Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, December 20-21, 1982 : Greenbook Part 2

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Confidential (FR) Class II FOMC

December 15,

RECENT DEVELOPMENTS

Prepared for the Federal Open Market Committee
By the staff of the Board of Governors of the Federal Reserve System

1982

TABLE OF CONTENTS
Section
DOMESTIC NONFINANCIAL

DEVELOPMENTS

Page

Employment and industrial production............................
Personal income and consumer spending............................
Residential construction.........................................
Business fixed investment.......
...
...........................
Inventory investment...........................................
Federal government................................................
State and local government.....................................
Labor costs and prices.........................................

1
4
7
9
11
13
16
16

TABLES:
Changes in employment..........................................
Selected unemployment rates....................................
...............................
Industrial production........
Capacity utilization rates: manufacturing and materials..........
.
Personal income ....................................
Retail sales....................................................

Auto sales............................................... .......
Private housing activity........................................
Business capital spending indicators............................
Business capital spending commitments...........................
Changes in manufacturing and trade inventories..................
Inventories relative to sales...................................
Real defense purchases.......................................
Defense and related price deflators.............................
...
Hourly earnings index................................
Recent changes in consumer prices...............................
Recent changes in producer prices...............................

2
2
3
3
5
6

6
8
10
10
12
12
15
15
17
19
19

CHART:
Private housing starts.......................................
DOMESTIC

FINANCIAL DEVELOPMENTS

III

Monetary aggregates and bank credit.............................
Business finance...............................................
Government finance
Federal sector...............................................
State and local sector......................................
Mortgage markets ........................................ .....
........
Consumer credit..................................

3
5
10
12
13
17

Section
DOMESTIC FINANCIAL DEVELOPMENTS

Page

III

TABLES:
Monetary aggregates.............................................
Commercial bank credit and short- and intermediate-term
business credit..............................................
Gross offerings of securities by U.S. corporations..............
Treasury and agency financing..................................
State and local government securities offerings..................
New issues of federally guaranteed mortgage pass-through
securities......................................... . ........
Consumer installment credit....................................
Consumer and mortgage loan delinquency rates....................

2
6
9
11
14
16
18
20

CHARTS:
Financial ratios of nonfinancial corporations...................
Ratio of tax-exempt to taxable yields..........................

8
14

APPENDIX A: Monetary Aggregates and Bank Credit in 1982.......... III-A-1
APPENDIX B: Senior Loan Officer Opinion Survey on Bank Lending
.. III-B-1
Practices ............................................
INTERNATIONAL DEVELOPMENTS

Foreign exchange markets........................................
U.S. international financial transactions........................
U.S. merchandise trade..........................................
Foreign economic developments........................ ..........
Individual country notes........................................
Economic activity in developing countries.......................

1
4
6
10
12
22

TABLES:
International banking data......................................
Summary of U.S. international transactions......................
U.S. merchandise trade.........................................
...... ............ ................ ...
Oil imports...........
Major industrial countries
Real GNP and IP................ o ................ ........
Consumer and wholesale prices.................. o .. ........
Trade and current-account balances.........................
Growth of targeted monetary aggregates..........................
Output growth in non-OPEC developing countries..................
Update on major debt negotiations............................

4
5
7
9
18
19
20
21
22
24

CHARTS:
Weighted-average exchange value of the U.S. dollar................
Selected dollar exchange rates...................................
Industrial production in six major countries.....................
Rates of change of consumer prices in six major countries........

2
2
11
11

II - T - 1

December 15, 1982

SELECTED DOMESTIC NONFINANCIAL DATA
(Seasonally adjusted)
Latest data
Period

Release
date

Data

Percent change from
Three
periods
Year
Preceding
earlier
earlier
period
(At annual rate)

Civilian labor force
Unemployment rate (%) 1/
Insured unemployment rate (%) 1/
Nonfarm employment, payroll (mil.)
Manufacturing
Nonmanufacturing
Private nonfarm:
Average weekly hours (hr.) 1/
Hourly earnings ($) 1/
Manufacturing:
Average weekly hours (hr.) 1/
Unit labor cost (1967=100)

Nov.
Nov.
Oct.
Nov.
Nov.
Nov.

12-3-82
12-3-82
12-8-82
12-3-82
12-3-82
12-3-82

111.0
10.8
5.3
88.7
18.2
70.5

4.1
10.4
5.0
-2.2
-9.0
-.4

1.4
9.8
-4.5
-2.7
-10.4
-. 6

1.6
8.3
3.7
-2.5
-8.6
-.8

Nov.
Nov.

12-3-82
12-3-82

34.6
7.78

34.7
7.76

34.8
7.74

35.1
7.45

Nov.
Oct.

12-3-82
11-30-82

38.9
229.0

38.8
-1.6

39.0
-2.1

39.3
5.7

Industrial production (1967=100)
Consumer goods
Business equipment
Defense & space equipment
Materials

Nov.
Nov.
Nov.
Nov.
Nov.

12-15-82
12-15-82
12-15-82
12-15-82
12-15-82

135.6
141.6
146.1
112.1
130.4

-5.3
-5.9
-6.5
9.7
-7.3

-8.1
-6.9

-7.3
-1.7
-18.4
6.5
-9.8

Consumer prices all items (1967=100) Oct.
All items, excluding food & energy Oct.
Food
Oct.

11-23-82
11-23-82
11-23-82

294.1
281.2
288.2

5.7
4.7
2.5

3.7
3.6
1.7

Producer prices: (1967=100)
Finished goods
Intermediate materials, nonfood
Crude foodstuffs & feedstuffs

Nov.
Nov.
Nov.

12-10-82
12-10-82
12-10-82

285.7
317.5
238.9

7.6
6.1
11.7

3.8
2.2
-19.0

Personal income (S bil.) 2/

Oct.

11-18-82

-20.3

9.5
-7.2

2,620.8

4.7

5.0
5.8

3.3

5.4

(Not at annual rates)
Mfgrs. new orders dur. goods ($ bil.)Oct.
Capital goods industries
Oct.
Nondefense
Oct.
Defense
Oct.

12-2-82
12-2-82
12-2-82
12-2-82

69.9
24.9
4.7
20.2

8.7
-. 5

Inventories to sales ratio: 1/
Manufacturing and trade, total
Manufacturing
Trade

12-13-82
12-2-82
12-13-82

1.55
1.78

1.52
1.71

1.35

12-2-82

.642
91.9
18.7

Ratio:

Oct.
Oct.
Oct.

Mfgrs.' durable goods inventories to unfilled orders 1/

-4.7
1.1

-9.5
-6.6
14.7
-10.4

1.35

1.49
1.70
1.30

1.50
1.73
1.28

.638

.625

.606

3.9
.4

6.0
.8

25.4
28.3
18.2

23.7
27.1
15.6

Retail sales, total ($ bil.)
GAF 3/

Nov.
Nov.

12-10-82
12-10-82

Auto sales, total (mil. units.) 2/
Domestic models
Foreign models

Nov.
Nov.
Nov.

12-3-82
12-3-82
12-3-82

9.5

25.3

6.8
2.6

29.8
15.0

Plant & Equipment expen. ($ bil.)4/
Total nonfarm business
Manufacturing
Nonmanufacturing

1982
1982
1982

12-9-82
12-9-82
12-9-82

319.99
122.67
197.32

12-1-82
11-17-82
11-30-82

18,709
1,122
131.4

Capital Appropriations, Mfg.
1982-Q3
Housing starts, private (thous.) 2/ Oct.
Leading indicators (1967-100)
Oct.

-8.6
-. 5
.6
-. 7

2.3
.8

-. 5
-3.3
1.3

1/ Actual data used in lieu of percent changes for earlier periods.
2/ At annual rate.
3/ Excludes mail order houses.
4/ Planned-Commerce October and November 1982 Survey.

-3.2
1.0
.2

--6.0
1.1

-30.5
31.4
2.4

DOMESTIC NONFINANCIAL DEVELOPMENTS

Economic activity apparently continued to decline in the fourth
quarter.

Nonfarm payroll employment fell further in November and indus-

trial production was also lower.

Recent data indicate that business

investment is still contracting, and weakness in final demand has hampered
business efforts to reduce inventories.

But housing activity has con-

tinued to improve gradually and retail sales posted a sizable gain in
November.

The general trend in wage and price inflation remains favor-

able.
Employment and Industrial Production
The demand for labor continued to weaken in November.

The overall

unemployment rate rose to 10.8 percent, and the relatively high level of
initial claims during the last two weeks of the month suggests that a
large number of layoffs were still occurring after the November labor
market surveys were taken.

The average duration of unemployment also has

lengthened owing to the weak pace of rehiring--up from an average of
16.1 weeks in the third quarter to 17.2 weeks last month.
Nonfarm payroll employment dropped 165,000 last month, about the
same as the average monthly decline so far this year.

Much of the job

loss in November occurred in manufacturing, as layoffs continued in the
key durable goods industries--machinery, transportation equipment, and
primary and fabricated metals--which have accounted for nearly half of
the 2.7 million drop in payroll employment during the current recession.
Several nondurable goods industries, including textiles, apparel, and
rubber also reported lower employment last month.

The factory workweek

edged up only slightly from the very depressed level of the preceding
II-1

II-2
CHANGES IN EMPLOYMENT 1
(Thousands of employees; based on seasonally adjusted data)

1981

1982
Sept.

Oct.

- - - Average monthly changes Nonfarm payroll employment 2
Strike adjusted
Manufacturing
Durable
Nondurable
Construction
Trade
Finance and services
Total government
Private nonfarm production
workers
Manufacturing production
workers
Total employment 3
Nonagricultural

Nov.
-

-7
-8

-134
-126

-191
-195

-45
-40

-389
-392

-163
-169

-40
-32
-8
-22
16
56
-26

-124
-87
-38
-14
12
29
-14

-119
-101
-18
-19
-34
37
-23

-100
-93
-7
-16
-58
43
91

-249
-237
-12
-29
-55
-6
-18

-138
-100
-38
-4
-49
46
-4

-8

-107

-152

-85

-368

-173

-48

-106

-95

-81

-226

-118

-2
22

25
0

-15
-18

-119
-52

-627
-685

-61
-104

1. Average change from final month of preceding period to final month of
period indicated.
Strike-adjusted data noted.
2. Survey of establishments.
3. Survey of households.

SELECTED UNEMPLOYMENT RATES
(Percent; based on seasonally adjusted data)

1981

7.6

9.1

9.9

Teenagers
20-24 years old
Men, 25 years and older
Women, 25 years and older

19.6
12.2
5.1
5.9

22.4
14.3
6.8
6.9

White
Black

6.7
14.2

Total, 16 years and older

Fulltime workers
White-collar
Blue-collar

1982
Sept.

Oct.

Nov.

10.1

10.4

10.8

23.9
15.0
7.7
7.3

23.7
15.3
8.2
7.4

24.0
15.9
8.5
7.5

24.2
16.6
8.7
8.0

8.1
16.5

8.8
17.7

9.0
18.2

9.3
18.5

9.7
18.6

7.3

18.9

9.7

10.1

10.5

10.7

4.0
10.3

4.7
13.2

4.8
14.7

4.8
15.6

5.1
15.9

5.6
16.5

II-3

INDUSTRIAL PRODUCTION
(Percentage change from preceding period;
based on seasonally adjusted data)

1982
Q1

-----Total

1982
Q3

Sept.

annual rate-------

Oct.

Nov.

----- monthly rate-----

-11.8

-6.5

-3.4

-. 8

-. 4

Final products
Consumer goods
Durable
Nondurable
Business equipment
Defense and space eq.

-10.4
-8.6
-14.5
-6.5
-17.7
2.4

-3.0
-7.3
27.9
1.0
-22.3
4.8

-3.2
2.6
3.6
2.3
-17.5
7.8

-1.0
-. 6
-1.2
-.3
-2.4
.0

-. 9
-. 7
-3.3
.1
-2.2
1.6

-. 4
-. 5
-.8
-.3
-.5
.8

Construction supplies

-14.5

-8.6

8.5

-1.3

-1.0

-.1

Materials
Durable goods
Nondurable goods
Energy materials

-14.1
-24.0
-8.3
5.8

-11.1
-11.2
-10.0
-12.5

-5.8
-7.0
-4.5
-4.7

-.5
-1.5
2.5
-2.3

-.8
-2.3
.3
1.2

-.6
-1.0
.0
-.6

CAPACITY UTILIZATION RATES:
MANUFACTURING AND MATERIALS
(Percent, seasonally adjusted)

1975
Low
Manufacturing industries
Primary processing
Advanced processing
Motor vehicles & pts.

Materials producers
Durable goods mats.
Raw steel
Nondurable goods mats.
Energy materials
1. Average of Qi through Q3.

1978-80
High

1982
Average1 -Sept.

Oct.

Nov.

69.0

87.2

70.5

69.2

68.3

67.8

68.2
69.4
51.3

90.1
86.2
94.5

67.2
72.4
53.9

66.5
70.7
54.6

65.9
69.6
49.6

65.4
69.1
48.7

69.4

88.8

69.9

67.8

67.2

66.7

63.6
68.0
67.2
84.8

88.4
100.7
91.6
88.8

64.7
51.9
73.0
80.5

62.1
42.7
72.7
77.0

60.6
41.1
72.8
77.9

59.8
38.2
72.5
77.3

II-4

two months.

Outside of manufacturing, employment increased at finance

and service establishments, while jobs in the trade sector were down for
the fourth month in a row.
The index of industrial production declined 0.4 percent in November,
half as much as in the previous two months.

Curtailments in output were

widespread, with continued sharp cutbacks in the durable goods industries.
Assemblies of motor vehicles were further reduced from an already low
level in October, reflecting continued efforts by manufacturers to trim
inventories; but with stocks now reduced substantially, production is
scheduled to move higher in December.

Output of raw steel dropped another

7 percent to a level almost 60 percent below its peak in early 1981.

Most

components of the business equipment index continued to fall last month,
but the number of oil and gas drilling rigs in operation posted a 3 percent gain after falling sharply over the first ten months of the year.
Reflecting the decline in industrial production, the rate of
capacity utilization in manufacturing fell to 67.8 percent, a new postwar low.

November was the fourth consecutive month in which less than

70 percent of manufacturing capacity was in use.
Personal Income and Consumer Spending
The weakness in labor and product markets has cut sharply into
income gains in recent months.

Growth of wage and salary disbursements

slowed considerably in the third quarter and remained weak in October.
The reduction in employment in November suggest that private wages and
salaries probably remained sluggish last month as well.

Total personal

income in October rose appreciably, however, as a result of a sharp
increase in transfer payments; unemployment insurance benefits were

II-5
PERSONAL INCOME

(Based on seasonally adjusted data)

1981

1982
Q3

Aug.

Sept.

Oct.
- -

- - percentage changes at annual rates
Total personal income
Wage and salary
disbursements
Private
Disposable personal income
Nominal
Real

10.4

2.6

6.9

7.0

2.5

2.7

8.8

8.4
8.7

2.7
2.1

4.0
3.7

3.5
3.1

.6
2.1

-.4
-1.2

1.4
-1.7

10.4
2.6

3.0
-1.9

6.7
3.1

9.7
2.3

3.7
-1.1

8.6
n.a.

2.1
-1.8

- - changes in billions of dollars1 Total personal income
Wage and salary disbursements
Private
Manufacturing
Other income
Transfer payments
Less: personal contributions
for social insurance
Disposable personal income
Nominal
Real

Memorandum:
Personal saving rate

17.9

7.0

15.9

11.8

5.4

5.9

19.1

8.8
7.1
1.1

4.0
2.7
-.2

6.8
5.6
.9

2.3
1.5
-1.8

.8
2.2
-1.8

-. 5
-1.3
-2.7

1.8
-1.8
-4.4

10.3
2.9

4.2
1.3

9.5
3.1

9.7
5.2

4.7
.4

6.3
2.4

17.3
10.8

1.2

1.3

-. 1

6.7
-1.0

15.8
n.a.

15.2
1.7

7.1
.5

10.4
-. 4

17.3
3.6

6.4

6.6

6.7

7.0

3.8
-1.6

7.2

6.4

7.0

1. Changes over periods longer than one quarter are measured from final
quarter of preceding period to final quarter of period indicated. Changes for
quarterly periods are compounded rates of change; monthly changes are not
compounded.
2. Average monthly changes are from the final month of the precedingperiod
to the final month of period indicated; monthly figures are changes from the
preceding month.
n.a. = Not available.

II-6
RETAIL SALES
period except where indicated;
preceding
(Percent change from
based on seasonally adjusted data)

1982

Nov/Q3

----quarterly rate---.1

Total sales

-. 7

(Real)1
Total, less autos and
nonconsumption items

Total, exc. auto group,
gasoline, and nonconsumption items

.5
-.3

GAF 2
Durable goods
Automotive
Furniture &
appliances

-4.7

Nondurable goods
Apparel
Food
General merchandise 3
Gasoline

4.3
-.2
-.5
-2.1

2.8
2.4

3.2

-1.2

1982
Sept. Oct. Nov.
---monthly rate-.9

2.3

1.6

1.5

1.4

1.3

-.1

-. 8

7.1
11.4

-3.6
-5.3

8.8
15.6

3.1
5.1

1.0
2.4

6.6
10.6

2.6

-1.3

-. 4

.9
-1.8
2.0
2.1
-4.8

.4
1.5
.7
.6
1.3

.0
-1.8
.0
-.5
.5

1. BCD series 59. Data are available approximately 3 weeks following the
retail sales release.
2. General merchandise, apparel, and furniture and appliance stores.
3. General merchandise excludes mail-order nonstores; mail-order sales are
also excluded in the GAF composite sales summary.

