The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Prefatory Note
The attached document represents the most complete and accurate version
available based on original copies culled from the files of the FOMC Secretariat at the
Board of Governors of the Federal Reserve System. This electronic document was
created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions
text-searchable. 2 Though a stringent quality assurance process was employed, some
imperfections may remain.
Please note that this document may contain occasional gaps in the text. These
gaps are the result of a redaction process that removed information obtained on a
confidential basis. All redacted passages are exempt from disclosure under applicable
provisions of the Freedom of Information Act.
1
In some cases, original copies needed to be photocopied before being scanned into electronic format. All
scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly
cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial
printing).
2
A two-step process was used. An advanced optimal character recognition computer program (OCR) first
created electronic text from the document image. Where the OCR results were inconclusive, staff checked
and corrected the text as necessary. Please note that the numbers and text in charts and tables were not
reliably recognized by the OCR process and were not checked or corrected by staff.
Confidential (FR) Class II FOMC
Part 1
December 5, 2001
CURRENT ECONOMIC
AND FINANCIAL CONDITIONS
Summary and Outlook
Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System
Confidential (FR) Class II FOMC
December 5, 2001
Summary and Outlook
Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System
Domestic Developments
Some signs of resilience have emerged in the recent information on aggregate
demand. A number of spending indicators bounced back in October, and
vehicle purchases remained surprisingly strong in November. Encouraged by
the upbeat tenor of the economic news, stock prices have risen further, on net,
since the last Greeribook, and long-term bond yields have generally turned back
up, seemingly in anticipation of a pickup in activity not too far down the road.
However, the available data also show ongoing declines in employment,
production, and inventories; and the anecdotal reports from businesses in recent
weeks are only a little less downbeat than those of a month or so ago.
Consequently, although our forecast of real GDP growth in the current quarter is
a touch stronger than it was in the October Greenbook, we continue to think that
aggregate output will post a noticeable decline this period, a bit more than
2 percent at an annual rate. Real GDP still is expected to be essentially flat in
the first quarter of 2002.
We continue to anticipate that the pace of expansion will pick up after the first
quarter. Growth of real GDP is expected to step up to an annual rate of about
3-1/4 percent in the second quarter of 2002 and increase further to an average
rate of about 4 percent in the second half of next year. The spur to activity is
expected to come from a marked slowdown in the pace of inventory liquidation,
a turnaround in fixed investment, the impetus to spending from monetary and
fiscal policy, and the increment to real purchasing power resulting from the
sharp drop in oil prices since mid-September. Once recovery has taken hold,
normal multiplier and accelerator effects give it ongoing momentum.
The unemployment rate tracks the previous forecast fairly closely, running just a
touch higher in the near term and later exhibiting a bit more of a downward tilt.
In the fourth quarter of 2003, the rate is projected to be 5.8 percent, a tenth
lower than the forecast in the last Greenbook. Based in part on the expectation
of persistent slack in the labor market, core inflation is expected to trend lower
over the forecast period. Indeed, the downward tilt of core inflation in this
forecast is slightly greater than before: Indirect effects of the fall in oil prices
should be feeding through into core inflation over the next few quarters; our
forecast of structural productivity has been nudged up; and some of the recent
survey evidence is pointing to a sharp stepdown in inflation expectations.
Key Background Factors
On balance, our financial assumptions in this Greenbook embody a bit more
impetus to expansion than did the assumptions in the last Greenbook. In light of
the FOMC's action at its November meeting, the federal funds rate is currently
25 basis points lower than was assumed in the last forecast, and we assume that
the rate will hold steady at that lower level through the end of 2002. In 2003,
the funds rate is expected to start moving higher, and by the fourth quarter of
I-2
Part1: Summary and Outlook, December 5, 2001
that year, it is at the same level assumed previously. The rates on both longerterm Treasuries and home mortgages are expected to drift down about 1/4
percentage point from current readings over the forecast period. Participants in
financial markets seem to be expecting short-term interest rates beyond midyear
to be higher than we have assumed, presumably because they think that the
economy will be strong enough in coming months to cause the Fed to tighten
sooner and more substantially. By contrast, we think that the incoming data for
the next several quarters, including reports of continued low inflation, will cause
financial market participants to lower their sights.
We continue to assume that caution among lenders and in the financial markets
will impose a degree of restraint on economic activity for some time to come.
The interest rates that private borrowers will face in coming quarters are
expected to remain high relative to the rates on Treasuries, but these spreads
have been narrowing a little and should continue to do so as the recovery in
activity takes hold. Funds likely will continue to be readily available to the
more creditworthy borrowers, but businesses and consumers that are perceived
to be at greater risk will probably continue to pay high rates and encounter
relatively stringent terms and conditions.
Despite some hesitation in recent days, stock market participants have once
again bid share values higher over the period since the last Greenbook.1 In
response, we have raised our assumptions about the path of stock prices,
especially over the near term. However, we continue to think that investors will
have to absorb some disappointments on earnings in coming quarters, and we
are assuming that stock prices will change little, on net, over the course of 2002
before sustaining a moderate advance in 2003. Stocks end up somewhat higher
than in the last Greenbook.
We continue to assume that added fiscal stimulus will be forthcoming, but we
have pushed it a bit further into the future. Our package still includes a second
tax rebate of about $14 billion, some added spending on security, increased
outlays for extended unemployment insurance benefits and health insurance
subsidies, and a temporary tax incentive for investment in equipment and
software. Payout of the rebates now is assumed to extend into the second
quarter of next year, rather than being completed in the first quarter as
previously assumed.
1. Much of the increase occurred between the close of the Greenbook on October 31 and the
FOMC meeting on November 6. Thus, the change in equity prices since the FOMC meeting (the
figure cited in Part II of the Greenbook) understates the news on stock prices from the
perspective of our forecast assumptions.
Domestic Developments
I-3
At the time that this Greenbook was completed, policy provisions similar to
those in our fiscal package were still in play in the ongoing congressional
negotiations, but numerous other possibilities are being entertained as well.
Although we think that the odds still favor the enactment of such a package and
that our assumption about its magnitude is in the ballpark, the final details could
end up differing substantially from what we have assumed. That said, even if
talks on the stimulus package end in deadlock, some elements of the package,
such as higher unemployment insurance benefits and additional spending on
security, would most likely be enacted later in the year. Alternative scenarios
that are presented later explore the implications of a couple of possible fiscal
variations, including one that takes the position that no added fiscal stimulus
will be forthcoming.
Primarily because of technical factors, our projection of outlays in the unified
budget has been revised up for both fiscal year 2002 and fiscal 2003, and our
projection of receipts has been lowered. With these revisions, the budget shows
deficits of $32 billion and $7 billion, respectively, in the two years; the previous
Greenbook showed small surpluses.
Our assumptions about the price of crude oil have been lowered further,
especially over the near-term part of the forecast. We are now assuming that the
price of West Texas intermediate will average around $20.70 a barrel in the
current quarter and edge down to around $20.30 a barrel in the first quarter of
2002, more than $2 a barrel lower than the forecast in the last Greenbook. After
the first quarter, this price starts to move back up, but only gradually. Its level
in the fourth quarter of 2003 is assumed to be about $21.40 per barrel, slightly
below the assumption in the last Greenbook. These oil price assumptions are
similar to the price path futures markets have been showing this week.
Other changes in our assumptions regarding the external sector are quite small.
Measured against the currencies of a broad group of our trading partners, the
real trade-weighted foreign exchange value of the dollar has changed little, on
net, since the last Greenbook, and we assume it will remain near its recent level
through the end of 2003. Foreign real GDP is projected to decline at an annual
rate of about 1/2 percent in the second half of this year, and growth next year is
expected to be 2 percent, down a tenth from the last Greenbook. As before,
foreign economic growth in 2003 is expected to increase to about 3-1/2 percent.
Recent Developments and the Near-Term Economic Outlook
With the added data of recent weeks, growth of real GDP in the third quarter of
2001 now looks somewhat weaker than was initially reported. By contrast, the
predicted annual rate of decline in real GDP this quarter has been tempered
slightly from 2.4 percent to 2.1 percent. Next quarter is still expected to be
I-4
Part 1: Summary and Outlook, December 5, 2001
Summary of the Near-Term Outlook
(Percent change at annual rate except as noted)
2001:Q4
Measure
Real GDP
Private domestic final purchases
Personal consumption expenditures
Residential investment
Business fixed investment
Government outlays for consumption
and investment
2002:Q1
Oct.
GB
Dec.
GB
Oct.
GB
Dec.
GB
-2.4
-3.2
1.3
-16.2
-22.3
-2.1
-.5
3.7
-8.7
-19.3
-.1
-1.6
-.6
-5.8
-6.3
-.1
-3.4
-2.6
-7.5
-7.1
7.9
8.4
2.8
3.0
Contribution to growth,
percentage points
Inventory investment
Net exports
-.8
-.3
-2.4
-.7
1.3
-.5
3.0
-.6
basically transitional as the economy shifts from contraction to renewed
expansion; as before, we expect aggregate activity to be about unchanged.
There has been some recalibration of final sales and inventories in the near-term
forecast. Final sales in the current quarter rise at an annual rate of about
1/2 percent rather than falling noticeably as we previously had projected.
However, in the first quarter of next year, final sales are expected to decline
more sharply than forecast in the previous Greenbook, leaving the level of sales
about the same as previously predicted. With much of this quarter's increment
to sales expected to come out of inventories, nonfarm stocks are worked off at
an even faster rate in the fourth quarter than we had been forecasting in the
October Greenbook-about 8-1/2 percent at an annual rate. In the first quarter,
the rate of liquidation slows dramatically, to 3-1/4 percent; the arithmetic
contribution of this positive inventory swing to first-quarter GDP growth is 3
percentage points.
Once again, as in late October, our Greenbook forecast is closing out just a
couple of days before a monthly labor market report. The October report
showed a heftier drop in employment and a larger increase in the unemployment
rate than we had anticipated. Although initial claims have come down over the
past few weeks, they remain in a range consistent with further deterioration in
labor market conditions. Total job losses during the quarter are expected to
climb to about 800,000, and further losses of more than 200,000 are projected
for the first quarter of 2002. The civilian unemployment rate, which was 5.4
Domestic Developments
I-5
percent in October, is expected to average 5.5 percent in the fourth quarter and
5.9 percent in the first quarter of next year.
We are projecting that manufacturing production will decline at an annual rate
of about 9-1/2 percent this quarter, after having fallen at a rate of 5 percent in
the third quarter. Next quarter, the rate of decline is expected to slow to about 4
percent at an annual rate. Despite a sharp step-up in vehicle assemblies in
November, motor vehicle production for the fourth quarter as a whole still
appears likely to be down appreciably from that for the third quarter,
and-guided in part by reports that manufacturers will schedule considerable
downtime early next year-we continue to anticipate a further cutback in
assemblies in the first quarter. We also expect to see large and sustained
reductions in aircraft production over the next few months. Excluding
transportation, cutbacks in factory output are expected to persist over the very
near term, as businesses continue working down inventories; in the first quarter,
with the liquidation of stocks expected to slow, production begins to stabilize.
On the spending side, our current forecast has real PCE growing at an annual
rate of 3-3/4 percent in the fourth quarter, a substantial upward revision from
our previous forecast. The increment mainly reflects stronger sales of motor
vehicles but also incorporates some small adjustments made in reaction to the
surprisingly strong retail sales report for October and a somewhat stronger
October report on consumer expenditures for non-energy services than we had
been expecting.
The surge in sales of motor vehicles appears to have been mainly the result of a
strong consumer response to the zero-percent financing incentives offered by the
manufacturers. However, the underlying demand for vehicles also looks to be a
bit stronger than we were thinking in the last Greenbook. On that assessment,
we have raised the projected level of vehicle purchases in both the current
quarter and the first quarter of 2002. Nonetheless, the forecast maintains a large
"payback" in purchases that is expected to emerge as the impetus from the
incentives fades. Sales of light vehicles average 18 million units at an annual
rate in the fourth quarter but drop back to a rate of about 14-1/2 million in the
first quarter. Excluding motor vehicles, real consumer outlays for goods and
services are projected to rise at an annual rate of about 3/4 percent this quarter.
Next quarter, nonvehicle outlays pick up moderately, to a growth rate of nearly
2-1/2 percent.
We continue to expect declines in residential investment over the next couple of
quarters. Although starts of new single-family units have held up better than we
had expected, their level in October was off about 2-1/2 percent from the
average for the third quarter. Starts could go down somewhat further over the
near term given the recent performance of the more statistically reliable series
Part1: Summary and Outlook, December 5, 2001
on adjusted permits, the October level of which was about 5 percent lower than
the third-quarter average. Starts are projected to begin edging back up in the
first quarter, but normal lags between starts and expenditures will likely keep
residential investment on a downward course into the early part of next year.
The rate of contraction in real outlays on equipment and software (E&S) in the
current quarter does not seem likely to be quite as steep as we had been
projecting. That said, the picture is still one of considerable weakness. The
drop in real outlays this quarter is expected to be about 16 percent at an annual
rate, a figure that would leave the fall in investment for the year at about 11-1/4
percent. Large cutbacks in spending are anticipated this quarter for most major
categories of investment; outlays on commercial aircraft probably will fall
particularly rapidly. An exception to the pattern is that investment in office and
computing equipment now is expected to turn up this quarter rather than to
continue declining. Incoming data show orders and shipments ticking up, and at
least for this industry, the anecdotes have had a firmer tone of late. In the first
quarter of 2002, the rate of decline in real E&S expenditures is expected to slow
substantially, to an annual rate of about 3-1/4 percent. Growth of computer
investment speeds up early next year, business spending on motor vehicles also
turns positive, and declines in other equipment categories begin to moderate.
Business investment in nonresidential structures is expected to continue falling
sharply this quarter and next. The decline expected for the current quarter is
particularly large, about 28 percent at an annual rate. However, this big drop is
in part a reflection of the BEA's decision to count the leasing of the World
Trade Center in July as an investment by the private corporate sector in fixed
capital and as a dis-investment by a local government entity (the Port Authority
of New York and New Jersey). That decision temporarily boosted the thirdquarter growth rate of investment and will make the fourth-quarter growth rate
appear correspondingly depressed. Excluding this transfer, the drop this quarter
would be about 16 percent at an annual rate. Next quarter's rate of decline is
projected to be roughly similar.
The federal government's real outlays on consumption and investment are
expected to accelerate sharply in the fourth quarter, boosted by the emergency
supplemental appropriations bill that was enacted earlier in the autumn. In the
first quarter of next year, increases in spending on infrastructure and security are
expected to help keep real federal outlays rising at a fairly brisk pace. By
contrast, state and local expenditures appear to be downshifting as the budgets
of those governments come under increased pressure from the economic
slowdown. Although growth of state and local spending in the fourth quarter is
projected at a pace of about 8 percent, part of that apparent strength represents a
bounceback from the temporary depression caused by the third-quarter transfer
of the World Trade Center that was noted above. In the first quarter of 2002,
Domestic Developments
growth of state and local outlays is projected to slow sharply, to about 2 percent
at an annual rate.
The September data on foreign trade translated into a slightly steeper thirdquarter decline in real exports of goods and services than we had been
forecasting, and the drop in imports was made less steep. We look for moderate
declines in exports this quarter and next while imports are projected to post
small increases. The negative arithmetic drag of net exports on the annual rate
of real GDP growth is 0.7 percentage point this quarter and 0.6 percentage point
in the first quarter of next year.
Core PCE inflation in the third quarter was only 0.4 percent at an annual rate,
held down by BEA's treatment of the insurance payouts that were made
following the events of September 11 (the payouts were treated basically as onetime, temporary reductions in the price of insurance premiums). In the current
quarter, we expect to see an offsetting jump in the rate of price increase, to a
pace of about 3.0 percent. In the first quarter of next year, the core PCE price
index is projected to rise at a rate of 1-1/2 percent, a pace similar to the average
rate of increase in the second half of this year. Core CPI inflation is projected to
edge down both this quarter and next. Owing to sharp declines in energy prices,
top-line inflation is expected to be well below core inflation this quarter and
next, probably averaging only about 1 percent at an annual rate on a PCE basis
and less than that in the CPI.
