2.7
1. Contracts covering 1,000 or more workers; estimates exclude potential gains
under cost-of-living clauses.
EFFECTIVE WAGE CHANGE IN MAJOR UNION CONTRACTS
Percent
-
contribution of:
COLA
-
New Settlements
E
Prior Settlements
; ;.
. ..
1978
1979
1980
*Based on first-half data.
this period is zero.
1981
ts;
z.-t
- .5
1982
1983*
The contribution of new settlements for
II-19
during 1982.
In July, the hourly earnings index increased at only a 3
percent annual rate.
The easing of wage inflation in the first half of the year, in
part, reflected the continuation of concession bargaining.
More than
half of the 1-1/4 million workers who negotiated major union settlements
accepted wage freezes or pay cuts for the first contract year, including
those in the steel, copper, aluminum, and lumber industries.
Many of
these workers will receive cost-of-living adjustments, and if inflation
were to average 5 percent over the next three years, their wage increases
would average 3 to 4 percent annually.
New major settlements without
escalator protection called for wage increases of a similar magnitude-4.3 percent a year over the life of the contracts.
However, bargaining
in the second half of this year shifts to industries that fared better
during the recession, such as telephones and aerospace, and these settlements
are likely to be larger than the ones reached earlier in the year.
For the private nonfarm sector as a whole, increases in hourly
compensation--which includes fringe benefits and employer payroll taxes
as well as wages--rose at to a 4.6 percent annual rate in the second
quarter, which brought the change over the past year to 6 percent.
Meanwhile, productivity continued to rebound strongly, as is characteristic
of the early stages of a recovery.
The 4.3 percent (annual rate) increase
in the second quarter in output per hour was well above the underlying
trend in productivity growth, which appears to be slightly more than 1
percent per year.
As a result, unit labor costs edged up in the second
quarter to a level 3 percent above the year-earlier figure.
II-20
NONFARM BUSINESS SECTOR
LABOR PRODUCTIVITY AND COSTS:
(Percent change at annual rate, based on seasonally adjusted data)1
1979
1980
1981
1982
1983-Q1
Q2
Unit
labor costs
Compensation
per hour
Output
per hour
9.2
10.8
9.0
7.2
6.8
4.6
-2.1
.2
1.2
.8
3.7
4.3
11.6
10.5
7.7
6.3
3.0
.2
4.9
7.0
8.9
10.0
2.5
2.4
.6
1.6
2.4
4.4
8.2
8.2
Peak-to-peak rates of change: 2
1960-02
1969-Q4
1973-Q4
1980-Q1
1.
of
2.
as
to
to
to
to
1969-Q4
1973-Q4
1980-Q1
1981-Q3
Changes are from the final quarter of preceding year to final quarter
the year indicated; quarterly changes at compound rates.
These time periods represent the intervals between business cycle peaks
designated by NBER.
Prices
Moderating labor costs have contributed to the reduced rate of
inflation during the first half of 1983.
Excluding the volatile food
and energy sectors, the consumer price index increased at about a 4
percent rate during the first half of 1983, down from an average of 6
percent during 1982 and 9 percent or more in each of the previous two
years.
The producer price index for finished goods excluding food and
energy has increased at only a 1-1/4 percent annual rate in the first 7
months of the year, down from about a 5 percent rise in 1982.
During 1983, movements in the aggregate measures of inflation such
as the consumer price index have been dominated first by the decline and
then by the rebound in petroleum prices.
Gasoline prices, for instance,
fell 8-1/2 percent during the first quarter but rose nearly 4 percent
II-21
during the next quarter.
Most recently, prices for gasoline rose a
comparatively small 0.7 percent in June, and private surveys indicate
that prices have remained roughly constant since then.
In spite of the
April 1 increase in federal excise taxes, gasoline prices in July are
about 3 percent below the year-earlier level.
Although food prices have generally fallen recently, it appears that
this could change in the coming months.
Consumer food prices fell in
June at the retail and producer levels, and the prices of crude foodstuffs
continued to decline into early July.
Since mid-July, however, farm
prices have turned up sharply, influenced by the crop damage caused by
hot, dry weather in many growing areas.
The futures prices of corn for
December delivery rose from about $2.75 per bushel on July 11 to roughly
$3.65 on August 15, and the price of the November soybean contract increased
by about 40 percent over that same period.
The futures prices of cattle
and hogs also have risen since mid-July, with a particularly large advance
in the prices of 1984 contracts for live hogs.
Prices of industrial materials, which in the short run tend to be
influenced by changing levels of economic activity, have increased during
the year with the recovery.
One measure of these prices, the Commodity
Research Bureau Spot Market Index (which had previously been prepared by the
Bureau of Labor Statisitics) rose 10-1/2 percent during the 7 months
since the December 1982 trough in the series.
This increase is somewhat
larger and more sustained than typically seen in early recoveries.
However, it follows a long two year slide in prices that was steeper than
during most post-war recessions.
Changes in the prices of these commodities,
while often looked at to provide a reading of the strength in business
II-22
RECENT CHANGES IN PRODUCER PRICES
(Percentage change at annual rates; based on seasonally adjusted data) 1
Relative
Importance:
Dec. 1982 1981
1982
Q1
02
1983
June
July
100.0
23.7
13.2
40.5
22.5
7.1
1.4
14.1
7.1
9.2
3.7
2.1
-.1
5.3
3.9
-4.7
4.1
-35.5
-2.0
2.0
2.9
-.3
12.0
2.5
2.1
5.5
-7.8
37.8
5.5
2.9
1.3
-7.4
2.9
5.5
1.7
Intermediate materials 2
Exc. energy
95.2
78.8
7.3
6.6
.3
.6
-4.7
.8
3.6
2.8
10.7
4.9
3.4
4.1
Crude food materials
Crude energy
Other crude materials
51.2
34.4
14.4
-14.0
22.8
-11.4
1.5
2.6
-7.6
18.1
-9.2
-16.2
Finished goods
Consumer foods
Consumer energy
Other consumer goods
Capital equipment
.8 -18.8 -30.6
-4.8
.5 -7.1
59.3 54.9 27.0
1. Changes are from final month of preceding period to final month of
period indicated; monthly changes are not compounded.
2. Excludes materials for food manufacturing and animal feeds.
RECENT CHANGES IN CONSUMER PRICES
(Percentage change at annual rates; based on seasonally adjusted data) 1
Relative
Importance:
Dec. 1982 1981
All items 2
Food
Energy
All items less food and
energy 3
Commodities
Services
Memorandum:
CPI-W 4
1982
01
02
1983
May
June
100.0
19.0
12.4
8.9
4.3
11.9
3.9
3.1
1.3
.4
2.8
-25.1
68.6
26.2
42.4
9.4
7.9
10.6
6.0
5.0
6.9
4.4
5.7
3.7
3.9
2.9
4.6
3.4
2.5
3.9
3.8
4.5
3.6
100.0
8.7
3.9
.3
4.9
5.3
2.0
5.4 6.5
1.7 3.7
21.0 29.9
2.4
-3.7
4.0
1. Changes are from final month of preceding period to final month of
period indicated; monthly changes are not compounded.
2. Official index for all urban consumers, based on a rental equivalence
measure for owner-occupied housing after December 1982.
3. Data not strictly comparable. Before 1983, they are based on
unofficial series that exclude the major components of homeownership;
beginning in 1983, data include a rental equivalence measure of homeowners
costs.
4. Index for urban wage earners and clerical workers.
II-23
demand, are not necessarily a reliable indicator of the trend in price
inflation for finished goods.
Primary raw materials make up less than
2 percent of the value of final goods and thus are much less important in
determining business costs than, for example, labor compensation.
COMMODITY RESEARCH BUREAU SPOT MARKET INDEX
P
a
P
T
I
T
8
Ia
ia
S
i
a
a
a
a
a
a
a
a
I
a
a
a
P
T
I
|
i
i
P
T
1967=10
160
--
150
i$
i
.
.8
A
S
S
a
a
a
a
8
S-i
140
.
ii
*
II
i
a
a
I
a
$i
I
8aa
S
8
I
a
8
I
a
a
i
I
$
,a
0
--
130
110
P
T
S*
S8
1962
1957
1952
1947
P
a
S,
S
aT
8
.
Ia
I
*
'
.
5
.
.
a
a
Pa
8
0
*
*
a
a
*
.
8
•
.
,
a
a
1976
a
a
350
50
10
-
300
-
200
--
150
-
100
a
.
.
.
6
T -
*
a
$
,
P T
a
a
1981
a
APPENDIX A*
ANNUAL REVISION OF THE NATIONAL INCOME AND PRODUCT ACCOUNTS
The Commerce Department in July released its annual revision of the
National Income and Product Accounts. The revision covers the past three
years and incorporates new source data and updated seasonal factors. Major
new source data for 1980 and 1981 include the Internal Revenue Service
tabulations of business tax returns and for 1981 the Census Bureau's Annual
Housing Survey, the Survey of Manufacturers, and Surveys of Retail and
Wholesale Trade.
The revised figures still portray the 1980-1982 period as one of little
growth, on balance, accompanied by slowing inflation. As in the earlier
estimates, the level of real GNP in the first quarter of 1983 was virtually
the same as at the end of 1979. However, the cyclical fluctuations of the
last few years were sharper than indicated by the preliminary figures and
the composition of output was altered a bit. The upturn in activity during
the 1980-81 recovery was somewhat stronger than originally thought as the
expansion in real GNP between 1980-Q2 and 1981-Q3 was raised 0.7 percentage
point to 4.3 percent. In addition, output is now estimated to have fallen
3 percent between mid-1981 and the end of 1982, 0.8 percentage point more
than the earlier estimates, mainly because of a steeper decline in the second
half of last year. The real growth rate in 1983-Q1 is still shown to be
2.6 percent at an annual rate.
The strengthening of real activity in 1981 and early 1982 was also
reflected in upward revisions in current-dollar GNP, as changes to aggregate
price measures mostly were small. Over the 1980-82 period, the revisions to
both the gross domestic business product fixed-weighted price index and the
GNP deflator averaged -0.1 percent per year, as lower prices for personal
consumption expenditures largely were matched by lower prices for imports.
In 19 83-Q1, the increase in the GDBP fixed-weighted price index was raised
0.6 percentage point to 3.6 percent at an annual rate, while the rise in the
GNP deflator remained at 5.5 percent.
In terms of the components of GNP, personal consumption expenditures
are now estimated to have been higher over the past three years, particularly
for services. Outlays for housing services were raised to incorporate information on average rents contained in the Annual Housing Survey for 1981;
spending for recreation and personal business services was higher as well.
The revisions in consumption in 1980 and 1981 were roughly paralleled by
increases in disposable income, and the saving rate was little changed. In
1982, however, the upward revision in disposable income was much smaller
than the change in outlays and the saving rate was reduced to 5-3/4 percent,
3/4 percentage point below the previous estimate.
* Prepared by Andrea Kusko, Economist, National Income Section, Division
of Research and Statistics.
II-A-1
II-A-2
REAL GROSS NATIONAL PRODUCT
Billions of 1972 dollars, annual rate
Revised series
-
1525
-
1500
-
1475
Series prior to revision
S1450
S1425
-1400
I
1978
I
I
1
1979
1980
1981
PERSONAL SAVING RATE
I
1982
1983
Percent
11
10
9
Series prior to
revision
S
6
5
Revised serie
4
I3
II-A-3
Changes in other major components of GNP generally were relatively
small. Among the larger revisions, residential construction expenditures in
1982 were reduced to incorporate annual survey information on construction
activity while the drop in net exports last year was exacerbated by weaker
international service flows. Business fixed investment was raised in 1981,
reflecting higher outlays for both equipment and structures, but was virtually
unchanged in 1982. As a result, investment is now indicated to have dropped
9.7 percent from its cyclical peak in the third quarter of 1981 to a trough
in the first quarter of 1983. By contrast, the investment contraction in
the preliminary figures totalled 7.6 percent and extended only over the four
quarters of 1982.