AUTO SALES
(Millions of units; seasonally adjusted annual rates)
1982
Q1

Sept.

1982
Nov.
Oct.

Dec.1

8.1

7.5

7.8

8.4.

7.5

9.5

n.a.

Foreign-made

2.2

2.0

2.2

2.6

n.a.

U.S.-made

5.9

5.5

5.6

6.2

5.2

6.8

5.8

Small

3.0

2.5

2.6

3.0

2.3

3.3

n.a.

Intermediate
& standard

2.8

3.0

2.9

3.4

2.9

3.6

n.a.

Total

Note: Components may not add to totals due to rounding.
1. First 10-days.

II-7
extended for up to an additional 10 weeks, and cost-of-living adjustments
were made under several other programs.
Total retail sales rose 2.3 percent in November; gains were concentrated in sales at automotive outlets.

Purchase of domestic autos rose

to a 6-3/4 million unit annual rate in November as buyers responded to
special interest rate concessions and other sales promotions offered
primarily, on 1982 cars.

However, sales dropped back to a 5-3/4 million

unit rate in the first ten days of December.

Sales of foreign cars--at

a 2.6 million unit annual rate in November--were the strongest since
early 1981.
Excluding autos and nonconsumer items, retail sales rose 0.6 percent in November, following three months of virtually no change.

Outlays

at the GAF group of stores increased 0.8 percent last month, after a
protracted period of weakness.

Sales at apparel stores were up noticeably,

while spending at general merchandisers and furniture and appliance
dealers posted small gains for the second month in a row.

In real terms,

outlays excluding autos in November probably were no higher than the
third-quarter average.
The November increase in retail sales is consistent with the improvement evident recently in consumer surveys.

During the past two months,

the Michigan index of sentiment recovered somewhat with reduced prices
and expectations of lower interest rates cited as the main reasons for
the improvement.

In addition, the Conference Board index of consumer

confidence rose 10 percent last month.
Residential Construction
Residential construction activity has continued to rise, reflecting
the further easing of financial conditions in recent months.

In October

both starts and permits for single-family houses were above their already-

II-8
PRIVATE HOUSING ACTIVITY
(Seasonally adjusted annual rates, millions of units)

1981
Annual

All units
Permits
Starts

1982
Q1

.99
1.08

Aug.

Sept.

Oct.1

.92
.95

.98
1.11

.89
1.03

1.00
1.11

1.18
1.12

.41
1.85

.38
1.82

.49
1.84

.49
1.92

.44
.44

.55
.44

.22

n.a.

Single-family units
Permits
Starts
Sales
New homes
Existing homes
Multifamily units
Permits
Starts
Mobile home shipments

.44
2.35

.39
1.93

.37
1.93

.42
.38

.37
.33

.43
.35

.24

.25

.23

1. Preliminary estimates.
n.a.--Not available.

PRIVATE HOUSING STARTS
(Seasonally adjusted annual rate)

2.0
1.6

1.2

II-9

improved third quarter pace.

Multifamily starts nearly matched the third-

quarter level, which had been inflated by a push to begin construction
on HUD-subsidized rental units before the end of the fiscal year.

More-

over, building permits for multifamily units--a measure that is not distorted by government subsidy programs--continued to advance in October,
to a level almost 20 percent above the third-quarter average.

Residential

construction expenditures also improved in October, continuing the upward trend that began in early 1982.

In real terms, these outlays were

14 percent above the low reached last February.
In October, new home sales remained at the improved level seen in
September, and were 35 percent above the rate a year earlier.

Although

sales of existing homes have not yet recovered significantly, modest
gains were registered in both September and October.

Real estate

activity has now strengthened appreciably in all major regions of the
country.
Business Fixed Investment
Business equipment spending has continued on the downtrend that
began in mid-1981.

Shipments of nondefense capital goods dropped 4-1/2

percent in October, and were nearly 16 percent below their pre-recession
peak.

All of the decline occurred in machinery,with reductions wide-

spread by category.

Sales of heavy-weight trucks, already at low levels

in recent months, reached a new trough in October.

In contrast, construc-

tion expenditures on new buildings rose in September and October, after
falling sharply in the two preceding months.
Data on commitments for new capital spending show no signs of a
near-term improvement in activity.

Orders for nondefense capital goods

II-10
BUSINESS CAPITAL SPENDING INDICATORS
(Percentage change from preceding comparable period;
based on seasonally adjusted data)

Aug.

1982
Sept.

Oct.

-5.6

-3.1

-3.5

-3.1

2.3

-4.5

-4.9

-4.5

-3.1

-1.0

3.1

-9.8

Nonresidential construction
expenditures

1.5

1.8

-1.0

-1.3

1.9

Sales of heavyweight
trucks (thousands)

217

173

168

183

162

1982

Nondefense capital goods
shipments
Machinery

129

BUSINESS CAPITAL SPENDING COMMITMENTS
(Percentage change from preceding comparable period;
based on seasonally adjusted data)

1982
Q2

-5.2

-4.9

-4.4

-10.7

-4.2

-5.1

-4.1

-3.8

-6.0

-2.2

Contracts for commercial and
industrial buildings
(mil. sq. ft.)
-19.3

-1.9

-2.2

11.9 -14.1

Nondefense capital goods
orders
Machinery

Nondefense capital goods
unfilled orders

Aug.

-7.0

-. 2

1982
Sept.

Oct.

7.3

6.3
-1.6

-2.3

II-11

were about unchanged in October, but were still 5 percent below shipments.
Although volatile from one month to the next, these orders have been
declining, on balance, for over a year.

Contracts for commercial and

industrial buildings increased a bit in October, but have been on a
substantial downtrend since late 1979.

With vacancy rates rising, it

is likely that office construction will fall sharply, once current
projects are completed.
A number of indicators of business spending intentions also suggest
further reductions in coming quarters.

The Commerce Department's survey

of plant and equipment spending plans, taken in late October and November,
reported that nonfarm business expenditures for plant and equipment are
expected to be only 2 percent higher (at an annual rate) in the first
half of 1983 than in the second half of this year, suggesting a decline
of more than 2 percent in real terms.

Even larger reductions were implied

by the McGraw-Hill and Merrill Lynch surveys taken in October.

addition, the Conference Board reported that the nation's 1,000 largest
manufacturers reduced capital appropriations 11 percent in the third
quarter to a level 40 percent below a year earlier.
Inventory Investment
Weak shipments and sales continued to frustrate efforts by businesses
to pare unwanted inventories.

At the end of October, the inventory-sales

ratio for all manufacturing and trade rose to 1.55 based on book value
data, slightly higher than the previous peak of 1.54 in January.
Manufacturers continued cutting inventories in October.

The book

value of manufacturers' stocks fell at an annual rate of $2.2 billion,
the tenth monthly decline since November 1981.

This string of cutbacks

II-12
CHANGES IN MANUFACTURING AND TRADE INVENTORIES
(Billions of dollars at annual rates)

1981

Q3(r)

1982
Aug.

Sept.(r) Oct.(p)

Book Value Basis
Total
Manufacturing
Durable
Nondurable
Wholesale trade
Retail trade
Automotive

37.5
19.1
13.8
5.4
6.7
11.6
3.5

-.1
-19.8
-7.1
-12.7
15.7
4.1
1.4

10.6
-10.6
-6.0
-4.6
2.3
18.9
14.1

14.0
-7.3
-3.0
-4.4
-5.2
26.5
17.6

10.2
-21.9
-9.1
-12.9
9.0
23.1
13.5

-4.1
-2.2
-5.3
3.2
2.3
-4.2
-10.8

7.1
2.6
1.5
3.1
.7

-3.2
-7.3
2.8
1.3
1.2

3.0
-5.4
1.4
7.0
5.6

-1.3
-4.8
-7.4
10.9
7.0

5.5
-9.1
6.3
8.4
5.6

n.a.
n.a.
n.a.
n.a.
n.a.

Constant Dollar Basis
Total
Manufacturing
Wholesale trade
Retail trade
Automotive

INVENTORIES RELATIVE TO SALES1

1974-75
Cyclical
Peak 2

1982
Cyclical
Peak 2

1.64
1.95
2.51
1.39
1.24
1.57
2.17

1.55
1.81
2.52
1.18
1.27
1.46
2.02

1.49
1.73
2.35
1.12
1.18
1.40
1.69

1.51
1.71
2.36
1.09
1.23
1.45
2.02

1.52
1.73
2.38
1.12
1.22
1.44
2.00

1.52
1.71
2.39
1.08
1.25
1.44
1.97

1.55
1.78
2.52
1.12
1.27
1.43
1.87

1.76
2.18
1.40
1.49
2.05

1.80
2.19
1.49
1.49
2.01

1.73
2.10
1.42
1.45
1.79

1.76
2.10
1.47
1.50
2.02

1.77
2.12
1.45
1.49
2.01

1.77
2.11
1.49
1.49
1.95

n.a.
n.a.
n.a.
n.a.
n.a.

1982
Q3(r) Aug. Sept.(r) Oct.(p)

Book Value Basis
Total
Manufacturing
Durable
Nondurable
Wholesale trade
Retail trade
Automotive
Constant Dollar Basis
Total
Manufacturing
Wholesale trade
Retail trade
Automotive
1.

Ratio of end-of-period inventories to average monthly sales for the period.
Highs are specific to each series and are not necessarily coincident.
Revised estimates.
Preliminary estimates.

II-13

has reduced manufacturers' inventories $2.3 billion, or 0.8 percent,
below their prerecession level.

However, shipments have fallen more

than 10 percent during the same period, causing the stock-sales positions
of many industries to deteriorate.

In particular, metals and machinery

inventories are still very much out of line with sales.
The book value of trade inventories fell slightly in October following
several months of large increases, but the October reduction was entirely
the result of successful efforts to pare auto stocks; automotive inventories fell $11 billion at an annual rate.

Dealers continued this liquida-

tion into November, as car production was reduced further and sales were
boosted sharply by low-interest financing programs.

By the end of November,

stocks of new domestic autos were down to about 1.2 million units--one
of the lowest levels in the last two years.
In contrast, nonauto retail inventories have been rising since
late summer.

Imbalances have reappeared at many types of outlets,

particularly general merchandise, apparel, and furniture stores.

October, the inventory-sales ratio for these stores reached 2.43, not
far below the January peak of 2.45.
Federal Government
The federal unified budget deficit in October was a record $26.5
billion.

However, after adjusting for seasonal factors, the October

deficit was only $1 billion higher than the average monthly deficit of
$13 billion (seasonally adjusted) in the third quarter.
On the receipts side, withheld tax collections slowed markedly in
October, reflecting weak wage and salary performance as well as delayed

II-14

adjustments by taxpayers to last July's cut in withholding rates.
Corporate refunds also continued at a very high level.

October outlays

were increased by strong growth in agricultural payments, which
apparently continued into November.

Outlays for Social Security were

boosted in October by lump sum retroactive payments based on recomputations of benefits for many recipients, while federal employee compensation also rose, reflecting the recent pay increase.
By the end of the current "lame duck" session, Congress is expected
to pass a 5-cent-per-gallon increase in the federal motor fuels excise
tax.

The proceeds will be used to finance increases in highway and mass

transit construction.

At the same time, action on FY 1983 appropriations

bills continues to lag.

With significant work remaining on more than

half of these bills, the focus of Congressional action has shifted toward
the passage of a continuing resolution that will extend funding through
March 15.
The strong growth of real defense purchases continued in the third
quarter.

However, in spite of the buildup, the implicit deflator for

defense purchases has started to decelerate in recent quarters, albeit
less than the GNP deflator.

This slowing of price increases for defense

has been most pronounced in nondurables (primarily fuel) and services
other than compensation.

The compensation deflator also will begin to

slow in the current quarter as both military and civilian defense pay
raises were limited to 4 percent this October (the pay raises in October
1981 were 14.4 percent for military personnel and 4.8 percent for civilian
employees).

The rate of increase in the defense durable goods deflator

II-15
REAL DEFENSE PURCHASES
(Percent change from year earlier)

Total Defense
Durable goods
Services

1980

1981

1982

2.1

9.3

8.3

-3.2
3.5

10.4
9.1

6.9
8.3

DEFENSE AND RELATED PRICE DEFLATORS
(Pecentage change from year earlier)
1980
04

1981
04

1982
03

13.6

10.6

8.9

14.8
11.4

9.4
12.0

6.7
10.9

Total GNP

10.2

8.9

5.6

Personal Consumption Expenditures

10.4

7.7

5.7

8.1

8.4

3.8

Total Defense
Total Defense less compensation
Defense durables
Addenda:

Other deflators

Business Fixed Investment

II-16

has remained fairly constant, suggesting the presence of some demand
pressure on prices from defense procurement activities.
State and Local Government
Activity in the state and local sector remains at the plateau that
has prevailed since late last year.

Preliminary November data indicate

that state and local government employment has been virtually flat since
September at a level slightly below the average in the first half of the
year.

However, the decline in construction has abated in recent months.

Preliminary data showed that real construction outlays rose almost 1
percent in October, bringing the increase since July to about 5 percent.
Even so, these outlays remain almost 20 percent below the recent peak
in the first quarter of 1981.
Labor Costs and Prices
Wage inflation has continued to slow in recent months.

Wage rates

for production workers rose at a 6-1/2 percent annual rate over the
first half of 1982, but for the last five months the rate of increase
dropped to a 4-1/2 percent annual rate.

The deceleration has been

particularly striking in services and manufacturing, where wages have
risen at about a 3 percent annual rate over the last three months, compared with a 7-1/2 percent rate earlier this year.

Concessions negotiated

in the auto industry last spring contributed to the reduced wage increases
in manufacturing--auto workers usually receive annual wage adjustments as
well as COLAs in the fall, but these increases were eliminated this year.
However, the new 13-month Chrysler contract provided its workers with
an initial increase of 6-1/4 percent and restores quarterly COLAs
beginning in December.

II-17
HOURLY EARNINGS INDEX 1
(Percentage change at annual rates;
based on seasonally adjusted data) 2

Total private nonfarm
Manufacturing
Durable
Nondurable
Contract construction
Transportation and
public utilities
Total trade
Services

1980

1981

1982
Q3
Sept.

9.6

8.4

6.5

6.4

6.2

1.9

10.9
11.5
9.7
7.7

8.8
8.8
8.7
8.1

8.7
9.0
8.2
9.0

6.6
6.2
7.3
2.3

6.4
7.5
4.3
3.4

4.6
2.8
7.9
-2.4

9.3
8.8
9.5

8.5
7.1
9.1

7.4
3.8
5.1

6.0
6.4
7.6

4.5
4.5
8.5

-3.8
1.9
.5

Oct.

Nov.

5.4

1.6

-1.0
5.5
-2.2
4.2
.9 8.1
14.4 -14.0
8.4
6.7
8.4

2.1
2.6
.2

1. Excludes the effect of interindustry shifts in employment and fluctuations in overtime hours in manufacturing.
2. Changes over periods longer than one quarter are measured from final
quarter of preceding period to final quarter of period indicated.
Quarterly changes are compounded annual rates; monthly changes are not
compounded.

II-18

While the length and depth of the recession clearly have cut into
wage inflation, the recent rebound in productivity has been an additional
important factor in holding down labor costs.

Productivity in the nonfarm

business sector advanced at a 4 percent annual rate in the third quarter,
following small increases in the first half.

Moreover, the sharp cutbacks

in hours worked in October and November imply another sizable productivity
gain in the fourth quarter.

Higher output per hour, coupled with a moderate

rise in hourly compensation, lowered the advance in unit labor costs to a
2-1/2 percent annual rate in the third quarter and to a 5 percent rate so
far this year.
The reduction in labor cost pressures has been accompanied by a
widespread slowing in inflation.

Most measures of consumer prices have

risen at about a 5 percent annual rate since last December, compared with
inflation rates of about 9 percent in 1981.

Increases for producer

prices of finished goods have been even lower--less than a 4 percent rate
over the first 11 months of this year.

Producer prices did rise somewhat

more rapidly than this average rate in November.

But a jump in heating

oil prices contributed importantly to the overall increase, and these
prices have receded in recent weeks.
In October, the CPI rose at a 5-3/4 percent annual rate, a little
faster than in recent months.

Small price increases for food and energy

as well as declining homeownership costs helped to hold down the overall
pace of inflation.

