Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, February 8-9, 1983 : Greenbook Part 2

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Confidential (FR) Class

FOMC

February 2,

RECENT DEVELOPMENTS

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

1983

TABLE OF CONTENTS

Section
DOMESTIC NONFINANCIAL DEVELOPMENTS

Page

Industrial production and employment............................
Inventory investment
.........................
..................

Personal income and consumer spending...........................
Housing ........
......
.................... ..................
Business fixed investment............................
.........
Federal government ............................................
State and local government............................
....
Inflation and labor costs......................................

1
6

9
13
13
19
20
21

TABLES:
Industrial production..........................................

Capacity utilization rates: manufacturing and materials.........

Changes in employment...........................................
Selected unemployment rates............................
........
..

5
5

Changes in manufacturing and trade inventories..................

Inventories relative to sales...................................
Personal income ...............................................
Retail sales..................... .................... ........
Auto sales ............................................ .........

8
10
11
11

Private housing activity.......................... ........
Business capital spending indicators........................ .....
Business capital spending commitments...........................

14
15
15

Surveys of plant and equipment expenditures ....................

Error history of annual surveys...............................

Selected measures of inflation..................................

Selected measures of inflation in the nonfarm business sector...
Negotiated first-year wage rate adjustments under new
major collective bargaining settlements ......................

23
25

CHARTS:
Industrial production and capacity
..........

trade inventories and sales..................................
........
Private housing starts................................

7
14

utilization .... ..................................

Recent behavior of manufacturing and
Nonresidential commercial structures and vacancy rates
for commercial office space...................................

Effective wage change in major union contracts..................
DOMESTIC FINANCIAL DEVELOPMENTS

III

Monetary aggregates and bank credit.............................
..........
Business finance........................... .....

3
7

Government finance
Federal sector....... .... ..................................
.....
State and local sector..............................

9
11

DOMESTIC FINANCIAL DEVELOPMENTS

III

Mortgage markets.......................

.........

Consumer credit................................................

TABLES:
Monetary aggregates.............

..............................

Commercial bank credit and short- and intermediate-term
business credit...... ....................

..............

Gross offerings of securities by U.S. corporations..............
Sources and uses of funds by nonfinancial corporations..........

6
7

Treasury and agency financing...... ............................

State and local government securities offerings.................

Consumer installment credit............

........................

CHART:
Mortgage-bond yield spreads....................................

APPENDIX A: Money market deposit account and super NOW
account developments ..........................
INTERNATIONAL DEVELOPMENTS

III-A-1

Foreign exchange markets ......................................

U.S. international financial transactions........................

U.S. merchandise trade..........................................
Foreign economic developments....................................

10
14

Update on major debt negotiations..............................

TABLES:
International banking data.......................................

U.S. official reserve assets....................................
Summary of U.S. international transactions........................

7
9

U.S. merchandise trade...........................................
Oil imports ......................................................

10
11

Major industrial countries
Real GNP and IP...............................................

Consumer and wholesale prices...................................

Trade and current-account balances...........................

CHARTS:
Weighted-average exchange value of the U.S. dollar...............

Selected exchange rates.........................................

II - T - 1

February 2, 1983

SELECTED DOMESTIC NONFINANCIAL DATA
(Seasonally adjusted)
Latest data
Period

Release
date

Data

Percent change from
Three
Year
periods
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)

Dec.
Dec.
Nov.
Dec.
Dec.
Dec.

1-7-83
1-7-83
1-24-83
1-7-83
1-7-83
1-7-83

111.1
10.8
5.3
88.5
18.1
70.4

.9
10.7
5.3
-2.2
-3.2
-2.0

1.0
10.2
4.7
-3.4
-9.4
-1.8

1.9
8.6
3.9
-2.3
-7.8
-.8

Dec.
Dec.

1-7-83
1-7-83

34.6
7.83

34.7
7.78

34.8
7.72

35.0
7.46

Dec.
Dec.

1-7-83
1-28-83

38.9
231.4

38.9
-2.1

38.8
3.0

39.1
4.0

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

Dec.
Dec.
Dec.
Dec.
Dec.

1-14-83
1-14-83
1-14-83
1-14-83
1-14-83

134.7
141.4
144.1
116.0
128.4

-.9
2.6
-4.1
25.4
-4.7

-7.6
-5.6
-17.0
23.7
-10.9

-6.1
-.4
-19.5
8.4
-7.6

Consumer prices all item (1967-100) Dec.
All item, excluding food & energy Dec.
Dec.
Food

1-21-83
1-21-83
1-21-83

293.5
280.2
288.0

-3.3
-1.7
-1.7

1.1
.1
.6

3.9
4.5
3.0

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

Dec.
Dec.
Dec.

1-14-83
1-14-83
1-14-83

285.9
317.6
237.3

4.7
1.8
-6.6

3.5
.2
1.4

Dec.

1-18-83

6.1

5.6

Personal

income

($ bil.) 2/

2,636.8

7.1

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

2-1-83
2-1-83
2-1-83
2-1-83

78.7
33.1
12.5
20.6

11.5
30.9
145.5
2.0

7.5
34.4
188.3
1.5

3.0
19.1
121.4
-7.0

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

1-12-83
2-1-83
1-12-83

1.51
1.76
1.30

1.55
1.77
1.35

1.52
1.71
1.33

1.51
1.77
1.29

2-1-83

.617

.636

.638

.611

1-12-83
1-12-83

92.3
19.2

-. 4
1.1

3.3
3.8

6.6
3.3

1-4-83
1-4-83
1-4-83

8.7
6.1
2.6

2.9
-1.7
15.8

19.5
25.2
7.8

Ratio:

Nov.
Dec.
Nov.

Mfgrs.' durable goods inventories to unfilled orders 1/

Retail sales, total ($ bil.)

GAF 3/

Dec.
Dec.

Auto sales, total (al. units.) 2/
Domestic models
Foreign models
Plant & Equipment expen. '($ bil.)4/
Total nonfarm business
Manufacturing
Nonmanufacturing

1983
1983
1983

1-12-83
1-12-83
1-12-83

315.69
119.52
196.16

Housing starts, private (thous.) 2/ Dec.
Leading indicators (1967-100)
Dec.

1-18-83
1-28-83

1,222
132.8

1/
1/
3/
4/

-8.5
-10.8
-2.4

13.0
1.5

Actual data used in lieu of percent changes for earlier periods.
At annual rate.
Excludes mail order houses.
Planned-Commerce November and December 1982 Survey.

-1.3
-2.6
-. 6

8.2
2.0

38.5
4.5

DOMESTIC NONFINANCIAL DEVELOPMENTS
Economic activity declined in the fourth quarter, but appeared
to be leveling off at year-end.

Much of the drop in real GNP reflected

a large inventory liquidation in November.

However, industrial production

stabilized in December, and recent data suggest that final demands have
firmed:

housing activity continued to improve, consumer spending picked

up in late autumn, and the downward momentum in spending for capital
equipment appeared to be easing.

The rate of inflation continued to improve

in December, and was below 5 percent in 1982 by virtually all measures.
Industrial Production and Employment
Industrial output edged down just 0.1 percent in December after
average monthly declines of almost 1 percent during the autumn.
final products rose 0.3 percent.

Output of

An upturn in auto assemblies and a rise

in output of defense equipment as well as a sharp increase in oil- and gaswell drilling in December were offset by additional cutbacks in industries
with burdensome inventories.

Output of durable home goods, business equip-

ment, and metals was curtailed further, although by a bit less than in
preceding months.
Early indications suggest that industrial production may have
turned up in January.

The presumed improvement presumably was driven by

auto assemblies, which increased 10 percent to a 5.6 million unit annual

rate, as well as a sharp rise in raw steel production.

Moreover, other

indicators suggest that activity in the industrial sector has strengthened:
new claims for unemployment insurance declined further during January,
and automakers announced recalls of workers in anticipation of a further
II-1

II-2

INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION

Industrial Production

Index, 1967=100, Ratio Scale
200
180

Business Equipment
160

140

120

100

Manufacturing Capacity Utilization

Percent
100

60
1972

1974

1976

1978

1980

1982

II-3

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

1982
Q3

Q2
---Total

Oct.

annual rate-------

1982
Nov.

Dec.

----monthly rate----

-6.5

-3.4

-8.6

-1.1

-.7

-.1

Final products
-3.0
Consumer goods
-7.3
Durable
27.9
Nondurable
1.0
Business equipment
-22.3
Defense and space equipment
4.8

-3.0
2.6
3.6
2.3
-17.2
7.8

-8.5
-7.6
-20.4
-2.6
-19.5
16.5

-1.0
-.8
-3.4
.1
-2.7
2.1

-.7
-.8
-1.6
-.5
-1.2
1.6

.3
.2
1.9
-.4
-.3
2.1

-8.6

8.7

-7.9

-1.5

-.3

-.8

-11.1
-11.2
-10.0
-12.5

-6.0
-7.3
-4.3
-5.3

-10.0
-19.2
3.0
-5.6

-1.3
-3.0
-.5
1.4

-1.1
-1.1
-1.4
-.6

-.4
-.6
.0
-.5

Construction supplies
Materials
Durable goods
Nondurable goods
Energy materials

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

1975
Low
Manufacturing industries
Primary processing
Advanced processing
Motor vehicles & parts

Materials producers
Durable goods materials
Raw steel
Nondurable goods materials
Energy materials

1978-80
High

Average

1982
Oct.

Nov.

Dec.

69.0

87.2

69.8

68.0

67.4

67.3

68.2
69.4
51.3

90.1
86.2
94.5

66.5
71.6
53.0

65.1
69.5
49.6

64.1
69.148.9

63.8
69.1
52.3

69.4

88.8

69.0

66.7

65.9

65.5

63.6
68.0
67.2
84.8

88.4
100.7
91.6
88.8

63.4
48.7
72.6
79.6

60.0
41.1
72.2
77.7

59.3
39.0
71.1
77.1

58.8
37.8
70.9
76.7

II-4

scaling up of assemblies. In addition, the recent increases in spot and
futures prices of industrialmaterials, particularly for copper and
other nonferrous metals, have been associated with reports of increased
demand.

These positive signs were consistent with the survey of purchasing

managers that reported a firming of activity during January.
Despite the leveling off of production, nonfarm payroll employment in December fell 165,000--about the same as the average decline so
far in this recession--and the workweek was unchanged at a depressed
level.

However, job losses in manufacturing slowed to a third of the

average monthly drop earlier in the year; rehiring at auto plants partly
offset continued weakness in machinery, and cutbacks in the metals industries were not as severe as in recent months.

Employment at retail

stores fell another 65,000 in December; the cumulative loss of jobs
since the 1981 peak is about the same in relative terms as during the
1974-75 contraction.

Construction employment continued to fall, partly

reflecting the decline in nonresidential building, which began last
summer; however, the overall weakness in construction employment may be
overstated because the establishment survey does not pick up new firms
that often are formed as residential construction recovers.
The unemployment rate rose one-tenth of a percentage point in
December to 10.8 percent, after revision to the seasonal adjustment
factors.

The overall jobless rate is now 1.8 percentage points higher

than the 1975 peak rate, but the differential is larger for adult men
and smaller for adult women. The particularly high jobless rate for
adult men partially reflects the cumulative effect of the prolonged
weakness in the industrial sector during the last three years.

Since

II-5
CHANGES IN EMPLOYMENT 1
(Thousands of employees; based on seasonally adjusted data)

Peak
to
trough 2
1975

Peak
to
present 2

-PercentNonfarm payroll employment 3
Strike adjusted
Manufacturing
Durable
Nondurable

Aug.

Sep.

1982
Oct.

Nov.

Dec.

--Average monthly changes-

-2.8
-2.8
-11.6
-13.6
-10.0

-3.1
-3.1
-14.4
-18.1
-8.5

-233
-226
-141
-140
-1

-45
-40
-100
-93
-7

-407
-410
-247
-234
-13

-176
-182
-142
-111
-31

-166
-169
-49
-22
-27

-17.6
-1.5
n.a.
n.a.

-17.1
-1.8
n.a.
-4.3

-28
-65
7
37

-16
-58
43
91

-27
-51
-20
-21

-8
-51
56
-11

-30
-93
32
4

Private nonfarm production
workers

-4.7

-4.3

-282

-85

-374

-190

Manufacturing production
workers

-14.7

-19.9

-113

-81

-231

-129

-33

-2.3
-2.3

-1.6
-1.8

95
111

-140
-74

-367
-417

-40
-93

-43
12

Construction
Trade
Finance and services
Total government

Total employment 4
Nonagricultural

-204

1. Average change from final month of preceding period to final month of period
indicated.
2. Peak is specific to individual series.
3. Survey of establishments. Strike-adjusted data noted.
4. Survey of households.

SELECTED UNEMPLOYMENT RATES
(Percent; based on seasonally adjusted data)
1975
peak 2

9.0

8.8

9.4

10.0

20.9
15.5
5.8
7.5

21.9
13.9
6.5
6.6

22.7
14.5
7.1
7.2

White
Nonwhite

8.4
9.2

7.7
16.0

Fulltime workers

4.5

8.6

Total, 16 years and older
Teenagers
20-24 years old
Men, 25 years and older
Women, 25 years and older

1982
Q4

Oct.

Nov.

Dec.

10.7

10.5

10.7

10.8

23.8
15.1
7.8
7.3

24.3
16.1
8.6
7.9

24.1
15.8
8.5
7.6

24.2
16.3
8.6
7.9

24.5
16.0
8.8
8.2

8.3
17.0

8.8
17.7

9.5
18.6

9.3
18.4

9.6
18.5

9.7
18.8

9.3

9.8

10.6

10.5

10.6

10.8

II-6

the beginning of the recession, the overall labor-force participation
rate has remained relatively flat, in contrast to its earlier secular
rise.

The number of discouraged workers rose another 200,000 in the

fourth quarter of 1982 and has climbed 800,000 since the second quarter
of 1981.
Inventory Investment
Recent adjustments in production and employment have reflected
efforts by firms to liquidate inventories in the face of the low level of
sales and high real credit costs.

In November, these efforts were re-

inforced by an upturn in sales, and manufacturing and trade inventories
were slashed at an annual rate of $35.4 billion in 1972 dollars.

Never-

theless, even though inventory holdings at the end of November were no
larger than in early 1981, sales had fallen to much lower levels, and
the response to this situation will continue to be a critical factor in
the near-term outlook for production.
Manufacturers reduced inventories at an annual rate of $18
billion in real terms during November, with liquidations reported for
virtually all key durable goods industries.

Preliminary reports indicate

that manufacturers continued to liquidate inventories at a rapid rate in
December.

