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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 7, 1980 SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS Page Producer prices . . . . . Employment and earnings . . . . .... . . . . . . . . . . . . . . .1 .. .. . 2 Interest rates on S&L new commitments for home mortgages 3 3 Wholesale trade inventories and sales . . . ERRATA . . . . . . . . . . . . .. . . . . . . . . . 3 TABLES: Recent changes in producer prices . . . . . . . . . . . Hourly earnings index . . . . . . . . Changes in employment Selected Financial Market Quotations Monetary aggregates . . . . . . . . . . . . . . . . . . . . . . .. . . . 5 . . . . . . . . . . . . .... Commercial Bank Credit and short- and intermediateterm business credit . . . . .. . .. 6 . 7 8 9 10 SUPPLEMENTAL NOTES Producer prices Producer prices of finished goods rose 0.8 percent in June, following an 0.3 percent increase in May. In June, a decline in energy prices was more than offset by advances in prices for food, consumer durable goods, and capital equipment. The index for consumer finished goods other than food and energy rose 1.1 percent, following the 0.4 percent advance in May; the June increase in prices of nonfood, nonenergy consumer finished goods was especially large for gold jewelry, apparel, and passenger cars. Prices of capital equipment increased 0.9 percent in June, about the same as the average monthly increase in the first five months of the year, although they were unchanged in May; increases in these capital goods prices were large for photographic equipment, machine tools, oil field and mining equipment, and office and store machinery. The 0.7 percent increase in finished food prices, following a 0.1 percent rise in May, reflected primarily a surge in prices of beef and veal. Prices of intermediate materials also posted an 0.8 percent increase, with prices of durable manufacturing materials and many construction supplies registering large increases. prices were up only 0.3 percent. At the crude level -2- Employment and earnings Labor demand deteriorated in June for the fourth consecutive month. Nonfarm payroll employment fell about 500,000, bringing the cumulative decline since February to more than 1 million. As in earlier months, payroll reductions were heaviest in manufacturing; however, employment in the service-producing sector as a whole also dropped 135,000--the first monthly decline since the 1974-75 recession. Within manufacturing, sizable job losses occurred at the primary and fabricated metals, machinery, electrical equipment, furniture, and stone, clay, and glass products industries. Construction employment resumed its downward trend after changing little in May, and trade establishments cut payrolls for the fourth consecutive month. The factory workweek was off another 0.2 hour; since January work schedules have shortened by nearly 1-1/4 hours. Total employment, as measured by the household survey, also declined about 1/2 million in June. A large drop in the labor force offset most of the exceptional increase in May, and this was partially reflected in a decline in unemployment; the unemployment rate remained essentially unchanged at 7.7 percent. (The pattern of changes in the labor force, and unemployment, in May and June appears to reflect problems in seasonal adjustment associated with the entry of younger workers into the work force.) changed very little. Jobless rates for most worker groups However, in spite of the stability in the overall unemployment rate, the decline in employment has continued