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 December 12, SUMMARY AND OUTLOOK Prepared for the Federal Open Market Committee By the staff of the Board of Governors of the Federal Reserve System 1980 DOMESTIC NONFINANCIAL DEVELOPMENTS Summary. Economic activity expanded further in November, as employment, production, and retail sales posted substantial gains. However, weakness was evident in the credit-sensitive auto and real estate markets. Inflationary pressures remained strong, reflecting rapidly rising labor costs and developments in the energy area. Employment increases of about a quarter million were reported by both the household and payroll surveys in November. Continued strength was indicated for manufacturing--both durables and nondurables--and for contract construction; services also continued to show employment gains. Moreover, factory overtime schedules were expanded and the workweek edged up another 0.1 hour. The overall jobless rate, at 7-1/2 percent in November, remained about the same as in the past several months. Industrial production registered another sizable increase in November, with widespread advances tentatively estimated for both product and materials industries. Auto assemblies and steel pro- duction both were up last month, but not as much as in October. Auto assemblies in December are scheduled to be curtailed from the November rate. Consumer spending for goods increased substantially in November, and the October level of retail sales was revised up significantly. Excluding autos and other nonconsumption items, retail sales now are estimated to have increased about 1-1/2 percent in both October and November, a faster pace than in earlier months. Sales at the general merchandise, apparel,and furniture (GAF) grouping of stores rose further in November, following a very rapid October gain. auto demand remained relatively sluggish. However, Although sales of imports picked up to a 2 1/2 million unit rate, sales of domestic-model autos edged down to a 6-1/2 million unit rate, and total sales remained at about a 9 million unit rate--only slightly above the third quarter average. Recent indicators of housing market activity suggest a reemergence of weakness in both production and demand in response to rising interest rates. Private housing starts edged higher in October, but the gain apparently was accounted for by a temporary surge in government-subsidized multi-family units; while singlefamily starts fell slightly. Moreover, the advance reading on permits in early November was down from the October rate of 1.3 million units. Sales of new single-family homes decreased in October for the third consecutive month, and existing home sales edged down following four months of increase. Business capital spending resumed its downward trend in October. Real shipments of nondefense capital goods declined during the month, following a sharp rise in September, and nonresidential construction fell for the sixth straight month. Moreover, the low level of new spending commitments suggests a further contraction in business outlays over the near term. New orders for nondefense capital goods in constant dollars, although volatile from month to month, have been trending down since the beginning of the year and fell 6 percent in October. In addition, newly approved capital appropriations of large manufacturers, which have an average lead of about 4 to 6 quarters, moved down somewhat further in the third quarter, after dropping sharply in the previous quarter. The Commerce Department's October-November survey of anticipated plan and equipment spending plans, however, reports that business is planning a substantial increase in capital outlays during the first half of 1981. But this survey was taken before the most recent steep hike in interest rates; moreover, it has a record of substantial errors in recent years. The book value of wholesale trade inventories rose at an $18-1/2 billion annual rate in October, following an upward revised $12 billion accumulation in the preceding month. Manufacturers, however, continued to reduce the volume of their inventories in October. Wage and price pressures remain intense, despite the relatively low levels of capacity and labor utilization. The employment cost index--a measure of earnings for blue- and white-collar workers--rose about 9-1/2 percent over the four quarters ending in 1980-Q3, up from 7-3/4 percent over the previous four quarters; the index of average hourly earnings increased about 1.0 percent in both October and November and was 9-3/4 percent above the level a year earlier. Pro- ducer prices for finished goods rose 0.6 percent in November, somewhat less than in October; food price increases remained moderate, but energy prices--particularly for gasoline--turned up, after edging lower in most months since last spring. Consumer prices rose another 1.0 percent in October--mainly due to an acceleration in homeownership costs, reflecting a turnaround in mortgage interest rates as well as a sharp increase in home prices. Excluding food, energy, and home- ownership costs, the CPI rose 0.6 percent--about the rate that has prevailed since April. Outlook. The staff now estimates that real GNP will rise at a 4-1/2 percent annual rate in the final quarter of 1980, up substantially from the rate projected in November. Reflecting the strength of retail sales in both October and November, the estimate of consumption expenditures has been raised substantially. Housing and federal outlays also have been somewhat stronger over the past few months than previously expected. Moreover, the production gains in recent months suggest that firms have been accumulating inventories faster than anticipated last month. However, the more stringent financial market conditions