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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS II - FOMC December 18, 1981 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Housing starts and permits . . . . . . Personal income and saving . . . . . . Revised auto assembly schedules . . . Gross national product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 1 1 2 2 TABLES: Private housing activity . ............... Personal income . . . . . . . . . . . . . . . . ... . Gross national product and related items: Q-3 . . . . . Monetary aggregates . . . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit . . . . . . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . .. . . . . 4 5 . 8 9 International developments . . . . . . . . . . . . . . . .. 10 7 U.S. INTERNATIONAL TRANSACTIONS TABLES: U.S. current account . . . . . . . . . . . . . . . . . . . . Summary of U.S. international transactions . . . . . ... CORRIGENDA 10 11 SUPPLEMENTAL NOTES Housing Starts and Permits Total private housing starts remained quite depressed in November at a seasonally-adjusted 871,000 annual rate, up only slightly from the October pace. Total new building permits issued in November also were little changed from October's low level. Single-family starts increased 10 percent in November, but at a 560,000 unit annual rate the pace was still well below the record lows experienced prior to October. Multifamily starts declined by 13 percent in November to a level 40 percent below the pace in November of 1980. The volatility of multi- family activity during the autumn months, in some part, may reflect the fiscal year-end push in government-subsidized (Section 8) units. Personal Income and Saving Personal income increased at a 7 percent annual rate in November, a little more than the sharply lower rate in October but still somewhat below the 10-3/4 percent increase over the preceding year. The larger rise last month mainly resulted from a larger increase than in October in wage and salary disbursements--at an 8-1/4 percent per year rate, despite a further sizable decline in employment; payrolls in manufacturing, where job losses have been most heavily concentrated in recent months, declined again. Interest income in November increased less than half as much as in the three preceding months, and proprietors' income, both farm and nonfarm, declined further. -1- Disposable personal income rose in November at a 5-3/4 percent annual rate, following a rise at a 13 percent rate in October. The large increase in October had reflected the reduction in personal tax payments resulting from provisions of the Economic Recovery Tax Act of 1981. Personal saving, reflecting a larger rise in consumption expendi- tures than in disposable income, declined in November, and the saving rate fell back to 5.9 percent from 6.4 percent in October. Revised Auto Assembly Schedules U.S. producers of automobiles have revised their schedules of planned assemblies. Following a seasonally adjusted annual rate of 4.8 million units in November, assemblies at a 4.7 million unit rate are scheduled for December and at a 4.6 million unit rate in January of 1982. Gross National Product Gross national product in the third quarter of this year is now indicated to have risen at a 1.4 percent annual rate, instead of 0.6 percent as estimated a month ago. The increase in nominal GNP is now shown to have been at a 11.4 percent annual rate; instead of at a 10.2 percent rate. According to the revised estimates, the GNP implicit price deflator rose at a 9.9 percent annual rate in the third quarter (instead of at a 9.5 percent rate), and the gross domestic business product fixedweighted price index rose at a 9.9 percent rate (instead of at a 9.8 