and the number of persons on layoff as well as those whose jobs have been terminated have risen further. The index of average hourly earnings increased 1 percent in June to a level 9.4 percent above one year ago. The second quarter increase in this series was 9.6 percent at an annual rate. Interest rates on S&L new commitments for home mortgages The average contract interest rate on new commitments for conventional home mortgages at sampled S&Ls declined 17 basis points further in the week ended July 3 to 12.18 percent, a rate 417 basis points below the high last spring. Seventy-two percent of the reporting S&Ls indicated that the supply of mortgage funds was below normal seasonal patterns, compared with the recent high of 93 percent. Wholesale trade inventories and sales The book value of wholesale trade inventories declined at an annual rate of $4.3 billion in May, following a $12.3 billion rate buildup in April. The rate of inventory increase in these two months combined was considerably below the rate of accumulation in recent quarters. The drop in stocks held by wholesalers in May was accom- panied by a 0.6 percent decline in sales, and the inventory-sales ratio was unchanged at 1.21. ERRATA: Part I, page 1-20. Second full paragraph: Delete "at large banks" in next to last line. Part I, page 1-21. Third line should read "was nearly offset by a drop in money market certificates--and large CDs declined." -4Part II, page III-6. The figures "14-1/2" in the last line should be "41-1/2." RECENT CHANGES IN PRODUCER PRICES (Percentage change at annual rates; based on seasonally adjusted data) 1/ Relative 1980 importance2/ Dec. 1979 1978 1979 91 Q2 June 100.0 24.3 47.4 10.3 37.0 28.4 9.2 11.9 8.4 8.0 8.5 8.0 12.6 7.6 18.0 62.7 9.6 8.8 18.9 -1.2 34.2 109.2 17.4 12.7 6.3 -7.8 10.6 17.1 8.3 11.7 9.5 8.5 8.7 -7.0 13.2 10.7 Intermediate materials3/ Exc. food and energy 94.9 81.3 8.3 8.9 16.5 13.0 23.1 17.2 5.2 5.1 10.0 11.2 Crude food materials Crude nonfood Exc. energy 55.4 44.6 16.0 18.3 15.6 21.0 11.1 26.0 13.1 -16.7 21.4 6.6 -10.5 -3.5 -37.5 Finished goods Consumer foods Consumer nonfood Energy Exc. energy Capital equipment 13.3 -5.6 -44.4 1. Changes are from final month'of preceding period to final month of period indicated. Changes for other than monthly and yearly periods are compounded. 2. Relative importance weights are on a stage of processing basis. 3. Excludes intermediate materials for manufacturing food and animal feed. CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data) 1978 1980 1979 May Q2 Q1 June - - - Average monthly changes - - - Nonfarm payroll employment 2 Strike adjusted 357 341 176 182 155 158 -352 -378 -349 -405 -514 -522 Manufacturing Durable 74 62 1 4 -15 0 -323 -267 -360 -303 -313 -234 Nondurable 12 -3 -15 -56 -57 Construction 31 20 -29 -51 -26 -64 -110 -79 182 113 144 -37 35 Private nonfarm production workers Manufacturing production workers 264 54 112 -11 55 -35 -424 -518 -395 -369 -479 -886 Total employment 3 Nonagricultural 270 264 173 175 -85 -85 -373 -317 -166 -303 -451 -263 Trade, finance and services 1. Changes are from final month of preceding period to final month of period indicated 2. Survey of establishments. Not strike adjusted, except where noted. 