which have emerged recently, partially as a consequence of these relatively strong demand forces, are expected to contribute to a deeper contraction in activity during the first half of 1981 than shown in the last Greenbook. This month the staff projections have been extended through 1982. Money growth is projected to slow further over the expanded projection horizon; excluding the impact of ATS and NOW accounts, M-1A is assumed to grow 4-1/4 percent over 1981 and 3-3/4 percent in 1982. The sharply reduced growth of total demands in current dollars in the first part of 1981 is likely to take some pressure off credit markets. During the remainder of the projection period, however, the strength of nominal GNP growth relative to the assumed path for the monetary aggregates is expected to sustain upward pressure on interest rates. For fiscal policy, the staff continues to assume a 10 percent cut in income tax liabilities in 1981 as well as a speed up in depreciation; no new tax adjustments are assumed for 1982. Although I-5 expenditure cuts by the new Administration are assumed, the spending estimate for fiscal year 1981 has been raised in this Greenbook-reflecting the weaker outlook for economic activity and higher interest costs. On balance, the fiscal year 1981 deficit has been increased $7 billion to $62 billion. billion in In fiscal year 1982, outlays--with $16 spending cuts--are expected to increase nearly 10 percent, reaching $714 billion, while receipts rise only 8 percent to $636 billion; consequently, it the deficit widens to $78 billion. reflects the sluggish performance of the economy, Much of and on a high employment basis, the budget continues to show restraint over the forecast period. Economic activity is expected to be constrained severely over the projection period in an environment of continued inflation and monetary restraint. Inflation is due to a combination of forces, expected to remain strong in 1981 including rapid rates of increase in compensation in response to past price rises; continued poor productivity performance; supply constraints on food; and the direct and indirect effects of higher energy prices. Real GNP is expected to fall 3/4 percent over the four quarters of 1981. In response to the recent sharp runup in interest rates, real GNP is projected to decline at a 2-1/2 percent annual rate in the first half of 1981. cutbacks in The reversal in activity primarily reflects expenditures on housing and durable goods. Housing starts are expected to drop from an upward-revised fourth-quarter level of 1.4 million units (annual rate) to a 1.1 million unit rate in the first quarter. Spending on autos and other credit-sensitive I-6 discretionary goods in the first quarter of 1981 also should be held down by higher financing costs as well as by a boost in payroll taxes, which will erode personal income. Consumer demand should pick up in the second quarter, following the injection of disposable income through the assumed tax cut, and is projected to contribute to a resumption of some growth in output during the second half of 1981. Activity gains, however, will be constrained due to continued weakness in the business sector. Significant unused capacity and taut financial conditions are expected to prolong the downtrend in capital spending. As a result, real outlays for business fixed investment are projected to decline throughout 1981. Moreover, after downward adjustments are made to correct the currently developing imbalance between stocks and sales, inventory practices are expected to remain conservative. By 1982, wage and price pressures are anticipated to ease somewhat in response to continued monetary restraint and protracted slack in labor and product markets. The gross domestic business product fixed-weighted price index is projected to decelerate from a 10 percent annual rate during 1981 to a 7-3/4 percent rate over the four quarters of 1982. However, the relatively limited supply of loanable funds will keep interest rates high, and real activity is projected to show only a fractional rise--up 1/4 percent over the year. Invest- ment outlays by business and for housing are projected to flatten out, while consumption is anticipated to rise about in line with the sluggish growth of real income. I-7 The projected path of the unemployment rate mirrors the contour of economic activity. Layoffs due to production adjustments are expected to push the jobless -ate above 8 percent early in 1981. As slow growth limits job creation over the remainder of the forecast period, the rate continues to drift up, reaching almost 9-1/4 percent by the fourth quarter of 1982. Detailed data for this projection are shown in the following tables. STAFF GNP PROJECTIONS Percent changes, annual rate Gross domestic business product fixed-weighted Unemployment price index Excluding food rate Nominal GNP Real GNP Total and energy (percent) 11/12/80 12/12/80 112/80 12/12/80 11/12/ 12712/ 2/ 1 2812/0 12/180 11/12/80 12/12/80 Annual changes: 1979 1/ 11.3 8.7 1980 1981 9.8 1982 Quarterly changes: 1980-Q1 1/ 10.8 1980-Q2 1/ .1 1980-Q3 T/ 10.2 1980-Q4 15.0 1981-01 1981-Q2 1981-Q3 1981-Q4 8.2 9.6 9.9 10.4 8.0 7.4 9.7 10.6 9.5 10.2 10.1 9.5 10.2 10.4 8.4 1.2 -9.6 1.0 2.3 1.2 -9.6 .9 4.5 11.2 10.4 10.4 10.3 11.2 10.4 10.2 10.4 8.5 9.7 10.5 9.1 8.5 9.7 10.2 9.1 6.1 7.5 7.6 7.6 -1.6 .7 1.2 .9 -2.7 -2.0 .4 1.2 10.4 9.8 9.4 9.3 11.5 10.4 9.6 8.7 8.5 8.1 8.0 7.9 8.6 8.3 8.2 8.0 7.9 8.2 8.3 8.4 -4.4 1.6 -.5 1.0 -4.4 2.6 -2.3 .8 .4 2.8 10.9 10.4 10.1 9.3 10.9 10.3 10.9 9.1 7.9 7.6 1.0 -1.4 .3 1.0 -. 9 -. 8 .3 9.7 10.6 9.7 9.7 10.6 10.0 7.7 7.5 9.5 8.1 7.5 9.6 8.3 7.4 1982-01 1982-Q2 1982-Q3 1982-Q4 Two-qurter changes: 1980-Q2 17 5.3 1980-Q4 12.6 1981-Q2 8.9 1981-Q4 10.1 1982-Q2 1982-Q4 Four-quarter changes: 1979-Q4 1 9.9 9.9 1980-Q4 1981-Q4 198 2-Q4 8.9 9.5 9.7 8.9 8.4 17 Actual. 