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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS II - FOMC July 8, 1983 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS THE DOMESTIC NONFINANCIAL ECONOMY Page Employment and Unemployment. . . . . . . . . . . Wholesale Inventories . . . . . . . . Economic Forecasts Used in Budget Projections TABLES: Revised economic forecasts of Administration and Changes in employment. . . . . . . . . . . . . . Selected unemployment rates. . . . . . . . . . . Hourly earnings index. . . . . . . . . . . . . . Changes in manufacturing and trade inventories . Inventories relative to sales. . . . . . . . . . Congress. . . . . . . . . . . . . . . . . . . . . . . . . . THE DOMESTIC FINANCIAL ECONOMY TABLES: Monetary aggregates . . . . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit . . . . ... . . . . . . . . . . . . Selected financial market quotations . . . . . . . . . . . SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Employment and Unemployment Employment rose sharply in June: the payroll measure posted a second monthly gain of more than 300,000, and the household measure, which had risen more slowly in earlier months, jumped 1.2 million. Nonfarm payroll employment rose 345,000 in June, with increases again widespread by industry. A large part of the over-the-month rise apparently was related to construction activity. Employment at contract construction sites increased 85,000, and around 30,000 of the 75,000 new manufacturing jobs in June were in industries associated with construction. Other gains in factory jobs were concentrated in the metals, rubber, and apparel and textile industries. The average factory workweek returned to its April level of 40.1 hours in June, as overtime hours again lengthened. Outside of the goods-producing sectors, employment in retail trade jumped up 95,000 in June--the largest monthly rise since January--and jobs at establishments providing personal and business services rose 145,000. The number of unemployed persons was little changed in June as a sizable decline in joblessness among adult men was offset by increases for adult women and youth. The civilian unemployment rate continued to edge down, reaching 10 percent in June--3/4 percentage point below its December high. The index of average hourly earnings rose .1 percent in June, yielding a second-quarter average increase of 3.3 percent (annual rate)-- the lowest quarterly figure since late 1965. The moderation in wage increases in the second quarter included a slight decline in construction pay rates and a particularly small increase in durable manufacturing. Wholesale Inventories The book value of merchant wholesalers' inventories fell at an annual rate of $15 billion in May, after a large rise in April. (The April accumulation was revised down substantially, from $18 billion (annual rate) to $11 billion.) The May inventory run off was largely in machinery (-$9 billion) and petroleum (-$4 billion). The petroleum decline partially reversed the $8.3 billion run up in the preceding month. A strong, 4.8 percent rise in sales accompanied the May inventory decline, and the wholesalers' stock-sales ratio improved markedly--falling from 1.27 to 1.20. THE DOMESTIC NONFINANCIAL ECONOMY Economic Forecasts Used in Budget Projections The revised economic forecast of the Administration, which will be used in the mid-session Review of the Budget (expected in the latter part of July), was released on June 29, by the Council of Economic Advisers. This forecast is shown below in comparison with the economic forecast used by the Congress in the recently adopted First Congressional Resolution on the Budget for fiscal year 