The Longer-Term Outlook for the Economy
The central message of our longer-term forecast is much the same as it was in
the last Greenbook. We continue to think that a recovery in activity will gain
momentum in the spring of 2002 and that it will proceed at a solid pace
thereafter, fast enough to put the unemployment rate back on a downward
course by the fourth quarter of next year. The recovery is expected to gain
support from a winding down of the runoff of inventories, a marked slowdown
in the contraction of investment in capital goods, the stimulus provided by
monetary policy and fiscal policy, and the added purchasing power stemming
from the drop in oil prices since mid-September. Later on, as multiplier and
accelerator effects come into play and as optimism among households and
businesses starts to build, a more broadly based expansion should take hold,
although its strength will likely be limited to some degree by the slow growth of
foreign economies, the drag from the stock market decline of the past two years,
and restraint on business fixed investment from the persistence of excess
capacity and the sluggishness of corporate profits. After falling 0.4 percent over
the four quarters of 2001, real GDP is expected to rise 2.8 percent in 2002 and
3.7 percent in 2003. On balance, growth is stronger than in the last Greenbook.
Part1: Summary and Outlook, December5, 2001
I-8
Projections of Real GDP
(Percent change at annual rate from end of
preceding period except as noted)
2002
Measure
H1
H2
2003
1.6
1.3
4.1
3.5
3.7
3.7
-.2
.5
3.3
2.7
3.2
3.2
.8
1.5
3.7
2.5
2.9
3.2
Residential investment
Previous
-3.8
-1.5
3.6
5.5
2.4
2.4
BFI
-3.9
-3.7
7.1
6.5
10.4
9.2
3.4
3.4
3.4
3.6
3.0
3.1
Exports
Previous
-. 5
-1.1
4.9
4.9
6.9
6.8
Imports
Previous
6.1
4.6
9.8
8.9
9.6
9.8
Real GDP
Previous
Final sales
Previous
PCE
Previous
Previous
Government purchases
Previous
Contribution to growth,
percentage points
Inventory change
Previous
1.9
.8
.7
.8
.4
.4
Net exports
Previous
-.8
-.7
-.8
-.7
-.6
-.6
Household spending. We now expect gains in real personal consumption
expenditures of about 2-1/4 percent in 2002 (up from the last Greenbook) and
about 3 percent in 2003 (slightly less than was projected last time). Overall, the
level of real PCE in the fourth quarter of 2003 ends up 1/2 percent higher than
we previously were forecasting. The upward revision is a reflection of both the
higher level of stock prices that we are assuming and slightly more income
growth in this forecast than in the last one.
Domestic Developments
I-9
Perhaps more so than usual, the path of the consumption forecast depends
importantly on the interpretation that we are giving to the recent indicators. A
couple of Greenbooks ago, in the wake of the terrorist attacks, we thought it
likely that consumers would hunker down. We expected a further sharp
deterioration of confidence in the fourth quarter and, along with that, greater
weakness in spending than we would otherwise have written down. In the
event, however, confidence has not continued to plunge in the fourth quarter,
and the incoming data on spending have been stronger than expected.
Nonetheless, we continue to think that the underlying strength of consumption
is not a whole lot greater than we previously were forecasting. As noted above,
our interpretation of the recent strength in vehicle sales is that it is related
mainly to the incentives offered by manufacturers. With regard to nonvehicle
purchases, we are viewing the strong October rise in retail sales as being mainly
a rebound that came sooner than we had anticipated. Fundamentally, we have
difficulty believing that consumption might sustain much strength at a point in
the business cycle when job cuts are at their sharpest and lagged effects of the
stock market decline probably are still exerting a sizably negative, though
diminishing, drag on the growth of real expenditures.
Looking toward the longer run, we expect the fundamentals to gradually
improve, and that expectation gives rise to some underlying increase in the
growth of consumption in our forecast. The drag from the loss of stock market
wealth should largely dissipate by the end of 2003, as the plunge in share values
recedes in time and as the more recent upturn in stock prices receives increased
weight in consumer spending plans. Meanwhile, payout of the assumed second
tax rebate boosts disposable income in the first half of next year, and the growth
of wages and salaries picks up as job losses abate. All told, real disposable
personal income rises almost 4 percent in 2002 and nearly 3 percent in 2003.
Reflecting mainly the upward revision to our stock market assumption, the
forecast of the saving rate has been lowered a little in this Greenbook; it
averages 3.1 percent in 2002 and 2.8 percent in 2003.
We expect the cutback in residential investment that appears to be under way to
be brief and relatively mild, at least in comparison with most post-World War II
housing cycles. But with housing bottoming out at a high level, the recovery
also will be milder than most previous ones. After declining through early
2002, residential investment is expected to level off in the second quarter and
then rise at a moderate pace over the next several quarters. From a trough of
1.23 million units (annual rate) in the current quarter, starts are projected to
gradually rise to 1.32 million units in 2003. Similarly, multifamily starts also
are expected to fall slightly further in the current quarter, before moving back
up to a rate of 340,000 units late next year and in 2003, about in line with the
average of recent years.
I-10
Part1: Summary and Outlook, December 5, 2001
Equipment and software. After declining sharply this year, real outlays on
equipment and software are projected to rise 5 percent in 2002 and 13 percent in
2003. The current projections are somewhat stronger than those in the last
Greenbook. We are predicting that relatively brisk growth of E&S outlays will
resume in the second half of next year, with most categories of investment
(except commercial aircraft) showing considerable improvement from the first
half.
The upswing in investment should be driven, in part, by processes of recovery
that have been commonly observed in previous business expansions. The spark
for recovery typically comes from increased optimism among businesses about
the outlook for profits and the rate of return on fixed capital. As expectations
for sales rise, businesses boost their production plans and adjust upward their
notions of the amount of fixed capital that is needed. The strength of these
recovery processes can vary, however, and in the current cyclical episode, we
suspect that they will not be as strong as in most past recoveries. The pickup in
profits in this expansion is expected to be relatively slow, and we expect that it
will take a while to work off the large margins of excess capacity that are
evident currently.
The picture is a good bit stronger once the estimated effects of our assumed tax
package are factored in. Maintaining the assumptions we had in the October
Greenbook, we continue to anticipate that the tax package will provide for an
immediate deduction against earnings (that is, "partial expensing") of an amount
equal to 30 percent of the outlays for equipment and software. The remaining
70 percent of investment outlays would continue to be depreciated over time, as
is done under current rules. Because the expensing benefit is expected to be
available for only three years, it pulls into that three-year window some
investment that firms would otherwise have been making later. Working
through the effects that the tax incentive might have, in turn, on the cost of
capital, the desired level of the capital stock, and the pattern of investment, our
estimate is that such a package would add approximately 3-1/2 percentage
points to the growth rate of real equipment and software expenditures in both
2002 and 2003.
Investment in computers and other high-tech products probably will continue to
be affected importantly by factors that are particular to these industries. We
think there are several reasons to be optimistic about the outlook for computers
in the coming recovery. Sharp declines in the price of real computing power
show no sign of letting up, and those declines are rapidly pushing down the user
cost of capital for computers. Concerns about an excessive buildup of the
computer stock probably are diminishing, given the slump in investment over
the past few quarters and the rapid pace of technical change. Even if there is
caution about adding to the capital stock, replacement demand for these short-
Domestic Developments
1-11
lived assets could give a boost to investment as the economy picks up.
Reflecting these considerations, investment in computers is projected to
accelerate sharply, with the annual rate of growth moving above 25 percent by
the third quarter of next year and on up to 50 percent in 2003. By contrast, the
fundamentals for telecommunications are not so encouraging. Losses on
investments made in telecommunications during the boom still are being sorted
out, and there is little indication of businesses getting ready for another
expansion. We think it will be late next year before recovery in this sector
begins in earnest.
Nonresidential structures. Declines in real outlays for nonresidential
structures are expected to last much longer than the declines in spending on
equipment and software. We are forecasting that the drop in spending on these
long-lived assets will amount to 10 percent this year, and a further contraction
of 8 percent is predicted for 2002. Moreover, the upturn in 2003 is projected to
be sluggish, with an increase of just 3 percent projected for that year.
The weakness in nonresidential construction is expected to be widespread. In
the industrial sector, which is heavily burdened by excess capacity, investment
in structures continues to decline sharply in our forecast through 2003. Outlays
for drilling also are expected to drop in both 2002 and 2003, pulled down by the
low oil prices that appear to be in prospect. Investment in lodging, which has
been hit hard by the soft economy and by shifts in spending after the terrorist
attacks, continues to plunge next year before posting a modest uptick in 2003.
By contrast, after having dropped sharply this year, spending on offices and
other commercial structures falls only moderately in 2002 and posts noticeable
gains in 2003, as the upturn in business activity raises the demand for floor
space.
We continue to include in our forecast a small amount for reconstruction of
office facilities damaged in New York City, but given the lags involved and the
availability of vacant space, we do not expect the replacement of lost office
space to add materially to spending until late in the forecast period. The dollar
amount is small--only $3 billion in 2003, or about 1-1/4 percent of the
predicted level of total nonresidential investment in that year.
Inventory investment. We have maintained the hypothesis that, in the
aggregate, businesses will work aggressively to reduce the amount of stocks that
they hold relative to the volume of their sales. Because of the very large
inventory liquidation that we have built into the near-term forecast, firms are
expected to have their inventory positions in reasonably good balance by the
middle of 2002. From that point on, businesses start accumulating stocks once
again, cautiously in the second half of 2002 but then more rapidly in 2003, by
which point concerns about prospective weakness in demand should have
I-12
Part 1: Summary and Outlook, December 5, 2001
dissipated. The swing in inventory investment contributes 1-1/4 percentage
points to the growth of real GDP in 2002, reversing most of the negative
contribution from this year's steep runoff of stocks, and the further speedup of
stockbuilding in 2003 adds a few tenths to the rate of real GDP growth in that
year.
Government purchases. We expect real federal expenditures on consumption
and investment to grow about 5-1/4 percent in 2002. Provision for an elevated
increase in spending next year comes partly from the supplemental
appropriation that was passed in the autumn and partly from our assumption that
the upcoming fiscal package will provide for additional outlays on security and
infrastructure. The boost that policy actions will give to purchases in 2003 is
expected to be smaller, and total real outlays for consumption and investment
are projected to slow to an annual rate of gain of 2 percent in that year. Even so,
the cumulative results for 2001-03 would represent the strongest sustained
increase in real federal purchases since the mid-1980s. After moving up about 5
percent this year, state and local expenditures on consumption and investment
are expected to rise about 2-1/2 percent in 2002 and 3-1/2 percent in 2003.
Most of the news we have been hearing from these jurisdictions continues to
suggest that the slowing of the economy has damped revenues and will be
restraining the growth of state and local expenditures.
Net exports. Our forecast for real exports of goods and services is similar to
the forecast in the last Greenbook. We expect only a small increase in exports
in 2002, about 2-1/4 percent. In 2003, as foreign growth picks up, exports rise
more rapidly, almost 7 percent. Imports are projected to rise about 8 percent in
2002 and almost 10 percent in 2003. Arithmetically, net exports take about
0.8 percentage point from growth in 2002 and 0.6 percentage point in 2003,
after having been basically a neutral influence in 2001.
Aggregate Supply, the Labor Market, and the Outlook for Inflation
Our estimates of the growth in structural productivity and potential GDP have
been altered only slightly in this Greenbook. Owing to the upward revision to
our investment forecast, capital deepening is greater than before, and its
contribution to growth has edged up a bit. As in the last forecast, however, the
contribution from capital deepening traces out a further slowdown into 2002
before rebounding in 2003.
The assumptions about multifactor productivity growth have not changed.
Basically, we continue to think that the underlying trend in multifactor
productivity (MFP) is on a steady upward course (growth of 1.0 percent a year),
but we have allowed for a phased-in hit to growth to cover costs that businesses
will encounter as security is tightened. Structural labor productivity, reflecting
the combined changes in MFP and capital deepening, slows from 1.9 percent in
1-13
Domestic Developments
Decomposition of Structural Labor Productivity
(Percent change, Q4 to Q4, except as noted)
1973- 199695
98
1999
2000
2001
2002
2003
1.4
1.4
2.4
2.4
2.8
2.8
2.7
2.7
1.9
1.9
1.5
1.4
2.1
1.9
Contributions1
Capital deepening
Previous
.6
.6
1.1
1.1
1.5
1.5
1.4
1.4
.7
.6
.3
.2
.8
.6
Multifactor productivity
.6
1.0
1.0
1.0
.9
.8
1.0
.6
1.0
1.0
1.0
.9
.8
1.0
.3
.3
.3
.3
.3
.3
.3
Measure
Structural labor productivity
Previous
Previous
Labor composition
NOTE. Components may not sum to totals because of rounding.
1.Percentage points.
2001 to 1.5 percent in 2002 but then rebounds to 2.1 percent in 2003, up a
couple of tenths from the last forecast. The increase in potential GDP this year
is estimated to be 2.7 percent, and increases over the next two years are
projected to be 2.4 percent and 3.1 percent, respectively.
Productivity and the labor market Reflecting the weakness of output, actual
labor productivity is projected to be about flat, on balance, this quarter and next.
When the economy starts to recover in the second quarter of next year,
businesses boost output faster than labor input for a time, and the growth of
labor productivity increases temporarily to a pace that is above the rate of
growth in structural productivity. By the end of 2002, most of the cyclical
effects have wound down, and desired relationships between hours and output
have been largely restored. The rise in actual labor productivity in 2003 is
projected to be 2.2 percent, only a shade faster than the growth of structural
productivity.
The further cutbacks in payroll employment that we anticipate over the next few
months would leave the level of employment at the end of the first quarter of
2002 down more than 1 percent from its peak of a year earlier. As typically
happens, businesses probably will be cautious at first about boosting
employment back to its earlier levels. Nonetheless, we expect hiring to pick up
fast enough in the spring of next year to bring the rise in the unemployment rate
to a halt. After having averaged 5.9 percent in the first quarter of 2002, the rate
is projected to average 6.1 percent over the middle quarters of the year and then
turn down in the fourth quarter. In 2003, employment accelerates a bit further,
1-14
Part1: Summary and Outlook, December 5, 2001
The Outlook for the Labor Market
(Percent change, Q4 to Q4, except as noted)
Measure
2000
2001
2002
2003
Output per hour, nonfarm business
Previous
2.3
2.3
1.0
.7
2.0
2.0
2.2
2.2
Nonfarm private payroll employment
Previous
1.7
1.7
-.5
-.4
.6
.3
1.6
1.6
Household employment survey
Previous
1.0
1.0
-.9
-.8
.5
.2
1.2
1.3
Labor force participation rate1
Previous
67.1
67.1
66.8
66.8
66.8
66.8
66.7
66.7
Civilian unemployment rate'
Previous
4.0
4.0
5.5
5.4
6.0
6.1
5.8
5.9
1. Percent, average for the fourth quarter.
and the unemployment rate drops back to 5.8 percent in the second half, a tenth
lower than we were forecasting in the October Greenbook.
Prices and wages. We have marked down our forecasts of prices and hourly
compensation in this Greenbook. Core inflation, as measured by the PCE price
index, is now expected to slow to a rate of 1.1 percent in 2003, down 0.2
percentage point from the last forecast. The employment cost index for hourly
compensation decelerates to a rate of 3 percent by 2003; this projection also is
down a couple of tenths from what we were showing in the October Greenbook.
