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Confidential (FR) Class II FOMC
Part 1
January 25, 2001
CURRENT ECONOMIC
AND FINANCIAL CONDITIONS
Summary and Outlook
Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System
Confidential (FR) Class II FOMC
January 25, 2001
Summary and Outlook
Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System
Domestic Developments
Recent economic news has been decidedly downbeat, especially for the
industrial sector. Automakers have cut assemblies sharply further in January,
and manufacturers in many other industries have also been moving to curtail
production to avoid further accumulations of unwanted inventories. Growth of
business investment spending appears to have come nearly to a standstill late
last year, and consumer confidence has been falling dramatically despite the
monetary easing in early January. Taken together, these factors have led us to
project that real GDP will decline slightly in the current quarter.
We anticipate that the inventory correction now under way will be largely
behind us by the second quarter. Nevertheless, with employment growth and
sales expectations flagging, growth of household and business spending should
remain subdued through the spring. Consequently, we are projecting only a
meager gain in real GDP of about 1-1/4 percent at an annual rate in the second
quarter.
But later this year, several influences should help stimulate overall activity. For
one, the very speed with which businesses appear to be curtailing production to
limit inventory overhangs should help set the stage for a relatively prompt
reacceleration of activity. The growth of final demand is also expected to
receive support from the dissipating effects of prior monetary restraint, the
recent monetary policy action, and our assumption of a further small cut in the
federal funds rate at the January FOMC meeting. The projected depreciation of
the dollar, declining energy prices, and, later, an assumed swing to fiscal
stimulus also contribute importantly to the firming of demand. Moreover, the
intermediate-run outlook remains supported by our view that structural
productivity will continue to advance near the rapid rates of the past few years.
As a consequence, perceptions of permanent income ought to be comparatively
well maintained even as employment growth slows dramatically, and this should
help support consumption and investment by households. A continued rapid
pace of technical advance also provides considerable incentives for business
investment, suggesting that the lull in business spending on high-tech and other
equipment will be brief. In light of these positive influences, we are projecting
growth of real GDP to pick up to a 3 percent pace in the second half of this year
and to 3-3/4 percent in 2002.
The near-term weakness in our outlook stops just short of what would
conventionally be considered a recession, but the slowdown in activity is
pronounced enough to lead to an appreciable slackening of resource utilization.
We project the unemployment rate to rise 1-1/4 percentage points to
5-1/4 percent by the end of this year and to move up further to 5-1/2 percent
over 2002. With the tightness of labor and product markets dissipating rapidly,
core PCE inflation edges down from just below 2 percent this year to
1-3/4 percent in 2002.
Part 1: Summary and Outlook, January25, 2001
Our projection is built upon a number of critical assumptions that ultimately
could prove to be wide of the mark. We explore the consequences of alternative
assumptions, as well as their implications for monetary policy, in simulations
developed at the end of this section.
Key Background Factors
The financial markets took some comfort from the intermeeting rate cut, which
reassured investors that the Committee would move aggressively to counter a
sharp slowdown in economic activity. This sigh of relief has produced
substantial rallies in the junk bond and equity markets. However, the
commercial paper market has become much less hospitable for lower-tier issuers
in recent weeks, and bank lenders report that they have turned more cautious.
We expect this caution to persist over the forecast period as corporate balance
sheets deteriorate further and the household sector's ability to repay debt slips a
bit. With investors almost certain to be disappointed by the path of corporate
earnings that we foresee, we have assumed that equity prices will turn down in
coming months and stabilize at that lower level thereafter.
We are assuming that fiscal policy will move in an expansionary direction over
the coming two years. As in the last Greenbook, we expect tax cuts amounting
to about $50 billion in fiscal year 2002. We view this assumption as a middle
path between the more gradually phased-in plan President Bush announced
during the campaign and the more ambitious retroactive tax cuts that have been
discussed in some quarters more recently.' Of course, the weaker output
forecast implies lower receipts, and we now project the on-budget surplus to be
about $90 billion in both fiscal 2001 and fiscal 2002; relative to the December
projection, these figures are lower by about $20 billion and $50 billion,
respectively.
We have revised down our projection for foreign economic activity in the near
term, in part owing to the weaker outlook for the United States. But we expect
foreign growth to rebound to a 3-1/2 percent pace in the second half of this year
and to be 3-3/4 percent in 2002. The dollar has risen slightly, on balance,
against the currencies of a broad group of our trading partners over the
intermeeting period; it is projected to decline moderately in real terms over 2001
and 2002.
1. We note that even if tax cuts are enacted retroactively to January 1 of this year, they
nevertheless may have little effect on consumer spending until the latter part of this year;
legislative action is not likely until the summer, and there probably will be considerable
uncertainty about specifics prior to completion of the process.
Domestic Developments
I-3
The spot price of West Texas intermediate crude oil moved below $30 per barrel
in early December and declined further later in the month, reflecting
expectations of weaker world demand and news suggesting that inventories
were not as low as had been feared. However, much of this decline was
subsequently reversed, partly as a result of OPEC's recent decision to reduce
production targets. Consistent with the current quotes in futures markets, we
expect oil prices to recede over the next two years, with the price of WTI falling
from near $31 per barrel now to about $25 per barrel by the end of this year and
to $23 per barrel by the end of 2002.
Recent Developments and the Near-Term Outlook
Incoming data suggest that real GDP increased at an annual rate of 2 percent in
the fourth quarter, consistent with the weak worker hours reported in the labor
market surveys and a pace of productivity growth that is close to trend. In the
current quarter, real GDP is projected to decline 1/2 percent at an annual rate,
reflecting a sizable reduction in the pace of inventory accumulation.
A contraction in the production of new motor vehicles in response to excess
inventories accounts for a good bit of the economy's recent weakness, taking off
about 1 percentage point from GDP growth in the fourth quarter and, we
believe, almost 1-1/2 percentage points in the current quarter. These cutbacks
probably are sharp enough to put excess stocks on a downward trajectory, and
we anticipate no further reduction in the pace of assemblies after this quarter.
We also expect sizable production adjustments outside of motor vehicles, and
the resulting downshift in the pace of nonfarm inventory investment cuts a
further 1-1/2 percentage points from real GDP growth this quarter. Inventory
overhangs already have emerged in a number of industries--including metals,
construction supplies, paper, and textiles--bucking the downtrend in these ratios
that had been in train through most of the 1990s. Businesses seem to be acting
promptly to limit any further deterioration of undesired stocks. Indeed,
industrial production in manufacturing excluding motor vehicles was down
sharply in December, and anecdotal information points to a substantial further
decline in January.
Consumer spending on goods decelerated notably last quarter, reflecting an
outright decline in expenditures on motor vehicles and only small rates of
increase on a wide range of durable and nondurable goods. By contrast,
spending on services continued to post solid increases through November, only
a portion of which stemmed from increased energy expenditures due to cold
weather. In all, we think PCE rose at a 2-3/4 percent pace in the fourth quarter.
For the current quarter, we have little hard data to go on, although continuing
sharp declines in consumer confidence through early January clearly do not
bode well for spending. Nevertheless, anecdotal reports from retail chains
Part1: Summary and Outlook, January25, 2001
Summary of the Near-Term Outlook
(Percent change at annual rate except as noted)
2000:Q4
Measure
Real GDP
Private domestic final purchases
Personal consumption expenditures
Residential investment
Business fixed investment
Government outlays for consumption
and investment
2001:Q1
Dec.
GB
Jan.
GB
Dec.
GB
2.4
3.2
2.9
-4.8
7.5
2.0
2.1
2.8
-3.4
.5
2.2
3.0
2.9
-5.1
5.7
-.5
1.5
1.4
-2.1
3.0
2.5
2.8
3.7
2.3
Jan.
GB
Contribution to growth,
percentage points
Inventory investment
Net exports
-.7
-.1
.1
-.4
-.5
-.5
-2.6
.4
suggest that consumer spending stabilized in early January, and motor vehicle
sales appear to be rebounding some this month. Our projection calls for real
PCE to rise at an annual rate of about 1-1/2 percent this quarter.
Investment spending looks to have decelerated especially sharply late last year.
We now believe that equipment and software expenditures declined at an annual
rate of 1-1/2 percent in the fourth quarter--versus the nearly 15 percent rate of
increase seen over the several preceding years. Shipments of computer and
communications equipment slowed markedly in October and November from
the rapid increases seen earlier, consistent with anecdotal evidence that demand
for high-tech equipment has slackened considerably. There were outright
declines in expenditures on motor vehicles last quarter, and orders and
shipments for a wide variety of other capital goods turned down as well. We
expect this weakness to persist in the current quarter and look for real
investment in equipment and software to rise at an annual rate of just
1-1/4 percent.
In contrast, construction activity appears to have remained reasonably strong.
Demand in the residential sector has been supported by lower mortgage interest
rates, and single-family starts were solid in the fourth quarter despite adverse
weather that may have held down activity in November and December. Indeed,
we expect starts in the current quarter to recoup some of their weather-related
losses and to exceed their fourth-quarter average. Meanwhile, outlays for
Domestic Developments
I-5
nonresidential construction remained firm at least through November, and we
anticipate further increases this quarter.
Government spending is expected to rise moderately this quarter. Federal
expenditures on consumption and gross investment are expected to just edge up,
but state and local expenditures are projected to advance at a rate of
3-1/4 percent, as spending on highways and other construction projects should
rebound somewhat following weak spending in the latter part of last year.
Part of the slowdown in domestic spending this quarter is likely to be absorbed
by reduced imports rather than reduced domestic production. At the same time,
exports are projected to be little changed this quarter after contracting last
quarter. In all, the foreign sector contributes 1/2 percentage point to real GDP
growth this quarter, after having been a sizable negative last year.
The easing in the price of crude oil should continue to push down gasoline
prices, but we expect these declines to be outweighed over the next couple of
months by sizable increases in natural gas prices, which affect energy prices
both directly and through their effect on the costs of electricity generation.
Nevertheless, futures markets suggest that by spring, natural gas prices, too,
should start to decline. Outside of the energy area, we anticipate inflation to
remain moderate in the near term, with the chain price index for personal
consumption expenditures excluding food and energy increasing just below
2 percent at an annual rate in both the fourth quarter of 2000 and the current
quarter. On the wage front, average hourly earnings turned up markedly in the
fourth quarter, and nonfarm compensation per hour is likely to post another
substantial increase as well. However, the ECI rose at only a modest annual rate
of 3 percent over the fourth quarter; we expect the ECI to increase at a
4-1/4 percent rate this quarter, boosted in part by higher health insurance
premiums in the new year.
The Longer-Term Outlook for the Economy
We think that by the end of the current quarter firms will have started to run
down the existing inventory overhangs. Thus, we project small increases in
production--GDP growth of 1-1/4 percent at an annual rate--in 2001:Q2, while
inventory-sales ratios continue to edge lower. By the third quarter, the
inventory adjustment should be largely complete, and we expect to see GDP
increasing about 2-1/2 percent at an annual rate. We expect both demand and
production to pick up gradually from there, aided, as discussed above, by the
turnaround in monetary policy, declining energy prices, expansionary fiscal
policy, and a depreciating dollar.
Household spending. The forces affecting consumer spending are mixed at
present. On the negative side, the decline in the stock market since last summer
Part 1: Summary and Outlook, January25, 2001
I-6
Projections of Real GDP
(Percent change from end of preceding period except as noted)
Measure
H2
HI
2000
H2
H1
HI
2001
H2
2002
IH2
5.2
5.2
2.1
2.3
.4
2.7
3.1
3.8
3.5
3.9
5.3
5.3
2.2
2.8
1.7
2.8
2.8
3.7
3.7
3.9
PCE
Previous
5.3
5.3
3.6
3.7
1.2
2.9
2.0
3.0
2.8
3.0
Residential investment
Previous
2.2
2.2
-7.1
-7.7
-1.1
-1.8
0.0
1.0
.7
-.4
17.7
17.7
4.0
7.4
2.8
6.5
6.1
7.7
9.1
9.6
1.8
1.8
.7
.6
2.7
3.6
3.1
3.5
3.3
3.4
Exports
Previous
10.2
10.2
4.1
11.9
2.8
4.4
9.3
9.3
9.9
10.3
Imports
Previous
15.2
15.2
7.8
12.0
1.8
7.5
6.5
7.6
8.2
8.3
Real GDP
Previous
Final sales
Previous
BFI
Previous
Government purchases
Previous
Contribution to growth,
percentage points
Inventory change
Previous
Net exports
Previous
.0
.0
-.1
-.4
-1.3
-.1
.3
-.2
.2
.0
-1.0
-1.0
-.7
-.4
.1
-.6
.1
-.1
-.1
-.1
and the resultant reduction in the net worth of households should by now be
depressing consumer spending. The household wealth-to-income ratio is
projected to move lower and be a fairly constant drag on spending throughout
the projection period. In the case of durable goods, spending may be held down
as well by some retrenchment following the rapid pace of spending over the past
few years. Partly for this reason, light vehicle sales are now expected to be
15-1/4 million units this year and next--far below last year's record sales of
17-1/4 million units.
Domestic Developments
I-7
On the positive side, our estimates of structural productivity growth imply that
households' longer-run income prospects remain favorable. We expect real
disposable income to rise more rapidly over the projection period than it did in
1999 and 2000, bolstered by an easing of energy prices, by some catch-up of
real wages following the recent years' productivity acceleration, and by our
assumed tax cut. Reduced interest rate burdens associated with a pickup in
mortgage refinancing also should help to support consumption spending in the
coming months. In all, we expect real PCE, after rising at an annual rate of only
about 1-1/4 percent in the first half of this year, to increase at a 2 percent rate in
the second half and to rise about 2-3/4 percent in 2002. This pace of
consumption growth is subdued relative to income, and, consistent with a
negative wealth effect, we project the saving rate to move up about
2-1/4 percentage points on an annual-average basis between 2000 and 2002.
Although the adverse wealth effects should also serve to damp housing demand,
we think that low mortgage rates and solid income growth will continue to
support this sector. On balance, homebuilding should be well maintained over
the forecast period. We look for single-family starts to edge up from
1.26 million units this year to 1.29 million units in 2002, while multifamily
starts are projected to be flat at near a pace of 300,000 units.