2/ T/ Percent change from two quarters earlier. Percent change from four quarters earlier. December 12, CONFIDENTIAL - FR CLASS II FOMC 1980 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of current dollars at annual rates.) - -'-. .-- N-EU --------------- Projected ___ Q2_ 03 4 Ql Q2 Q3 Gross national product Final purchases Private Excluding net exports 2292.1 2272.9 1812.8 1808.8 2329.8 2296.4 1829.8 1837.9 2396.5 2381.9 1904.1 1906.4 2456.9 2451.4 1950.2 1962.1 2520.8 2516.1 1998.9 2012.5 2521.3 2509.9 1981.6 1983.8 2586.5 2603.3 2069.7 2048.4 2695.5 2687.1 2130.5 2114.1 Personal consumption expenditures Goods Services 1454.2 669.3 1475.9 789.9 686.0 1528.6 818.1 710.6 1580.4 846.9 733.5 1629.5 872.2 757.3 1626.6 849.8 776.9 1683.3 874.3 808.9 1735.8 902.1 833.7 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 373.8 111.2 243.4 19.1 18.8 395.4 112.9 249.1 33.4 32.6 392.3 116.0 261.8 14.5 12.6 387.2 116.4 265.2 5.6 2.1 387.7 110.4 272.6 4.7 4.4 368.5 88.9 268.2 11.4 12.3 348.4 94.2 270.9 -16.8 -10.7 386.7 101.5 274.8 8.4 8.4 Net exports of goods and services 1/ Exports Imports 4.0 238.5 234.4 -8.1 243.7 251.9 -2.3 267.3 269.5 -11.9 280.4 292.4 -13.6 308.1 321.7 -2.2 307.0 309.2 21.3 313.2 291.9 16.4 323.7 307.3 Gov't. purchases of goods and services Federal 2/ State and local 460.1 163.6 296.5 466.6 161.7 304.9 477.8 162.9 314.9 501.2 178.4 322.8 517.2 186.2 331.0 528.3 193.3 335.0 533.6 191.4 342.2 556.6 206.4 350.2 Gross national product in constant (1972) dollar 1430.6 1422.3 1433.3 1440.3 1444.7 1408.6 1411.7 1427.2 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 1852.6 1189.3 1572.2 5.0 1892.5 1212.4 1601.7 5.4 1946.6 1238.1 1640.0 4.3 2005.0 1270.5 1683.1 3.5 2057.4 1303.7 1737.4 3.7 2080.5 1310.4 1755.9 4.9 2144.6 1329.2 1810.7 4.7 2223.5 1384.' 1870.. 4.8 784.9 Q1 Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax 178.9 233.3 176.6 227.9 180.8 242.3 176.4 243.0 175.0 260.4 152.8 204.8 158.3 222.4 172.4 239.4 Federal government surplus or deficit (-) (N.I.A. basis) High employment surplus or deficit (-) -11.7 -1.7 -7.0 13.2 -11.3 9.0 -15.7 7.0 -22.9 3.3 -49.2 6.1 -58.4 8.5 -48.3 19.3 27.6 2.6 19.7 -6.3 25.3 -1.8 25.8 -2.2 24.6 -4.2 19.5 -10.4 23.9 -8.3 26.9 -6.0 103.2 5.8 103.7 5.9 104.2 6.1 104.7 7.5 105.1 7.6 State and local government surplus or deficit (-) (N.I.A. basis) Excluding social insurance funds 102.3 5.7 Civilian labor force (millions) Unemployment rate (percent) Nonfarm payroll employment (millions) Manufacturing Industrial production (1967-100) Capacity utilization: all mfg. Materials (percent) (percent) 89.1 21.L 152.7 86.9 88.4 Housing starts, private (million units, A.R.) 1.67 11.56 New autos sales, (millions, A.R.) 9.30 Domestic models 2.25 Foreign models TT 2/ 102.4 5.8 105.4 7.6 89.7 21.1 90.2 21.1 90.6 21.0 91.1 21.0 90.5 20.3 90.1 19.9 90.9 20.2 152.3 85.9 87.5 152.6 85.3 87.2 152.5 84.4 86.3 152.5 83.4 85.5 144.6 77.9 78.7 142.0 75.6 74.8 148.1 78.3 77.2 1.82 10.65 8.16 2.49 1.81 10.79 8.63 2.16 1.59 9.80 7.43 2.37 1.26 10.65 7.87 2.77 1.05 7.68 5.53 2.14 1.41 8.80 6.51 2.29 1.40 8.95 6.60 2.35 Balance of payments data and details underlying these estimates are shown in the International Developments section of this part of the Greenbook. Components of purchases and total receipts and total expenditures are shown in the Federal Sector Accounts table which follows. December CONFIDENTIAL CLASS II FOMC 12, 1980 PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Annual rates compounded quarterly) FR -- - -------_.- - _ -.- - - "' -- ""~r9 1979 ' --- ------ -- ---- ---------- 0------- ----- 1980 Projected Q_______1 Q2 Q3 Q4__ Q 1.1 1.1 1.8 .4 -2.3 -3.9 -4.1 -2.9 3.1 6.4 7.8 5.3 2.0 3.6 3.1 3.1 1.2 1.5 .9 -. 8 Personal consumption expenditures Goods Services .6 -4.4 7.1 -2.9 -7.3 2.5 4.9 6.0 3.6 4.1 4.7 3.5 Gross private domestic investment Residential structures Business fixed investment -. 5 -14.3 4.8 8.5 -7.2 -. 8 -12.8 -1.5 10.7 -1.8 7.2 -6.6 -3.3 -11.3 1.6 1.0 -2.6 3.1 Constant (1972) Q3 04 -9.6 -10.2 -12.8 -14.1 .9 3.4 5.3 4.0 4.5 1.4 1.4 3.2 .5 -1.8 3.2 -10.6 -18.1 -1.3 5.0 4.1 6.0 3.0 3.1 2.8 -11.6 -4.5 -. 3 -8.3 -26.2 1.7 -25.9 -61.8 -14.6 -17.8 16.1 -4.9 30.4 32.9 -3.1 6.0 16.0 .8 4.2 13.1 -. 7 1.4 9.5 -3.2 -4.1 -10.0 -. 4 1.6 3.9 .3 .2 1.1 .9 -6.0 3.5 3.6 dollars Gross national product Final purchases Private Excluding net exports Gov't. purchases of goods and services Federal State and local Disposable personal Q2 2.1 income -1.4 Current dollars Gross national product Final purchases Private Excluding net exports 10.6 11.0 12.4 10.3 6.7 4.2 3.8 6.6 11.9 15.8 17.3 15.8 10.5 12.2 10.0 12.2 10.8 11.0 10.4 10.7 .1 -1.0 -3.4 -5.6 10.8 15.7 19.0 13.7 17.9 13.5 12.3 13.5 Personal consumption expenditures Goods Services 11.4 7.9 15.8 6.1 2.6 10.4 15.0 15.1 15.1 14.3 14.8 13.5 13.0 12.5 13.6 -. 7 -9.9 10.8 14.7 12.0 17.6 13.1 13.3 12.8 Gross private domestic investment Residential structures Business fixed investment 3.6 -8.5 12.9 25.2 6.1 9.6 -3.0 11.7 22.0 -5.1 1.4 5.4 .5 -19.3 11.6 -18.4 -57.8 -6.3 -20.1 26.2 4.1 51.8 45.5 5.8 Gov't. purchases of goods and services Federal State and local 5.6 12.1 2.3 5.8 -4.6 11.9 10.0 3.1 13.8 21.1 43.8 10.4 13.4 18.7 10.5 8.9 16.1 5.0 4.0 -4.0 8.9 18.4 35.2 9.7 13.0 7.7 9.9 10.9 13.5 4.3 13.1 13.8 II 1 12.7 8.9 8.0 11.9 8.8 12.6 10.9 10.9 10.9 4.6 2.1 12.9 5.9 15.6 17.6 10.8 -5.0 -2.2 -8.9 9.9 27.8 -9.4 1.2 -3.1 31.9 -41.9 -61.7 15.2 39.1 40.7 34.5 4.3 .6 2.4 .6 2.3 -. 6 1.7 -1.7 2.5 -. 8 -2.7 -11.7 -1.6 -7.2 3.3 6.2 -3.3 14.0 -3.9 8.1 12.5 -1.5 8.5 10.1 .8 9.5 8.6 -1.1 10.7 12.0 -3.7 10.8 15.0 1.5 8.8 7.2 -1.0 10.3 11.4 :.3 9.3 8.5 8.4 9.5 10.7 9.8 12.9 !0 U 7.7 1!.L 10.1 7.9 13.6 10.4 7.6 12.9 8.4 7.7 13.2 11.2 8.8 17.2 10.4 8.7 13.8 10.2 10.5 7.2 10.4 9.8 12.4 5.4 -1.0 .8 -. 