Although we continue to think that labor market slack will contribute
importantly to the slowdown of inflation over the next couple of years, the
sharper price deceleration that we have built into the forecast this month was
prompted by other factors. One such factor is the further downward revision to
oil prices, which should translate over time into lower costs for processing,
storing, and transporting a wide range of goods and services. A second factor is
the slight upward revision to structural productivity, which we think should have
a more immediate effect on prices than on wages. A third factor is the sharp and
strikingly abrupt break in inflation expectations that has been reported in the
Michigan survey of consumers over the past couple of months. In the last
Greenbook, when only the October survey results were in hand, we thought that
the survey might have been an aberration. But the November survey results had
price expectations moving down still further; the median of the responses to that
survey showed an expected price rise of only 0.4 percent over the coming year.
I-15
Domestic Developments
Inflation Projections
(Percent change, Q4 to Q4, except as noted)
2000
2001
2002
2003
2.6
1.3
1.4
1.2
2.6
1.4
1.5
1.4
2.5
3.4
2.0
1.8
Previous
2.5
3.2
2.2
2.0
Energy
Previous
15.4
15.3
-10.2
-7.8
-.3
-.8
1.9
.5
1.9
1.9
1.6
1.6
1.3
1.5
1.1
1.3
Measure
PCE chain-weighted price index
Previous
Food and beverages
Excluding food and energy
Previous
Consumer price index
3.4
1.8
1.9
1.8
3.4
2.0
2.0
1.9
2.5
2.5
2.7
2.7
2.0
2.2
1.8
2.0
2.4
1.9
1.6
1.4
2.4
2.0
1.8
1.6
4.4
4.0
3.1
3.0
4.4
4.0
3.3
3.2
NFB compensation per hour
Previous
7.4
7.4
4.4
4.6
3.8
4.0
3.3
3.5
Prices of core non-oil
merchandise imports
Previous
1.6
1.6
-3.2
-2.9
.8
.6
1.4
1.3
Previous
Excluding food and energy
Previous
GDP chain-weighted price index
Previous
ECI for compensation of private
industry workers1
Previous
1. December to December.
Although we are wary of making too much of a survey indicator that could jump
back up as abruptly as it came down, some of the equations that we use in price
forecasting suggest that we should not completely ignore the survey
information. The expectations adjustment that we built into the forecast this
month lowers core inflation a tenth in both 2002 and 2003.
The deceleration of prices over the next couple of years, combined with the
persistence of slack in the labor market, should lead to a marked deceleration in
wages and hourly compensation. After increasing 4.0 percent in 2001, the
employment cost index for hourly compensation in private industry is projected
to rise 3.1 percent in 2002 and 3.0 percent in 2003. The rate of increase in the
ECI for wages is projected to slow to 2.5 percent by 2003. Hourly benefits also
I-16
Part 1: Summary and Outlook, December 5, 2001
are expected to decelerate, but their rate of increase runs well above that of
wages, reflecting the expectation that employers' outlays for health insurance
will continue to rise rapidly over the next two years.
Financial Flows and Conditions
We anticipate that domestic nonfinancial debt will expand moderately over the
forecast period, rising about 4-1/2 percent in both 2002 and 2003. After four
years of paydowns, Treasury debt is projected to expand slightly, on balance,
over the next two years, as stimulative fiscal policy actions and the operation of
automatic stabilizers eliminate the budget surplus. Borrowing by the nonfederal
sectors is projected to be relatively subdued over the next two years.
In the household sector, debt growth is expected to continue to slow through
mid-2002 and then edge up after the economy strengthens next year. The
slowdown is due largely to a contraction in consumer credit that results when
the impetus to automobile-related borrowing begins to wane. By contrast,
mortgage debt is projected to expand at a fairly strong pace in both 2002 and
2003, with low mortgage interest rates supporting purchases of homes and
continued-though somewhat moderated-refinancing activity. Firmer credit
conditions may weigh a bit on household debt growth over the forecast period,
as high household debt burdens and the rise in unemployment boost loan
delinquencies and loan losses.
In the business sector, debt growth is expected to drop off early next year from a
strong fourth-quarter pace and then pick up to a pace of about 5 percent by the
end of 2003. Corporate needs for funds are expected to be reduced for a couple
quarters as capital spending remains subdued and as corporate share repurchases
and merger-related share retirements abate. On the supply side, lending
standards and terms are likely to remain tight for a while, but we do not expect a
significant dislocation in the supply of credit. Investment-grade firms are
expected to continue raising substantial amounts in the bond market. Selected
below-investment-grade firms should also be able to continue to raise funds in
the bond market, although on relatively stringent terms. As the economic
recovery takes hold, we expect to see some relaxation in the restraint by lenders
accompanied by a pickup in bank and paper financing.
The magnitude and pattern of state and local government borrowing in the nearterm will depend importantly on the timing of debt issues related to California's
energy crisis. However, we anticipate that, on balance over the projection
period, tax-exempt debt will expand at a fairly sluggish pace. Fiscal pressures
likely will lead some jurisdictions to scale back spending plans, including new
projects that would have been funded with debt issues. While the drop in bond
yields since June boosted issuance for advance refunding in 2001, retirements of
advance-refunded securities should limit the rise in municipal debt.
Domestic Developments
I-17
Growth of the monetary aggregates is expected to trend lower over the forecast
period. The slowdown reflects the ebbing effects of factors that have strongly
boosted money growth this year, including sharp declines in opportunity costs,
heightened mortgage-refinancing activity, and the reduced attractiveness of the
stock market relative to safe and liquid deposits and money funds. Nonetheless,
growth of M2 is expected to remain above that of nominal income in 2002,
mainly reflecting the lagged adjustment by households to this year's dramatic
declines in opportunity costs. With these adjustments largely completed by the
end of next year, growth of M2 should come roughly in line with that of
nominal income in 2003.
Alternative Simulations
The staff forecast is subject to many risks. We focus on three that may be
particularly significant at this juncture, using model simulations to illustrate
their implications for the outlook. The first risk is that fiscal policy may prove
to be less stimulative than we anticipate. A second risk is that we may have
been overly pessimistic in interpreting incoming data and that the market's
assessment, which appears more upbeat, may be correct. And a third is that the
recent sharp declines in the short-run inflation expectations of households may
be signaling a larger drop in inflation than we foresee. We also briefly consider
two alternative stock market scenarios.
Less fiscal stimulus. In the staff outlook, the temporary expensing provision
provides an important boost to equipment spending. But the stimulus may turn
out to be smaller than we expect, either because firms are less willing to bring
forward spending from the period following the end of the provision or because
the Congress enacts a package with less potent--or even no-investment
incentives. The "no expensing provision" scenario presents the limiting case of
this risk, under the assumption that the funds rate follows the Greenbook path.
In the absence of the direct stimulus to investment provided by temporary
expensing, as well as its indirect multiplier effects, the economic recovery is
more subdued-real GDP growth returns only to potential, on average, and the
unemployment rate plateaus at 6-1/4 percent. Nonetheless, inflation is the same
as in the baseline forecast because less investment restrains structural labor
productivity growth, offsetting the effects of increased slack.
Continued wrangling over the composition and size of the stimulus package
raises the possibility that the Congress will remain deadlocked and be unable to
enact any compromise. As shown in the "no fiscal package" scenario, removing
all components of the staffs fiscal package lowers the growth of real GDP more
than 1 percentage point next year and 1/2 percentage point the following year,
given the staffs assumed path for the nominal funds rate. The unemployment
rate rises to 6-1/2 percent late next year and is then little changed over the
course of 2003.
1-18
Part1: Summary and Outlook, December 5, 2001
Alternative Scenarios
(Percent change, annual rate, from end of preceding period, except as noted)
Measure
2001
1-
2002
2003
Q4
Q1
Q2
H2
Real GDP
Baseline
No expensing provision
No fiscal package
Futures-based GDP outlook
Low inflation expectations
Weaker stock market
Stronger stock market
-2.1
-2.1
-2.1
-2.1
-2.1
-2.1
-2.1
-.1
-.3
-.9
-.1
-.1
-.1
-.1
3.3
2.8
1.8
3.3
3.3
3.0
3.4
4.1
3.4
3.0
4.5
4.2
3.3
4.3
3.7
3.0
3.2
4.2
3.7
2.8
4.0
Civilian unemployment rate'
Baseline
No expensing provision
No fiscal package
Futures-based GDP outlook
Low inflation expectations
Weaker stock market
Stronger stock market
5.5
5.5
5.5
5.5
5.5
5.5
5.5
5.9
5.9
6.0
5.9
5.9
5.9
5.9
6.1
6.1
6.3
6.1
6.1
6.1
6.1
6.0
6.2
6.4
5.9
6.0
6.1
6.0
5.8
6.2
6.4
5.5
5.8
6.3
5.6
PCEprices excludingfood and energy
Baseline
No expensing provision
No fiscal package
Futures-based GDP outlook
Low inflation expectations
Weaker stock market
Stronger stock market
3.0
3.0
3.0
3.0
3.0
3.0
3.0
1.5
1.5
1.5
1.5
1.4
1.5
1.5
1.3
1.3
1.3
1.3
1.1
1.3
1.3
1.2
1.2
1.2
1.2
.7
1.2
1.2
1.1
1.1
1.0
1.2
.5
1.0
1.1
1. Average for the final quarter of the period.
Futures-based GDP outlook. Developments in financial markets since the last
Greenbook suggest that investors may have boosted their outlook for real
activity by more than the staff has. Our objective in this scenario is to determine
what the implications would be if the economic outlook has changed in the way
that the markets seem to be suggesting while policy proceeds along the path
assumed in the Greenbook. In crafting this scenario, we have used the fed funds
futures data to back out a rough assessment of the revisions to the market's
output expectations, under the assumption that investors expect that policy will
adhere to the Taylor rule.
Relative to expectations prevailing at the time of the publication of the last
Greenbook, markets now expect (as of the close on December 4) the funds rate
Domestic Developments
I-19
to be about 65 basis points higher by late 2003. In the context of the Taylor
rule, this revision to funds rate futures implies a 0.5 percent upward revision to
the level of GDP expected by late 2003, allowing for some accompanying
increase in the perceived value of the equilibrium real rate. 2 On the surface, this
estimate of the market's revision to the late-2003 level of real GDP is not that
much larger than the staffs 0.3 percent upward revision. However, the
underlying difference between the two is actually somewhat greater because the
revisions are related to divergent changes in the outlook for interest rates. The
GDP forecast in the Greenbook is boosted a bit by funds rates that are, on
balance, a little lower than last time, while the market's GDP outlook is
implicitly restrained by a now steeper path of funds rate futures. We controlled
for this difference in perceptions of the outlook for rates to obtain a consistent
comparison of the change in the staffs economic forecast and the change in the
market's view of the outlook.
When the market's underlying view of the future pace of economic activity is
combined with the Greenbook's monetary policy ("futures-based GDP
outlook"), real GDP growth reaches 4-1/2 percent in the second half of next
year, before moderating to 4-1/4 percent in 2003. The unemployment rate drops
from its peak just above 6 percent in mid-2002 to 5-1/2 percent by the end of
2003, and the projected decline in inflation is a tad less pronounced than in the
Greenbook baseline.
Low inflation expectations. In the Michigan survey, the median one-yearahead inflation expectation has tumbled 2.4 percentage points since September.
Although we have reduced our inflation forecast since the early fall, the lower
readings on expectations played only a small part in the revision.
In the "low inflation expectations" scenario, we gave full statistical weight to
the disinflationary impulse implied by the Michigan survey data under the
assumption that the recent drop in the Michigan survey persists through much of
2002. Then, as actual inflation is observed to fall less than expected, the public
gradually revises up its inflation expectations; in 2003, actual and expected
inflation converge.
2. Given the coefficient of 0.5 on the output gap in the standard form of the Taylor
rule, the 65-basis-point revision in the expected funds rate would be consistent with a
1.3 percent upward adjustment to the expected level of real GDP, if all other
determinants of the funds rate in the rule were unrevised. However, in light of the 40basis-point rise of implied one-year forward rates ten years in the future, we have
assumed that more than half the shift in funds rate futures has come about because of a
rise in investors' perception of the equilibrium value of the real funds rate and that only
25 basis points reflect the expected cyclical state of the economy.
I-20
Part1: Summary and Outlook, December 5, 2001
Under these conditions, growth in core consumer prices falls to 3/4 percent in
the second half of next year and to 1/2 percent in 2003, given the staffs
assumed path for the nominal funds rate. Although the real funds rate rises
relative to baseline, the ensuing restraint on economic activity is offset by a
small decline in real bond yields and an increase in expected real income. These
positive developments arise from the public's growing belief that the reduction
in actual inflation will enable monetary policy to eventually be more
stimulative.
Alternative stock market scenarios. The Greenbook forecast assumes that
equity values will be flat next year and then rise 7 percent in 2003. Our two
stock market scenarios modify the nearer-term outlook while maintaining the
longer-run projection of moderate equity gains. In the "weaker stock market"
scenario, share prices slump 25 percent by the middle of next year-a
development that widens the gap between the earnings-price ratio and real bond
yields and brings it back close to the average prevailing over the past couple of
decades. By contrast, the "stronger stock market" scenario assumes that equity
prices rise steadily from this point forward at an annual rate of 7 percent. In
both cases, the nominal funds rate is assumed to follow the Greenbook path.
Strictly Confidential <FR>
Class II FOMC
December 5, 2001
STAFF PROJECTIONS OF CHANGES IN GDP, PRICES, AND UNEMPLOYMENT
(Percent, annual rate)
ANNUAL
1999
2000
2001
2002
2003
QUARTERLY
2000
Q1
02
03
04
2001
Q1
02
Q3
04
2002
01
02
Q3
04
2003
01
Q2
Q3
Q4
TWO-QUARTER
5.6
5.4
3.5
3.5
2.0
1.8
2.0
1.9
6.1
6.0
5.3
5.0
3.7
3.7
1.5
1.3
1.9
1.8
6.0
5.9
5.3
5.3
5.1
5.1
3.7
3.8
3.7
3.7
1.5
1.5
1.3
1.3
1.9
1.9
1.8
1.8
5.9
5.9
5.8
5.8
-0.1
0.0
3
2000
02
Q4
7.2
3.5
7.2
3.5
4.0
1.6
4.0
1.6
2.9
1.8
2.9
1.8
3.6
3.2
3.6
3.2
-0.1
0.0
2001
Q2
04
3.5
.0.2
3.5
-0.4
0.8
-1.4
0.8
-1.6
2.7
1.2
2.7
1.2
3.6
0.5
3.6
0.0
0.5
0.9
0.5
1.0
2002
Q2
04
3.2
5.2
3.4
5.6
1.3
3.5
1.6
4.1
1.9
1.6
1.7
1.5
2.0
2.1
1.7
2.0
0.6
0.1
0.6
-0.1
2003
Q2
04
5.4
5.3
5.2
5.1
3.6
3.7
3.6
3.7
1.8
1.5
1.6
1.3
1.9
1.9
1.9
1.8
-0.1
-0.1
-0.1
-0.1
6.0
5.3
1.6
4.2
5.4
6.0
5.3
1.6
4.5
5.1
4.4
2.8
-0.3
2.4
3.7
4.4
2.8
-0.4
2.8
3.7
1.6
2.4
2.0
1.8
1.6
1.6
2.4
1.9
1.6
1.4
2.6
3.4
2.0
2.0
1.9
2.6
3.4
1.8
1.9
1.8
-0.3
-0.1
1.4
0.7
-0.2
-0.3
-0.1
1.5
0.5
-0.3
POUR-QUARTER
1999
2000
2001
2002
2003
4
Q4
Q4
04
04
Q4
1. For all urban consumers.
2. Level, except as noted.
3. Percent change from two quarters earlier; for unemployment rate, change in percentage points.
4. Percent change from four quarters earlier; for unemployment rate, change in percentage points.
REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS, ANNUAL VALUES
(Seasonally adjusted annual rate)
Strictly Confidential <FR>
Class II FOMC
December 5, 2001
--------- Projected--------Units1
Item
1995
1996
1997
1998
1999
2000
2001
2002
2003
7400.5
7543.8
7813.2
7813.2
8318.4
8159.5
8781.5
8508.9
9268.6
8856.5
9872.9
9224.0
10189.9
9315.0
10433.4
9395.7
10983.2
9745.1
2.2
4.1
4.3
4.8
4.4
2.8
-0.4
2.8
3.7
1.7
4.3
5.0
5.8
5.3
3.5
-0.3
3.5
4.1
2.9
3.2
3.9
4.4
3.9
5.1
4.7
6.3
4.3
5.4
3.4
4.7
1.2
0.5
1.5
2.0
3.2
3.9
2.8
3.7
2.5
2.7
3.1
5.0
3.2
2.7
4.1
8.8
2.5
3.9
5.0
12.7
5.0
3.6
5.2
11.3
5.0
4.0
4.2
5.3
3.6
4.3
2.6
11.6
0.7
1.7
2.2
-2.5
2.9
2.9
2.9
6.7
3.0
2.2
7.5
8.9
3.3
-1.5
12.1
11.8
12.8
5.6
11.8
13.7
6.5
3.5
12.3
14.9
4.9
10.0
7.4
11.2
-3.6
3.4
8.9
8.3
10.8
-1.2
-11.0
-11.3
-10.0
2.1
1.4
5.0
-8.1
-0.2
10.4
13.0
2.9
2.4
EXPENDITURES
Nominal GDP
Bill. $
Bill.