1984. Revised Economic Forecasts of Administration and Congress (Calendar years, percent) 1983 1984 Admin. Cong. Admin. Cong. Nominal GNP Q4 to Q4 year to year 10.4 7.8 na 7.5 9.7 10.2 na 9.9 Real GNP Q4 to Q4 year to year 5.5 3.1 na 2.8 4.5 5.2 na 5.1 Deflator Q4 to Q4 year to year 4.6 4.6 na 4.7 5.0 4.8 na 4.6 Unemployment Rate Q4 annual average 9.6 9.9 na 10.1 8.6 8.9 na 9.3 Treasury-bill rates Q4 annual average 9.0 8.6 na 7.8 8.3 8.5 n.a. 7.4 CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data) 1981 1982 Q1 Q2 1983 Apr May June - - - Average monthly changes - - Nonfarm payroll employment 2 Strike adjusted -6 -7 -172 -170 50 52 315 312 287 287 315 304 344 344 Manufacturing Durable Nondurable Construction Trade Finance and services Total government Private nonfarm production workers Manufacturing production workers -40 -33 -8 -21 8 59 -25 -127 -99 -28 -20 -18 31 -13 25 19 5 -19 31 55 -11 98 71 27 63 36 138 -31 109 72 37 29 -21 154 0 110 94 16 77 25 95 4 74 47 27 83 103 166 -98 -7 -146 42 331 261 318 415 -47 -108 27 102 112 99 95 2 25 -49 -65 3 16 561 512 355 359 99 102 1229 1074 Total employment 3 Nonagricultural 1. of 2. 3. Average change from final month of preceding period to final month period indicated. Survey of establishments. Strike-adjusted data noted. Survey of households. SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data) June 10.2 10.1 10.0 23.3 15.0 8.2 7.6 23.4 15.3 8.5 7.4 23.0 15.5 8.2 7.6 23.6 14.3 7.8 7.9 9.1 18.5 8.8 18.8 8.9 18.8 8.9 18.6 8.6 18.9 9.6 10.3 9.9 10.2 9.9 9.7 9.5 10.2 9.9 10.1 10.0 9.8 1982 Q1 Q2 Civilian, 16 years and older 7.6 9.7 10.4 10.1 Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 19.6 12.2 5.1 5.9 23.2 14.8 7.5 7.3 22.8 15.8 8.4 7.8 White Black and other 6.7 14.2 8.6 17.3 7.3 7.5 Fulltime workers Memo: Total national1 1983 Apr May 1981 1. Includes resident Armed Forces as employed. HOURLY EARNINGS INDEX 1 (Percentage change at annual rates; based on seasonally adjusted data) 2 1983 Apr May June 1981 1982 Q1 Q2 8.3 6.0 5.3 3.3 4.5 4.4 1.6 Manufacturing Durable Nondurable 8.8 8.8 8.7 6.1 6.1 6.3 4.5 4.1 5.2 1.3 .2 3.3 -.7 -1.1 .1 4.8 4.6 5.0 1.4 -.5 4.9 Contract construction Transportation and public utilities Total trade Services 8.4 5.2 6.1 -.5 3.1 -11.1 -2.5 8.5 7.0 9.1 6.1 4.8 6.6 8.3 4.6 3.6 2.9 5.1 6.4 3.2 6.5 7.0 1.6 2.0 4.1 Total private nonfarm .4 7.3 11.2 1. Excludes the effect of interindustry shifts in employment and fluctuations in overtime hours in manufacturing. 2. Changes over periods longer than one quarter are measured from final quarter of preceding period to final quarter of period indicated. Quarterly changes are compounded annual rates; monthly changes are not compounded. CHANGES IN MANUFACTURING AND TRADE INVENTORIES (Billions of dollars at annual rates) 1981 1982 1982 Q4 33.3 18.2 4.6 10.4 2.1 8.3 -14.2 -17.4 1.8 1.4 .1 1.3 -36.2 -27.1 -3.0 -6.2 -10.2 4.0 7.1 2.6 1.5 3.1 .7 2.3 -8.9 -8.7 .0 -.2 -.3 .1 -20.1 -14.4 -0.6 -5.2 -6.0 .9 1983 Apr.r MayP -34.9 -30.4 -8.8 4.3 1.5 2.8 19.2 1.1 10.9 7.2 6.6 .6 n.a. 12.0 -15.0 n.a. n.a. n.a. -15.0 -11.4 -4.8 1.3 -.5 1.8 3.0 1.7 2.4 -1.1 1.1 -2.2 n.a. n.a. n.a. n.a. n.a. n.a. Q1 Book value basis Total Manufacturing Wholesale trade Retail trade Automotive Nonautomotive Constant dollar basis Total Manufacturing Wholesale trade Retail trade Automotive Nonautomotive INVENTORIES RELATIVE TO SALES 1 Cyclical reference points June 81 1982 peak 2 1982 Q4 Q1 1983 Apr. r MayP Book value basis Total Manufacturing Wholesale trade Retail trade Automotive 1.42 1.59 1.14 1.39 1.78 1.54 1.78 1.31 1.45 1.92 1.52 1.72 1.30 1.40 1.60 1.46 1.61 1.25 1.40 1.66 1.43 1.58 1.27 1.37 1.51 n.a. 1.54 1.20 n.a. n.a. 1.63 1.92 1.35 1.38 1.75 1.77 2.15 1.50 1.46 1.94 1.73 2.10 1.47 1.41 1.61 1.65 1.63 1.89 1.43 1.38 1.53 n.a. n.a. n.a. n.a. n.a. Constant Dollar Basis Total Manufacturing Wholesale trade Retail trade Automotive 1.96 1.39 1.40 1.61 1. Ratio of end-of-period inventories to average monthly sales for the period. 