Factory stocks were 3-1/4 percent below early 1981 levels,

but with shipments still 12 percent below the pace in the same period,
inventory-sales ratios remained only slightly below the peak levels of
last October.

Producers of nonelectrical machinery and primary metals

continued to face the most serious imbalances between sales and inventories.
In the wholesale trade sector, where inventory changes have been
volatile, stocks were reduced in November at a $5.7 billion annual rate

II-7

THE RECENT BEHAVIOR OF
MANUFACTURING AND TRADE INVENTORIES AND SALES
Manufacturing and Trade Inventories

January 1981=1.0

-and Sales ($1972)

1.04
Inventories

1.02

1.00
Nov.

.98

I
!I
Sales and Shipments

.96

\\
\

.94

\Nov.

'I
I/

III

1980

1981

1982

.92

.90

II-8
CHANGES IN MANUFACTURING AND TRADE INVENTORIES
(Billions of dollars at annual rates)
1982
1980

1981

38.4
23.0
14.1
8.9
10.6
4.9
-2.0

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

n.a.
-23.1
-20.4
-2.7
n.a.
n.a.
n.a.

-14.1
-9.2
-11.4
2.2
.4
-5.3
-11.1

-68.1
-29.0
-30.2
1.3
-14.6
-24.5
-21.2

n.a.
-31.3
-19.7
-11.6
n.a.
n.a.
n.a.

7.1
2.6
1.5
3.1
.7

-3.2
-7.3
2.8
1.3
1.2

3.4
-5.0
1.3
7.1
5.5

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

-8.4
-7.5
2.9
-3.8
-5.4

-35.4
-18.0
-5.7
-11.8
-9.9

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

Oct.(r) Nov.(r) Dec.(p)

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

-1.7
.9
.5
-3.0
-2.6

INVENTORIES RELATIVE TO SALES 1
1974-75

1982

Cyclical
Peak 2

Total
Manufacturing

1.64
1.95

Durable

1982
Q4(p) Oct.(r) Nov.(r) Dec.(p)

1.55
1.81

1.49
1.73

1.51
1.71

n.a.
1.75

1.55
1.78

1.51
1.77

n.a.
1.76

2.51

2.52

2.35

2.36

2.45

2.51

2.47

2.45

1.39
1.24
1.57
2.17

1.18
1.27
1.46
2.02

1.12
1.18
1.40
1.69

1.09
1.23
1.45
2.01

1.12
n.a.
n.a.
n.a.

1.12
1.27
1.43
1.86

1.13
1.24
1.37
1.56

1.13
n.a.
n.a.
n.a.

1.76
2.18
1.40
1.49
2.05

1.81
2.20
1.51
1.49
2.01

1.73
2.10
1.42
1.45
1.79

1.76
2.10
1.47
1.50
2.01

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

1.81
2.20
1.51
1.48
1.91

1.77
2.17
1.47
1.43
1.59

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

Book Value Basis

Nondurable
Wholesale trade
Retail trade
Automotive
Constant Dollar Basis
Total
Manufacturing
Wholesale trade
Retail trade
Automotive
1.
2.
(r)
(p)

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-9

in constant dollars.

The stock-sales ratio fell a bit from October's

cyclical peak, but still remained very high.
Liquidation of retail trade inventories increased sharply in
November.

A rapid runoff of stocks held by auto dealers accounted for

most of the decline, as auto sales were buoyed by financing concessions.
These concessions were extended to all domestic models at the beginning

of 1983, and, with January's cautious production schedules, dealer inventories were apparently brought below 60 days supply, traditionally considered a comfortable level.

Aside from autos, general merchandise stocks

were reduced in November, but inventory holdings were still much out of
line with sales.
Personal Income and Consumer Spending
Personal income grew somewhat faster in December than in the
previous four months, reflecting a boost from farm support payments.

the private nonfarm sector, however, income growth remained very weak as
payrolls were about unchanged for the fifth consecutive month.

For the

fourth quarter as a whole, personal income was supported by the growth of
unemployment insurance payments as well as the increase in farm income;
the number of claimants receiving regular unemployment insurance benefits
rose through early November, and the new Federal Supplemental Compensation
Program extended the period of eligibility for most claimants.

Because of

the sharp cutback in aggregate hours worked, private wages and salaries
declined in the fourth quarter for the first time since the first quarter
of 1975. In addition, falling interest rates reduced the growth of interest
income.

II-10

PERSONAL INCOME
(Based on seasonally adjusted data)
1982

1981

1982

Oct.

Nov.

Dec.

- - percentage changes at annual rates 1 - Total personal income
Wage and salary
disbursements
Private
Disposable personal income
Nominal
Real

10.4

5.2

2.6

6.9

6.4

4.8

8.4
8.7

2.7
2.0

2.8
2.1

4.0
3.7

3.5
3.2

.6
-1.0

10.4
2.6

5.8
.6

3.0
-1.9

6.7
3.1

9.0
1.3

4.7
-.2

6.6

4.5

7.1

1.1
-2.4

.0
-1.6

1.8

5.9
-2.1

4.5
3.6

2
- - changes in billions of dollars - -

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

11.6

7.0

8.8
7.1
1.1

3.6
2.2
-.8

4.0
2.7
-.2

10.3
2.9

8.5
3.9

1.2

15.9

10.3

13.2

14.3

9.8

15.5

6.8
5.6
.9

2.4
1.6
-1.7

1.3
-1.1
-2.3

1.4
-2.5
-4.3

.0
-1.7
-1.6

2.4
.9
-1.0

4.2
1.3

9.5
3.1

8.1
5.5

11.9
5.7

12.9
9.4

9.7
6.0

13.2
1.6

1.3

-. 1

15.2
1.7

11.0
1.1

7.1
.5

10.4
-.4

15.7
2.4

10.8
1.9

10.8
-1.8

8.3
3.2

13.3
4.4

6.4

6.5

6.6

6.7

6.9

5.8

6.2

5.5

5.8

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

II-11
RETAIL SALES
(Percent change from preceding period;
based on seasonally adjusted data)

Q2
Q3
Q4
---quarterly rate-Total sales
(Real)

2.8

1982
Oct.
Nov.
Dec.
-- monthly rate--

3.0

1.1

2.6

-.4

2.3

-1.2

2.4

2.8

-. 4

Total, less autos and
nonconsumption items

1.6

1.1

Total, less autos,
nonconsumption items,
and gasoline

1.5

1.4

1.2

GAF 2

1.3

-.1

1.2

2.2

1.1

Durable goods
Automotive
Furniture &
appliances

7.1
11.4

-3.6
-5.3

7.2
12.1

1.3
2.9

7.9
12.5

-1.8
-4.1

2.6

-1.3

1.7

1.9

2.2

Nondurable goods
Apparel
Food
General merchandise 3
Gasoline

.9
-1.8
2.0
2.1
-4.8

1.0
.3
.4
.5
.4

.3
-1.2
.1
1.5
-.5

1. BCD series 59. Data are available approximately three 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
Oct.

Nov.

Dec.

1983
Jan.1

7.5

7.8

8.6

7.6

9.5

8.7

n.a.

Foreign-made

2.0

2.2

2.5

2.3

2.6

n.a.

U.S.-made

5.5

5.6

6.1

5.3

6.8

6.1

6.3

Small

2.5

2.6

2.8

2.3

3.3

2.9

n.a.

Intermediate
& standard

3.0

2.9

3.3

2.9

3.6

3.3

n.a.

Total

Note: Components may not add to totals due to rounding.
1. First 20-days.

II-12
Despite little income growth, consumer demand has been fairly
robust in recent months.

Domestic auto sales averaged 6-1/2 million

units at an annual rate in November and December, benefiting from finan-

cing concessions on 1982 models.

But 1983-model cars also have been

selling at a fairly brisk pace, representing the bulk of the 6.3 million
units sold in the first three weeks of January, as financing concessions
were extended to cover 1983 models as well.

Demand for imported auto-

mobiles remained at a high 2.6 million unit annual pace in December,
capturing a record 29.6 percent share of all auto sales.
Outside the automotive area, retail sales for consumer goods
increased 0.7 percent in December, and increased in real terms as well.
Sales of general merchandise, furniture, and appliances advanced almost
2 percent in December; this was only partially offset by less spending
at apparel outlets and gasoline stations.

Recent spending patterns are

consistent with the Michigan Survey that found an improvement in consumers'
appraisals of buying conditions for automobiles, houses, and large consumer durables; more than half of the respondents thought it was a
good time to buy a car within the next year, the highest positive
response since 1978. Nevertheless, it is difficult to draw inferences
on the underlying demand for autos, because respondents in the Michigan.
Survey often react positively to special price concessions.
With consumption perking up toward year-end and payroll income
relatively flat, the personal saving rate dropped from an average of 6.7
percent in the first three quarters of the year to 5.8 percent in the
fourth quarter.
5 years.

The saving rate averaged about 6 percent during the last

II-13

Housing
Activity in the housing market generally continued to trend up
as the cost of mortgage credit drifted lower.

In December, private housing

starts fell a bit following a surge in November, but for the fourth quarter
as a whole, starts were nearly 45 percent above the cyclical low at the end
of 1981.

All of the fourth quarter rise was for single-family units, as

starts of multifamily units edged down from the exceptional third-quarter
rate.

At the same time, the number of building permits issued for resi-

dential construction rose further in December, mostly for multifamily
units; the advance in building permits has outpaced housing starts, as
happens from time to time during the early phases of housing recoveries.
Sales and prices of both new and existing houses have trended
up in recent months.

Despite a decline in December, new home sales

in the fourth quarter were 43 percent above the recent cyclical low;
sales of existing homes were 12 percent higher.

At the same time, the

average price of new homes sold edged up 1 percent from a year earlier;
existing home prices were up about 3 percent.

However, both figures

may be influenced by changes in mix, quality, and financing concessions.
Business Fixed Investment
Real business fixed investment declined sharply again in the
fourth quarter of 1982, bringing the rate of investment 8.4 percent
below its peak attained in the fourth quarter of 1981.

The decline

was concentrated in producers' durable equipment, although the value
of nonresidential construction fell a bit over the second half of
last year and now appears to be in a downswing as well.

This contraction

II-14

PRIVATE HOUSING ACTIVITY
Seasonally adjusted annual rates, millions of units)
Most Recent
Trough1

All units
Permits
Starts

.76
.87

.92
.95

Single-family units
Permits
Starts

.42
.54

.37
1.85

Sales
New homes
Existing homes

1982

Oct.

.98
1.12

1.22
1.25

1.17
1.13

1.19
1.40

.49
.61

.52
.65

.70
.80

.65
.70

.73
.88

.73
.80

.37
1.93

.40
1.84

.53
2.08

,50
1.93

.56
2.12

.52
2.18

1.7
2.8

0.1
2.0

1.1
3.1

4.3
3.7

4.0
2.0

Nov.

Dec.

1.29
1.22

Prices 3
New homes
Existing homes

---

-3.3
3.5

Multifamily units
Permits
Starts

.34
.32

.43
.35

.47
.47

.51
.46

.52
.43

.46
.52

.56
.42

Mobile home shipments

.18

.25

.23

n.a.

.22

.25

n.a.

1. Quarter of trough is specific to individual series.
2. Preliminary estimates.
3. Percent change, from year earlier, in average price of homes sold.
n.a.--Not available.

PRIVATE HOUSING STARTS
(Seasonally adjusted annual rate)
Millions of units
2.0
- 1.6

1.2

.8
.. _**

.4
IL1LL
1979

1980

1931

1982

II-15

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

1982
Oct.
Q4

Nov.

Dec.

-1.0

-3.1

-3.5

-3.7

-4.0

Addendum: Sales of heavyweight trucks (thousands) 1

173

168

162

129

162

194

Nonresidential construction

1.8

-1.0

-1.8

1.2

-1.2

1982
Oct.
Q4

Nov.

Dec.

-.4

-.1

2.0

Nondefense capital goods
shipments

1. Annual rate.

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

Nondefense capital goods orders
Machinery

4.9

-4.4

2.4

-4.2

-5.1

2.9

-1.3

-3.3

5.84
4.25

5.73
4.04

5.82
4.18

5.90
4.35

5.82
4.11

5.85
4.16

-14.9

-10.5

n.a.

-23.0

10.7

n.a.

7.3

Addenda: Ratio of current
dollar unfilled orders
to shipments
Total
Machinery
Nonresidential building permits

II-16

in construction has been fairly widespread, as spending for non-office
commercial buildings, public utility structures (for example, generating
plants), and oil- and gas-well drilling (GNP basis) all dropped somewhat.
Recent near-term indicators, while still depressed, have shown
some signs of revival.

Orders for nondefense capital goods rose 2 percent

in December, and in the fourth quarter were almost 2.4 percent above the
third-quarter pace.

In December, orders were about 3 percent below

shipments, a significant improvement from a gap that averaged 9 percent
for the first 11 months of 1982.

A narrowing of the gap is a positive

sign because an increase in orders above the level of shipments will
eventually lead to an upturn in shipments as well.
In contrast, near-term indicators of nonresidential structures
suggest further declines in the months ahead.

While construction of

commercial office buildings--about one-fifth of nonresidential structures-continued to rise through most of 1982, it registered a decline in December.
In addition, vacancy rates jumped to a high level in the second half of
1982 and permits for nonresidential construction remained very low,
despite a 10.7 percent increase in November.
The annual Commerce Department Survey of plant and equipment
spending plans for 1983, taken in November and December, points to continued weakness this year.

Businesses intend to lower nominal capital

spending by 1.3 percent in 1983.

This translates into a 5.2 percent

real decline, given the respondents' inflation expectations of around 4
percent for capital goods, and follows a 4.8 percent real decline in

II-17
NONRESIDENTIAL COMMERCIAL STRUCTURES
AND VACANCY RATES FOR COMMERCIAL OFFICE SPACE

Expenditures for Nonresidential
Structures--Commercial Buildings

* Source:

Building Owners & Managers Association.