The upward revision in the level of nominal GNP in the last two
years was accompanied by higher national income. There were substantial
increases in the estimates of rental income beginning in 1981 and in compensation of employees in 1982. In addition, corporate profits were slightly
higher in 1982. On the other hand, although net interest was raised substantially through mid-1982, interest outlays now are estimated to have
fallen appreciably with the decline in interest rates over the past year, and
proprietors' income was reduced markedly in both 1981 and 1982.
II-A-4
GROSS NATIONAL PRODUCT AND RELATED ITEMS
(Billions of 1972 dollars)
1980
Revised Levels
1981
1982
1983-Q1
1980
Revisions
1981 1982
1983-Q1
Gross National
Product
1475.0
1513.8
1L85.4
1490.1
1.0
11.2
8.5
3.4
Final sales
1479.4
1505.3
1494.8
1505.5
.4
11.6
8.8
3.3
Personal consumption
expenditures
931.8
956.8
970.2
986.7
1.3
9.2
13.3
13.8
Business fixed
investment
165.8
174.4
166.1
159.9
-. 3
2.4
.4
-2.5
47.1
44.7
37.8
45.5
-. 1
-. 2
284.3
286.5
291.8
292.9
-. 3
-. 6
.5
.5
Change in business
inventories
-4.4
8.5
-9.4
-15.4
.6
-. 5
-. 2
.1
Net exports
50.3
43.C
28.9
20.5
-. 3
1.0
-2.9
-4.2
2631.7
2954..
3073.0
3171.5
-1.4
16.4
13.7
.9
6.0
6.6
5.8
5.4
.2
-. 7
-. 5
Residential
construction
Government purchases
-2.5
-4.3
ADDENDA:
Nominal GNP
Personal saving
rate (percent)
.2
II-A-5
NATIONAL INCOME AND RELATED ITEMS
(Billions of dollars)
1980
Revised Levels
1981
1982 1983-Q1
1980
1981
Revisions
1982 1983-Q1
National income
2116.6
2373.0
2450.4
2528.5
-.5
20.5
13.8
3.6
Compensation of employees
1599.6
1769.2
1865.7
1923.7
1.0
1.6
9.2
15.6
1356.6
1493.2
1568.1
1610.6
.5
-.8
7.5
13.3
243.0
276.0
297.6
313.1
.5
2.4
1.8
2.3
117.4
120.2
109.0
120.6
1.1
-4.5 -11.3
-8.3
31.5
41.4
49.9
54.1
-1.4
7.5
15.8
18.8
Corporate profits with
inventory valuation and
capital consumption
adjustments
175.4
192.3
164.8
181.8
-6.2
1.7
4.0
Net interest
192.6
249.9
261.1
248.3
4.9
14.2
-3.8
Gross National Product
2631.7
2954.1
3073.0
3171.5
-1.4
16.4
13.7
.9
Personal income
2165.3
2435.0
2578.6
2657.7
4.9
19.2
8.7
9.5
Disposable personal income
1828.9
2047.6
2176.5
2255.9
4.8
18.5
3.8
8.7
Wages and salaries
Supplements to wages
and salaries
Proprietors' income with
inventory valuation and
capital consumption
adjustments
Rental income of persons
with capital consumption
adjustment
-4.3
-18.3
ADDENDA:
III-T-1
SELECTED FINANCIAL MARKET QUOTATIONS 1
(Percent)
1982
FOMC
highs Dec. 21
1983
Recent FOMC
FOMC
13 Aug. 16
July
May 24
low
Change from:
Recent FOMC
July 13
low
Short-term rates
Federal funds 2
15.61
8.69
8.48
8.72
9.21
9.70p
1.22
14.57
7.90
9.10
8.01
7.96
7.97
8.47
14.36
8.48
9.30
1.44
1.51
13.55
8.11
7.95
8.47
9.39
9.40
9.48
9.53
Commercial paper
1-month
3-month
15.73
15.61
8.48
8.43
8.17
8.13
8.48
8.52
9.19
9.30
9.53
9.61
1.36
1.48
Large negotiable CDs 3
1-month
3-month
6-month
15.94
16.14
16.18
8.59
8.26
8.64
9.33
9.66
1.40
8.62
8.26
8.73
9.58
9.88
8.78
8.29
8.95
10.00
10.21
1.62
1.92
Eurodollar deposits 2
1-month
3-month
16.36
16.53
9.44
9.56
8.68
8.71
8.96
9.14
9.70
10.05
9.90p
10.42p
1.22
1.71
.20
.37
Bank prime rate
17.00
11.50
10.50
10.50
10.50
11.00
.50
.50
13.97
13.55
8.63
9.32
7.99
8.37
8.72
9.15
9.51
10.10
9.38
9.98
1.39
1.61
-.13
-.03
9.87
10.54
10.53
9.36
10.12
10.27
9.91
10.56
10.69
10.91
11.40
11.44
11.21
11.71
11.70
1.85
1.59
1.43
Treasury bills
3-month
6-month
1-year
Treasury bill futures
Sept. 1983 contract
Mar. 1984 contract
.49
1.58
.34
.31
Intermediate- and longterm rates
U.S. Treasury (constant maturity)
15.16
3-year
14.95
10-year
14.80
30-year
Municipal (Bond Buyer)
13.44
10.054
8.78
Corporate-Aaa utility
Recently offered
16.34
11. 9 6 e
11.03
17.66
13.635
12.55
9.554
9.854
1.07
.30
11.55 e 12.38e
12.65 e
1.62
.27
12.555 13.305
13.845
1.29
.54
9.294
S&L fixed-rate mort-
gage commitment
1983
1982
FOMC
May 24
FOMC
July 13
Percent change from:
FOMC
1983
July 13
high
Aug. 16
Stock prices
-4.6
1219.04 1197.82 11o0.45
776.92 1248.30
Dow-Jones Industrial
-4.6
94.46
95.90
95.58
99.01
58.80
NYSE Composite
-6.5
230.30
241.07
229.30
246.38
118.65
AMEX Composite
-8.8
299.85
307.36
314.59
328.91
159.14
NASDAO (OTC)
4. One-day quotes for preceding
1. One-day quotes except as noted.
. Averages for statement week closest to date shown. 5. One-day quotes for preceding
p-preliminary. e--estimated.
. Secondary market.
lows
highs
-.6
-1.5
-4.5
-4.7
Thursday.
Friday.
DOMESTIC FINANCIAL DEVELOPMENTS
Monetary expansion slowed in July, especially so in the case of the
broader aggregates.
M2 and M3 grew at annual rates of only 6-1/4 and 5-1/4
percent, respectively, placing both of them within their 1983 target ranges.
M1 growth decelerated slightly to a 9 percent rate, leaving this measure
above the new FOMC monitoring range.
The reserves market tightened further after the July FOMC meeting,
and federal funds recently have traded in the 9-5/8 percent area, up almost
1/2 percentage point.
Most other market interest rates have risen 1/8 to
3/8 percentage point, and are now 1-1/4 to nearly 2 points above their
recent lows in May; the bank prime rate was raised 1/2 percent earlier
this month, the first adjustment since February.
Long-term market rates
have risen about as much as short rates during the past three months--an
unusual phenomenon that may reflect, in part, some reassessment of real
interest rate prospects in light of the federal budget picture and the
surprising strength of the private economy at rate levels that had been
viewed as restraining by many observers.
Total domestic nonfinancial sector debt is estimated to have grown at
a seasonally adjusted annual rate of about 9 percent in July, appreciably
below the first-half pace.
The U.S. government component slowed the most
last month; the Treasury began to run down the large cash balance it accumulated through heavy borrowing in the second quarter.
Borrowing by state
and local governments has continued at the more moderate pace that emerged
in June as the pre-registration surge ended and interest rates rose.
House-
hold sector borrowing apparently has not yet weakened, largely because of
lags in the mortgage commitment-lending process and lagged adjustments of
III-1
III-2
MONETARY AGGREGATES
(Based on seasonally adjusted data unless otherwise noted)
1982
Q4
----Money stock measures
1. M1
3
2. (M1)
3. M2
4. M3
13.1
(14.5)
9.3
9.5
Q1
Q2
1983
May
June
1
JulyP
Growth from
base period
to July 19832 P
8.9
(3.3)
6.2
5.2
12.2
(12.2)
8.5
9.1
Percentage change at annual rates ---
'4.1
(13.8)
20.3
10.2
12.2
(12.7)
10.1
8.2
26.3
(21.4)
12.4
11.0
10.2
(7.6)
10.6
10.9
Level in billions
of dollars
July 1983P
Selected components
5.
Currency
7.4
10.9
10.6
6.
Demand deposits
8.4
2.7
4.0
7.
Other checkable deposits
34.0
46.2
30.6
8.
M2 minus M1 (9+10+11+14)
8.1
22.4
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
4
Overnight RPs and Eurodollars, NSA
General purpose and broker/dealer money
market mutual fund shares, NSA
Commercial banks
Savings deposits,
SA plus
5
MMDAs. NSA
Small time deposits
Thrift institutions
Savings deposits, SA, plus
5
MMDAs, NSA
Small time deposits
M3 minus M2 (18+21+22)
Large time deposits
6
At commercial banks, net
At thrift institutions
Institution-only money market
mutual fund shares, NSA
Term RPs, NSA
28.
T.
U.S. government deposits at commercial
8
banks
8.6
4.3
140.8
18.1
7.4
8.9
245.8
17.9
14.7
124.2
62.7
9.5
8.1
10.8
5.4
1610.3
23.9
34.2
49.0
106.7
30.5
-82.8
52.6
15.3
9.9
-57.5
57.8
-44.0
16.5
-45.8
12.3
-12.8
14.6
-10.3
13.0
138.4
682.6
35.5
-0.5
4.1
296.1
-48.5
14.7
62.4
-24.0
12.4
34.4
-10.1
7.6
25.5
2.6
10.2
2.4
24.8
8.6
356.5
30.3
-6.0
171.0
-51.0
56.8
-18.0
28.2
-8.3
18.1
3.6
-4.3
19.1
335.3
409.0
10.4
-36.5
-2.2
3.2
3.2
-0.3
384.1
4.2
-1.5
29.3
-43.0
-49.9
-14.6
-0.4
-15.5
55.4
-3.6
-21.3
57.2
18.0
9.0
46.3
7.5
-13.6
71.7
305.9
226.1
79.8
32.7
34.4
-32.7
19.4
-41.9
31.2
-17.6
73.1
-35.6
-18.5
-18.4
-48.4
38.6
42.8
-MEMORANDA:
23.
Managed liabilities at commercial
banks (24+25)
24.
Large time deposits, gross
ondeposit funds
25.
26.
Net due to related foreign
institutions, NSA
7
27.
Other
11.3
326.1
744.3
Average monthly change in billions of dollars --
-5.2
-6.5
1.3
-19.6
-17.1
-2.5
1.3
-2.8
4.1
1.4
-9.2
10.6
-2.1
0.5
-2.6
-13.7
-1.8
-11.9
361.5
285.7
75.8
-0.7
2.0
-4.9
2.5
2.4
1.7
4.7
5.9
2.7
-5.3
-3.7
-8.2
-58.8
134.6
0.3
0.2
0.2
-2.2
1.7
11.1
24.1
Ouarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly
changes are calculated on an end-month-of-quarter basis.