percent rate.) Inventory accumulation in the third quarter was a bit larger than estimated a month ago--in both nominal and real terms; and real final sales are now indicated to have edged up a trifle instead of declining negligibly. Among the components of final sales, residential investment is now indicated to have declined more than estimated earlier, personal consumption expenditures to have increased less, and business fixed investment to have increased more. The saving rate in the third quarter, at 5.2 percent, is only a trifle higher than estimated earlier. Corporate profits from the third quarter production, that is, with adjustments to eliminate effects of price changes on inventory book values and on depreciating fixed assets at original cost, are now estimated to have risen at an 11-3/4 percent annual rate, up from almost a 2 percent rate rise estimated earlier. Book profits before taxes are now estimated to have risen at a 9-3/4 percent annual rate, up from about a 3-1/4 percent rate rise indicated earlier. PRIVATE HOUSING ACTIVITY (Seasonally adjusted annual rates, millions of units) 1980 1981 Annual Q1 Q2 Q3 Sept. 1.19 1.29 1.18 1.39 1.11 1.18 .88 .97 .85 .92 .72 .86 .72 .87 .71 .85 .69 .87 .64 .78 .49 .65 .45 .65 .40 .51 .40 .56 .53 2.88 .51 2.54 .45 2.59 .36 2.28 .31 2.05 .36 1.92 Multifamily Permits Starts .48 .44 .49 .52 .47 .39 .38 .32 .40 .27 .32 .36 Mobile home shipments .22 .25 .26 .24 .24 .21 Type of unit Total Permits Starts Single-family Permits Starts Sales New homes Existing homes 1. Preliminary estimates. Oct. Nov. 1 ... .32 .31 PERSONAL INCOME (Based on seasonally adjusted data) 1979 1980 02 Q3 1981 Sept. Oct. Nov. - - - - Percentage changes at annual rates1 - - - Total personal income Wage and salary disbursements Private 12.3 11.0 8.7 12.9 9.4 5.8 7.0 10.8 11.6 9.0 9.2 6.8 7.2 8.9 9.6 8.0 6.3 4.9 1.5 8.2 8.7 Disposable personal income Nominal Real 11.7 2.0 10.9 .8 8.0 1.4 11.9 2.6 8.3 -2.1 13.1 5.4 5.8 n.a. - - - - - Changes in billions of dollars 2 - - - - Total personal income 18.3 18.7 14.6 26.1 19.2 11.9 14.4 Wage and salary disbursements Private Manufacturing 10.3 8.9 2.0 9.8 8.1 2.3 7.0 5.9 3.1 12.1 10.3 2.2 10.0 6.4 .7 6.2 1.5 -2.6 10.4 8.9 -1.5 8.9 2.8 9.6 4.1 7.8 1.5 14.7 5.5 9.5 1.3 6.5 .8 4.5 1.5 .9 .8 .2 .7 .3 .8 .5 5.2 5.6 5.4 5.2 5.6 5.9 n.a. Other income Transfer payments Less: Personal contributions for social insurance Memorandum: Personal saving rate3 1. Changes over periods longer than one quarter are measured from final quarter of Changes for quarterly periods preceding period to final quarter of period indicated. are compounded rates of change; monthly changes are not compounded. 2. Average monthly changes are from the final month of the preceding period to the final month of period indicated; monthly figures are changes from the preceding month. 3. Monthly saving rate equals the centered three-month moving average of personal saving as a percentage of the centered three-month moving average of disposable personal income. December 18, 1981 1981-Q3 GROSS NATIONAL PRODUCT AND RELATED ITEMS: (Percentage change from preceding quarter at annual rates except as noted; based on seasonally adjusted data) Commerce Department Estimates 12/18 11/19 11 /1Q 12/18 Constant Dollars Gross National Product Final Purchases By Domestic Purchasers Personal Consumption Expenditures Goods Services Residential Investment 1.4 .3 1.2 .6 -.2 1.5 3.3 3.8 2.6 4.0 4.3 3.7 -36.2 -32.6 Business Fixed Investment 6.9 4.3 Inventory Investment 4.1* 3.2* Net Exports of Goods and Services Exports Imports -3.0* -3.5 5.5 -6.4* -8.1 10.9 Government Purchases of Goods and Services Federal National Defense State and Local -1.5 3.1 7.9 -4.2 -1.5 3.6 7.7 -4.4 .6 .9 Gross Domestic Product Business Current Dollars Gross National Product Final Purchases By Domestic Purchases 11.4 10.9 9.7 10.2 10.1 10.0 Inventory Investment 4.2* 1.0* Net Exports of Goods and Services 8.5* 1.2* 5.2* 5.1* Ratio: Personal Saving to Disposable Income Price Measures 9.9 GNP Implicit Price Deflator GNP Fixed-Weighted Price Index 9.5 9.0 PCE Implicit Price Deflator 8.2 PCE Fixed-Weighted Price Index GDBP Fixed-Weighted Price Index I 9.9 * Change from preceding quarter, in billions of dollars, annual # Percent. 