Billions of $72

II-18
SURVEYS OF PLANT AND EQUIPMENT EXPENDITURES
(Percent change from prior year)

Planned for 1983

1
1982
Survey
(Actual)
All Business
Manufacturing
Durables
Nondurables
Nonmanufacturing
Mining
Transportation
Utilities
Trade and Services
Communications and
other

-.5
-3.3
-6.3
-.4

1.3
-4.8
-2.0

8.4
.1
.9

Commerce

Department
Jan. 1983

McGraw-Hill 2
Fall 1982

-1.3
-2.6
-1.0
-3.9
-.60
2.5
1.0
-3.9
.5

Merrill-Lynch 2
Fall 1982

-2.1
-2.5

-1.7
-.1

-.7
-4.1
-1.8

-1.3

1.1
-2.8

-13.5
-10.4
-3.8
4.63

10.1
-5.5

-5.1
-10.24

-7.0

-1.1

15.3

1. Growth in actual expenditures reported in the January Commerce Survey.
2. Not strictly comparable to Commerce Survey.

3. Includes only commercial category.
4. Includes commercial and other.
5. Includes communication only.

ERROR HISTORY OF ANNUAL SURVEYS 1

2
Year

Commerce Department

1970*
1971
1972
1973

3.8
-.5
.2
.1

1974*

1975*
1976
1977
1978
1979

1980*
1981*
1982*
Mean Absolute Error

McGraw-Hill

2
Merrill-Lynch

2.8
.5
-2.6
-2.2

1.5
1.1
.1
-2.8

-.7

-1.0

4.3
-1.3

11.5
2.0

9.7
-3.9

-1.4
-3.2
-3.9

.3
-2.2
-5.2

.8
-3.1
-6.1

1.3
1.7
6.9

.2
3.2
8.9

-1.9
-1.7
6.8

2.3

3.3

1. Anticipated less actual percent change.
2. Fall Survey taken in October and November of 1982.
* Recession year

3.1

II-19

1982.

Both the Merrill-Lynch and McGraw-Hill fall surveys are roughly

consistent with the Commerce survey.

However, these capital spending

surveys generally overstate the weakness in investment at business cycle
troughs.
Federal Government
A sharp increase in federal purchases helped to boost the growth
of real final sales in the last quarter of 1982.

Despite a deceleration

of defense spending from its rapid growth earlier in the year, total
federal purchases rose 28 percent at an annual rate.

Most of the increase

reflected a further rise in Commodity Credit Corporation purchases to a
record level.
The federal government budget deficit was about $68 billion in
the final quarter of 1982, on a unified basis, compared with $48 billion
a year earlier (quarterly rates, not seasonally adjusted).

The larger

deficit reflected a sharp rise of about $11 billion in expenditures and
a falloff in revenues of about $9 billion over the four-quarter period.
Almost half of the drop in revenues resulted from sagging corporate
taxes.

In addition to the record CCC purchases, outlays were boosted by

sizable increases in defense and transfer payments.
In its "lame duck" session, Congress established basic funding
levels for the federal government for all of fiscal year 1983, partially
through appropriations bills and, for the remainder of government, through
a second continuing resolution.

In total, last minute Congressional actions

appear to have raised outlays about $10 billion above levels consistent
with the earlier Congressional Budget Resolution; about a third of this amount
may be attributable to extended supplemental unemployment benefits and

II-20

the new highway program

latter, of course, was offset by a tax in-

crease).
The Administration submitted a FY1984 budget at the end of
January. The document indicated that the Administration now anticipates
a FY1983 deficit of $208 billion and projects a $189 billion deficit for
1984.

Details of the budget will be provided in the supplement to this

Greenbook.
Among other items, the budget requests an FY1984 freeze on
cost-of-living adjustments in federal government pay and benefits and
certain other programs and adopts the recommendations of the National
Commission on Social Security Reform that were submitted January 20.

improve the ability of the social security system to meet its obligations
over the remainder of the decade, this Commission recommended (1) a sixmonth deferral of the July 1983 cost-of-living adjustment, (2) partial
taxation of benefits received by upper income households, (3) acceleration
of payroll tax increases, and (4) a number of other changes, including
coverage for new Federal workers.

According to the Commission report,

these recommendations are expected to inject about $170 billion into the
trust fund from 1983 through 1989.
State and Local Government
Real purchases of goods and services by state and local governments rose slightly in the fourth quarter, remaining almost unchanged
over the year as a whole.

This contrasts with the steady decline in

real purchases over 1981.

The increase during the fourth quarter of

1982 was concentrated in construction, which rose 9.4 percent at an
annual rate in real terms.

In contrast, compensation, the largest

II-21

component of state and local government purchases, fell slightly in
real terms.
Inflation and Labor Costs
The consumer price index was about unchanged near year-end,
rising 0.1 percent in November and falling 0.3 percent in December.

For

the year as a whole, the CPI rose 3.9 percent, less than half the 1981
pace.

Producer prices of finished goods rose even less rapidly, 3-1/2

percent in 1982. Sharp declines in mortgage rates held down the CPI
last year, and weak markets for food and energy contributed to price
deceleration.

But the reduction in inflation also occurred in many

other sectors.

Prices of consumer commodities other than food, energy,

houses, and used cars rose 4 percent last year, the smallest increase
since 1972.

Service prices, excluding energy items and homeownership

costs, advanced 7 percent last year, about 3-1/2 percentage points
less than their 1980-81 average.
In the investment sector, the easing of inflation also was
striking. Producer prices of capital equipment rose 4 percent, the
slowest pace since 1972.

Construction prices, which are not reflected

adequately in the PPI or CPI, also slowed dramatically last year; the
price index for nonresidential structures advanced 3.4 percent over
the four quarters of last year, down from about 7-1/2 percent in 1981,
while prices for residential structures were actually flat for the
first time in more than a decade.
Labor costs also slowed further last year as wage increases
moderated in response to reduced inflation, high unemployment, and efforts

II-22

(Percentage cha

SELECTED MEASURES OF INFLATION
Sat annual rates; based on seasonally adjusted data) 1

Relative
ir- rtance
-ec. 1981

1980

1981

1982

5.0
5.3
2.7
4.3
.0

5.9
7.3
2.8
4.3
.1

1982
Q4 Nov.

Dec.

BEA vixed-IWeighted Price Indexes
GNP
Personal consumption
Fixed inves t aent
Business fixed investment
Residential structures

10.3
10.9
9.3
10.2
7.7
10.3

8.9

4.8

5.9

CPI, All items
100.0
Food
16.6
Energy
11.1
Homeownership
26.1
All items less food,
ener y, and homeowner49.8
ship
Used cars
3.3
Other commodities 2
19.9
Other services 2
26.6

12.4
10.2
18.1
16.5

8.9
4.3
11.9
10.1

3.9
3.1
1.3
1.4

4.2
.6
5.5
.4

CPI, Experimental 3

100.0

10.8

100.0

Gross business product

4.7

Consumer Price Index

9.9 9.4
18.3 20.3
8.1 6.1

6.0
10.9
4.0
6.9

6.1
16.0
3.9
8.4

8.5

5.0

6.4

20.8

11.8
7.5
27.8
10.4
11.4

7.1
1.4
14.1
7.1
9.2

3.5
2.1
-.1
5.0
4.0

94.7

12.4

7.3

50.7

8.6 -14.0
26.9
22.8
7.5 -11.4

10.3

10.6

1.1
.8
.6
.8
-4.0 -6.8
-9.9 -9.7

-3.3

-1.7
-7.7
-20.5

2.4 6.1
24.4
17.8
4.0
.6
3.9
5.1 4.5 2.9
5.8

19.6

5.2

5.4

3.1

.8
.9
-8.9
.5
6.8

Producer Price Index
PPI, Finished goods
Consumer food
Consumer energy
Other consumer goods
Capital equipment
PPI, Int. Materials 4
PPI, Crude Materials
Food
Energy
Other

21.9
12.7
44.6

33.6
15.7

4.2
-7.4

4.8

33.3

8.4

3.3
3.8

7.0
4.3

7.6
-1.9
34.3
6.6
3.4

2.4

1.8

6.1

1.4 -26.4
2.4
9.4
-7.6
5.5

-.9

-6.5
11.7
-8.0
5.1 19.8 -14.6
-8.6 -15.4 -11.0

1. Changes are from final month of preceding period to final month of period
indicated, except BEA measures are from final quarter of preceding period to
final quarter of period indicated; monthly changes at simple annual rates and
quarterly changes at compound rates.
2. Includes the home maintenance and repair items of homeownership costs.
3. BLS experimental index for "All items"-CPI-U-X1-which uses a rental
equivalence measure for homeownership costs.
4. Excludes materials for food manufacturing and animal feeds.

II-23

SELECTED MEASURES OF LABOR COSTS IN THE NONFARM BUSINESS SECTOR
(Percentage change at annual rates; based on seasonally adjusted data)
1980

1981

1982

1982
Q3

June 1982Dec. 1982

Hourly earnings index, wages of production workers1
Total private nonfarm
Manufacturing
Contract construction
Transportation and
public utilities
Trade
Services

9.6

8.4

5.9

6.4

6.2

4.5

5.2

10.9
7.7

8.8
8.1

6.1
4.9

6.6
2.3

6.4
3.4

2.9
4.8

4.1
5.6

9.3
8.8
9.5

8.5
7.1
9.1

5.9
4.8
6.5

6.0
6.4
7.6

4.5
4.5
8.5

5.7
4.6
5.0

5.0
4.2
6.3
1982-Q3 to
1982-Q4

Employment cost index, wages and salaries of all persons 2 ,3,4
Total
By occupation:
White collar
Blue collar
Service workers
By bargaining status:
Union

Nonunion

Last Six
Months

9.0

8.8

6.5

4.8

7.2

n.a.

6.1

8.7
9.6
8.1

9.1
8.6
8.3

6.9
5.7
7.6

5.3
3.8
8.3

8.0
6.6
6.3

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

6.5
5.2
7.3

10.9
8.0

9.6
8.5

7.2
5.3

5.8
3.7

8.2
8.7

n.a.
n.a.

7.1
6.2

Major collective bargaining
Y
V settlements, first-year wage
1 adjustments
I
Contracts with COLAs
Contracts without COLAs

8.0
11.7

8.0
10.6

2.2
7.0
1982-Q2 to
1982-Q4

Labor costs and productivity, all persons1
Compensation per hour
Output per hour
Unit labor costs

10.6
.3
10.2

8.8
-.1
8.9

6.6
1.9
4.6

6.1
.8
5.2

6.6
3.4
3.1

6.0
2.7
3.2

1982-Q3 to
1982-Q4

2 4 5
Employment cost index, compensation , ,

Compensation per hour

9.8

6.9

5.4

8.1

n.a.

1. Changes are from final quarter of preceding period to final quarter of period
indicated. Quarterly changes at compound rates.
2. Changes are from final month of preceding period to final month of period indicated.
Quarterly changes at compound rates.
3. Seasonally adjusted by FRB staff.
4. Changes for 1982 are for year to date (1981-Q4 to 1982-Q3) at annual rates.
5. Not seasonally adjusted.

II-24

by employers to restore profits.

Labor productivity posted a gain of 2.7

percent (annual rate) in the fourth quarter, and rose 1.9 percent over the
four quarters of 1982.

While advances in productivity often occur near

cyclical troughs in overall activity, the recent increases in output per
hour appear somewhat better than would have been expected given the anemic
productivity performance of the 1970's and the drop in output last year.
Virtually all wage measures slowed to around 6 percent in
1982, compared with 8 to 10 percent in the preceding year.

Wages for

production workers, as measured by the hourly earnings index, decelerated
to 4-1/2 percent in the fourth quarter, following a 6-1/2 percent pace
earlier in the year.

The slowing was especially noticeable in manufac-

turing where concessions in some industries, such as autos, had eliminated
annual improvement factors and some cost-of-living adjustments.
of white-collar workers also began to slow in 1982.

Earnings

Hourly compensation--

which includes fringe benefits as well as wages and salaries--rose at a 6
percent annual rate in the fourth quarter, bringing the four-quarter increase in 1982, at 6-1/2 percent, to the lowest rate since the period of
wage and price controls in 1972.
Recent trends in collective bargaining point to further improvement in wage trends this year.

The slowing last year in overall wage

increases for the 8-1/2 million workers covered by major union contracts
involving 1,000 or more workers, from 9.5 percent in 1981 to 6.7 percent,
was attributable to both reduced COLAs and to smaller new settlements.
New settlements in 1982 were dominated by wage concessions made
early in the year.

For the year as a whole, unionized workers negotiated

II-25

wage increases that averaged 3.8 percent in the first contract year;
when they last bargained almost 3 years ago, the same parties received
first-year wage adjustments of 7.9 percent.

Much of the deceleration in

union wages last year occurred because almost half of bargaining workers
received no scheduled wage increases, although most will receive COLAs.
In addition, many workers--particularly auto workers and truckers--who
reached agreements in 1982 will receive no annual improvement factor over
the life of their contracts; this should moderate union wage change over
the next two years.

II-26

EFFECTIVE WAGE CHANGE IN MAJOR UNION CONTRACTS
(Percent)

"Contribution of:
COLA

'''

New Settlements

Prior Settlements
.....

.....

...

. . .

1976

1977

1978

1979

1980

1981

1982

NEGOTIATED IRST-YEAR WAGE RATE ADJUSTMENTS UNDER
NEW MAJOR COLLECTIVE BARGAINING SETTLEMENTS 1
(Percent change)
1980

1981

1982

9.5
3,791

9.8
2,382

3.82
3,257

Contracts with COLAs
Number of workers

8.0
2,295

8.0
659

2.2
2,162

Contracts without COLAs
Number of workers

11.7
1,496

10.6
1,723

7.0
1,095

0
0
4
25
52
18

5
3
3
9
55
26

2
43
7
23
21
3

All Industries
Number of workers (thousands)

Distribution (percent)
Decreases
No wage changes
0-4 percent
4-8 percent
8-12 percent
12 percent and over

1. Contracts covering 1,000 or more workers; estimates exclude potential
gains under cost-of-living clauses.
2. These same parties received first-year increases of 7.9 percent in prior
settlements.

III-T-1
SELECTED FINANCIAL MARKET QUOTATIONS 1
(Percent)
1981
highs

1982
FOMC
Oct. 5

1983
FOMC
Dec. 21

Feb. 1

Change from:
FOMC
FOMC
Oct. 5
Dec. 21

Short-term rates
Federal funds 2

20.06

10.77

8.69

8.4 7 p

-2.30

Treasury bills
3-month
6-month
1-year

17.01
15.93
15.21

8.14
9.18
9.66

7.90
8.01
8.11

8.16
8.26
8.30

.02
-. 92
-1.36

Commercial paper
1-month
3-month

18.63
18.29

10.23
10.42

8.48
8.43

8.35
8.43

-1.88
-1.99

-.13
0

Large negotiable CDs 3
l-month
3-month
6-month

18.90
19.01
18.50

10.33
10.72
10.98

8.59
8.62
8.78

8.48
8.68
9.02

-1.85
-2.04
-1.96

-. 11
.06
.24

Eurodollar deposits 2
1-month
3-month

19.80
19.56

11.23
11.59

9.44
9.56

9.05p
9.33p

-2.18
-2.26

-. 39
-. 23

21.50

13.50

11.50

11.00

-2.50

-.50

14.20
14.07

8.93
10.56

7.85
8.63

8.28
8.86

-. 65
-1.70

.43
.23

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

11.62
11.6.
11.81

9.87
10.54

9.94
10.78
10.95

-1.68
-.91
-.86

Bank prime rate
Treasury bill futures
Mar. 1983 contract
Sept. 1983 contract

-.22

.26
.25
.19

Intermediate- and longterm rates

10.53

Municipal (Bond Buyer)

13.30

10.484

10.054

9.664

-. 82

Corporate--Aaa utility
Recently offered

17.72

13. 27 e

11.96 e

12.12p

-1.15

18.63
1981

15.135

13.635

13.105
1983

S&L fixed-rate mortgage commitment

1982
FOMC
Dec. 21

-.39

.16

-.53
-2.03
Percent change from:
FOMC
1981
Dec. 21
highs

Feb.l
highs
Stock Prices
2.9
3.5
1059.79
1030.26
1,024.05
Dow-Jones Industrial
3.6
4.4
82.61
79.74
79.14
NYSE Composite
9.5
-5.4
359.78
328.48
380.36
AMEX Composite
8.6
11.0
248.15
228.52
223.47
NASDAO (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. One-day quotes for preceding Friday.
p--preliminary. e--estimated.
3. Secondary market.