2. The base for ML is the second-quarter 1983 average.
The base period for M2 is the February-March 1983 average.
The
base period for 13 is the fourth-quarter 1982 average.
3. 11 seasonally adjusted using an experimental model-based procedure applied to weekly data.
4. Overnight and continuing contract RPs issued to the nonbank public by commercial banks plus overnight Eurodollar
deposits issued by branches of U.S. banks to U.S. nonbank customers, both net of amounts held by money market mutual
funds. Excludes retail RPs, which are in the small time deposit component.
5. Beginning December, 1982, growth rates are for savings deposits, seasonally adjusted, plus money market deposit
accounts (MMDAs), not seasonally adjusted.
Savings deposits excluding MMDAs were unchanged in May and June declined
at an annual rate of 10.2 in July.
At thrift institutions, saving deposits excluding MMDAs increased during May and
June at rates of 10.6 percent, 12.5 percent, and declined at an annual rate of 2.0 in July.
6. Net of large-denomination time deposits held by money market mutual funds and thrift institutions.
7. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold
under agreements to repurchase and other liabilities for borrowed money (including borrowings from the Federal Reserve
and unaftiliated foreign banks), loans sold to affiliates, loan RPs and other minor items. Data are partially estimated.
8. Consists of Treasury demand deposits at commercial banks and Treasury note balances.
P--preliminary.
III-3
consumer loan rates to changes in market yields.
Overall business demands
for credit apparently have remained light, with deteriorating conditions
in bond markets leading many firms to rely more on bank loans where external
funds are needed.
Monetary Aggregates and Bank Credit
Since the new second-quarter base period, M1 has expanded at a 12-1/4
percent rate, placing it nearly $3 billion above the upper end of the 5 to
9 percent monitoring range.
Demand deposits grew at a relatively brisk 9
percent rate in July, despite the recent backup in interest rates, but currency growth moderated further and the expansion of other checkable deposits slowed.
Data for early August suggest little or no slackening in M1
growth from the July pace.
From its February-March base period, M2 has expanded at an 8-1/2 percent pace and lies at the mid-point of the 7 to 10 percent target range.
The nontransaction component of M2 weakened markedly in July, as the overnight RP and Eurodollar component declined sharply.
The sum of the domestic
deposit categories (savings, small time, and MMDAs) expanded at about the
same pace as in other recent months, while outflows from money market funds
diminished further in July.
Reductions in MMMFs earlier in the year pri-
marily reflected shifts to MMDAs, but the declines in June and July may
have been related to a substantial increase in the spreads between rates
on various market instruments and yields on money fund shares.
Investors
may also have shifted some money to bond and equity mutual funds; such
funds have registered record net inflows in recent months.
Major shifts in flows have occurred lately within the nontransactions
deposit component of M2.
MMDAs have been flat since mid-June, and small
III-4
time deposits--which registered substantial declines during the first five
months of the year--began growing again in June and rose sharply in July.
The turnaround in
small time deposits was accounted for largely by a resump-
tion of inflows to six-month money market certificates at both commercial
banks and thrifts.
The changing composition of flows reflects, to some
extent, increasing rate advantages on certain small time deposits relative
to offering rates on MMDAs; for example, rates on six-month MMCs exceeded
those on MMDAs by about 1 percentage point in late June and during July,
compared with a spread of about 50 basis points in earlier months.
The
increase in this spread resulted partly from a steeper slope at the short
end of the yield curve, but it may also reflect a desire by banks and
thrifts to lengthen the maturities of their deposits after the substantial
shortening that accompanied earlier massive inflows to MMDAs.1
M3 growth also weakened markedly in July, moving this aggregate back
within the upper end of the 6-1/2 to 9-1/2 percent target range.
Thrift
institutions continued to issue substantial amounts of large time deposits--primarily to fund asset expansion, but also to repay FHLB advances. 2
By contrast, large time deposits and term RPs ran off at commercial banks,
as a record $11 billion increase in U.S. government deposits at banks augmented funds available for lending and likely reduced collateral available
for RPs, both term and overnight.
Growth in bank credit in July--at nearly a 10 percent annual rate-was about the same as during the second quarter.
Its composition, however,
1. Banks evidently have also been lengthening the average maturity of large
time deposits; at large banks, only those CDs with remaining maturities of
over one year have registered a net increase since MMDAs were introduced.
2. Total deposit growth at thrift institutions was about 15 percent in both
June and July, while time and savings deposits other than large CDs grew at
around a 9 percent rate.
III-5
NET FLOWS INTO SELECTED ACCOUNTS
AT BANKS AND THRIFTS
_~_~~__~
MMDAs, Savings, and Small Time Deposits
(billions of dollars, seasonally adjusted unless otherwise noted)
Average
monthly
flows 1
MMDAS
(NSA)
Savings
deposits
1983:02
July
+15.6
+ 1.2
+0.7
-1.4
Small time
deposits
Total
-3.9
+12.4
+12.8
+13.0
Selected Small Time Deposits
(billions of dollars, not seasonally adjusted)
Average
monthly
flows 2
1983:April
May
June
July
7- to 31-day
deposits and
91-day certificates
*
-0.5
+.2
+1.2
1. Month-average to month-average.
2. Month-end to month-end
*--Less than $0.1 billion
Six-month
Money Market
Certificates
-7.6
-8.4
+1.4
+7.6
1-1/2 year and
over small time
deposits
+5.6
+7.4
+5.7
+2.8
III-6
COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT
1
(Percentage changes at annual rates, based on seasonally adjusted data)
1982
04
Q1
Q2
1983
May
June
July
Levels in
bil. of dollars
July 1983
Commercial Bank Credit
1.
2.
Total loans 2 and securities
at banks
Securities
3.
Treasury securities
4.
Other securities
5.
Total loans
2
2
6.
Business loans
7.
Security loans
8.
Real estate loans
9.
Consumer loans
6.3
10.7
9.9
10.7
10.0
15.9
25.0
23.9
29.6
18.4
43.0
61.1
53.5
63.1
36.8
11.9
172.9
2.5
5.3
5.8
7.9
6.4
-1.0
246.0
3.0
5.7
4.8
3.7
6.9
11.6
1083.6
-0.3
3.9
-1.3
0.9
6.4
11.9
401.2
37.2
-34.0
-5.3
26.2
-56.4
75.3
23.7
9.7
8.5
13.0
9.1
319.4
10.3
11.6
11.5
20.4
203.2
4.8
7.1
4.9
b.3
----
10.
11.
12.
Total short- and intermediateterm business credit (sum of
lines 14, 15 and 16)
Business loans net of bankers
acceptances
Commercial paper issued
by non3
financial firms
13.
Sum of lines 11 & 12
14.
Line 13 plus loans at foreign
4
branches
15.
16.
Finance company loans to business
5
Total bankers acceptances outstanding
5
Short-
and Intermediate-Term
-1.5
0.2
5.6
-0.4
3.0
7.2
9.7
1502.6
4.6
418.9
Business Credit
n.a.
-3.0
-3.1
0.5
3.6
-39.6
-33.1
-23.5
-46.5
2.7
-4.6
-0.4
-2.9
-2.1
6.7
8.3
437.0
-4.9
0.3
-2.3
0.0
6.7
7.2
453.6
-15.2
4.0
7.8
7.3
10.2
n.a.
n.a.
22.9
-30.9
-7.3
-8.5
n.a.
n.a.
-5.1
10.7
-13.4
n.a.
392.7
44.3
1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for
foreign-related institutions.
2. Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, unconsolidated nonbank affiliates
ot the bank, the bank's holding company (if
not a bank), and unconsolidated nonbank
subsidiaries of the holding company.
3. Average of Wednesdays.
4. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks.
5. Based on average of current and preceding ends of month.
n.a.--not available.
III-7
changed substantially in the past few months.
Acquisitions of U.S. Trea-
sury securities slowed appreciably in June and July to the slowest pace
since last September.
At the same time, growth in business loans increased
to a 12 percent annual rate in July.
Consumer loan growth also strength-
ened markedly further in July, to more than a 20 percent annual rate, while
the expansion in real estate loans held near the elevated 10 percent pace
of the second quarter.
Business Finance
Debt of nonfinancial businesses grew at about a 5 percent annual rate
during the first two quarters of this year, and indications are that business demands for credit have remained relatively light thus far in the current quarter.
Corporate cash flows apparently remain ample relative to out-
lays on inventories and fixed capital.
Gross public issuance of bonds by nonfinancial corporations dropped
to less than $2 billion per month in June and July--compared with an average of $3.2 billion during the first five months of the year.
The sharp
reduction in bond offerings was due in large part to rising interest rates.
The Board's index of yields on recently offered Aaa utility bonds stood at
12.65 percent in mid-August, 27 basis points higher than at the time of the
last FOMC meeting; since early May, corporate bond rates have increased more
than 1-1/2 percentage points.
Higher interest rates also have caused issu-
ers to shorten the maturities of their bonds.
In recent weeks, bonds with
maturities longer than 20 years have accounted for only a small proportion
of total volume; most of these long-term issues have been sold by utilities.
The weak bond market and an evident swing toward inventory accumulation have led to renewed growth in short-term business credit.
The sum of
III-8
GROSS OFFERINGS OF SECURITIES BY U.S. CORPORATIONS
(Monthly totals or monthly averages, millions of dollars)
1982
Year
1983
Q1
--------------Corporate securities--total
8,121
Securities sold in U.S.
Publicly offered bonds1
Privately placed bonds
Stocks 2
6,985
3,622
816
2,547
Securities
sold abroad 3
1,136
Q2
p
f
P
P
June
July
Aug.
Seasonally adjusted -------------10,815
10,929
9,878 10,300
4,588
5,000
700 e
700 e
4,590
4,600
937
629
8,211
7,850
7,700
7,700
1,700
700e
5,300
7,300
2,700
700 e
3,900
7,200
2,200
700
4,300
511
550
500
--- Domestic offerings, not seasonally adjusted --Publicly offered bonds--total 1
By industry
Utility
Industrial
Financial
By quality 4
Aaa and Aa
A and Baa
Less than Baa
No rating (or unknown)
3,622
4,542
5,100
2,300
2,650
976
1,236
1,410
986
1,292
2,264
1,400
2,300
1,400
730
1,150
420
1,570
325
755
1,357
1,505
286
474
1,724
1,885
563
370
1,160
2,220
830
890
355
895
170
880
415
1,755
220
260
861
1,209
904
1,231
2,547
4,710
4,440
4,800
3,400
871
1,119
557
1,203
2,124
1,383
590
2,890
960
500
3,500
800
300
2,500
600
Memo items:
5
Equity based bonds
Original discount bonds
Par value
Gross proceeds
Stocks--total 2
By industry
Utility
Industrial
Financial
1.
2.
3.
4.
5.
2,500
3,500
Total reflects gross proceeds rather than par value of original discount bonds.
Includes equity issues associated with debt/equity swaps.
Notes and bonds, not seasonally adjusted.
Bonds categorized according to Moody's bond ratings.
Includes bonds convertible into equity and bonds with warrants attached where
the warrants entitle the holder to purchase equity in the future.
p--preliminary, f--forecast. e--estimate.
III-9
business loans at banks and nonfinancial commercial paper turned positive
in June, following a virtually continuous decline since late last year, and
increased by more than 8 percent in July.
A considerable slowdown in the
contraction of commercial paper outstanding has accompanied the pickup of
business loans.