Ch. $
Real GDP
Real GDP
Gross domestic purchases
Final sales
Priv. dom.
% change
final purchases
Personal cons.
Durables
Nondurables
Services
expenditures
Business fixed investment
Equipment & Software
Nonres. structures
Residential structures
Exports
Imports
Gov't.
cons.
& investment
Federal
Defense
State & local
9.7
9.8
8.5
2.3
4.5
7.0
-8.9
2.2
6.9
5.0
11.2
14.3
10.8
11.5
11.3
-6.1
7.9
9.6
-0.8
-5.3
-4.7
2.1
2.7
2.0
0.8
3.0
2.4
0.1
-1.4
3.7
2.7
0.6
-0.8
3.8
4.0
4.5
4.7
3.7
1.2
-1.4
-2.2
2.5
4.6
4.2
4.5
4.9
3.4
5.3
3.5
2.4
3.0
2.0
2.2
3.5
63.8
76.7
62.1
50.6
-61.5
-13.4
41.9
-78.4
21.2
-89.0
60.6
-113.3
75.0
-221.1
63.5
-316.9
52.3
-399.1
-59.7
-411.6
-13.4
-485.8
54.5
-576.4
% change
4.3
6.0
6.2
6.0
6.0
5.3
1.6
4.5
5.1
Nonfarm payroll employment
Unemployment rate
Millions
117.2
119.6
122.7
125.8
128.9
131.8
132.2
131.7
133.7
5.6
5.4
4.9
4.5
4.2
4.0
4.7
6.0
5.9
Industrial prod. index
Capacity util. rate - mfg.
% change
3.5
82.6
5.8
81.6
7.4
82.7
3.5
81.4
4.3
80.6
2.6
80.7
-6.4
74.9
2.5
72.5
4.9
75.5
Housing starts
Light motor vehicle sales
Millions
Change in bus.
Nonfarm
Net exports
inventories
Nominal GDP
-
Bill. Ch. $
-
55.4
EMPLOYMENT AND PRODUCTION
North Amer. produced
Other
1.35
1.48
1.47
1.62
1.64
1.57
1.60
1.61
1.67
14.77
15.05
15.06
15.43
16.78
17.25
16.91
14.95
15.69
12.87
1.90
13.34
1.70
13.12
1.93
13.41
2.02
14.30
2.48
14.39
2.86
13.86
3.05
12.15
2.80
12.77
2.92
7420.9
4.4
4.3
1.7
5.6
7831.2
5.9
5.9
2.6
4.8
8325.4
6.0
6.3
3.8
4.2
8778.1
5.8
6.7
5.0
4.7
9261.8
6.0
4.8
2.1
2.4
9860.8
5.4
7.3
4.0
1.0
10180.7
1.4
2.9
2.2
1.7
10426.9
4.5
4.3
3.9
3.1
10971.6
5.0
4.6
2.9
2.8
11.3
9.0
8.7
11.4
9.6
9.4
9.9
10.0
9.7
-9.6
8.9
8.6
11.3
8.9
8.6
-1.2
8.9
8.6
-17.3
7.2
7.0
7.2
6.9
6.6
5.1
7.1
6.8
-192.0
15.3
11.4
-136.8
21.4
18.7
-53.3
31.0
29.9
43.8
40.7
40.0
119.2
42.1
41.7
218.6
32.8
33.1
111.7
15.7
15.9
-73.5
9.6
9.9
-5.0
13.5
13.8
16.9
5.1
17.2
5.7
18.0
6.7
18.8
7.5
18.4
6.8
18.1
6.3
16.8
4.1
16.2
3.4
16.8
3.9
2.1
1.9
1.8
1.1
1.6
2.4
1.9
1.6
1.4
INCOME AND SAVING
Nominal GNP
Nominal GNP
Nominal personal income
Real disposable income
Personal saving rate
Bill. $
Corp. profits, IVA & CCAdj.
Profit share of GNP
Excluding FR Banks
% change
Federal surpl./deficit
State & local surpl./def.
Ex. social ins. funds
Bill. $
Gross natl. saving rate
ft
% change
Net natl. saving rate
PRICES AND COSTS
GDP chn.-wt. price index
Gross Domestic Purchases
chn.-wt. price index
% change
2.1
1.9
1.4
0.8
1.9
2.5
1.2
1.5
1.4
PCE chn.-wt. price index
Ex. food and energy
2.1
2.3
2.3
1.8
1.5
1.7
1.1
1.6
2.0
1.5
2.6
1.9
1.3
1.6
1.4
1.3
1.2
1.1
CPI
Ex. food and energy
2.7
3.0
3.2
2.6
1.9
2.2
1.5
2.4
2.6
2.0
3.4
2.5
1.8
2.7
1.9
2.0
1.8
1.8
2.6
3.1
3.4
3.5
3.4
4.4
4.0
3.1
3.0
1.1
2.6
1.5
2.3
3.2
0.9
2.3
3.5
1.1
2.9
5.3
2.3
2.8
4.3
1.5
2.3
7.4
5.0
1.0
4.4
3.4
2.0
3.8
1.8
2.2
3.3
1.1
ECI, hourly compensation
Nonfarm business sector
Output per hour
Compensation per Hour
Unit labor cost
2
1. Changes are from fourth quarter to fourth quarter.
2. Private-industry workers.
I-23
REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS, QUARTERLY VALUES
(Seasonally adjusted, annual rate except as noted)
Strictly Confidential <FR>
Class II FOMC
December 5,
2001
1999
Q1
1999
Q2
1999
Q3
1999
Q4
2000
Q1
2000
Q2
2000
Q3
2000
Q4
2001
Q1
2001
Q2
9093.1
8733.5
9161.4
8771.2
9297.4
8871.5
9522.5
9049.9
9668.7
9102.5
9857.6
9229.4
9937.5
9260.1
10027.9
9303.9
10141.7
9334.5
10202.6
9341.7
3.1
4.8
3.0
5.3
1.7
2.9
3.9
5.9
4.7
5.3
4.2
4.9
8.3
8.2
6.1
5.5
2.3
3.5
4.8
7.5
5.7
6.3
3.9
4.6
1.3
2.0
2.3
3.9
1.9
2.2
2.4
2.6
1.3
0.7
4.0
2.8
0.3
0.4
0.7
-0.0
4.9
7.1
5.6
4.1
5.7
15.7
4.3
4.5
4.4
9.0
2.6
4.3
5.7
13.7
7.6
3.2
5.9
19.0
5.1
3.7
3.6
-2.5
4.7
4.4
4.3
8.2
4.2
3.5
3.1
-2.1
0.6
5.6
3.0
10.6
2.4
1.8
2.5
7.0
0.3
2.8
Business fixed investment
Equipment & Software
Nonres. structures
Residential structures
6.0
10.5
-6.5
10.3
7.7
11.9
-4.3
3.0
10.2
16.2
-7.0
-0.8
5.8
6.4
4.0
1.6
15.8
18.1
8.8
8.5
12.2
12.4
11.8
-0.8
7.1
4.7
15.2
-10.4
1.0
-1.1
7.6
-1.1
-0.2
-4.1
12.3
8.5
-14.6
-15.4
-12.2
5.9
Exports
Imports
-6.8
8.4
4.2
13.3
9.7
13.8
12.1
10.5
9.0
17.1
13.5
16.4
10.6
13.0
-4.0
-0.5
-1.2
-5.0
-11.9
-8.4
Gov't. cons. & investment
Federal
Defense
State & local
2.0
-3.7
-3.5
5.2
1.2
0.8
-3.5
1.4
4.4
7.2
12.8
2.9
8.5
14.5
14.3
5.4
-1.1
-12.8
-20.0
5.6
4.4
15.9
15.4
-1.1
-1.8
-10.4
-10.4
3.0
3.3
4.6
10.5
2.7
5.3
3.2
7.5
6.4
5.0
1.8
2.3
6.6
83.4
78.7
-283.0
32.7
34.2
-313.4
39.6
52.2
-333.3
92.7
88.7
-337.8
28.9
37.8
-371.1
78.9
75.1
-392.8
51.7
56.6
-411.2
42.8
39.7
-421.1
-27.1
-27.3
-404.5
-38.3
-35.8
-406.7
% change
4.9
3.0
6.1
10.0
6.3
8.0
3.3
3.7
4.6
2.4
Nonfarm payroll employment
Unemployment rate
Millions
127.8
4.3
128.5
4.3
129.2
4.2
130.1
4.1
131.0
4.1
131.9
4.0
131.9
4.0
132.3
4.0
132.6
4.2
132.5
4.5
Industrial prod. index
Capacity util. rate - mfg.
% change
3.6
80.5
3.3
80.4
4.7
80.5
5.8
81.0
5.8
81.2
7.0
81.6
0.6
80.7
-2.6
79.1
-6.1
77.2
-5.9
75.6
Housing starts
Light motor vehicle sales
North Amer. produced
Other
Millions
1.71
16.17
13.87
2.30
1.57
16.76
14.32
2.44
1.65
17.06
14.58
2.47
1.66
17.11
14.41
2.70
1.67
18.13
15.25
2.87
1.59
17.27
14.40
2.87
1.51
17.30
14.47
2.83
1.54
16.32
13.45
2.87
1.63
16.89
13.96
2.93
1.62
16.65
13.62
3.03
Nominal GNP
Nominal GNP
Nominal personal income
Real disposable income
Personal saving rate
Bill. $
% change
9089.5
5.2
3.0
1.4
3.5
9157.0
3.0
4.7
2.0
2.7
9283.8
5.7
5.2
2.1
2.1
9517.0
10.4
6.3
3.0
1.4
9650.7
5.7
8.6
3.3
0.8
9841.0
8.1
8.5
5.8
1.3
9919.4
3.2
5.5
2.6
0.8
10032.1
4.6
6.8
4.2
1.0
10131.3
4.0
5.8
2.7
1.1
10190.9
2.4
3.5
2.4
1.1
Corp. profits, IVA & CCAdj.
Profit
share of GNP
Excluding FR Banks
% change
%
36.1
9.2
8.9
-10.2
8.8
8.6
-4.9
8.6
8.3
31.9
9.0
8.7
6.1
9.0
8.7
10.7
9.1
8.8
1.0
9.0
8.7
-19.6
8.4
8.1
-24.6
7.8
7.5
-14.3
7.5
7.2
Federal surpl./deficit
State & local surpl./def.
Ex. social ins. funds
Bill. $
85.2
48.9
48.4
116.5
36.2
35.8
132.0
38.3
38.0
143.1
44.9
44.7
212.8
33.2
33.3
209.1
34.7
34.9
229.9
34.8
35.1
222.5
28.6
29.1
205.3
22.3
22.6
186.7
21.3
21.4
19.0
7.6
18.5
6.9
18.3
6.4
18.0
6.3
18.0
6.3
18.3
6.6
18.2
6.4
17.9
6.0
17.3
5.1
17.2
4.6
1.7
1.4
1.4
1.8
3.8
2.1
1.5
2.0
2.0
2.2
4.2
1.9
PCE chn.-wt. price index
Ex. food and energy
1.3
1.4
2.0
1.2
2.2
1.5
2.4
1.8
4.0
2.9
2.1
1.7
CPI
Ex.
1.7
1.8
2.7
2.1
2.9
1.8
3.1
2.5
4.3
2.5
2.8
2.7
1.4
4.6
3.4
4.6
5.6
4.7
2.4
3.8
1.3
-1.4
4.2
5.6
3.0
5.2
2.1
7.4
4.2
-2.9
-0.6
6.2
6.8
6.3
7.6
1.2
Item
Units
EXPENDITURES
Nominal GDP
Real GDP
Bill. $
Bill. Ch. $
Real GDP
Gross domestic purchases
Final sales
Priv. dom. final purchases
% change
Personal cons.
Durables
Nondurables
Services
Change in bus.
Nonfarm
Net exports
expenditures
inventories
Nominal GDP
Bill. Ch. $
EMPLOYMENT AND PRODUCTION
%
%
INCOME AND SAVING
%
Gross natl. saving rate
Net natl.
saving rate
PRICES AND COSTS
GDP chn.-wt. price index
Gross Domestic Purchases
chn.-wt. price index
ECI,
food and energy
hourly compensation1
Nonfarm business sector
Output per hour
Compensation per hour
Unit labor cost
1. Private-industry workers.
% change
December 5,
REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS, QUARTERLY VALUES
(Seasonally adjusted, annual rate except as noted)
Strictly Confidential <FR>
Class II FOMC
S-
Units
-
-
-
-
- -
-
-
-
-
-
-
-
-
-
Projected -
-
-
- -
- -
-
- -
-
- -
-
- -
-
-
2001
-
-
-
2001
Q3
2001
Q4
2002
Q1
2002
Q2
2002
Q3
2002
Q4
2003
Ql
2003
Q2
2003
Q3
2003
Q4
10231.3
9316.3
10183.9
9267.6
10229.2
9265.7
10355.2
9342.3
10508.5
9445.0
10640.9
9529.6
10780.8
9612.4
10914.3
9699.6
11050.2
9789.1
11187.5
9879.4
-1.1
-0.9
-0.3
-0.2
-2.1
-1.4
0.4
-0.5
-0.1
0.5
-3.0
-3.4
3.3
4.3
2.6
3.4
4.5
5.4
3.3
4.5
3.6
4.0
3.3
3.8
3.5
4.2
2.4
3.2
3.7
4.3
3.2
4.0
3.7
4.3
3.4
4.0
3.7
3.8
3.9
4.1
EXPENDITURES
Nominal GDP
Real GDP
Bill. $
Bill. Ch. $
Real GDP
Gross domestic purchases
% change
Final sales
Priv. dom. final purchases
Personal cons. expenditures
Durables
Nondurables
Services
Business fixed investment
Equipment & Software
Nonres. structures
Residential structures
Exports
Imports
Gov't. cons. & investment
Federal
Defense
State & local
Change in bus.