9.5 9.4 8.9 8.2 9.9 rate terms. MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1 1981 Q3 Q2 Q1 Money stock measures 1. M1-A 2. (Adjusted) 2 3. M1-B 4. (Adjusted) 2 5. M2 6. M3 6.5 9.2 4.0 (8.6) 11.1 (8.8) 16.5 12.3 -7.2 (1.3) 4.8 (2.0) 9.6 11.2 -1.0 3.0 6.9 5.6 1.5 2.0 -13.0 23.7 8.3 46.2 175.5 9.4 9.5 13.9 -104.5 95.7 88.2 6.7 6.5 -19.6 -22.4 21.0 20.1 -2.9 -0.2 -23.0 -22.0 5.1 7.6 9.6 -121.0 71.8 10.6 -19.0 24.7 1.4 -17.6 8.6 18.3 25.5 73.6 15.5 13.1 16.3 6.1 -3.4 9.2 11.2 3.4 130.2 7.3 -16.9 23.4 0.6 -18.6 9.7 -16.5 -23.3 18.6 19.5 18.8 22.8 28.4 26.7 4.8 (-0.9) (5.2) 8.2 12.4 10.6 10.6 5.5 7.9 5.0 8. Demand deposits -32.9 -11.8 -8.0 9. Other checkable deposits 372.3 107.4 21.5 9.4 0.0 84.5 6.0 -30.5 30.2 3.5 -29.6 19.0 11.3 58.9 113.7 4.2 -11.9 13.4 - 0.3 -12.6 4.7 Selected components 7. Currency -7.9 (-4.9) -2.8 (-3.7) -11.7 10. 11. 12. 13. 14. 15. 16. 17. 18. M2 minus M1-B (11+12+13+16) Overnight RPs and Eurodollars, SA3 Money market mutual fund shares, NSA Commercial banks savings deposits smal time deposits Thrift institutions savings deposits small time deposits 19. 20 21. Large time deposits at comercial banks, net4 at thrift institutions 39.6 40.6 34.7 10.3 10.1 11.2 25.3 27.3 15.1 13.4 11.7 24.3 -4.8 -11.1 26.2 22. Term RPs, NSA 18.1 12.2 43.6 93.4 -17.8 -MEMORANDA: 23. Managed liabilities at comercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, ISA Other 5 27. 28. U.S. govrnment deposits at commercial banks 6 Nov. 2.3 (2.5) 3.3 (3.1) 8.1 5.7 -3.4 (-1.2) 0.5 (-0.4) 7.2 10.3 (-1.9) Oct. Percentage change at annual rates - -5.4 (4.9) 8.6 -20.9 Sept. QIV '80 to Nov. '81 verage monthly change in billions of dollar-- 4.3 5.1 -0.8 9.0 7.5 1.5 6.6 7.0 -0.4 0.5 2.8 -2.3 -4.8 -1.2 -3.6 -2.9 -3.3 0.4 -1.6 0.7 0.7 0.9 1.1 -1.6 -1.2 -1.1 -4.5 0.9 -1.3 1.7 1.1 -0.3 -0.7 -0.3 3.4 -0.3 1. Quarterly growth rates are computed on a quarterly average bais. 2. Figures in parentheses have been adjusted to remove the distorting effects saice the beginning of 1981 of shifts of funds out of demand deposits and other accounts into NOW accounts. Baed on a variety of evidence, it is estimated that 77-1/2 percent of inflows into other checkable deposits-in excess of "trend"was from demand deposits nl January, and 72-1/2 percent in subsequent months. 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 Ps. 4. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 5. Consists of borrowings from other than comercial 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), loans sold to affiliates, loan ]Us, and other minor items. Change since October 1980 are partially estimated. 6, Consists of Treasury demand deposits at comercial banks and Treasury note balanceS. COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1 1981 Q2 Ql --1. Total loans and investments 2 at banks 2. Investments 3. Treasury securities 4. Other securities 5. Total loans 2 6. 2 Business loans 7. Security loans 8. Real estate loans 9. Consumer loans - 10. Total short- and intermediateterm business credit (sum of lines 14, 15 and 16) 11. 