Business investment. The recent sharp slowdown in investment spending
likely reflects a number of factors, including reductions in sales and earnings
expectations associated with the anticipated weakness in overall activity as well
as the downturn in the stock market. That said, the magnitude of the slowdown
has been a surprise to us, and simply chalking up such a surprise to a reduction
in "animal spirits" begs the question as to what has made businesses so much
less optimistic and how long such low spirits will persist. The huge increases in
investment over the past several years may have left some businesses feeling,
especially in the wake of the recent slowdown in sales, as though they
overinvested. We are expecting some period of retrenchment--especially in the
tech sector--as firms adjust their capital stocks to more desirable levels. The
size of such an adjustment depends critically on our assumptions about the
longer-run rate of technological advance. If, contrary to our assumptions, the
U.S. economy is now reaching the end of several years of unusually profitable
investment opportunities, then investment spending could fall well short of our
expectations, with serious consequences for the economic outlook. We address
this possibility in one of our alternative simulations below.
But given our belief that future structural productivity increases will look more
like those of the past several years than of the preceding twenty--and that
businesses agree with this view--we project that any such capital stock
adjustment ought to be modest, leaving us in a good position to resume more
rapid investment spending before too long. Thus, after posting only small gains
Part 1: Summary and Outlook, January25, 2001
in the first half of this year, real outlays for equipment and software are
projected to increase at a rate of 6-1/4 percent in the second half--less than half
the pace of the past five years--and to rise near 11 percent in 2002. We think
that spending on high-tech equipment will recover and increase at a rapid clip in
2002, with ongoing technological advance and the accompanying decline in
computer prices helping to shore up spending in that area. Outlays for a range
of other types of equipment are expected to improve modestly as well.
The nonresidential construction sector appears to have avoided the substantial
overbuilding that often has accompanied past economic booms; spending has
been holding up well and is expected to rise further over the projection period.
Office vacancy rates remain quite low, and although lenders are becoming more
cautious, funding for projects generally remains available, and spreads on
commercial-mortgage-backed securities have not deteriorated. We do expect to
see a marked deceleration in construction of new industrial buildings, given the
cutbacks in production and emerging excess capacity in that sector, but growth
in spending on office and institutional buildings should be well maintained this
year and next.
As discussed above, we expect businesses to curtail inventory investment
reasonably promptly in response to the slower pace of sales growth. Thus,
although inventory-sales ratios moved higher through the end of last year, we
project that they will have begun moving back down by the end of the second
quarter. We expect businesses to gradually increase the pace of stockbuilding
thereafter, making only a small contribution to GDP growth over the remainder
of the projection period.
Government spending. Given that our overall fiscal policy assumptions have
not changed since the December forecast, our projection of federal expenditures
for consumption and investment has changed little. Increases in real federal
purchases are expected to average 2-1/2 percent over the next two years, with
moderate gains in both the defense and the nondefense components.
Although the fiscal situation among states and localities has remained fairly
strong overall, warning signs have emerged in a number of states. As a result,
we have scaled back somewhat our projections of both spending increases and
further tax reductions. We now project real purchases to rise roughly
3-1/2 percent per year over 2001 and 2002.
Net exports. We expect the demand for U.S. exports, after having declined late
last year, to increase gradually over this year and next, reflecting an improved
pace of economic activity abroad and a projected depreciation of the dollar.
Similarly, after declining this quarter, real import spending should turn up as
well with the pickup in U.S. activity. In all, the contribution to real GDP
I-9
Domestic Developments
growth from the external sector should be near zero this year and next after
subtracting about 3/4 percentage point from growth in 2000. (The International
Developments section provides a more detailed discussion of the outlook for the
external sector.)
Aggregate Supply, the Labor Market, and the Prospects for Inflation
Our reduced forecast for business investment spending implies a slower pace of
capital accumulation than we had projected in the December Greenbook, and as
a result, we have further reduced our assumption about structural productivity
growth to an increase of 3.1 percent this year and 3 percent in 2002. The
associated growth of potential GDP now is 4.2 percent in 2001 and 4.1 percent
in 2002.
Productivity and the labor market. Productivity growth remained relatively
robust in the second half of last year despite the substantial deceleration of
output, as firms moved to reduce hours worked. We anticipate that firms will
continue to adjust their workweeks and hiring promptly in response to
production cutbacks this quarter, and we look for private payrolls to edge down
over the first quarter. Nevertheless, we do expect a pronounced cyclical
slowing in productivity growth; indeed, we project productivity to be flat this
quarter and to rise at an annual rate of 1-1/2 percent in the second quarter.
Productivity is expected to accelerate thereafter and to rise near its trend rate in
2002. Hiring is also likely to pick up as activity strengthens, although we still
expect to see payroll gains of less than 100,000 per month through most of
2002. With this very weak employment picture, the unemployment rate is
projected to move up notably, to 5-1/4 percent by the end of this year and to
5-1/2 percent by the end of 2002.
Decomposition of Structural Labor Productivity
(Percent change, Q4 to Q4, except as noted)
Measure
1973-
1996-
1999
2000
2001
2002
Structural labor productivity
Previous
1.4
1.4
2.5
2.5
3.2
3.2
33
3.4
3.1
3.3
3.0
3.2
.7
.7
.4
.4
.3
1.1
1.1
1.1
1.1
.3
1.5
1.5
1.4
1.4
.3
1.5
1.6
1.5
1.5
.3
1.3
1.5
1.5
1.5
.3
1.2
1.4
1.5
1.5
.3
Contributions'
Capital deepening
Previous
Multifactor productivity
Previous
Labor quality
1.Percentage points.
95
98
Part 1: Summary and Outlook, January 25, 2001
I-10
The Outlook for the Labor Market
(Percent change, Q4 to Q4, except as noted)
1999
2000
2001
2002
Output per hour, nonfarm business
Previous
4.1
4.1
3.6
3.4
1.9
2.5
3.1
3.2
Nonfarm payroll employment
Previous
2.2
2.2
1.6
1.6
.2
.9
.8
1.2
Household employment survey
1.5
1.1
-.2
.6
1.5
1.0
.5
.8
Labor force participation rate1
Previous
67.0
67.0
67.1
67.0
67.0
67.1
66.9
67.0
Civilian unemployment rate'
Previous
4.1
4.1
4.0
4.0
5.2
4.7
5.5
5.0
Measure
Previous
1. Percent, average for the fourth quarter.
Wages and prices. We now project lower wage and price inflation than in the
December Greenbook. This reflects both the lower levels of resource utilization
in this projection and the fact that we have dropped our assumption of an
increase in the minimum wage during the forecast period.2
We now expect the ECI for hourly compensation to increase 4.3 percent this
year and 4.1 percent in 2002. Although employers' health insurance costs likely
will continue to rise rapidly, the reduction in labor market tightness should ease
pressure on wages; the energy-related decline in consumer price inflation also
should be an important factor in holding down nominal wage increases by next
year.
Regarding energy prices, we continue to expect reductions in prices of gasoline
and heating oil throughout the forecast period, in line with the projected
downtrend in crude oil prices. And although we look for further increases in
prices of natural gas for the next couple of months, futures markets for natural
gas suggest that these prices, too, will decline notably thereafter.
2. Inthe December Greenbook, we assumed that the minimum wage would be increased
from $5.15 per hour to $5.65 per hour in January 2002. Although such an outcome certainly
remains possible as part of budget negotiations, it looks increasingly unlikely in the face of a
weakening economy. This change in assumptions lowers the projected increase in ECI hourly
compensation in 2002 by 0.2 percentage point and lowers the increase in the core PCE price
index by 0.1 percentage point.
Domestic Developments
I-11
Inflation Projections
(Percent change, Q4 to Q4, except as noted)
Measure
2001
2002
2.3
1.8
1.7
2.5
1.7
1.9
1.5
1.5
1.6
1.8
1.9
2.0
1.8
2.0
2.6
2.6
3.4
3.4
2.3
2.1
2.0
2.2
Food
Previous
1.9
1.9
2.5
2.6
2.9
2.6
2.5
2.6
Energy
Previous
11.2
11.2
15.2
14.9
-2.1
-4.2
-3.7
-2.9
Excluding food and energy
Previous
2.1
2.1
2.6
2.6
2.5
2.6
2.4
2.6
GDP chain-weighted price index
Previous
1.6
1.6
2.3
2.5
2.0
1.9
1.7
1.8
ECI for compensation of private
industry workers'
Previous
3.4
3.4
4.4
4.7
4.3
4.6
4.1
4.6
NFB compensation per hour
Previous
4.8
4.8
5.6
5.4
5.3
5.5
5.0
5.5
Prices of core non-oil
merchandise imports
Previous
.4
.4
1.5
1.2
1.6
2.4
2.7
2.8
PCE chain-weighted price index
Previous
Excluding food and energy
Previous
Consumer price index
Previous
1999
2000
2.0
2.0
1. December to December.
We project that increases in the PCE chain price index excluding food and
energy will be 1.9 percent this year and will edge slightly lower to 1.8 percent in
2002. These rates are down 0.1 and 0.2 percentage point, respectively, from our
previous projection. We continue to expect that a firming of prices of core nonoil imports will exert a bit of upward pressure on domestic prices going forward.
But this pressure is likely to be offset by the indirect effects of the turnaround in
energy costs between last year and this year and by the elimination of excess
tightness in the labor market. In all, we expect total PCE prices to rise about
1-3/4 percent both this year and next. The CPI is expected to show a similar
pattern to that for PCE prices but to run roughly 1/2 percentage point higher:
We expect the core CPI to rise around 2-1/2 percent both this year and in 2002
and the total CPI to rise about 2-1/4 percent this year and 2 percent next year.
1-12
Part 1: Summary and Outlook, January25, 2001
Financial Flows and Conditions
Debt of the domestic nonfinancial sector is projected to grow at a rate of about
4 percent this year and next--a pace similar to that in the second half of 2000 but
down substantially from the increases in the preceding couple of years. Total
domestic debt growth will be held down, in part, by the continued contraction of
federal government debt. In addition, we anticipate that business debt growthwhich slowed sharply in the second half of 2000--will stay well below the
double-digit advances of recent years, as lenders will be more restrained given
the slippage in credit quality. Growth of household debt is projected to
moderate over the next two years, primarily reflecting the slower growth in the
stock of consumer durables.
With corporate profits projected to decelerate more rapidly than investment
outlays, firms will need a growing volume of external funding to finance their
investment spending. Equity markets will be a source of funds for some firms.
In addition, the pace of share buybacks is likely to drop as companies attempt to
conserve cash to support capital spending. Even so, business debt growth will
need to pick up somewhat from the relatively low fourth-quarter pace in order to
finance these expenditures. We expect that higher-grade firms will continue to
have fairly ready access to funds on affordable terms. However, wide spreads
on speculative-grade debt and tighter terms and standards on loans at
commercial banks will continue to exert some restraint on spending by lowerrated firms.
In the household sector, debt growth is expected to slow from 8-3/4 percent in
2000 to 7-1/4 percent in 2001 and to 6-1/4 percent in 2002. This deceleration is
concentrated in consumer credit. Mortgage debt growth, in contrast, moderates
only slightly, as the recent declines in mortgage rates support the pace of
housing activity and the refinancing of existing mortgages results in some
substitution of mortgage for consumer credit. With the slower growth of total
household debt and some reduction in the average interest rate on the stock of
mortgages, we project that the debt service burden will edge down on net over
the forecast period--a development that should help limit any decline in
household credit quality.
Borrowing by the state and local government sector is expected to remain
sluggish over the next couple years. Although these governments likely will
continue to borrow substantial amounts to fund new capital projects, ongoing
retirements of debt that had been previously refunded will hold down the growth
of outstanding debt.
M2 growth has been brisk in recent months, in part reflecting a decline in its
opportunity cost as well as some heightened preference for liquidity in response
to the increase in equity price volatility. The expansion of M2 is expected to
slow this year, but to a lesser extent than nominal GDP growth. Lower short-
Domestic Developments
Domestic Developments
1-13
I-13
term market interest rates and the anticipated flatness of the yield curve provide
households with little incentive to shift into capital market instruments.
Moreover, mortgage refinancing activity gives M2 a lift as prepayments are
temporarily parked in transaction accounts. In 2002, M2 growth is unchanged,
as the effects of interest rates and refinancing activity abate and nominal GDP
growth picks up.
Alternative Simulations
The staff outlook shows the economy near recession in the near term but buoyed
over the longer run by, among other things, a continuation of rapid growth of
structural productivity. Many factors could significantly alter this outcome, and
we use several model simulations to illustrate major risks to the forecast. In the
first two scenarios ("recession"), a greater near-term loss of confidence by firms
and households is sufficient to push the economy into outright recession, with a
severity that depends on whether or not monetary policy seeks to moderate its
effects. The third scenario ("growth pause") considers the risk that final sales
are stronger than we and businesses expect; as a result, the inventory correction
occurs more rapidly than in the baseline, and growth rebounds sharply in the
second half of this year. The fourth simulation ("easier monetary policy")
shows how the baseline projection would be altered if monetary policy were to
ease along the lines currently expected by financial markets. The remaining two
scenarios address the risk that we have mis-gauged the fundamental supply-side
conditions underlying longer-term growth. The first ("productivity slowdown")
explores the implications of structural labor productivity growth returning to the
average pace recorded prior to the recent acceleration, while the second ("low
NAIRU") considers instead the possibility that stable long-run inflation is
consistent with an unemployment rate of 4 percent.
Recession. These scenarios assume that spending is weaker this year than in the
Greenbook baseline but that the loss of confidence driving this additional
spending restraint fades in 2002. Under a policy of holding the real federal
funds rate at the baseline path ("no policy response"), real GDP falls in 2001,
pushing the unemployment rate to 6 percent by year's end. Although output
growth recovers in 2002 as confidence returns, the unemployment rate drifts up
further, to 6-1/2 percent--a cyclical swing in line with that typically experienced
during post-war recessions. Significant slack in labor and product markets
causes core inflation to fall to 1-1/4 percent by late next year.