Nonfarm
Net exports
inventories
Bill. Ch. $
1.1
3.7
-2.6
4.3
4.5
2.9
2.2
3.1
3.2
3.2
0.7
0.5
1.5
30.0
-0.4
0.9
-31.5
1.9
2.4
10.3
3.6
3.5
10.4
3.3
3.9
8.4
2.9
1.9
4.7
2.7
1.5
7.1
3.2
2.4
7.5
3.1
2.4
7.6
3.1
2.4
-8.7
-9.3
-6.9
3.3
-19.3
-15.8
-28.4
-8.7
-7.1
-3.3
-16.8
-7.5
-0.6
2.6
-9.3
-0.0
5.3
8.9
-4.6
2.8
8.8
12.4
-1.1
4.4
9.3
11.8
2.1
4.6
10.1
12.6
2.6
3.4
10.7
13.2
3.5
1.4
11.7
14.5
3.3
0.3
-17.7
-12.9
-3.6
2.6
-2.1
3.1
1.2
9.2
3.3
11.0
6.6
8.6
3.9
9.2
6.6
10.6
7.4
10.2
9.7
8.4
0.0
2.7
2.6
-1.3
8.4
9.3
5.7
8.0
3.0
4.7
4.5
2.1
3.9
6.9
3.9
2.4
3.4
6.4
3.4
1.9
3.3
3.3
2.2
3.3
2.9
2.1
2.0
3.3
3.0
2.1
2.4
3.5
3.1
2.1
2.3
3.7
3.0
1.8
1.9
3.7
-58.2
-122.6
-55.2
-120.6
-45.2
-25.0
4.1
12.4
41.0
53.8
64.8
62.1
-43.6
-25.5
3.6
11.9
40.5
52.7
63.8
-408.2
-427.1
-443.8
-473.6
-505.3
-520.6
-545.6
-569.6
-590.9
-599.5
% change
1.1
-1.8
1.8
5.0
6.1
5.1
5.4
5.0
5.1
5.1
Millions
132.3
4.8
131.6
5.5
131.2
5.9
131.4
6.1
131.8
6.1
132.4
6.0
132.9
6.0
133.4
5.9
134.0
5.8
134.6
5.8
Industrial prod. index
Capacity util. rate - mfg.
% change
-4.8
74.4
-8.8
72.5
-3.6
71.5
3.3
71.9
5.4
72.8
5.2
73.6
5.0
74.3
4.9
75.1
4.7
75.8
5.0
76.6
Housing starts
Millions
1.60
16.12
13.15
2.97
1.54
17.99
14.70
3.29
1.57
14.42
11.65
2.77
1.60
14.73
11.94
2.79
1.63
15.13
12.35
2.78
1.66
15.52
12.67
2.85
1.67
15.49
12.60
2.89
1.67
15.60
12.69
2.91
1.67
15.76
12.83
2.93
1.66
15.90
12.95
2.95
Nominal GNP
Nominal GNP
Nominal personal income
Real disposable income
Personal saving rate
Bill. $
% change
10223.2
1.3
2.7
12.5
3.7
10177.3
-1.8
-0.4
-7.6
0.9
10222.7
1.8
4.6
10.5
4.0
10349.0
5.0
3.7
1.7
3.4
10501.2
6.0
4.2
0.8
2.6
10634.9
5.2
4.9
3.0
2.6
10776.2
5.4
4.9
3.4
2.9
10905.0
4.9
4.6
2.8
2.8
11035.8
4.9
4.4
2.7
2.8
11169.3
4.9
4.4
2.8
2.7
Corp. profits, IVA & CCAdj.
% change
-29.1
6.8
6.6
2.2
6.9
6.6
-8.7
6.7
6.4
12.8
6.8
6.5
20.0
7.0
6.7
6.7
7.1
6.8
5.0
7.1
6.8
4.9
7.1
6.8
6.1
7.1
6.8
4.2
7.1
6.8
-10.4
2.3
2.4
65.0
16.9
17.3
-101.2
1.6
1.9
-97.8
5.5
5.8
-49.9
15.5
15.8
-45.1
15.7
16.0
-26.0
12.8
13.1
-10.6
12.9
13.2
4.3
15.6
15.9
12.4
12.7
13.0
17.1
15.6
16.3
16.1
16.1
16.2
16.6
16.9
16.9
3.9
2.8
3.5
3.3
3.3
3.4
3.8
3.9
4.0
Nominal GDP
60.8
EMPLOYMENT AND PRODUCTION
farm payroll employment
mployment rate
%
%
Light motor vehicle sales
North Amer. produced
Other
INCOME AND SAVING
%
%
Profit share of GNP
Excluding FR Banks
Federal surpl./deficit
State & local surpl./def.
Ex. social ins. funds
Bill. $
Gross natl. saving rate
Net natl. saving rate
16.7.
4.0
PRICES AND COSTS
GDP chn.-wt. price index
Gross Domestic Purchases
chn.-vt. price index
% change
PCE chn.-wt. price index
Ex. food and energy
CPI
Ex. food and energy
hourly compensation
1
0.3
1.9
1.6
1.5
1.8
1.3
1.3
-0.2
2.2
1.0
1.6
1.6
1.5
1.8
1.3
1.3
-0.3
1.1
1.6
1.3
1.3
3.0
1.0
1.5
1.4
0.4
1.2
1.1
1.3
1.1
1.2
1.1
0.7
-0.6
1.3
2.2
2.6
2.4
2.2
2.1
2.0
1.9
1.9
1.9
1.8
1.8
1.8
1.8
3.7
3.7
3.3
3.2
3.0
3.0
3.0
3.0
0.3
4.0
3.7
-0.4
4.2
4.6
2.7
3.8
1.1
2.1
3.6
1.5
2.0
3.6
1.6
2.2
3.3
1.1
2.3
3.2
0.9
.arm business sector
utput per hour
Compensation per hour
Unit labor cost
1. Private-industry workers.
2.3
3.2
0.9
Strictly Confidential <FR>
CONTRIBUTIONS TO GROWTH IN REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS
December 5, 2001
Class II FOMC
Item
Real GDP
Gross dom. purchases
Final sales
Priv. don. final purchases
1999
Q3
1999
04
2000
Q1
2000
4.7
5.4
8.3
8.4
2.3
3.6
4.2
4.2
6.2
4.8
Personal cons. expenditures
Durables
Nondurables
Services
Business fixed investment
2000
Q3
2000
Q4
2001
Ql
2001
02
2001
03
99Q4/
9804
00Q4/
99Q4
01Q4/
00Q4
5.7
6.5
1.3
2.0
1.9
2.3
1.3
0.7
0.3
0.4
-1.1
-0.9
4.4
5.4
2.8
3.6
-0.4
-0.3
4.7
6.2
3.9
4.0
2.3
3.3
2.4
2.2
3.9
2.4
0.7
-0.0
-0.3
-0.2
4.2
3.3
1.2
4.5
3.9
0.4
4.0
1.1
1.5
1.4
3.9
1.5
1.0
1.5
2.5
-0.2
1.0
1.8
2.9
0.7
0.8
1.4
2.1
-0.2
0.1
2.2
2.1
0.8
0.5
0.7
1.7
0.6
0.1
1.1
02
1.8
0.9
0.1
0.7
Equipment & Software
Nonres. structures
Residential structures
1.3
1.5
-0.2
-0.0
0.8
0.6
0.1
0.1
1.9
1.6
0.3
0.4
1.5
1.2
0.4
-0.0
0.9
0.5
0.5
-0.5
0.1
-0.1
0.2
-0.1
-0.0
-0.4
0.4
0.4
-2.0
-1.6
-0.4
0.3
-1.1
-0.9
-0.2
0.1
Net exports
Exports
Imports
-0.8
1.0
-1.8
-0.2
1.3
-1.4
-1.3
1.0
-2.3
-0.8
1.4
-2.3
-0.7
1.1
-1.8
-0.4
-0.5
0.1
0.6
-0.1
0.8
-0.1
-1.4
1.3
-0.2
-2.0
1.8
Government cons. & invest.
Federal
Defense
0.8
0.4
0.5
-0.1
0.3
1.5
0.9
0.6
0.3
0.7
-0.2
-0.8
-0.9
0.0
0.6
0.8
0.9
0.6
0.3
-0.1
-0.3
-0.7
-0.4
-0.2
0.3
0.6
0.3
0.4
-0.1
0.3
0.9
0.2
0.3
-0.1
0.7
0.9
0.1
0.1
0.0
0.8
0.0
0.2
0.1
0.1
-0.2
0.8
0.2
0.2
0.1
0.6
0.4
0.9
-0.4
2.2
1.5
0.6
-2.3
-2.0
-0.3
1.8
1.5
0.3
-1.0
-0.8
-0.2
-0.5
-0.7
0.2
-2.6
-2.6
0.0
-0.4
-0.3
-0.1
-0.8
-0.7
-0.0
-1.6
-1.6
0.0
Nondefense
State and local
Change in bus. inventories
Nonfarm
Farm
Note. Components may not sun to totals because of rounding.
-1.4
-1.1
-0.3
0.1
-1.0
0.5
-1.5
-0.8
0.8
-1.6
-0.1
-1.0
0.9
Strictly Confidential <FR>
Class II FOMC
CONTRIBUTIONS TO GROWTH IN REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS
December 5, 2001
I
2002
2002
2003
Q4
Q1
2003
2003
2003
2002
Q2
2002
-0.1
0.5
3.3
4.4
4.5
5.6
3.6
4.1
3.5
4.4
3.7
4.5
3.7
4.4
3.7
4.0
0.4
-0.4
-3.1
-3.0
2.6
2.9
3.4
3.8
3.3
3.2
2.5
2.8
3.2
3.4
3.3
3.4
3.8
3.5
Personal cons. expenditures
Durables
Nondurables
Services
2.5
2.2
-0.1
0.4
-1.8
-3.2
0.4
1.0
1.6
0.4
0.5
0.6
2.2
0.6
0.6
1.0
Business fixed investment
Equipment & Software
Nonres. structures
Residential structures
-2.5
-1.5
-1.0
-0.4
-0.8
-0.3
-0.5
-0.3
-0.1
0.2
-0.3
0.0
0.6
0.7
-0.1
0.1
1.0
1.0
-0.0
0.2
1.0
1.0
0.1
0.2
1.1
1.0
0.1
0.1
Net exports
Exports
Imports
-0.7
-0.4
-0.3
-0.6
-0.2
-0.4
-1.0
0.1
-1.2
-1.1
0.3
-1.4
-0.5
0.6
-1.1
-0.8
0.4
-1.2
-0.8
0.6
-1.4
0.6
0.4
0.1
0.3
0.2
0.6
0.2
0.1
0.1
0.4
0.5
0.1
0.1
0.1
0.4
0.6
0.1
0.1
0.0
0.4
1.1
1.1
-0.0
0.3
0.3
-0.0
1.1
1.1
-0.0
0.5
0.4
0.0
2001
Item
04
01
Real GDP
Gross dom. purchases
-2.1
-1.4
Final sales
Priv. dom. final purchases
Government cons. & invest.
Federal
Defense
Nondefense
State and local
Change in bus. inventories
Nonfarm
Farm
-2.4
-2.4
-0.0
3.0
3.0
-0.0
0.8
0.7
0.1
Note. Components may not sum to totals because of rounding.
03
Q2
Q3
-0.7
0.7
-1.4
0.4
0.4
-0.0
Q4
-0.2
0.9
-1.1
-0.1
-0.1
0.0
01Q4/
02Q4/
0304/
00Q4
01Q4
02Q4
2.8
3.6
3.7
4.3
1.2
0.4
1.5
1.7
3.2
3.3
-1.4
-1.1
-0.3
0.1
0.2
0.4
-0.2
-0.0
1.2
1.1
0.1
0.1
-0.1
-1.0
0.9
-0.8
0.2
-1.0
-0.6
0.7
-1.3
0.8
0.2
0.2
0.1
0.6
0.6
0.3
0.1
0.2
0.3
0.6
0.1
0.1
0.0
0.4
-1.6
-1.6
0.0
1.3
1.3
0.0
0.5
0.4
0.0
Strictly Confidential (FR)
Class II FOMC
December 5, 2001
Staff Projections of Federal Sector Accounts and Related Items
(Billions of dollars except as noted)
Fiscal year1
Item
Unified budget
Receipts 2
2
Outlays
2
Surplus/deficit
On-budget
Off-budget
Surplus excluding
deposit insurance
Means of financing
Borrowing
Cash decrease
Other 3
Cash operating balance,
end of period
2000
1 200
.1 2002
2003
2001
I-~
Qla
Q2a
Q3a
Q4
Ql
460
482
-22
-88
65
660
467
194
119
75
409
451
-42
-51
10
455
507
-51
-100
48
424
502
-78
-103
25
-52
-79
116
76
-5
7
-84
-25
-7
60
2025
1789
236
87
150
1990
1863
127
-34
161
1960
1992
-32
-191
159
233
126
-34
-9
-23
193
-42
-223
4
-18
-90
8
-45
46
-1
-13
27
0
-20
24
-7
6
-157
-15
-21
69
-1
-26
53
44
45
45
28
44
44
30
35
2012
1813
492
322
170
1321
199
96
2041
1890
506
336
170
1384
151
100
1954
2000
547
356
191
1452
-46
106
2064
2084
585
375
210
1499
-19
110
2087
1882
508
338
169
1375
205
98
2092
1905
510
340
171
1395
187
100
1909
1919
513
343
170
1406
-10
102
2018
1953
527
346
181
1426
65
103
1897
1998
544
356
188
1455
-101
105
102
51
-151
-130
108
87
-112
-9
-19
-127
-113
21
23
-.8
0
2
3
2048
2055
-7
-183
176
Q2
2003
Q3
Q4
Not seasonally adjusted
611
469
450
495
488
524
117
-19
-74
45
-34
-127
71
14
53
Q
I Q2
Q3
Q4
451
517
-66
-94
27
648
510
138
60
78
499
504
-5
-22
17
485
541
-57
-117
61
-67
138
-5
-57
69
-5
2
-99
-30
-9
25
30
60
45
30
Seasonally adjusted annual rates
1917
1983
2019
2015
2033
2064
554
564
570
360
363
366
195
201
205
1460
1468
1493
-98
-50
-45
106
108
109
2050
2076
586
375
211
1490
-26
110
2079
2089
590
378
212
1499
-11
111
2110
2105
594
380
213
1511
4
112
2144
2131
597
383
215
1534
12
113
-38
-206
-204
-158
-154
-136
-121
-107
-100
-143
-35
-177
-169
-126
-127
-118
-108
-99
-97
-0
2
-1
1
-. 1
-.4
-0
-.1
-.1
-. 1
-0
3
9
-2
18
6
1
.7
2
2
2
1
NIPA federal sector
Receipts
Expenditures
Consumption expenditures
Defense
Nondefense
Other spending
Current account surplus
Gross investment
Current and capital
account surplus
2002
I
-20
45
-74
4
Fiscal indicators
High-employment (HEB)
surplus/deficit
Change in HEB, percent
of potential GDP
Fiscal impetus (FI)
percent, calendar year
1. Fiscal year data for the unified budget come from OMB; quarterly data come from the Monthly Treasury Statement and may not sum to OMB fiscal year totals.
2. OMB's August 2001 baseline surplus estimates are $187 billion in FY 2002 and $211 billion in FY 2003. CBO's August 2001 baseline surplus estimates, assuming discretionary spending grows with
inflation beginning in FY 2002, are $176 billion in FY 2002 and $172 billion in FY 2003. Budget receipts, outlays, and surplus/deficit include corresponding social security (OASDI) categories. The OASDI
surplus and the Postal Service surplus are excluded from the on-budget surplus and shown separately as off-budget, as classified under current law.
3. Other means of financing are checks issued less checks paid, accrued items, and changes in other financial assets and liabilities.
