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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 III - FOMC July 13, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1984 TABLE OF CONTENTS Page THF DOMESTIC NONFINANCIAL ECONOMY Industrial Production. . . . . . . . . Industrial production . . . . . . . 1 TABLE: . . . . . . . . . . . . . . . . . . . Producer Price Index . . . . . . . . Retail Sales . . . TABLE: Retail sales . . . . . . . . Personal income and expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TABLE: Recent changes Errata . . . . . . in . . producer prices . . . . . . . . TABLE: THE DOMESTIC FINANCIAL ECONOMY TABLES: Monetary aggregates . . . . . .. . . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit. . . . . . . . . . . . . . . Selected financial market quotations. . . . . . . . . . . . . . . . . INTERNATIONAL DEVELOPMENTS Errata . . . . . . . . . . . . . . . . . . . . . . . . . 1 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Industrial Production Industrial production increased an estimated 0.5 percent in June following a 0.4 percent rise in May. year had averaged 1 percent per month. largest for equipment, Production advances earlier in the June production gains were energy and autos, which rose 2-1/2 percent to an annual rate of 7.8 million units. Output of steel dropped nearly 3 percent and production of construction supplies was off 0.3 percent. By industry grouping, manufacturing output rose 0.4 percent, while coal mining and oil and gas well drilling were up sharply and unusually hot weather resulted in strong demand for electricity in June. INDUSTRIAL PRODUCTION (Percentage change from preceding period; based on seasonally adjusted data) 1984 Apr. QQ2 Q ----- Annual rate----- June -- Monthly rate-.9 .4 .5 8.0 6.1 -0.9 9.1 9.0 14.4 1.0 .8 -. 4 1.3 .8 2.1 .6 .4 -. 2 .6 1.1 .6 .6 .4 .6 .4 .9 .8 14.8 6.5 .5 -. 1 -. 3 12.3 20.6 0.5 10.9 8.8 11.5 6.6 5.0 .9 1.3 .1 .8 .1 .1 .4 -. 2 .6 .4 .3 1.4 11.5 8.0 Final products Consumer goods Durable Nondurable Business equipment Defense and space equipment 11.9 7.4 16.0 4.1 19.1 17.4 Construction supplies Materials Durable goods Nondurable goods Energy materials Total 1984 May 3 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Retail Sales Retail sales increased 0.8 percent in June, and the estimated gains for April and May were revised upward. All major types of stores except gasoline stations contributed to the June advance. Sales excluding automotive, gasoline and nonconsumer stores rose 0.7 percent, led by a 2.9 percent advance in spending for such largely discretionary goods as general merchandise, apparel, and furniture and appliances--the GAF grouping of stores. percent. For the second quarter as a whole, sales were up 2.7 Spending at the automotive group increased 4.4 percent and expenditures for food rose 2.0 percent. The 3.8 percent quarterly increase in GAF sales was the largest since the first quarter of 1981. RETAIL SALES (Percent change from previous period; based on seasonally adjusted data) Q1 Q2 1984 Apr. 2.9 3.5 2.7 2.5 3.0 1.6 GAF2 1983 Q4 May June 3.5 .5 .8 -- 3.5 .4 3.0 2.2 2.7 .1 .7 3.3 3.2 3.8 4.0 .3 2.9 Durable Automotive group Furniture & appliances 6.8 9.4 3.4 5.1 5.7 3.5 4.1 4.4 4.3 6.0 7.6 4.6 .9 1.2 -2.2 2.1 2.6 6.3 Nondurable Apparel Food General merchandise 3 Gasoline stations 1.0 4.2 .1 2.9 -.7 2.7 2.4 2.2 3.4 .3 2.0 6.1 2.0 2.8 2.1 2.2 4.0 2.1 3.7 .3 .3 .4 -.6 1.2 1.9 .1 2.2 .4 1.9 -1.5 Total sales (Real) 1 Total, less automotive, gasoline and nonconsumer stores 1. BCD series 59. Data are available approximately 3 weeks following the retail sales release. 