Prices for consumer commodities other than food, energy,

and homeownership have decelerated sharply this year, although in October
there were some large increases for several commodities, including

II-19
RECENT CHANGES IN CONSUMER PRICES1
(Percentage change at annual rates; based on seasonally adjusted data) 2
Relative
importance
Dec. 1981
All items
100.0
Food
16.6
Energy
11.1
Homeownership
26.1
All items less food,
energy, and homeownership
49.8
Used cars
3.3
Other commodities 3
19.9

1980

1981

1982
Q3

12.4
10.2
18.1
16.5

8.9
4.3
11.9
10.1

1.0
3.9
-8.0
-2.4

9.3
7.3
12.9
19.8

4.2
.6
5.5
.4

5.7
2.5
2.3
-. 9

9.9
18.3
8.1

9.4
20.3
6.1

5.4
5.5
4.8

6.9
3.5
3.7

6.1
16.0
3.9

8.6
11.9
7.4

Oct.

Other services 3

26.6

10.3

10.6

6.3

8.0

8.4

7.5

Memorandum:
Experimental CPI 4

100.0

10.8

8.5

2.7

5.8

6.4

6.8

1. Based on index for all urban consumers (CPI-U).
2. Changes are from final month of preceding period to final month of period
indicated; monthly changes at simple annual rates.
3. Includes the home maintenance and repair items of homeownership costs.
4. BLS experimental index for "All items"--CPI-U-X1--which uses a rental
equivalence measure for homeownership costs.

RECENT CHANGES IN PRODUCER PRICES
(Percentage change at annual rates; based on seasonally adjusted data)1
Relative
importance
Dec. 1981

1980

1981

100.0
21.9
12.7
44.6
20.8

11.8
7.5
27.8
10.4
11.4

7.1
1.4
14.1
7.1
9.2

Intermediate materials 2
Excluding energy

94.7
77.6

12.4
10.1

7.3
6.6

-1.8
.1

Crude Materials
Food
Energy
Other

50.7
33.6
15.7

8.6
26.9
7.5

-14.0
22.8
-11.4

23.3
-5.8
-40.3

Finished goods
Consumer food
Consumer energy
Other consumer goods
Capital equipment

1982
Q3

.9
4.1
6.1
11.5
-18.5 -15.7
3.9
5.7
5.6
2.4

4.2
-7.4
33.3
3.3
3.8

-1.5
.3

2.4
1.0

Oct.
5.5
-1.9
-. 7
13.3
2.6
-1.1
-1.7

Nov.
7.6
-1.9
34.3
6.6
3.4
6.1
2.9

11.7
24.3 -26.4 -23.4
19.8
9.9
1.6
9.4
25.3
5.5
-. 5 -15.4

1. Changes are from final month of preceding period to final month of period
indicated; monthly changes at simple annual rates.
2. Excludes materials for food manufacturing and animal feeds.

II-20

cigarettes and magazines.

Inflation for services (other than energy and

homeownership) in October remained near this year's average rate of 7-1/2
percent, well below the 10-1/2 percent climb in 1981.
Outside the consumer sector, price increases for capital equipment
have slowed significantly, reflecting the spreading weakness in the
investment sector.

Prices of capital equipment were up at an average

annual rate of about 3 percent in October and November, and have risen
at only a 4 percent annual rate since last December.

The improvement

this year has been impressive, with small increases or even some declines
in such categories as generators, transformers, many types of machinery
and equipment, and trucks.

Perhaps even more notable, prices for inter-

mediate materials (other than food) have been virtually flat in 1982-for the first time in 15 years--reflecting slack markets as well as a
strong dollar.

III-T-1

SELECTED FINANCIAL MARKET QUOTATIONS 1
(Percent)
1981
Early summer
Highs
Highs

1982
FOMC
Nov. 16

Change from:
Early summer
FOMC
Nov. 16
Highs
Dec. 14

Short-term rates
Federal funds 2

Treasury bills
3-month
6-month
1-year
Commercial paper
1-month
3-month

20.06

14.81

9.61

8.81P

-6.00

-. 80

17.01

15.93
15.21

13.19
13.40
13.12

8.40
8.47
8.51

7.68
7.91
8.05

-5.51
-5.49
-5.07

-. 72
-.56
-.46

18.63
18.29

14.89
15.00

9.13
9.11

8.29
8.33

-6.60
-6.67

-.84
-.78

18.90

Large negotiable CDs 3
1-month
3-month
6-month

19.01
18.50

14.99
15.58
15.70

9.21
9.38
9.51

8.55
8.58
8.60

-6.44
-7.00

-7.10

-.66
-.80
-.91

Eurodollar deposits 2
1-month
3-month

19.80
19.56

15.66
16.28

9.73
9.93

9.33
9.56

-6.33
-6.72

-.40
-.37

21.50

16.50

12.00

11.50

-5.00

-.50

14.20
14.07

13.69
13.67

8.75
9.36

7.83
8.89

-5.86
-4.78

-.92
-.47

U.S. Treasury (constant maturity)
16.59
3-year
15.84
10-year
15.21
30-year

14.98
14.74
14.26

10.10

9.73
10.46
10.48

-5.25
-4.28
-3.78

-. 37
-.21
-.12

Municipal (Bond Buyer)

13.30

12.63

9.924

10.134

-2.50

.21

17.72

16.19

11.86e

11.85P

-4.34

-. 01

18.63
1981

16.9:3

13.845
1982

13.665.

Bank prime rate
Treasury bill futures
Mar. 1983 contract
Sept. 1983 contract
Intermediate- and longterm rates

10.67
10.60

Corporate--Aaa utility
Recently offered
S&L fixed-rate mortgage commitment

FOMC
Nov. 16

-3.27
-.18
Percent change from:
1981
FOMC

Nov. 16
Highs
Dec. 14
Stock Prices
.1
1009.38
-1.4
1,024.05
1008.00
Dow-Jones Industrial
.2
1.3
78.30
79.32
NYSE Composite
79.14
.7
328.19
330.63
-13.1
380.36
AMEX Composite
NASDAQ (OTC)
223.47
224.97
231.33
3.5
2.8
4. One-day quotes for preceding Thursday .
1. One-day quotes except as noted.
2. Averages for statement week closest to date shown. 5. One-day quotes for preceding Friday.
3. Secondary market.
p--preliminary. e--estimated.
Highs

DOMESTIC FINANCIAL DEVELOPMENTS

Both M1 and M2 grew rapidly in November, as the public continued to
expand its holdings of the most liquid types of assets.

Thus far there

has been no indication of an unwinding of the October buildup in demand
deposits, other checkable deposits, and savings accounts that had been
associated with maturing all savers certificates (ASCs).

Expansion in

M3 moderated slightly in November, as weak loan demand allowed commercial
banks to reduce their reliance on large CDs.
Interest rates have fallen somewhat further since the November FOMC
meeting in response to two half-point cuts in the discount rate and continued signs of weakness in the economy.

Federal funds are now trading

near 8-1/2 percent, compared with 9-1/2 percent at the time of the last
FOMC meeting; most other short-term rates have fallen between one-half and
one percentage point.

In long-term markets yields have shown less tendency

to decline in the face of substantial borrowing activity.

Corporate and

Treasury yields are unchanged or down 20 basis points on balance over the
intermeeting period.

As of early December, yields in the heavily congested

municipal securities market were up about 20 basis points, but they likely
have moved lower with the latest cut in the discount rate.

Most mortgage

commitment rates have continued to edge downward.
The public sectors have tapped financial markets for an extraordinarily large volume of funds in recent weeks.

The Treasury has raised

close to $50 billion thus far in the fourth quarter to finance a record

quarterly deficit, and the volume of tax-exempt offerings has soared to
record levels as many municipal borrowers have rushed to market bonds before January 1, the date when new registration requirements for municipal
III-1

III-2

MONETARY AGGREGATES
(Based on seasonally adjusted data unless otherwise noted)1
1982
Q1

Q2
-Percentage

Money stock measures
1.
M1
2. (M1) 2
3.
M2
4.
M3
Selected components
5. Currency

3.3

Sept.

Oct.

Nov.P

QIV. '81
to
Nov. 82P

8.7
(8.7)
9.9
10.5

change at annual rates-

10.4
(9.5)
9.8
8.7

(3.6)
9.5
10.7

3.5
(4.4)
9.7
12.1

14.0
(17.4)
5.0
3.9

20.3
(14.5)
8.2
9.1

16.1
(17.7)
11.2
8.9

7.9

9.3

6.9

9.3

6.4

3.7

7.8
0.9

Demand deposits

-0.5

-5.8

-1.4

7.8

18.1

9.7

Other checkable deposits

49.5

19.6

11.4

37.3

45.2

49.7

35.1

M2 minus M1 (9+10+11+14)

9.6

11.5

11.7

2.3

4.4

9.7

10.3

63.6

-8.4

15.2

-32.4

83.1

41.5

29.1

33.8
9.4
8.7
9.7
1.6
10.2
-1.5

20.9
17.2
2.0
23.8
6.0
0.6
8.1

31.0
12.2
-9.7
21.3
6.4
-7.8
11.7

12.7
7.7
4.6
8.8
-2.0
-1.3
-2.3

9.9
-1.1
21.5
-9.6
3.2
47.8
-12.7

15.7
8.5
34.7
-1.8
7.1
31.0
-1.9

28.6
11.5
4.9
14.4
4.5
7.1
3.5

3.3

16.9

23.8

-1.5

13.8

-2.3

13.5

8.9

19.1
19.9
15.5

19.6
21.4
11.5

-1.1
-5.6
19.8

12.7

-8.7

7.8

-21.5

35.1

49.2

13.1
11.0
22.7

15.2
6.2

104.0
-25.7

24.6
11.8

13.4
77.9

42.9
-5.7

9.
10.
11.
12.
13.
14.
15.
16.
17.

Overnight RPs and Eurodollars, NSA
General purpose and broker/dealer
money market mutual fund shares,NSA
Commercial banks
savings deposits
small time deposits
Thrift institutions
savings deposits
small time deposits
M3 minus M2 (18+21+22)
Large time deposits
at commercial banks, net
at thrift institutions
Institutions-only money market
mutual fund shares, NSA
Term RPs, NSA

6.1
21.6
-2.5

-29.9

-Average
MEMORANDA:
23. Managed liabilities at commercial
banks 4 (24+25)
24.
Large time deposits, gross 5
25.
Nondeposit funds 5
26.
Net due to related foreign
5
institutions, NSA
5 6
27.
Other ,
28.

U.S. government deposits at commercial
banks7

0.6
2.7
-2.1

22.3
-59.8

monthly change in billions of dollars-

1.7
5.7
-4.0

-6.7
-0.5
-6.2

5.3
0.8
4.5

-3.8
-7.0
3.2

2.5
3.0
-0.5

-4.4

-2.1
0.0

0.4

-4.3

0.1

0.3

-1.8

-2.6
7.1

3.1
0.1

-1.6
1.1

1.9

-2.5

0.2

1.4

3.0

-3.9

-0.2

1. Quarterly growth rates are computed on a quarterly average basis.
Dollar amounts shown under memoranda for
quarterly changes are calculated on an end-month-of-quarter basis.
2. Ml seasonally adjusted using alternative model-based procedure applied to weekly data.
3. Overnight and continuing contract RPs issued to the nonbank public by commercial banks, net of amounts held
by money market mutual funds, plus overnight Eurodollar deposits issued by Caribbean branches of U.S. member
banks to U.S. nonbank customers.
Excludes retail RPs, which are in the small time deposit components.
4. Net of large-denomination time deposits held by money market mutual funds and thrift institutions.
5. Adjusted for shifts of assets and liabilities to International Banking Facilities (IBFs) which affected
flows from December 1981 to September 1982.
6. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities
sold under agreements to repurchase and other liabilities for borrowed money (including borrowings from the
Federal Reserve and unaffiliated foreign banks), loans sold to affiliates, loan RPs and other minor items.
Data are partially estimated.
7. Consists of Treasury demand deposits at commercial banks and Treasury note balances.
p--Preliminary.

III-3
securities go into effect.

In contrast, total borrowing by nonfinancial

businesses appears to have dropped a bit, though firms are continuing to
borrow heavily in long-term markets to pay down short-term liabilities.
In the household sector, consumer installment credit remains depressed,
but there are some signs that residential mortgage borrowing may be reviving.

Monetary Aggregates and Bank Credit
M1 expanded at a 16 percent annual rate in November, down from October's 20 percent clip.

Although demand deposit growth moderated, other

checkable deposits continued to rise at an exceptionally rapid rate.

The

fast growth in M1 in recent months, despite weakness in economic activity,
in part reflects a lagged response to rate declines that began last summer.

Apart from such "normal" interest elasticity of M1 demand, lower

interest rates probably have slowed the readjustment of portfolios occasioned by the maturation of ASCs, especially in view of the new, attractive deposit instruments which will become available in December and
January.
The slower growth of M1 in November was more than offset by faster
expansion in nontransaction accounts; consequently, M2 accelerated to an
11-1/4 percent annual growth rate for the month.

The pickup in the non-

transaction component of M2 was accounted for by a sharp reduction in net
outflows from small time deposits which, in part, may be attributed to
much smaller amounts of maturing ASCs in November.
Total inflows to savings accounts at depository institutions in November were only slightly below the record October pace.

The continued

1. A longer-run perspective on growth in the aggregates is contained in
Appendix A.

III-4

strength of savings deposits, as well as that of some short-maturity time
deposits, may in part represent a tendency of depositors to use such
accounts as a temporary repository for funds while awaiting the money market deposit account (MMDA), scheduled for introduction on December 14.1

number of institutions, for example, have actively marketed arrangements
using passbooks, 7- to 31-day accounts, and especially retail RPs as vehicles for attracting and holding funds in anticipation of the new account. 2
Among other nontransaction components of M2, overnight RPs at commercial banks continued to grow at a robust pace in November, accompanying
a substantial buildup in holdings of Treasury securities and a runoff in
Treasury deposits.

Although the increase in assets of general purpose and

broker/dealer money market mutual funds was somewhat higher on a monthly
average basis in November than in October, inflows remained well below the
pace of the first three quarters.

Moreover, fund assets actually declined

in late November and early December, as the returns on money funds moved
into closer alignment with rates of interest on other short-term instruments and possibly as funds were moved to MMDA bridge accounts.
Despite the acceleration in M2, M3 growth was a bit less rapid in
November than in October, because of a substantial decline in large time
deposits at commercial banks and, to a lesser extent, a deceleration in
1. On December 6 the DIDC also authorized a "Super NOW" account that has
many of the features of an MMDA, including payment of an unregulated rate
of interest whenever the balance exceeds $2,500. This account becomes
available to individuals, governmental units and certain non-profit organizations on January 5, 1983, and could prolong the period during which
depositors are choosing where to place their funds.
2. Information available from the Reserve Bank Contact Group indicates
that such "bridge" accounts were common in about half of the Federal
Reserve districts. Most institutions offering bridge accounts were paying rates in the 10 to 12 percent range, with reported rates varying from
9 to as much as 25 percent.

III-5

institution-only money market funds.

Issuance of domestic CDs fell

sharply as banks evidently were able to satisfy weak loan demand through
core deposit growth.

In contrast, thrift institutions, particularly S&Ls,

stepped up their reliance on large CDs and other managed liabilities, using some of these funds to repay more costly Federal Home Loan Bank advances.
Growth in overall bank credit in November registered its slowest
rate in 2-1/2 years, reflecting primarily a sharp contraction in business
loans.

The weakness in business loans, which was most pronounced at large

banks, was indicative of both a general decline in overall external financing by firms and efforts by businesses to fund short-term debt.

Security

loans also contracted in November, following rapid expansion beginning in
the summer, while real estate and consumer loan expansion remained sluggish.

Both large and small banks continued to acquire Treasury securities

at a rapid pace; judging from data from the large banks, most of these
acquisitions continued to be in the one- to five-year maturity range.
Business Finance
Total external financing by nonfinancial businesses appears to have
moderated further in November from the reduced pace of October; the smaller
volume of borrowing likely reflects continued declines in capital spending,
a resumption of inventory liquidation in the fourth quarter, and perhaps
some increase in firms' cash flow.

As in recent months, businesses con-

tinued to pay off short-term debt with money raised in the capital markets.
In both October and November, the sum of business loans and commercial
paper of nonfinancial corporations contracted for the first time since
the 1975-76 period, when corporations last undertook a major restructuring

III-6
COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT
(Percentage changes at annual rates, based on seasonally adjusted data)1
1982
Q2

Sept.

Nov.

Oct.

QIV '8
to
Nov. '

--Commercial Bank Credit1.
2.
3.
4.
5.

Total loans and investments
at banks 2 , 3

10.1

8.0

5.8

4.4

6.8

1.5

7.54

5.7

4.7

4.8

3.4

12.1

9.3

6.0

11.5

4.9

8.3

4.1

41.6

40.2

2.8

4.8

3.0

-2.5

-7.1

2.4

11.5

9.1

6.2

4.8

4.9

-1.0

8.0

16.7

15.0

9.0

13.0

6.7

-7.9

11.5

-18.3

-26.8

63.6

67.3

85.0

-39.7

12.5

Investments 3
Treasury securities
Other securities

Total loans 2 , 3
3

13.4

Business loans2,

Security loans

Real estate loans

7.8

6.6

2.8

3.6

4.4

5.9

Consumer loans

2.8

3.0

0.6

2.5

3.2

-- Short- and Intermediate-Term Business Credit10.