The bull market in stocks faltered after interest rates turned up in
May.
Major stock price indexes are down only slightly, on balance, since
the last FOMC meeting, but off 5 to 9 percent from their 1983 highs.
How-
ever, price-earnings ratios remain high enough to induce many firms to issue
equities; stock sales totaled about $4 billion (seasonally adjusted) in
July, down slightly from previous months but still robust by past standards.
Institutional investors have been a receptive market for equities this year,
absorbing a substantial portion of the issues brought to market.
Reflecting
the increased interest of individuals, mutual funds made net purchases of
stocks amounting to $7.8 billion during the first half of 1983.
Government Finance
Federal sector.
The Treasury is expected to borrow (net) about $48
billion during the third quarter--$8.4 billion in bills, $38.4 billion in
coupon issues, and $1.4 billion in nonmarketable securities (primarily state
and local issues and savings bonds).
Included in this borrowing is $9.4
billion raised by the Treasury in its mid-August refunding through auctions
of 3- and 10-year notes and 30-year bonds.
Investor interest in the auc-
tions was limited, and the dealer community absorbed a somewhat larger than
usual proportion of the issues in a sharply weakening market.
The issues
have since moved to premiums over their issue prices as investor sentiment
III-10
TREASURY AND AGENCY FINANCING 1
(Total for period; billions of dollars)
JulyP
Aug.f
1983
Sept.f
02
Q3f
Treasury financing
Combined surplus/deficit(-)
-23.4
-20.6
-7.6
-33.5
-51.6
11.7
19.6
16.9
46.9
48.2
11.5
3.3
8.2
.2
19.6
2.7
16.9
15.7
2.4
13.3
1.2
41.1
2.4
38.7
5.8
46.8
8.4
38.4
1.4
Means of financing deficit:
Net cash borrowing
from the public
Marketable borrowings/
repayments(-)
Bills
Coupons
Nonmarketable
Decrease in the cash
balance
Memo: Cash balance
at end of period
Other 2
6.3
0
8.7
-12.1
-12.5
21.7
13.0
25.1
28.0
5.4
-7.7
2.8
Federally sponsored credit
agencies net cash borrowing 3
.2
FNMA
.3
.6
Farm Credit Banks
FHLMC
25.1
2.0
.3
FHLB
2.9
.7
.5
*
.2
.3
-3.1
-. 1
1.4
.6
1.7
1.3
SLMA
1. Numbers reported on a not seasonally adjusted, payment basis.
2. Includes checks issued less checks paid, accrued items and other
transactions.
3. Includes debt of Federal Home Loan Banks, the Federal National Mortgage
Association, the Federal Farm Credit Bank System, the Federal Home Loan
Mortgage Corporation, and the Student Loan Marketing Association. Excludes
mortgage pass-through securities issued by FNMA and FHLMC.
p--preliminary.
f-forecast.
*--less than $50 million.
III-11
has been improved by slower monetary growth and signs of moderating consumer spending.
The staff projects a third quarter combined deficit for the Treasury
of $52 billion, bringing the fiscal 1983 total to a record $217 billion. 1
Borrowing during the quarter is expected to be accompanied by a reduction
of about $3 billion in the Treasury's cash balance--leaving the balance at
a relatively high level around $25 billion.
The cash balance is likely to
be drawn down further in the fourth quarter to help finance a deficit expected to be upwards of $60 billion.
Federally sponsored credit agencies, as a group, reduced their debt
slightly in the second quarter (not seasonally adjusted), but a moderate
increase is estimated for July.
Federal Home Loan Bank debt, which fell by
$3 billion during the second quarter, increased slightly in July--despite a
further decline in outstanding advances to thrifts--as the Banks added to
liquid asset balances.
FNMA's borrowing needs have been small in recent
months as it has financed mortgage acquisitions largely by reinvesting mortgage repayments and by selling mortgages via issuance of pass-through securities.
Heavy borrowing by FHLMC in the second quarter reflected issuance
of a new type of mortgage-backed bond, 2 and in July the volume of funds
raised in debt markets by this agency fell back to a low level.
State and local sector.
Yields on short- and long-term tax-exempt
securities generally have risen by 20 to 30 basis points since the last
1. The Administration's midyear update of its projected FY1983 combined
deficit is $226 billion. The Administration is anticipating higher onbudget outlays than is the staff.
2. FHLMC's "Collateralized Mortgage Obligations" have pass-through features and were issued in three maturity classes designed to meet the different cash-flow preferences of thrift institutions and pension funds.
III-12
FOMC meeting--less than the increases in taxable yields.
The ratio of tax-
exempt to taxable bond yields has fallen substantially since the trough of
the recession last November (chart).
Gross offerings of tax-exempt bonds totaled $5.2 billion (seasonally
adjusted) in July, only slightly less than in June but well below the second
quarter average of $7.5 billion.
Some of the slowdown in bond offerings in
June and July was associated with the backup in interest rates, but there
also have been some special factors.
The registration requirement for muni-
cipal bonds that went into effect July 1 had caused some acceleration of
issues during April and May. 1
And uncertainty surrounding the problems of
the Washington Public Power Supply System (WPPSS), including the expected
default on $2.25 billion in revenue bonds for its defunct nuclear projects,
apparently contributed to a particularly sharp drop-off in issuance of taxexempt bonds to finance projects of other public utilities.
Interest rates on tax-exempt issues similar to WPPSS bonds--that is,
securities issued to construct joint nuclear power projects involving takeor-pay contracts--reportedly are trading at yields 60 basis points or more
above those on otherwise comparable bonds. 2
But there has been little indi-
cation of a general flight to quality within the municipal securities market.
Indeed, the spread between A-rated and Aaa-rated municipal bond
yields and the spread between revenue and general obligation bond yields
have remained nearly unchanged.
1. Bonds sold during the last two weeks of June for delivery after July 1
also had to be in registered form.
2. In addition, yields on general obligation bonds issued by Washington
State in early August were 75 to 100 basis points above yields on comparable bonds, as a result of both the problems of WPPSS and the state's budget difficulties.
III-13
RATIO OF TAX-EXEMPT TO TAXABLE YIELDS
P
T
P
1
P
I
PT
I I
T
T
-
Ratio
-1
1.00
-
0.95
-
0.90
0.85
-
0.80
0.75
0.70
I
I-
67
65
I
69
73
71
I
I I
75
I
77
I
I
L I
I
81
79
0.65
83
1. Ratio is the Bond Buyer 20-Bond General Obligation Index divided
by the 20-year, constant-maturity U.S. Treasury yield.
GROSS OFFERINGS OF SECURITIES BY STATE AND LOCAL GOVERNMENTS
(Monthly totals or monthly averages; billions of dollars)
1983
1982
Year
QIV
QI
Apr.
May
Junee
Julye
------------------- Seasonally adjusted ------------------Total
Long-term
Short-term 1
9.80
6.40
3.40
13.00
8.75
4.25
9.85
7.05
2.80
11.45
8.60
2.85
11.80
9.10
2.70
8.40
5.30
3.10
8.35
5.20
3.15
----------------- Not seasonally adjusted ----------------Total
Long-term
Refundings
Mortgage revenue
Short-term 1
9.80
6.40
.35
1.00
3.40
12.60
9.10
.70
1.20
3.50
8.27
6.10
.93
1.00
2.17
16.39
10.39
1.92
1.73
6.00
11.73
9.23
2.60
.78
2.50
1. These figures do not include tax-exempt commercial paper.
e--estimate.
9.80
6.50
1.15
.60
3.30
7.80
4.80
.53
1.40
3.00
II-14
Mortgage Markets
The average contract interest rate on new commitments for fixed-rate
conventional home loans at S&Ls has risen about half a percentage point
since the July FOMC meeting to 13.84 percent, roughly 1-1/4 percentage
points above the recent low in May.
On August 1, the ceiling rate on
level-payment FHA/VA home loans was increased by a full percentage point
to 13-1/2 percent as discounts in primary and secondary markets approached
8 points. 1
In mid-August, discounts on the new 13-1/2 percent contracts
were around 2 points.
Initial interest rates on adjustable-rate home mortgages (ARMs) have
risen more since May than rates on fixed-rate loans (chart).
The rate
advantages available to borrowers on ARMs purchased by FNMA have diminished
considerably, and the advantage on the plan involving adjustments every 5
years to interest rates and to monthly payments (the variant that borrowers
have been most willing to accept) has dropped to about 20 basis points.
In
early July, one-fourth of the conventional home mortgages originated by
major lender types had adjustable-rate provisions.
Including FHA/VA mort-
gages, the ARM proportion of institutional home mortgage lending has declined to less than one-fifth from more than one-third during the first
half of 1982 when spreads were relatively narrow but rates were at nearrecord levels.
Total mortgage debt is estimated to have expanded at an annual rate
of around 9-1/4 percent during the second quarter.
The share of net resi-
dential mortgage investment effectively accounted for by thrift institutions
1. At current rate levels, a one percentage point increase in the contract
interest rate reduces discounts by nearly 6 points.
III-15
INTEREST RATES ON CONVENTIONAL HOME MORTGAGES 1
Percent
Fixed-rate mortgage
1983
1982
1. The fixed-rate mortgage series is the average contract interest
rate on new commitments for 30-year loans at savings and loan
associations, reported weekly by FHLMC. The ARM series are
average rates posted weekly by FNMA in its purchase programs for
long-term, adjustable-rate loans providing for rate and payment
adjustments every 1, 3 or 5 years.
III-16
MORTGAGE DEBT
1982
Q1
----------Total mortgage debt
Residential
Nonresidential
6.2
5.8
7.3
Q2
1983
Q3
Q4
Percent rate of growth,
4.7
3.9
7.5
4.5
4.8
3.5
5.8
5.8
5.7
Q1
Q2e
SAAR-----------7.9
8.6
5.7
9.2
9.4
8.5
------Net change in billions of dollars, SAAR----Total mortgage debt
Residential
Nonresidential
Residential mortgage debt
S&Ls and MSBs
Commercial banks
Mortgage poolsl
Federal agencies2
State and local credit
agencies
All other3
98
70
28
76
47
29
73
59
14
94
71
23
130
107
23
154
119
35
-6
8
38
4
-28
5
46
9
-31
7
55
11
-49
8
72
9
11
16
73
7
21
18
66
10
4
22
3
12
4
13
5
26
6
-6
7
-3
1. Pools or trusts backing pass-through securities guaranteed by the Government
National Mortgage Association, Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, and Farmers Home Administration.
2. Includes federal agencies and federally sponsored enterprises.
3. Includes mortgage companies, real estate investment trusts, state and local
government retirement funds, non-insured pension funds, life insurance companies,
credit unions and individuals.
e--estimate.
III-17
(savings and loans and savings banks) rose substantially during the first
half of the year, as thrift acquisitions of both mortgage loans (shown in
the table) and mortgage pass-through securities rebounded. 1
After falling
to a post-World War II low of 3 percent in 1982, the thrift share has
climbed to 40 percent--close to the proportion during the abbreviated mortgage market recovery in the second half of 1980 but still well below the 60
to 70 percent shares during comparable stages of previous expansions.
Both new and outstanding mortgage commitments picked up at S&Ls
throughout the second quarter, presaging further strong mortgage lending.
However, recent rate increases have had discernible effects on the demand
for new mortgage commitments.
In July, the University of Michigan's survey
of consumer attitudes revealed a modest deterioration in house buying attitudes, a sample of home builders reported some falloff in sales activity,
and single-family housing starts and building permits fell by about 10 percent. 2
Furthermore, weekly HUD surveys of large mortgage companies indicate
declines in applications for both FHA and conventional home loans during
July and early August.