DOMESTIC FINANCIAL DEVELOPMENTS

Growth in the monetary aggregates was exceptionally rapid in January,
with expansion in M2 surpassing previous records by a wide margin.

Move-

ments in the aggregates were distorted by shifts into the newly authorized
money market deposit accounts and, to a lesser extent, super NOW accounts.
The heavily promoted MMDAs, in many cases offered at yields far above market interest rates, prompted large shifts among the components of M2, and
evidently attracted substantial amounts of funds from large time deposits
and other market instruments.
Market interest rates have changed relatively little on balance since
the December FOMC meeting.

After moving down at first, rates more recently

have firmed as market expectations of a further cut in the discount rate
were damped by the rapid growth in the aggregates, increased focus on
federal financing requirements, and some signs of strengthening in the
economy.

Lagging behind other rates, both the bank prime lending rate to

business and the mortgage commitment rate at S&Ls dropped about 50 basis
points.

In consumer credit markets, the automobile finance companies

extended their reduced-rate lending programs to cover all 1983 models as
well as leftover 1982 vehicles.

The Treasury has continued to raise large amounts of funds, as federal cash needs in the current quarter rival the record fourth-quarter volume.
Borrowing by state and municipal units slackened somewhat in January with
the passing of certain year-end borrowing deadlines, but has remained strong
by pre-1982 standards.

Nonfinancial businesses continued to lengthen the

maturity structure of their debt last month, issuing new bonds in the domestic and Euro- markets while repaying part of their shorter-term debt.
III-1

III-2
MONETARY AGGREGATES
(Based on seasonally adjusted data unless otherwise noted) 1
L9Z_

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

3.3
(4.5)
9.5
10.7

3.5
(4.6)
9.8
12.1

9.3

6.9

16.1
(14.4)
8.8
8.3

Nov.

Dec.

1983

QIV

Jan.P

to
QIV '82

'81

Jan. '82
to
P
Jan. '83

change at annual rates--

16.9
(17.5)
11.6
9.6

8.8
(9.1)
7.3
1.3

12.0
(4.8)
31.0
13.1

8.5
(8.4)
9.8
10.3

7.7
(7.6)
11.4
10.2

6.8

3.7

10.0

10.9

7,9

8.2

10.1

-3.5

1.0

0.1

Demand deposits

-5.8

-1.4

11.9

10.7

Other checkable deposits

19.6

11.4

41.2

52.2

8.3

48.5

33.7

30.1

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

11.5

11.7

6.6

9.9

6.8

37.0

10.2

12.6

-8.4

15.2

23.8

31.3

-40.7

78.9

24.8

12.5

21.4
17.2

31.7
12.2

9.9
8.5

16.3
9.1

-58.5
32.6

-112.9
103.7

26.4
12.3

3.8
23.2

2.0
23.8
6.0

-9.7
21.3
6.4

35.0
-1.8
3.6

35.4
-0.9
7.4

169.8
-23.0
6.6

482.7
-73.6
17.6

9.0
13.8
4.5

65.2
4.6
6.5

0.6
8.1

-7.8
11.7

32.6
-6.8

31.0
-1.4

89.6
-25.1

241.6
-77.3

8.9
2.8

61.1
-4.3

16.9

23.8

5.6

0.0

-27.2

-75.3

19.1
19.9
15.5

19.6
21.4
11.5

0.4
-6.2
30.4

-7.4
-20.2
49.2

-27.5
-35.0
5.5

-82.6
-91.4
-48.9

15.2
6.2

104.0
-25.7

31.1
28.8

13.4
84.3

-58.3
3.6

-52.9
-3.6

9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

Overnight RPs and Eurodollars, NSA
General purpose and broker/dealer
money market mutual fund shares, NSA
Commercial banks
savings deposits, SA, plus
MMDAs, NSA
small time deposits
Thrift institutions
savings deposits, SA, plus
MMDAs, NSAZ
small time deposits
M3 minus M2 (18+21+22)
Large time deposits
5
at commercial banks, net
at thrift institutions
Institution-only money market
mutual.fund shares, NSA
Term RPs, NSA

-Average
MEMORANDA:
23. Managed liabilities at commercial
5
banks (24+25)
6
24.
Large time deposits, gross
6
Nondeposit funds
25.
26.
Net due to related foreign
institutions, NSAo
6 7
Other ,
27.
28.

U.S. government deposits at comercial
8
banks

-2.5

12.9

40.1
-5.7

26.8
3.1

monthly change in billions of dollars--

1.6
5.7
-4.1

-4.1
-6.5
2.4

-4.0
-7.0
3.0

-13.8
-13.4
-0.4

n.a.
-28.2
n.a.

2.3
2.9
-0.6

n.a.
-5.5
n.a.

-4.4
0.3

-0.7
3.2

3.1
-0.1

-2.9
2.5

n.a.
n.a.

-1.7
1.1

n.a.
n.a.

0.2

0.3

-3.8

1.7

4.0

0.0

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 component.
4. Beginning December, 1982, growth rates are for savings deposits, seasonally adjusted, plus money market
deposit accounts (MMDAs), not seasonally adjusted. Savings deposits excluding MMDAs declined at commercial
banks at annual rates of 20.5 percent . December and 28.3 percent in January. At thrift institutions, savings
deposits excluding HMDAs declined dur ; December and January at annual rates of 12.1 percent and 62.4 percent,
respectively.
5. Net of large-denomination time deposits held by money market mutual funds and thrift institutions.
6. Adjusted for shifts of assets and liabilities to International Banking Facilities (IBFs) which affected
flows from December 1981 to September 1982.
7. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities
sold under agreements to repurchase and other liabilities for borrowed money (including borrowings from the
Federal Reserve and unaffiliated foreign banks), loans sold to affiliates, loan RPs and other minor items.
Data are partially estimated.
8. Consists of Treasury demand deposits at commercial banks and Treasury note balances.
p--Preliminary.
n.a.--not available.

III-3

the closing months of 1982, households stepped up their installment borrowing and arrangement of commitments for home mortgage loans; with this
momentum and the further decline in credit costs, it seems likely that net
credit flows to this sector continued to expand moderately in January.
Monetary Aggregates and Bank Credit
Recent money stock behavior has been influenced greatly by the introduction of the MMDA in mid-December and the super NOW account in early
January. 1

Owing to heavy promotional activity and above-market offering

rates that have dropped moderately from initial levels, depository institutions have received massive inflows to MMDAs, which by late January reached
$200 billion in total.

Commercial banks have garnered about 60 percent of

these deposits.
Super NOW accounts--introduced on January 5 with less fanfare and
substantially lower interest rates than MMDAs, as well as hefty fees on
small or medium-sized accounts-appear to have attracted smaller, though

still significant, inflows.

Super NOWs totaled about $16 billion in the

second statement week after their introduction.

This buildup partly

reflected reallocations within M1, and inflows to super NOWs from outside

M1 were roughly offset by outflows from M1 balances into MMDAs.

Still,

Ml expansion picked up to an estimated 12 percent annual rate in January
after a dip in December to just below the double-digit pace of the preceding four months, a rebound which suggests that the underlying demand for
Ml remains strong.
M2 growth soared to a record 31 percent annual rate in January as
a result of sizable inflows to MMDAs from non-M2 sources.

Nevertheless,

1. MMDA and super NOW account developments are discussed in greater detail
in Appendix A.

III-4
COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT
(Percentage changes at annual rates, based on seasonally adjusted data) 1

1982
Q3

Oct.

-Colmercial
1. Total loans and investments
at banks 2 ,3

Dec.

Nov.

QIV '81
to
QIV '82

Bank Credit--

8.0

5.8

6.3

6.8

1.5

10.5

7.8

4.7

4.8

15.9

12.1

9.0

26.1

6.5

Treasury securities

4.9

8.3

43.0

41.6

40.2

42.7

13.5

3
Other securities

4.8

3.0

2.5

-2.5

-7.1

17.3

3.1

9.1

6.2

3.0

4.9

-1.0

15.0

9.0

-. 2

6.7

-7.3

11.7

-26.8

63.6

37.2

85.0

-39.7

66.7

15.9

Investments

2 3

Total loans ,

5.1

8.2

Business loans 2 , 3

Security loans

Real estate loans

6.6

2.8

4.9

3.6

4.4

6.4

5.9

Consumer loans

2.8

3.0

4.6

2.5

1.9

9.5

3.3

--Short- and Intermediate-Ters Business Credit-10.

Total short- and intermediateterm business credit (*um of
lines 14, 15 and 16)'

13.2

9.2

n.a.

-1.5

-9.9

n.a.

Business loans net of bankers
acceptances3

15.9

9.0

6.6

-4.5

-.3

12.1

Comercial paper issued by nonfinancial firms'

16.8

-6.0

-59.9

-71.4

-69.4

-48.4

1.0

13.

Sum of lines 11 6 123

16.0

7.0

-7.1

-3.4

-12.6

-5.6

10.7

14.

Line 13 plus loans at foreign
branches3 ,6

15.8

8.3

-7.3

-3.5

-12.9

-5.6

11.3

1.5

15.8

n.a.

-5.7

-24.4

n.a.

10.2

6.6

n.a.

14.7

27.4

n.a.

11.

12.

15.

Finance company loans to business7

16.

Total bankers acceptances outstanding7

n.a.

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 the fourth quarter of 1982, not adjusted
for shifts of assets from domestic offices to ISFs, was at an annual rate of 7.1 percent. Adjusted for such
shifts after January, growth over this period was 7.6 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-5

inflows to MMDAs from outside M2 were small relative to shifts originating
within the nontransactions component of M2.

Substantial amounts were trans-

ferred from retail RPs and 7- to 31-day deposits that had been widely used
as "bridge" accounts for MMDAs, but other small time deposits, passbook
savings accounts, and shares in money market mutual funds all declined
markedly as well.

Outflows from the M2-type money funds amounted to about

$25 billion between the mid-December introduction of MMDAs and late January.
M3 growth, though projected to have picked up to a 13 percent annual
rate in January from the weak December pace, was well below M2 growth in
both months, as large time deposits and shares in institution-only MMMFs
contracted sharply.

Declines in large time deposits partly reflected

direct shifting to MMDAs and partly curtailment of CD issuance by depository institutions in response to the surge in "core" deposits. 1

Some of

the decline in institutional MMMFs may also have resulted from transfers
to MMDAs, but it seems more likely that investors were reacting primarily
to the higher returns available on competing market instruments, particularly during late December.

More recently, with money fund yields improv-

ing again relative to other market rates, institution-only funds have realized a moderate net inflow.
Growth in bank credit rebounded in December to a 10-1/2 percent annual
rate, as banks increased their lending and made substantial purchases of
securities.

Although business lending remained weak in December, security

loans expanded sharply and real estate and consumer loans picked up.

Early

1. Large banks also appear to have adjusted to soaring inflows to core
deposits by making record advances to their foreign branches. A portion
of these advances likely replenished losses of funds arising from liquidation of Eurodollar CDs held by MMMFs.

III-6
GROSS OFFERINGS OF SECURITIES BY U.S. CORPORATIONS
(Monthly totals or monthly averages, millions of dollars)

1982

1983
P

Nov.

Dec.

Jan.

---------------Seasonally adjusted---------------Corporate securities--total

6,247

9,436

10,879

11,515

11,012

9,900

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

4,867
2,184
593
2,090

8,410
5,008
917
2,485

10,120
6,610
600
2,910

10,350
6,550
700
3,100

10,875
6,875
700
3,300

7,900
4,700
700
2,500

Securities sold abroad 3

1,380

1,026

759

1,165

137

2,000

----Domestic offerings, not seasonally adjusted---Publicly offered bonds--total 1
By industry
Utility
Industrial
Financial
By quality 4
Aaa and Aa
A and.Baa
Less than Baa
No rating (or unknown)
Memo items:
Convertible bonds
Original discount bonds
Par value
Gross proceeds
Stocks--total 2
By industry
Utility
Industrial
Financial
p--preliminary,
1.
2.
3.
4.

2,348

4,574

5,140

5,000

4,000

816
520
1,012

970
1,971
1,633

1,360
1,940
1,840

1,230
2,410
1,360

1,030
1,205
1,765

825
937
173
413

1,835
1,836
235
668

1,900
2,265
550
425

1,510
2,340
620
530

1,580
1,625
465
330

3,800

649

113
1,020
345

650
229

1,094
184

235
209

2,800
124

2,040

2,251

3,045

2,800

3,800

610
967
463

728
969
554

1,080
1,465
500

700
1,600
500

1,800
1,700
300

2,300

f--forecast.

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.

III-7

indications are that bank credit growth remained strong in January, led by
further large acquisitions of securities, especially Treasuries.
Business Finance
Net funds raised in markets by nonfinancial corporations plunged in
the fourth quarter of 1982, according to preliminary estimates, as firms
curtailed expenditures for fixed capital and liquidated inventories at a
brisk pace.