Total short- and intermediateterm business credit (sum of
lines 14, 15 and 16) 3

15.2

13.2

9.2

5.3

-1.5

Business loans net of bankers
acceptances 3

16.5

15.9

9.0

12.7

6.6

-4.8

Commercial paper issued by nonfinancial firms 5

30.0

16.8

-6.0

-52.7

-71.4

-69.4

13.

Sum of line 11 & 123

18.2

16.0

7.0

3.9

-3.4

-12.8

10.5

14.

Line 13 plus loans at foreign
branches 3 , 6

18.5

15.8

8.3

3.8

-3.5

-13.4

11.0

1.0

1.5

15.8

13.0

-5.7

n.a.

11.7

10.2

6.6

14.7

n.a.

11.

12.

15.
16.

Finance company loans to business 7
Total bankers acceptances outstanding

n.a.

12.0

1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for
foreign-related institutions.
2. Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, unconsolidated nonbank affiliates of the bank, the bank's holding company (if not a bank), and unconsolidated nonbank
subsidiaries of the holding company.
3. Adjusted for shifts of assets and liabilities to International Banking Facilities (IBFs) which affected flows
from December 1981 to September 1982.
4. Growth of bank credit from the FOMC's December-January base through November 1982, not adjusted for shifts of
assets from domestic offices to IBFs, was at an annual rate of 6.8 percent. Adjusted for such shifts after
January, growth over this period was 7.3 percent.
5. Average of Wednesdays.

6. Loans at foreign branches are loans

made to U.S.

firms by foreign branches of domestically chartered banks.

7. Based on average of current and preceding ends of month.
n.a.--Not available.

III-7

of their balance sheets.

Gross public offerings of corporate bonds and

notes, meanwhile, have run at a seasonally adjusted monthly pace near
$6.5 billion since September, and more recently the volume of new equity
offerings also has accelerated.
Despite these shifts away from short-term debt in favor of longerterm securities, corporate balance sheet measures still remain weak by
historical standards.

The ratio of short-term to total debt for non-

financial corporations has moved down only slightly from its recent peak,
and the ratio of liquid assets to short-term liabilities is quite low
(see chart on page 111-8).

Data from other sources also indicate that

corporations remain under considerable stress in the current environment:
businesses continue to petition for bankruptcy in record numbers; and
rating agencies have been downgrading long-term debt obligations this
year at double the then-record pace of 1981.

Nonetheless, spreads between

yields on short-term private paper and U.S. Treasury bills, and between
market yields on lower- and higher-grade commercial paper, have narrowed
appreciably from late-summer levels, suggesting that market concerns about
financial distress have been abating.

Declining interest rates and actions

to deal with international loan problems have helped to allay such fears.
Over the past two months bond markets have been marked by the absence
of the innovative financing techniques that were so widely used earlier in
the year.

Rather, most new bond issues have borne market coupons, and

slightly more than half of November's domestic issues--measured both in
numbers and dollars--had maturities of 20 years or more.

For weaker firms,

convertible bond issues have continued to offer an attractive vehicle for

III-8
FINANCIAL

TIOS OF NONFINANCIAL CORPORATIONS

Percent
de ebt as a per

-.-

of total debt

S 50

I
1970

1 972

1974

1976

11
1978

1980

1982
Percent
40

as a percent of current liabilities

S 35

...............
1970
*

1972

1976

............
,M:W:_::: .

1978

Break in series.

Data for 1982-Q4 are based on flow of funds projections.

1980

1982

III-9
GROSS OFFERINGS OF SECURITIES BY U.S. CORPORATIONS
(Monthly totals or monthly averages, millions of dollars)

1981

1982

Year

---------------------

Oct.

Nov.

Dec.

Seasonally adjusted------------------

Corporate securities--total

6,348

6,102

6,391

9,436

10,274

11,515

10,800

Securities sold in U.S.
1
Publicly offered bonds
Privately placed bonds
Stocks 2

5,833
3,138
582
2,113

4,720
2,088
725
1,907

5,014
2,279
461
2,274

8,410
5,008
917
2,485

9,300
6,600
700
2,000

10,350
6,550
700
3,100

9,800
6,000
700
3,100

1,382

1,377

1,026

974

1,165

1,000

Securities sold abroad 3

------- Domestic offerings, not seasonally adjusted------Publicly offered bonds--totall
By industry
Utility
Industrial
Financial
By quality 4
Aaa and Aa
A and Baa
Less than Baa
No rating (or unknown)
Memo items:
Convertible bonds
Original discount bonds
Par value
Gross proceeds
Stocks--total 2
By industry
Utility
Industrial
Financial

3,138

1,873

2,824

4,574

6,600

5,000

1,079
1,192
867

693
464

938
576

970
1,971

1,670
2,415

1,230
2,410

716

1,310

1,633

2,515

1,360

956
1,065
196
607

1,835
1,836
235
668

2,775
2,840
529
456

1,425
2,120
625
830

1,182
1,448
226
282

357

178

199

550

560

808
358

910
297

1,129
394

650
229

248
219

235
209

2,112

1,866

2,213

2,251

2,200

2,800

676
1,054
382

660
965
241

728
969
554

500
1,200
500

700
1,600
500

p--preliminary, f--forecast.
1. Total reflects gross proceeds rather than par value of original discount bonds.
Includes equity issues associated with debt/equity swaps.
Notes and bonds, not seasonally adjusted.
Bonds categorized according to Moody's bond ratings.

3,500

III-10

obtaining financing; nearly all of the recent convertible issues have had
less than A ratings.
One noteworthy change in domestic bond issuance in November was a
slackening in the volume of higher-rated offerings.

This dropoff may

reflect the belief among some issuers that long-term interest rates will
resume their descent in the not-too-distant future.

The overall volume

of longer-term straight-debt issues, however, suggests that this view is
not held universally, or perhaps that lesser-rated firms have a more
immediate need for long-term financing.
Stock prices have exhibited fairly volatile movements since midNovember, and currently are only a little higher than at the time of the
last meeting of the FOMC.

The rise in stock prices since the summer has

induced some increase in the pace of new equity offerings, especially by
industrial firms, and in early December AT&T sold a record $1.1 billion
issue of new common stock.
Government Finance
Federal sector.

The Treasury borrowed heavily in November and early

December to help finance a record combined deficit of $72 billion in the
fourth quarter.

Of this amount, the Treasury is expected to raise $53

billion in the market,1 and to obtain most of the rest by reducing its
cash balance.

As of mid-December, the Treasury had raised $48 billion

of its fourth-quarter needs, with the rest to be borrowed in regular bill
auctions.

The Treasury also announced a number of coupon auctions to be

held in December for settlement early next year; borrowing in the first
quarter of 1983 is expected to be even greater than in the current quarter.
1. This borrowing projection is well above the Treasury's estimate of
$46.5 billion announced at the time of the mid-quarter financing.

III-11
TREASURY AND AGENCY FINANCING 1
(Total for period; billions of dollars)

1982

1983

FY 82

Nov.P

Dec.f

Q4f

Q1f

-128.0

-25.7

-19.6

-71.8

-59.8

134.9

24.9

24.6

55.7

59.8

142.2
54.6
87.6
-7.3

23.2

24.0
18.5
5.5
.6

53.0
34.1
18.9
2.7

58.4

Treasury financing
Combined surplus/deficit(-)
Means of financing deficit:
(1) Net cash borrowing
from the public
Marketable borrowings/
repayments(-)
Bills
Coupons
Nonmarketable
(2) Decrease in the cash
balance
Memo: Cash balance
at end of period
(3) Other 2

9.6
13.6
1.7

19.3
39.1
1.4

5.2

-10.7

8.9

-10.1

14.1

29.4

5.2

15.3

10.1

2.0

-5.2
1.0

3.8

-8.1

20.5

-1.1

-.3

-1.8

-. 3

-.6

-1.2

11.4

-.2

1.8

Farm Credit Banks

4.0

-. 7

-. 3

-. 9

1.3

Other

1.8

Federally sponsored credit
agencies net cash borrowing 3
FHLB
FNMA

-2.5

p--preliminary.
f--forecast.
1. Numbers reported on a not seasonally adjusted, payment basis.
2. Includes checks issued less checks paid, accrued items and other
transactions.
3. Includes debt of Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, the
Federal Farm Credit Bank System, and the Student Loan Marketing
Association. Excludes mortgage pass-through securities issued by
FNMA and FHLMC. Data for fiscal year 1982, as well as November, are
preliminary.

III-12

Federally sponsored credit agencies repaid an estimated $1.1 billion in debt during November, following a paydown of about $350 million
the previous month.

Federal Home Loan Banks reduced their debt by about

$300 million in November, as thrifts repaid FHLB advances for the fifth
straight month.

Although gross mortgage purchases by FNMA were quite

large, FNMA cut its debt by about $200 million in November.

Mortgage

purchases apparently were financed by a reduction in the agency's liquid
assets and by mortgage sales through the issuance of pass-through securities.

The Federal Farm Credit Banks pared their outstanding liabilities

by an estimated $660 million in November, reflecting generally depressed
loan demand by farmers and perhaps some shift in agricultural credit
demands to other sources.

For example, loans by the Commodity Credit Cor-

poration are estimated to have increased sharply in the past two months.
State and local sector.

Municipal securities markets continued to

experience a deluge of new long-term bond issues in November and early
December.

Gross offerings of tax-exempt bonds were a record $8.0 billion

(seasonally adjusted) in November, exceeding by a slight margin the heavy
October volume.

Even more borrowing is expected for December.

Some of

the stepped-up issuance may well reflect the decline in rates over the
past few months, but in addition there has been a rush to sell bonds
before January 1, the effective date of a new federal law requiring all
municipal securities maturing in one year or more to be sold in registered form, with the owner's name on record.

1. In mid-December an amendment was passed in the House of Representatives
that would postpone for a year the effective date of the registration requirement for municipal bonds. This proposal has yet to be taken up by
the Senate, however.

III-13

Municipal dealers report that the heavy bond volume has been absorbed largely by individuals, either directly or through purchases of shares
in open-end bond funds and unit investment trusts.

Available data suggest

that commercial banks have remained on the sidelines.

However, acquisi-

tions of tax-exempts by property and casualty insurance companies reportedly have picked up somewhat in the last few weeks, even though continued
record underwriting losses discourage their participation on a large scale.
Reflecting the heavy volume of new issues and still weak demand by
major institutional investors, yields on long-term municipal bonds rose
about 20 basis points between the last FOMC meeting and early December.
As of December 9 (latest available), the Bond Buyer indexes were 10.13
percent for general obligations and 10.79 percent for revenue bonds.

The

ratio of tax-exempt to taxable yields rose in November to near its high
levels of earlier in the year (see chart on page

III-14).

Mortgage Markets
In the primary mortgage market, interest rates on conventional home
loans have edged down a bit further since the November FOMC meeting; the
average rate on new commitments at S&Ls for fixed-rate, level-payment home
mortgages was 13.66 percent in early December, about 18 basis points lower
than at the time of the last meeting.

In the more sensitive secondary

markets, rates as of early December had backed up about 10 to 50 basis
points but have retraced most of this rise since then.

In mid-November,

when yields on GNMA-guaranteed securities were falling, the administration
reduced ceiling rates on standard FHA and VA home mortgages one-half percentage point to 12 percent; since then, however, average effective rates
on commitments for FHA-insured level-payment mortgages have remained near

III-14

RATIO OF TAX-EXEMPT TO TAXABLE YIELDS
(Monthly)

Percent
-190

-480

Bond Buyer general obligation
index to FRB recently offered
AAA utility index

1980

1981

1982

STATE AND LOCAL GOVERNMENT SECURITIES OFFERINGS
(Monthly totals or monthly averages, billions of dollars)
1981

1982
e

Year

Oct.

Nov.

Dec.

----------------- Seasonally adjusted ------------Total
Long-term
Short-term 1

6.45
3.65
2.80

8.93
5.25
3.68

-------------Total
Long-term
Mortgage revenue
Short-term 1

6.45
3.65
.53
2.80

9.95
6.40
3.55

12.25
7.90
4.35

12.20
8.00
4.20

15.90
11.00
4.90

Not seasonally adjusted -----------8.65
5.20
.62
3.45

9.70
6.15
1.65
3.55

11.10
8.00
1.40
3.10

13.00
9.20
.90
3.80

e--estimate. f--forecast.
1. These figures do not include tax-exempt commercial paper.

13.50
10.00
1.00
3.50

III-15

13 percent as rates in other long-term markets have shown no discernible
trend.
Although various indicators suggest that mortgage lending activity
may be picking up, hard evidence confirming this remains scanty.

For

example, balance sheet data for S&Ls indicate that overall mortgage lending by these institutions was very weak in October as $931 million in net
acquisitions of mortgage-backed securities offset only a small portion of
a $3.8 billion decline in outright mortgage holdings.1

Nevertheless, new

mortgage commitments at S&Ls were $5.8 billion in October, the same as in
September, but above the $4-1/2 to $5 billion range that prevailed during
the first seven months of the year.

Other evidence suggesting a revival

of mortgage activity has been more indirect.

For example, respondents to

the mid-November Survey of Senior Loan Officer Opinion reported that demand
for mortgage credit at commercial banks had risen, on balance, over the
previous three months. 2

Moreover, the flow of applications for FHA insur-

ance and VA guarantees continued to increase through November; for the
month as a whole, the number of applications for FHA home mortgages rose
to a record 1.2 million seasonally adjusted annual rate.

Some of the

apparent increase in mortgage activity reportedly has been for the purpose
of refinancing, but the aggregate volume of this activity is unknown.

1. There is some doubt about the quality of the October figures. The balance sheet data include the effects of a regulatory accounting change that
permitted associations, beginning in September, to reclassify as "contraassets" (that is, deductions from asset accounts) certain items formerly
reported as liabilities. This change will reduce the reported level of
mortgage loans on an institution's balance sheet, impairing the comparability of recent mortgage data with those for earlier periods. In addition, the change may have caused confusion among S&Ls and, as a result,
may have led to reporting errors on the preliminary October balance sheet.
2. An analysis of the mid-November survey is contained in Appendix B.

III-16

NEW ISSUES OF FEDERALLY GUARANTEED MORTGAGE
PASS-THROUGH SECURITIES
(Millions of dollars, not seasonally adjusted)

Sf
Period

Total

GNMA

1980
1981

23,175
19,351

1982
Q1
Q2
Jul.
Aug.
Sep.
Oct.
Nov.

FHLMC

FNMA

Swap
ther

20,648
14,256

n.a.
2,305

2,527
2,072

n.a.
468

n.a.
250

9,583
10,295

3,200
3,561

4,065
4,592

243
341

1,824
1,549

251
252

5,073
4,792
4,454
5,936
--

1,011
1,384
1,521
1,441
1,564

2,148
2,485
1,703
1,864
1,600e

56
134
222
464
800e

1,858
789
1,008
1,767

0
0
0
400

n.a.--Not applicable.
e - estimate.

Other
Swap I

Other

III-17

addition, home buyers likely are relying less on creative financing arrangements and channeling a greater portion of their mortgage borrowing
through institutional lenders.
In the secondary market, total agency issuance of mortgage passthrough securities reached a new high of $5.9 billion in October, boosted by a surge in new issues of mortgage pass-through securities by FNMA.
Although swap transactions by FNMA and FHLMC continued to account for the
bulk of pass-through volume, an increased share consisted of nonswap issues designed to channel funds to the primary mortgage market.

In Novem-

ber, issuance of pass-through securities guaranteed by GNMA and by FHLMC
picked up a bit.
Consumer Credit
Consumer installment credit contracted slightly in October, the
first decline since December 1981.

All major categories of such credit

weakened appreciably, with particularly large declines registered in both
the automobile and the large "other" categories.

Some strengthening in

auto credit is anticipated for November, however, in light of the rebound
in new car sales.
Interest rates on new car and personal loans at commercial banks
have come down about one percentage point since early August.

Although

these rates remain high, responses to the Senior Loan Officer Survey indicated a greater willingness by banks to make such loans.

Indeed, bank

data show a moderate increase in consumer loans at these institutions in
November.

Since November 1, each of the three major domestic auto makers

has introduced or expanded a low-rate car loan program through its finance
company subsidiary.

The Ford and GM programs apply to sales of 1982-model

III-18

CONSUMER INSTALLMENT CREDIT

1980

1981
Q2

Change in outstandings -- total
By type:
Automobile credit
Revolving credit
All other1

Percent rate of growth, SAAR

0.5
0.4
2.5
-0.3
-

1982
Sept.

6.4

4.8

8.2
8.1
4.1

5.8
10.4
1.5

2.1

Oct.
-

3.9

-1.2

4.8
4.1
3.1

-0.7
2.1
-2.9

Billions of dollars, SAAR -

1.4

19.1

15.7

6.9

13.1

-3.9

By type:
Automobile credit
Revolving credit
All other1

0.5
1.4
-0.4

9.6
4.7
5.6

7.4
6.2
2.1

0.7
3.9
2.4

6.1
2.5
4.5

-0.9
1.3
-4.2

By major holder:
Commercial banks
Finance companies
All other

-7.2
8.4
0.2

5.8
1.4
5.9

-0.6
-4.7
1.4

Change in outstandings --

total

2.3
13.1
4.5

-0.1
10.2
5.6

- - - - - - - Percent, NSA - - - - - - - Interest rates
At commercial banks 2
New cars, 36 mos.
Personal, 24 mos.
Credit cards
At auto finance cos. 3
New cars
Used cars

14.30
15.47
17.31

16.54
18.09
17.78

17.20
18.90
18.41

17.08
18.93
18.73

n.a.
n.a.
n.a.