2. General merchandise, apparel, furniture and appliance stores. 3. General merchandise excludes mail-order nonstores. 5 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Producer Price Index Producer prices of finished goods were unchanged in June for the third month, as the food and gasoline indexes fell. Prices of goods other than food and energy advanced 0.2 percent-similar to the average monthly pace over the past year--with the indexes for most consumer items little changed, or even down. Prices of capital equipment were unchanged in June, and were only about 2-1/2 percent above their year-earlier level. Finished food prices fell 0.6 percent in the June PPI, as major declines were posted for meats, poultry, fish, and eggs. At the farm level, the index for crude foods also fell for the third month, with notable declines for livestock and oilseeds. However, developments in commodity markets since the PPI pricing date show livestock prices turning up. At earlier stages of processing, prices of intermediate materials less food and energy rose 0.3 percent in June after two months of little change. Although the index for crude nonfood materials excluding energy posted another large rise in June, the recent increases may reflect in part seasonal adjustment difficulties. RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data) Relative Importance Dec. 1983 1983 1983 Q4 1984 Q Q2 -- Annual rate-Finished goods Consumer foods Consumer energy Other consumer goods Capital equipment 1 May 1984 June --Monthly rate-- 100.0 24.0 12.0 41.9 22.2 .6 2.3 -9.2 1.9 1.9 1.1 5.8 -10.4 1.5 1.8 6.0 17.4 -7.2 4.7 4.3 -. 3 -8.9 8.5 1.1 2.2 .0 -1.2 .5 .1 .2 .0 -. 6 -. 2 .3 .0 Intermediate materials 2 Exc. energy 94.8 79.5 1.5 3.0 2.5 4.1 2.6 3.5 3.6 2.1 .3 .1 .5 .3 Crude food materials Crude energy Other crude materials 52.8 31.3 15.9 8.0 -4.6 15.5 12.1 -2.3 2.4 13.7 -1.3 -9.2 -22.1 3.8 30.0 -2.7 .4 2.6 -2.3 .2 1.2 1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds. 7 ERRATA As a result of a word-processing error, one column of data from the table on page II-5 of the Greenbok was omitted. shown on the next page. A corrected table is PFRSONAL INCOME AND EXPENDITURES (Based on seasonally adjusted data) 1983 Q4 ~ 1984 Q1 May -- Percent change from previous Quarter1-Total personal income Nominal Real 2 Disposable personal income Nominal Real 2 Personal saving rate (percent) Mar. 1984 Apr. May - -Percent change from previous month 1-- 11.1 13.5 8.1 9.4 7.4 n.a. 6.4 2.0 11.0 8.0 14.1 10.0 7.2 n.a. 7.2 2.4 6.9 5.2 6.3 5.2 5.9 n.a. 6.6 5.7 5.2 -- Changes in billions of dollars from previous quarter-- 7.2 -- Changes in billions of dollars from previous month-- Total expenditures 49.8 55.3 56.9 5.4 36.1 24.5 Durables New autos Personal-use trucks Furniture & appliances 15.8 4.2 2.5 4.7 16.5 6.3 .7 4.2 16.2 4.5 3.6 3.3 -2.0 -2.7 3.2 -. 2 7.1 -. 6 1.6 3.9 13.6 7.9 .4 .5 Nondurables Food Apparel 10.2 4.2 5.5 18.2 9.3 3.4 18.4 7.9 8.1 -2.2 -4.3 -2.1 20.2 13.4 4.8 4.0 -. 2 4.3 Services 23.8 20.6 22.2 9.6 8.8 6.9 1. Changes from previous quarter are at compound rates; monthly changes are not compounded. 2. Personal income is deflated by the implicit deflator for personal consumption expenditures. 9 MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1983 Q3 1. 2. 3. 