Consumer Credit
Growth in consumer installment credit surged to an annual rate of 15
percent in June, bringing the second quarter increase to 11 percent--the
largest gain since the fourth quarter of 1979.
Commercial banks paced the
June advance which was broad-based by type of consumer loan.
1. The mortgage asset share of S&L portfolios increased slightly in June
following a continuous decline from 84 percent in late 1981 to 75 percent
in May of this year.
2. Movements in new mortgage commitments generally are roughly coincident
with movements in home sales, starts, and permits.
III-18
CONSUMER INSTALLMENT CREDIT
-I---
-
--~-1981
~-----~I-
1982
Q1
Q2
1983
Apr.
May
June
- - - - - Percent rate of growth, SAAR - - - - Change in outstandings--total
By type:
Automobile credit
Revolving credit
All other1
Change in outstandings--total
By type:
Automobile credit
Revolving credit
All other1
By major holder:
Commercial banks
Finance companies
All other
5.8
4.0
7.1
10.9
7.3
7.7
4.5
3.9
7.0
2.6
5.0
7.1
9.1
12.1
16.5
7.4
-
-
-
-
-
7.9
6.3
17.2
5.3
9.3
15.1
11.9
9.5
6.9
Billions of dollars, SAAR -
17.7
22.2
9.7
-
-
-
-
-
18.2
13.1
24.2
37.5
27.3
32.4
52.9
8.5
4.5
5.3
4.9
4.4
3.8
6.5
4.4
13.3
15.9
10.6
11.0
8.3
11.0
8.0
15.8
6.2
10.4
23.7
14.5
14.7
-0.1
13.4
5.4
4.8
4.6
3.9
10.2
6.8
7.1
20.6
1.3
15.7
14.2
-6.2
8.0
18.5
4.3
9.6
29.1
5.6
18.2
- - - - - - - Annual percentage rate - - - - - - Interest rates
At commercial banks 2
New cars, 48 mos. 3
Personal, 24 mos.
Credit cards
At auto finance companies4
New cars
Used cars
16.54
18.09
17.78
16.83
18.65
18.51
14.81
17.59
18.89
16.17
20.00
16.15
20.75
12.12
19.83
13.90
16.57
18.79
11.80
18.75
n.a.
n.a.
n.a.
11.90
18.91
13.90
16.57
18.79
n.a.
n.a.
n.a.
11.94
18.76
11.57
18.58
1. Includes primarily personal cash loans, home improvement loans, and sales
finance contracts for non-automotive consumer durable goods.
2. Average of "most common" rates charged, on loans of specified type and maturity,
during the first week in the middle month of each quarter.
3. Data for periods prior to 1983-Q1 are for new-car loans at a 36-month maturity.
4. Average rate for all loans of each type made during the period, regardless of
maturity.
n.a.--not available.
III-19
Interest rates on consumer loans apparently have changed little in
recent months.
According to the Board's quarterly survey of commercial
banks, average rates on selected types of installment credit contracts
had dropped 2-1/2 to 3-1/4 percentage points between August 1982 and May
of this year, but a recent staff canvass of a number of banks around the
country has indicated little variation, on balance, since May.1
Thus,
as in past periods, consumer finance rates are lagging upward movements
in yields on market instruments with comparable maturities (chart).
Rate subsidy programs offered by the major domestic auto makers
through their finance subsidiaries were scheduled to expire at the end of
July.
But two of these manufacturers have extended their programs into
August (at somewhat higher interest rates and for a more limited selection
of cars), and the other has replaced its rate subsidy plan with a program
of sales incentive payments to dealers.
Some dealers are using these pay-
ments to provide reduced-rate financing to buyers.
Household debt repayment problems have eased in recent months.
Delin-
quency rates on auto loans at major finance companies declined in June to
the lowest reading since the series began in 1966, and the delinquency rate
on mortgage loans at S&Ls edged down after rising for nearly 4 years.
Per-
sonal bankruptcies fell sharply during the second quarter from the unusually
high level that had prevailed for most of the past two years.
1. The regular survey is conducted early in the mid-month of each quarter.
August results are not yet available.
III-20
RATES ON COMMERCIAL BANK NEW-AUTO LOANS
AND 3-YEAR TREASURY SECURITIES
Percent
1 20
Bank Auto Loans
S3-year
Treasuries
1973
1975
1977
1979
1981
1983
1. Auto loan rate for August is an estimate based on informal
canvass.
2. Treasury yield for August represents average for first two
weeks.
INTERNATIONAL DEVELOPMENTS
Foreign Exchange Markets
The dollar appreciated by 4-1/2 percent on a weighted-average basis
between the last FOMC meeting and August 11, to reach a record high.
The
rise was related to evidence of rapid growth in the U.S. economy and
actual and expected increases in U.S. interest rates relative to foreign
rates.
Since August 11, the dollar has depreciated by about 2-1/2 per-
cent in association with decreases in U.S. interest rates and possible
downward revisions in expectations about the growth in economic
activity.
The EMS currencies have been particularly weak in recent weeks,
with the mark depreciating about 2-1/4 percent against the dollar since
the last FOMC meeting.
The particular weakness of the mark may be due to
the relatively poor performance of the German economy and political
unease over the scheduled deployment of nuclear missiles.
Total U.S. intervention amounted to $250 million, about $180 million was
against marks, and about $70 million was against yen.
U.S. intervention since October of last year.
IV-1
This was the first
IV-2
WEIGHTED AVERAGE EXCHANGE VALUE OF THE U.S. DOLLAR
March 1973=100
"
.ries
FO IC
July 12
-
34
132
130
128
126
124
122
120
IIIIIIll ll lll III
I lllllllll llllll
l Ill111
1111111 llli
ll 1 llllll
llllllll
ll 118
August
July
June
3-MONTH INTEREST RATES
ly
Percent
10.5
eries
FO
July 12
10
U.S.
9.5
CD's
9
Weighted-Average Foreign Rate
"r1IIIIIJ
IIIIl
May
III II till11 III
1 1 i
June
8.5
/_
1111
Ii ll IIIIII
July
ll
lll
IIlll
August
1111
8
IV-3
On July 26 the U.S. Treasury redeemed the last of its Carter notes,
which amounted to $607 million equivalent of marks.
IV-4
U.S. International Financial Transactions
During the first half of the year, total Eurodollar holdings
of U.S. nonbank residents rose despite potential competition from
the introduction of money market deposit accounts (MMDAs) (see line
3 of the International Banking Data Table for data through May). The
continued attractiveness of Eurodollar deposits has been reflected
in the portfolio choices of money market mutual funds:
their
holdings of Eurodollars stayed just under $20 billion in the period
between March and July in the face of a 15 percent decline in their
total assets.
This preference for Eurodollar asssets may reflect
the favorable liquidity characteristics of such deposits and the
yield differentials arising from the absence of reserve requirements
in the context of increased competition from MMDAs.
Because Euro-
INTERNATIONAL BANKING DATA
($ billion)
1981 I
1.
1982
1983
Dec.
Mar.
June
Sept.
Dec.
Jan.
Feb.
Mar.
Apr.
May
June
July
9.2
-8.9
18.1
10.7
-2.8
13.5
16.6
1.3
15.3
6.9
-4.4
11.3
8.4
-3.1
11.5
-4.9
-13.8
8.9
-6.0
-14.6
8.6
-5.6
-17.5
11.9
-6.3
-16.6
10.2
-4.7
-13.4
8.7
-.4
-11.7
11.2
-1.7
-11.5
9.8
U.S. Banking Offices'
Positions Vis-a-Vis
Own Foreign Offices 1/
(a) Total
(b) U.S.-Chartered Banks
(c) Foreign Chartered Banks
2.
Credit Extended to U.S.
Nonbank Residents by Foreign
Branches of U.S. Banks 2/
13.2
13.8
14.1
16.1
15.7
16.4
16.6
16.4
16.0
16.8
16.8
16.7
(b) NY Banks Only
8.8
9.1
9.7
11.4
11.2
12.0
12.0
12.2
11.9
12.3
12.2
12.3
3. Eurodollar Holdings of
U.S. Nonbank Residents 3/
93.6
104.2
116.0
111.5
110.3
110.0
111.9
114.9
117.0
117.3
n.a.
n.a.
(a)
Total
1/
2/
Average of Wednesdays, net due to own foreign office
Daily averages.
3/
e/
End of month.
estimate.
=
(+).
1BFs are included in U.S. offices.
IV-5
dollar deposits are reserve-free, while large CDs and MMDAs are
subject to the 3 percent reserve requirement on non-personal time
deposits, banks offer higher yields on Eurodollar deposits than on
similar instruments at domestic offices.
For example, yields on CDs
issued by London offices of prime U.S. banks remain about 20 to 25
basis points above those on domestic CDs issued by the same banks.
Domestic offices of U.S. chartered banks (including IBFs)
reduced their outstanding net advances to their own foreign offices
between March and July of this year by $6 billion, reversing about
half of the outflow to foreign offices in the first quarter (see
line 1b of the International Banking Data Table.)
The recent
decline in net advances may be related to the increase in Eurodollar deposits at foreign branches of U.S. banks by U.S. nonbank
residents noted above.
In addition the decline may be partly
accounted for by a reduction in Euro-interbank placements by foreign
branches of U.S. chartered banks.
Monthly data reported by the
foreign branches indicated that their net claims on foreign banks
fell by about $1 billion during April and May.
Branches of U.S.
regional banks reduced net claims on foreign banks by $4 billion
over this period, a decline that was largely offset by an increase
in such claims by large U.S. money center banks.
The reduction in
net placements by regional banks, reversing the increases in their
net placements in the first quarter, may have reflected a pick-up in
consumer and real estate loan demand at their domestic offices and
possibly a desire to limit exposure in the Euro-interbank market.
IV-6
However, these monthly data should be interpreted cautiously because
they are subject to large short-run fluctuations.
Recent press reports have called attention to record net
purchases of U.S. corporate stocks by foreigners during the present
recovery, though the rate of inflow slowed in May and June (line 2b
of the Summary Table of U.S. International Transactions); net
purchases were $4.5 billion during the first half of this year.
Less attention has been focused on net purchases of foreign stock by
U.S. residents, which were a record $2.8 billion during the first
half of this year out of total net purchases of foreign securities
of $5 billion.
Some brokerage firms indicate that U.S. investors
have primarily been purchasing the stocks of Japanese and German
companies.
Such cross-border flows of funds to purchase equities,
and the similarity of trends in equity markets in major countries
are evidence of increasing integration of capital markets.
Foreign official reserve assets held in the United States rose
by about $2 billion in the second quarter as an accelerated
reduction in OPEC holdings was more than offset by increases in
holdings of G-10 and other countries. (see lines 4 and 4a of the
Summary Table of U.S. International Transactions.)
Partial data
available from the Federal Reserve Bank of New York for the period
between late June and the end of July indicate that OPEC holdings of
official reserve assets showed little further change, while the
holdings of G-10 countries increased by $2.6 billion.
Much of this
increase was attributable to France, which placed the proceeds from
IV-7
its borrowings from the EC in its account at the Federal Reserve
Bank of New York.
Finally, U.S. official reserve assets showed little change in
the second quarter (see the U.S. Official Reserve Asset Table
below.)
Preliminary data for July indicate that U.S. holdings rose
moderately, mainly because of a rise in the U.S. reserve position at
the IMF associated with provision of dollars in connnection with
drawings on the Fund.