3 .0 -7.0 18.3 Disposable personal income Personal income Wage and salary disbursements Corporate profits with IVA & C.C. Adj. Corporate profits before tax - Nonfarm payroll employment Manufacturing Nonfarm business sector Output per hour Compensation per hour Unit labor costs 10.2 GNP implicit deflator 1/ Gross domestic business product fixed-weighted price index 2/ Excluding food and energy urban) Consumer price index (all Industrial production 1/ Excluding Federal pay increases, rates 9.4 percent; 1980-Q4, 12.3 percent. 2/ Uses expenditures in 1972 as weights. of change were: 1979-Q1, 9.3 percent; 1979-Q4, -19.2 8.0 percent; 198O-Q1, December 12, 1980 GROSS NATIONAL PRODUCT AND RELATED ITEMS figures (Quarterly are seasonally adjusted. Expenditures and income figures are billions of current dollars at annual rates.) CONFIDENTIAL - FR CLASS II FOMC -- - -------- ~----------- - - --- 1981 ------------------------1982 ProiectedI ------------ -----------Q3 4 Q2 -- -------Q1 ---Q4 ' Q1 Q2 Q3 Gross national product Final purchases Private Excluding net exports 2747.8 2740.8 2174.1 2155.3 2797.0 2804.4 2225.9 2203.3 2862.5 2873.3 2282.9 2254.8 2935.6 2939.6 2332.4 2299.7 2999.8 2999.7 2380.8 2345.6 3057.2 3057.1 2426.3 2390.2 3116.5 3116.0 2472.9 2435.8 3182.2 3182.0 2521.5 2481.2 Personal consumption expenditures Goods Services 1778.0 923.5 854.5 1830.4 951.1 879.3 1879.1 975.5 903.6 1920.1 995.4 924.7 1961.7 1015.7 946.0 2001.8 1034.9 966.9 2040.8 1053.6 987.2 2077.7 1070.8 1006.9 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 384.3 100.6 276.7 7.0 7.0 365.5 94.7 278.2 -7.4 -7.4 364.9 95.2 280.5 -10.8 -10.8 375.6 95.7 283.9 -4.0 -4.0 384.0 95.7 288.2 .1 .1 388.5 95.2 293.2 .1 .1 395.5 96.2 298.8 .5 .5 403.7 98.7 304.8 .2 .2 Net exports of goods and services 1/ Exports Imports 18.8 344.8 326.0 22.6 355.6 333.0 28.1 364.0 335.9 32.7 373.5 340.8 35.2 383.8 348.6 36.1 392.1 356.0 37.1 399.1 362.0 40.3 407.6 367.3 Gov't. purchases of goods and services Federal 2/ State and local 566.7 210.4 356.3 578.5 215.9 362.6 590.4 221.4 369.0 607.2 231.8 375.4 618.9 238.0 380.9 630.8 244.3 386.5 643.1 250.9 392.2 660.5 262.6 397.9 Gross national product in constant (1972) dollars 1417.6 1410.4 1411.8 1416.1 1418.7 1418.9 1419.7 1420.9 Personal income Wage and salary disbursements Disposable pert nal income Saving rate (percent) 2262.6 1404.0 1899.7 4.0 2306.3 1423.4 1962.3 4.3 2368.4 1447.5 2014.4 4.3 2421.9 1479.2 2055.8 4.2 2468.8 1505.2 2105.9 4.4 2516.7 1530.5 2143.4 4.2 2579.6 1556.0 2181.7 4.0 2632.9 1587.1 2222.8 4.1 Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax 163.4 229.6 158.1 225.5 163.8 232.4 172.1 241.9 173.8 246.2 172.5 247.1 172.4 249.2 173.8 252.8 Federal government surplus or deficit (-) (N.I.A. basis) High employment surplus or deficit (-) 3/ -38.3 45.6 -70.2 24.3 -81.1 23.1 -81.3 30.5 -89.1 28.5 -88.6 39.5 -88.2 53.3 -88.6 64.1 24.2 -9.3 24.5 -9.6 24.8 -9.9 26.3 -9.0 27.5 -6.1 28.0 -8.8 28.7 -8.9 28.8 -9.6 105.7 7.9 106.0 8.4 106.3 8.6 106.6 8.8 106.8 9.0 107.1 9.2 107.4 9.2 107.6 9.3 90.7 20.1 90.4 19.9 90.4 19.8 90.3 19.7 90.3 19.7 90.4 19.7 90.6 19.7 90.7 19.8 145.8 76.3 76.0 143.8 74.9 75.1 143.0 74.7 74.6 143.4 74.7 74.7 143.7 74.6 74.5 143.7 74.5 74.3 143.8 74.4 74.2 143.9 74.2 74. 1.10 8.40 6.20 2.20 1.10 8.50 6.40 2.10 1.15 8.50 6.50 2.00 1.10 8.50 6.50 2.00 State and local government surplus or deficit (-) (N.I.A. basis) Excluding social insurance funds Civilian labor force (millions) Unemployment rate (percent) Nonfarm payroll employment (millions) Manufacturing Industrial production (1967=100) Capacity utilization: all mfg. (percent) Materials (percent) Housing starts, private (million units, A.R.) New autos sales, (millions, A.R.) Domestic models Foreign models 1.15 8.6C 6.50 2.10 1.10 8.50 6.50 2.00 1.10 8.40 6.40 2.00 1.10 8.30 6.3C 2.00 Balance of payments data and details underlying these estimates are shown in the International Developments section of this part of the Greenbook. Components of purchases and total receipts and total expenditures are shown in the Federal Sector Accounts table which follows. Estimates in table are evaluated at a 5.1 percent high employment unemployment rate. Evaluated at a 6.1 percent 8 unemployment rate, the high employment budget would show a deficit of $8 billion in 19 0-Q4 and a surplus of $1 billion in 1981-Q4, and a surplus of $31 billion in 1982-Q4. December 12, CONFIDENTIAL CLASS II FOMC 1980 PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Annual rates compounded quarterly) FR 1981 1982 Proected Q1 Constant (1972) Q3 Q4 Q1 Q2 Q3 Q4 -9.2 -6.3 -5.1 3.8 -6.3 -3.5 1.7 -7.8 -1.6 -2.8 -9.7 -. 8 -. 5 -3.9 -. 1 .2 2.1 .2 Q2 dollars Gross national product Final purchases Private Excluding net exports -2.7 -2.5 -3.1 -3.1 -2.0 .0 -.1 -.8 Personal consumption expenditures Goods Services -1.9 -4.0 .4 1.5 1.0 2.2 Gross private domestic investment Residential structures Business fixed investment -10.0 -18.5 -5.6 -24.9 -28.3 -6.3 Gov't. purchases of goods and services Federal State and local .1 3.6 -2.1 .6 3.8 -1.3 .8 3.9 -1.1 .8 3.9 -1.0 .5 4.1 -1.8 .7 4.3 -1.7 .8 4.5 -1.5 .8 4.5 -1.6 Disposable personal income -5.1 2.9 L.2 -. 2 2.0 -. 4 -. 3 .4 9.7 10.2 10.6 9.7 10.6 9.6 9.0 8.2 Current dollars Gross national product Final purchases Private Excluding net exports Personal consumption expenditures Goods Services do.1 9.8 10.4 12.3 12.5 12.1 11.1 10.7 11.5 9.0 8.4 9.7 Gross private domestic investment Residential structures Business fixed investment -2.5 -10.7 2.8 -18.2 -21.5 2.2 -. 