1984 Q4 ----- July 13, 1984 1 Q1 Q2 May June Growth from Q4 1983 to June 1984 Percentage change at annual rates ---- Ml M2 M3 6.1 6.9 10.2 12.8 8.7 11.3 11.5 7.3 8.6 Levels in billions of dollars June 1984 Selected components 4. Currency 9.1 9.7 8.7 7.2 8.7 10.2 154.2 5. Demand deposits 4.0 -0.5 1.2 3.6 -0.5 15.7 248.4 6. Other checkable deposits 21.2 9.6 16.2 9.6 41.4 7.0 138.6 7. M2 minus M12 6.1 9.7 6.9 7.2 7.5 5.9 1726.6 -8.1 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA -13.1 Commercial banks 12.2 Savings deposits, SA, plus 4 11.0 MMDAs, NSA 13.7 Small time deposits Thrift institutions 7.3 Savings deposits, SA, plus 4 MMDAs, NSA 1.0 Small time deposits 12.3 23.4 19.3 -6.1 39.7 -48.6 56.9 -1.2 12.4 9.8 5.4 15.3 6.6 3.3 4.9 18.9 8.7 148.7 738.2 5.9 19.3 7.3 6.5 4.4 6.4 -4.8 15.2 6.6 1.0 16.6 7.8 372.8 365.4 789.6 -7.0 18.8 -0.9 11.8 2.2 9.6 -1.8 12.7 -9.2 19.9 324.8 464.8 9.8 15.8 17.6 24.4 21.5 14.2 563.5 11.9 -4.6 63.5 15.7 -0.4 58.1 24.8 10.0 59.0 30.6 23.5 44.9 38.1 36.6 40.2 34.7 26.6 51.5 377.6 248.9 128.7 -17.8 15.2 -1.7 16.6 50.0 -3.9 10.9 18.4 5.7 6.8 38.1 3.9 5.7 28.1 6.4 8.6 -54.9 -54.7 42.3 58.4 90.1 3 8. 9. 10. 11. 12. 13. 14. 15. 16. M3 minus M2 5 Large time deposits 6 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA -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 Other 27. Average monthly change in billions of dollars -- -2.6 -2.0 -0.6 5.3 0.1 5.2 1.3 -2.0 3.2 2.1 2.0 0.6 0.9 -1.9 15.5 10.5 5.0 -1.8 9.7 -11.5 417.7 312.5 105.2 5.3 -0.2 -5.6 -5.9 -34.1 139.3 U.S. government deposits at commercial 8 12.9 0.7 -1.3 -3.7 -1.2 1.2 1.0 banks Dollar amounts shown under memoranda for quar1. Quarterly growth rates are computed on a quarterly average basis. terly changes are calculated on an end-month-of-quarter basis. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. 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. 4. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Commercial bank savings deposits excluding MMDAs declined during May and June at rates of 3.7 and 1.9 percent institutions, savings deposits excluding MMDAs increased in May at a rate of 1.4 percent and At thrift respectively. decreased in June at a rate of 2.7 percent. 5. The non-M2 component of M3 is seasonally adjusted as a whole. institutions. 6. Net of large-denomination time deposits held by money market mutual funds and thrift 7. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase and other liabilities for borrowed money (including borrowings from the Federal Data are partially Reserve and unaffiliated foreign banks), loans sold to affiliates, loan RPs and other minor items. estimated. 8. Consists of Treasury demand deposits at commercial banks and Treasury note balances. 28. COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT 1 (Percentage changes at annual rates, based on seasonally adjusted data) 1983 Q4 Q1 Q2 ----------------------1. 2. Total loans and securities 3 at banks Securities 3. Treasury securities 4. Other securities 5. Total loans 3 3 19842 Apr. May JuneP Levels in bil. of dollars JuneP Commercial Bank Credit ---------------------- 12.4 14.5 7.8 5.8 14.9 2.4 1658.4 10.8 4.4 -7.5 -10.3 2.5 -14.8 431.7 25.1 -1.9 -7.9 -7.7 10.3 -26.2 183.4 0.6 9.2 -7.1 -11.8 -3.8 -5.7 248.3 12.9 18.3 13.3 11.7 19.3 8.4 1226.7 10.1 18.8 16.5 8.5 27.7 12.7 455.1 6. Business loans 7. Security loans 60.8 0.0 -32.2 -17.6 26.8 -104.7 25.1 8. Real estate loans 10.3 14.5 14.5 13.2 14.0 15.9 359.3 9. Consumer loans 22.1 22.1 20.2 22.4 22.5 244.2 22.3 -------- Short- and Intermediate-Term Business Credit ---------- Business loans net of bankers acceptances 10.6 18.1 16.7 8.2 27.5 13.7 445.5 by nonCommercial paper issued 4 financial firms 25.9 20.1 67.1 88.6 35.7 67.1 58.5 12. Sum of lines 10 & 11 11.8 18.3 21.9 16.6 28.2 19.8 504.0 13. Line 12 plus5 loans at foreign branches 12.2 18.1 22.2 17.9 29.2 18.3 524.2 29.0 28.8 n.a. 7.2 7.2 n.a. n.a. 18.9 -22.2 n.a. 54.1 61.2 n.a. n.a. 15.3 14.9 n.a. 20.2 29.5 n.a. n.a. 10. 