U.S. OFFICIAL RESERVE ASSETS 1/
(Billions of dollars; increase in assets (+))
Holdings 2/
Dec. 1981
Dec.
1982
1982
1st Half 03
Transactions 3/
1983
04
01
02
July e/
15.9
21.5
2.6
1.7
2.5
1.2
.5
.4
SDRs
4.1
5.2
.6
.4
.3
.1
.3
.1
Reserve Position
in the I.M.F.
5.1
7.3
1.4
.5
.7
2.1
.2
.2
Foreign Currency 4/
6.8
8.9
.6
.8 1.4
-1.1
.0
.0
6.8
6.8
.4
.2
.1
.0
-
2.1
.2
.6 1.3
-.2
.0
Total 4/
GlO + Switzerland 4/
Other
.1
.1
-1.2
1. Excludes holdings of gold.
2.
Valued at market exchange rates.
3. Net flows on a balance-of-payments basis excluding valuation changes.
4.
Holdings are net of
foreign exchange held in anticipation of redemption of Treasury
debt denominated in foreign currencies (Carter bonds); transactions are net of use of
foreign exchange for such redemptions. Carter bond redemptions for the period indicated
totaled $354 million for the 1st half 1982, $902 million for 1982 Q3, $519 million for 1982
Q4, $386 million for January 1983, $490 million for May 1983, and $402 million for July 1983.
Details may not add to totals because of rounding.
e/
Estimate.
IV-8
SUMMARY OF U.S. INTERNATIONAL TRANSACTIONS
(Billions of dollars)
1981
1982
1983
Year
Year
-34.0
-2.7
-31.3
-39.6
-9.6
-30.0
1.2
-1.8
-1.6
2.1
2.5
4.8
Q-I
Q-II
Apr.
-10.8 -9.3
-3.2 -10.1
0.8
-7.6
6.4
1.4
4.9
2.5
3.9
-1.4
4.4
-2.0
6.3
-0.5
-0.5
*
1.1
-0.8
-0.1
-0.6
*
0.1
0.1
0.8
0.1
0.5
0.1
3.6
1.8
2.8
1.7
0.9
0.4
0.4
-5.7
-8.0
-3.3
-1.8
-3.2
-1.2
-1.5
-0.5
Foreign net purchases (+) of U.S. Treasury
obligations 1/
2.5
6.4
2.1
2.8
2.8
-0.7
1.4
2.0
Official Capital
4. Changes in foreign official reserve assets
in U.S. (+ - increase)
5.5
2.7
1.5
0.3
2.1
0.4
1.7
*
-10.8
12.7
3.6
-12.7
6.6
8.8
-2.8
-1.C
5.3
2.7
-1.4
-0.9
2.0
-3.6
3.7
-0.3
-0.9
1.6
1.2
-1.0
1.5
-1.1
-1.7
0.7
5.0
0.5
5.8
-3.1
4.3
-2.8
3.0
-2.7
2.0
0.1
0.8
-0.4
0.9
0.8
0.3
-0.3
-5.2
-5.0
-2.(
-0.8
*
0.1
-0.1
-0.1
-9.7
22.0
-11.1
4.6
24.2
3.0
10.4
-6.3
-11.2
41.4
2.0
2.
-2.3
-6.
14.7
-0.4
1.6
0.0
-3.0
7.6
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
MEMO:
U.S. merchandise trade balance part of line 9
(Balance of payments basis, seasonally adjusted) -28.1
-36.4
-11.4
-8.7
-14.8
-5.8
-4.7
Private Capital
Banks
1. Change in net foreign positions of banking
offices in the U.S. (+= inflow)
a) with own foreign offices
b) all other
Securities
2. Private securities transactions, net
a) Foreign net purchases (+) of U.S.
corp. bonds
b) Foreign net purchases (+) of U.S.
corp. stocks
c) U.S. net purchases (-) of foreign
securities
3.
a) By area
G-10 countries and Switzerland
OPEC
All other countries
b) By type
U.S. Treasury securities
Other 2/
5.
Changes in U.S. official reserve assets
(+ - decrease) 3/
Other transactions (Quarterly data)
6. U.S. direct investment (-) abroad
7. Foreign direct investment (+) in 0.S.
8. Other capital flows (+ - inflow) 4/ 5/
9. U.S. current account balance 5/
10. Statistical Discrepancy 5/
1.
2.
3.
4.
Q-IV
-4.4
May
Includes U.S. Treasury notes publicly issued to private foreign residents.
Includes deposits in banks, commercial paper, acceptances, & borrowing under repurchase agreements.
Includes newly allocated SDR's of $1.1 billion in January 1981.
Includes U.S. government assets other than official reserves, transactions by nonbanking concerns,
allocations of SDRs, and other banking and official transactions not shown elsewhere.
5. Includes seasonal adjustment for quarterly data.
* Less than $50 million.
NOTE:
Details may not add to total because of rounding.
June
IV-9
U.S. Merchandise Trade
The U.S. merchandise trade deficit in June was somewhat
smaller than that recorded in May but was still well above fourth
quarter 1982 or first quarter 1983 levels.
Exports in June were
somewhat higher than during the preceding two months.
Just under
half of the rise in exports was in deliveries of large airplanes to
industrial countries.
The increase in agricultural exports largely
reflected a temporary bunching of deliveries of soybeans.
The small
decline in imports in June was primarily in the volume of oil.
For the second quarter as a whole, the trade deficit increased
to nearly $60 billion annual rate from rates of $35-45 billion in
the previous two quarters.
Imports turned up across a broad range
of commodity categories and from most geographic areas as U.S.
U.S. MERCHANDISE TRADE*
1982
1983
Year
4Q
1Q
2Q
May
211.2
37.2
174.0
193.4
33.1
160.3
198.3
36.0
162.2
196.1
35.4
160.7
194.5
33.6
160.9
201.3
37.3
164.0
Imports
Oil
Nonoil
247.6
61.2
186.4
238.8
60.5
178.3
233.2
42.0
191.2
255.5
52.1
203.4
264.0
59.7
204.2
257.2
54.3
202.9
Trade Balance
-36.4
-45.4
-35.0
-59.4
-69.4
-55.9
17.1
15.9
16.9
16.1
15.3
16.8
61.2
56.3
56.1
56.2
56.8
57.5
Value (Bil. $, SAAR)
Exports
Agricultural
Nonagricultural
Volume (Bil. 72$, SAAR)
Exports - Agric.
- Nonagric.
Imports - Oil
Nonoil
International
Transactions
June
5.0
5.0
3.6
4.8
5.5
5.0
71.8
70.0
75.5
80.4
81.3
80.0
and
GNP
basis.
Monthly data are estimated.
IV-10
economic activity strengthened and in response to the continuing
effects of the dollar's appreciation.
The value of exports changed
very little during the past three quarters reflecting continued
sluggish economic activity in major trading partners and the effects
of a strong dollar on the price competitiveness of U.S. goods.
The value of exports in the second quarter was only 1 percent
higher than the low level in the fourth quarter of 1982; volume was
about unchanged.
The small increase in the value of agricultural
exports (4Q82 to 2Q83) was accounted for almost entirely by higher
prices of exports, particularly corn.
The first quarter run-up in
the volume of agricultural exports was largely attributable to a
bunching of wheat deliveries to the U.S.S.R.
The new five-year
grain agreement with the U.S.S.R. was signed in August and will be
effective October 1.
The U.S.S.R. agreed to purchase a minimum of 9
million metric tons (MMT) each year of corn and wheat combined, an
increase from the current 6 MMT minimum, and may purchase up to 12
MMT without prior consultation (the current ceiling is 8 MMT).
In
addition, the U.S.S.R. may subsitute 500 thousand metric tons of
soybeans for 1 MMT of grain.
Nonagricultural exports have been about unchanged in value and
volume during the past three quarters as steady declines in exports
of a broad range of machinery and industrial supplies (categories
accounting for two-thirds of the volume of nonagricultural exports)
were offset by increases in exports of commercial aircraft and in
automotive products to Canada.
The volume of exports of machinery
IV-11
and industrial supplies dropped more than 20 percent since the
fourth quarter of last year.
The aircraft deliveries primarily went
to major industrial countries.
Automotive exports to Canada were
largely parts for assembly into vehicles that were then shipped back
to the United States; recent increases reflect the current strength
of U.S. domestic auto sales.
Just under half of the substantial rise in imports in the
second quarter from the first quarter was accounted for by oil.
The
volume of oil imports was unusually low in the first four months of
the year in response to several temporary market situations
(including the effects of unusually warm weather, inventory drawdowns and declining prices).
By May and June the import volume had
increased to almost 6 million barrels per day (mbd) as the influence
of the temporary factors ended and as U.S. economic activity
picked-up.
Prices of oil imports, which declined during the first
four months of the year, edged up in May (by 15 cents per barrel)
and increased further in June (by about 45 cents per barrel).
Prices on the spot market have increased steadily since March and
are currently at or slightly above official prices.
In July, OPEC
held its biannual meeting and decided to keep its total production
ceiling at 17.5 mbd (quarterly average) and its marker price at $29
per barrel.
1982
Year
Volume (mbd, SA)
Price ($/BBL)
Value (Bil$ SAAR)
OIL IMPORTS
1983
4Q
1Q
2Q
May
June
5.36
5.35
3.91
5.16
5.97
5.92
31.23
61.2
30.97
60.5
29.41
42.0
27.69
52.1
27.57
59.7
28.03
54.3
IV-12
Nonoil imports increased strongly in the second quarter over a
wide range of commodity categories largely in response to the
strength in U.S. economic activity.
Most of the increase in the
second quarter (as has been the case for the past year) was in the
volume of consumer goods (other than automotive), capital goods and
industrial supplies; together these commodity categories account for
about 75 percent of the volume of nonoil imports.
Automotive
imports from Japan and Europe accounted for only a small part of the
second quarter total increase -- less than one percent of the rise
in volume.
The automotive agreement with Japan, limiting Japanese
shipments to the United States to 1.68 million units annually, began
its third year on April 1.
For April, May, and June combined the
Japanese export schedule to the United States was very similar to
that of a year ago; in the second quarter Japanese producers shipped
495 thousand units, which was 1.2 percent more than in the same
period last year.
Japanese exports are recorded as U.S. imports
with a shipping lag of from 4 to 8 weeks.
IV -
13
Foreign Economic Developments.
The upturn in foreign economic
activity which became evident earlier this year in several of the major
foreign industrial countries has continued in recent months, with the
pace of recovery generally remaining slow.
In all of the foreign
industrial countries, the level of production continues to be depressed
and unemployment is still at historically high levels.
In Japan,
Germany, and the United Kingdom, the unemployment rate appears to have
stopped rising, however, and in Canada a significant decline in the rate
of unemployment has been recorded.
France and Italy.
There are few signs of a recovery in
Recent austerity measures taken by the French
government indicate that French economic activity is likely to remain
weak in the near future.
The pattern of declining foreign inflation rates generally has
continued in recent months.
One exception to this pattern is Canada
where consumer prices accelerated somewhat during the second quarter.
So far this year the German and Canadian trade balances have
declined moderately from the levels registered in the second half of
1982.
There has been a substantial weakening of the U.K. trade position
in 1983 while the French and Italian trade accounts have strengthened.
Japan's trade surplus has increased dramatically:
in the first half of
this year the Japanese trade balance was $29 billion (s.a.a.r.).
In
1982, the Japanese trade balance was $19 billion.
Individual Country Notes.
In recent weeks, there have been some
signs that the Japanese economy may be starting to recover from its
recent stagnation.