15.97
17.99
18.75

14.83
19.10

16.17
20.00

15.19
20.83

17.68
20.93

17.35
20.89

16.66
20.78

1. Includes primarily personal cash loans, home improvement loans and sales
finance contracts for non-automotive consumer durable goods.
2. Second quarter figure represents average of "most common" rates charged
during the first week of May; third quarter figure is for first week of August;
October figure is for first week of November.
3. Average rates are for all loans of each type made during the period,
regardless of maturity.

III-19

cars, while the Chrysler program covers selected 1983 models as well.

The

reduced finance rates are under 11 percent at each company, compared with
an average close to 18 percent prior to the reductions.
Delinquency rates on consumer installment loans remained very low
during the third quarter.

At the same time, however, mortgage delinquen-

cies continued to worsen, according to survey data from commercial banks
and FHLBB reports of mortgage delinquency rates at S&Ls.

The FHLBB series

reached a new high in October of 2.21 percent, seasonally adjusted; two
years ago it was around 1 percent.

III-20

CONSUMER AND MORTGAGE LOAN DELINQUENCY RATES
1980

1981

1982

Q2
-

Oct.

Sept.

Percent, seasonally adjusted -

- -

Installment loans
30 days or more past due
Commercial banks
Auto finance companies

2.61
2.27

2.38
1.89

2.19
1.61

2.20
1.62

2.19
1.68

n.a.
1.75

1.03
1.43

1.28
1.52

1.79
1.73

1.96
1.72

2.02
n.a.

2.21
n.a.

Home mortgages
60 days or more past due
Savings and loans
All lenders

Sources: American Bankers Association, Federal Reserve Board, Federal Home
Loan Bank Board, Mortgage Bankers Association.
Note: Mortgage delinquency rate at S&Ls is dollar amount of loans past due
as a percent of the total dollar amount of outstanding principal. All other
series represent the number of loans past due as a percent of the total
number of loans outstanding.

Appendix A*
MONETARY AGGREGATES AND BANK CREDIT IN 1982

Ml is expected to increase 8-1/2 percent in 1982 (see Table 1),
the most rapid fourth quarter-to-fourth quarter rate of expansion

since 1977, and well above the 2-1/4 percent rate of increase posted
in 1981 (after adjusting for shifts to NOW accounts). This surge in
narrow money has occurred despite the sharp reduction in income growth.
M1 growth this year has been approximately 2-1/2 percentage points
greater than that implied by the Board's quarterly money demand equation--given the actual course over the year of income and interest
rates--and has been associated with roughly a 4-1/2 percent drop in
M1 velocity, the largest drop in any four-quarter span since World
War II.
As shown in Table 1, the bulk of the growth in narrow money in
1982 was accounted for by OCDs, which increased more than 34 percent.
The sizable inflows to OCDs coincided with a broad buildup in liquid
assets by the public, including savings deposits, which may have been
attributable to declining open market interest rates and mounting
concerns about future employment and income prospects.
Although the
sharp interest rate declines after mid-year boosted demand deposits in
the second half of 1982, it appears that such accounts will increase
by less than $2 billion on net over the year as a whole.
M2 growth in 1982, at a 9-3/4 percent rate, was a bit faster
than the 9-1/2 percent rate in 1981. However, the 5-1/2 percent
drop in M2 velocity over the year was the biggest four-quarter drop
on record. Much of the expansion in nontransactions-M2 comprised
inflows to its most liquid components: savings deposits, overnight
RPs and Eurodollars, general purpose and broker/dealer money market
mutual fund shares, and retail RPs jointly grew at a 14 percent
rate.
Overall expansion in nontransactions-M2, however, increased
only slightly in 1982.
Growth in small time deposits moderated as
considerably weaker inflows to less liquid deposit accounts-particularly 6-month money market certificates and all savers certificates
(which began maturing in October)-more than offset rapid accumulation
of balances in newly authorized 91-day and 7-to 31-day small-denomination time accounts. Over the year, inflows to both small time deposits
and money market funds were damped by an appreciable narrowing of
interest rate differentials between these assets and fixed-ceiling
instruments. Inflows to general purpose and broker/dealer money
market funds dropped to less than half of their 1981 pace-probably
reflecting as well some flattening of the publics' learning curve
about this instrument-while inflows to small time deposits were off
* Prepared by David S. Jones, Economist, Banking Section, Division of
Research and Statistics.
III-A-1

III-A-2

more than 40 percent. Small time deposits were especially weak in
the fourth quarter, declining on net for the first time since 1960, as
sharply lower open market rates after mid-year evidently encouraged
many investors to place substantial amounts of maturing ASC funds in
OCDs and savings deposits.
Despite significantly smaller spreads between interest rates on
open market instruments and yields on fixed-ceiling deposit accounts,
the fraction of M2 assets bearing indexed-ceiling or ceiling-free
At the end of October 1982
rates of return increased further in 1982.
the proportion of M2 bearing market-related yields was about 52 percent, up five percentage points from a year earlier.
M3 growth ebbed to a 10-1/2 percent rate in 1982--from 11-1/2
percent in 1981--as the pickup in M2 growth and a turnaround in term
RPs failed to offset markedly slower growth of both institution-only
money fund assets and large-denomination time deposits. Reflecting
strength in core deposits at commercial banks and somewhat slower
growth in bank credit, gross issuance of large time deposits by

commercial banks in 1982 has declined sharply (see Table 2).

Expan-

sion of large time deposits net of amounts held by non-money stock
holders, however, is expected to contract by less than the cutback
in gross issuance owing to appreciable runoffs of bank CDs held by
money market mutual funds. Over the year, commercial banks advanced
a substantial volume of funds raised in domestic markets to their

foreign offices as lower interest costs on domestic liabilities
relative to Eurodollar rates favored domestic funding of bank assets.
Growth of commercial bank credit in 1982 was distorted by an
estimated $33 billion of loans and investments shifted from domestic
offices to IBFs, mostly in December of last year and January of this
year. Allowing for these shifts by using a December 1981/January
1982 base, bank credit expanded at a 6-3/4 percent annual rate through
November 1982, 1-1/4 percentage points below that of a year ago
(measured on a fourth quarter-to-fourth quarter basis). Much of the
deceleration from 1981 occurred in business loans, reflecting weak
economic activity and, in the second half of the year, sharply
falling interest rates that encouraged many firms to refinance shortterm indebtedness. Real estate lending also slowed noticeably in the
second half of 1982. Banks responded to falling loan demand in the
face of continued strong core deposit inflows partly by restricting
managed liabilities and partly by adding to investments--mainly
Treasury securities.

III-A-3

Table 1

(Q4

MONETARY AGGREGATES AND BANK CREDIT
to Q4 averages, seasonally adjusted unless noted otherwise)

Annualized
Growth Rates
or Flows

1978

1979

1980

1981

19821

8.3
8.2
11.3
13.5

7.4
8.4
9.8
12.6

7.3
9.2
10.0
9.1

5.0 (2.3)2
9.5
11.4
7.9

27.5
8.8
15.5
2.8

26.7
9.1
7.6
9.7

28.3
9.9
8.4
9.7

20.9
6.5
-34.0
48.2

36.9
9.4
1.7
25.5

106.2
78.8
-2.8
73.6

117.5
90.8
-57.1
119.0

138.5
110.2
-19.7
93.1

156.6
135.7
-66.4
117.4

176.3
139.4
19.6
69.1

3.6

25.1

30.5

82.4

40.2

Growth rates
(annualized percent)

Ml
M2
M3
Bank credit

8.4
9.8
10.4
6.8

Annual flows
($ billions)

Currency
Demand deposits
Other checkable deposits

Nontransactions-M2
Savings deposits
Small time deposits
General purpose, and
broker/dealer money
market mutual fund
assets (NSA)
Overnight RPs and
Eurodollars (NSA)

Non-M2 component
Institution-only
money market
mutual fund
assets (NSA)
Large time deposits
(NSA)
Term RPs (NSA)

11.1
163.7
57.5

157.9
40.4

2.2

49.6

30.3
4.9

176.6
38.1

222.5
65.9

225.3
49.0

6.0

17.0

13.2

27.9

52.1

40.2

5.4

-1.6

2.9

Bank
1. Monetary aggregates data for 1982 reflect December projections.
credit data are through November 1982.
2. Number in parenthesis is rate of Ml growth adjusted for shifts into
NOW accounts.
3. Growth rate for bank credit is calculated from a December 1981/January
1982 base.

III-A-4
Table 2
RELATIONSHIP OF CHANGES IN M3 AND BANK CREDIT
(Billions of dollars)

1981*

=
+

227.7

MMMF assets (NSA)

99.3

51.8

Thrift liabilities

30.9

55.0

Other nonbank assets in M3

8.5

10.1

Commercial bank component of M3

83.8

110.8

26.5

-7.8

110.3

103.0

Core deposits

46.2

74.2

Lar~'e time deposits (gross)1

66.7

37.5

Nondeposit sources1

-1.4

-6.5

Nonbank-M3 sources of funds for banks

Total bank sources of funds

-orrowing1

Oth,
Discre,

222.5

Net Eurodollar borrowing (NSA)1

1982*

icy

Bank Credit

Discrepancy plus other assets
2
less other liabilities

-6.2

-19.6

4.8

12.9

0.2

4.5

107.7

100.3

2.6

2.7

* Data for 1981 reflect the Q4 -1980 to Q4-1981 net dollar flows and for 1982
reflect the flows from Q4-1981 through November.
1. Adjusted to include shifts of assets and liabilities from U.S. banking
offices to IBFs.
2. Includes such items as cash a-sets not included in M3, accrual accounts,
net due from foreign branches, a .crued expenses and capital accounts.

Appendix B*
SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES

Against the backdrop of a weak economy and continued funding
by firms of short-term indebtedness, business loans at large commercial banks contracted in November. Moreover, nearly nine tenths of
the 60 large commercial banks participating in the November 15, 1982,
Survey of Senior Loan Officer Opinion on Bank Lending Practices
expected business loan demand not to strengthen through mid-February.
Indeed, almost one third of the sampled banks anticipated loan demand
to weaken further in the coming months, the same fraction as in the

previous (mid-August) survey.
As loan demand on balance has fallen off in recent months,
banks have continued to cut their prime rate, bringing it into
closer alignment with short-term open market rates. At the time
of the November survey, the spread between the prime and one-month
commercial paper rates was about 315 basis points, down from 460
basis points in mid-August. Other aspects of lending terms, however,
Eighty percent of the respondents reported
appear largely unaltered.
no change in compensating balance or fee requirements for business
loans compared with three months earlier, and almost as many banks
indicated no change in standards to qualify for the prime.1 About
70 percent of the sample reported essentially unchanged standards
to qualify for given spreads above prime.
Continuing the trend that became evident in the February 1982
survey, respondents reporting a more restrictive stance on lending
to new and nonlocal business customers greatly outnumbered those
indicating an easier stance. By contrast, almost half of the sample
expressed greater willingness to make consumer installment loans to
individuals, three times the fraction so reporting in August, while
no respondents indicated reduced willingness. Factors cited by banks
for this change in willingness included wider spreads between interest
rates on consumer loans and banks' cost of funds and, for Michigan
banks, the removal of usury ceilings in that state.
Responses to the first supplemental question dealing with
changes in credit quality revealed continued deterioration in the
financial condition of existing business loan customers at surveyed
banks. For the third consecutive survey, more than 85 percent of the

* Prepared by David S. Jones, Economist, Banking Section, Division of
Research and Statistics.
1. Several very large banks noted that, although standards to qualify
for the prime rate had remained essentially unchanged, standards to
qualify for below-prime loans had firmed.

III-B-1

III-B-2

panel perceived an erosion during the past three months in the
average financial condition of customers to whom they had business
loans outstanding (see table below). In addition, about 40 percent

FINANCIAL DETERIORATION OF BUSINESS LOAN CUSTOMERS
Fraction of Panel Reporting Deterioration in
Average Financial Condition of Selected Customers

Survey Date

November 1981
February 1982
May 1982
August 1982
November 1982

Customers Having
Outstanding Loans
(percent)

New Loan
Applicants
(percent)

56.7
70.0
88.3
88.3
86.7

38.3
32.2
39.7
56.7
41.7

of the respondents indicated a deterioration in the average financial
condition of new loan applicants. More than 40 percent of the sample
reported increases in delinquency rates on home mortgages--double the
fraction so reporting in August--while 25 percent of the banks noted
deteriorations in delinquency rates on consumer installment loans,
about the same fraction as reported improvements. 1
The housing, real estate, and construction industries continued
to be the most frequently cited business sector where financial deterioration has occurred, both for existing borrowers and for new loan
applicants. Also cited heavily were the agricultural machinery,
energy, manufacturing, capital equipment, and automotive-related
industries. About one third of the respondents reported financial
deterioration across the board.
As in previous surveys, the majority of affected banks reacted
to deterioration in the credit quality of new applicants for business
loans by increasing rejection rates, while banks noting deterioration
in the financial condition of existing borrowers responded by requiring
additional collateral or restructuring payments, often in combination
with other measures. 2 Banks responded to delinquencies on home mortgages and consumer installment loans primarily by repossessing collateral, restructuring payments, or some of each.
1. Since delinquency rates on home mortgage loans typically rise
near year-end, part of the deterioration in delinquency rates on
these loans from August to November may reflect seasonal influences.
However, the Federal Home Loan Bank Board series on mortgage delinquency rates at S&Ls (available through October), which is seasonallyadjusted, also has shown a rise since August.
2. Other measures cited by banks include the waiving or removal of
covenants, and closer monitoring of existing credits.

III-B-3

Reflecting the substantial drop in mortgage rates in recent
months, there are signs of a pickup in home mortgage activity at
surveyed banks. In response to a second set of supplemental questions dealing with home mortgage activity, more than 40 percent of
the respondents offering home mortgages reported stronger demand for
commitments to make first mortgage loans compared with three months
earlier, roughly three times the fraction noting weaker demand for
commitments. Forty percent of the panel noted a shift in the composition of demand for home mortgage credit toward fixed-rate loans,
perhaps reflecting borrowers' concerns about a future backup in
interest rates. In contrast, less than 20 percent of the sample-mainly banks with under $5 billion in assets--expressed a greater
willingness to make such loans, while the great majority of banks
indicated no change in policy.
In making new home mortgage commitments, sampled banks appeared
to some extent to specialize in either fixed- or adjustable-rate
loans; about one third of the panel reported that the share of new
commitments made in October comprising fixed-rate loans was between
0 and 25 percent, and around half reported that the share was between
76 and 100 percent. 1 Even though most respondents reported that the
bulk of their new home mortgage commitments were for fixed-rate loans,
however, only one fourth of the panel reported that the fraction of
commitments accounted for by fixed-rate loans in October was higher
than in August. Nearly 85 percent of those banks offering fixed-rate
home mortgages, but less than 40 percent of those offering adjustable-rate mortgages, indicated they did so with the intent to sell
the loans in the secondary market.
Respondents indicated on average that about 90 percent of their
current home mortgage lending was for the purchase of a home, with the
remainder used chiefly to refinance existing mortgages. 2 At certain
institutions, however, the share attributable to refinancings deviated
markedly from the average, ranging from near zero to as much as 60
percent of total mortgage lending. About one fourth of the panel
reported that refinancings accounted for a larger proportion of new
home mortgage loans than three months ago.

1. Several banks that cited proportions in the lower range noted that
most of their fixed-rate commitments were to finance sales of foreclosed properties, to help beleaguered home builders, or to assist
corporate clients that relocate personnel.
2. On average, respondents reported that mortgage loans for other
purposes--such as for home improvements, or other expenditures--made
At some
up less than two percent of their total mortgage lending.
banks, however, this share was as large as 20 percent.

III-B-4

SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES
AT SELECTED LARGE BANKS IN THE U.S.
(Status of policy on November 15, 1982 compared to three months earlier)
(Number of banks and percent of total banks answering question)
(By size of total domestic assets, in billions1)
CORE QUESTIONS

1. Strength of demand for commercial
and industrial loans anticipated
in next 3 months (after allowance
for usual seasonal variation):
All respondents
$5 and over
under $5

Much

Moderately

Essentially

Moderately

Much

Stronger

Unchanged

Weaker

Banks

Pct

Banks

Pct

0
0
0

0.0
0.0
0.0

8
3
5

13.3
11.1
15.2

Much
Firmer
Banks
Pct
2.