In the second "recession" scenario ("with policy response"), a substantial
reduction in the federal funds rate in 2001--on the order of an additional
1 percentage point relative to baseline by the end of the year--attenuates the loss
1-14
Part 1: Summary and Outlook, January25, 2001
1-14
Alternative Simulations:
Aggregate Demand, Monetary Policy, Productivity, and the NAIRU
(Percent change, annual rate, from end of preceding period, except as noted)
2002
2001
2000
Measure
HMeaseH2
H1
H2
H1
H2
Real GDP
Baseline
Recession, no policy response
Recession, with policy response
Growth pause
Easier monetary policy
Productivity slowdown
Low NAIRU
2.1
2.1
2.1
2.1
2.1
2.1
2.1
.4
-1.2
-1.1
1.2
.5
.0
.5
3.1
.1
.6
3.8
3.8
2.0
3.3
3.7
3.9
4.8
4.1
4.8
2.3
4.0
3.9
4.4
5.5
4.3
5.1
1.9
4.2
Civilian unemployment rate'
Baseline
Recession, no policy response
Recession, with policy response
Growth pause
Easier monetary policy
Productivity slowdown
Low NAIRU
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.7
4.9
4.9
4.6
4.7
4.7
4.7
5.2
6.0
5.9
4.9
5.1
5.3
5.1
5.4
6.4
6.1
5.0
5.0
5.7
5.3
5.5
6.6
6.1
4.9
4.9
6.0
5.2
PCEprices excluding food
and energy
Baseline
Recession, no policy response
Recession, with policy response
Growth pause
Easier monetary policy
Productivity slowdown
Low NAIRU
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.9
1.9
1.9
1.9
1.9
1.9
1.6
1.9
1.9
2.0
1.9
2.1
1.9
1.5
1.8
1.6
1.9
1.9
2.2
1.8
1.2
1.8
1.3
1.8
2.0
2.3
1.9
1.0
1. Average for the final quarter of the period.
of output and limits the rise in unemployment.3 In contrast to the first scenario,
output rebounds more strongly and the unemployment rate rises to only about
6 percent next year.
Growth pause. In this scenario, final demand is fundamentally stronger than
assumed in the staff outlook. Consequently, compared to baseline, a more
severe inventory drawdown takes place in the near term, but greater final sales
3. In this scenario, the Taylor rule is used to adjust the nominal funds rate relative to its
baseline path in response to the greater weakness in output.
Domestic Developments
I-15
actually boost GDP growth slightly over the first half of this year. In the second
half of the year--after the inventory correction is complete--GDP growth
rebounds to close to its trend rate (assuming that the real funds rate follows the
baseline path). Inflation is slightly higher than in the staff forecast under these
conditions.
Easier monetary policy. Here, in contrast to the staff assumption, the federal
funds rate declines over the next two years in line with the expectation implicit
in current futures contracts (about 100 basis points below the baseline). With
this more aggressive policy easing, the unemployment rate peaks at 5.1 percent
later this year and falls to 4.9 percent in 2002. Inflation trends upward under
these circumstances.
Productivity slowdown. In this scenario, we allow for the possibility that a
deceleration in U.S. labor productivity initiates a considerable slowdown in
GDP growth (under the assumption that the real federal funds rate is held
constant). We assume that structural productivity growth gradually falls back to
1-1/2 percent per year--its average over 1973-95--as compared to about
3 percent in the staff forecast. Stock market investors quickly revise their
expectations of long-run earnings growth, and equity prices average about
30 percent lower than in the baseline simulation. Households and firms revise
their spending plans in response both to the fall in equity prices and to the
surprising weakness that materializes in productivity and real income growth.
Although the unemployment rate rises relative to baseline, there is no favorable
feedback to inflation because the boost to unit labor costs implied by the
reduction in productivity growth offsets the effects of greater economic slack.
Monetary policy could limit the rise in the unemployment rate to that shown in
the baseline simulation by cutting the nominal funds rate by about
3/4 percentage point relative to the baseline assumption, at the cost of higher
inflation.
Lower NAIRU. In contrast to the staff view that the (transitory) influence of
faster productivity growth has helped to offset the inflationary effects of a tight
labor market, this scenario assumes that the NAIRU has been and will remain at
4 percent. Holding the real federal funds rate at baseline results in lower price
inflation, lower but still rising unemployment, and faster real GDP growth
compared with baseline. The faster output growth owes to the fact that a lower
NAIRU is consistent with a higher level of potential output, and therefore with
higher permanent income and spending. Monetary policy could limit the rise in
the unemployment rate, and thereby stabilize core PCE inflation, by cutting the
nominal funds rate by about 1 percentage point below the baseline level.
Strictly Confidential <FR>
Class II FOMC
January 25,
STAFF PROJECTIONS
2001
OF CHANGES IN GDP, PRICES, AND UNEMPLOYMENT
(Percent, annual rate)
ANNUAL
1998
1999
2000
2001
2002
QUARTERLY
1999
01
02
03
Q4
2000
01
Q2
03
Q04
2001
01
02
03
04
2002
01
02
03
04
TWO-QUARTER
5.9
5.6
5.7
5.8
5.8
5.4
5.5
5.7
3.7
3.8
3.9
4.0
3.7
3.7
3.8
4.0
2.1
1.7
1.7
1.7
1.9
1.6
1.6
1.6
2.1
2.2
2.3
2.3
1.9
2.0
2.0
2.0
4.8
4.9
4.9
5.0
5.3
5.4
5.5
5.5
3
1999
Q2
04
4.9
8.2
4.9
8.2
3.0
7.0
3.0
7.0
1.8
1.3
1.8
1.3
2.5
2.7
2.5
2.7
-0.1
-0.2
-0.1
-0.2
2000
Q2
Q4
8.2
4.5
8.2
4.0
5.2
2.3
5.2
2.1
2.8
2.1
2.8
1.8
4.0
2.9
4.0
2.9
-0.1
0.0
-0.1
0.0
2001
Q2
Q4
5.0
5.2
2.7
4.8
2.7
3.5
0.4
3.1
2.2
1.6
2.4
1.6
2.2
1.9
2.9
1.7
0.4
0.3
0.7
0.5
2002
Q2
Q4
5.7
5.8
5.6
5.6
3.8
4.0
3.7
3.9
1.9
1.7
1.8
1.6
2.1
2.3
1.9
2.0
0.2
0.1
0.2
0.1
5.9
6.5
6.3
5.1
5.7
5.9
6.5
6.1
3.8
5.6
4.6
5.0
3.8
3.1
3.9
4.6
5.0
3.7
1.8
3.8
1.2
1.6
2.5
1.9
1.8
1.2
1.6
2.3
2.0
1.7
1.5
2.6
3.4
2.1
2.2
1.5
2.6
3.4
2.3
2.0
-0.3
-0.3
-0.1
0.7
0.3
-0.3
-0.3
-0.1
1.2
0.3
FOUR-QUARTER
1998
1999
2000
2001
2002
1.
2.
3.
4.
Q4
Q4
Q4
04
Q4
4
For all
urban consumers.
Level, except as noted.
Percent change from two quarters earlier;
Percent change from four quarters earlier;
for unemployment rate,
for unemployment rate,
change in percentage points.
change in percentage points.
1-18
January 25,
REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS, ANNUAL VALUES
(Seasonally adjusted annual rate)
Strictly Confidential <FR>
Class II FOMC
2001
--------- Projected--------Item
Units1
1994
1995
1996
1997
1998
1999
2000
2001
2002
Nominal GDP
Real GDP
Bill. $
Bill. Ch. $
7054.3
7347.7
7400.5
7543.8
7813.2
7813.2
8318.4
8159.5
8790.2
8515.7
9299.2
8875.8
9969.7
9324.0
10347.1
9479.7
10886.8
9807.7
Real GDP
Gross domestic purchases
Final sales
Priv. dom. final purchases
% change
4.1
4.3
3.2
4.3
2.2
1.7
2.9
3.2
4.1
4.3
3.9
4.4
4.3
5.0
3.9
5.1
4.6
5.7
4.6
6.4
5.0
5.9
4.8
6.1
3.7
4.3
3.7
5.1
1.8
1.6
2.3
2.0
3.8
3.8
3.7
3.7
3.6
6.4
4.1
2.7
2.8
3.7
2.5
2.7
3.1
5.0
3.2
2.7
4.1
8.8
2.5
3.9
5.0
12.6
5.0
3.4
5.6
11.1
5.9
4.2
4.5
4.6
3.7
4.8
1.6
-1.6
1.2
2.5
2.8
3.9
2.4
2.9
Business fixed investment
Equipment & Software
Nonres. structures
Residential structures
9.2
12.0
1.1
4.0
7.5
8.9
3.3
-1.5
12.1
11.8
12.8
5.6
11.8
13.7
6.5
3.5
12.9
15.8
4.9
10.3
10.1
14.1
-1.7
2.8
10.7
10.3
11.9
-2.5
4.5
3.7
6.8
-0.5
9.1
10.9
4.1
0.7
Exports
Imports
10.5
12.2
9.7
5.0
9.8
11.2
8.5
14.3
2.2
11.2
4.3
12.0
7.2
11.4
6.0
4.1
9.9
8.2
Gov't. cons. & investment
Federal
Defense
State & local
0.2
-3.7
-5.9
2.8
-0.8
-5.3
-4.7
2.1
2.7
2.0
0.8
3.0
2.4
0.1
-1.4
3.7
2.6
0.8
-1.0
3.6
4.4
4.8
4.6
4.2
1.2
-1.3
-3.0
2.6
2.9
2.1
1.2
3.3
3.3
2.7
2.1
3.5
66.8
53.6
-86.5
30.4
42.6
-78.4
30.0
22.1
-89.0
63.8
60.6
-113.3
80.2
78.7
-221.0
45.3
44.9
-322.4
66.0
61.0
-411.6
13.4
10.6
-434.7
40.8
39.4
-453.8
% change
6.2
4.3
6.0
6.2
5.9
6.5
6.1
3.8
5.6
Nonfarm payroll employment
Unemployment rate
Millions
114.1
6.1
117.2
5.6
119.6
5.4
122.7
4.9
125.8
4.5
128.8
4.2
131.4
4.0
132.0
4.8
132.8
5.4
Industrial prod. index
Capacity util. rate - mfg.
% change
6.3
82.5
3.6
82.5
5.6
81.6
7.2
82.7
3.2
81.3
5.1
80.5
4.2
81.3
Housing starts
Light motor vehicle sales
North Amer. produced
Other
Millions
1.46
15.01
12.88
2.13
1.35
14.77
12.87
1.90
1.48
15.05
13.34
1.70
1.47
15.06
13.12
1.93
1.62
15.45
13.43
2.02
1.67
16.76
14.28
2.48
7071.1
6.2
5.1
2.9
6.1
7420.9
4.4
4.3
1.7
5.6
7831.2
5.9
5.9
2.6
4.8
8325.4
6.0
6.3
3.8
4.2
8786.7
5.7
6.3
4.6
4.2
12.3
8.1
7.9
11.3
9.0
8.7
11.4
9.6
9.4
9.9
10.0
9.7
Ex. social ins. funds
-212.3
8.6
4.0
-192.0
15.3
11.4
-136.8
21.4
18.7
Gross natl. saving rate
Net natl. saving rate
16.3
4.3
16.9
5.1
EXPENDITURES
Personal cons.
expenditures
Durables
Nondurables
Services
Change in
bus.
inventories
Bill. Ch. $
Nonfarm
Net exports
Nominal GDP
EMPLOYMENT AND PRODUCTION
0.2
77.4
3.9
77.9
1.61
17.24
14.38
2.86
1.57
15.32
12.52
2.81
1.60
15.24
12.52
2.73
9288.2
6.5
5.6
3.1
2.2
9960.3
6.1
5.8
2.4
-0.1
10333.2
3.7
4.7
3.1
0.4
10861.8
5.5
5.3
4.4
2.1
-5.8
9.3
9.0
11.2
9.2
8.9
3.0
9.5
9.2
-2.8
8.5
8.2
6.0
8.5
8.2
-53.3
31.0
29.9
49.0
41.7
41.3
124.4
50.0
50.4
249.2
59.9
60.3
238.0
48.0
48.0
17.2
5.7
18.0
6.7
18.8
7.5
18.5
6.8
18.3
6.5
18.2
5.9
2.1
1.9
1.8
1.6
2.3
chn.-wt. price index
2.1
1.9
1.4
1.9
2.5
PCE chn.-wt. price index
Ex. food and energy
2.1
2.3
2.3
1.8
1.5
1.7
2.0
1.5
2.3
1.6
CPI
Ex. food and energy
2.7
3.0
3.1
2.6
1.9
2.2
2.6
2.1
3.4
2.6
2.6
3.1
3.4
3.4
4.4
1.1
2.7
1.5
2.3
3.1
0.8
2.1
3.2
1.1
4.1
4.8
0.7
3.6
5.6
2.0
INCOME AND SAVING
Nominal GNP
Nominal GNP
Nominal personal income
Real disposable income
Personal saving rate
Bill. $
Corp. profits, IVA & CCAdj.
Profit share of GNP
Excluding FR Banks
4
Federal surpl./deficit
Bill. $
% change
change
State & local surpl./def.