2. Cyclical highs are specific to each series and are not necessarily coincident. r--revised estimates. p--preliminary estimates. MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted)l 1982 Q4 Money stock measures 1. M1 2. (M1)3 3. M2 4. M3 Ql - 13.1 (14.5) 9.3 9.5 Q2P 1983 Apr. Percentage change at 14.1 (13.8) 20.3 10.2 12.2 (12.7) 10.2 8.2 -2.7 (0.0) 3.0 3.5 May JuneP Growth from base period to June 19832 P 10.4 (7.8) 10.0 10.2 13.8 (13.4) 9.0 9.6 annual rates 26.3 (21.4) 12.8 11.3 Level in billions of dollars June 1983 Selected components 5. Currency 7.4 10.9 10.6 8.8 11.3 9.5 140.4 6. 8.4 2.7 4.0 -6.0 18.1 7.4 244.0 34.0 66.2 30.6 -10.3 61.6 8.1 22.4 9.6 Demand deposits 7. Other checkable deposits 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. M2 minus M1 (9+10+11+14) Overnight RPs and Eurodollars, NSA 4 23.9 M3 minus M2 (18+21+22) Large time deposits 6 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA 28. U.S. government banks8 17.9 9.8 12.2.7 1602.9 46.8 132.8 17.1 57.0 -57.5 57.8 -44.5 16.4 -56.9 9.5 -47.4 12.5 -13.6 14.0 139.3 674.9 296.1 -48.5 14.7 62.4 -24.2 12.5 38.4 -19.5 10.8 34.4 -10.5 7.6 25.5 1.5 9.7 355.8 319.1 739.1 171.2 -51.0 57.0 -18.0 35.0 -8.3 27.8 -8.3 17.0 3.3 336.5 402.5 10.4 -36.4 -2.4 6.7 2.8 11.4 383.9 4.2 -1.5 29.3 -43.0 -49.7 -14.6 -0.5 -15.6 55.4 16.6 -2.6 85.4 -4.8 -23.4 57.2 18.9 10.6 44.7 303.9 228.7 75.2 32.7 34.4 -32.7 19.4 -41.9 29.3 -69.0 28.8 -17.6 64.6 -35.6 -16.0 39.2 44.4 MEMORANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 7 27. Other 8.6 53.1 General purpose and broker/dealer money 15.3 market mutual fund shares, NSA Commercial banks 9.9 Savings deposits, SA, plus 5 MMDAs, NSA 35.5 Small time deposits -0.5 Thrift institutions 4.1 Savings deposits, SA, plus 5 MMDAs, NSA 30.3 Small time deposits -6.0 34.2 .7 Average moathly change in billions of dollars - -5.3 -6.5 L.2 -19.2 -17.1 -2.1 1.5 -2.8 4.3 4.6 0.2 4.2 1.3 -9.3 10.6 -1.3 0.6 -1.9 376.2 287.5 88.7 -0.7 2.0 -4.5 2.4 2.4 1.9 -0.3 4.5 4.7 5.8 2.9 -4.7 -54.5 143.2 0.3 0.2 0.2 1.0 -2.2 1.7 13.0 deposits at commercial 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly changes are calculated on an end-month-of-quarter basis. 2. The base for Ml and H3 targets is the fourth-quarter 1982 average. The base period for the h2 target is the February-March 1983 average. 3. MH seasonally adjusted using an experimental model-based procedure applied to veekly data. 4. Overnight and continuing contract RPs issued to the nonbank public by commercial banks plus overnight Eurodollar deposits issued by branches of U.S. banks to U.S. nonbank customers, both net of amounts held by money market mutual funds. Excludes retail RPs, which are in the small time deposit component. 5. eginning December, 192, growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Savings deposits excluding MMDAs declined at comercial banks at annual rates of 12.7 percent in April and remained unchanged in Hay and June. At thrift instittions, saving deposits excluding MMDAs increased during April, May and June at rates of 4.0 percent, 9.9 percent, and 11.2 percent. 6. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 7. Consists of borrowings from other than comercial banks in the fore of federal funds purchased, securities sold under agreements to repurchase and other liabilities for borrowd money (including borrowings from the Federal Reserve and unaffiliated foreign banks), loans sold to affiliates, loan RPs and other minor item. Data are partially estimated. 