4. HEB is the NIPA current and capital account surplus in current dollars, with cyclically sensitive receipts and outlays adjusted to the level of potential output associated with an unemployment rate of
6 percent. Quarterly figures for change in HEB and FI are not at annual rates. The sign on Change in HEB, as a percent of nominal potential GDP, is reversed. FI is the weighted difference of discretionary
changes in federal spending and taxes in chained (1996) dollars, scaled by real federal consumption plus investment. For FI and the change in HEB, negative values indicate aggregate demand restraint.
a--Actual
Strictly Confidential (FR)
Class II FOMC
Change in Debt of the Domestic Nonfinancial Sectors
(Percent)
December 5, 2001
Nonfederal
Households
Period I
Total 2
Federal
government
3
Total 4
Total
Home
mortgages
Consumer
credit
Business
State and local
governments
Memo:
Nominal
GDP
Year
1996
1997
1998
1999
5.4
5.6
6.9
6.8
4.0
0.6
-1.4
-1.9
5.8
7.3
9.6
9.3
7.0
6.4
8.4
8.6
6.8
6.7
9.2
9.3
8.1
4.7
5.9
7.4
6.2
9.0
11.6
11.3
-0.6
5.3
7.2
4.4
6.0
6.2
6.0
6.0
2000
2001
2002
2003
5.0
5.8
4.6
4.8
-8.0
-0.6
1.8
0.2
8.5
7.2
5.2
5.7
8.5
8.3
5.8
6.4
8.4
9.7
7.8
7.6
9.6
4.9
0.4
3.4
9.9
6.2
4.7
5.4
2.2
6.8
3.5
3.0
5.3
1.6
4.5
5.1
Quarter
2000:3
4
2001:1
2
3
4
2002:1
2
3
4
2003:1
2
3
4
4.4
4.3
5.5
5.5
6.8
5.0
5.2
4.3
4.3
4.2
5.5
4.5
4.5
4.3
-6.4
-9.6
-0.1
-7.6
7.7
-2.1
6.1
1.0
0.5
-0.4
5.2
-0.6
-1.0
-2.6
7.1
7.5
6.8
8.4
6.6
6.5
5.0
5.0
5.1
5.1
5.5
5.5
5.6
5.6
8.1
7.4
7.8
9.3
8.3
6.8
6.0
5.5
5.6
5.8
6.1
6.2
6.3
6.4
8.4
7.4
7.8
11.5
9.7
8.4
8.2
7.6
7.2
7.2
7.4
7.3
7.4
7.4
8.4
8.7
10.0
4.5
1.3
3.4
-0.7
-0.5
1.0
1.9
2.4
3.1
3.7
4.2
7.0
8.4
5.4
7.5
5.3
6.1
4.2
4.7
4.9
4.9
5.3
5.3
5.2
5.2
1.9
4.2
8.1
8.3
3.2
6.9
3.6
4.2
3.5
2.7
3.0
3.0
3.0
3.0
3.3
3.7
4.6
2.4
1.1
-1.8
1.8
5.0
6.1
5.1
5.4
5.0
5.1
5.1
Note. Quarterly data are at seasonally adjusted annual rates.
1.Data after 2001:Q3 are staff projections. Changes are measured from end of the preceding period to
end of period indicated except for annual nominal GDP growth, which is calculated from Q4 to Q4.
2. On a monthly average basis, total debt is projected to grow 5.5 percent in 2001, 4.6 percent in 2002, and 5.0 percent in 2003.
3. On a monthly average basis, federal debt is projected to grow -1.4 percent in 2001, 1.5 percent in 2002, and 0.5 percent in 2003.
4. On a monthly average basis, nonfederal debt isprojected to grow 7.2 percent in 2001, 5.2 percent in 2002, and 5.9 percent in 2003.
2.6.3 FOF
Strictly Confidential (FR)
Class II FOMC
Flow of Funds Projections: Highlights
(Billions of dollars except as noted)
December 5, 2001
Seasonally adjusted annual rates
Calendar year
Category
2001
2002
2000
2001
2002
2003
Netfunds raised by domestic
nonfinancial sectors
1 Total
2 Net equity issuance
3 Net debt issuance
722.8
-150.6
873.4
1002.4
-61.2
1063.6
928.6
40.0
888.6
1013.6
50.0
963.6
980.9
-25.6
1006.5
946.0
-72.6
1018.6
1157.0
-118.5
1275.5
925.6
-28.0
953.6
1032.2
28.0
1004.2
890.0
40.0
850.0
Borrowing sectors
Nonfinancial business
4 Financing gap '
5 Net equity issuance
6 Credit market borrowing
286.9
-150.6
587.2
207.2
-61.2
407.0
179.4
40.0
329.6
252.9
50.0
390.1
284.9
-25.6
352.6
218.9
-72.6
494.7
178.6
-118.5
360.6
146.2
-28.0
419.9
185.8
28.0
290.6
554.9
382.6
139.0
97.1
588.9
478.9
77.7
99.9
449.9
421.5
7.4
102.4
522.8
444.0
57.2
104.4
554.4
387.8
159.9
98.5
671.2
581.0
73.6
99.7
616.2
502.3
21.3
99.0
513.9
444.3
56.1
102.6
27.2
191.9
86.9
189.4
48.4
192.6
42.8
207.4
103.9
189.8
108.7
192.9
43.0
181.5
Federal government
13 Net borrowing
14 Net borrowing (quarterly, n.s.a.)
15 Unified deficit (quarterly, n.s.a.)
-295.9
-295.9
-254.8
-19.3
-19.3
-78.3
60.7
60.7
54.8
8.0
8.0
-10.8
-4.3
23.7
22.5
-256.0
-157.4
-193.7
Depository institutions
16 Funds supplied
445.3
203.9
252.7
296.1
228.5
Memo (percentage of GDP)
17 Domestic nonfinancial debt 5
18 Domestic nonfinancial borrowing
Federal government 6
19
20
Nonfederal
181.0
8.8
-3.0
11.8
185.0
10.4
-0.2
10.6
190.1
8.5
0.6
7.9
189.0
8.8
0.1
8.7
181.9
9.9
-0.0
10.0
Households
7 Net borrowing 2
8
Home mortgages
9
Consumer credit
10 Debt/DPI (percent) 3
State and local governments
11 Net borrowing
12
Current surplus 4
Note. Data after 2000:Q3 are staff projections.
I. For corporations: Excess of capital expenditures over U.S. internal funds.
2. Includes change in liabilities not shown in lines 8 and 9.
3. Average debt levels in the period (computed as the average of period-end debt positions)
divided by disposable personal income.
2.6.4 FOP
Q1
Q2
Q3
Q4
Q1
Q2
2003
Q3
Q4
HI
H2
912.3
54.0
858.3
879.9
38.0
841.9
1064.2
50.0
1014.2
963.0
50.0
913.0
163.1
40.0
327.7
170.9
54.0
345.3
197.9
38.0
354.7
236.8
50.0
389.4
268.9
50.0
390.8
459.0
444.6
-11.3
101.4
429.3
420.5
-8.0
102.0
447.2
406.5
16.6
102.8
464.3
414.4
32.3
103.2
504.6
436.0
46.7
103.8
541.0
452.1
67.7
105.0
92.2
193.6
49.4
180.8
57.4
187.2
49.4
199.8
37.4
202.8
42.8
204.0
42.8
210.8
255.7
68.6
41.8
-72.4
45.8
51.3
205.2
76.0
78.0
35.6
-84.5
-116.6
16.5
8.8
19.4
-14.5
60.3
74.0
77.5
-29.9
-72.0
-61.5
37.9
61.3
198.8
290.5
97.9
178.0
249.0
296.0
287.8
293.6
298.6
183.3
10.0
-2.5
12.5
185.6
12.5
2.5
10.0
189.2
9.4
-0.7
10.1
190.7
9.8
2.0
7.8
190.7
8.2
0.3
7.9
189.9
8.2
0.2
8.0
189.5
7.9
-0.1
8.0
189.2
9.3
0.7
8.6
188.9
8.2
-0.6
8.8
4. NIPA surplus less changes in retirement fund assets plus consumption of fixed capital.
5. Average debt levels in the period (computed as the average of period-end debt positions) divided by nominal GDP.
6. Excludes government-insured mortgage pool securities.
International Developments
Early indicators for October and November suggest that foreign economic activity
is likely to decline again in the current quarter, reflecting in part the continuing
effect of the events of September 11. At the same time, however, a few bright
spots are appearing, perhaps signaling the emergence of a turning point in the
global growth cycle. Economic activity in some Asian economies particularly
exposed to the downturn in the high-tech sector appears to be stabilizing. And
financial markets, though not completely shrugging off the negative readings on
recent activity, may be pricing in a somewhat stronger outlook than they had at the
time of the November FOMC meeting, with equity prices and longer-term bond
yields generally higher.
We again project that foreign growth will resume early next year, as a number of
factors appear set to boost activity. These include the anticipated pickup in U.S.
GDP, lower oil prices, the considerable macroeconomic policy easing that has
taken place in many countries, and the eventual ending of inventory liquidations
and high-tech investment overhangs. As positive momentum develops, average
foreign growth rates are expected to approach potential growth rates by the end of
next year and move somewhat higher in 2003, shrinking output gaps a bit by the
end of the forecast period. Inflation should remain subdued, however, with output
remaining below potential throughout the period.
Summary of Staff Projections
(Percent change from end of previous period, s.a.a.r.)
Projection
2001
Indicator
2001:
H1
Q3
Foreign output
OctoberGB
0.0
0.0
Foreign CPI
October GB
2.5
2.5
2002
2003
Q4
Q
Q2
11H2
-0.3
-0.5
-0.6
-0.4
0.5
0.7
1.8
1.9
2.9
2.9
3.4
3.4
1.8
1.8
1.6
1.6
1.6
1.9
2.0
2.1
2.1
2.2
2.2
2.3
NOTE. Changes for years are measured as Q4/Q4; for half-years, Q2/Q4 or
Q4/Q2.
Over the forecast period, we expect the arithmetic contribution of the external
sector to U.S. GDP growth to be negative. After declining significantly this year,
both exports and imports should pick up next year and expand further in 2003.
Oil prices. The spot price of West Texas intermediate fell sharply in mid
November following OPEC's announced decision to make additional production
cuts only if key non-OPEC countries limited their production as well. Mexico,
Norway, and Oman have agreed to cooperate with OPEC. Russia has just
I-32
Part1: Summary and Outlook, December 5, 2001
announced an export cut of 150,000 barrels per day, but it is not yet clear how
OPEC will respond. Consistent with recent quotes from futures markets, we
project that the spot price of WTI will gradually increase from current levels of
around $20 per barrel to about $21.50 per barrel by the end of the forecast
period. This outlook incorporates some but not all of these potential production
cuts. Compared with the previous Greenbook, this projection is down about
$2 per barrel in the near term but is little changed by the end of 2003.
International financial markets. Positive signals about near-term prospects for
U.S. economic activity that emerged early in the intermeeting period tended to
boost the dollar; but later U.S. news prompted the dollar to move back down. On
balance, the broad nominal index of the foreign exchange value of the dollar
showed little net change during the intermeeting period. Nevertheless, the
dollar's net movements against some individual foreign currencies were
significant. Concerns over possible intervention by Japanese authorities to
weaken the yen and commentary from British officials indicating that sterling
should depreciate before the United Kingdom enters Europe's monetary union
appeared to weigh on those currencies relative to the dollar. In contrast, the
Canadian dollar moved higher on net against its U.S. cousin, recovering from
record lows touched in early November. Among emerging-market currencies, the
Brazilian real rose during the period, as the worst fears about contagion from the
difficulties in Argentina were apparently put aside. The Korean won firmed as
well, as recent data suggest that domestic demand remained quite resilient. The
dollar's net movements against the euro and the Mexican peso were negligible.
Our outlook for the dollar is essentially flat, a forecast little changed from that in
the previous Greenbook. We nonetheless continue to believe that the large and
growing volume of U.S. external liabilities will at some point begin to outpace
growth in the demand for U.S. assets, eventually exerting downward pressure on
the dollar. The exact time at which such a threshold might be crossed is difficult
to identify, however, and could well be beyond the current forecast horizon,
particularly if U.S. growth is the leading force behind the global recovery. As a
consequence, we leave this concern as a risk to our outlook for the dollar. (An
event that triggers dollar depreciation is explored in the alternative simulation.)
Over the intermeeting period, foreign long-term bond yields have risen, although
somewhat less than comparable U.S. rates, and equity prices have moved higher,
consistent with some continued decrease in risk aversion and perhaps also a
heightened expectation that global recovery is imminent. In contrast, short-term
interest rates held steady or declined, leaving yield curves generally steeper.
Central banks in the euro area, the United Kingdom, and Canada each reduced key
monetary policy rates 50 basis points during the period, contributing to the
downward movement in short-term yields. The Bank of Japan continued to leave
InternationalDevelopments
1-33
an elevated amount of reserves with Japanese banks, keeping its aggregate current
account position well above Y6 trillion and short-term interest rates near zero.
Late in the period, the Bank of Japan temporarily pushed reserves to ¥14 trillion
to help ensure liquidity for mutual funds whose depositors were concerned that
the Enron bankruptcy would generate fund losses sufficient to impair access to
deposits.
Equity prices in most emerging-market countries also rose, and sovereign bond
yield spreads generally narrowed, including those of Mexico and Brazil, despite
the sharp deterioration of financial conditions in Argentina. Argentine equity
prices fell more than 12 percent, yield spreads widened 1,000 basis points, and
overnight interest rates on peso deposits soared to 900 percent as residents
scrambled to withdraw their funds from the banking system. The government
responded with a package of stop-gap measures designed to reduce pressures on
the banking system and the currency regime by limiting bank deposit withdrawals,
restricting capital outflows, and partially dollarizing the financial system. The
authorities also moved to complete the first part of a debt exchange, which
reduces interest payments and in many cases lengthens maturities on public sector
debt. Figures on the amount of debt exchanged so far total about $50 billion.
These steps may provide the banking system with some breathing room and
reduce the probability of an imminent devaluation of the exchange rate.
Immediately following the imposition of these measures, bond spreads declined
somewhat and equity prices moved off their lows.
. The Desk did not
intervene during the period for the accounts of the System or the Treasury.
Foreign industrial countries. Recent indicators suggest that average real GDP in
foreign industrial countries weakened further in the current quarter after a small
contraction in the third quarter. We continue to project a gradual recovery next
year, with growth of about 1 3/4
percent in 2002 and nearly 3 percent in 2003,
reflecting the projected revival in U.S. growth, lower oil prices, monetary
stimulus, and an expected reduction in inventory and investment overhangs. All
the major foreign industrial economies follow this general pattern, although the
severity and the duration of the slowdown differ across areas. Headline inflation
rates in these countries have moved down substantially in recent months as a
result of both lower oil prices and the sluggish pace of economic activity.
Inflation rates are expected to edge up later in the forecast period.
The Japanese economy remains very weak, with a drop of nearly 2 percent (not at
an annual rate) in the all-industry index in the third quarter, suggesting that real
GDP posted another sizable decline in that period. A further contraction in output
is expected in the fourth quarter, reflecting declines in both public and private
I-34
Part1: Summary and Outlook, December 5, 2001
investment and a fall in exports. Recent declines in both orders and shipments of
machinery suggest that investment spending is likely to continue to contract, and
record unemployment should restrain consumption spending. We expect the
economy to shrink somewhat more in the first half of next year as private
investment and exports remain weak, but it should stabilize in the second half of
the year and grow in 2003 as the shakeout in private investment spending ends and
global recovery boosts exports. The Japanese government recently passed a
supplementary budget that focuses on increasing public employment and shoring
up the unemployment safety net, and a second supplementary budget is currently
being discussed. The Bank of Japan is expected to maintain short-term interest
rates near zero through the forecast period and to keep reserves above the target
level of ¥6 trillion, as prices continue to fall at an annual rate of more than 1
percent.
The Canadian economy contracted in the third quarter and is expected to shrink
somewhat further in the current quarter. Though the September decline in
manufacturing shipments was related in part to distortions associated with the
events of September 11, the decline in new orders may suggest a more prolonged
weakness in Canadian manufacturing. Some strength in auto production and
housing in the current quarter should partly offset weakness in exports and in
travel and tourism. Real GDP is projected to pick up again in the first half of next
year and to grow more robustly in the second half, as improved demand in the
United States lifts exports and moderate fiscal stimulus and past substantial
monetary easing boost domestic demand. We assume that, after the rate cut of 50
basis points on November 27, the Bank of Canada will hold rates steady through
the end of 2002. We expect rates to rise subsequently as the Canadian expansion
solidifies.