With yields in stock and bond markets down considerably from

mid-1982, businesses concentrated their fund-raising in the longer-term
securities markets, issuing large amounts of long-term debt and equity.
At the same time, business loans at banks contracted during the final two
months of 1982, and outstanding commercial paper, which had begun to
decline in August, continued to run off sharply through year-end.
SOURCES AND USES OF FUNDS BY NONFINANCIAL CORPORATIONS
(Billions of dollars, seasonally adjusted annual rates)
1982
1980

1981

1982 p

220.5
185.6
34.9

260.9
222.6
38.3

244
231
13

240.9
228.5
12.3

-P
Q4

247.5
227.5
20.0

263.2
234.8
28.3

232
233
-1

1.
2.
3.

less
equals

Capital expenditures
U.S. internal funds & IVA1/
Financing Gap

4.
5.

plus
equals

Other uses of funds, net1/
External financing needs

60.8
95.7

54.3
92.6

77
90

95.7
108.0

73.9
94.0

69.6
98.0

39
38

Net funds raised in markets
Net equity issues
Bonds
Mortgages
Loans & short-term paper

95.7
12.9
42.7
2.0
38.1

92.6
-11.5
35.7
-1.1
69.6

90
4
49
37

108.0
-5.3
33.9
-.3
79.7

94.0
5.0
29.4
-.7
60.3

98.0
0.0
59.4
-.1
38.7

38
15
58
1
-36

* Rounds to 0. p--preliminary.
1. Excludes net foreign earnings retained abroad.
In January, flotation of long-term securities remained relatively strong and
growth in bank loans appears to have resumed, while borrowing in the commercial paper market continued to decline.

III-8

Domestic bond offerings dropped off in January, but a sharp increase
in bonds sold abroad appears to have left total issuance for the month
about unchanged from December.

Fewer domestic issues in January carried

maturities of 20 years or longer; a relatively large number of issues
had maturities under 10 years, suggesting that both borrowers and lenders
remain cautious about the longer term.

Part of the shortening of maturi-

ties reflected a larger proportion of offerings by financial firms, which
typically rely more on intermediate-term instruments.

In addition, maturi-

ties in the Eurobond market typically are less than 10 years.
Many of the issues sold abroad recently have permitted buyers to
defer a significant portion of the payment for six to eight months. 1

Ini-

tial payments for such bonds have ranged in most cases between 10 and 30
percent of their face value.

The value placed by investors on the deferral

privilege has been reflected in lower yields than could be obtained on regular issues in the U.S. market.

Recent reports in the financial press, indi-

cating that several partly paid bond offerings have sold quite slowly, suggest that their popularity may be limited, however.
Major indexes of stock prices have moved up 3 to 10 percent since the
December meeting of the FOMC, with several reaching record highs during the
intermeeting period.

Since the start of the recent bull market in mid-

August, stock averages have climbed 40 to 55 percent.

Gross offerings of

stocks in December reached $3.3 billion on a seasonally adjusted basis,
before subsiding a bit in January.

Higher stock prices have also continued

1. Because buyers of partly paid bonds can walk away from the obligation
by forfeiting their initial payment, the issuers of these bonds might have
to refinance the deferred portion in the next few months, but only if interest rates rise substantially.

to encourage convertible bond offerings, especially by lower-rated firms
seeking to minimize financing costs.
Government Finance
Federal sector.

Treasury net marketable borrowing during the fourth

quarter totaled almost $59 billion to help meet a combined budget deficit
of $69 billion.

An anticipated first-quarter deficit of $66 billion is

expected to generate another $52 billion of marketable borrowing, with the
remainder likely to be financed by about $1-1/2 billion of nonmarketable
issues and a reduction of about $9-1/2 billion in the Treasury's cash balance.

The staff's estimate of marketable borrowing for the first quarter

is about $7 billion below the Treasury's estimate because of differences
in forecasts of the unified budget deficit.
Nonmarketable borrowing has increased significantly in recent months.
It had declined more than $6 billion in the first three quarters of 1982,
but rose $3-1/2 billion in the fourth quarter.

Much of the unusually large

volume of nonmarketable borrowing has come from special issues in which
state and local governments temporarily invest receipts from refinancing
operations.

These operations picked up significantly in the fourth quarter,

primarily because interest rates declined sufficiently to make refinancing
more attractive to state and local governments.

At current municipal inter-

est rate levels, refinancings are expected to be strong again in the first
quarter.
In the fourth quarter, the Treasury also raised $700 million in new
cash through savings bonds, and a like amount is expected in the first
quarter.

The renewed growth of savings bonds appears to be attributable

III-10
TREASURY AND AGENCY FINANCING1
(Total for period; billions of dollars)
1982

1983

Dec.

-18.1

-69.4

-12.1

-65.7

29.9

62.0

7.9

53.6

29.1
18.3
10.8
.8

58.6
33.9
24.7
3.4

7.2
-3.5
10.7
.7

52.2
18.5
33.7
1.4

-14.6

9.6

2.3

9.6

19.8

17.5

2.8

-2.2

1.9

2.5

1.3

-.1

-.9

-1.1

-1.6

-1.4

-2.5

Jan.p

Q1f

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
Federally sponsored credit
agencies net cash borrowing3
FHLB

10.2

FNMA

3.2

2.8

1.0

2.5

Farm Credit Banks

-.8

-1.4

-.5

Other

p--preliminary.
f--forecast.
*--less than 100 million.
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.

III-11

to the new program under which rates paid on savings bonds held to maturity
are linked to the average yield on 5-year Treasury notes.
In December, federally sponsored credit agencies borrowed an estimated
$1.3 billion, after running off debt in October and November.

FNMA borrowed

over $3 billion in December, using about $1.7 billion to finance new mortgage purchases and the remainder to increase its liquid assets.

The FHLBs,

in contrast, again paid down debt in December as thrift institutions continued to repay outstanding advances.

Lending by the Federal Farm Credit Banks

remained weak in the final month of the year, and these agencies also reduced
their outstanding debt.

This pattern of agency activity appears to have

continued in January, with only FNMA raising new money and with the FHLBs
likely paying off about $1.5 billion in debt.
State and local sector.

Prompted by declining interest rates and

approaching deadlines on issuance of certain types of securities, borrowing by state and local governments was extraordinarily heavy in the fourth
quarter of 1982.

Flotation of long-term securities crested to a record

$9.8 billion in December as many issuers rushed to the market in anticipation of the scheduled January 1 date for a federal requirement that all
municipal bonds be issued in registered form.

In mid-December this date

was postponed for six months, and borrowing slackened in the weeks immediately following.

Gross issuance during January as a whole was still esti-

mated to be quite strong at $5.3 billion, seasonally adjusted, as the fundamental factors of lower interest rates and weakness in revenues asserted
themselves.

In recent weeks, there have been a number of reports of bigger-

than-expected budget deficits of state and local governments.

Nonetheless,

market access evidently has not been impaired, and yield spreads have
remained moderate.

III-12

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

Year

1983

1982

1981
Year

Nov.

Dec.

Jan.

-------------- Seasonally adjusted -----------Total
Long-term
Short-term1

6.45
3.65
2.80

9.70
6.35
3.35

12.30
8.70
3.60

11.90
8.30
3.60

13.50
9.80*
3.70

9.30
5.30
4.00

------------ Not seasonally adjusted ----------Total
Long-term
Refundings
Mortgage revenue
Short-term1

6.45
3.65
.10
.53
2.80

9.70
6.35
.35
1.00
3.35

12.15
9.15
.80
1.00
3.00

12.95
9.65*
.70
.75
3.30

12.10
9.40
.50
1.00
2.70

7.00
4.00
.20
.40
3.00

e--estimate *--record volume
1. These numbers do not include tax-exempt commercial paper.
Revenue issues continued to dominate activity in the tax-exempt market, accounting for about three fourths of total volume in December and
January, a proportion very near the average for the past three years.
largest single category in December was mortgage revenue bonds.

The

Issuers

of these obligations were anxious to use up their annual volume limitations
which cannot be carried over into the next calendar year.
hospitals and public utilities also were sizable.

Issues to finance

Taken together, these

three revenue bond categories made up about 45 percent of total tax-exempt
securities volume in 1982.
Individuals remain the main category of purchasers of new municipal
issues.

Net new purchases of long-term securities by individuals through

bond funds--unit investment trusts (UITs) and open-end mutual funds--came
to about $2-1/4 billion in December.

Sales of UITs were a record $13-1/4

billion in 1982, almost three times the previous $5.3 billion record set in

III-13

1981.

By contrast, commercial banks and property/casualty insurance com-

panies--the traditional institutional investors in tax-exempts--have shown
little interest in such investments over the past two years.
Mortgage Markets
Despite quite recent reports of an upturn in rates in several regions,
the average interest rate on new commitments for long-term, fixed-rate conventional home mortgages at S&Ls has fallen by about 1/2 percentage point
since the December FOMC meeting to 13.10 percent--nearly 4 percentage points
below the recent high last July and 5-1/2 points below the cyclical peak in
the fall of 1981.
As rates have declined, the volume of applications for federally
underwritten as well as conventional home loans generally has risen.

New

mortgage commitments issued by S&Ls rose to $8.9 billion in December, after
seasonal adjustment, and the stock of commitments outstanding climbed to
$29.5 billion--the highest since late 1979.

The surge in activity, of

course, reflects refinancing of outstanding high-rate loans as well as
funding of real estate construction and home sales transactions.

On a net

basis, mortgage-related assets at S&Ls (mortgage loans and mortgage passthrough securities combined) increased $1.5 billion in December, and the
rise for the fourth quarter as a whole was nearly double that of the previous quarter.
The past several months saw a substantial narrowing of the gap between
average commitment and closing rates on conventional home loans at institutional lenders.

This gap had reached unprecedented proportions in 1981 and

early last year, reflecting not only time lags between commitment and closing, but also the inclusion in the closing rate series of adjustable-rate

III-14
MORTGAGE-BOND YIELD SPREADS

GNMA less Treasury Bonds

Basis points
300
1250

V-

_
I

= 200

1... __ .......1_....

.150
100

__L..... __I... _LL

__.
__
o_
0

Conventional Mortgage less Corporate Bonds

-- 500
400

. 300

....
200

S__\ \\
/

100
t

1973

.I..1....
196

1..99

1973

1976

1979

92.
1982

100

III-15

loans (generally with initial rates below those on fixed-rate contracts)
and fixed-rate loans made at below-market rates--such as builder buy-downs,
"blends," and loans made from the proceeds of tax-exempt mortgage revenue
bonds.

The recent narrowing of the gap reflects timing to some degree,

but also signals a decline in the importance of adjustable-rate mortgages
and presumably also of below-market-rate financing.

The proportion of

adjustable-rate loans among loans closed at institutional lenders fell in
December for the fourth consecutive month.

Moreover, as market rates have

plummeted, the need for blended-rate arrangements and builder buy-downs has
weakened and the competitive advantage of funds raised earlier by municipalities through mortgage revenue bonds has dwindled.
Although yields have declined sharply since late 1981 on long-term,
fixed-rate mortgages and on mortgage pass-through securities, they have
come down less than yields on bonds of similar quality and maturity, and
spreads between mortgage rates and bond rates have widened accordingly.
In fact, the spread between yields on new issues of GNMAs and 10-year Treasury bonds has trended upward since 1978; over the same period, the spread
between rates on new commitments for conventional home mortgages and yields
on recently offered corporate bonds has widened by roughly the same amount.
These long-run changes in yield spreads occurred as net investment
in mortgage-related assets by thrift institutions fell to historically low
levels, in both absolute terms and as a share of the market.

While the

persistence of such large yield spreads might suggest a mortgage credit
"availability" problem, the rise in both the GNMA-Treasury and the mortgagecorporate bond yield spreads more likely has been associated with increases
in the price charged by investors for the prepayment (call) option owned

III-16

CONSUMER INSTALLMENT CREDIT

1980

1981
Q2

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

0.5

0.4
2.5
-0.3

1982
Oct.

Dec.P

Nov.
-

rate of growth, SAAR

6.4

4.8

2.1

-1.2

9.1

8.2
8.1
4.1

5.8
10.4
1.5

0.5
6.4
1.7

-0.7
2.1
-2.9

17.1
2.1
5.0

10.5

- - - - - - Billions of dollars, SAAR - - - - 1.4

19.1

15.7

6.9

-3.9

30.3

total
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

-0.9
1.3
-4.2

21.8
1.3
7.2

By major holder:
Commercial banks
Finance companies
All other

-7.2
8.4
0.2

-0.1
10.2
5.6

0.6
0.7
5.6

-0.6
-4.7
1.4

10.8
13.6
5.8

Change in outstandings --

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

2.3
13.1
4.5

- - - - - - - Percent, NSA-

- -

35.3

13.2

- -

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

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

14.83
19.10

16.17
20.00

15.19
20.83

17.68
20.93

16.66
20.76

12.82
20.68

12.57
20.63

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;
November figure is for first week of the month.
3. Average rate for all loans of each type made during the period, regardless
of maturity.
n.a.--not available.
p--preliminary.

III-17

by mortgage borrowers--an option that had grown in value as interest rate
uncertainty increased.

The prices that investors will pay for prepayable

(FHA/VA and conventional) and assumable (FHA/VA) fixed-rate mortgages
reportedly have declined relative to prices they will pay for investments
with greater yield certainty--as evidenced by preferences of pension funds
and life insurance companies for deep-discount mortgage securities that
have a relatively low probability of early refinancing.
Consumer Credit
Consumer installment credit outstanding rose during November at an
annual rate of 9 percent, by far the fastest pace in more than a year.
Automobile credit, which increased at a 17 percent annual rate on the
strength of price reductions and special financing concessions offered
by auto manufacturers, accounted for over two thirds of the expansion.
Incoming information suggests that consumer installment lending may have
strengthened a bit further in December.

Commercial banks maintained their

more vigorous pace of lending, and auto finance companies broadened their
below-market financing programs begun a month or two earlier.

A spot

check on February 1 of commercial banks by five Federal Reserve banks indicated that average interest rates on most types of consumer loans (except
credit card borrowings) have fallen as much as 1 percentage point since
the last full survey in early November.
In early January, all four U.S.

auto manufacturers announced new

special programs lasting through the end of March that offer financing at
11.9 percent to buyers of almost all 1982 and 1983 models.

The special

rate is about 5 percentage points below typical rates prior to the program.

General Motors is offering financing through GMAC while Chrysler,

III-18

Ford and AMC--in addition to providing credit through finance subsidiaries--are subsidizing customer financing at participating creditors.
Under the latter arrangement, customers pay an 11.9 percent finance charge;
the auto company makes up the difference, in a lump sum payment to the
creditor, between the reduced customer rate and a standard finance rate
for automobile credit. 1
Despite continued high unemployment rates and only modest increases
in disposable personal income, indicators of repayment difficulties on
consumer installment debt have remained little changed from previous low
levels.

During the fourth quarter, on average, and for 1982 as a whole,

1.67 percent of automobile credit contracts at finance companies were
delinquent by 30 days or more.

This was the lowest delinquency rate at

these firms for any year on record, and compared with 1.90 percent in 1981.
Other installment loan delinquency series are not yet available for the
fourth quarter.

Personal bankruptcy cases filed during the fourth quarter

of 1982 rose by only about 1 percent from the third quarter pace, continuing the trendless performance of the past two years.