Industrial production rose sharply in June by 1.2
percent (s.a.); in the second quarter, industrial production was almost
IV -
14
7 percent (s.a.a.r.) higher than the level recorded in the previous
quarter.
According to recent assessments by both the Bank of Japan and
the Japanese Economic Planning Agency, the recent pickup in industrial
production is primarily related to increases in exports and continued
progress in inventory adjustment.
Other components of private domestic
demand -- notably investment in plant and equipment -- are still quite
weak.
Labor market conditions have improved slightly, as the rate of
unemployment, although still quite high by Japanese standards, declined
in June to 2.6 percent (s.a.).
The price situation in Japan continues to be favorable.
Consumer
prices remained unchanged in July following June's decline of nearly a
percentage point.
The CPI has increased less than 1 percent since the
end of last year.
Wholesale prices moved ahead by 0.2 percent in July,
but wholesale prices are still more than 2 percent below their level of
a year ago.
The reduction in Japan's current account surplus in June by about
$1 billion (s.a.) may have eased temporarily some of the pressure for a
policy adjustment.
Nevertheless, the cumulative current account surplus
for the first half of 1983 was $9-1/2 billion (s.a.), raising concern
that, unless the domestic economy strengthens promptly, the Japanese
current account surplus is likely to reach $20 billion for the year.
In
1982, the Japanese current account registered a $7 billion surplus.
German real GNP, according to preliminary indications, has
maintained its first quarter growth of 2 percent (s.a.a.r.) in the second
quarter.
Industrial production rose by 1.9 percent (s.a.)
in June to
IV -
15
reach, for the first time since March of last year, a level above its
year-earlier mark.
The rate of unemployment rose in June to 9.6 percent
(s.a.), but was unchanged in July.
The volume of manufacturing orders
rose 2 percent in June with the bulk of new orders continuing to come
from domestic sources.
In contrast to domestic orders, which in June
were 6-1/2 percent above their June 1982 level, export orders were 5-1/2
percent below their year-earlier level.
Consumer prices rose by 0.4 percent in July.
For the year so far,
consumer prices have risen 2-1/2 percent (a.r.) and wholesale prices have
declined somewhat.
The current account surplus through June of this year was $2-1/2
billion, substantially above the $1/2 billion surplus achieved in the
first half of last year.
The increase in the current account surplus
reflects reduced outlays for services and interest payments.
The volume
of exports in the first five months of this year declined by about 6
percent compared with the same period last year, while the volume of
imports declined less than 1 percent.
The effect of this change in trade
volume on the value of the trade balance was largely offset by an
improvement in the terms of trade.
German central bank money (CBM) increased 0.7 percent (s.a.) in
July.
Between the fourth quarter of last year and July, CBM increased 9
percent (s.a.a.r.), well above the Bundesbank's 4-7 percent target range.
Although industrial production in France increased by 1.6 percent
(s.a.) in May, it remained only slightly above its year-earlier level.
Private surveys and forecasts suggest a decline in economic activity
IV -
16
and a rise in unemployment for the remainder of this year.
The weak
outlook reflects in part the austerity measures initiated by the
government in March.
Wholesale prices rose by 1.1 percent in June, and for the first
half of the year wholesale price inflation was nearly 15 percent (a.r.).
Consumer prices rose 10-1/2 percent (a.r.) in the first seven months of
1983, about the same as the rate of increase registered in the first
seven months of last year.
The government's goal is to hold down the
increase in consumer prices for all of 1983 to 8 percent.
The trade deficit (s.a.)
that in the first quarter.
in the second quarter was half the size of
For the first half of 1983, the trade deficit
was $10-1/2 billion (s.a.a.r.), less than the $14 billion deficit
recorded last year.
A key goal of the government's austerity program is
to eliminate the trade deficit by the end of 1984.
The French Prime Minister has stated that the 1984 budget, to be
announced next month, will aim at limiting the government budget deficit
to 3 percent of GDP, the same as this year's objective.
Cuts in
government spending and increased taxes are widely anticipated to be part
of the budget package.
In the United Kingdom, the recovery of real economic activity
weakened somewhat in the second quarter as industrial production rose
only 2-1/2 percent (s.a.a.r.); in June industrial production actually
fell 1.7 percent (s.a.).
In July, the unemployment rate of 12.4 percent
was unchanged from the June level.
The rate of consumer price inflation remains very low by recent
IV - 17
U.K. standards.
In July, the retail price index was 4 percent above its
year-earlier level.
Both the trade and current account balances returned to surplus in
June.
However, for the first half of 1983 the trade balance was in
deficit by some $3 billion (s.a.a.r.), which is a sharp negative swing
from the $3-1/2 billion surplus recorded in 1982.
The current account
balance has weakened correspondingly, from a surplus of nearly $7 billion
in 1982 to one of about $1 billion (s.a.a.r.) for the first half of this
year.
Growth of all three targeted monetary aggregates remained above the
7-11 percent target range in July.
Shortly after assuming office, the
new Chancellor of the Exchequer, Nigel Lawson, announced controls on
public sector expenditure which are intended to prevent the public sector
borrowing requirement from rising above the level announced in the March
budget.
Industrial production remains weak in Italy, falling by 2.5 percent
(s.a.)
in the second quarter to a level 13 percent below the previous
peak reached in the first quarter of 1980.
led to some moderation of inflation.
The slowdown in activity has
In the first half of this year,
wholesale prices were up by about 10-1/2 percent from the level of the
first half of 1982; the rate of increase between the first halves of 1981
and 1982 was 15 percent.
Primarily because of increases in indirect
taxes, consumer price increases have remained high:
in July, consumer
prices were 15-1/2 percent above their year-earlier level.
and July, consumer prices increased only 11 percent (a.r.).
Between April
The weakness
IV - 18
of activity also has shown up in the trade account.
In the first six
months of this year, the trade deficit was about $7 billion (s.a.a.r.),
well below the 1982 outcome of $14-1/2 billion.
On August 4, Benedetto ("Bettino") Craxi became Italy's first
Socialist prime minister.
In return for the support of the other four
parties in the coalition government, the Socialists had to give the most
important ministries to non-Socialists and to adopt a more austere
economic program than indicated by their pre-election statements.
Craxi's government hopes to reduce consumer price inflation to 10 percent
next year and to 7 percent in 1985.
The government intends to achieve
this by a new incomes policy as well as by cuts in the large public
sector deficit.
The Canadian economy continues to expand at a brisk pace after
posting a 7-1/2 percent (s.a.a.r.) rate of growth of real GNP in the
first quarter.
Industrial production expanded in April and May at an
average monthly rate of 1.6 percent (s.a.).
Much of the increase in
industrial output occurred in durable goods manufacturing.
Progress on
unemployment continues at a less dramatic pace as the unemployment rate
fell to 12.2 percent in June (s.a.) and then to 12.0 percent in July.
At
its peak in December 1982, the unemployment rate was 12.8 percent.
The inflation rate in Canada has shown a dramatic decline in 1983
from the double digit levels of 1981 and 1982.
In the first six months
of 1983, consumer prices increased 5-1/2 percent (a.r.), less than half
the rate of inflation experienced over the same period in 1982.
However,
the July increase in consumer prices of 1.1 percent is the largest
IV-19
monthly increase in over a year.
Wage settlements have reflected the
improved price performance and generally have stayed within the government's "6-5 percent" guidelines for public sector wage increases for
the two years beginning June 1982.
Average hourly earnings increased
5-1/2 percent (s.a.a.r.) in the first three months of 1983.
Major Debt Problem Situations in Developing Countries
Most major borrower countries are making reasonable progress in
reaching their goals of economic adjustment and debt rescheduling.
Brazil may be an exception, having gone off track on its original IMF
program and financing arrangements with banks.
However, recent
developments there are also somewhat encouraging.
Mexico was found to have been in compliance with the second quarter
performance criteria specified in its arrangement with the IMF.
As a
consequence, Mexico drew another $310 million from the IMF on Augusut 15
and paid half the BIS and half to the Federal Reserve and Treasury.
Mexico is eligibile to draw another $1.1 billion from the $5 billion
commercial bank credit signed last March.
Mexico was eligible to make a
drawdown of $1.1 billion on the bank credit in late May, after IMF
certification of Mexican compliance with the first quarter performance
criteria, but drew only about $500 million in July.
The remaining $600
million, added to the funds that became available after August 15, will
enable Mexico to complete the repayment on schedule (by August 23) of the
emergency credits that it received a year ago from the BIS, the U.S.
Treasury, and the Federal Reserve; the balance outstanding is about $1.2
billion.
Mexico recorded a merchandise trade surplus of nearly $7
August 17, 1983
UNEMPLOYMENT RATES IN MAJOR INDUSTRIAL COUNTRIES
(PERCENT, SEASONALLY ADJUSTED)
1982
1983
1981
1982
Q3
Q4
CANADA
7.6
10.9
12.1
FRANCE
7.8
8.7
GERMANY
5.6
ITALY
JAPAN
UNITED KINGDOM
UNITED STATES
*
MAR.
APR.
12.4
12.6
12.5
8.7
8.8
8.7
8.4
9.0
9.5
9.2
9.2
9.8
2.4
2.4
2.4
10.0
11.7
11.9
7.6
9.7
10.0
JUL.
12.4
12.2
12.0
8.7
8.8
8.8
8.8
9.3
9.4
9.5
9.6
9.6
9.9
*
*
*r
*
*
2.7
2.6
2.6
2.7
2.7
2.6
12.2
12.6
12.5
12.7
12.7
12.4
12.4
12.4
10.7
10.4
10.1
10.3
10.2
10.1
10.0
9.5
Q2
12.7
12.5
8.9
8.8
7.7
7.9
8.4
9.1
2.2
DATA NOT AVAILABLE ON A MONTHLY BASIS.
1983
MAY
JUN.
Q1
N.A.
August 17, 1983
REAL GNP AND INDUSTRIAL PRODUCTION IN MAJOR INDUSTRIAL COUNTRIES
(PERCENTAGE CHANGE FROM PREVIOUS PERIOD, SEASONALLY ADJUSTED)
_
CANADA:
__
Q4/Q4
1981
Q4/Q4
1982
1982
Q3 Q4
GNP
IP
.8
-3.5
-3.8
-11.9
-.8 -.7
-2.9 -3.9
GDP
1.8
IP
1983
Q1
Q2
*
*
5.8
N.A.
2.2
-. 9
1.7
1.5
N.A.
-1.2
-.6
N.A.
*
N.A.
*
.0
-. 8
*
.8
*
1.6
*
N.A.
1.4
.0
*
-1.9
*
3.0
*
-1.0
**
1.0
1.9
-.4
-1.3
*
*
4.9
-1.8
.9
.8
.6
-.3
-1.9
-5.6
-. 8 -. 2
-2.8 -1.9
.5
2.0
N.A.
1.6
GDP
.5
IP
.4
-2.4
-6.1
-2.2
-7.6
-. 2
2.2
.3
-. 6
N.A.
-2.5
GNP
IP
2.7
5.7
3.7
-1.7
.9
1.7
.4
-. 8
UNITED
KINGDOM:
GDP
IP
-.3
-.6
UNITED
STATES:
GNP
IP
2.0
-1.7
.8
-. 2
-1.7
-7.5
-.2 -.3
-.9 -2.1
LATEST 3 MONTHS
JUN. JUL. i FROM
YEAR AGO+
flip
L
*
GNP
IP
JAPAN:
MAY
*
-.5
ITALY:
1983
APR.
N.A.
-.6
-2.1
GERMANY:
MAR.
1.8
1.3
-2.6
FRANCE:
FEB.