12. Business loans net of bankers acceptances Commercial paper issued by 3 nonfinancial firms Q3 Sept. Oct. Nov. Nov. 80 to Nov. 81 Commercial Bank Credit -- 7.8 8.2 9.1 10.6 8.5 10.5 6.5 3.8 .4 9.1 -2.1 6.5 14.8 15.7 -5.7 -18.1 -5.1 -38.9 2.5 8.0 1.7 9.1 11.4 16.1 16.9 8.6 6.8 8.9 11.0 14.3 8.2 5.0 9.3 6.5 11.9 20.5 19.0 13.0 2.6 12.9 27.3 53.2 -54.5 47.5 19.6 102.7 21.6 9.5 7.2 8.5 9.2 6.5 5.6 8.5 -1.4 -1.4 0.0 1.4 1.4 n.a. n.a. 3.2 8.6 Short- and Intermediate-Term Business Credit - 13.7 15.8 26.2 25.5 12.7 n.a. 5.5 10.6 22.3 20.5 13.0 4.1 13.3 29.6 42.4 61.5 87.0 7.0 50.7 44.0 n.a. 13. Sum of lines 11 & 12 8.2 14.1 26.7 28.7 13.1 9.7 16.6 14. Line 13 plus loans at foreign branches4 11.3 14.0 28.6 30.5 15.7 14.1 18.5 Finance company loans to business 5 8.5 19.3 14.7 1.5 3.0 a.a. n.a. Total bankers acceptances 5 outstanding 35.6 23.1 25.1 22.2 5.4 n.a. a.a. 15. 16. 1. Average of Wednesdays for domestic-chartered banks and average of currentand of ends preceding 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. Average of Wednesdays. 4. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestic-chartered banks. 5. Based on average of current and preceding ends of months. n.a.--not available. SELECTED FINANCIAL MARKET QUOTATIONS (Percent) 1 1981 FOMC Change from: 1981 FOMC 17 Highs Nov.17 -.91 Intermtg. Dec. Intermtg. Highs Nov. 17 20.06 13.17 12.04 12.26 -7.80 17.01 15.93 15.21 10.63 11.08 11.00 9.94 10.34 10.42 11.14 11.67 11.68 -5.87 -4.26 -3.53 1.33 1.26 Commercial paper 1-month 3-month 6-month 18.63 18.29 17.44 12.11 11.84 11.63 11.17 11.04 10.96 12.29 12.23 12.25 -6.34 -6.06 -5.19 1.12 1.19 1.29 Large negotiable CDs 3 1-month 3-month 6-month 18.90 19.01 18.50 12.16 12.21 12.41 11.16 11.23 11.64 12.41 12.61 13.04 -6.49 -6.40 -5.46 1.25 1.38 1.40 Eurodollar deposits 2 1-month 3-month 19.80 19.56 12.98 13.09 11.86 12.16 13.08 13.38 -6.72 -6.18 Bank prime rate 21.50 16.50-17 15.75 15.75 -5.75 16.59 15.84 15.20 12.85 13.18 13.25 12.54 12.92 12.76 13.68 13.71 13.48 -2.91 -2.13 -1.72 Municipal (Bond Buyer) 13.21 11.434 n.a. 13.00 -. 21 1.57 Corporate Aaa New issue Recently offered 17.62 17.72 - 14.62 15.10 14.52 15.28p 15.28p -2.44 -2.44 .18 .18 18.02-. 16.90 1981 FOMC Nov. 17 Dec. 16.94i -1.69 Lows Low Short-term rates Federal funds 2 .22 Treasury bills 3-month 6-month 1-year 1.20 .10 .29 1.22 1.22 -1.00 Intermediate- and longterm rates U.S. Treasury (constant maturity) 3-year 10-year 30-year 1.14 .79 .72 .76 Primary conventional 18.63 mortgages .04 -1.08 Percent change from: FOMC. 1981 Highs Nov. 17 Highs 17 Stock Prices 2.4 -15.0 870.53 850.17 1,024.05 Dow-Jones Industrial 1.4 -9.8 71.37 70.39 79.14 NYSE Composite 2.4 -16.2 318.87 311.25 380.36 AMEX Composite -12.4 -1.0 195.70 197.68 223.47 !ASDAQ (OTC) 4. One-day quotes for preceding Thursday 1. One-day quotes except as noted. 2. Averages for statement week closest to date shown. 5. Average for preceding week. 3. Secondary market. p--Preliminary. n.a.-not applicable 6. One-day quotes for preceding Friday. -10- International Developments The U.S. current account surplus increased in the third quarter to $8.4 billion at an annual rate. Much of the change from second to third quarter resulted from increased net investment income receipts (other than from direct investments) that reflected, at least In addition, there was in part, the rise in interest rates this year. an increase in recorded military sales and a reduction in military payments abroad that resulted in lower net military payments in the third quarter. There was little change in the merchandise trade balance as the value of both exports and imports declined. For the second quarter in a row, net direct investment income receipts were reduced somewhat, largely as a result of slower growth abroad and the effect of the dollar appreciation (through the third quarter) on foreign currency earnings translated into dollars. Also, there was an increased outflow of