Moderately
Firmer
Banks
Pct

Banks

33
16
17

Pct

Banks

55.0
59.3
51.5

18
7
11

Essentially
Unchanged
Banks
Pct

Pet

30.0
25.9
33.3

Moderately
Easier
Banks
Pet

Total Banks
Answering

Banks

Pct

1
1
0

1.7
3.7
0.0

60
27
33

Much
Easier
Banks
Pct

Standards to qualify for prime
rate:
All respondents
$5 and over
under $5

1
1
0

1.7
3.7
0.0

8
2
6

13.3
7.4
18.2

46
20
26

76.7
74.1
78.8

5
4
1

8.3
14.8
3.0

0
0
0

0.0
0.0
0.0

60
27
33

Standards to qualify for spread
above prime:
All respondents
$5 and over
under $5

0
0
0

0.0
0.0
0.0

11
4
7

18.3
14.8
21.2

41
21
20

68.3
77.8
60.6

8
2
6

13.3
7.4
18.2

0
0
0

0.0
0.0
0.0

60
27
33

Stance on C&I lending to new and
nonlocal customers:
All respondents
55 and over
under S5

1
0
1

1.7
0.0
3.0

12
7
5

20.0
25.9
15.2

46
20
26

76.7
74.1
78.8

1
0
1

1.7
0.0
3.0

0
0

0.0
0.0'
n.n

h0
27
33

1
0
1

1.7
0.0
3.0

5
4
1

8.3
14.8
3.0

48
22
26

80.0
81.5
78.8

6
1
5

10.0
3.7
15.2

0
0
0

0.0
0.0
0.0

60
27
33

5. Coopensating balance or fee
requirements for C&I loans:
All respondents
$5 and over
under $5

Considerably
Greater
Banks
Pct
6. Willingness to make installment
loans to individuals:
All respondents
$5 and over
under $5

7
1
6

12.1
4.0
18.2

Moderately
Greater
Banks
Pct

20
7
13

34.5
28.0
39.4

Essentially
Unchanged
Banks
Pct

31
17
14

53.4
68.0
42.4

Moderately
Less
Banks
Pet

0
0
0

0.0
0.0
0.0

Much
Less
Banks
Pct

0
0
0

0.0
0.0
0.0

58
25
33

1. As of June 30, 1982, there were 27 banks having domestic assets of $5 billion or more. Their combined assets tocalled $506 billion compared to $602 billion for the entire panel and $1.72 trillion for all insured commercial banks.

III-B-5

SUPPLEMENTAL QUESTIONS
S.l.a

With regard to commercial and industrial lending, has there been a change over the last three months in the financi
condition of customers to whom your bank has loans outstanding?
Total Ba
No Change
Improvement
Deterioration
Answerir
Banks
Pet
Banks Pet
Banks
Pet
All respondents
8
1377
867
0
0.0
60
$5 and over
1
3.7
0
0.0
26
96.3
27
under $5
78.8
7
21.2
0
0.0
26
33

T5-

S.l.b

If there has been deterioration, how has your bank responded?

Increase
Collateral
Banks Pet
All respondents 3
5.8
2
7.7
$5 and over
3.8
1
under $5

S.l.c

Restructure
Payments
Banks Pet
5
8.8
3
11.5
7.7
2

Other
Banks Pet
2
3.8
1
3.8
3.8
1

Increase
Collateral
and
Restructure
Banks
Pet
46.2
24
46.2
12
12
46.2

Restructure
and Other
Banks
Pet
0
0.0
0
0.0
0
0.0

Add
Collateral,
Restructure
Payments,
and Other
Banks
Pet
19
33.3
8
30.7
10
38.4

Total Ban
Answerin
52
26
26

If there has been deterioration, in which industries has the above-normal deterioration been concentrated?
Housing,
Real Estate
and
Construction
Banks Pet
T17 13.1
8
10.5
9
16.7

Across
the Board
2
Banks Pet
All respondents 18
13.8
11
14.4
$5 and over
7
13.0
under $5

Transportation
Banks Pet
All respondents 9
6.9
$5 and over
6
7.9
5.6
3
under $5

Energy and
Related
Banks Pet

11.5

10
5

13.2
9.3

Autos
and
Related
Industries
Banks Pet

12
7
5

Retail
Banks
4
9.2
9.2
3
9.2
1

International
Credits
Banks
Pet
5
3.8
1
1.3
4
7.4

Pet
3.1
3.9
1.9

Agricultural
Machinery
Banks
Pet

Mining
Banks Pet
3
2.3
2
2.6
1
1.9

l23

9
7

11.8
13.0

Wholesale
Banks
Pet
1
0.8
0
0.0
1
1.9

Building
Materials
Banks Pet
All respondents
$5 and over
under $5

37.8

4
1

5.3
1.9

Manufacturing
Banks
Pet
13
10.0
7
9.2
6
11.1

2. The number of times an industry was cited is shown under the heading "Banks".
citations is shown under the heading "Pct".

Capital
Equipment
Banks Pet
12
9.2
8
10.5
4
7.4
Total
Industry
Citations

This number as a percent of total industry

III-B-6
S.2.a

b.2.b

With regard to commercial and industrial lending, has there been a change over the last three months in the average
financial condition of applicants for new loan extensions from your bank?
Total Banks
Answering
Improvement
Deterioration
No Change
Banks Pct
Banks Pet
Banks Pct
60
0
0.0
25
41.7
58.3
All respondents 35
27
12
44.4
0.0
0
$5 and over
15
55.6
33
39.4
13
0
0.0
20
60.6
under $5

If there has been deterioration, how has your bank responded?

Higher
Rejection Rate
Other
Banks Pet
Banks Pet
All respondents 14
56.0
3
12.0
>5 and over
6
50.0
2
16.7
7.7
1
8
61.5
under $5

b.2.c

Higher Rejection
Rate and
Other
Banks Pet

32.0

33.3

30.8

Total Banks
Answering
25
12
13

If there has been deterioration, in which industries has it been concentrated?

Housing,
Across
the Board
Banks Pct
14.8
All respondents 9
$5 and over
5
14.3
4
15.4
under $5

and

Construction
Banks Pct

Transportation
Banks Pct
3.3
All respondents 2
2
5.7
$5 and over
0.0
0
under $5

All respondents
$5 and over
under $5

Autos

Real Estate

Building
Materials
Banks Pet
3
4.9
3
8.6
0
0.0

Industries
Banks Pct

Agricultural
Retail
Banks
Pet

16.4

3T-

4
6

11.4
23.1

4
3

11.4
11.5

0
2

0.0
7.7

Energy and
Related
Banks
Pet

9.8

5
1

14.3
3.8

International
Credits
Banks
Pet
3
47
2
5.7
1
3.8

Machinery
Banks
Pet

4
2

Mining

Banks
1
1
0

.78

Manufacturing
Banks
Pct
87
5

11.4
7.7

5.7
11.5

2
3

Wholesale

Capital
Equipment
Banks Pct

Pct

Banks

Pct

1.6
2.9
0.0

0
0
0

1i.5

0.0
0.0

3
4

8.6
15.4
Total
Industry
Citations

61
35
26

III-3-7

6.3.a

With regard to mortgage and installment loans to individuals, have there been increases over the last three months
the delinquency rates at your bank?
Total Banks

No Change
Banks Pct

Improvement
Banks Pct

Deterioration
Banks Pct

Answering

mortgages

S.3.b

All respondents 25

43.9

12.3

43.9

$5 and over
under 45

44.0

lb.0

40.0

43.8

9.4

46.9

Installment
Loans
All respondents 32-

56.1

21.1

22.8

$5 and over
under $5

56.0
56.2

6
6

24.0
18.8

5
8

20.0
25.0

25
32

14
18

If there has been deterioration, how has your bank responded?

Repossess

Collateral
Repossess

Restructure

Collateral
Banks Pct

Payments
Banks Pct

Repossess

and

Restructure
Banks Pet

Other
Banks
Pet

Restructure

Total Banks

and Other
Banks
Pct

Answering

nlortgages

S.4.a

All respondents
$5 and over
under 45

4
0
4

16.0
0.0
26.7

3
2
1

12.0
20.0
6.7

10
5
5

40.0
50.0
33.3

7
2
5

28.0
20.0
33.3

1
1
0

4.0
10.0
0.0

25
10
15

Installment
Loans
All respondents
$5 and over
under $5

0
0
0

0.0
0.0
0.0

2
2
0

15.4
40.0
0.0

4
1
3

30.8
20.0
37.5

6
1
5

46.1
20.0
62.5

1
1
0

7.7
20.0
0.0

13
5
8

Abstracting from normal seasonal patterns, please indicate how the current demand at your bank for commitments
to make first mortgage loans on homes compares with the demand three months ago?

All respondents
55and over
under $5

Much
Stronger
Banks Pet
23.4
11
9.5
2
33.3
9

Moderately
Stronger
Banks Pet
19.1
9
23.8
5
4
14.8

Essentially
Unchanged
Banks Pet
21
44.7
10
47.6
40.7
11

Moderately
Weakereak
Banks Pct
10.6
5
19.0
4
3.7
1

Much
aker
Banks Pct
1
2.1
0
0.0
3.7
1

Total Banka
Answerin
47
21
27

III-B-8

S.4.b

Currently, what percentage of total home mortgage lending at your bank is for the purpose of:
A. Purchasing a home?
26 - 50%

0 - 25%

All respondents
$5 and over
under $5

Banks
0
0
0

Pct
5TU
0.0
0.0

51 - 75%

Banks

Pet

Banks

777

~T- 77

3
0

15.0
0.0

1
2

Pet
5.0
8.7

76 - 100%
Banks Pet

37-

87Z

16
21

80.0
91.3

Average
Response
87.6%
83.1%
91.5%

Total Banks
Answering
43
20
23

B. Refinancing an existing mortgatge?

all respondents
$5 and over
under $5

0 Banks
38
16
22

25%
Pct
88.4
80.0
95.7

26 - 50%

Banks Pet
5
11.6
4
20.0
1
4.3

51 - 75%

Banks
1
1
0

Pct
2.3
5.0
0.0

76 - 100%
Banks Pct
0
0.0
0
0.0
0
0.0

Average
Response
10.9%
15.5%
6.9%

Total Banks
Answering
43
20
23

C. Other?

All respondents
45 and over
under 45

S.4.c

26 - 50%
Banks Pet
1
2.3
1
5.0
0
0.0

51 - 75%

Banks
0
0
0

Pct
0.0
0.0
0.0

76 - 100%
Banks Pct
0.0
0
0.0
0
0.0
0

Average
Response

Total Banks
Answering

1.5%

43
20
23

1.4%
1.6%

how does the percentage accounted for by refinancing compare with three months ago?

All respondents
45 and over
under $5
b.5.a

0 - 25%
Banks Pct
42
97.7
19
95.0
23 100.0

Much
Greater
Banks Pct
8
18.6
3
15.0
5
21.7

Moderately
Greater
Banks
Pet
3
7.0
3
15.0
0
0.0

Essentially
Unchanged
Banks
Pet
30
70.0
13
65.0
17
73.9

Moderately
Smaller
Banks Pet
4.7
2
1
5.0
1
4.3

Much
Smaller
Banks Pet
0
0.0
0
0.0
0
0.0

Total Banks
Answering
43
20
23

Compare your bank's willingness to make fixed-rate home mortgages with its stance three months ago?

All respondents
$5 and over
under $5

Much
Greater
Banks Pct
5
11.1
1
4.8
4
16.7

Moderately
Greater
Banks Pet
3
6.7
2
9.5
1
4.2

Essentially
Unchanged
Banks Pet
33
73.3
14
66.7
19
79.2

Moderately
Less
Banks Pet
4
8.9
4
19.0
0.0
0

Much
Less
Banks Pet

0
0
0

0.0
0.0
0.0

Total Banks
Answering
45
21
24

III-B-9

.5.b

During the past three months, as interest rates have fallen, has there been a noticeable shift in the composition
of demand for home mortgage loans toward (or away from) fixed-rate mortgages?
Considerable
Toward
Banks Pct
All respondents
>5 and over
under $5

b.5.c

1778

2772

4
4

19.0
16.7

5
5

23.8
20.8

all respondents
$5 and over
under $5

Considerable
Away
Banks
Pet
0
0.0
0
0.0
0
0.0

Total Banks
Answering
45
21
24

Banks Pet
14
31.1
6
28.6
8
33.3

26 - 50%

Banks

2
1

Pct

577
9.5
4.2

51 - 75%

Banks

Pct

~-- 11.1
1
4

4.8
16.7

Total Banks
Answering

76 - 100%
Banks Pct

-3

51.1

12
11

57.1
45.8

21
2.

Much
Greater
Banks Pct
4
9.8
1
4.8
3
15.0

Moderately
Greater
Banks Pet
6
14.6
3
14.3
3
15.0

Essentially
Unchanged
Banks Pet
30
73.2
16
76.2
14
70.0

Moderately
Smaller
Banks Pct
1
2.4
4.8
1
0.0
0

Much

Smaller
Banks
0
0
0

Total Banks
Answering

Pct
0.0
0.0
0.0

41
21
20

Do you generally make fixed-rate home mortgage loans with the intent to hold them or, rather, to sell them?

All respondents
$5 and over
under $5

b.5.f

Moderate
Away
Banks Pet
1
2.2
1
4.8
0
0.0

how doesthis percentage compare with the percentage for August?

All respondents
$5 and over
under $5
S.5.e

Essentially
Unchanged
Banks Pet
-257711
52.4
15
62.5

Approximately what percentage of your total new commitments made in October for home mortgage loans comprised
fixed-rate loans?

0 - 25%

b.5.d

Moderate
Toward
Banks Pct

Hold
Banks Pct
5
12.2
2
9.5
3
15.0

Sell
Banks Pet
85.4
35
18
85.7
17
85.0

Other
Banks Pct
1
2.4
4.8
1
0
0.0

Total Banks
Answerinc

Do you generally make adjustable-rate home mortgages loans with the intent to hold them or, rather, to sell
them?

All respondents
5 and over
under $5

Hold
Banks Pct
18
56.3
53.3
8
10
58.8

Sell
Banks Pet
37.5
12
6
40.0
35.3
6

Other
Banks Pet
2
6.3
6.7
1
5.9
1

Total Banks
Answering

INTERNATIONAL DEVELOPMENTS

Foreign Exchange Markets
Since the November FOMC meeting, the dollar has depreciated by 4
percent on a weighted average basis.

Most of the dollar's decline has

been against the yen and Continental European currencies.

The chart in

the lower panel on the next page shows the substantial bilateral rate
changes among the major currencies.

Since the beginning of November, the

dollar has depreciated by 12 percent against the yen, 6 percent versus
the mark, and has appreciated by 4 percent against the pound.

The overall depreciation of the dollar seems largely attributable to market reassessment of the trade and current account prospects
for the United States.

Statements by several U.S. government officials

and private forecasters suggesting a substantial widening of the trade
deficit next year, in addition to a large monthly deficit reported in
October, helped to heighten market awareness of the long run effects on
trade of the dollar's appreciation over the last two years.
The dollar recent depreciation against Continental European
currencies has not been associated with a relative decline in dollar
interest rates.

Although short term dollar interest rates have fallen

slightly over the last month, rate declines have been larger in several
European countries.

The Bundesbank reduced its Lombard and discount

rates by one percentage point, and official lending rates were also
lowered 1 percentage point in Denmark and Austria.

Official rates were

lowered by 1/2 percent in Switzerland and the Netherlands, while the Bank
of France lowered its money market intervention rate by 1/4 percent.
Market rates in Japan have not changed, and this has been a factor
IV-1

IV-2

GHTED AVERAGE EXCHANGE VALUE OF THE U.S. DOLLAR

March 1973=100
1128

series
November 16

-- 126

124

122

120

I1111111111

1111111

SEPTEMBER

11111111111111111

1 I

l l

OCTOBER

I
I I
IIII
NOVEMBER

111I

111 1 8

1111111111111111

DECEMBER

1 Sept.=100

SELECTED DOLLAR EXCHANGE RATES

110

Dily series

106

POUND

1102
1

\ ,...

MARK

1.1
.

SEPTEMBER

NOVEMBER

OCTOBER

1982

YEN
YEN

DECEMB!

IV-3
contributing to the yen's strength against European currencies as well as
against the dollar.
The decline of the pound has been largely attributed to the
current weakness in world oil markets.

Sterling interest rates increased

by one and a half percentage points following actions by the Bank of
England to tighten liquidity,

French officials announced that they have decided to
draw down the entire $4 billion credit arranged in October to help defend
the franc.

The new President of Mexico was inaugurated two weeks ago, and
has announced some of the details of an economic reorganization program.
Some controls on foreign exchange trading in Mexico will be lifted as of
next Monday, which will effectively reinstate a freely floating foreign
exchange market.

In addition, a controlled foreign exchange market will

be maintained, at rates fixed daily by the Bank of Mexico, for the purpose
of subsidizing certain imports and debt payments.

At the same time,

Mexico has requested a rescheduling of $20 billion of principal payments
on public sector loans maturing before the end of 1984, and has also asked
to borrow an additional $5 billion from private foreign banks during
1983.