7 2.1 3.3 12.3 2.1 4.9 Gov't. purchases of goods and services Federal State and local 7.5 8.0 7.2 8.6 10.9 7.3 8.5 10.6 7.2 11.9 20.2 7.1 Disposable personal income 6.5 13.8 11.1 Personal income Wage and salary disbursements 7.2 5.9 7.9 5.6 -19.3 -15.5 Nonfarm payroll employment Manufacturing Nonfarm business sector Output per hour Compensation per hour Unit labor costs Corporate profits with IVA & C.C. Adj. Corporate profits before tax 4.8 -2.1 7.1 7.4 4.3 7.9 7.9 11.1 6.0 7.9 11.0 6.0 8.0 11.3 6.9 11.3 20.0 5.9 8.5 10.1 7.3 7.3 7.8 11.2 6.9 9.3 9.1 8.0 7.2 8.0 6.9 10.4 6.8 8.5 8.2 -12.4 -6.8 15.2 12.8 21.9 17.3 4.0 7.4 -3.0 1.4 -.2 3.5 3.3 5.9 -.6 -3.0 -1.3 -4.5 -.3 -1.5 -.3 -.9 -.1 -.7 .5 .2 .6 .5 .6 .6 -2.1 11.8 14.2 -1.0 9.0 10.1 .6 8.8 8.2 -6.1 -5.4 -2.2 1.1 .8 .0 .3 .3 GNP implicit deflator 1/ Gross domestic business product fixed-weighted price index 2/ Excluding food and energy Consumer price index (all urban) Industrial production 1/ 2/ Excluding Federal payncreases, the rates of change are: 8.2 percent; 1982-q4, 8.3 percent. Uses expenditures in 1972 as weights. 1981-Qi, 10.9 percent; 1981-04, 8.7 percent; 1982-l, December 12, 1980 CONFIDENTIAL - FR CLASS II FOMC GROSS NATIONAL PRODUCT AND RELATED ITEMS (Expenditures and income figures are billions of current dollars.) Projected 1975 1976 1977 1978 1979 19-0 - Gross national product Final purchases Private Excluding net exports 1528.8 1539.6 L201.2 1180.8 1702.2 1692.1 1330.8 1322.8 1899.5 1877.6 1481.4 1491.3 2127.6 2105.2 1669.6 1679.9 2368.8 2350.6 1874.2 1878.8 2581.0 2835.7 3088.9 2579.1 2045.2 2039.7 2839.5 2253.8 2228.3 3088.7 2450.4 2413.2 Personal consumption expenditures Goods Services 979.1 541.5 437.5 1089.9 601.3 488.5 1210.0 660.1 549.8 1350.8 730.9 619.8 1509.8 809.9 699.8 1668.8 874.6 794.2 1851.9 961.4 890.5 2020.5 1043.7 976.7 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 190.9 51.5 150.2 -10.7 -14.3 243.0 68.1 164.9 10.0 12.1 303.3 91.9 189.4 21.9 20.7 351.5 108.0 221.1 22.3 21.3 387.2 114.1 254.9 18.2 16.5 372.8 99.3 271.6 1.9 3.6 372.6 96.5 279.8 -3.8 -3.8 392.9 96.4 296.2 .2 .2 Net exports of goods and services 1/ Exports Imports 20.4 147.3 126.9 8.0 163.3 155.4 -9.9 175.9 185.8 -10.3 207.2 217.5 -4.6 257.5 262.1 5.5 313.0 307.5 25.5 359.5 333.9 37.2 395.6 358.5 Gov't. purchases of goods and services Federal 2/ State and local 338.4 123.1 215.4 361.3 129.7 231.6 396.2 144.4 251.8 435.6 152.6 283.0 476.4 166.6 309.8 533.9 194.3 339.6 585.7 219.9 365.8 638.3 248.9 389.4 1981 -- 1982"" Gross national product in constant (1972) dollars 1202.3 1273.0 1340.5 1399.2 1431.6 1423.1 1414.0 1419.5 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 1255.5 805.9 1086.7 7.7 1381.6 890.0 1184.5 5.8 1531.6 984.0 1305.1 5.0 1717.4 1103.3 1458.4 4.9 1924.2 1227.6 1624.3 4.5 2126.5 1331.8 1793.5 4.5 2339.8 1438.5 1983.0 4.2 2549.5 1544.7 2163.5 4.2 Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax 95.9 120.4 126.8 156.0 150.0 177.1 167.7 206.0 178.2 236.6 164.6 231.8 164.4 232.4 173.2 248.9 Federal government surplus or deficit (N.I.A. basis) High employment surplus or deficit (-) -70.6 -21.5 -53.6 -17.8 -46.3 -22.1 -27.7 -13.4 -11.4 6.9 -44.7 9.3 -67.7 30.9 -88.6 46.4 State and local government surplus or deficit (-) (N.I.A. basis) Excluding social insurance funds 6.2 -6.2 17.9 2.3 26.8 7.3 27.4 4.2 24.6 -1.9 Civilian labor force (millions) Unemployment rate (percent) 92.6 8.5 94.8 7.7 97.4 7.0 100.4 6.0 102.9 5.8 Nonfarm payrdll employment (millions) Manufacturing 77.0 18.3 79.4 19.0 82.5 19.7 86.7 20.5 Industrial production (1967=100) 117.8 Capacity utilization: all manufacturing (percent) 72.9 73.4 Materials (percent) 130.5 79.5 81.1 138.2 81.9 82.7 1.16 8.66 7.08 1.58 1.54 10.12 8.63 1.50 1.99 11.13 9.07 2.06 Housing starts, private (million units, A.R.) New auto sales, (millions, A.R.) Domestic models Foreign models 1/ 2/ 25.0 -9.4 28.3 -8.3 104.8 7.2 106.1 8.4 107.2 9.2 89.9 21.1 90.6 20.4 90.5 19.9 90.5 19.7 146.1 84.4 85.6 152.5 85.6 87.4 146.8 78.8 79.1 144.0 75.2 75.1 2.02 11.28 9.29 1.99 1.75 10.70 8.38 2.32 23.7 -7.2 1.28 9.02 6.63 2.39 1.12 8.50 6.40 2.10 143.8 74.4 74.3 1.10 8.42 6.42 2.00 Balance of payments data underlying these estimates are shownin the International Developments section of this part of the Greenbook. Components of purchases and total receipts and total expenditures are shown in the Federal Sector Accounts table which follows. December 12, 1980 CONFIDENTIAL - FR CLASS II FOMC PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS --- -- ---- I- ---------- ;-- r---~- Frojected 1980 1981 1982" 1975 1976 1977 1978 1979 -1.3 .2 -.3 -1.0 5.9 4.5 5.6 6.5 5.3 4.8 5.6 6.2 4.4 .4.4 5.0 5.0 2.3 2.7 3.2 2.6 -. 6 .1 -. 4 -1.3 -. 6 -.5 -. 6 -.8 .4 .3 .1 .0 Personal consumption expenditures Goods Services 1.8 .7 3.2 5.9 6.9 4.8 5.0 5.1 4.9 4.5 4.1 5.1 2.6 1.3 4.3 .0 -2.3 2.7 .4 -1.0 2.0 .7 .3 1.1 Gross private domestic investment Residential structures Business fixed investment -22.3 -13.9 -13.0 21.6 23.3 4.8 15.4 20.7 8.6 7.1 4.2 8.4 .4 -5.7 6.2 -11.3 -20.6 -2.2 -8.0 -11.1 -5.6 -2.5 -8.2 -2.3 Gov't. purchases of goods and services Federal State and local 1,9 .7 2.6 .2 -.2 .5 2.0 4.4 .6 1.8 -2.0 4.0 .4 .9 .2 1.9 5.5 -.2 .1 2.3 -1.2 .7 4.1 -1.5 Disposable personal income 2.1 3.7 4.2 4.6 2.3 -.1 .1 .7 8.2 9.7 9.1 7.8 11.3 9.9 10.8 12.0 11.6 11.0 11.3 12.7 12.0 12.1 12.7 12.6 11.3 11.7 12.3 11.8 9.0 9.7 9.1 8.6 9.9 10.1 10.2 9.2 8.9 8.8 8.7 8.3 Personal consumption expenditures Goods Services 10.1 8.7 11.8 11.3 11.0 11.7 11.0 9.8 12.5 11.6 10.7 12.7 11.8 10.8 12.9 10.5 8.0 13.5 11.0 9.9 12.1 9.1 8.6 9.7 Gross private domestic investment Residential structures Business fixed investment -11.0 -6.5 -. 