Delinquency rates on

mortgage loans, however, remain in a marked uptrend.

1. Automobile dealers also participate in the finance rate subsidy by forgoing some or all of the share of finance charge revenue they normally
One likely
obtain for arranging financing with banks or finance companies.
consequence of requiring dealers to give up finance charge income is less
flexibility in price bargaining with customers who wish to obtain 11.9 percent financing. Thus, the favorable effect of lower financing costs on
auto demand may be offset somewhat by less accommodative pricing of cars.

Appendix A*

MONEY MARKET DEPOSIT ACCOUNT AND SUPER NOW ACCOUNT DEVELOPMENTS
The growth and composition of the monetary aggregates have
been profoundly influenced by the introduction of the money market
deposit account (MMDA) and the super NOW account. Both of these
instruments are ceiling free for accounts that maintain an average
balance of $2,500.1 The MMDA has limited transaction capabilities
allowing up to six automatic, preauthorized or telephone transfers
per month (three of the six transfers can be by draft). 2 The super
NOW account is fully transactional and is available to individuals,
governmental units, and certain not-for-profit organizations. 3 For
both of the new accounts institutions can guarantee a rate for up to
a month, and the MMDA can even be issued with a specific term to
maturity of up to 30 days.
Commercial banks and thrift institutions have marketed the MMDA
aggressively. As early as November of last year many institutions
were offering high yielding "bridge" accounts to attract deposits
before the official introduction of the MMDA on December 14. 4 With
the shifting of balances from "bridge" accounts and the heavy promotion of the MMDA itself, the new accounts grew rapidly in December
and inflows continued to be robust through late January. As shown in
the upper panel of table A-1, balances in MMDAs averaged $190 billion
in the week ending January 19.
One factor obviously contributing to the buildup in MMDAs has
been the relatively high interest rates offered on these accounts.
Based on data collected from a sample of institutions, it is estimated that the average effective yield on MMDAs was about 10-1/2 percent
at commercial banks and around 11 percent at thrifts as of the end of
December. These rates were about 2 to 2-1/2 percentage points above
the average yield posted by money market mutual funds at that time.
Information available as of late January indicates that average yields
on MMDAs had fallen by about one percentage point, but the differential

1. At the discretion of the institution, the average balance can be
determined over any period up to one month.
2. There is no limit on the number of withdrawals made in person.
3. On March 1, 1983, the Depository Institutions Deregulation Committee will consider a proposal to make available to all businesses
a fully transactional account that pays explicit interest.
4. Retail RPs and 7- to 31-day accounts were the most popular "bridge"
accounts.
* Prepared by Frederick T. Furlong, Economist, Banking Section,
Division of Research and Statistics.

III-A-1

III-A-2

between commercial banks and thrift institutions continued, and both
types of institutions were paying in excess of money market mutual
fund yields.
Despite the somewhat higher average rate on MMDAs at thrift
institutions, commercial banks appear to have attracted a relatively
large proportion of the MMDA market when compared to their share of
combined savings, small time deposits and MMDAs. The lower panel of
table A-1 indicates that in early January 60 percent of the MMDA balances were held at commercial banks, even though these depositories
accounted for less than half of savings, small time, and MMDA balances. 1 A comparison of the first two columns of the lower panel of
table A-1 also suggests that larger institutions as a group had a
disproportionately large share of MMDAs. However, given that MMDAs
can be issued in large denominations and to business customers, it
also may be useful to compare MMDA shares with total deposit shares,
including large CDs, shown in the third column. In light of this
comparison, it is less clear that banks had an advantage over thrifts
or that large institutions systematically outperformed smaller institutions.2
The growth in super NOWs, which were introduced on January 5,
has been dwarfed by the flows into MMDAs. For the week of January 19,
super NOWs averaged about $15-1/2 billion (see table A-2), with over
half of the increase occurring in the first two days that the account
was offered. Based on information from the Reserve Bank Contact
Group and other sources, it appears that interest rates on super NOWs
averaged one to two percentage points below rates on MMDAs. Such a
differential is in line with what would be expected given the difference in reserve requirements on a transaction account and the MMDA.
As with the MMDA, thrifts apparently were offering higher rates than
commercial banks on super NOWs in January.
The attractiveness of the super NOW for many depositors likely
is limited by hefty service charges that many institutions are applying
to the new account. Such fees can take the form of monthly maintenance
charges that can be $20 or more (though are typically less), charges
per transaction, or a combination of the two. In many cases, these
service charges are waived if account balances are above some threshold

1. Figures on table A-1 exclude credit union deposits; these institutions have only a small fraction of deposits classified as MMDAs.
2. It should be noted that in January there was quite a large difference in the growth.rates of combined savings, small time deposits, and
MMDAs at commercial banks and thrifts. Part of this difference could
be due to commercial banks getting a large share of the large-denomination time deposits that may have been converted into MMDAs. However,
it also is possible that commercial banks captured the bulk of the
nondeposit funds that were shifted to MMDAs.

III-A-3

level, such as $5,000 or $10,000. Given the size of some of these
service charges and the fact that individuals generally cannot deduct
the fees for income tax purposes, it is possible that an ordinary NOW
account with no fees would be preferred by many depositors.
As in the case of MMDAs, commercial banks account for most of
the super NOW balances. However, the commercial bank share of super
NOWs may be less than would be expected given the concentration of
transaction balances at these institutions. As indicated in table
A-2, the ratio of super NOWs to total OCD in the week of January 12
was only about 8 percent at banks, compared with 18 percent at thrift
institutions. The proportion of OCD held in super NOWs also was quite
different among thrift institutions. The rather high ratio for credit
unions most likely reflects the ability of these institutions to offer
ceiling-free share draft accounts even prior to the Depository
Institutions Deregulation Committee's decision to authorize a super
NOW. As a result, many credit unions already were paying more than
5-1/4 percent on transaction deposits and these balances automatically
would be reported as super NOWs. Some of the growth in super NOWs at
S&Ls, on the other hand, could be related to the relatively large
volume of funds that these institutions maintained in sweep arrangements involving ordinary NOWs and retail RPs or money market mutual
funds. 1 Reports from the Reserve Bank Contact Group indicate that some
institutions did not plan to continue offering sweeps for transaction
accounts, while some others were encouraging customers with sweep
arrangements to convert to a super NOW.

1. The Federal Home Loan Bank Board estimates that funds in sweep
arrangements linking NOW accounts to retail RPs or to money market
funds amounted to about $5-1/2 billion in November, 1982. About $1
billion of the total was in NOW accounts and the remaining $4-1/2
billion primarily was in retail RPs.

III-A-4

Table A-1
Money Market Deposit Accounts
($ billions, weekly average,
not seasonally adjusted)
Commercial
banks

Date

Thrift
institutions

All
institutions

1982 Dec. 15
22
29

4.6
35.5
54.2P

4.2
23.5
33.3P

8.8
59.0
87.5P

1983 Jan.

73.3P
97.5P
n.a.

46.7P
62.7P
n.a.

120.0P
160.2P
190.0P

5
12
19

n.a.--Not available.
p-preliminary.
MMDA Market Shares as of
the week of January 12, 19831
(percent)

Commercial banks

Percent of
total MMDAs

Percent
of savings,
small time,
and MMDAs at
CBs and thrifts

60.9

48.9

65.1

11.5
13.1
5.2
31.1

15.8
11.4
4.0
17.7

16.1
13.2
5.4
30.3

38.72

51.1

34.9

3.5
11.3
5.7
18.2

7.1
16.0
7.4
20.6

4.7
10.7
5.0
14.5

Percent
of total
deposits at
CBs and
thrifts

Banks with deposits of:
less than $100 million
$100 million to $500 million
$500 million to $1 billion
greater than $1 billion

Thrift institutions
Thrifts with deposits of:
less than $100 million
$100 million to $500 million
$500 million to $1 billion
greater than $1 billion

1. Excludes credit unions and foreign branches and agencies.
2. Credit unions are estimated to have accounted for .4 percent of MMDAs,
which would bring the thrift share to 39.1 percent.

III-A-5

Table A-2
Super NOW Accounts1
Commercial
banks

S&Ls

6.8

2.6

n.a.

Thrift institutions
MSBs
CUs
Total

All
institutions

Weekly average level
($ billions, NSA)

1983-Jan. 12
19

0.4

1.9

4.9

11.7

n.a.

15.6

8.1

15.6

7.8

n.a.

Percent of OCD 2
1983-Jan. 12
19

n.a.-not available.
1. All data are preliminary.
2. Thrift OCD are measured on a gross basis.

34.0
n.a.

18.0
n.a.

10.5
14.1

INTERNATIONAL DEVELOPMENTS
Foreign Exchange Markets
Since the December FOMC meeting the weighted average value of the
dollar has appreciated by roughly 2-1/2 percent on balance, as shown by
the chart on the next page.

The dollar declined by several percent

through early January to a trough 8-1/2 percent below its peak in early
November.

Most of the depreciation over that two-month period was

attributed to upward revisions in market expectations about the size of
prospective U.S. trade and current account deficits.

By the beginning of

January, however, market expectations that the Federal Reserve would
allow monetary conditions to ease further appeared also to be contributing to the dollar's slide.

During the second half of January the

dollar appreciated by more than 5 percent as the absence of a discount
rate reduction and the focus of attention on large prospective U.S.
budget deficits led to a sharp rise in market perceptions of the probability that dollar interest rates would not decline further in the near
term.
On a bilateral basis, the dollar has appreciated by more than 5
percent against the pound since the December FOMC meeting, while rising 3
percent against the mark and changing little on balance against the yen.
Since early-November the dollar has declined by nearly 15 percent against
the yen and 5 percent against the mark, while rising nearly 10 percent
against the pound.

The pound has been weakened by the failure of the

OPEC countries to reach a production agreement that might have arrested
the downward pressure on oil prices.

Part of the recent weakening of the

mark relative to the yen has been associated with a growing sense that
IV-1

IV-2

WEIGHTED AVERAGE EXCHANGE VALUE OF THE U.S. DOLLAR

March 1973=100

-127

,ECTED EXCHANGE RATES
.ly series

1982

IV-3

the German general elections on March 6 may not give a clear majority
vote to the current conservative government.
Except in the United Kingdom, interest rates abroad have declined
or remained steady since the December FOMC meeting.

Official lending

rates have been lowered by 1 percentage point in Sweden and 1/2 percentage point in the Netherlands.

The depreciation of the mark and the yen

against the dollar during the second half of January dampened market
expectations of imminent reductions in the German and Japanese discount
rates.

The depreciation of the pound led the Bank of England to tighten

monetary conditions, pushing sterling interest rates up by about 1 percentage point since mid-December.

Gold prices have risen from around

$440 an ounce in mid-December to around $500 an ounce at the beginning of
February.

. The Irish pound has joined the
Belgian franc at the bottom of the EMS, with both currencies presently
trading around their lower intervention limits against the Netherlands
guilder.

The weakening of the Irish pound has been related to the

decline of sterling, reflecting the close trading links between the Irish
and British economies.

IV-4

On January 26 the Treasury repaid at maturity the balance of its
Swiss-franc denominated Carter notes.

The remaining mark-denominated

Carter notes will mature in May and July.

IV-5

U.S. International Financial Transactions

Over the period from December to mid-January U.S. banking offices
(including IBFs) have made net advances to their foreign offices of
about $13 billion (see line la below), more than reversing the inflow
in October and November.

Over 75 percent of this large outflow was

reported by U.S. chartered banks (line 1b below), and more than fifty
percent of the total outflow of funds by U.S. chartered banks was
attributable to the nine largest money center banks.

International Banking Data
(billions of dollars)
Monthly Averages 1/

1980
Dec.

198

1 982

Dec. I Mar.

June

Sept

Nov.

Dec.

1983 - Jan. 4/

1. U.S. Offices' Banking
Positions Vis-a-vis Own
Foreign Offices
(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/
2/
3/
4/
p/

6.5
-15.2
21.7

9.2
-8.9
18.1

10.7
-2.8
13.5

16.6
2.8
13.8

5.9
-5.0
10.9

10.7
-1.8
12.6

4.2
2.7

13.2
8.8

13.8
9.1

14.2
9.7

16.1
11.4

15.7
11.0

60.8

93.6

8.1

-5.2

-3.1 -13.5

11.2

8.3

15.7

16.2

11.2

11.8

104.1 116.0 111.5 116.5 p/ n.a n.a.

(+)
Average of Wednesdays, net due to own foreign office
Daily Averages.
End of month.
Through January 19.
Preliminary estimate based on reports by foreign branches of U.S. Banks.

IV-6

Changes in the pattern of financial flows related to the
introduction of the new money market deposit accounts (MMDAs) in
mid-December probably are reflected in the recent outflow.

Part of

the flow was probably caused by investors directly or indirectly
substituting these new accounts for part of their holdings of foreign
branch Eurodollar liabilities (such as Eurodollar CDs), inducing
U.S. banks to replace these funds at their foreign offices.
Available data indicate that some indirect substitution has occurred:
about one-fourth of the 13 percent decline in the assets of money
market mutual funds over the period from December to mid-January
reflected a $6.5 billion drop in their holdings of Eurodollar assets.
In addition, although the new account does not appear to have been
structured to be directly competitive with Eurodollar instruments,
there may have been some direct shifts of Eurodollar deposits to MMDAs.
In addition, several banks have indicated that they have placed the
proceeds of MMDA related inflows in the Eurodollar interbank market.
Such placements currently offer more attractive yields than domestic
liquid assets such as Treasury securities or overnight Federal Funds.
This increase in the use of the Euro-interbank market, after a period
of noted hesitancy, may also reflect an increased concern at these
banks about earnings rather than financial ratios, such as the return
on assets.

IV-7

Transactions on a balance of payments basis in U.S. official
reserve assets (net of Carter Bonds) generated an increase of $6.8
billion in 1982, a slight decrease relative to 1981.

Such increases in

U.S. official reserve assets add to the Treasury's borrowing
requirements from the public.

During 1982 the rise in official reserve

assets was primarily due to an increase of $2.6 billion in the U.S.
reserve position at the I.M.F. and to a $2.8 billion increase in
foreign currency holdings.

Virtually, the entire increase in net

transactions in foreign currency during 1982 reflected U.S. swap
credits to Brazil and Mexico (see the line "Other" in the Table
below).

U.S. Official Reserve
Assets 1/
(billions of dollars; increase in assets (+))

Outstanding as of
Dec. 1981
Dec. 1982
Total 3/

Net Transactions in
1982 2/
1st Half
Q3
Q4
2.6
1.7
2.5

15.9

21.5

4.1

5.1

in the I.M.F.