unilateral transfers in the third quarter, primarily U. S. Government grants. U.S. Current Account (in billions of dollars, seasonally adjusted annual rates) 1981 Q2 $ change Q2 - 1Q 1980 Year Q1 37 13.1 -25.3 -18.7 32.7 27.5 36.2 25.0 34.9 24.0 38.0 23.7 +3.1 -0.3 5.2 11.2 10.9 14.3 +3.4 Military transactions, net Other services, net -2.5 5.8 -2.3 3.9 -2.8 6.1 -0.3 6.5 +2.5 +0.4 Unilateral transfers -7.1 -6.1 -6.1 -7.6 -1.5 Current Account Balance Trade Balance Net Investment Income Direct Other SOURCE: U.S. 4.6 Q3 8.4 -27.6 -28.2 +3.8 -0.5 Department of Commerce Press Release, December 17, 1981 Summary of U.S. International Transactions (in billions of dollars) - 1. Change in net foreign positions of banking offices in the U.S. (+ - inflow) 1/ 3. Foreign net purchases (+) of U.S. Treasury obligations 2/ Q-3 1 9 81 I July LAf A pAg 121L2 A A1 .7 1.7 -. 5 .6 .1 -. 5 -. 3 ZA _A JLa Securities net Private securities transactions, 2. 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 December 18, 19B1 .6 2.6 -1.4 A .3 .1 Au. S.at. o . zLI =A M12 Ail .2 -- - A1 .1 -- -. 2 .1 -. 1 -. 2 -. Official 4. Changes in foreign official reserve assets in U.S. a) (+ = increase) G-10 countries and Switzerlnd OPEC All other countries b) Treasury securities Other 1/ Other 6. 7. 8. 9. 10. dL2 1.9 5.7 -2.1 -7.9 2.5 2.4 -5.6 2.5 -2.4 -1.5 2.5 -1.1 -2.8 -1.6 -. 2 -1.4 1.7 -1.1 -3.0 1.6 -. 4 7.2 -1.6 -2.1 -. 9 -4.6 -. 9 -1.7 1.6 -1.7 -1.4 .6 .1 -2.0 z1 -Z5 By type U.S. 5. -. 8 By area Changes in U.S. official reserve assets (+ = decrease) 4/ transactions (Quarterly data) U.S. direct investment (-) abroad Foreign direct investment (+) in U.S. Other capital flows (+ = inflow) 5/ 5/ U.S. current account balance 6/ Statistical Discrepancy 6/ 2Z-3.7A8 -1.6 2.5 *8.4 3.3 10.9 -4.9 3.8 -1.7 1.1 7.9 -3.0 .A -1.4 3.9 -3.4 2.1 .8 MEMO: U.S. merchandise trade balance -- part of line 9. (Balance of payments basis, seasonally adjusted) -. 9 -4.5 -1.6 -4.2 L/ Excludes liabilities to foreign official institutions. Includes U.S. Treasury notes publicly issued to private foreign residents. / Includes deposits in banks, comercial paper, acceptances, & borrowing under repurchase agreements. A/ Includes newly allocated SDR's of $1.1 billion in January 1979; $1.15 billion in January 1980; and $1.1 billion in January 1981. / Includes U.S. government assets other then official reserves, transactions by nonbanking concerns, and allocations of SDRs, and other banking and official transactions not shown elsewhere. i/IIncludes seasonally adjusted components. ./ MOTE: Details may not add to total because of rounding. -12- Corrigenda Part 1, page I-9. The annual rates of change for the gross business product fixedweighted price index excluding food and energy for 198 1-Q3 and Q4 should be 11.2 percent and 8.6 percent, respectively. Part 1, page I-9: The annual rate percentage changes for federal government national defense purchases should read across the eight quarters as follows: 1.1, 2.6, 7.7, 6.5, 4.4, 4.4, 4.6, 9.3. The annual rate percentages for state and local government purchases of goods and services should read across the eight quarters as follows: .2, -3.8, -4.4, -2.2, -1.6, -1.8, -1.3, -.8. Part 2, page III-1: In the next to last line, change "2 percentage points" to read "1-1/2 percentage points". As of the close of markets on December 17, the rate prevailing in the cash market for 3-month bills was 11-1/4 percent, while December 1982 bill futures were at 12-3/4 percent. Part 2, page III-5: In the table at the top of the page, the estimated inflows for Retail RPs for CBs (commercial banks) for October should be -0.5 billion and for Thrifts for November should be 0.6 billion.
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