PRICES AND COSTS
GDP chn.-wt. price index
% change
Gross Domestic Purchases
ECI,
hourly compensation
2
Nonfarm business sector
Output per hour
Compensation per Hour
Unit labor cost
1. Changes are from fourth quarter to fourth quarter.
2. Private-industry workers.
2.9
5.3
2.3
1.9
5.3
3.4
219.4
39.9
39.6
19.1
6.8
1-19
Strictly
Class II
Confidential <FR>
FOMC
REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS, QUARTERLY VALUES
(Seasonally adjusted, annual rate except as noted)
January 25,
2001
1998
Q1
1998
Q2
1998
03
1998
Q4
1999
Q1
1999
92
1999
93
1999
Q4
2000
Q1
2000
02
8634.7
8404.9
8722.0
8465.6
8829.1
8537.6
8974.9
8654.5
9104.5
8730.0
9191.5
8783.2
9340.9
8905.8
9559.7
9084.1
9752.7
9191.8
9945.7
9318.9
6.5
8.1
4.1
7.2
2.9
4.8
5.6
7.5
3.4
4.4
2.9
4.4
5.6
5.4
5.9
6.3
3.5
4.9
4.5
6.4
2.5
3.8
4.0
6.2
5.7
6.6
4.5
5.6
8.3
8.4
6.4
6.2
4.8
5.6
6.7
9.3
5.6
6.5
3.9
4.7
4.8
9.4
4.7
4.0
5.8
13.9
5.8
4.3
4.3
4.1
4.3
4.3
4.9
23.9
5.2
1.3
5.7
8.6
7.8
4.1
5.6
15.0
3.8
4.6
5.0
8.0
4.9
4.5
5.9
13.0
7.4
3.8
7.6
23.6
6.0
5.2
3.1
-5.0
3.6
4.6
Business fixed investment
Equipment & Software
Nonres. structures
Residential structures
20.1
24.6
7.9
9.6
15.6
16.1
14.1
12.6
3.5
6.5
-4.7
10.3
13.2
16.7
3.3
8.9
9.5
14.1
-3.4
8.2
9.6
15.2
-6.2
5.9
11.8
18.0
-.
-3.1
9.5
9.5
9.7
0.5
21.0
20.6
22.3
3.2
14.6
17.9
4.4
1.3
Exports
1.0
14.2
-3.0
13.1
-3.2
5.5
15.1
12.2
-7.9
4.5
5.8
16.2
10.2
16.9
10.3
10.7
6.3
12.0
14.3
18.6
-1.0
-9.1
-17.7
3.8
7.3
12.9
13.1
4.4
1.4
-3.2
5.8
4.0
2.8
3.7
-2.4
2.3
3.7
-2.2
-3.1
7.0
0.8
2.0
-2.3
0.1
4.8
6.9
12.3
3.7
8.5
13.2
12.6
6.1
-1.1
-14.2
-19.8
6.6
4.8
17.2
16.9
-1.1
117.3
109.7
-175.3
60.9
62.5
-219.8
73.1
79.2
-244.1
69.4
63.5
-244.9
48.1
49.2
-279.8
13.1
14.1
-314.6
39.1
43.5
-342.6
80.9
73.0
-352.5
36.6
33.0
-376.8
78.6
72.3
-403.4
Units
Item
EXPENDITURES
Nominal GDP
Real GDP
Bill. $
Bill. Ch. $
Real GDP
Gross domestic purchases
Final sales
Priv. dom. final purchases
% change
Personal cons. expenditures
Durables
Nondurables
Services
Imports
Oov't. cons. & investment
Federal
Defense
State & local
Change in bus. inventories
Nonfarm
Net exports
Bill. Ch. $
Nominal GDP
% change
7.6
4.1
5.0
6.8
5.9
3.9
6.7
9.7
8.3
8.2
Nonfarm payroll employment
Unemployment rate
Millions
124.7
4.7
125.5
4.4
126.2
4.5
127.0
4.4
127.8
4.3
128.4
4.3
129.1
4.2
129.8
4.1
130.6
4.1
131.6
4.0
Industrial prod. index
Capacity util. rate - mfg.
% change
3.6
82.4
3.0
81.5
3.4
80.8
2.9
80.5
3.9
80.2
4.9
80.3
5.8
80.5
5.7
80.9
6.7
81.3
7.9
81.9
Bousing starts
Light motor vehicle sales
North Amer. produced
Other
Millions
1.56
15.00
13.07
1.93
1.57
16.01
14.04
1.97
1.63
14.55
12.53
2.02
16.24
14.07
2.17
1.72 16
16.18
13.87
2.31
1.59
16.79
14.34
2.45
1.66
17.08
14.61
2.47
1.69
17.00
14.31
2.69
1.73
18.20
15.32
2.88
1.61
17.24
14.36
2.88
EMPLOYMENT AND PRODUCTION
INCOME AND SAVING
Nominal OGP
Nominal GN?
Nominal personal income
Real disposable income
Personal saving rate
Bill. $
% change
8640.3
7.8
7.7
6.6
4.6
8725.0
4.0
6.2
4.5
4.3
8814.9
4.2
5.9
3.6
4.1
8966.6
7.1
5.7
3.6
3.8
9097.2
6.0
4.3
2.9
3.1
9181.8
3.8
5.4
2.8
2.5
9327.3
6.5
5.2
2.2
1.8
9546.3
9.7
7.6
4.5
1.5
9745.0
8.6
6.9
1.9
0.2
9937.4
8.1
6.9
3.7
0.3
Corp. profits, IVA & CCAdj.
Profit share of GNP
Excluding FR Banks
% change
-12.6
9.5
9.3
-5.0
9.3
9.0
2.0
9.3
9.0
-7.0
9.0
8.7
26.5
9.4
9.1
-6.9
9.1
8.8
2.5
9.0
8.8
26.6
9.4
9.1
20.7
9.6
9.3
12.2
9.7
9.4
Federal surpl./deficit
State & local surpl./def.
Es. social ins. funds
Bill. $
25.9
38.1
37.5
41.9
33.4
32.9
71.9
37.5
37.2
56.4
57.7
57.6
89.7
47.9
48.1
117.5
38.0
38.3
147.3
47.4
47.9
143.3
66.6
67.2
235.8
52.0
52.5
240.9
60.1
60.6
18.9
7.7
18.7
7.4
19.0
7.6
18.7
7.2
18.9
7.3
18.4
6.7
18.4
6.5
18.3
6.6
18.2
6.6
18.6
6.9
1.0
1.1
1.5
1.4
1.1
1.6
3.3
2.4
0.1
0.8
1.1
2.0
1.7
1.9
3.8
2.1
PCE chn.-wt. price index
Ex. food and energy
0.4
1.2
1.2
1.8
1.4
1.8
2.3
1.3
1.9
1.3
2.2
1.7
3.5
2.2
2.1
1.4
CPI
Ex.
1.0
2.8
1.7
2.3
1.7
2.3
3.2
2.1
2.4
2.1
2.9
2.3
4.3
2.5
3.6
2.9
3.0
3.3
4.4
4.3
3.7
4.0
5.9
4.4
4.5
6.1
1.5
1.6
5.3
3.6
1.8
5.2
3.3
0.6
5.0
4.3
5.2
5.5
0.3
8.0
4.2
-3.5
1.9
3.9
1.9
6.1
5.9
-0.2
Gross natl. saving rate
Net natl. saving rate
PRICES AND COSTS
GDP chn.-wt. price index
Gross Domestic Purchases
chn.-wt. price index
food and energy
ECI, hourly compensation
1
Nonfarm business sector
Output per hour
Compensation per hour
Unit labor cost
1.
Private-industry
workers.
% change
3.6
4.5
0.8
2.6
4.5
1.8
1-20
Strictly Confidential <FR>
Class II FOMC
REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS, QUARTERLY VALUES
(Seasonally adjusted, annual rate except as noted)
-
-
- -
-
-
-
- -
- -
-
- -
-
- --
January 25, 2001
Projected - -
-
-
-
-
-
-
- -
- -
-
- -
-
-
-
2001
Q2
2001
Q3
2001
Q4
2002
Q1
2002
Q2
2002
Q3
2002
04
10201.7
9404.6
10278.3
9435.1
10386.7
9496.8
10521.8
9582.1
10670.0
9670.5
10810.8
9759.2
10956.5
9851.4
11109.9
9949.6
2.0
2.3
1.9
2.1
-0.5
-0.9
2.1
1.5
1.3
1.6
1.3
1.3
2.6
2.7
2.3
2.3
3.6
3.2
3.3
2.8
3.7
4.1
3.3
3.7
3.7
3.9
3.5
3.7
3.8
3.8
3.7
3.8
4.0
3.5
4.2
3.7
4.5
7.6
4.7
3.7
2.8
-5.2
0.8
5.6
1.4
-5.3
1.5
2.7
1.1
-3.6
0.6
2.3
1.8
0.3
1.0
2.4
2.2
2.4
1.8
2.4
2.8
3.5
2.4
2.9
2.8
3.6
2.4
2.9
2.9
4.5
2.4
2.9
2.9
4.1
2.4
2.9
7.7
5.6
14.6
-10.6
0.5
-1.5
7.1
-3.4
3.0
1.3
8.6
-2.1
2.6
1.0
7.3
-0.0
5.6
5.4
6.2
-0.2
6.6
7.1
5.2
0.2
8.9
10.4
4.6
1.3
9.0
10.7
4.2
1.6
9.3
11.2
3.8
0.6
9.2
11.2
3.6
-0.5
Exports
Imports
13.9
17.0
-4.7
-0.8
0.8
-2.3
4.9
6.0
7.2
6.6
11.5
6.4
6.3
7.9
9.7
9.4
10.2
8.6
13.6
7.1
Gov't. cons. a investment
Federal
Defense
State a local
-1.4
-9.0
-9.7
2.9
2.8
3.6
4.4
2.3
2.3
0.4
-1.5
3.3
3.1
2.8
2.2
3.2
3.0
2.5
2.0
3.2
3.1
2.8
2.1
3.3
3.2
2.7
2.1
3.5
3.2
2.6
2.0
3.5
3.3
2.7
2.1
3.6
3.3
2.7
2.1
3.6
72.5
67.4
-427.7
76.2
71.1
-438.4
8.6
4.8
-426.7
6.5
3.7
-436.1
15.0
12.6
-441.5
23.4
21.4
-434.3
35.1
33.5
-447.2
42.2
40.5
-456.7
45.2
44.0
-461.4
40.6
39.5
-449.9
change
3.8
4.1
2.4
3.0
4.3
5.3
5.8
5.4
5.5
onfarm payroll employment
nemployment rate
Millions
131.6
4.0
131.9
4.0
132.0
4.4
132.0
4.7
132.0
5.0
132.1
5.2
132.3
5.3
132.6
5.4
132.9
5.5
133.2
5.5
.dustrial prod. index
Capacity util.
rate
- afg.
t change
3.5
81.7
-1.1
80.2
-6.5
77.7
0.9
77.2
3.1
77.3
3.8
77.5
4.0
77.8
4.2
77.9
3.6
78.0
3.6
78.0
Rousing starts
Light motor vehicle sales
North Amer. produced
Other
Millions
1.53
17.37
14.54
2.83
1.56
16.17
13.30
2.87
1.59
15.72
12.80
2.92
1.56
15.26
12.44
2.82
1.57
15.16
12.41
2.75
1.58
15.15
12.42
2.73
1.59
15.16
12.44
2.72
1.60
15.21
12.49
2.72
1.60
15.27
12.54
2.73
1.60
15.33
12.60
2.73
Nominal GP
Nominal GP
Nominal personal incom
Real disposable income
Personal saving rate
Bill. $
% change
10030.5
3.8
5.3
2.6
-0.2
10128.5
4.0
4.2
1.2
-0.6
10186.7
2.3
5.5
4.2
0.1
10267.1
3.2
4.0
2.3
0.3
10374.1
4.2
4.4
2.8
0.6
10504.8
5.1
4.7
2.9
0.7
10649.2
5.6
5.8
8.4
2.1
10787.4
5.3
5.1
3.0
2.1
10930.5
5.4
5.0
3.0
2.1
11080.2
5.6
5.2
3.1
2.2
Corp. profits, IVA & CCAdj.
Profit share of Gap
Rxcluding FR Banks
% change
2.8
9.7
9.4
-19.3
9.1
8.8
-16.5
8.6
8.3
-3.7
8.5
8.2
1.6
8.4
8.1
9.4
8.5
8.2
3.5
8.5
8.2
6.1
8.5
8.2
6.4
8.5
8.2
8.1
8.6
8.3
Federal surpl./deficit
State a local surpl./def.
social ins. funds
Bill. $
253.3
63.2
63.6
266.7
64.2
64.5
226.0
55.0
55.2
229.1
49.3
49.4
245.3
43.4
43.4
251.4
44.3
44.2
187.2
44.9
44.7
209.4
41.3
41.0
233.3
38.5
38.2
247.6
34.9
34.6
18.5
6.6
18.0
6.0
17.9
5.6
18.0
5.7
18.3
5.9
18.5
6.2
18.8
6.5
19.0
6.7
19.2
6.9
19.4
7.0
1.6
2.0
3.0
1.8
1.6
1.6
1.9
1.6
1.6
1.6
2.0
1.9
2.5
1.4
1.4
1.5
1.9
1.6
1.6
1.7
PCB chn.-wt. price index
Ex. food and energy
1.8
1.1
2.0
1.8
2.6
1.9
1.5
1.9
1.4
1.9
1.5
1.9
1.6
1.8
1.7
1.8
1.7
1.8
1.7
1.8
CPI
ME.
3.1
2.5
2.8
2.4
3.9
2.6
1.8
2.6
1.5
2.5
1.8
2.5
1.9
2.4
2.0
2.4
2.0
2.4
2.0
2.4
4.1
3.0
4.3
4.3
4.3
.2
.2
4.1
4.1
4.1
2.9
6.3
2.9
3.2
6.5
3.3
-0.1
5.8
5.9
1.5
5.3
3.7
2.6
5.2
2.6
3.7
5.1
1.5
3.2
5.3
2.1
3.1
5.0
1.9
3.1
5.0
1.9
3.2
4.9
1.7
Item
Units
2000
Q3
2000
Q4
2001
10039.4
9369.5
10141.2
9415.8
2.2
3.0
2.4
4.2
01
KXPENDITURES
Nominal GDP
Real GDP
Bill. $
Bill. Ch. $
Real GDP
Gross domestic purchases
Final sales
Priv. dam. final purchases
% change
Personal cons.
Durables
Nondurables
Services
expenditures
Business fixed investment
Equipment a Software
Nonres. structures
Residential structures
Change in bus.
Nonfarm
Net exports
inventories
S
Nominal ODP
EMPLOYME
Bill. Ch.