8. Consists of Treasury demand deposits at cmercial banks and Treasury note balances. P-preliminary. -3COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)1 1982 1983 1982 Q4 1983 Q1 Q2P ----------------------1. Total loans and securities 2 at banks Securities Treasury securities Other securities Total loans 2 2 Business loans Security loans 11. 12. Commercial May JuneP Bank Credit ----------------------- 9.8 8.7 9.8 1490.4 25.1 24.0 22.2 18.9 447.6 6L.1 53.8 54.0 37.6 171.3 5.7 5.6 2.5 6.4 246.3 5.7 4.6 3.8 6.2 1072.8 3.9 -1.6 -11.3 5.6 396.9 -34.0 -5.3 15.9 -56.4 22.3 Real estate loans 7.2 9.8 7.4 13.4 317.1 Consumer loans 6.5 9.9 7.4 10.3 199.6 Total short- and intermediateterm business credit (sum of lines 14, 15 and 16) -2.9 Business loans net of bankers acceptances Sum of -10.4 n.a. n.a. -0.7 -11.3 3.0 6.3 -22.7 -27.7 -46.5 44.9 -0.5 -3.1 -13.3 -1.9 433.8 -4.8 0.2 -2.6 -13.6 -15.2 4.0 .6 Commercial paper issued by non3 financial firms -39.6 -4.5 lines 11 & 12 Line 13 plus loans at foreign 4 branches 5 15. Finance company loans to business 16. Total bankers acceptances outstanding5 Short- and Intermediate-Term Business Credit ------------ 22.9 -3.3 3.5 -33.1 -30.9 n.a. n.a. n.a. 5.9 -8.4 in June 1983P 10.7 -----------10. Apr. Levels bil. of dollars n. a. 388.9 450.6 n.a. n.a. 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, unconsolidated nonbank affiliates of the bank, the bank's holding company (if not a bank), and unconsolidated nonbank subsidiaries of the holding company. 3. Average of Wednesdays. 4. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 5. Based on average of current and preceding ends of month. n.a.--not available. p--Preliminary, based on data through June 29 for Large banks and U.S. branches and agencies of foreign banks, and data through June 22 for other banks. SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) 1982 FOMC highs Dec. 21 1983 Recent FOMC low May 24 July 7 Change from: Recent FOMC low May 24 Short-term rates Federal funds 2 15.61 8.69 8.48 8.72 9.39 Treasury bills 3-month 6-month 1-year 14.57 14.36 13.55 7.90 8.01 8.11 7.96 7.97 7.95 8.47 8.48 8.47 9.10 9.27 9.33 1.14 1.30 1.38 Commercial paper 1-month 3-month 15.73 15.61 8.48 8.43 8.17 8.13 8.48 8.52 9.15 9.22 .98 1.09 15.94 16.18 8.59 8.62 8.78 8.26 8.26 8.29 8.64 8.73 8.95 9.32 9.49 9.86 1.06 1.23 1.57 16.36 16.53 9.44 9.56 8.68 8.71 8.96 9.14 9.58 9.79 .90 1.08 17.00 11.50 10.50 10.50 10.50 13.97 13.55 8.63 9.32 7.99 8.37 8.72 9.15 9.43 9.84 1.44 1.47 U.S. Treasury (constant maturity) 15.16 3-year 10-year 14.95 30-year 14.80 9.87 10.54 10.53 9.36 10.12 10.27 9.91 10.56 10.69 10.74 11.29 11.31 1.38 1.17 1.04 Municipal (Bond Buyer) 13.44 10.054 8.78 Corporate--Aaa utility Recently offered 16.34 1 1 .9 6 e 11.03 17.66 1982 13.63.1 12.55 Large negotiable CDs 3 1-month 3-month 6-month Eurodollar deposits 2 1-month 3-month Bank prime rate Treasury bill futures Sept. 1983 contract Mar. 1984 contract 16.14 .62 .65 0 .71 .69 Intermediate- and longterm rates S&L fixed-rate mortgage commitment lows FOMC May 24 9.294 11 9.55 .5 5 e 12.28P 1.25 .52 .53 12.555. 13.085. Percent change from: 1983 FOMC 1982 May 24 lows July 7 Stock prices -. 71 1210.44 35.81 Dow-Jones Industrial 1219.04 776.92 1.67 95.58 97.20 39.51 58.80 NYSE Composite 7.13 51.95 246.91 229.30 'EX Composite 118.65 3.96 50.27 320.03 159.14 SDAQ (OTC) 307.36 4. One-day quotes for preceding Thursday. . One-day quotes except as noted. 2. Averages for statement week closest to date shown. 5. One-day quotes for preceding Friday. p--preliminary. e--estimated. 3. Secondary market.
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