5.1

7.3

1.4

Foreign Currency 3/

6.8

8.9

1.4

6.8

2.1

SDRs
Reserve Position

G10 + Switzerland 3/
Other

I/
2/
3/

1.3

Excludes holdings of gold.
Net flows on a balance-of-payments basis excluding valuation changes.
Net of certain outstanding Treasury debt in foreign currencies (Carter Bonds).

IV-8

In November private foreign net purchases of U.S. corporate
stocks and bonds were only about $400 million (see lines 2a and 2b of
the attached Table).

These relatively small foreign net purchases

perhaps reflected investor expectations that the dollar would weaken
against other currencies, as occurred during November.

However, U.S.

Eurodollar bond issues were substantial in November and January.
Over 60 percent of the dollar amount of such issues have been offered
on a partial payment basis, enabling investors to take a position on

U.S.

dollar exchange rate and interest rate movements.

Such issues

usually specify that the investor pay a portion of the purchase price
initially (from 15 to 25 percent) with the balance due in six months or
more at the original purchase price and coupon.

The issuer pays

interest on the initial payment for the six month period only if the
purchaser completes payment on the bond at the end of this period.
News accounts have reported that Japanese investors have been
particularly heavy buyers of these securities, perhaps because of the
restrictions on their participation in trading in organized futures
exchanges.

Net proceeds of these issues in November and January

amounted to $450 million with about $1.3 billion still to be raised if
investors buy the rest of these issues.

It is important to note that

interest rates would hve to rise by a substantial amount relative to
their current levels (i.e. 15 to 20 percent) for investors not to
excersise the option of buying the remainder of a bond offered on a
partial payment basis.

IV -9

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

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

1981
Year

1981

-34.7

-19.9

-- I

Q-l

1982

Q-

_3_

Sept.

-1.2 -14.6

-13.1

-7.2

-8.2
-8.2 -10.9
-10.9

Oct.

Nov.

8.3

5-7

-3.0

-3.9

-4.3

1.1J
1.8

-3.0

-1.7

-1.1

-. 8

-31.3

-20.8

1.4

-2.5

2.1

1.7

-. 1

-. 2

4.7

-. 3

-5.5

-2.9

-. 5

-. 4

-3.2

-1.6

-1.2

3.4

-1.2

Foreign net purchases (+) of U.S. Treasury
obligations 1/

2.5

1.1

1.3

2.0

1.0

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

5.1

8.1

-3.0

1.6

2.7

-10.8
12.7
3.3

1.9
5.4

-6.8
5.0
-1.1

-4.7
2.7
3.6

1.6
*
1.2

.1
.2
1.6

-2.1
.5
1.6

4.4
3.7

-1.3
-1.6

-2.1
3.7

4.8
-2.1

1.8

-1.4

-1.1

-5.2

-. 3

-1.1

-1.0

-1.7

-8.7
21.3
-12.0
4.5
25.8

-1.0
9.3
-4.0
-0.9
9.5

-0.1
1.2
-4.0
1.1
5.0

-3.0

-5.4

-3.7

a) By area
G-10 countries and Switzerland
OPEC
All other countries

1.7

-2.4

-2.6
-. 3
.5

b) By type
U.S. Treasury securities
Other 2/
5.

Changes in U.S. official reserve assets
(+ = decrease) 3/

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

5.0
.1

-. 8
1.0
2.3
-0.4
-4.2
14.5

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

-9.2

-5.9

-5.7

-12.5

Includes U.S. Ireasury notes puDIcly 150
To pr
e T eign F
ents.
Includes deposits in banks, comercial 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 SORs, and other banking and official transactions not shown elsewhere.
5/ Includes seasonal adjustment for quarterly data.
7/ Less than $50 million.

1/
f/
l/
7/

NOTE:

Details may not add to total because of rounding.

V-10

U.S. Merchandise Trade
In December, the U.S. merchandise trade deficit was smaller than
in November or October, but for the quarter as a whole the deficit was
nearly the same as the large third quarter deficit.

In the fourth

quarter both exports and imports declined moderately.
Only a small part of the export decline in the fourth quarter was
in agricultural shipments.

A pickup in corn exports (primarily to the

U.S.S.R.) partly offset sharp declines in shipments of wheat and
soybeans (to China and Japan respectively).
turned up slightly in December.

Agricultural export prices

Most of the decline in the fourth

quarter in nonagricultural exports was-in response to sluggish economic

U.S.Merchandise Trade*
Years
1982
1981
2Q
Year
Year
Value (Bil. $, SAAR)
Exports
Agricultural
Nonagricultural

1 9 8 2
Nov.

Dec.

236.3
44.3
192.0

211.2
37.4
173.8

220.0
42.2
177.8

209.3
33.6
175.7

192.9
32.1
160.9

186.5 193.5
33.1 30.5
153.4 163.0

Imports
Oil
Nonoil

264.1
77.6
186.6

247.3
61.2
186.1

243.1
53.6
189.4

259.3
65.8
193.5

240.5
62.8
177.7

231.3 227.0
59.3 61.7
172.0 165.3

Trade Balance

-27.9

-36.1

-23.0

-50.0

-47.6

-44.8 -33.5

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

18.1

17.2

19.1

15.9

15.6

16.1

n.a.

- Nonagric.

70.5

60.8

62.2

62.0

56.5

53.9

n.a.

5.9
71.9

5.1
71.8

4.5
72.6

5.5
75.4

5.3
69.5

4.9
68.1

n.a.
n.a.

Imports - Oil
Nonoil

da
A/International

Transactions

1 I
s.

V
Mont

Nh .2
y

ata

are

est

IV-11

activity in major trading partner countries and the high exchange
value of the dollar.

Substantial declines have occurred in

manufactured goods such as machinery, chemicals, aircraft, and
automotive exports to Canada.

By area, 35 percent of the decline in

nonagricultural exports since mid-1982 was in shipments to Mexico;
42 percent of the change was to industrial countries, particularly
Canada and Australia/New Zealand.
Oil imports declined marginally in the fourth quarter; in fact,
in the second half of the year the volume of oil imports was 10 percent
above the first-half rate.

The increase appears to be largely refined

products from Western Europe and Latin America (other than Mexico)
which contributed to a small build-up in inventories.

U.S. domestic

oil consumption dropped markedly in the fourth quarter.

Average

import prices declined by about 25 cents per barrel in the fourth
quarter.

Years

Oil Imports

1981
Year

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

6.25
34.00
77.6

1 9 8 2

1982
Year
5.37
31.23
61.2

4.82 5.78
30.53 31.23
53.6 65.8

Nov.

Dec.

5.56
30.98
62.8

5.21
31.20
59.3

5.20
30.82
61.7

IV-13

The volume of nonoil imports declined sharply in the fourth
quarter in response to declining U.S. economic activity, with
decreases spread among most major commodity categories -particularly industrial supplies (steel), machinery, automotive
imports from Canada (and to a lesser extent from Japan and Europe),
and consumer goods.
For the year 1982 as a whole, there was a distinct shift in
the trade balance at mid-year; from quarterly deficits of less than
$25 billion annual rate in the first two quarters, the deficits rose
to about a $50 billion annual rate beginning in the third quarter.
Exports dropped sharply in the second half of the year -agricultural exports declined from relatively strong levels recorded
during the past several years and nonagricultural exports continued
declines begun in mid-1981.

Imports, however, were only marginally

higher in the second half of this year than in the first.
several major influences on these trade developments.

There were

The decrease

in exports reflected a decline in foreign demand for U.S. goods
(a combined effect of slow economic growth abroad, loss of price
competitiveness of U.S. goods because of the high exchange value of
the dollar, and, in the case of U.S. grain, ample alternative
supplies); in addition constrained financial conditions in some
developing countries, i.e. Mexico, also held down exports.

For

imports, the effect of sluggish U.S. economic activity was partly
offset by the increased price competitiveness of foreign goods.

IV - 14

Foreign Economic Developments.

Real GNP in major foreign

industrial countries declined on average in the third quarter of last
year.

Only one major country, Japan, recorded positive growth in that

quarter.

This weakness abroad continued into the fourth quarter with

industrial production generally declining to November.

The level of

industrial production in November was below its year-earlier level in
all countries.

For some major countries, such as the United Kingdom,

Canada and Germany, industrial production has fallen to levels not seen
since 1975-76.

The rate of unemployment abroad has risen further in

the fourth quarter, reaching nearly 13 percent in December in Canada
and the United Kingdom and about 9 percent in Germany, France and Italy.
While these data show continued weakness in the foreign economies, there have been some as yet tentative indications that activity
could strengthen soon in several countries.

Residential construction

has been quite strong in Germany for about two quarters and more
recently also in Canada.

The volume of orders rose in November-

December in Germany for the first time in a year.

Survey results in

Canada, France and Germany have recently shown less pessimism than
previously by consumers as well as producers.

In the United Kingdom

the seasonally adjusted volume of retail sales rose strongly in
December.
Despite weak economic activity, fiscal policy remains tight in most
foreign countries as concerns over rising budget deficits limit
anticyclical responses.

Monetary policy, on the other hand, may be

characterized as continuing to ease cautiously.

Real interest rates

abroad appear to have declined further in recent months to a level
below a year ago in most countries.

IV - 15

In Japan, industrial production declined slightly in December
after a strong gain in November.

As a result, fourth-quarter

production was below its third-quarter level.

Wholesale price and

consumer price indices have shown little tendency to rise and in some
cases fell in the last quarter of 1982.

Japan's exports rose slightly

in December after an eight month decline to November.
strongly in December.

Imports fell

As a result, Japan's trade surplus (s.a.)

to $1.4 billion in December from $1.0 billion in November.

rose

The current

account showed a surplus of $7.3 billion in 1982, compared to a surplus
of $4.6 billion in the previous year.
The preliminary budget for fiscal 1983 has been announced by the
new government formed by Prime Minister Nakasone Yasuhiro.

Proposed

nominal expenditures are only 1.4 percent larger than expenditures
under the 1982 budget.

This is the first Japanese budget since 1955 to

plan a decline in real terms.

It is most likely that government

expenditures in 1983 will not be stimulatory.
fairly restrictive.

Monetary policy remains

The monetary authorities continue to hew to the

line of modest monetary growth and hestitate to undertake a reduction
in the official discount rate despite an almost 13 percent appreciation
of the yen against the dollar by the end of January over its November
average value.
In Germany, third-quarter real GNP fell at an annual rate of over
5 percent, and preliminary reports, which put the year-over-year
decline of 1982 GNP at 1.1 percent, imply a further decline in the
fourth quarter.

Industrial production continued to fall in December to

a level 6 percent below the beginning of last year.

The rate of

IV - 16

unemployment reached 8.5 percent (s.a.) in December, which represents
about 2.1 million unemployed.
While these data leave no doubt about the severity of the current
recession, there are some signs that the worst may be over.

The volume

of orders, having fallen steadily through October last year, rose
strongly in November and December.

Part of this rise is probably due

to the end-of-year deadline for last year's investment credit program,
and orders of investment goods indeed show the strongest gains.

But

other sectors, such as consumer goods and primary goods, especially in
terms of foreign orders, have also shown strength.

The latest survey

findings judge the business climate less pessimistically than
previously.
Consumer price inflation has declined by about 2 percentage
points during 1982 with a year-over-year result of 5.3 percent.

The

marked slowdown of inflation toward the end of last year came just in
time to provide a favorable input into this year's wage bargaining.
Although no major contracts have yet been signed, indications are that
an average outcome of below 4 percent may be expected.

Last year's

contractual wages rose by 4.3 percent.
Germany's current account, which was in deficit by $7.6 billion
in 1981, showed a surplus of $2 billion last year.

This $9.6 billion

improvement is essentially to be found in the trade balance, which
improved in volume terms as a lagged result of the past weakness of the
D-mark and in unit value terms --

especially later during the year --

as the D-mark appreciated on an effective basis.
The economic policy mix continues in its atypical constellation
of an easing monetary policy and a very tight fiscal policy.

The

IV - 17

improvement is essentially to be found in the trade balance, which
improved in volume terms as a lagged result of the past weakness of the
D-mark and in unit value terms -- especially later during the year -as the D-mark appreciated on an effective basis.
The economic policy mix continues in its atypical constellation
of an easing monetary policy and a very tight fiscal policy.

The

conservative government came to office with its fiscal agenda having a
high priority and has used its probation period before the March 6

elections to legislate a host of cuts in social services.

The

Bundesbank. on the other hand, has continued its policy of cautious
easing.

Central Bank money grew by 6.2 percent between the fourth

quarters of 1981 and 1982, which is in the upper half of the 4 to 7
percent target.
In Canada, the consumer price index was virtually unchanged in
December and the average monthly change over the last six months of

1982 was under 1/2 percent, providing further evidence of sustained
slowing in this measure.
percent in December.

From a year earlier, the CPI was up 9.3

More sensitive prices, such as industry selling

prices and home prices, have been weak for some'time, with year-overyear increases in November of, respectively, 4-1/2 percent and minus
3-1/2 percent.
Solid signs of economic recovery remain limited to the residential
construction sector, with housing starts up markedly in both October and
November.

By contrast, industrial production, after falling sharply in

October, rose only marginally in November to a level 19 percent below
its most recent peak, reached in June 1981.

IV - 18

Announcement in early January of a record trade surplus for the
first 11 months of 1982 of $13 billion -- a rate more than twice that of
the previous two years -- contributed to upward pressure on the Canadian
dollar.

Along with lower interest rates in the United States, this

allowed the Canadian authorities some leeway to reduce interest rates,
and the bank rate fell to below 10 percent for the first time in four
years.
French GDP fell 0.9 percent in the third quarter of 1982 but was
still nearly one percent above the level it reached in the third quarter
of 1981.

The main source of strength was in the export sector which

revived from a poor performance in the first half of the year.

This

reversal probably reflects an unwinding of previously delayed exports in
anticipation of the June devaluation of the franc.
down strongly.
economy.

Also, imports were

A decline in investment continued to weaken the French

Although industrial production in October and November was

nearly 2-1/2 percent (s.a.) above the second quarter performance, it was
below the level attained in the fourth quarter of 1982.

Recent surveys

indicate that stocks are approaching normal levels, but orders and
overall demand remain weak.

General production prospects, judging from

survey results, appear improved.
After the June devaluation of the franc, the government instituted
a price freeze which is being slowly lifted by industry-government
negotiation.

During the period of the freeze, mainly the third quarter,

consumer prices rose by only 5.6 percent (a.r.), a considerable
improvement over recent French experience.

Although fourth-quarter

inflation accelerated to 7.6 percent when the controls were loosened,

IV - 19

the French did manage to keep inflation to about 9-1/2 percent in 1982,
below their 10 percent target.