5.7
A D PRODUCTION
INCOME AND SAVIMO
Ex.
Gross natl. saving rate
Net natl. saving rate
PRICES AND COSTS
GDP chn.-vt. price index
Gross Domestic Purchases
chn.-wt. price index
ECI,
food and energy
hourly compensationl
onfarm business sector
Output per hour
Compensation per hour
Unit labor cost
1.
Private-industry workers.
% change
4
Strictly Confidential <FR>
Class II FOMC
CONTRIBUTIONS TO GROWTH IN REAL GROSS DOMESTIC PRODUCT AND RELATED ITEMS
1998
Item
1998
Q4
1999
o1
1999
Q2
1999
03
1999
Q4
2000
Q1
2000
Q2
2000
03
98Q4/
97Q4
99Q4/
9804
OQ4/
9904
3.4
4.5
5.6
5.5
3.5
5.0
2.5
3.8
5.7
6.8
8.3
8.6
4.8
5.8
5.6
6.7
2.2
3.1
4.6
5.8
5.0
6.0
3.7
4.5
2.9
3.7
5.8
5.3
4.4
5.3
3.9
5.2
4.5
4.7
6.5
5.2
6.6
7.9
3.9
4.0
2.4
3.6
4.6
5.3
4.8
5.1
3.7
4.3
2.8
0.3
0.8
1.7
3.3
1.7
1.0
0.5
3.7
0.7
1.5
1.6
3.7
1.1
0.8
1.8
3.4
0.6
1.0
1.8
4.1
1.0
1.5
1.6
5.0
1.8
1.2
2.0
2.1
-0.4
0.7
1.8
3.0
0.6
0.9
1.5
3.3
1.0
1.0
1.4
3.7
0.9
1.2
1.7
3.0
0.4
0.8
1.9
03
Real GDP
Gross dom. purchases
I
Final sales
Priv. dom. final purchases
Personal cons. expenditures
Durables
Nondurables
Services
January 25, 2001
Business fixed investment
Equipment a Software
Nonres. structures
Residential structures
0.4
0.6
-0.2
0.4
1.6
1.5
0.1
0.4
1.2
1.3
-0.1
0.3
1.2
1.4
-0.2
0.3
1.5
1.7
-0.2
-0.1
1.2
0.9
0.3
0.0
2.5
1.9
0.6
0.1
1.9
1.7
0.1
0.1
1.0
0.6
0.4
-0.5
1.5
1.4
0.2
0.4
1.3
1.3
-0.1
0.1
1.4
1.0
0.4
-0.1
Net exports
Exports
Imports
-1.0
-0.4
-0.7
0.1
1.5
-1.5
-1.4
-0.9
-0.6
-1.4
0.6
-2.0
-1.1
1.1
-2.1
-0.4
1.1
-1.5
-0.9
0.7
-1.6
-1.0
1.5
-2.5
-0.9
1.5
-2.4
-1.1
0.3
-1.4
-1.1
0.5
-1.5
-0.8
0.8
-1.6
Oovernment cons. & invest.
Federal
Defense
Nondefense
State and local
0.3
-0.2
0.2
-0.4
0.5
0.5
0.2
-0.1
0.3
0.3
0.6
-0.1
-0.1
-0.0
0.8
0.1
0.1
-0.1
0.2
0.0
0.8
0.4
0.5
-0.1
0.4
1.5
0.8
0.5
0.3
0.7
-0.2
-0.9
-0.9
-0.1
0.8
0.9
1.0
0.6
0.4
-0.1
-0.2
-0.6
-0.4
-0.2
0.3
0.5
0.0
-0.0
0.1
0.4
0.8
0.3
0.2
0.1
0.5
0.2
-0.1
-0.1
0.0
0.3
0.6
0.8
-0.2
-0.2
-0.7
0.5
-0.9
-0.6
-0.3
-1.4
-1.4
0.0
1.2
1.3
-0.1
1.8
1.3
0.5
-1.8
-1.6
-0.2
1.7
1.6
0.1
-0.2
-0.2
-0.1
0.0
0.0
0.0
0.2
0.1
0.1
-0.0
-0.0
-0.0
Change in bus.
Nonfarm
Farm
Note.
inventories
Components may not sum to totals
because of rounding.
Strictly
Confidential <FR>
Class II F OM C
CONTRIBUTIONS TO GROWTH IN REAL GROSS DOMESTIC PRODUCT AND
RELATED
ITEMS
January 25, 2001
I
2000
04
Item
2001
Q1
2001
Q2
2001
03
2001
Q0
2002
Q1
2002
Q2
2002
Q3
2002
-0.5
-0.9
1.3
1.6
2.6
2.8
3.6
3.3
3.7
4.2
3.7
4.0
3.8
4.0
I
Real GDP
Gross dom. purchases
Final sales
Priv. dom. final purchases
2.0
2.4
0004/
9904
01Q4/
0004
4.0
3.6
3.7
4.5
1.8
1.7
3.8
3.9
3.7
4.3
2.2
1.7
3.7
3.2
04
02Q4/
01Q4
1.9
1.8
2.1
1.2
1.3
1.1
2.3
1.9
3.3
2.4
3.3
3.1
3.4
3.2
3.7
3.3
4.2
3.2
Personal cons. expenditures
Durables
Nondurables
Services
1.9
-0.4
0.2
2.2
0.9
-0.4
0.3
1.1
0.8
-0.3
0.1
0.9
1.2
0.0
0.2
1.0
1.5
0.2
0.4
1.0
1.9
0.3
0.5
1.1
1.9
0.3
0.5
1.1
1.9
0.3
0.5
1.1
1.9
0.3
0.5
1.1
Business fixed investment
Equipment a Software
Nonres. structures
Residential structures
0.1
-0.2
0.2
-0.1
0.4
0.1
0.3
-0.1
0.3
0.1
0.2
-0.0
0.8
0.5
0.2
-0.0
0.9
0.7
0.2
0.0
1.2
1.0
0.2
0.1
1.2
1.1
0.1
0.1
1.3
1.1
0.1
0.0
1.3
1.1
0.1
-0.0
Net exports
Eports
Imports
-0.4
-0.5
0.1
0.4
0.1
0.4
-0.3
0.5
-0.9
-0.2
0.8
-1.0
0.3
1.2
-0.9
-0.4
0.7
-1.1
-0.3
1.1
-1.4
-0.1
1.1
-1.3
0.4
1.5
-1.1
-0.8
0.8
-1.6
0.1
0.7
-0.6
-0.1
1.1
-1.2
0.5
0.2
0.2
0.0
0.3
0.4
0.0
-0.1
0.1
0.4
0.5
0.2
0.1
0.1
0.4
0.5
0.2
0.1
0.1
0.4
0.6
0.2
0.1
0.1
0.4
0.6
0.2
0.1
0.1
0.4
0.6
0.2
0.1
0.1
0.4
0.6
0.2
0.1
0.1
0.4
0.6
0.2
0.1
0.1
0.4
0.2
-0.1
-0.1
0.0
0.3
0.5
0.1
0.0
0.1
0.4
0.6
0.2
0.1
0.1
0.4
0.1
0.1
-0.0
-2.6
-2.6
0.0
-0.0
-0.0
0.0
0.3
0.4
-0.0
0.3
0.3
-0.0
0.5
0.5
-0.0
0.3
0.3
0.0
0.1
0.1
-0.0
-0.2
-0.2
-0.0
-0.0
-0.0
-0.0
-0.5
-0.5
0.0
0.2
0.2
-0.0
Government cons. & Invest.
Federal
Defense
Nondefense
State and local
Change in bus. inventories
Nonfarm
Fear
Note.
Components may not sum to totals
because
of rounding.
Strictly Confidential (FR)
Class II FOMC
January 25, 2001
Staff Projections of Federal Sector Accounts and Related Items
(Billions of dollars except as noted)
Fiscal year
1999a
Unified budget
Receipts 2
Outlays 2
Surplus/deficit 2
On-budget
Off-budget
Surplus excluding
deposit insurance
2000
2001
2002
1
I
I
2002
Qla
Q2
Q3a
Q4a
QI
Q2
Q3
Q4
QI
Q2
Q3
Q4
Not seasonally adjusted
674
506
505
466
449
485
208
57
20
137
40
-28
70
17
48
459
478
-19
-48
29
679
479
200
124
75
534
472
62
40
22
521
498
23
-28
51
-19
199
62
23
1827
1703
125
1
124
2025
1789
236
86
150
2104
1855
249
91
158
2178
1914
264
89
175
434
449
-15
-45
30
656
444
212
147
65
492
431
60
50
10
461
464
-2
-14
12
463
476
-13
-72
59
119
233
248
262
-18
211
60
-3
-14
207
57
20
Means of financing
Borrowing
Cash decrease
Other3
-89
-18
-18
-223
4
-17
-215
8
-42
-273
0
9
-27
39
4
-190
-13
-10
-54
5
-11
-25
32
-4
40
-9
-18
-190
-1
-17
-40
-14
-3
-45
20
5
5
-153
-79
-46
5
9
-40
-7
15
2
20
3
Cash operating balance,
end of period
56
53
45
45
45
57
53
21
30
31
45
25
20
60
45
25
1837
1735
464
306
158
1270
103
94
2024
1806
489
320
168
1317
218
104
2122
1881
508
331
177
1373
242
110
2173
1953
536
346
190
1417
220
114
2012
1776
479
311
168
1297
236
101
2055
1814
499
326
173
1315
241
106
2089
1836
490
320
170
1346
253
104
2112
1845
496
325
171
1349
267
108
rates
2179
1928
522
338
184
1406
251
113
2140
1952
536
346
190
1417
187
114
2170
1961
541
348
192
1420
209
115
2204
1970
545
351
194
1425
233
116
2238
1991
550
354
197
1440
248
117
9
114
132
106
134
135
149
158
117
119
134
139
73
94
117
130
104
31
20
39
63
53
81
114
130
70
95
120
135
-.2
-1
.1
-.2
-.2
.1
-.3
-.3
-.1
.6
-.2
-.2
-. 1
11
-6
6
-2
2
.4
.7
.5
1
9
.5
.6
.5
NIPA federal sector
Receipts
Expenditures
Consumption expenditures
Defense
Nondefense
Other spending
Current account surplus
Gross investment
Current and capital
account surplus
Seasonally adjusted annual
2108
2123
2148
1882
1894
1902
507
512
517
331
333
336
177
179
181
1374
1381
1386
226
229
245
109
110
111
4
Fiscal indicators
High-employment (HEB)
surplus/deficit
Change in HEB, percent
of potential GDP
Fiscal impetus (FI)
percent, calendar year
I. Fiscal year data for the unified budget come from OMB; quarterly data come from the Monthly Treasury Statement and may not sum to OMB fiscal year totals.
2. OMB's January 2001 baseline surplus estimates are $256 billion in FY2001 and $277 billion in FY 2002. CBO's July 2000 baseline surplus estimates, assuming
discretionary spending grows with inflation beginning in FY 2001 are $268 billion in FY2001 and $312 billion in FY 2002. Budget receipts, outlays, and surplus/deficit
include corresponding social security (OASDI) categories. The OASDI surplus is excluded from the on-budget surplus and shown separately as off-budget, as classified under current law.
3. Other means of financing are checks issued less checks paid, accrued items, and changes in other financial assets and liabilities.
4. HEB is the NIPA current and capital account surplus in current dollars, with cyclically sensitive receipts and outlays adjusted to the level of potential output associated with an unemployment rate of
6 percent. Quarterly figures for change in HEB and FI are not at annual rates. The sign on Change in HEB, as a percent of nominal potential GDP, is reversed. FI is the weighted difference of discretionary
changes in federal spending and taxes in chained (1996) dollars, scaled by real federal consumption plus investment For FI and the change in HEB, negative values indicate aggregate demand restraint.
a--Actual
Strictly Confidential (FR)
Class II FOMC
Change in Debt of the Domestic Nonfinancial Sectors
(Percent)
January 25, 2001
Nonfederal
Households
Federal
government
3
4
Total
Home
mortgages
Consumer
credit
Business
State and local
governments
Memo:
Nominal
GDP
Period
Total 2
Year
1995
1996
1997
1998
5.5
5.3
5.6
6.8
4.1
4.0
0.6
-1.4
6.0
5.8
7.3
9.6
8.0
7.3
6.6
8.8
6.0
7.3
7.0
9.8
14.1
7.9
4.3
5.4
6.6
5.7
8.7
11.1
-4.6
-0.6
5.3
7.2
4.3
6.0
6.2
5.9
1999
2000
6.9
4.7
-1.9
-8.0
9.5
8.1
9.0
8.8
9.9
9.0
7.1
8.7
11.2
8.7
4.4
2.0
6.5
6.1
2001
4.1
-6.9
6.6
7.2
8.7
3.2
6.7
2.5
3.8
2002
3.9
-8.7
6.3
6.2
7.8
1.6
7.4
1.6
5.6
Quarter
1999:3
4
2000:1
2
3
4
2001:1
2
3
4
2002:1
2
3
4
6.9
6.4
5.4
5.4
4.2
3.5
5.8
3.0
4.4
3.0
4.7
3.8
3.6
3.1
-1.9
-0.9
-5.9
-11.4
-6.2
-9.7
1.6
-12.2
-4.9
-12.8
-2.7
-8.6
-10.5
-14.1
9.4
8.4
8.4
9.8
6.8
6.6
6.7
6.4
6.5
6.3
6.2
6.2
6.2
6.2
9.3
7.9
8.1
9.7
8.2
8.2
7.7
7.4
6.8
6.4
6.3
6.1
6.0
5.9
10.4
8.4
7.1
10.2
8.8
9.0
8.9
8.7
8.2
7.8
7.8
7.6
7.4
7.3
5.5
7.8
10.0
9.2
8.1
6.6
4.5
3.6
2.5
1.9
1.6
1.6
1.6
1.7
10.7
10.1
10.5
11.6
6.2
5.5
6.2
6.0
6.9
7.0
7.1
7.1
7.2
7.3
4.3
2.7
0.3
1.7
2.0
3.8
3.2
2.6
2.3
1.9
1.6
1.6
1.6
1.6
6.7
9.7
8.3
8.2
3.8
4.1
2.4
3.0
4.3
5.3
5.8
5.4
5.5
5.7
Total
Note. Quarterly data are at seasonally adjusted annual rates.