3 27.3 32.3 9.8 24.8 35.0 14.9 15.9 17.5 16.7 10.2 5.7 15.2 -3.7 -13.0 6.6 -.1 -2.7 3.0 5.5 -.1 5.9 Gov't. purchases of goods and services Federal State and local 11.8 10.7 12.5 6.8 5.4 7.5 9.7 11.3 8.7 9.9 5.7 12.4 9.4 9.2 9.5 12.1 16.6 9.6 9.7 13.1 7.7 9.0 13.2 6.4 Disposable personal income 10.4 9.0 10.2 11.7 11.4 10.4 10.6 9.1 8.7 5.4 10.0 10.4 10.9 10.6 12.1 12.1 12.0 11.3 10.5 8.5 10.0 8.0 9.0 7.4 Corporate profits with IVA & C.C. Adj. Corporate profits before tax 14.7 -5.1 32.2 29.6 18.3 13.5 11.8 16.3 6.3 14.9 -7.6 -2.0 -.1 .3 5.4 7.1 Nonfarm payroll employment Manufacturing -1.7 -8.7 3.1 3.7 3.9 3.6 5.1 4.2 3.7 2.8 .8 -3.2 -.1 -2.5 .0 -1.0 1.9 9.9 7.9 3.5 8.3 4.7 1.5 7.9 6.3 .5 8.6 8.0 -1.1 9.0 10.2 -1.1 9.8 11.1 -.8 10.0 10.9 9.6 5.2 6.0 7.3 8.8 9.6 10.6 9.4 9.5 9.1 5.3 5.8 5.8 6.2 6.3 6.5 7.6 7.2 7.7 9.5 8.1 11.3 10.2 8.5 13.4 10.4 9.0 12.2 -8.9 10.8 5.7 4.4 -3.8 -1.9 Constant (1972) dollars Gross national product Final purchases Private Excluding net exports Current dollars Gross national product Final purchases Private Excluding net exports Personal income Wage and salary disbursements Nonfarm business sector Output per hour Compensation per hour Unit labor costs GNP implicit deflator Gross domestic business product fixed-weighted price index 1/ Excluding food and energy Consumer price index (all urban) Industrial production '----- weights. 1/ Uses expenditures in 1972 -- --- 5.9 -- - I- --- - - - - - -- - -- - FEDERAL SECTOR ACCOUNTS (billions of dollars) December 12, 1980 FRB Staff Estimates Fiscal Year 1980 Unified budget receipts Unified budget outlays Surplus(+)/deficit(-), unified budget Surplus(+)/deficit(-), off-budget agencies 2/ Combined deficit to be financed FY 1981 e/ F.R. Admin. 1/ Board FY 1982 e/ F.R. Board CY80e/ F.R. Board CY81e/ F.R. Board Calendar quarters; unadjusted data 1980 I* II* III* IV I 520 ).0 579'.0 600.1 636.5 587.7 649.4 635.8 714.0 533.0 599.2 601.4 662.2 114.6 141.8 -59 .0 -36.4 -61.7 -78.2 -66.2 -60.8 -27.2 -14 .2 -73 .2 -21.7 -58.1 -21.6 -83.3 -22.0 -100.2 -15.0 -81.2 -20.9 -81.7 -3.8 -31.0 Means of financing combined deficits: Net borrowing from public Decrease in cash operating balance Other3/ 70 3 -0 52.4 5.0 0.7 72.7 6.0 4.6' 95.7 0.0 73.6 5.6 2.0 84.4 -4.7 2.0 Cash operating balance, end of period 21 15.0 15.0 15.0 10.3 15.0 8.2 24 16.7 25.5 20.0 22.6 22.8 7.7 605.0 647.1 211.3 143.1 68.2 435.8 -42.1 594.2 654.4 213.5 145.4 68.1 440.9 -60.2 634.9 721.7 241.3 167.8 73.4 480.4 -86.8 194.3 127.8 66.6 400.7 -44.8 604.2 671.9 219.9 151.1 68.8 452.0 -67.7 n.a. n.a 28.1 -0.2 38.0 7.0 9.3 -16.4 30.9 2.0 Memo: Sponsored agency borrowing 4/ 1981 II III IV 152.0 165.8 140.7 171.7 156.2 148.1 135.2 150.5 127.0 158.9 135.1 161.4 173.6 163.3 8.2 -15.4 -31.9 -26.3 10.3 -13.8 -31.0 -4.4 3.8 -r.9 -20.3 -1.8 -33.7 -6.0 -32.3 -7.4 2.9 -6.3 -20.1 -1.2 -32.2 27.0 2.3 3.0 3.1 -4.0 -2.0 20.6 -3.0 2.5 33.7 0.0 -1.5 8.0 12.0 15.0 15.0 19.1 7.7 4.1 -5.5 6.8 5.5 5.0 NIA Budget Receipts 5/ Expenditures Purchases (total) Defense Nondefense All other expenditures Surplus(+)/deficit(-) 5/ 531 .6 572 .3 187 .3 121 .9 65 .5 385 .0 -401.7 High employment (H.E.) surplus(+)/deficit(-) evaluated at H.E. unemployment rate of: 5.1 percent 6 .2 6.1 percent -18 .5 550.2 595.0 Seasonally adjusted annual rates -r--;-538.4 529.9 549.9 582.7 606.6 631.0 644.9 579.1 608.5 561.3 186.2 193.3 191.4 206.4 2210.4 119.6 124.1 129.1 138.3 1142.7 67.7 66.6 69.2 62.3 68.1 375.1 385.8 417.1 424.6 4p34.5 -48.3 -58.6 -49.2 -22.9 .38.3 3.3 -20.7 6.1 -19.3 8.5 -17.6 19.3 -8.0 45.6 17.0 587.5 657.7 215.9 147.9 68.0 441.8 -70.2 24,3 -3.9 603.1 684.2 221.4 152.7 68.7 462.8 -81.1 619.4 700.7 231.8 161.0 70.8 468.9 -81.3 23.1 -5.9 30.5 0.6 *--actual e--estimated n.a.--not available 1. OB/BEA Mid-Session Review estimates adjusted by FRB staff for the effects of Administration's revitalization program. In its report on the Second Concurrent Resolution, the Congress recommended receipts of $606.7 billion and outlays of $631.7 billion. 2. Includes Federal Financing Bank, Postal Service Fund; Rural Electrification and Telephone Revolving Fund, Rural Telephone Bank, and Pension Benefit Guaranty Corporation. 3. Checks issued less checks paid, accrued items and other transactions. 4. FRB staff estimates include Federal Home Loan Banks, FNMA, Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives marketable debt on an offerings basis. 5. BEA (NIPA) translations, July 1980. The fiscal year totals are based on unadjusted data and do not conform to the average of four seasonally adjusted quarters. The FRB staff estimates, therefore, have been adjusted in order to make the BEA and the staff estimates comparable. DOMESTIC FINANCIAL DEVELOPMENTS Summary. meeting. Short-term interest rates have surged since the last FOMC In reaction to restrained reserve availability, adjustment in the discount rate and the imposition and subsequent increase of the surcharge, the federal funds rate jumped from 15-1/4 percent in the week of the November meeting to around 19 percent. Other market rates on instruments with maturities of three months or less rose at least as much to record levels and the prime rate was boosted from 16-1/4 to 20 percent. Intermediate- and longer-term yields advanced substantially less, however, reflecting the widespread expectation of a near-term peak in shortterm yields. Even so, corporate and municipal bond yields attained record highs. Although November marked the third consecutive monthly deceleration of the narrow monetary aggretates, the 6-3/4 percent expansion of M-1A during the month raised its rate of growth for the year to date to only 1/4 percentage point below the 6 percent upper end of its longer-run range. The 9-1/2 percent expansion of M-1B in November moved its annual average growth rate to 1-1/4 percentage points above its 6-1/2 percent targeted upper bound. The other checkable deposits component of M-1B continued the strong gains that have generally marked its expansion since last March, when the Monetary Control Act was passed. Since then, commercial banks have aggres- sively marketed ATS accounts in order to protect market shares