Real GDP growth in the euro area remained weak but slightly positive in the third
quarter. Recent indicators are consistent with a mild contraction of euro-area
activity in the current quarter, as business confidence declined after September 11
and manufacturing orders fell. Growth is expected to remain sluggish in the first
half of next year, and we expect the ECB to reduce official interest rates 25 basis
points early next year as inflation moves well below
2 percent. Growth should then revive somewhat in the second half as
consumption and investment spending respond to lower oil prices and to the
cumulative effects of monetary easing. In addition, exports should recover with
the revival in foreign activity. We expect a moderate tightening of monetary
policy as the economy strengthens.
In contrast to the general pattern of weakening global activity, real GDP in the
United Kingdom increased 2 percent at an annual rate in the third quarter.
However, indicators for the fourth quarter suggest that growth is slowing.
InternationalDevelopments
I-35
October retail sales declined, and business and consumer sentiment remained
weak through November. Next year, U.K. growth is expected to rebound, as
export growth responds to improving global demand. We assume that the Bank of
England will keep rates unchanged through the middle of next year. As economic
growth picks up subsequently, we expect that the monetary policy stance will
tighten.
Other countries. Economic conditions in major developing-country trading
partners remain difficult, although tentative signs have emerged that the
contraction of some developing Asian economies may be abating, perhaps in
association with a bottoming out in the semiconductor industry. Economic
indicators for emerging Asia, which until recently had been uniformly negative,
are now mixed. In particular, industrial production in Singapore and Taiwan
posted marked increases during October, following declines in the third quarter.
Korean real GDP moved up in the third quarter, partly reflecting a failure to
adjust properly for three extra working days (as the Full Moon holidays fell in
October rather than in September) but also reflecting genuine resilience in private
consumption; industrial production declined in October, after two monthly
increases. Third-quarter GDP edged up in Malaysia, where activity was
supported by a large fiscal stimulus package, and surprisingly in Hong Kong,
where other indicators pointed to deteriorating conditions. Growth in China has
recently cooled a bit but nonetheless remains strong as fiscal spending has
continued to buoy domestic demand.
We now believe that, in the aggregate, economic activity in the Asian developing
countries has stabilized in the second half of this year. Looking ahead, the recent
improvements in economic indicators for the region lend support to our
expectation that recovery will take hold over the next year or so, as stimulative
macroeconomic policies, a projected rebound in high-tech demand, and lower oil
prices take hold. Specifically, we expect that growth will rise to 1-3/4
percent
during the first half of 2002 and reach 5 percent by the end of 2003.
In Latin America, recent data remain bleak. The Argentine economy is mired in a
deep recession, and the government's recent policy actions seem unlikely to
restore growth or resolve the ongoing financial turbulence. It is impossible to say
when that turbulence will abate and what policies will ultimately be adopted. We
have projected some restoration of growth before the end of the forecast period
but do not mean to suggest that we can foresee the timing of turnaround for
Argentina. In Mexico, GDP posted its fourth consecutive quarterly decline in the
third quarter, and indicators for the current quarter show little evidence of a return
to growth. Unemployment was up significantly in October, and business
confidence remained weak. Economic activity in Brazil has been sluggish
recently, with third-quarter GDP about flat and unemployment jumping up in
I-36
Part 1: Summary and Outlook, December5, 2001
October. In aggregate, we estimate that these countries have contracted about
1 percent at an annual rate during the second half of this year. Nevertheless, given
the projected recovery in the United States and other improvements in the global
environment, we expect that activity in the Latin American economies will
strengthen next year, led by a recovery in Mexico (which accounts for about threequarters of our aggregate for Latin America). Regional growth should rise to
about 1 percent in 2002:H1 and subsequently to nearly 3-1/2
percent in 2003.
Prices of internationally traded goods. The price index for imports of non-oil
core goods is expected to decline a bit less than 4 percent at an annual rate in the
fourth quarter--the third consecutive quarterly decline--and to fall at an annual
rate of less than 1/2
percent in the first quarter of next year. Import price inflation
is expected to turn mildly positive in the second quarter of next year as stronger
activity boosts both primary commodity prices and, to a lesser extent, foreign
inflation rates. We expect core import price inflation to average about 3/4percent
in 2002 and 1-1/2
percent in 2003.
The price index for exports of U.S. core goods is also expected to drop about
4 percent at an annual rate in the fourth quarter and to show a further small decline
in the first quarter of next year. This projection is consistent with weak industrial
demand abroad and soft prices of raw material inputs. Core goods export prices
are projected to begin to move back up in the second quarter of next year but to
show only a small increase over the rest of the forecast period, in line with the
moderate inflation projected for U.S. goods prices.
I-37
InternationalDevelopments
Selected Trade Prices
(Percent change from end of previous period except as noted; s.a.a.r.)
2001
Projection
Trade category
H1
Q3
2002
2001:
Q4
2003
Q1
Q2
-0.3
0.9
H2
Exports
Core goods
-0.5
-1.5
-3.8
1.4
0.8
Imports
Non-oil core goods
Oil (dollars per barrel)
-1.5
-6.0 -3.8
-0.3
0.6
1.5
24.21 23.51 18.65 17.53 17.95 18.41
1.4
18.87
NOTE. Prices for core exports and non-oil core imports, which exclude computers
and semiconductors, are on a NIPA chain-weighted basis.
The price of imported oil for multiquarter periods is the price for the final quarter
of the period.
Trade in goods and services. In September, the U.S. trade deficit in goods and
services was $18.7 billion, as net service import payments were reduced by a
one-time large estimated insurance receipt (reported on an accrual basis) from
foreign insurers related to the events of September 11.1 Excluding BEA's
assumptions regarding insurance payments, the trade deficit in September was
$29.7 billion, larger than it was in August. For the third quarter, the U.S. trade
deficit in goods and services was $300 billion, s.a.a.r. Excluding the estimated
insurance payment, the deficit was $344 billion, about $10 billion smaller than in
the second quarter. We estimate that the U.S. current account deficit as a share of
GDP declined in the third quarter to 3-1/2
percent before returning to 4 percent in
the fourth quarter and expect that the current account deficit as a share of GDP
will rise to 5 percent in 2003.
Though NIPA real exports and imports of goods and services were not affected by
the payments of foreign insurers on claims resulting from the events of
September 11, the terrorist attacks nonetheless made some contribution to the
1. The "insurance payment" component of imported services is calculated as the value of
premiums paid to foreign companies less the amount of losses recovered from foreign
companies. In the third quarter, the estimated size of "losses recovered" far exceeded the
amount paid for insurance premiums, resulting in a "negative" recorded insurance payment.
According to NIPA accounting, the entire amount of an insurance payment is recorded in the
quarter in which the incident occurred.
Part 1: Summary and Outlook, December 5, 2001
I-38
double-digit declines in exports and imports in the third quarter, owing to the
temporary port closures and other transportation disruptions. 2
Real imports of goods and services are expected to rise slightly in the fourth
quarter as reduced travel and continued weakness in U.S. spending on investment
goods are offset by an increase in domestic consumption and, to a lesser extent,
some rebound in goods trade that was disrupted in September. As the recovery in
U.S. activity kicks in next year, import growth should increase to a more robust
pace. Specifically, we project that imports will grow at an annual rate of
percent in 2003, with growth widespread across all
8 percent in 2002 and 9-1/2
major categories. The lagged effects on relative prices of the dollar's
appreciation also provide some stimulus to imports.
We expect real export growth to remain slightly negative through the first quarter
of 2002 in response to weak global activity, the lagged effects of past dollar
appreciation, and subdued exports of services (particularly travel and passenger
fares). As foreign growth recovers, however, exports of goods and services
should rebound, growing 2-1/4 percent in 2002 and picking up to 7 percent in 2003.
In 2002, real export growth is projected to be concentrated in services and hightech goods, as core exports are more sensitive to the lagged effects of the dollar's
appreciation.
Summary of Staff Projections
for Trade in Goods and Services
(Percent change from end of previous period, s.a.a.r.)
Projection
2001
Measure
2001:
H1
Q3
2002
Q4
Q1
Q2
H2
2003
Real exports
October GB
-6.7
-6.7
-17.7
-16.3
-3.6
-3.2
-2.1
-3.3
1.2
1.1
4.9
4.9
6.9
6.8
Real imports
October GB
-6.7
-6.7
-12.9
-15.2
2.6
-0.6
3.1
1.0
9.2
8.3
9.8
8.9
9.6
9.8
NOTE. Changes for years are measured as Q4/Q4; for half-years, Q2/Q4 or
Q4/Q2.
2. According to NIPA accounting, the value of insurance payments by foreign insurers is
not reflected in NIPA real imports of services. The deflator for service imports is thus
adjusted down in the third quarter to offset the lower value of service imports and returns to its
underlying value in the fourth quarter.
International Developments
I-39
Alternative simulation. At the beginning of 2002, new euro notes and coins will
circulate as legal tender in the twelve euro-area countries, and national notes and
coins will be retired. Though the currency exchange constitutes an enormous
logistical undertaking that could go well or poorly, we are assuming in our
baseline forecast that the changeover has no significant effect on the foreign
exchange value of the euro. However, it is conceivable that the successful
introduction of euro notes and coins will trigger a surge in confidence in the
currency, resolving any lingering doubts about the euro and prompting investors to
shift a significant portion of their portfolios into euro-denominated assets.
To investigate the possible effect of such an outcome on our forecast, we consider
an alternative simulation in which the euro is considerably stronger in foreign
exchange markets than assumed in our baseline forecast. Alternatively, this can
be seen as a scenario for dollar depreciation, one of the risks to our forecast.
Specifically, we introduce a shock to the risk premium of euro-denominated
assets that would induce the euro to appreciate to its initial January 1999 level of
$1.17 by the second quarter of 2002 in the absence of endogenous movements in
real interest-rate differentials. In addition, we assume the British pound gets
caught in the updraft, inducing the pound to appreciate about half as much against
the dollar as does the euro.
Two policy responses are considered in this scenario. In one case, U.S. monetary
policy responds by holding the real federal funds rate unchanged from its baseline
path; in the other, U.S. monetary policy adjusts the federal funds rate according to
a Taylor rule. In both cases, monetary policies in the major foreign countries are
assumed to adjust nominal interest rates according to Taylor rules.
In the fixed real rate case, the broad real value of the dollar declines about
6 percent initially and only gradually begins to move back toward its baseline
value. This real dollar depreciation has a stimulative effect on net exports,
causing real GDP growth to rise 0.3 percentage point above baseline in the
second half of 2002 and more than 0.5 percentage point above baseline in 2003.
With higher rates of resource utilization and rising import prices, core PCE
inflation is also higher, rising about 0.3 percentage point relative to baseline in
the second half of 2002 and in 2003.
In the Taylor rule case, the responses of output and inflation are qualitatively
similar but more muted. In this case, the federal funds rate rises 35 basis points
above baseline in the second half of 2002 and another 25 basis points in 2003.
This increase restrains spending and induces some reversal of the dollar's real
depreciation, damping the effects of the initial shock. Real GDP growth in 2003
is only 0.3 percentage point above baseline, roughly half the magnitude of the
response under a fixed real funds rate. Core price inflation in this case rises by a
I-40
Part1: Summary and Outlook, December 5, 2001
similar magnitude as in the fixed real rate case in 2002:H2 and 2003:H1 but is up
only 0.1 percentage point from baseline in 2003:H2.
Alternative Simulation:
Stronger Euro
(Percent change from previous period, annual rate)
Indicator and simulation
U.S. real GDP
Baseline
Fixed real rate
Taylor rule
U.S. PCEprices excl. food and energy
Baseline
Fixed real rate
Taylor rule
NOTE. H1 is Q2/Q4; H2 is Q4/Q2.
2002
2
H12
H
H1 I
H2
HI
H2
1.6
1.6
1.6
4.1
4.4
4.3
3.6
4.1
3.9
3.7
4.4
4.0
1.4
1.4
1.4
1.2
1.5
1.5
1.1
1.4
1.4
1.1
1.3
1.2
2003
H2
Strictly Confidential (FR)
December 5, 2001
Class II FOMC
OUTLOOK FOR FOREIGN REAL GDP AND CONSUMER PRICES: SELECTED COUNTRIES
(Percent, Q4 to Q4)
----- Projected---Measure and country
1995
1996
1997
1998
1999
2000
2001
2002
2003
2.4
4.1
4.2
1.4
4.8
4.1
-0.2
2.0
3.4
Industrial Countries
of which:
Canada
Japan
United Kingdom
Euro Area (2)
Germany
2.0
2.7
3.5
2.6
3.9
3.1
0.1
1.7
2.9
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
3.0
6.9
7.5
REAL GDP (1)
Total foreign
CONSUMER PRICES
1.
2.
3.
4.
2.6
3.7
2.9
1.6
1.4
4.2
-1.3
2.6
2.0
0.6
5.1
0.6
2.7
3.6
3.0
0.2
-2.4
1.9
0.6
0.0
-0.2
-1.9
-5.2
9.5
1.2
2.8
-1.1
6.2
8.6
-3.8
-7.1
-0.8
5.9
6.6
6.4
5.3
6.0
7.1
2.9
-0.8
-1.0
1.6
7.4
-1.0
-1.3
0.2
2.4
2.8
1.7
7.4
1.9
2.2
2.1
1.3
1.5
1.3
0.8
10.4
13.8
4.1
4.4
5.5
4.0
2.1
-0.4
2.2
1.6
1.3
(3)
Industrial Countries
of which:
Canada
Japan
United Kingdom (4)
Euro Area (2)
Germany
2.0
-0.8
2.9
NA
1.5
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
16.9
6.4
4.3
11.1
42.0
48.7
21.5
1.5
1.0
1.2
2.3
-1.2
2.2
1.5
1.1
11.1
4.8
5.0
6.8
25.8
28.0
9.6
6.8
2.7
4.9
0.9
15.5
17.0
4.6
9.0
4.4
5.9
-1.2
15.4
17.4
1.5
4.6
0.2
1.2
-0.9
12.5
13.6
8.2
1.8
3.1
-1.2
2.1
2.7
2.5
2.1
-1.1
2.1
2.2
1.8
3.1
1.3
3.6
-0.1
5.8
5.7
7.2
Foreign GDP aggregates calculated using shares of U.S. exports.
Harmonized data for euro area from Eurostat.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.
CPI excluding mortgage interest payments, which is the targeted inflation rate.
1.5
-1.2
2.1
1.4
0.9
0.9
1.6
-1.2
2.4
1.4
0.9
Strictly Confidential (FR)
Class II FOMC
OUTLOOK FOR FOREIGN REAL GDP AND CONSUMER PRICES: SELECTED COUNTRIES
(Percent changes)
2001
Measure and country
Measure and country
REAL GDP
(1)
Total foreign
Q1
Ql
Q2
Q2
December 5, 2001
----------------------- Projected --------------------------2002
2003
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q3
Q4
Ql
Q2
Q3
Q4
Ql
Q2
Q3
Q4
Q4
-------------------- Quarterly changes at an annual rate -----------------1.0
-1.0
-0.3
-0.6
0.5
1.8
2.7
Industrial Countries
of which:
Canada
Japan
United Kingdom
Euro Area (2)
Germany
2.1
-0.8
-0.3
-0.6
0.3
1.5
2.3
0.6
-8.0
1.8
0.3
-0.1
-0.8
-2.7
2.0
0.4
-0.6
-0.8
-2.8
1.1
-0.1
-0.8
0.3
-1.3
1.6
0.1
-0.5
2.0
-0.6
2.3
1.2
0.9
2.7
-0.1
2.5
2.3
2.3
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
-0.7
-0.9
1.2
8.1
-1.2
-1.8
0.7
-1.5
-2.9
1.8
7.5
-0.6
-1.0
0.1
-0.2
0.1
5.1
6.9
-0.8
-0.9
0.2
-0.6
-0.3
-1.5
7.0
-1.4
-1.7
-0.1
2.8
3.3
3.4
3.4
3.4
2.9
2.9
2.8
2.8
0.9
0.9
1.6
-1.2
2.4
1.4
0.9
1.6
-1.2
2.4
1.4
0.9
CONSUMER PRICES (3)
-------------------
Industrial Countries
of which:
Canada
Japan
United Kingdom (4)
Euro Area (2)
Germany
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
1.