1. Data after 2000:Q3 are staff projections. Changes are measured from end of the preceding period to
end of period indicated except for annual nominal GDP growth, which is calculated from Q4 to Q4.
2. On a monthly average basis, total debt is projected to grow 5.3 percent in 2000, 4.1 percent in 2001 and 3.8 percent in 2002.
3. On a monthly average basis, federal debt is projected to grow -6.7 percent in 2000, -6.6 percent in 2001 and -8.5 percent in 2002.
4. On a monthly average basis, nonfederal debt is projected to grow 8.5 percent in 2000, 6.6 percent in 2001 and 6.4 percent in 2002.
2.6.3 FOF
Strictly Confidential (FR)
Class II FOMC
Flow of Funds Projections: Highlights
(Billions of dollars except as noted)
January 25, 2001
Seasonally adjusted annual rates
Calendar year
Category
2000
2001
2002
1999
2000
2001
2002
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Netfunds raised by domestic
nonfinancial sectors
1 Total
2 Net equity issuance
3 Net debt issuance
976.9
-143.5
1120.4
666.9
-156.4
823.3
657.4
-91.0
748.4
681.8
-52.0
733.8
670.9
-87.6
758.5
285.8
-350.0
635.8
943.1
-108.0
1051.1
446.1
-104.0
550.1
745.5
-84.0
829.5
494.8
-68.0
562.8
851.1
-52.0
903.1
679.1
-52.0
731.1
642.1
-52.0
694.1
554.9
-52.0
606.9
Borrowing sectors
Nonfinancial business
4 Financing gap
5 Net equity issuance
6 Credit market borrowing
172.1
-143.5
591.2
219.0
-156.4
513.5
223.1
-91.0
429.3
291.5
-52.0
504.7
227.4
-87.6
387.5
242.9
-350.0
347.7
206.8
-108.0
399.6
209.9
-104.0
391.4
227.7
-84.0
457.2
248.0
-68.0
469.0
273.5
-52.0
484.2
288.8
-52.0
496.2
300.6
-52.0
513.2
303.1
-52.0
525.2
Households
7
Net borrowing 2
8
Home mortgages
9
Consumer credit
10 Debt/DPI (percent) 3
548.1
415.9
94.4
95.4
581.2
417.3
124.5
98.7
521.7
436.5
49.2
101.8
481.2
424.5
25.8
102.6
564.8
422.3
120.4
99.1
575.1
441.2
100.7
100.4
556.1
450.2
69.2
100.7
541.0
446.2
57.1
101.6
505.9
429.2
40.0
102.4
483.8
420.2
30.5
102.9
483.2
428.2
25.2
102.0
481.1
423.2
25.1
102.4
481.1
423.2
25.1
102.8
479.7
423.2
27.7
103.1
State and local governments
11
Net borrowing
12 Current surplus 4
52.3
156.8
24.5
176.5
32.2
173.0
21.4
173.8
25.2
181.4
48.0
184.1
40.8
176.9
33.4
173.2
29.4
169.4
25.4
172.5
21.4
175.3
21.4
174.0
21.4
173.6
21.4
172.5
Federal government
Net borrowing
13
14 Net borrowing (quarterly, n.s.a.)
15
Unified deficit (quarterly, n.s.a.)
-71.2
-71.2
-158.3
-295.9
-295.9
-254.9
-234.8
-234.8
-272.0
-273.5
-273.5
-266.3
-219.0
-53.6
-60.5
-335.0
-25.7
2.3
54.6
40.0
13.2
-415.6
-190.0
-207.7
-163.0
-39.6
-57.3
-415.4
-45.2
-20.2
-85.6
5.0
18.7
-267.6
-153.0
-199.9
-321.5
-79.3
-62.2
-419.4
-46.2
-22.9
Depository institutions
16 Funds supplied
404.3
476.6
275.1
288.7
468.5
381.0
312.7
268.0
261.8
258.0
283.2
284.2
293.2
294.2
Memo (percentage of GDP)
17 Domestic nonfinancial debt 5
18 Domestic nonfinancial borrowing
19
Federal government 6
20
Nonfederal
181.4
12.0
-0.8
12.8
179.2
8.3
-3.0
11.2
180.3
7.2
-2.3
9.5
178.1
6.7
-2.5
9.3
179.5
7.6
-2.2
9.7
179.5
6.3
-3.3
9.6
180.5
10.3
0.5
9.8
181.1
5.4
-4.0
9.4
180.8
8.0
-1.6
9.6
180.2
5.3
-3.9
9.3
179.4
8.5
-0.8
9.3
178.9
6.8
-2.5
9.2
178.2
6.3
-2.9
9.3
177.2
5.5
-3.8
9.2
Note. Data after 2000:Q3 are staff projections.
1. For corporations: Excess of capital expenditures over U.S. internal funds.
2. Includes change in liabilities not shown in lines 8 and 9.
3. Average debt levels in the period (computed as the average of period-end debt positions)
divided by disposable personal income.
2.6.4 FOF
4. NIPA surplus less changes in retirement fund assets plus consumption of fixed capital.
5. Average debt levels in the period (computed as the average of period-end debt positions) divided by nominal GDP.
6. Excludes government-insured mortgage pool securities.
International Developments
Overview
Foreign growth appears to have slowed more than expected. The step-down in
U.S. economic growth has cast a noticeable shadow abroad, especially in
countries with relatively strong trade links with the United States. As a result,
the staff has lowered the forecast for foreign activity once again. Compared with
the December Greenbook, total foreign growth has been reduced 1/2 percentage
point for the second half of last year and almost a full percentage point for the
current quarter. The largest downward revision is to projected growth in
developing Asia, where the high-tech shakeout is taking a toll on exports. In
Japan, private demand stagnated in the second half of last year, and there appears
to be little reason to project more than anemic growth going forward. European
growth also has slowed, but the outlook remains positive. On balance, the
foreign slowdown is expected to be relatively mild, and total foreign growth
should return to trend as U.S. economic activity revives, oil prices decline, and
domestic demand picks up again abroad.
Summary of Staff Projections
(Percent change from end of previous period, s.a.a.r.)
Projection
2000
Indicator
2000
HI
Q3
2001
2002
--
Q4
H1
1H2
Foreign output
December GB
5.8
5.8
3.9
4.4
2.6
3.2
2.7
3.3
3.5
3.7
3.7
3.7
Foreign CPI
December GB
2.0
2.0
4.1
4.1
3.5
3.6
2.9
3.2
3.0
3.2
3.0
3.2
NOTE. Changes for years are measured as Q4/Q4; for half-years, Q2/Q4 or
Q4/Q2; and for quarters, from previous quarter.
Rates of foreign consumer price inflation appear to have peaked during the
second half of 2000 and are expected to ease during the forecast period because
of lower energy prices and lessening pressures on capacity. The benign inflation
picture and the slower pace of foreign growth are likely to prompt some foreign
central banks to ease monetary policy this year.
Our oil price projection, in line with futures prices, continues to call for a gradual
decline over the forecast period. The staff has maintained the overall contour of
our projected exchange rate path. The real broad dollar index is projected to
weaken about 5 percent during the forecast period, with around two-thirds of its
decline coming in 2001 when U.S. growth is expected to fall short of average
growth in the other major industrial countries.
I-28
Part 1: Summary and Outlook, January 25, 2001
The value of exports of goods and services dropped in October and November
following two quarters of rapid growth. The decline in exports was widespread
across product categories and was concentrated in Asia, where high-tech
industries are important, and in Latin America. The weakness in exports, which
in part resulted from the sharp slowdown in foreign economic growth, is
projected to continue into the current quarter. Export growth should improve in
the second quarter as foreign growth moves back up and the effects of the
projected depreciation of the dollar begin to feed through. While the value of
imports of goods and services fell in both October and November, on average
imports were a bit higher than in the third quarter. We forecast that real imports
will decline in the first quarter, in line with the projected path of U.S. GDP,
before turning up in the second quarter and growing moderately for the rest of
the forecast period.
The arithmetic contribution of real net exports of goods and services to GDP
growth is expected to swing from negative 0.4 percentage point in the fourth
quarter of 2000 to positive 0.4 percentage point in the first quarter of 2001, as
imports slow in response to the decline in U.S. demand and exports begin to
recover. However, on balance, net exports make a negligible contribution to
growth going forward.
The weakness in U.S. economic growth has raised concerns about the possibility
of a substantial decline in the dollar, or even a global recession. At the end of
this section, we consider the implications for U.S. growth and inflation of two
alternative simulations. The first assumes that the U.S. slowdown engenders
10 percent more dollar depreciation than assumed in our baseline forecast. The
second involves a considerably lower path of growth abroad that could occur in
the event of the U.S. recession simulation discussed in the Domestic
Developments section.
Recent Developments
International financial markets. The major currencies index of the exchange
percent in the period between the
value of the dollar slipped almost 2-1/2
December FOMC meeting and the Federal Reserve's surprise rate cut, as market
participants focused on the deterioration of the near-term growth prospects of the
United States relative to those of Europe. Since January 3, the major currencies
percent
index has reversed all of this decline. The dollar depreciated about 2-1/2
against the euro during the intermeeting period. In contrast, the dollar
appreciated about 4-1/4 percent against the yen, reflecting continued economic
stagnation in Japan. Amid concerns about countries that would be vulnerable to
the U.S. slowdown and problems in the high-tech sector, the dollar appreciated
significantly against the Korean won and the Mexican peso.
InternationalDevelopments
InternationalDevelopments
1-29
I-29
In late December, the more negative outlook for high-tech industries contributed
to equity price declines in that sector for most countries, particularly in emerging
Asia. Federal Reserve action on January 3, however, sparked a rebound in both
technology-heavy and emerging-market stock indexes. Broad equity price
indexes of most foreign industrial countries went up in January, but were little
changed over the intermeeting period, while Japanese equities fell about 5
percent. Since the December FOMC meeting, long-term rates have changed
little in the euro area and have fallen 25 basis points in Japan.
On January 23, the Bank of Canada lowered its key policy rate 25 basis points, to
5.75 percent, citing an unexpectedly abrupt deterioration in the outlook for the
U.S. economy as the primary justification for its action. The European Central
Bank, the Bank of Japan, and the Bank of England kept policy rates unchanged
during the period.
. The Desk did not intervene during the period for the accounts of
the System or the Treasury.
Economic activity abroad. In the foreign industrial countries, recent indicators
suggest that growth moderated in the third and fourth quarters and point to
further slowing in the first quarter of this year. The Japanese economy seems to
have entered another period of stagnation, with both the all-industries index of
output and indicators of household demand below their third-quarter levels on
average in October and November. Even business investment spending seems to
be losing steam, as both orders and shipments of machinery have slowed in
recent months following a robust expansion earlier last year. In the euro area,
fourth-quarter growth is estimated to have softened to an annual rate of 2
percent, as consumer spending continued to be disappointing. However,
forward-looking indicators have been mixed; business confidence indicators are
down from levels reached in the first half of last year, but have stabilized while
consumer confidence has improved. An ongoing inventory correction and
weaker exports to the United States have lowered Canadian real GDP growth,
which is estimated to have fallen to 3 percent in the fourth quarter compared
with growth of about 5 percent during the first three quarters of 2000.
Twelve-month consumer price inflation in the euro area was 2.6 percent in
December, well above the European Central Bank's 2 percent target ceiling,
while core inflation was 1.4 percent. Canadian consumer price inflation
breached the ceiling of the Bank of Canada's 1 to 3 percent inflation band, and
core inflation also moved up, to 1.9 percent. In the United Kingdom, retail price
inflation remained below the target rate of 2.5 percent, while in Japan consumer
price deflation remained near 1 percent.
Part 1: Summary and Outlook, January25, 2001
I-30
The latest available data for major developing countries have confirmed a
slowing of economic growth. Against the backdrop of a weakening U.S.
economy and a slump in global demand for electronics, developing Asia has
experienced a widespread slowdown in production, and exports also appear to be
sagging. Mexican industrial production fell in October and November. In
contrast, activity in the rest of Latin America has held up thus far.
Prices of internationally traded goods. In December, the spot price of WTI
crude averaged around $28.50 per barrel, down nearly $6 per barrel from
November. Lower expectations for economic growth and the apparent absence
of a significant fourth-quarter drawdown of stocks contributed to the decline.
Notably, the price decline occurred despite a substantial reduction in Iraqi crude
exports. During the first half of January, however, oil prices generally crept
higher as it became increasingly clear that OPEC would cut production. At its
January 17 meeting, OPEC agreed to lower its official production targets by 1.5
million barrels per day starting on February 1. Spot WTI is currently trading
near $31 per barrel.
In the fourth quarter, prices of both non-oil and core imports rose at a slower
pace than in the previous four quarters, as many categories (with the notable
exception of industrial supplies, particularly natural gas) registered declines.
Core export prices fell slightly in the fourth quarter, as decreases in the prices of
consumer goods and industrial supplies outweighed increases in exported
machinery prices.
U.S. international transactions. The U.S. trade deficit in goods and services
was $33 billion in November, down from its level in the previous two months.
For October and November combined, the deficit was $17 billion larger (at an
annual rate) than in the third quarter. While the deficit is running only a bit
above what we projected in the December Greenbook, both exports and imports
have been substantially weaker than we anticipated. Average exports in October
and November fell at an annual rate of 4-1/2 percent from the third quarter. This
decline, which was spread about equally across most categories of goods, likely
reflects softening aggregate demand abroad and some payback for the surprising
strength of exports earlier in 2000. The value of imports dropped in both
October and November, reversing much of the sharp run-up in September but, on
average, was still slightly above the third-quarter level.