IV - 4

U.S. International Financial Transactions
U.S. banking offices (including IBFs) brought in $5 billion from
their own foreign offices between September and November, as shown in
line 1 (a) below.

The inflow of funds to the domestic offices of U.S.

banks appears, in part, to reflect the easing of the financing problems
faced by a number of major banks during the summer, when their non-U.S.
offices were having difficulties raising funds.

One manifestation of

these problems was the $4.5 billion third-quarter fall in the Eurodollar
holdings of U.S. nonbanks -- see line 3. However, it appears likely
that growth in such holdings has resumed in the fourth quarter and this
International Banking Data
(billions of dollars)
1980
Dec.
1.

U.S. Offices' Banking
Positions vis-a-vis Own
Foreign Offices 1/
(a)
Total
(b) U.S.-Chartered Banks
(c) Foreign-Chartered Banks

2. Credit Extended to U.S. Nonbank Residents by Foreign
Branches of U.S. banks 2/
(a) Total
(b)
New York Banks Only
3. Eurodollar Holdings of U.S.
Nonbank Residents 3/
1/ Average of Wednesday,
2/ Daily Averages.
3/ End of month.

6.5
-15.2
21.7

4.2
2.7
60.8

1981
Dec.

Mar.

June

1 982
Sept.

Oct.

Nov.

9.2
-8.9
18.1

10.7
-2.8
13.5

16.6
2.8
13.8

5.9
-5.0
10.9

7.1
-4.9
12.0

10.9
-1.8
12.7

13.2
8.8

13.8
9.1

14.2
9.7

16.1
11.4

16.0
11.4

15.7
11.1

93.6 104.1 116.0 111.5

n.a.

net due to own foreign office = (+).

IV - 5
Summary of U.S. International Transactions
(in billions of dollars)

Private Capital
Banks
1. Change in net foreign positions of banking
offices in the U.S. (+ = inflow)
a) with own foreign offices
b) all other
Securities
2. Private securities transactions, net
a) Foreign net purchases (+) of U.S.
corp. bonds
b) Foreign net purchases (+) of U.S.
corp. stocks
c) U.S. net purchases (-) of foreign
securities
3.

Foreign net purchases (+)
obligations 1/

of U.S.

1 9 81

-34.7

-19.9

-4

.I
-31.3
1.4

-20.8

-2.5

1982
Sept.

Q- 2

Q-3

Aug.

-1.2 -14.6

-14.7

-3.6

-8.8

-3.7

-.
4.1

-4.3
T
-4.5 -3.9

-3.0

-1.1

-1.7

-1

-8.2 -10.9

2.1

a) By area
G-10 countries and Switzerland
OPEC
All other countries
b) By type
U.S. Treasury securities
Other 2/
Changes in U.S. official reserve assets
(+ = decrease) 3/

Other transactions (Quarterly data)
6. U.S. direct investment (-) abroad
7.
Foreign direct investment (+) in U.S.
8.
Other capital flows (+ = inflow) 4/ 5/
9. U.S. current account balance 5/
10.
Statistical Discrepancy 5/

2.2

-1.1

2.1

1.7

-. 1

-. 2

4.7

-. 3

-. 5

-. 4

1.3

2.0

1.0

1.7

-. 6

1.8

-5.5

-2.9

-3.1

-1.3

2.5

1.1

5.1

8.1

-3.0

1.6

2.6

-10.8
12.7
3.3

.8
1.9
5.4

-6.8
5.0
-1.1

-4.7
2.7
3.6

1.5
*
1.1

5.0
.1

4.4
3.7

-1.3
-1.6

-2.1
3.7

4.9
-2.3

-1.1

-. 8

-. 2

-0.1
1.2
-4.0
1.1
5.0

2.3
2.7
1.5
2.1
1.4

n.a.
n.a.
n.a.
n.a.
n.a.

-5.2
-8.7
21.3
-12.0
4.5
25.8

MEMO:
U.S. merchandise trade balance -- part of line 9
(Balance of payments basis, seasonally adjusted) -27.9

-1.2 -1.6

-1.0
9.3
-4.0
-0.9
9.5

-9.2

-5.9

-5.8

-12.4

Details may not add to total because of rounding.

3.3

* -2.1
.2
.6
1.4 1.7

-1.7
1.0

-6.4

1.8
-. 1
* -1.0

n.a.
n.a.
n.a.
n.a.
n.a.

-2.9 -5.5

Includes U.S. Treasury notes publicly issued to private foreign residents.
Includes deposits in banks, commercial paper, acceptances, & borrowing under repurchase agreements.
Includes newly allocated SDR's of $1.1 billion in January 1981.
Includes U.S. government assets other than official reserves, transactions by nonbanking concerns,
allocations of SDRs, and other banking and official transactions not shown elsewhere.
5/ Includes seasonal adjustment for quarterly data.
*/ Less than $50 million.

1/
2/
7/
2/

NOTE:

Oct.

Treasury

Official Capital
4. Changes in foreign official reserve assets
in U.S. (+ = increase)

1981
Year

IV - 6

resurgence is refected in the strong $3 billion addition to the Eurodollar holdings of money market mutual funds during the October-November
period.
The recent pace of Eurobond issuance of U.S. corporate borrowers
has weakened considerably from the $1 billion average monthly rate for
the August-November period.

There has not been a single Eurobond issue

Moreover, payments for Eurobonds placed by U.S.

since late November.

corporate borrowers in November were only a fraction of the $1 billion
volume issued, because much of the activity was in so-called delayedpayment offerings.

Under such arrangements, Eurobond investors only

have to pay for part of their purchases initially (typically 25 per
cent) and have several months to pay the balance.
U.S. official reserve assets rose by over $3 billion in October
and November as the Treasury and Federal Reserve made short-term
advances to Brazil and Mexico, and the U.S. reserve position with the
IMF also increased as the Fund advanced dollars to member countries.
This jump in U.S. official reserve assets added to the Treasury's
borrowing requirement from the public in those months.
U.S. Merchandise Trade
In October, the U.S. merchandise trade deficit was $65 billion
at an annual rate.

Thus far in the second half of the year the deficit

has increased substantially from first-half average rates.

For the

July-October period the deficit was $30 billion annual rate larger than
in the first half of the year; the decline in exports was about equal
to the rise in imports.

IV - 7

Both agricultural and nonagricultural shipments contributed to
the drop in total exports.

About 60 percent of the drop since mid-year

was in the value of agricultural exports.

Sharp declines in the volume

shipped (particularly wheat and corn) accounted for two-thirds of the
value decrease.

The decrease was in response to good crops world-wide

and sluggish demand from the developing countries, Western Europe, and
Eastern Europe.

Grain exports to the

U.S.S.R. dropped from 3.4 million

metric tons in the first half to close to zero in July-October.
The decline in nonagricultural exports since mid-year was largely
in industrial supplies (especially coal and fertilizer), civilian aircraft, and automotive exports to Canada.

The value of machinery

exports (one-third of nonagricultural exports) was about the same in
July-October as in the first half of the year.

Nonagricultural exports

U.S.Merchandise Trade*
1981
Year

1 Half

236.3
44.3
192.0

221.8
42.3
179.4

Imports
Oil
Nonoil

264.1
77.6
186.6

Trade Balance

July-Oct.

1 9 8 2
2Q

Sept.

Oct.

206.5
33.3
173.2

220.4
42.7
177.7

209.7
33.6
176.1

215.6
32.2
183.4

196.9
32.3
164.6

245.1
58.1
186.9

260.3
66.2
194.0

243.5
53.7
189.8

259.6
65.9
193.7

250.8
57.3
193.5

262.4
67.4
195.0

-27.9

-23.3

-53.8

-23.1

-49.8

-35.2

-65.5

Volume (Bil. $, SAAR)
Exports - Agric.
- Nonagric.

18.1
70.5

18.9
62.5

15.8
61.1

19.3
62.1

15.9
62.2

15.4
65.2

15.6
57.8

Imports - Oil
Nonoil

5.9
71.9

4.8
71.2

5.5
75.6

4.5
72.7

5.5
75.5

4.8
76.2

5.6
75.6

Value (Bil. $, SAAR)
Exports
Agricultural
Nonagricultural

*/International transactions and GNP basis.

Monthly data are estimated.

IV -

continued to be adversely affected by weak economic conditions in major
trading partners and decreasing price competitiveness caused by the
appreciation of the dollar.

By area, most of the decline in non-

agricultural exports was in shipments to the developing countries (with
about one-third of that decline to Mexico alone).
The increase in imports since mid-year was evenly split between
the value of oil and nonoil imports.

Oil imports in July-October were

nearly 1 million barrels per day greater than the first-half average
(partly a result of a large inventory draw-down in the first-half and
some inventory buildup in July and August).

On average, oil import

prices were slightly higher in July-October, reflecting the delayed
impact of a temporary increase in spot market prices during late spring.
In September and October oil import prices moved slightly under $31 per
barrel.
The increase in nonoil imports since mid-year was in foods
(particularly coffee), industrial supplies (other than steel), consumer
goods, and automotive products from Japan and Europe.

Steel imports

fell sharply since mid-year with both price and volume declining
primarily in response to weak U.S. demand.

In the case of steel imports

from the European Community (the source of one-third of steel imports)
the decline can also be partly attributed to the threat of countervailing duties becoming effective October 21 unless agreement was
reached the same day, October 21.)

By area, much of the import in-

crease was from the developing countries. The volume of nonoil imports
increased, despite sluggish U.S. economic activity, at least partly in

IV -

response to declining import prices as the exchange value of the
dollar appreciated.

1 9 8 2

1981

Oil Imports

Year

Volume (mbd, SA)
Price ($/BBL)
Value (Bil$ SAAR)

6.25
34.00
77.6

1 Half
5.07
30.87
58.1

July-Oct.

5.91
31.14
66.2

4.82
30.53
53.7

3Q
5.78
31.23
65.9

Sept.

Oct.

5.20
30.82
57.3

5.97
30.95
67.4

IV - 10

Foreign Economic Developments.

Economic activity in the major in-

dustrial countries continued to contract on balance during the third
Real output declined in Italy, Canada and France while it rose

quarter.

In Canada, real output last quarter

weakly in the United Kingdom and Japan.

had fallen to a level almost 6 percent below that of a year earlier and only
in Japan was there a significant year-over-year increase in the third
quarter.

As shown in the chart, industrial production in the six major

foreign industrial countries has fallen to early 1979 levels.

The unemploy-

ment rate in October was unchanged at post-war highs in France and Canada
and continued to rise in Germany.
The deceleration of consumer prices that began in the major industrial
countries late last year continued into October, when the year-over-year
increase in this measure of inflation fell below 8 percent for the first
time in over three years (see chart).

The abatement of wholesale price

increases in these countries generally has been even more pronounced.
Double digit inflation, which a year ago characterized both wholesale and
retail price indexes in several countries,

by October persisted only in

Italy.
Monetary conditions abroad have continued to ease, as the German
Bundesbank lowered its official rates by a full percentage point and the
Swiss National Bank reduced its lending rate by 1/2 percentage point on
December 2.

In response, lending rates were also reduced by the central

banks of the Netherlands and Austria.

In the United Kingdom and Canada,

however, the authorities have acted to resist recent declines in market rates
in light of downward pressures on their currencies.

Money growth continues

to be near or above the upper end of target ranges in Germany, France, and,

IV -

INDUSTRIAL PRODUCTION IN 6 MAJOR COUNTRIES*

1973 = 100

(MONTHLY)

S116

- 112

- 108

- 104

RATES OF CHANGE OF CONSUMER PRICES IN 6 MAJOR COUNTRIES*
(PERCENTAGE CHANGE FROM PREVIOUS YEAR, MONTHLY DATA)

PERCENT
-- 14

-112

-110

1979

1980

1981

1982

*Trade-weighted average of Canada, France, Germany, Italy, Japan, U.K.

IV - 12

for sterling M3, in the United Kingdom.

In Canada, where the effects of

financial innovation have helped to keep M1 persistently below its target
range for an extended period of time, monetary aggregate targeting was
officially abandoned in November.
Individual Country Notes.

Following an especially steep decline in

the third quarter, industrial production in Germany fell again in October
to a level no higher than that of end-1976.

German steel production in

October was reported to be almost 30 percent below its year-ago level, and
more than one-half of the industry's workers are employed on a part time basis.
The rate of unemployment has continued to rise, reaching 8.4 percent
in October and probably climbing higher in

November.

Survey information

gathered in September indicated a further worsening of the business climate
generally.

The volume of orders in

September 1981,

that month was about 13 percent below

with weakness about evenly distributed between domestic

and foreign demands.
The rate of consumer price inflation has continued to slow, with
the index for November rising 0.2 percent from the previous month and 4.7
percent from November 1981.

The performances of the producers' price and

wholesale price indexes over the last year have been even better.
The current account

(n.s.a.) through October showed a deficit of only

$2.1 billion, compared with a deficit of $10.3 billion for the same period
last year.
German monetary policy has continued to ease.

On December 2 the

Lombard and discount rates were lowered by one percentage point each to
6 and 5 percent,

respectively.

This was the sixth reduction of the Lombard

rate since the beginning of this year,

when it

stood at 10.5 percent,

Short-term money market rates have followed the Lombard rate down.

IV -

In Japan,

real GNP rose by .6 percent in

less than expected.

the third quarter,

somewhat

In October, industrial production declined sharply

to more than three percent below the year-earlier level.

The unemployment

rate rose slightly in October to 2.5 percent of the workforce, the highest
level since 1980.

Both wholesale and consumer price indexes declined in

November following very moderate increases in October.
The decline in

Japan's trade with the rest of the world that began

in January of this year continued into October.
more than $400 million,
years,

October's exports fell

the largest monthly decline

while imports fell

$200 million.

in over two

Japan's trade surplus through

October averaged $1.6 billion per month, very close to the 1981 performance
recorded on a larger trade volume.
Ending more than a month of political uncertainty,

the Liberal

Democratic Party chose Nakasone Yasuhiro as the new prime minister of Japan.
Although the outgoing Suzuki Cabinet had completed a preliminary budget for
fiscal year 1983
than in

1982,

with nominal expenditures approximately six percent greater

Nakasone stated that there was little

likelihood of an enlarged

budget in 1983 or for the increased defense spending that the United States
has requested.
Preliminary data for the third quarter indicate continued but very slow
growth in real GDP in the United Kingdom.
was unchanged and,

on a provisional basis, declined slightly in October.

September index matched its
that of September 1981.
However,

Industrial production in September

a change in

The

level six months earlier and was slightly below

The number of unemployed rose further in November.

the procedure by which the United Kingdom unemployment rate

is calculated makes a comparison of November's figure (12.5 percent) with

IV - 14

those for earlier periods difficult.
After a small decline in September,

the retail price index rose in

October to about 7 percent above its year-earlier level, but has risen at
only a 3 percent rate since April,
percent above year-earlier levels

Wholesale prices in October were 7.4

The cumulative United Kingdom trade surplus for the year to October was
$1,8 billion and the current account was $5-1/4 billion for the same
period,
in 1981.

In each case, however,

the surplus is running well below that registered

Severe pressures on the pound in foreign exchange markets emerged at

the end of November,

The Bank of England increased its

short-term intervention

rate to 10 percent and London clearing banks raised their base rates from 9 percent to between 10 and 10-1/4 percent.
gates was substantial in October,
French

Reported growth of the monetary aggre-

but was distorted by technical factors.

GDP decreased by nearly one percent in

the third quarter,

about

reversing the second quarter's gain and bringing growth over the last four
quarters to one percent.

After a three percent fall in the summer months,

industrial production rose by almost one percent in

September.

However,

recent

surveys by the Bank of France and the Statistics Institute indicate continuing
and prospective weakness in economic activity.
Price controls, which were put in place in June, contributed significantly
to the measured reduction in the rate of inflation between June and October to
about 4.5 percent (a,r,) for both consumer and wholesale prices.

Following

some easing of controls on November 1 consumer prices jumped by one percent in
that month.
Large trade deficits of over $4 billion were recorded for both
the second and third quarters.

However, the October trade deficit, which

was only about one-half that in the previous month, may mark the first

IV -

sign that the French current account will improve following the June
devaluation.

The French have recently tightened language and labeling

requirements for imports and added export inducements in an attempt to
improve their foreign balances.

Their European trade partners and Japan

have unsuccessfully protested the new French protectionism.
M2 growth in

France has slowed recently but is

still

above the 12-1/2

to 13-1/2 percent target range by about one percentage point.
target range for 1983 is

An official

expected to be announced by year-end.

In Italy, real GDP declined by three percent from the second quarter
rate and was one percent below the same quarter of last year.

A major

contributing factor to the poor performance was a seven percent drop
in

exports from the second quarter level.

weak:

its

level during the first

Industrial production was also

10 months of the year was almost two

percent below the corresponding period last year.

Despite the depressed

economic activity, consumer price inflation picked up in
period,

in part because of increases in

of this effect declining in November,

indirect taxes.

the July-October
With the impact

prices rose by 1.3 percent to about

17 percent above their year-earlier level.