11. 14. 15. 16. Finance company loans to business 6 Total bankers acceptances outstanding Total short- and intermediateterm business credit (sum of lines 13, 14 and 15) 6 p--preliminary n.a.--not available. 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Growth rates beginning 1984 have been estimated after adjusting for major changes in reporting panels and definitions that caused breaks in series at the beginning of January. Data should be regarded as highly preliminary. 3. 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. 4. Average of Wednesdays. 5. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 6. Based on average of current and preceding ends of month. SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) 1981 Cyclical peak 1983 Cyclical low Federal funds 2 20.06 8.42 9.41 9.75 11.25 1.84 1.50 Treasury bills 3-month 6-month 1-year 17.01 15.93 15.21 7.55 8.89 7.62 8.97 7.73 9.00 10.04 10.50 10.70 10.03 10.57 10.96 1.14 1.60 1.96 -.01 .07 .26 Commercial paper 1-month 3-month 18.63 18.29 8.00 7.97 9.14 9.13 10.16 10.52 11.12 11.23 1.98 2.10 .96 .71 Large negotiable CDs 3 1-month 3-month 6-month 18.90 19.01 18.50 8.08 8.12 8.20 9.23 9.31 9.43 10.47 11.10 11.80 11.28 11.56 12.18 2.05 2.25 2.75 .81 .46 .38 Eurodollar deposits 2 1-month 3-month 19.80 19.56 8.68 8.71 9.53 9.70 10.73 11.58 11.69 12.13 2.16 2.43 .96 .55 Bank prime rate 21.50 10.50 11.00 12.50 13.00 2.00 .50 8.71 10.86 9.57 10.79 11.29 12.68 10.74 12.68 1.17 1.89 -.55 .00 9.33 10.12 10.27 10.88 11.66 11.74 12.86 13.52 13.53 13.19 13.42 13.20 2.31 1.76 1.46 .33 -.10 -.33 FOMC Jan. 30 1984 FOMC May 22 July 12 Change from: FOMC FOMC Jan. 30 May 22 Short-term rates Treasury bill futures - Sept 1984 contract c. 1985 contract Intermediate- and long-term rates U.S. Treasury (constant maturity) 16.59 3-year 15.84 10-year 15.21 30-year Municipal revenue (Bond Buyer index) 14.24 Corporate--A utility Recently offered Home mortgage rates S&L fixed-rate FNMA ARM. 1-yr. 9.21 9.954 10.824 10.88 18.33* 11.64 12.90e 1 4.90e 15.05e 2.15 18.63 N.A. 1982 12.55 10.49 13.295 11.405 14.045 13.005 14.665 13.705 1.37 2.30 Lows FOMC 1984 FOMC Jan. 30 May 22 1983 Highs .62 .70 Percent change from: FOMC FOMC July 12 Jan. 30 May 22 StocK prices 1104.57 -9.6 -1.1 776.92 1287.20 1221.52 1116.62 Dow-Jones Industrial -7.9 -2.0 88.43 86.64 58.80 99.63 94.12 NYSE Composite -4.8 -11.3 202.68 192.92 118.65 249.03 217.53 X Composite -2.7 240.80 234.22 -13.0 328.91 269.23 159.14 DAQ (OTC) Thursday. preceding for quotes One-day 4. ne-day quotes except as noted. Friday. preceding for quotes One-day 5. shown. 2. Averages for statement week closest to date p--preliminary. e--estimated. 3. Secondary market. *September average. PART II - INTERNATIONAL DEVELOPMENTS ERRATA In the table on page IV-19 entitled "Real GNP and Industrial Production in Major Industrial Countries", the entry for Japan's GNP growth in 19 8 3-Q4 should be .8 percent; percent. the entry for GNP growth for 1984-Q1 should be 1.8 In the table on page IV-20 entitled "Consumer and Wholesale Prices in Major Industrial Countries", the entry for percentage change in the Japanese CPI in 1984-Q2 should be .8 percent.
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