2.
3.
4.
--------------------------- Four-quarter changes --------------------------
1.7
2.1
1.7
1.3
1.1
2.8
-1.0
1.9
2.5
2.4
3.6
-1.2
2.3
3.1
3.2
2.7
-1.1
2.4
2.7
2.4
2.1
-1.1
2.1
2.2
1.8
1.9
-1.5
2.2
2.0
1.2
0.6
1.0
-1.3
1.8
1.3
0.5
0.6
0.8
0.9
1.3
-1.6
1.8
1.3
0.7
1.5
-1.2
2.1
1.4
0.9
1.6
-1.2
2.3
1.4
0.9
3.1
1.3
3.6
-0.1
5.8
5.7
7.2
Foreign GDP aggregates calculated using shares of U.S. exports.
Harmonized data for euro area from Eurostat.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.
CPI excluding mortgage interest payments, which is the targeted inflation rate.
0.9
1.7
-1.2
2.3
1.4
0.9
Strictly Confidential
Class II FOMC
December 5, 2001
(FR)
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
1995
1996
1997
1998
1999
2000
-----2001
Projected -----2002
2003
NIPA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth, Q4/Q4
Net Goods & Services
Exports of G&S
Imports of G&S
0.4
1.0
-0.6
-0.2
1.1
-1.3
-0.8
1.0
-1.7
-1.1
0.3
-1.3
-1.0
0.5
-1.5
-0.8
0.8
-1.6
-0.1
-1.0
0.9
-0.8
0.2
-1.0
-0.6
0.7
-1.3
Percentage change, Q4/Q4
Exports of G&S
Services
Computers
Semiconductors
Other Goods 1/
9.7
8.8
39.1
79.6
4.6
9.8
8.9
21.6
44.6
7.3
8.5
1.4
25.8
21.3
9.8
2.3
2.9
8.1
9.1
1.3
4.5
1.9
13.8
34.6
3.2
7.0
4.1
23.1
26.9
5.7
-8.9
-5.8
-20.3
-35.9
-6.9
2.2
5.5
21.5
20.4
-1.7
6.9
5.3
29.9
29.9
4.5
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
5.0
5.5
2.4
35.0
92.4
-1.2
11.2
5.3
7.8
17.8
56.7
10.4
14.3
14.0
3.9
33.0
32.9
12.7
10.8
8.5
4.1
25.8
-8.7
11.5
11.5
2.8
-3.4
25.1
33.5
12.9
11.3
12.2
12.4
13.6
22.5
10.4
-6.1
-9.1
-1.1
-16.1
-48.9
-3.3
7.9
7.8
5.9
20.4
21.5
7.0
9.6
5.4
1.2
29.9
29.9
9.4
-316.9
1034.8
1351.7
-399.1
1133.2
1532.3
-411.6
1088.4
1500.1
-485.8
1051.1
1536.9
-576.4
1108.6
1685.0
Billions of chained 1996 dollars
Net Goods & Services
Exports of G&S
Imports of G&S
-78.4
808.2
886.6
-89.0
874.2
963.1
-113.3
981.5
1094.8
-221.1
1002.4
1223.5
Billions of dollars
-109.9
-1.5
-120.9
-1.5
-139.8
-1.7
-217.5
-2.5
-324.4
-3.5
-444.7
-4.5
-414.5
-4.1
-455.9
-4.4
-547.9
-5.0
Net Goods & Services (BOP)
-96.4
-101.8
-107.8
-166.8
-261.8
-375.7
-342.7
-384.0
-470.0
Investment Income, Net
Direct, Net
Portfolio, Net
25.0
64.9
-39.9
25.5
69.4
-43.9
13.6
72.4
-58.8
-1.2
66.3
-67.5
-8.5
67.0
-75.6
-9.6
81.2
-90.9
-14.3
90.2
-104.5
-12.1
83.8
-95.9
-17.3
79.6
-96.8
Other Income & Transfers,Net
-38.6
-44.6
-45.7
-49.4
-54.0
-59.3
-57.6
-59.8
-60.7
US CURRENT ACCOUNT BALANCE
Current Acct as Percent of GDP
1. Merchandise exports excluding computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
Strictly Confidential
Class II FOMC
(FR)
December 5, 2001
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
1995
1996
1997
1998
1999
2000
-----2001
Projected -----2002
2003
NIPA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth, Q4/Q4
Net Goods & Services
Exports of G&S
Imports of G&S
0.4
1.0
-0.6
-0.2
1.1
-1.3
-0.8
1.0
-1.7
-1.1
0.3
-1.3
-1.0
0.5
-1.5
-0.8
0.8
-1.6
-0.1
-1.0
0.9
-0.8
0.2
-1.0
-0.6
0.7
-1.3
Percentage change, Q4/Q4
Exports of G&S
Services
Computers
Semiconductors
Other Goods 1/
9.7
8.8
39.1
79.6
4.6
9.8
8.9
21.6
44.6
7.3
8.5
1.4
25.8
21.3
9.8
2.3
2.9
8.1
9.1
1.3
4.5
1.9
13.8
34.6
3.2
7.0
4.1
23.1
26.9
5.7
-8.9
-5.8
-20.3
-35.9
-6.9
2.2
5.5
21.5
20.4
-1.7
6.9
5.3
29.9
29.9
4.5
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
5.0
5.5
2.4
35.0
92.4
-1.2
11.2
5.3
7.8
17.8
56.7
10.4
14.3
14.0
3.9
33.0
32.9
12.7
10.8
8.5
4.1
25.8
-8.7
11.5
11.5
2.8
-3.4
25.1
33.5
12.9
11.3
12.2
12.4
13.6
22.5
10.4
-6.1
-9.1
-1.1
-16.1
-48.9
-3.3
7.9
7.8
5.9
20.4
21.5
7.0
9.6
5.4
1.2
29.9
29.9
9.4
-316.9
1034.8
1351.7
-399.1
1133.2
1532.3
-411.6
1088.4
1500.1
-485.8
1051.1
1536.9
-576.4
1108.6
1685.0
Billions of chained 1996 dollars
Net Goods & Services
Exports of G&S
Imports of G&S
-78.4
808.2
886.6
-89.0
874.2
963.1
-113.3
981.5
1094.8
-221.1
1002.4
1223.5
Billions of dollars
US CURRENT ACCOUNT BALANCE
Current Acct as Percent of GDP
-109.9
-1.5
-120.9
-1.5
-139.8
-1.7
-217.5
-2.5
-324.4
-3.5
-444.7
-4.5
-414.5
-4.1
-455.9
-4.4
-547.9
-5.0
Net Goods & Services (BOP)
-96.4
-101.8
-107.8
-166.8
-261.8
-375.7
-342.7
-384.0
-470.0
Investment Income, Net
Direct, Net
Portfolio, Net
25.0
64.9
-39.9
25.5
69.4
-43.9
13.6
72.4
-58.8
-1.2
66.3
-67.5
-8.5
67.0
-75.6
-9.6
81.2
-90.9
-14.3
90.2
-104.5
-12.1
83.8
-95.9
-17.3
79.6
-96.8
Other Income & Transfers,Net
-38.6
-44.6
-45.7
-49.4
-54.0
-59.3
-57.6
-59.8
-60.7
1. Merchandise exports excluding computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
Strictly Confidential
Class II FOMC
December 5,
(FR)
2001
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
1998
1999
2000
----------------------------
----------------------------
--- "-----------------------
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
-0.1
1.3
-1.3
-1.3
0.9
-2.2
-0.8
1.4
-2.2
-0.7
1.1
-1.8
-0.4
-0.5
0.1
NIPA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth
Net Goods & Services
Exports of G&S
Imports of G&S
-1.8
0.1
-1.9
-1.8
-0.5
-1.4
-0.8
-0.2
-0.5
0.2
1.7
-1.5
-1.8
-0.8
-1.0
-1.2
0.4
-1.6
-0.7
1.0
-1.7
Percentage change from previous period, s.a.a.r.
Exports of G&S
Services
Computers
Semiconductors
Other Goods 1/
0.5
2.4
-8.3
5.9
0.0
-4.0
8.0
8.2
-17.2
-9.2
-2.2
-8.4
12.0
272.7
-9.3
16.3
10.5
22.8
-56.6
27.8
-6.8
-3.9
0.5
45.4
-11.5
4.2
3.8
26.8
31.6
1.1
9.7
2.0
18.3
36.5
11.0
12.1
6.0
11.0
25.8
14.2
9.0
10.3
32.7
29.9
5.3
13.5
9.9
49.2
64.5
9.1
10.6
-6.7
25.8
35.0
16.3
-4.0
3.7
-7.9
-10.2
-6.5
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
15.9
21.3
3.6
38.4
8.5
14.2
11.3
6.7
42.8
18.5
-25.4
11.9
4.2
7.0
1.1
6.4
-6.3
4.1
12.2
0.1
-21.6
43.6
-8.2
16.2
8.4
-8.2
3.9
40.6
37.0
9.0
13.3
1.8
29.8
41.1
47.5
11.3
13.8
7.9
-5.8
8.3
12.7
17.6
10.5
11.0
-31.5
13.8
39.6
14.0
17.1
20.6
29.7
12.8
45.6
14.6
16.4
12.4
40.3
34.4
24.9
13.1
13.0
17.1
-4.9
18.4
64.9
11.9
-0.5
0.0
-7.7
-7.2
-24.9
2.4
-337.8
1072.1
1409.8
-371.1
1095.5
1466.6
-392.8
1130.6
1523.4
-411.2
1159.3
1570.6
-421.1
1147.5
1568.5
Billions of chained 1996 dollars, s.a.a.r.
Net Goods & Services
Exports of G&S
Imports of G&S
-180.8
1003.4
1184.2
-223.1
993.1
1216.2
-241.2
987.6
1228.9
-239.2
1025.6
1264.8
-283.0
1007.6
1290.6
-313.4
1018.0
1331.4
-333.3
1041.8
1375.1
Billions of dollars, s.a.a.r.
US CURRENT ACCOUNT BALANCE
Current Account as % of GDP
-174.0
-2.0
-209.6
-2.4
-242.1
-2.7
-244.1
-2.7
-265.8
-2.9
-309.5
-3.4
-352.3
-3.8
-369.9
-3.9
-419.6
-4.3
-432.5
-4.4
-461.2
-4.6
-465.3
-4.6
(BOP) -139.5
-169.9
-181.9
-176.0
-211.5
-251.5
-284.5
-299.9
-349.3
-363.1
-389.4
-401.2
9.9
74.2
-64.2
5.8
69.8
-64.0
-12.3
57.8
-70.1
-8.3
63.3
-71.5
-5.2
66.2
-71.4
-6.6
63.0
-69.6
-15.5
63.3
-78.8
-6.8
75.7
-82.5
-17.5
65.5
-83.0
-14.4
72.5
-86.8
-14.5
84.2
-98.7
7.9
102.8
-94.9
Other Inc. & Transfers, Net -44.4
-45.5
-47.9
-59.8
-49.1
-51.5
-52.2
-63.3
-52.8
-55.0
-57.4
-72.0
Net Goods & Services
Investment Income, Net
Direct, Net
Portfolio, Net
1. Merchandise exports excluding computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
Strictly Confidential
Class II FOMC
(FR)
December 5, 2001
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
----------------------------- Projected -------------------------------2001
2002
2003
---------------------------------------------------------------------------------
Q1
Q2
Q3
Q4
Q1
Q3
Q2
Q4
Q1
Q2
Q3
Q4
NIPA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth
Net Goods & Services
Exports of G&S
Imports of G&S
0.6
-0.1
-0.1
-1.4
-0.1
-2.0
-0.7
-0.4
-0.6
-0.2
-1.0
0.1
-1.1
0.3
-0.5
0.6
-0.8
0.4
-0.8
0.6
-0.7
0.7
-0.2
0.9
0.8
1.3
1.9
-0.3
-0.4
-1.2
-1.4
-1.1
-1.2
-1.4
-1.4
-1.1
Percentage change from previous period, s.a.a.r.
Exports of G&S
Services
Computers
Semiconductors
Other Goods 1/
-1.2
1.8
-5.8
-22.4
-0.1
-11.9
2.4
-41.1
-56.1
-10.8
-17.7
-13.5
-24.2
-46.7
-16.9
-3.6
-12.5
-3.9
-6.8
1.4
-2.1
11.3
19.2
12.6
-10.2
1.2
2.5
19.2
17.0
-1.6
3.3
3.8
21.5
26.2
0.5
6.6
4.5
26.2
26.2
5.2
3.9
5.0
28.6
28.6
0.1
6.6
5.3
28.6
28.6
4.3
7.4
5.3
31.1
31.1
5.1
9.7
5.4
31.1
31.1
8.9
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
-5.0
4.9
27.1
-11.0
-31.8
-8.4
-8.4
-2.0
4.3
-29.1
-75.0
-4.8
-12.9
-29.7
-28.4
-24.5
-58.5
-3.9
2.6
-5.4
0.9
4.1
-3.9
4.5
3.1
14.2
-2.9
17.0
17.0
0.0
9.2
5.2
31.9
17.0
17.0
7.7
11.0
6.8
10.8
21.5
26.2
10.9
8.6
5.3
-11.4
26.2
26.2
9.6
9.2
5.3
-7.1
28.6
28.6
9.8
10.6
5.5
18.9
28.6
28.6
9.4
10.2
5.5
11.2
31.1
31.1
9.3
8.4
5.3
-14.7
31.1
31.1
9.0
-520.6
1068.8
1589.4
-545.6
1079.2
1624.8
-569.6
1096.6
1666.2
-590.9
1116.3
1707.2
-599.5
1142.4
1741.9
Billions of chained 1996 dollars, s.a.a.r.
Net Goods & Services
Exports of G&S
Imports of G&S
-404.5
1144.1
1548.6
-406.7
1108.3
1515.0
-408.2
1055.5
1463.6
-427.1
1045.9
1473.0
-443.8
1040.4
1484.1
-473.6
1043.3
1517.0
-505.3
1051.8
1557.1
Billions of dollars, s.a.a.r.
US CURRENT ACCOUNT BALANCE
Current Account as % of GDP
-447.1
-4.4
-425.4
-4.2
-368.0
-3.6
-417.6
-4.1
-413.0
-4.0
-440.7
-4.2
-471.2
-4.5
-498.6
-4.7
-508.4
-4.7
-535.8
-4.9
-561.1
-5.1
-586.1
-5.2
(BOP) -380.1
-355.2
-299.9
-335.5
-345.0
-372.6
-401.9
-416.6
-440.8
-463.5
-483.7
-491.9
-14.6
90.7
-105.3
-16.6
92.3
-109.0
-13.7
88.8
-102.5
-12.2
89.1
-101.3
-12.1
88.2
-100.3
-11.8
85.9
-97.7
-12.9
81.3
-94.2
-11.6
79.6
-91.2
-10.2
79.9
-90.1
-14.9
80.1
-95.0
-20.1
79.0
-99.0
-23.8
79.3
-103.2
Other Inc. & Transfers, Net -52.4
-53.6
-54.4
-69.9
-55.9
-56.4
-56.4
-70.4
-57.4
-57.4
-57.4
-70.4
Net Goods & Services
Investment Income, Net
Direct, Net
Portfolio, Net
1. Merchandise exports excluding computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
@FedFRASER