The acceleration of consumer

prices has stiffened labor's resistance to a cap on cost of living increases
and negotiations over the scala mobile have stalled.
Measured in dollars, the cumulative trade deficit through October of
this year was about $11 billion, or about $4 billion below last year's deficit.
On December 1, Amintore Fanfani's cabinet, representing a coalition
of four parties,

was sworn into power.

for cuts of 15 billion lire

Fanfani's economic program calls

($10 billion) in

the public sector deficit and

IV - 16
a strict ceiling of zero on real wage increases for the next two years.
It

unclear whether these measures will be passed by Parliament.

order to gain the approval of left-wing parties, Fanfani had to abandon
proposals to put a ceiling on pension increases and to reduce public
health spending.
Real economic activity in Canada declined in the third quarter by
one percent,
ness in

the fifth consecutive quarterly contraction.

Although weak-

consumption and business investment intensified somewhat in the

third quarter, the effect on real GNP was cushioned by a slowing in the
rate of business inventory runoffs and a $1 billion improvement in the
current account.
While remaining at high levels, most measures of inflation continue
to show some improvement.

For example,

third quarter wage settlements,

exclusive of those with cost-of-living provisions,

called for average

annual increases over the term of the agreement of 10.9 percent,

down from

14,3 percent a year earlier.
Canada's balance of payments position strengthened considerably in
the third quarter as lower interest rates led to a reduced deficit on
service transactions, moving the current account further into surplus,
while the capital account (n.s.a.) swung from an outflow of $3.2 billion
in the second quarter to an inflow of $2,4 billion.

This sharp change

in the capital account was mainly the result of increased sales of
bonds abroad to take advantage of a more rapid decline in U.S.
rates.

interest

In addition, there was positive net direct investment in Canada in

the third quarter,

following five consecutive quarters of outflows.

IV -

As a result of these developments,

the Canadian dollar came under strong

upward pressure in the third quarter,

allowing authorities to bolster

Canada's international reverves even as they reduced the government's
borrowings under a revolving credit agreement with international banks.
On November 29 the Governor of the Bank of Canada announced that the
Bank had ceased using M1 as a monetary target.
that downward shifts in money demand,

The Bank's action recognized

stemming from the growing use of

cash management techniques that were difficult to quantify,
the usefulness of M1 as a monetary target.

had reduced

The Governor indicated that

the Bank of Canada continued to search for a monetary measure that was
reliably related to interest rates and levels of spending.

REAL GNP AND INDUSTRIAL PRODUCTION IN MAJOR INDUSTRIAL COUNTRIES
(PERCENTAGE CHANGE FROM PREVIOUS PERIOD, SEASONALLY ADJUSTED)

1979

1980

1981

1981
Q2
Q3

GNP
IP

2.9
5.3

.5
-2.0

3.1
1.3

1.2
1.0

1.6 -1.1
2.6 -3.1

-. 9
-4.6

GDP
IP

3.7
4.5

1.1
-1.1

.1
-2.3

-. 6
-1.5

1.1
.5

.2
.3

GERMANY:

GNP
IP

4.0
5.3

1.8
-. 1

-. 2
-2.1

.5
.9

-. 8
-. 3

.7
.2
.0 -1.2

ITALY:

GDP
IP

5.0
6.9

4.0
4.5

-. 2
-2.4

GNP
IP

5.2
8.3

4.8
7.1

3.9
3.0

UNITED
KINGDOM:

GDP
IP

1.7
2.7

-2.4
-6.6

UNITED
STATES:

GNP
IP

2.8
4.4

-.4
-3.6

CANADA:

FRANCE:

JAPAN:

-2.4
-4.7
1.9
2.6

.8 -1.1 -1.7
-. 7 1.5 -4.9

1.0
1.3

1982
Q2

1.1
1.3

-. 9
-3.3

-3.8

-. 2
1.3

-. 4
-. 9

N.A.
-3.4

*
-2.9

.4
1.9
-. 9 -1.7

-. 3
-1.4

-. 8
.3

.1
.8

1.9
2.0

-. 4
.5

.5 -1.3
.3 -4.4

-. 2
-2.5

-. 3
2.6

.9
1.6

JUL.

-1.0
N.A.

1.2 -1.5
.8 -1.4

1.2
-. 3

1982
Q3

-2.2 -1.9
-2.9 -2.3

2.6
4.7

.9
1.7

*GNP DATA AKE NOT PUBLISHED ON MONTHLY BASIS.

.2
-. 5

.1
.2

-1.3
.5
-3.1 -1.7

-3.0
-7.5

-3.0
-3.8

AUG.
*

2.5

N.A.
.1

N.A.

*
3.0

*
-1.0

3.0 -19.6
3.0 -19.6

.6
1.7

SEP.

20.5

-.5

1.2

*
-. 3

OCT.
*

N.A.
*

N.A.
*
-1.9
-4.1

-4.1
*

-2.5
*

N.A.

-. 8

CONSUMER AND WHOLESALE PRICES IN MAJOR INDUSTRIAL COUNTRIES
(PECENTAGE CHANGE FROM PREVIOUS PERIOD)

MEMO:

1981
Q2 Q3 Q4

1982
Q1 Q2 Q3

AUG.

CANADA:

CPI
WPI

3.1
2.2

3.0
2.1

2.5
1.2

2.5
1.4

3.1
2.0

2.2
.8

FRANCE:

CPI
WPI

3.3
4.3

3.9
4.1

3.2
2.3

2.8
2.7

3.1
2.6

1.4
1.9

GERMANY:

CPI
WPI

1.8
2.3

1.2
2.1

1.2
1.8

1.5
1.8

1.4
1.3

1.1
.0

ITALY:

CPI
WPI

4.4
5.1

3.0
3.5

4.6
4.0

4.0
3.3

3.0
2.0

4.1
3.2

JAPAN:

CPI
WP I

1.5
1.1

.0
1.4

1.3
-. 1

UNITED
KINGDOM:

CPI
WPI

4.9
3.4

1.7
2.1

2.5
2.3

UNITED
STATES:

CPI (SA)
WPI (SA)

1.9
2.3

2.8
1.1

1.9
1.2

1.7
2.2

.5
-. 1

1982
SEP. OCT.
.5
.8

.6
-. 2

NOV.

LATEST 3 MONTHS
FROM YEAR AGO

N.A.
N.A.

10.3
5.1

1.0
N.A.

9.6
8.8

-. 2
-1.3

.3
-. 2

.3
.6

4.8
3.3

1.8
1.4

1.4
1.1

2.0
1.0

1.3
N.A.

.8
.3

2.1
.4

.3
.2

-1.4
-. 2

3.2
1.7

.5
1.6

N.A.

1.1
.2

1.8
1.6

N.A.

17.0
13.0

TRADE AND CURRENT ACCOUNT BALANCES OF MAJOR INDUSTRIAL COUNTRIES#
(BILLIONS OF U.S. DOLLARS; SEASONALLY ADJUSTED)

1981
Q3 Q4

1980

1981

6.7
-. 9

5.3
-4.4

.8
-1.3

.7
-1.9

TRADE+
CURRENT ACCOUNT+

-14.2
-4.2

-9.4
-4.7

-1.9
.2

-1.9
-1.4

GERMANY:

TRADE
CURRENT ACCOUNT (NSA)

4.9
-16.5

11.9
-7.6

3.1
-2.3

3.1
-4.9

ITALY:

TRADE
CURRENT ACCOUNT (NSA)

-22.3
-9.8

-16.0
-8.7

-5.0
-2.3

-4.0 -2.5
.3
-. 9

JAPAN:

TRADE+
CURRENT ACCOUNT

2.1
-10.7

20.1
4.6

5.5
2.0

UNITED
KINGDOM:

TRADE
CURRENT ACCOUNT+

2.6
7.4

N.A.
12.7

2.4
4.0

UNITED
STATES:

TRADE
CURRENT ACCOUNT

-25.3
1.5

-27.9
4.5

CANADA:

FRANCE:

TRADE
CURRENT ACCOUNT

-6.5
1.4

1982
Q2 Q3

AUG.

1982
SEP.

OCT.

N.A.

2.9
-. 1

3.7
.4

3.7
.8

1.1

1.4

-2.8
-2.1

-4.2
-4.4

-4.3
N.A.

-1.3

5.0
-. 8

5.3
.6

5.2
-2.2

-6.0
-3.7

-1.8
N.A.

5.0
1.1

4.4
.9

.9
2.8

.6
1.3

-7.8 -9.2
.8 -. 9

-5.9
1.1

6.3
2.5
N.A.
.3

2.3
-. 2
-3.1
-2.0
5.5
4.1

-1.7

-. 9

1.7
-1.3

1.7
-. 2

1.1
.3

-2.5
N.A.

-. 5

-1.5

-. 4

5.3
2.5

5.1
2.2

1.6
.6

1.8
.8

1.6
1.0

.2
1.6

.6
1.7

-. 1
.3

.4
.8

-5.8 -12.5
2.1 N.A.

# THE CURRENT ACCOUNT INCLUDES GOODS, SERVICES, AND PRIVATE AND OFFICIAL TRANSFERS.
+ QUARTERLY DATA ARE SUBJECT TO REVISION AND ARE NOT CONSISTENT WITH ANNUAL DATA.
* COMPARABLE MONTHLY CURRENT ACCOUNT DATA ARE NOT PUBLISHED.

-6.4
*

-2.9
*

-5.5
*

DECEMBER
1,

1982

GROWTH OF TARGETED MONETARY AGGREGATES
(PERCENTAGE CHANGE)

COUNTRY
AAAA

AWAAAA

TARGETEL
AGGREGATE
AAA'l' AAAAA

TARGET
PERIOD

TARGET

PRESENT
AUG.-OCT. 1980

4-8%

1' ANCE

DLC.
DEC.

12.5-13.5%

CERKiANY**

Q4 1982
Q4 1981

JA VAN

Q4 1982
Q4 1981

ShITZERLAND

ADJUSTED
CBN

UNITED
ti NGDO-

LM3

PSL2

UNITED
STATES

OVER LAST
12 MONTHS

**********

**************

1982
1981

FROM TARGET
BASE PERIOD

15.0

OVER LAST
3 MONTLHS

LAST
OBSERVATION

-9.**8***

4.9

-9.8

-1.5

NOVEL

12.2

13.6

10.8

SEPTEMER

5.7

6.0

OCTOBER

11.9

12.3

OCTOBER

4-7%

10.3

1982
1981

OVER LAST
6
MONTHS

1.3

6.2

5.0

LER

SEPTEMBER

APR.
FEB.

1983
1982

8-12%

12.8

10.9

19.0

24.0

OCTOLER,

APR.

1983

8-12%

12.7

10.8

14.7

18.1

OCTOBER

FEB.

1982

APR.

1983

8-12%

9.6

9.2

14.0

OCTOBER

FEB.

1982

Q4 1982
Q4 1981

2.5-5.5%

8.7

10.5

18.1

NOVEMBER

Q4 1982
Q4 1981

6-9%

".9

9.7

9.6

8.4

NOVbEMBER

*TliL BANK OF CANADA CEASED TARGETING Ml AS OF DECEMBER 1982.
**TIIL TARGET GROWTh RANGE FOR CERMAN CENTRAL BANK MONEY IN 1983 IS
***fiURECAST GROUTHI OF I'-2.
TARGETS ARE NOT SET.
ALL DATA SEASONALLY ADJUSTLD LXCEPT FOR SWITZERLAND.
ANUALIZED.
ALL GROWTh RATES COMPOUNDED AND AN

4-7%.

9.4

IV - 22

Economic Activity in Developing Countries.

The debt problems of

several developing countries--most notably Argentina, Mexico, and
LDC imports and economic growth have declined

Brazil--have become acute.

sharply as a result of the combined effects of reduced demand for LDC
exports and the cutback in new bank lending to major developing countries.
GNP-weighted average growth in all non-OPEC developing countries
was probably less than 1-1/2 percent in 1982, following 2-1/2 percent
growth in 1981--both record lows for this series which goes back to 1965.
From 1974 to 1980 annual growth in these developing countries averaged
5-1/4 percent, only slightly below the 1965-73 average rate of 5-3/4
percent.

Throughout the 1965-1980 period, developing countries in Asia

and Latin America grew faster than those in other regions.

OUTPUT GROWTH IN NON-OPEC DEVELOPING COUNTRIES*

Share of
Total Output
Countries in:
Africa

1979-1981
(percent)

Average
1974 - 1980
1980 1981
(percent per year)

198 2p

3.6

2.6

1.7

3.0

Asia

5.8

3.3

6.0

4.5

Middle East
Western Hemisphere

6
53 1

5.1
5.5

5.8
5.9

4.9
0.5

5.8
-1.5

(Mexico)
(Brazil)

(25)
(36)

(Argentina)

(10)

All Non-OPEC LDCs

100

(6.4)
(7.1)

(8.3) (8.1)(-2.0)
(7.9)(-1.9) (0)

(1.6)

(0.6)(-6.1)(-4.0)

5.3

4.7

2.5

p - Projection.
* - Weighted by three-year moving average share in nominal Gross
Domestic Product, converted to dollars.
1. Share in Western Hemisphere output.

1.5

IV -

Growth in Latin America was negative in 1982.

Of the nine leading

non-OPEC developing country borrowers from BIS-reporting banks, six are
in Latin America:

Mexico, Brazil, Argentina, Chile, Colombia, and Peru.

These six countries account for 65 percent of total non-OPEC LDC borrowing from BIS-reporting banks and 80 percent of Latin American GNP.
All but Colombia have faced debt problems of varying severity this year.
Of the remaining five, only Peru is estimated to have had a positive rate
of economic growth in 1982.

The sharpest drop is likely to be in Chile,

where output is estimated to be down by 13 percent.
Borrowers in Asia have been less affected by the slowdown in bank
lending and the recession in the developed world.

The top two Asian

borrowers, Korea and the Philippines, probably grew by about 5 and 3
percent respectively in 1982.
The volume of imports of non-OPEC developing countries in 1982,
down as much as 6 percent from 1981, is lower than their rate of growth
of income might imply.

Exchange rate changes--sometimes extreme as in

the cases of Mexico and Argentina--and administrative controls on imports
have shifted demand to domestic goods.

Major investment projects are cut

sharply when income growth slows and they have a very high import content.

The direct effects of lower imports of productive inputs on growth

are delayed as inventories of imported goods are run down, but the 1982
import decline, plus a further decline in 1983, will significantly reduce
LDC growth next year.
The combined current account deficit of non-OPEC developing countries, about $75 billion in 1981, is expected to decline by about $15
billion in 1982. The sharp fall in imports will more than offset higher

IV - 24

interest payments and a decline in the value of exports.
export prices appear to have bottomed out
lowest level since mid-1976.

Commodity

in the third quarter at their

Relative to manufactured goods prices,

commodity prices are at their lowest level since the 1930's.
The countries which are most beset with financial problems are
heavily concentrated in Latin America and are traditional trading partners of the United States.

Hence, the United States absorbed a large

share of the decline in non-OPEC developing country imports in 1982.
Indeed, between the last quarter of 1981 and the third quarter of this
year, U.S. exports to Latin America, normally about 17 percent of U.S.
exports, declined by $7 billion at an annual rate, one third of the total
decline in U.S. exports in this period.
Update on Major Debt Negotiations
The IMF Executive Board is scheduled to approve on December 23 a
three-year $3.8 billion extended fund facility (EFF) drawing for Mexico.
One third of the amount would be disbursed each year.

In partial

fulfillment of its commitments to the Fund, the Mexican government has
already taken several steps.

Some public sector prices have been raised.

Exchange controls are to be partially lifted on December 20.

The public

sector budget presented to the Mexican congress calls for a deficit of
1.5 trillion pesos, or 8.5 percent of GDP, the level specified in the IMF
agreement.

The Mexican government plans to raise the value added tax,

impose a special

income tax on upper-bracket incomes, more than double

the tax on dividends, and cut expenditures.

Mexico has asked inter-

national banks to restructure about $20 billion in public sector debts
falling due between August 23, 1982 and the end of 1984 and has proposed

IV - 25

to capitalize and convert to public sector debt private sector interest
payments due to foreign banks through January 1983.

These payments may

amount to as much as $1.3 billion, of which about $900 million was overdue as of early December.
Argentina has reached a tentative agreement with the IMF.

Final

approval of the Argentinian $1.65 billion 14-month standby and a separate
drawing of $500-600 million on the compensatory financing facility for
export shortfalls (CFF) is expected in mid-January.

Under an agreement

reached with a bank steering committee, international banks will provide
Argentina with a $1.1 billion bridging loan and $1.5 billion in new
credits.
Brazil is expected to receive $550 million from the IMF under a CFF
later this month.

Negotiations on a $5 billion EFF drawing are likely to

result in initial disbursements in February or March of 1982.

Brazil

recently obtained $760 million in 90-day bridge loans from several
commercial banks and is urgently seeking other short-term credits from
private and official sources.

A $3 billion jumbo club loan for the first

quarter of 1983 is under negotiation.

In addition, a recent $1.2 billion

official short-term borrowing from the United States has been disbursed.

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, December 20-21, 1982 : Greenbook Part 2

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