threatened by the nationwide extension of NOWs to all depository institutions at year end. In contrast to the narrow monetary aggregates, M-2 and M-3 expansion picked up in November for the second consecutive month, bringing their I-16 I-17 annual rate of growth for the year to date to 1 and 1/2 percentage points, respectively, above the upper ends of their long-run ranges. The sharper advance of small time deposits at both commercial banks and thrifts more than offset emergent outflows of savings deposits and continued runoffs of money market mutual fund shares. In addition, commercial banks consider- ably stepped up issuance of large time deposits to help finance the 16 percent annual rate of growth of loans and investments. Bank credit growth through November had risen to the midpoint of its longer-run range. Business borrowing again was concentrated at commercial banks in November. Business loans maintained the rapid October rate of growth, and the runoff of commercial paper of nonfinancial firms continued, although at a slower pace than in other recent months. The continued relative attrac- tiveness of bank borrowing probably reflected the persistence of an unusually narrow spread between the prime and commercial paper rates. Long- term debt offerings weakened further, as corporations apparently are reluctant to issue longer-term fixed rate securities at the current level of yields. In contrast, a large issuance of equities in November and early December was encouraged by the higher level of stock prices. Net Treasury borrowing surged in November and early December, on both long and short ends of the market. Purchases of bills by foreign official accounts and noncompetitive tenders in Treasury bill and 2-year note auctions have been sizable. Gross offerings of state and local government securities fell off in November, despite stepped up offerings of mortgage revenue bond issues. I-18 In the household sector, consumer installment credit in October continued the modest advance begun in the previous month. With delin- quencies and repossessions on auto loans moving up at finance companies and commercial banks, lending institutions apparently are tightening nonrate terms and raising standards of creditworthiness. In addition, finance rates have continued to rise further above reported August lows. Primary mortgage rates have risen further as well. The average contract interest rate on commitments for conventional home mortgages at S&Ls has gone up 1/4 percentage point since the last FOMC meeting. Although mortgage funds generally continue to be available, higher rates reportedly have met with increasing borrower resistance, and new commitment extensions at S&Ls dropped sharply in October, while outstanding commitments at S&Ls fell for the first time in four months. According to field reports, new commitment activity at S&Ls and other major mortgage originators, particularly mortgage bankers, has fallen off further in November and early December. Outlook. The recent increases in interest rates are likely to be partially reversed over the next few months. As economic activity weakens in early 1981 and the effects of the current higher interest rates on money and credit demands occur with the usual lag, downward pressures on market interest rates should emerge. Declines in long-term rates may be tempered by the triggering of enlarged bond issuance by nonfinancial corporations whose balance sheet measures of liquidity are currently weak and whose overall credit demands are expected to remain sizable. A continued involuntary build-up of inventories in the first quarter is expected to keep the financing gap above $50 billion at an annual rate. Total short- I-19 term business credit demands are expected to expand at a reduced though still substantial pace. In addition, renewed commercial paper issuance by nonfinancial corporations is likely to displace some of the recent strength of bank C&I loans, as declines in the prime rate lag those of commercial paper rates, and the spread widens to more normal levels. The Treasury is expected to reduce somewhat its marketable borrowings, seasonally adjusted, in the first quarter, with a similar pattern anticipated for state and local entities. Household borrowing is likely to be about unchanged in the first quarter. The staff currently anticipates that primary conventional mort- gage rates will continue to move up over the near term before retreating and that mortgage commitment activity will fall further. The recent and prospective declines in commitments will begin to show through in reduced net mortgage extensions at major lenders as time goes on. flows are expected to edge down in the near term. Consumer credit INTERNATIONAL DEVELOPMENTS Summary. Persistent market demand resulted in a further 5 percent appreciation of the dollar over the past month, on a weighted average basis, to about 8 percent above the level prevailing at mid-October. Rising relative interest rates in the United States have been the main supportive factor recently, with further upward pressure possibly resulting from the Soviet threat to Poland. The dollar has risen about 6-1/2 percent against the German mark and other Continential European currencies in the past month, and about 3-1/2 percent against the pound, but has changed little against the yen in the period. The main feature of official intervention in the past month was U.S. purchases of $2.1 billion equivalent of German marks, mostly for the Treasury. With these purchases the Treasury's balance exceeds its DM-denominated Carter-bond debt by roughly $1/2 billion and the System's balance amounts to more than $1.3 billion equivalent. Weakness in economic activity in most foreign industrial countries appears to be continuing. The most recent