The 1983 target remains 8 percent.

The current account showed a deficit of $12-1/2 billion in 1982,
though the rate of deficit declined in the third and fourth quarters
from the record second-quarter rate.
The 1983 budget seeks to limit the deficit to 3 percent of GNP.
Nevertheless, real expenditure will rise by over 4 percent while real
revenue will increase only marginally.

This spending increase is less

than the 17 percent increase in 1982 and emphasizes investment and
subsidies in contrast to last year's emphasis on consumption.
M2 growth is targeted to be 10 percent in 1983, a considerable
reduction from the 12-1/2 to 13-1/2 percent range for 1982 which may be
slightly surpassed.

Credit controls are to be tightened while housing

loans and exports will continue to be favored.

Personal loans will be

frozen at the 1982 level.
In the United Kingdom indicators of economic activity continue to
be mixed, with the recovery that appears to have started at the end of
1981 still remaining very weak.

Real GDP in the third quarter of 1982

was unchanged from its level in the second quarter, but was 1.1 percent
above its year-earlier level at the trough

of the recent recession.

Retail sales (volume, s.a.) were exceptionally strong in December,
reaching the second highest level ever.

The index in the fourth

quarter of 1982 was 4.5 percent above its year-earlier level.

However,

industrial production fell in November, as it had in October, and in
those two months averaged 0.5 percent below its level for the comparable
period in 1981.
(s.a.)

Unemployment rose further in December to 12.

from 12.5 percent in November.

percent

IV - 20

Retail prices actually fell in December, producing an inflation
rate over the previous twelve months of 5.4 percent.

Consumer price

inflation in the twelve months to December 1981 was 12 percent.

The

December 1982 rate was the lowest U.K. inflation rate for a twelve
month interval in over a decade.
The U.K. current account was again in surplus in December.

The

1982 total of $8 billion compares to a $12.9 billion surplus for 1981.
Italian economic activity remains depressed with little sign of
an upturn.

Industrial production in November was over 4 percent below

its level of a year earlier.

The official unemployment rate held

steady at 9.2 percent in the last two quarters of 1982.
measured by the consumer price

Inflation, as

index, abated somewhat last year, while

wholesale price inflation slowed significantly.

Most of the difference

in the behavior of these two indices is explained by the sharp increases
in indirect taxes last year.

Industrial wages rose by 16-1/2 percent in

the year ending in October, compared with a 24 percent rise in the year
ending in October 1981.

On January 24, the government

announced a wage

pact between the major labor unions and employer groups.

The pact

includes a 15 percent reduction in the cost of living payments made under
the scala mobile.
The trade deficit in the first eleven months of last year was $111/2 billion, over $4 billion lower than the deficit of the previous year.
Much of this improvement

reflects the depreciation of the weighted

average lira by 12-1/2 percent in 1981.
further by over 5 percent.

Last year, the lira declined

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

CANADA

FRANCE:

GERMANY

1980

1981

_Q2

N.A.
N.A

1.6 -1.1
-. 9
3.0 -2.7 -4.4

GNP
IP

-1.7

3.1
1.7

GDP
IP

1.1
-1.1

1
-2.3

N.A
N.A

1.3
5

.1
.3

-. 8
-. 3

2
.7
.0 -1 2

GNP
IP

1.8
-. 1

-. 2
-2.1

N.A
-2.6

GDP
IP

4.0
4.5

-. 2
-2.4

N.A.
N.A

JAPAN.

GNP
IP

4.8
7.1

3.9
3.0

N.A
1.2

1.2
-. 3

UNITED
KINGDOM:

GDP
IP

-2.4
-6.1

-2.4
-5.1

N.A.

-. 7
-. 2

UNITED
STATES:

GNP
IP

-. 4
-3.6

1.9
2.6

-1.8
-8.1

-. 4
.5

ITALY:

1981
Q3

1982

1982
02
Q3

-2 2 -1.9 -1.0
-2 8 -2.7 -2.7

N.A.

-.3
-2.5

1.1 -.9
1.3 -3.9

N.A.
tIN.A.
. A.

-.4
1 3

-.3 -1 3
-.9 -3.4

N.A.

N A.

SEP.
*

-3.4

1.6

-*
-1.0
*

N.A.
N.A.

20.1

.9
1.6

-. 3
2.6

.4 1.9
-.9 -1.7

N.A.
-. 6

*
1.2

-. 3
.6

1.0
.4

.1
-. 3

.5 -1.3
.3 -4.4

*CNP DATA ARE NOT PUBLISHED ON MONTHLY BASIS.

-1.3
-3.1

N.A.
N.A.

.1
.4
.5
-1.7

.2
-. 9

-. 6
-2.2

*
-. 8

-3.6

1.6

1.2 -1.5 -3.0
.8 -1.4 -7.6
6
1.7

2.6
4.7

-1.1 -1.7
1 5 -4.9

1982
OCT. NOV.

-1.9

3
*

*
N.A.
*

N.A.
*

*.9
-1.9
*

DEC.

-1.0
*

-3.9

3.0

*
-3.1

*
3.0

*
-. 1

*
-. 5

*
-1.2

*
N.A.

*
-1.1

N.A.

-. 7

-. 1

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

1982

1981

Q3 Q4

OCT.

1982
NOV.

DEC.

19f83
JAN.

CANADA:

CPI
WPI

3.0
2.1

2.5
1.3

2.5
1.4

3.1
1.9

2.2
.8

1.6
.2

.6
-. 2

.7
-. 3

.0
.4

N.A.
N.A.

FRANCE:

CPI
WPI

3.9
4.1

3.2
2.3

2.8
2.7

3.1
2.6

1.4
1.9

1.9
.9

.5
.1

1.0
.7

.9
.2

N.A.
N.A.

GERMANY:

CPI

1.2
2.1

1.2
1.8

1.5
1.8

1.4
1.3

1.1
.0

.7
.0

.2
-. 6

.2
N.A.

ITALY:

CPI
WPI

3.0
3.5

4.6
4.0

4.0
3.3

3.0
2.0

4.1
3.2

4.5
N.A.

1.4
1.4

.7
N.A.

N.A.
N.A.

JAPAN:

CPI

.0
1.4

1.4
-. 1

.3 -1.2
.2 -.3

.1
-1.3

.2
N.A.

UNITED
KINGDOM:

CPI
WPI

1.7
2.1

2.5
2.3

UNITED
STATES:

CPI (SA)
WP] (SA)

2.8
1.1

1.9
1.2

1.0
-. 1
1.7
2.2

3.2
1.7

.5
1.6

.7
2.0

1.1
.2

1.8
1.6

.6
1.0

1.7
1.0

N.A.
N.A.
.5
.5

.1
.6

-. 3
.1

N.A.
N.A.

MEMO:
LATEST 3 MONTHS
FROM YEAR AGO

4.4
3.1
16.6
12.7
2.5
1.3

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

CANADA:

FRANCE:

GERMANY:

ITALY:

1981
Q3 Q4

1981

1982

TRADE
CURRENT ACCOUNT

5.3
-4.4

N.A.
N.A.

TRADE+
CURRENT ACCOUNT+

-9.4
-4.7

-14.0
-12.4

TRADE
CURRENT ACCOUNT (NSA)

11.9
-7.6

N.A.
2.0

3.1
-4.9

N.A.
N.A.

TRADE
CURRENT ACCOUNT (NSA)

-16.0
-8.7

.7
-1.9

1982
Q2 Q3

OCT.

1982
NOV.

N.A.
N.A.

1.4

1.3

2.3
-. 2

2.9
-. 1

3.7
.4

3.7
.8

-1.9 -3.1
-1.4 -2.0

-2.8
-2.0

-4.2
-4.4

-4.3
-3.7

-2.7
-2.3

-. 9
*

5.5
4.1

5.0
-. 8

5.3
.6

5.2
-2.0

N.A.
4.2

1.1

1.8

N.A.

1.8

2.2

-4.0 -2.5
.3
-. 9

-6.0

-1.8

-2.5

N.A.

-. 4

-. 8

N.A.

-3.7

N.A.

1.6
1.0

1.0
-. 1

1.4
.7

.8
1.1

1.0
1.3

JAPAN:

TRADE+
CURRENT ACCOUNT

20.1
4.6

18.8
7.3

6.3
2.5

5.0
1.1

4.4
.9

5.3
2.5

5.1
2.2

4.0
1.6

UNITED
KINGDOM:

TRADE
CURRENT ACCOUNT+

6.6
12.9

3.6
8.0

-. 6
.4

.9
2.8

.6
1.4

.2
1.6

.7
1.7

N.A.
3.3

UNITED
STATES:

TRADE
CURRENT ACCOUNT

-7.8 -9.2
.8 -.9

-5.9
1.1

-27.9
4.5

-36.0
N.A.

DEC..

-5.7 -12.5 -11.9
2.2 -4.2
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.
* COMPARAILE MONTHLY CURRENT ACCOUNT DATA ARE NOT PUBLISHED.

-5.4
*

-1.0

-3.7
*

N.A.
*-

-. 9
*

-2.8
*

IV - 24

In early January the Fanfani government proposed an austerity
package designed to keep the budget deficit at 70 trillion lire, or 15

percent of GNP.

Passage of this budget is likely to be difficult.

In a

separate move, the government proposed a one-year emergency loan of 8
trillion lire at a 5-1/2 percent rate of interest from the Bank of Italy
to the Treasury.

The Treasury has been unable to sell enough securities

in recent months at current interest rates to finance its deficit.
Update on Major Debt Situations
The IMF Executive Board approved on December 23 a three-year $3.9
billion Extended Fund Facility (EFF) arrangement for Mexico.

One-third

of the amount is to be disbursed each year, subject to performance on the
agreed stabilization program.

Since mid-December, the Mexican government

has introduced a dual exchange rate system, with flexibility in both
rates, eliminated most price controls, increased interest rates on bank
deposits, though they remain negative in real terms, and raised the minimum wage by 25 percent, substantially less than the 100 percent rate of
inflation in 1982 or the prospective rate for 1983.
is to apply only until mid-year.

The new minimum wage

To gain acceptance of such moderate wage

increase, the authorities granted some tax concessions for the lower
income groups and postponed expected increases in the heavily subsidized
urban transport fares.
One of the two exchange rates, which applies mainly to trade and to
the servicing of the external public debt, was initially set at 95 pesos
per dollar, replacing the two fixed rates of 50 and 70 pesos per dollar
in effect since September 1. This rate is being depreciated daily at an
annual rate of 50 percent.

The other exchange rate, which is nominally

IV - 25

"free", was initially set at 148.5 (buying)-150.0 (selling) pesos per
dollar.

This rate has been appreciated three times by small amounts.

Since January 24, it has been held at 147.9-149.4 pesos per dollar.
Efforts to raise $5 billion in loans from foreign banks are continuing, with about $4.7 billion committed to date.

The plan to capita-

lize and convert to public sector debt private sector interest payments
due to foreign banks accruing between August 1, 1982, and January 31,
1983, has been put in motion.

But preliminary indications are that only

about half of the estimated $1.3 billion in overdue interest potentially
eligible has qualified for the plan, as debtors had difficulty coming up
with the required peso deposits.

Mexico has taken steps to promote the

restructuring of private sector external debts along lines that would
parallel the proposed restructuring of the public sector debt.

The

request for a restructuring of the public sector external debt owed to
foreign banks remains pending.
On January 24 the IMF Executive Board approved a $1.65 billion
14-month standby arrangement for Argentina and a separate drawing of
about $555 million on the Compensatory Financing Facility for export
shortfalls (CFF).

Under an agreement reached with the committee of

banks, international banks have begun making disbursements to Argentina
under a $1.1 billion bridging loan and are close to an agreement on $1.5
billion in new medium-term credits.

Argentina and the bank committee

have also reached agreement in principle on refinancing or rescheduling
by June 30, 1983, $4.5-$5.5 billion in public and publicly-guaranteed
short and long-term debt coming due in 1983.

On January 27, the BIS also

IV - 26

announced the conclusion of a $500 million bridging loan to the central
bank backed by a number of BIS members and the U.S. monetary authorities.
Brazil received $550 million from the IMF under a CFF in December
1982.

Negotiations on a $5 billion EFF program and on a request for $660

million from the CFF and buffer stock facilities are likely to result in
initial disbursements in February or March of 1983.

Brazil in the fourth

quarter of 1982 obtained $2.3 billion in bridge loans with an average
maturity of 90 days from several commercial banks.

The Brazilians have

advanced four proposals to meet their projected financial needs for 1983.
The key elements are a request for:

$4.4 billion in new funding, roll-

over into long-term credits of $4 billion in amortization payments on
medium-term debt due in 1983, maintenance of $8.8 billion trade credits,

and restoration of money market lines to Brazilian banks to the level
outstanding on June 30, 1982.

A recent $1.23 billion official short-term

borrowing from the United States has been disbursed and $780 million
repaid.

In addition, a $1.45 billion loan was made available to Brazil

through the BIS, including $250 million from Saudi Arabia.
Chile's request for a $535 million 2-year standby arrangement was
approved by the IMF Executive Board on January 10, 1983.

Also approved

was a separate drawing of about $315 million under the CFF.

Chilean

authorities have also asked a group of private foreign commercial banks,

including both U.S. and non U.S. banks, for a 90 day suspension of repayment on principal of medium- and long-term debt, continued rollover of
short-term debt, a rescheduling of as much as $3.8 billion in payments
falling due on public and private debt in 1983 and 1984 and $1 billion in
new medium-term credits.

A large portion of the debt to be rescheduled

IV - 27

is payable by private Chilean banks that are experiencing a severe liquidity crisis.

In mid-January, the Chilean authorities felt compelled to

take action with respect to 10 domestic banks, accounting for half the
assets of the Chilean banking system and about $4 billion in external
Three of the affected banks were liquidated, five are under

loans.

temporary government management, and two are under continuous government
surveillance.
Venezuela has suffered a setback in its program, which began last
October, to refinance $8.8 billion in short-term government debt.

January, one of the state agencies was late in making several payments on
debt which it holds or guarantees, leading to a legal action and the
withdrawal of several banks from participation in one of the refinancing
loans.

Short-term debt of $3 billion had been scheduled for refinancing

in the first quarter of 1983, about half in January.

The Finance Minister

has indicated that the central government will make the payments for the
agency.

Recent weakness in the oil market increases Venezuela's diffi-

culties in refinancing the short-term debt.

The Finance Minister has

indicated that IMF assistance might be sought if the refinancing effort
falls short; he plans to visit New York banks to discuss the refinancing
problems and arrange for a team of advisors from major banks.

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, February 8-9, 1983 : Greenbook Part 2

FRASER