Outlook
The dollar. We project that the real value of the dollar will depreciate about
5 percent against the currencies of a broad group of U.S. trading partners by the
end of 2002, which is not much different from the December Greenbook
forecast. This depreciation is front-loaded, as we expect market participants to
InternationalDevelopments
I-31
remain sensitive to weak U.S. economic activity relative to the rest of the world
in the near term. Over the longer run, large U.S. current account deficits are
expected to weigh on the dollar.
Foreign industrial countries. Expansion of economic activity in the major
foreign industrial countries is projected to slow further from an estimated
average pace of about 2-1/2 percent in the fourth quarter of 2000 to about 1-3/4
percent in the current quarter. We expect the slowdown to be short-lived,
percent in the
however, with the average pace of growth rebounding to above 2-1/2
second half of 2001 and 3 percent in 2002.
The revival of U.S. growth as well as the decline in oil prices should bolster
growth abroad over the forecast period. In addition, in the euro area, fiscal
stimulus measures already in place, improved labor markets conditions, and
gains in competitiveness stemming from the euro's previous depreciation are
expected to provide impetus to growth. For Canada, we project that the
deterioration in U.S. demand will cut growth to less than 1 percent in the first
quarter. However, we expect Canadian growth to rebound to more than 3
percent in the second half of 2001 and 2002 as the United States recovers and
fiscal policy impetus (of about 1-1/2
percent of GDP) comes on line in Canada.
We estimate that Japanese real GDP changed little in the fourth quarter, with
both private and public spending stalling. We are projecting growth of only
about 1 percent this year and next, with expected fiscal contraction offsetting a
feeble pickup in private spending. High unemployment as well as continued
uncertainty about long-term economic prospects is likely to restrain consumption
growth over the forecast period.
Headline consumer price inflation in the foreign industrial countries is projected
to decline from the recent peak reached in the fourth quarter, as the effect of last
year's rise in oil prices dissipates.
With the global economic outlook softening, our best guess is that policy interest
rates in the foreign industrial countries will be unchanged or down slightly. The
ECB is projected to cut official rates 25 basis points as inflation moves back
below the 2 percent target ceiling. The Bank of England is expected to cut rates
50 basis points in response to slower growth and well-behaved inflation.
Canadian official rates were just lowered 25 basis points, and we currently do
not foresee further easing by the Bank of Canada. We expect the Bank of Japan
to keep policy on hold in light of the weak economy.
Other countries. Real GDP growth in the major developing-country trading
partners of the United States is estimated to have slowed sharply to an average
rate of about 2-3/4
percent in the final quarter of last year, less than half the rate
I-32
Part1: Summary and Outlook, January 25, 2001
recorded earlier in the year. In the current quarter, growth is expected to remain
subdued but it is then forecast to firm gradually to almost 5 percent by the end of
2002. In developing Asia, weaker demand from industrial countries, particularly
the United States, should slow exports, especially high-tech products, in the near
term. Growth in China is expected to remain robust. In Latin America, the
forecast for Mexican growth for this year has been lowered mainly because of
slower projected U.S. growth.
Prices of internationally traded goods. The announced reduction in OPEC
supply has put upward pressure on oil prices, and our near-term outlook for oil
prices is a bit above what we projected in the December Greenbook. However,
weaker prospects for world economic growth are consistent with a slightly
steeper downward trajectory, and thus the endpoint of our projection is a bit
below the December Greenbook forecast.
Selected Trade Prices
(Percent change from end of previous period except as noted; s.a.)
2000
Projection
Trade category
2000
H1
Q3
Q4
2001
H1
H2
2002
Exports
Nonagricultural (core)
Agricultural
2.8
1.2
-.1
.0
.4
.7
.6
-12.5
10.8
7.6
5.1
4.4
Imports
Non-oil (core)
Oil (dollars per barrel)
1.6
26.15
1.5
1.7
2.7
1.5
1.1
28.73 29.20 25.88 23.17 20.86
NOTE. Prices for exports and non-oil imports of goods, excluding computers
and semiconductors, are on a NIPA chain-weighted basis.
The price of imported oil for multi-quarter periods is the price for the final
quarter of the period.
Core import price inflation is projected to rise from an estimated 1 percent at an
annual rate in the fourth quarter of last year to 2 percent in the current quarter.
This increase reflects the sharp rise in prices of industrial supplies (especially
natural gas) in December. The rate of increase of core import prices should drop
back to around 1 percent in the second quarter as natural gas prices retrace part
of their recent rise. Core import prices are projected to accelerate to a
2-3/4
percent growth rate in 2002 as the effects of the projected dollar depreciation
feed through. Prices of exported core goods are expected to change little through
the first half of this year as the reversal of the recent run-up in prices of
industrial supplies (which include petroleum products and petrochemicals)
I-33
InternationalDevelopments
offsets increases in other components. Some acceleration of prices of core
exports is expected later in the forecast period.
U.S. international transactions. Real exports of goods and services are
estimated to have fallen about 4-3/4
percent at an annual rate in the fourth quarter
compared with a projected increase of 8-1/2 percent in the December Greenbook.
This surprisingly weak export performance reflects slower growth abroad, the
effects of past dollar appreciation, and some retrenchment from unusually strong
export growth earlier last year. We expect that export growth will be close to
zero in the current quarter, owing in large part to the decline in production in the
automotive sector. The growth rate of exports is projected to pick up beginning
in the second quarter of 2001, mainly because the rate of economic growth
abroad is expected to move back up. Exports are forecast to grow 6 percent this
year and nearly 10 percent in 2002, boosted by the projected depreciation of the
dollar.
Summary of Staff Projections
for Trade in Goods and Services
(Percent change from end of previous period, s.a.ar.)
2000
Measure
H1
Projection
Q3
2000
Q4-I
Q4
Real exports
December GB
Real imports
December GB
2001
H
H1
H2
2002
10.2
13.9
-4.7
2.8
9.3
9.9
10.2
15.4
8.5
4.4
9.3
10.3
15.2
17.0
-.8
1.8
6.5
8.2
15.2
17.4
6.9
7.5
7.6
8.3
NOTE. Changes for years are measured as Q4/Q4; for half-years, Q2/Q4 or
Q4/Q2; and for quarters, from previous quarter.
Growth of real imports of goods and services came to a halt in the fourth quarter.
This slowdown was broadly based among trade categories, although a notable
exception was imported non-auto consumer goods, which continued to expand.
Given the projected path of U.S. GDP, and particularly developments in the
automotive sector, we forecast that imports will decline at an annual rate of 2-1/4
percent in the first quarter before rebounding in the second quarter. Imports are
expected to grow 4 percent in 2001 and 8-1/4
percent in 2002. Relative prices,
which have been boosting growth of core imports in recent quarters, will become
a slightly restraining factor next year as a result of the dollar's expected
depreciation.
I-34
Part 1: Summary and Outlook, January25, 2001
We project that the contribution of exports to U.S. GDP growth will average
percentage point in 2001 and rise to 1 percentage point in 2002. Imports, after
dipping in the current quarter, are expected to resume expanding at a relatively
steady pace, making a negative contribution of 1/2percentage point in 2001 and
1-1/4 percentage points in 2002. Overall, the arithmetic contribution of the foreign
sector to GDP growth is close to zero over the forecast period. The U.S. current
account deficit is projected to remain about 4-1/2 percent of GDP during the
forecast period.
Alternative simulations. The recent softness of the U.S. economy poses a
number of potential risks to the global outlook. To address these risks, two
alternative scenarios were simulated using the FRB/Global model. The first
scenario assumes an immediate loss in confidence in U.S. assets that amplifies
the modest depreciation of the dollar assumed in the baseline outlook. The
second alternative examines the case in which a U.S. downturn spills over to
foreign economies by combining the results of the recession simulation reported
in the Domestic Developments section with a weaker-than-baseline forecast for
foreign growth.
In the first scenario, the shock consists of an exogenous rise in the risk premium
on the dollar that results in an immediate real dollar depreciation of 10 percent
relative to baseline in the absence of changes in real interest rates at home or
abroad. Two cases of this alternative are considered. The first case assumes no
U.S. monetary policy response to output and inflation developments by holding
the real funds rate unchanged from its baseline path. The second case assumes
that U.S. policy is adjusted according to a Taylor rule. In both cases, the major
foreign central banks adjust interest rates according to a Taylor rule while Japan
holds real interest rates constant.
With 10 percent depreciation of the dollar and a flat real funds rate, annual real
GDP growth is nearly 1/4 percentage point higher in 2001 and about 1/2 percentage
point higher in 2002 than in the baseline. Rising import prices and an expanding
output gap put upward pressure on the inflation rate: The core PCE inflation rate
rises 1/2
percentage point in 2001 and a bit less than that in 2002 relative to
baseline. In the case of a policy response, the initial effects on output and
inflation are similar to the flat funds case, but eventually real interest rates rise
noticeably, inducing an appreciation of the real exchange rate that undoes some
of the shock and reverses its expansionary effects on output and inflation. In this
case, the federal funds rate peaks about 70 basis points higher than in the
baseline in the first half of 2002, but after then it starts to recede. Note that this
scenario has contractionary consequences for output abroad whether or not U.S.
monetary policy responds; annual foreign GDP growth falls around 1/2 percentage
point below baseline, because of the loss of competitiveness.
I-35
InternationalDevelopments
Alternative Simulations: Lower Dollar
(Percent change from previous period, annual rate)
Indicator and simulationI
2001
2002
I
2
H1I
H2
H1
H2
.4
3.1
3.7
3.9
.5
.5
3.5
3.4
4.2
3.9
4.5
4.1
1.9
1.9
1.8
1.8
2.2
2.2
2.5
2.5
2.2
2.2
2.0
1.8
U.S. real GDP
Baseline
Immediate 10 percent depreciation
No U.S. policy response
U.S. policy response
U.S. PCEprices excl. food and energy
Baseline
Immediate 10 percent depreciation
No U.S. policy response
U.S. policy response
NOTE. HI is Q2/Q4; H2 is Q4/Q2.
For the second scenario we extend the case of U.S. recession (repeated in the
second table below for comparison) to include a more pronounced slowdown in
foreign growth than in our baseline forecast. As in the U.S. recession scenario,
we assume a temporary shock to foreign consumer and investor confidence that
lowers overall foreign demand by a slightly smaller magnitude than the U.S.
demand shock in the domestic recession scenario, but it is differentiated by
region. The foreign demand shock is specified to fall more heavily on
developing Asia than the rest of the world. The simulation assumes policy
responses by both U.S. and foreign monetary authorities. U.S. GDP growth is 1/4
percentage point lower in 2001 and a bit lower in 2002 than in the case where the
United States alone experiences recession. Core PCE inflation is essentially
unchanged from its baseline level in either case shown.
I-36
Part 1: Summary and Outlook, January 25, 2001
Alternative Simulations: Lower Growth
(Percent change from previous period, annual rate)
Indicator and simulation
U.S. real GDP
U.S. recession, with policy response
U.S. recession and lower foreign growth,
with policy responses
U.S. PCEprices excl. food andenergy
U.S. recession, with policy response
U.S. recession and lower foreign growth,
with policy responses
NOTE. HI is Q2/Q4; H2 is Q4/Q2.
2001
H1
H2
2002
H1H2
H1
H2
H1
H2
-1.1
.6
4.8
5.5
-1.3
.3
4.7
5.5
1.9
2.0
1.9
1.8
1.9
1.9
1.8
1.7
Strictly Confidential (FR)
January 25, 2001
Class II FOMC
OUTLOOK FOR FOREIGN REAL GDP AND CONSUMER PRICES: SELECTED COUNTRIES
(Percent, Q4 to Q4)
----- Projected---Measure and country
1994
1995
1996
1997
1998
1999
2000
2001
2002
5.2
2.3
4.0
4.3
1.2
4.8
4.5
3.1
3.7
Industrial Countries
of which:
Canada
Japan
United Kingdom
Euro-12
Germany
4.1
1.9
2.5
3.7
2.2
3.8
3.6
2.4
3.0
3.2
2.0
1.9
0.9
4.9
0.4
3.2
3.2
2.5
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
6.8
8.8
9.2
16.3
5.4
5.2
10.0
3.0
7.2
7.4
12.6
-3.7
-7.1
-0.6
-0.2
-1.9
-4.6
9.5
1.1
2.7
-1.4
6.2
8.7
14.0
6.2
4.2
5.3
3.5
1.1
1.3
1.0
1.1
1.9
1.2
1.4
-0.0
0.8
2.2
NA
2.8
2.1
-0.8
2.9
NA
1.4
2.4
-1.3
2.2
1.5
1.1
3.1
-0.9
2.1
2.6
2.5
1.7
-0.7
2.4
1.7
1.4
1.9
-0.3
2.4
1.9
1.5
22.9
10.7
5.8
26.9
54.0
7.0
1196.9
16.9
6.4
4.4
11.0
42.1
48.9
21.5
REAL GDP (1)
Total foreign
1.4
2.6
1.9
1.5
1.1
-1.4
CONSUMER PRICES (2)
Industrial Countries
of which:
Canada
Japan
United Kingdom (3)
Euro-12 (4)
Germany
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
1.4
11.1
4.8
5.0
6.8
25.9
28.2
9.6
1.5
6.8
2.8
5.0
0.9
15.6
17.2
4.7
9.1
4.5
5.9
-1.2
15.5
17.5
1.6
4.7
0.2
1.3
-0.9
12.6
13.6
8.3
Foreign GDP aggregates calculated using shares of U.S. non-agricultural exports.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.
CPI excluding mortgage interest payments, which is the targeted inflation rate.
Harmonized CPI's, weighted by shares in final consumption of households converted to a common
currency using estimated PPP exchange rates.