*
*
-. 5
-. 5
*
-4.5
*
-3.5
-8.4
I-
N.A.
1.6
*
*
*
*
*
-. 7
2.3
-. 2
.2
1.2
1.3
.8
N.A.
.6
16
1.6
.0*
-1.0
*
1.0
*
.5
*-1.7
-1.7
2.3
1.9
.6
2.4
2.1
4.2
*
.5
*
1.4
*
1.9
*
1.3
*
*
1.1 1.8
2.2
* DATA NOT AVAILABLE ON A MONTHLY OR QUARTERLY BASIS.
+ IF QUARTERLY DATA, LATEST QUARTER FROM YEAR AGO.
3.5
3.0
5.4
August 17,
1983
CONSUMER AND WHOLESALE PRICES IN MAJOR INDUSTRIAL COUNTRIES
(PERCENTAGE CHANGE FROM PREVIOUS PERIOD)
Q4/Q4
1981
Q4/Q4
1982
Q1
1982
Q2 Q3
1983
Q4
Q1
Q2
1.4
1.6
APR.
MAY
1983
JUN.
CANADA:
CPI
WPI
12.3
8.5
9.7
4.5
2.5
1.4
3.1
1.9
2.2 1.6
.8
.3
.6
.7
FRANCE:
CPI
WPI
14.1
12.7
9.5
8.5
2.8
2.7
3.1
2.6
1.4
1.9
1.9
1.0
2.6
2.4
GERMANY:
CPI
WPI
6.5
10.4
4.7
3.1
1.5
1.8
1.4
1.3
1.1
.0
.7
.0
.5
-2.0
.6
.8
ITALY:
CPI
WPI
18.4
18.7
16.6
12.4
4.0
3.3
3.0
2.0
4.1
3.2
4.5
3.3
3.6
1.6
2.9
1.6
1.0
.8
.9
.5
.6
.5
JAPAN:
CPI
WPI
1.0
-.1
2.9
1.3
.3
.2
-. 1
.9
-1.9 -1.0
.2
-. 7
1.2
-. 3
-. 9
.3
UNITED
KINGDOM:
CPI
WPI
11.9
11.2
6.2
7.7
1.7
2.2
3.2
1.7
.5
1.6
.7
2.0
.5
1.8
2.0
1.7
1.4
.7
.4
.6
9.6
7.3
4.5
3.7
.7
.7
1.3
.3
1.9
1.5
.5
1.1
-.1
-. 7
1.0
.2
.6
-. 1
.5
.3
UNITED
CPI (SA)
STATES:
WPI (SA)
2.9
4.0
.0
.6
.3
.5
1.3
1.6
.7
1.0
JUL.
LATEST 3 MONTHS
FROM YEAR AGO
1.1 N.A.
.5 N.A.
.5
1.1
.9
N.A.
.4
.7
.4
-. 5
1.0
N.A.
.0
.2
2.6
-1.5
15.7
10.1
2.5
-2.1
3.8
7.1
.2
.5
N.A.
.1
3.3
1.9
August 17, 1983
TRADE AND CURRENT ACCOUNT BALANCES OF MAJOR INDUSTRIAL COUNTRIES#
(BILLIONS OF U.S. DOLLARS; SEASONALLY ADJUSTED)
1981
1982
TRADE
CURRENT ACCOUNT
5.8
-4.8
14.8
2.4
TRADE+
CURRENT ACCOUNT+
-9.3
-4.7
-14.0
-12.0
GERMANY:
TRADE
CURRENT ACCOUNT (NSA)
11.9
-7.3
20.6
3.6
ITALY:
TRADE
CURRENT ACCOUNT (NSA)
-15.9
-8.6
-14.6
-5.8
CANADA:
FRANCE:
Q1
2.9
-.1
1982
Q2 Q3
3.8
.8
4.0
.9
1983
Ql Q2
Q4
4.1
.9
3.3
.2
JUN.
1.1
1.6
1.4
1.3
*
*
*
*
-4.2
-3.2
-2.9
-2.3
-3.5
-4.4
-1.7
-.4
-.9
-.2
-1.0
-.5
*
*
*
*
5.3
.9
5.2
-1.6
5.1
4.7
5.3
1.7
N.A.
.8
1.7
1.3
1.5
.6
N.A.
.2
-6.2 -2.8
-4.6 -.9
-3.2
.4
-2.4
-. 7
-1.5
N.A.
-1.9
N.A.
-. 4
.2
-. 7
*
*
*
*
2.2
1.3
2.8
2.3
3.3
2.3
1.9
1.4
-. 6
-. 2
-. 9
-. 5
.2
.6
-3.0 -4.0
-2.1 -4.4
5.0
-.4
TRADE+
CURRENT ACCOUNT
20.1
4.8
18.8
6.9
4.3
.9
5.5
2.8
5.1
2.3
4.0
1.6
6.5
3.5
8.0
6.0
UNITED
KINGDOM:
TRADE
CURRENT ACCOUNT+
6.4
12.6
3.7
6.8
.4
1.1
.2
1.4
1.0
1.5
2.1
2.9
-. 4
.7
-1.2
-. 1
UNITED
STATES:
TRADE
CURRENT ACCOUNT
-36.4
-11.2
1983
APR. MAY
4.3
N.A.
JAPAN:
-28.1
4.6
MAR.
-6.1 -5.9 -13.1 -11.4
.6 1.4 -6.6 -6.6
-8.7 -14.8
-3.0 N.A.
# THE CURRENT ACCOUNT INCLUDES GOODS, SERVICES AND PRIVATE AND OFFICIAL TRANSFERS.
+ QUARTERLY DATA ARE SUBJECT TO REVISION AND ARE NOT CONSISTENT WITH ANNUAL DATA.
* COMPARABLE MONTHLY OR QUARTERLY CURRENT ACCOUNT DATA ARE NOT PUBLISHED.
-2.8
*
1.0
.0
-1.4
-4.4
*
-5.8
-4.7
*
*
IV-24
billion in the first six months of this year, compared with a surplus of
about $800 million in the same period last year, although imports have
begun to recover from the lows of January-February.
The consumer price
index increased by nearly 5 percent in July--about one percentage point
more than in June-and was about 48 percent higher than in December 1982
and about 118 percent higher than in July 1982.
Brazil has centralized control of all foreign exchange revenues at
the Central Bank. Priority for payments is now likely to be given to oil
imports and overdue interest obligations.
Brazil's gross public sector
arrears (principal and interest) are about $1.9 billion currently.
Brazil has reached a tentative agreement with an IMF negotiating team
over a revised IMF program.
After the agreement is completed and
approved by the IMF Managing Director, it will be scheduled for review by
the IMF Executive Board in mid-October.
By that time the new decree law
which reduces wage indexation will have passed most of the period for
congressional review.
If eligible, Brazil could draw a further $1.2
billion from the IMF before the end of 1983.
Brazil is in the process of
renegotiating its arrangements with private banks.
IMF and private bank
data indicate that Brazil has a financing gap of $4-5 billion in 1983 and
up to $5 billion in 1984.
This gap would have to be filled by private
bank and IMF funds and, perhaps, other official assistance.
Brazil also
owes $400 million, due since the end of May, on its $1.45 billion bridge
loan from the BIS.
Another $400 million is due at the end of August.
Brazil will reportedly seek a Paris Club rescheduling of payments to
IV-25
official creditors, which would reduce Brazil's 1983-84 financing needs
by $1 - 1.5 billion.
Indications are that Argentina will be found to have met the
second-quarter quantitative performance tests specified in its IMF
stand-by arrangement.
But it did not eliminate all interest arrears by
June 30, as required by the agreement.
A waiver of this provision was
granted by the IMF Executive Board on August 15, paving the way for the
banks to release the last $300 million of the $1.1 billion bridge loan.
The IMF Board also approved Argentina's August 8 action lifting its
discriminatory restrictions against British remittances, waiving the July
31 deadline that had been imposed by the IMF.
This clears the way for
banks to sign the $1.5 billion credit that had been under negotiation for
several months.
However, Argentina's eligibility to make the August
drawing from the IMF was held in abeyance pending completion of a formal
review of its second-quarter quantitative performance now in progress.
Meanwhile, the raging inflation (325 percent in the twelve months ending
in July) has prompted the Argentine government this week to tighten price
and wage controls, to abolish the free interest rate sector of the
domestic money market, and to announce its intention to raise taxes and
cut public works spending.
Venezuela's economic authorities have shown strong resistance to
accepting IMF conditions for a CFF drawing or Fund program before the
December presidential elections.
Banks would like an IMF program in
place as a precondition to the renegotiation of the estimated $34 billion
of foreign debt.
Over 45 percent of this debt, $16.3 billion, is due
IV-26
this year and next.
Venezuelan authorities are particularly reluctant to
accept a liberalization of price controls and a unification of the
exchange rate system as part of an IMF-approved program.
The floating
exchange rate has depreciated sharply, moving from 11.2 bolivars per
dollar on July 1 to 16.8 bolivars per dollar on August 10, as the central
bank stopped selling into this market.
The exchange rate was equal to
4.3 bolivars per dollar before the imposition of exchange controls in
February.
Effective August 1, oil prices for Venezuelan heavy crudes
were increased by an average of $1.25 per barrel.
With 0.436 mbd of
exports of heavy crude, the price increase should produce $200 million of
additional foreign exchange earnings over a full year.
On July 27 the IMF Executive Board approved Chile's request for a
waiver and a modification of performance criteria under its IMF program.
This approval allowed Chile to draw about $110 million from the IMF on
August 15.
On July 28, Chile and its creditor banks began the process of
signing an agreement which will provide Chile with $1.3 billion of new
money; the signing was expected to take at least two weeks.
for seven years with a four-year grace period.
The loan is
Disbursements of the
later tranches of the loan are dependent on satisfactory progress by
Chile under its modified IMF program.
The restructuring of 1983 and 1984
payments to banks totaling $3.4 billion is also in the signing process.
The short-term trade facility negotiated with banks has commitments of
$1.7 billion, $500 million above the original target.
Chile is
continuing its program, begun last June, of a gradual relaxation of
earlier economic austerity measures.
However, unemployment is still near
20 percent, fueling violent protests against the current government.
IV-27
Late in July, the IMF approved a 12 month $165 million stand-by
agreement for Ecuador which had earlier been agreed upon, pending an
agreement with banks for new money.
Ecuador's bank steering committee
had raised over $410 million of the $431 million required for the IMF
program.
U.S.
A large share of the remaining amount is accounted for by some
regional banks which are unwilling to increase their exposure in
Ecuador.
Ecuador's total foreign debt is $6.6 billion, of which $2.6
billion will be rescheduled by commercial banks over seven years with a
two year grace period.
At a Paris Club meeting on July 27-28, Ecuador's
official creditors agreed to reschedule 85 percent of principal and
interest falling due between November 1, 1982 and December 31, 1983.
Debt relief from this exercise is estimated at about $200 million over
the two years.
Preliminary data indicate that the Philippines' trade and current
account deficits were slightly larger in the first half of this year-both at about $1-1/2 billion-than in the same period a year earlier.
Exports fell more (8-1/2 percent) than imports (2-1/2 percent).
Part of
this larger deficit on trade account was offset by a 28 percent rise in
remittances from overseas Filipino workers and a 7 percent decline in
interest payments on foreign loans as a result of the decline in interest
rates abroad.
Official international reserves declined 10 percent during
the first half of this year to $2.3 billion.
Medium- and long-term
external debt outstanding increased about 4 percent in the first half of
the year to $13.4 billion.
@FedFRASER