data show declining industri- al production in the United Kingdom and a fall in Italian GDP in the third quarter. Exceptions are Japan, where GNP was strong in the third quarter, and Canada, where there has been some pickup in industrial production and GNP. The rate of increase in consumer prices has remained moderate in recent months in Japan and the United Kingdom, but turned up in Germany I-20 I-21 in November, possibly affected by the depreciation of the DM. In France, Italy, and Canada, consumer price inflation has remained high. Germany's current-account deficit diminished further in October, and near balance was reported for Japan, while the United Kingdom registered a widening surplus. The only significant economic policy action abroad was in the United Kingdom, where the government announced a package of measures designed to bring the public sector deficit, real government spending, and monetary growth closer to the medium-term paths announced earlier. The U.K. authorities also reduced the Minimum Lending Rate in view of the evident weakness in the economy. The U.S. trade deficit in October was about the same as in the preceding two months ($14 billion SAAR), well below the first half rate. teady; a decline in agricultural Total exports held fairly exports was probably temporary. However, there are signs of level- ling off or decline in several major export categories -- machinery, consumer goods, and industrial materials. Oil import volume in October was somewhat above the low thirdquarter rate, and prices rose marginally. Nonoil imports held at about the third-quarter rate. Financial flows recorded in the international accounts registered a sizable inflow in October. U.S. banking offices repatriated funds on balance, in constrast to a large outflow in September, and foreigners purchased a substantial amount of U.S. corporate stocks. According to daily-average data net inflows through banking channels continued in November. Foreign official accounts in the United States I-22 rose only slightly in October, however, as OPEC accounts were drawn down in sharp contrast to strong inflows through September. U.S. reserve assets rose by over $2-1/2 billion in October and November. mainly reflecting purchases of German marks, and rose further in early December. Outlook. The staff projection of the U.S. current account for 1980 is little changed from the last Greenbook at a surplus of about $4 billion, but the projected 1981 surplus has been raised to about $20 billion, with a further rise to about $30 billion in 1982. In these projections the trade deficit drops from about $25 billion in 1980 to $10 billion in 1982, while net receipts on other current transactions (mainly investment income) rise from $30 billion to $40 billion. Underlying these revised projections are weaker domestic economic activity relative to foreign activity, higher dollar interes rates on rising U.S. net foreign assets, which tends to push up U.S. net income receipts, and a reestimation of U.S. demand for petroleum imports. With the projected strength in the U.S. current account and in U.S. interest rates, both well above the present market view, the staff would expect a substantial further appreciation of the weighted average exchange value of the dollar over the projection period. How- ever, the dollar's exchange value may deviate from this upward trend as dollar interest rates recede from near-term highs. OUTLOOK FOR U.S. NET EXPORTS AND RELATED ITEMS (BILLIONS OF DOLLARS. SEASONALLY ADJUSTED ANNUAL RATES) CONFIDENTIAL (FR) CLASS II FOMC 1. 1980 ANN. 1981 ANN. 1982 ANN. 1980 Q IV 1981 QI 1981 Q II 1981 QIII 1981 o IV 1982 Q1 1982 Q II 1982 QIII CURRENT $, NET EXPORTS OF G&S IMPORTS OF G&S 5.5 313.0 307.5 25.5 359.5 333.9 37.2 395..7 358..5 16.4 323.7 307.3 18.8 344.8 326.0 22.6 355.6 333.0 28.1 364.0 335.9 32.7 373.5 340.8 35.2 383.8 348.6 36.0 392.1 356.1 37.2 399.1 362.0 40.3 407.6 367.3 CONSTANT 72 $, NET EXPORTS OF G&S IMPORTS OF G&S 28.3 128.4 100.1 30.0 130.3 100.3 31.5 133.7 102.1 27.6 125.9 98.3 27.3 128.6 101.3 29.1 129.2 100.1 31.2 130.6 99.4 32.6 132.8 100.2 32.1 133.7 101.7 31.4 133.8 102.4 31.1 133.5 102.4 31.5 133.6 102.1 79.4 82.8 84.3 82.3 83.3 82.8 82.5 82.7 83.7 84.3 84.6 84.8 -25.2 -12.5 -10.6 -16.1 -16.8 -14.5 -10.6 -8.2 -8.6 -10.7 -11.8 -11.4 EXPORTS (EXCL. MILITARY) AGRICULTURAL NONAGRICULTURAL 223.4 42.0 181.4 251.3 50.7 200.5 268.0 54.4 213.6 230.5 43.7 186.8 241.6 49.3 192.3 249.6 51.6 198.0 255.2 51.7 203.6 258.6 50.3 208.3 262.7 52.1 210.7 266.1 53.5 212.6 269.4 55.2 214.3 273.8 56.9 216.9 IMPORTS PETROLEUM AND PRODUCTS NONPETROLEUM 248.6 79.6 169.0 263.8 92.5 171.3 278.6 95..2 183.4 246.6 78.9 167.7 258.4 8748 170.6 264.1 93.1 170.9 265.8 95.1 170.8 266.8 93.9 172.9 271.4 94.2 177.2 276.7 95.3 181.5 281.3 95.7 185.6 285.2 95.8 189.4 3. 4.4 21.1 29-.9 15.7 15.3 18.9 23.9 26.2 27.2 28.7 30.3 33.4 34.9 38.5 45.9 36.9 37.4 38.0 39.0 39.9 41.4 44.3 47.1 50o8 1.8 11.4 0.5 8.3 2.3 7.2 1.0 7.6 0.3 8.7 0.8 7.9 1.7 7.5 1.9 7.4 2.5 7.4 2.6 6.9 2.9 6.7 3.0 6.7 U.S. U.S. 1/ MERCHANDISE TRADE BALANCE 2/ CURRENT ACCOUNT BALANCE OF WHICH: NET INVESTMENT INCOME 4. 1982 Q IV GNP NET EXPORTS TERMS OF TRADE (1972-100) 2. December 12, 1980 FOREIGN OUTLOOK - TEN INDUSTRIAL COUNTRIES 3/ REAL GNP. % CHANGE, ANNUAL RATES CONSUMER PRICES 4/, %CHANGE, ANNUAL RATES 1/ GNP EXPORT IMPLICIT DEFLATOR DIVIDED BY GNP IMPORT IMPLICIT DEFLATOR. 2/ INTERNATIONAL ACCOUNTS BASIS. 3/ GEOMETRIC WEIGHTS USED TO AGGREGATE FOREIGN REAL GNP AND CONSUMER PRICES -- PER CENT SHARE IN TEN-COUNTRY TOTAL MULTILATERAL (11.9%), GERMANY (20.8%), FRANCE (13.1%), ITALY (9.0%), BELGIUM (6.4%), CANADA (9.1%), JAPAN (13.6%), UNITED KINGDOM TRADE. THE NETHERLANDS (8.3%), SWITZERLAND (3.6%), SWEDEN (4.2%). 4/ WHOLESALE PRICES FOR JAPAN. P/ PROJECTED.
@FedFRASER