Strictly Confidential (FR)
Class II FOMC
OUTLOOK FOR FOREIGN REAL GDP AND CONSUMER PRICES: SELECTED COUNTRIES
(Percent changes)
2000
Measure
Measure and
and country
country
Q1
Qi
Q2
Q2
Q3
Q3
January 25, 200
-------------------- Projected -----------------------2001
2002
Q4
QQ2
Q3
Q4
Q1
Q2
Q3
Q4
Qi
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q4
REAL GDP (1)
-------------------
Total foreign
7.4
4.3
3.9
2.6
2.3
3.1
3.5
3.6
3.6
3.6
3.7
3.8
5.3
3.7
2.7
2.5
1.6
2.5
2.6
2.8
3.0
3.0
3.0
3.0
Quarterly changes at an annual rate ------------------
Industrial Countries
of which:
Canada
Japan
United Kingdom
Euro-12
Germany
5.5
10.0
1.6
3.5
3.6
4.8
-2.6
2.8
2.3
2.3
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
10.6
12.3
7.1
9.5
9.9
11.8
5.6
5.6
6.2
14.0
11.0
4.8
5.8
4.8
3.2
0.6
2.6
3.0
3.1
2.8
1.4
-2.0
7.5
4.0
4.5
3.0
3.9
4.3
3.0
6.0
3.4
3.5
3.2
CONSUMER PRICES (2)
-------------------
---------------------------
Industrial Countries
of which:
Canada
Japan
United Kingdom (3)
Euro-12 (4)
Germany
1.6
1.5
2.7
-0.8
2.1
2.1
2.0
2.4
-1.0
2.1
2.1
1.7
Developing Countries
Asia
Korea
China
Latin America
Mexico
Brazil
3.9
0.5
1.5
0.1
10.0
10.6
7.8
1.7
2.7
-1.1
2.1
2.5
2.2
1.9
3.1
-0.9
2.1
2.6
2.5
Four-quarter changes -------------------------1.8
1.8
1.4
1.2
1.2
1.3
1.4
1.4
3.0
-0.9
2.2
2.4
2.0
2.8
-0.6
2.3
2.3
2.1
2.1
-0.7
2.3
1.9
1.6
1.7
-0.7
2.4
1.7
1.4
1.7
-0.5
2.4
1.7
1.3
1.8
-0.4
2.4
1.8
1.4
1.8
-0.3
2.4
1.9
1.5
1.9
-0.3
2.4
1.9
1.5
5.4
3.7
4.6
3.4
8.6
8.9
7.8
Foreign GDP aggregates calculated using shares of U.S. non-agricultural exports.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.
CPI excluding mortgage interest payments, which is the targeted inflation rate.
Harmonized CPI's, weighted by shares in final consumption of households converted to a common
currency using estimated PPP exchange rates.
Strictly Confidential
Class II FOMC
(FR)
January 25, 2001
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
1994
1995
1996
1997
1998
------ Projected -----2000
2001
2002
1999
NIPA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth, Q4/Q4
Net Goods & Services
Exports of G&S
Imports of G&S
-0.3
1.0
-1.3
0.4
1.0
-0.6
-0.2
1.1
-1.3
-0.8
1.0
-1.7
-1.1
0.3
-1.4
-1.1
0.5
-1.5
-0.8
0.8
-1.6
0.1
0.7
-0.6
-0.1
1.1
-1.2
Percentage change, Q4/Q4
Exports of G&S
Services
Agricultural Goods
Computers
Semiconductors
Other Goods 1/
10.5
8.2
16.3
27.4
66.9
6.9
9.7
8.8
-4.0
39.1
79.6
5.7
9.8
8.9
3.8
21.6
44.6
7.8
8.5
1.4
1.0
25.8
21.3
10.9
2.2
2.8
-0.3
7.0
9.3
1.3
4.3
0.2
-0.5
13.3
34.4
4.1
7.2
1.5
8.2
23.4
27.2
7.0
6.0
4.2
-1.4
21.4
21.3
4.8
9.9
7.0
2.9
33.5
37.3
6.9
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
12.2
1.8
-0.2
39.0
54.5
12.3
5.0
5.5
2.4
35.0
92.4
-1.2
11.2
5.3
7.8
17.8
56.7
10.5
14.3
14.0
3.9
33.0
32.9
12.7
11.2
9.5
4.6
26.7
-7.3
11.6
12.0
2.1
-3.9
25.0
34.0
13.9
11.4
12.8
10.4
18.2
22.9
10.2
4.1
1.2
2.9
18.9
24.3
2.6
8.2
4.9
3.7
28.6
38.6
6.0
-221.0
1003.6
1224.6
-322.4
1033.0
1355.3
-411.6
1127.5
1539.1
-434.7
1175.8
1610.4
-453.8
1279.9
1733.7
Billions of chained 1996 dollars
Net Goods & Services
Exports of G&S
Imports of G&S
-86.5
732.8
819.4
-78.4
808.2
886.6
-89.0
874.2
963.1
-113.3
981.5
1094.8
Billions of dollars
US CURRENT ACCOUNT BALANCE
Current Acct as Percent of GDP
-118.6
-1.7
-109.5
-1.5
-123.3
-1.6
-140.5
-1.7
-217.1
-2.5
-331.5
-3.6
-438.3
-4.4
-451.0
-4.4
-477.8
-4.4
Net Goods & Services (BOP)
-97.0
-96.0
-102.1
-105.9
-166.9
-265.0
-367.6
-374.5
-389.4
Investment Income, Net
Direct, Net
Portfolio, Net
21.1
55.2
-34.1
25.0
64.9
-39.9
23.4
69.4
-46.0
11.1
71.9
-60.9
-1.0
67.7
-68.8
-13.1
62.7
-75.8
-13.0
77.7
-90.7
-17.7
89.4
-107.2
-28.8
98.0
-126.7
Other Income & Transfers,Net
-42.7
-38.6
-44.6
-45.7
-49.2
-53.4
-57.7
-58.7
-59.7
1. Merchandise exports excluding agricultural products, computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
Strictly Confidential
Class II FOMC
January 25, 2001
(FR)
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
1997
Q1
Q2
1998
Q3
Q4
Q1
Q2
1999
Q3
Q4
Q1
Q2
Q3
Q4
0.1
1.5
-1.5
-1.4
-0.9
-0.6
-1.4
0.6
-2.0
-1.1
1.0
-2.1
-0.4
1.1
-1.4
NIPA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth
Net Goods & Services
Exports of G&S
Imports of G&S
-1.0
0.8
-1.8
-0.3
1.9
-2.2
-0.9
1.2
-2.1
-0.9
-0.1
-0.8
-1.6
0.1
-1.7
-1.9
-0.3
-1.6
-1.0
-0.4
-0.7
Percentage change from previous period, s.a.a.r.
Exports of G&S
Services
Agricultural Goods
Computers
Semiconductors
Other Goods 1/
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
7.5
-5.8
-19.4
60.0
50.3
12.2
17.6
9.4
6.7
44.5
22.1
20.6
10.6
6.0
12.0
25.7
19.6
10.8
-0.8
-3.3
7.9
-14.0
-1.4
0.9
1.0
5.2
-2.7
-7.5
2.1
0.0
-3.0
6.4
-13.8
7.6
-13.6
-6.6
-3.2
-10.0
-12.5
14.7
18.9
-1.2
15.1
10.8
34.7
14.7
35.9
14.3
-7.9
-3.8
-33.4
5.2
38.7
-11.1
5.8
2.8
33.1
26.7
39.1
1.4
10.2
-2.5
38.0
22.2
37.8
11.9
10.3
4.6
-19.9
1.2
22.5
16.3
15.3
20.0
-7.5
46.6
78.1
11.6
18.8
5.6
36.8
45.8
26.0
17.2
17.3
23.1
5.7
32.4
31.6
14.8
6.4
8.3
-12.9
10.5
5.6
7.5
14.2
20.0
6.4
32.5
2.0
12.6
13.1
6.7
41.2
22.6
-22.9
14.0
5.5
9.8
2.1
10.6
0.1
4.5
12.2
2.2
-22.0
43.2
-6.1
15.6
4.5
-7.7
2.4
28.8
17.8
5.0
16.2
2.5
29.4
48.5
53.8
14.6
16.9
6.3
-5.8
14.8
24.1
21.5
10.7
8.2
-31.5
11.2
43.3
14.9
-244.9
1024.1
1269.0
-279.8
1003.3
1283.1
-314.6
1017.6
1332.2
-342.6
1042.6
1385.2
-352.5
1068.4
1420.9
Billions of chained 1996 dollars, s.a.a.r.
Net Goods & Services
Exports of G&S
Imports of G&S
-94.0
940.3
1034.3
-100.6
979.2
1079.8
-119.6
1004.2
1123.8
-139.2
1002.1
1141.2
-175.3
1004.5
1179.8
-219.7
996.8
1216.6
-244.1
988.8
1232.9
Billions of dollars, s.a.a.r.
IS CURRENT ACCOUNT BALANCE
-137.5
-1.7
-119.9
-1.4
-133.6
-1.6
-171.1
-2.0
-169.6
-2.0
-205.9
-2.4
-245.2
-2.8
-247.9
-2.8
-266.5
-2.9
-315.9
-3.4
-358.6
-3.8
-384.9
-4.0
Net Goods & Services (BOP) -108.2
-94.3
-101.1
-120.1
-134.5
-166.4
-185.3
-181.4
-210.7
-253.2
-290.9
-305.1
Investment Income, Net
Direct, Net
Portfolio, Net
11.5
68.9
-57.4
16.3
76.6
-60.3
10.7
74.1
-63.4
5.7
68.1
-62.4
9.1
74.9
-65.7
6.0
72.4
-66.4
-12.1
59.0
-71.1
-7.3
64.7
-71.9
-7.1
64.1
-71.2
-11.3
58.8
-70.0
-16.8
62.8
-79.6
-17.3
65.1
-82.4
Other Inc. & Transfers, Net -40.8
-41.9
-43.2
-56.7
-44.3
-45.5
-47.8
-59.2
-48.7
-51.5
-51.0
-62.5
:urrent Account as % of GDP
1. Merchandise exports excluding agricultural products, computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
Strictly Confidential
Class II FOMC
(FR)
January 25,
OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
0-----------------------2000
----------------------------------Q1
Q2
Q3
-----------Q4
Q1
Projected------------------------2001
2002
-----------------------------------------------------Q2
Q3
Q4
Q1
Q2
Q3
Q4
PA REAL EXPORTS and IMPORTS
Percentage point contribution to GDP growth
get Goods & Services
Exports of G&S
Imports of G&S
-0.9
0.7
-1.6
-1.0
1.5
-2.5
-0.9
1.5
-2.4
-0.4
-0.5
0.1
0.4
0.1
0.4
-0.3
0.5
-0.9
-0.2
0.8
-1.0
0.3
1.2
-0.9
-0.4
0.7
-1.1
-0.3
1.1
-1.4
-0.1
1.1
-1.3
0.4
1.5
-1.1
Percentage change from previous period, s.a.a.r.
Exports of G&S
Services
Agricultural Goods
Computers
Semiconductors
Other Goods 1/
6.3
6.9
25.3
44.6
20.7
0.7
14.3
3.5
-2.0
44.9
71.2
15.0
13.9
-2.8
42.5
27.5
38.6
17.1
-4.7
-1.5
-21.7
-13.3
-8.7
-3.4
0.8
0.3
-6.2
8.2
4.1
0.8
4.9
3.5
0.8
12.5
12.6
4.5
7.2
5.6
-1.0
33.5
36.0
3.9
11.5
7.6
1.1
33.5
36.0
10.1
6.3
7.5
3.0
33.5
37.3
0.7
9.7
7.0
2.8
33.5
37.3
6.6
10.2
6.8
2.9
33.5
37.3
7.4
13.6
6.7
3.0
33.5
37.3
13.4
Imports of G&S
Services
Oil
Computers
Semiconductors
Other Goods 2/
12.0
16.6
30.3
2.8
20.7
9.7
18.6
10.6
35.3
44.5
33.5
15.8
17.0
22.3
-4.9
28.7
88.9
15.1
-0.8
2.6
-11.5
2.0
-25.2
1.0
-2.3
-0.7
-11.1
10.4
10.4
-3.3
6.0
0.6
32.8
11.5
12.6
3.8
6.6
1.4
9.6
27.4
38.6
4.3
6.4
3.6
-13.4
27.4
38.6
6.0
7.9
4.8
-2.9
28.6
38.6
6.3
9.4
4.9
25.3
28.6
38.6
6.0
8.6
4.9
11.0
28.6
38.6
5.8
7.1
5.1
-14.3
28.6
38.6
5.9
-434.3
1213.7
1648.1
-447.2
1232.3
1679.5
-456.7
1261.2
1717.8
-461.4
1292.2
1753.6
-449.9
1334.1
1784.0
Billions of chained 1996 dollars, s.a.a.r.
Net Goods & Services
Exports of G&S
Imports of G&S
-376.8
1084.8
1461.7
-403.4
1121.8
1525.2
-427.7
1158.8
1586.4
-438.4
1144.8
1583.2
-426.7
1147.2
1573.9
-436.1
1161.0
1597.0
-441.5
1181.2
1622.7
Billions of dollars, s.a.a.r.
CURRENT ACCOUNT BALANCE
rrent Account as % of GDP
-406.0
-4.2
-419.9
-4.2
-451.6
-4.5
-475.8
-4.7
-448.9
-4.4
-448.9
-4.4
-450.0
-4.3
-456.1
-4.3
-462.6
-4.3
-475.6
-4.4
-484.0
-4.4
-489.3
-4.4
Net Goods & Services (BOP) -340.5
-354.4
-382.5
-393.2
-374.6
-377.8
-377.6
-368.2
-381.4
-391.3
-397.0
-387.7
-11.9
68.3
-80.2
-10.8
76.1
-86.9
-12.7
86.2
-98.9
-16.5
80.1
-96.6
-18.7
80.9
-99.7
-15.0
89.4
-104.4
-16.3
93.5
-109.8
-20.8
94.0
-114.8
-24.6
95.0
-119.6
-27.2
97.3
-124.4
-29.8
99.3
-129.1
-33.5
100.4
-133.8
Other Inc. & Transfers, Net -53.6
-54.7
-56.4
-66.1
-55.6
-56.1
-56.1
-67.1
-56.6
-57.1
-57.1
-68.1
Investment Income, Net
Direct, Net
Portfolio, Net
1. Merchandise exports excluding agricultural products, computers, and semiconductors.
2. Merchandise imports excluding oil, computers, and semiconductors.
@FedFRASER