3. Survey of households. SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data) 1978 1980 1979 Ql Q2 May June Total, 16 years and older 6.0 5.8 6.1 7.5 7.8 7.7 Teenagers 20-24 years old Men, 25 years and older 16.3 9.5 3.3 16.1 9.0 3.3 16.2 9.8 3.7 18.0 11.4 4.7 19.2 12.7 5.3 18.5 12.4 5.5 5.1 4.8 4.9 5.7 5.6 White Black and other 5.2 11.9 5.1 11.3 5.4 11.7 6.6 13.4 6.9 13.9 6.8 13.6 Fulltime workers 5.5 5.3 5.7 6.6 7.5 7.4 White collar Blue collar 3.5 6.9 3.3 6.9 3.4 7.9 3.7 9.7 3.9 11.3 3.7 11.5 Women, 25 years and older 5.5. HOURLY EARNINGS INDEX 1 (Percent change at compound annual rates; based on seasonally adjusted data) 2 1980 Total private nonfarm Manufacturing Durable Nondurable Contract construction Transportation and public utilities Total trade Services 1978 1979 8.4 8.1 9.8 9.6 9.7 11.9 8.4 8.5 8.3 7.6 8.7 8.7 8.8 6.8 9.9 10.7 8.6 5.0 12.2 13.0 10.4 8.4 12.1 12.8 10.8 4.1 12.7 14.1 10.1 5.6 7.4 9.6 7.6 9.1 7.6 7.7 7.7 12.2 8.8 8.9 6.3 10.2 5.5 8.9 13.4 10.0 8.4 15.9 Ql Q2 May June 1. Excludes the effect of interindustry shifts in employment and fluctuations in overtime pay in manufacturing. 2. Changes are from final quarter of preceding period to final quarter of period indicated, except monthly changes which are from preceding month; monthly changes are not compounded. SELECTED FINANCIAL MARKET QUOTATIONS (Percent) 19791 FOMC Oct. 5 __ ! 1980L Mar-Apr FOMC Intermeeting High May 20 Low ** July 7 Change from: s_ FOMC Mar-Apr High May 20 Short-term rates Federal funds 2 11.91 19.39 10.71 8.99 9.56 p -9.83 Treasury bills 3-month 6-month 1-year 10.70 10.63 10.28 16.00 15.64 14.58 8.29 8.31 8.38 6.18 6.60 7.00 8.24 8.19 7.99 -7.76 -7.45 -6.59 11.73 11.86 11.84 18.00 17.69 17.25 9.71 9.62 9.38 7.98 7.78 7.59 8.68 8.44 8.17 -9.32 -9.25 -9.08 -1.03 -1.18 -1.21 12.09 12.50 12.80 17.87 18.59 18.47 9.84 9.83 9.80 7.96 7.90 7.66 8.57 -9.30 -10.00 -9.93 -1.27 -1.24 -1.26 Eurodollar deposit2 1-month 3-month 12.45 12.79 19.04 19.60 10.26 11.09 8.88 8.99 9 -9.96 -10.31 -1.18 -1.80 Bank prime rate 13.50 20.00 16.50 11.50 11.50 -8.50 -5.00 10.01 9.60 9.36 14.53 13.65* 12.85* 9.23 10.22 10.47 8.56 9.47 9.49 9.15 10.20 10.22 -5.38 -3.45 -2.63 -.08 -.02 -.25 6.64 9.44 7.44 7.44 7.88 -1.56 .44 Corporate Aaa New issue5 Recently offered 10.22 10.25 14.22 14.12 11.43 11.65 10.53 10.79 1.51p 11.1 7 p -2.71 -2.95 .08 -.48 Primary conventional mortgages 6 11.35 16.35 14.15 12.18 12.18 -4.17 -1.97 Mar-Apr FOMC Intermeeting July 7 Low May 20 High Mar-Apr Low FOMC May 20 898.21 67.58 309.89 163.63 139.08 12.28 94.20 39.54 65.70 6.23 50.16 16.70 Commercial paper 1-month 3-month 6-month Large negotiable CDs 1-month 3-month 6-month -1.15 -.05 -.12 -.39 3 8.59 8.54 .08 p 9.29 p ermediate- and long- m rates U.S. Treasury (constant maturity) 3-year 10-year 30-year Municipal 4 (Bond Buyer) FOMC Oct. 5 Stock prices Dow-Jones Industrial NYSE Composite AMEX Composite NASDAQ (OTC) 897.61 63.39 235.15 152.29 759.13 55.30 215.69 124.09 832.51 61.35 259.73 146.93 881.91 66.36 297.60 159.18 1. One-day quotes except as noted. verages for statement week closest to date shown. Secondary market. 4. One-day quotes for preceding Thursday. 5. Averages for preceding week. 6. One-day quotes for preceding Friday. *--Highs reached on February 26. **-Most lows occurred on or around June 13. -9MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1 1981Q 1979 Q4 e Ql Q2 e Apr. May June June '79 to e June '80 ---- Percentage change at annual rates --Money stock measures 1. M-1A 2. M-1B 2. M-2 4. M-3 4.5 4.8 -3.7 5.0 5.9 7.2 7.7 -17.7 -14.1 -2.0 0.4 0.7 -1.2 8.8 8.7 13.7 16.8 17.3 12.4 3.5 4.7 8.1 8.7 Selected components 8.5 8.3 7.4 1.1 5. Currency -25.4 3.4 -8.0 2.9 6. Demand deposits 66.7 12.6 29.3 31.8 7. Other checkable deposits, NSA 2 7.6 7.9 2.1 7.8 8. M-2 minus M-1B (9+10+11+14) -7.5 -73.6 -209.8 Overnight RPs and Eurodollars, NSA 3 -33.1 9. 79.4 4.0 149.9 Money market mutual fund shares, NSA 120.0 10. 14.1 9.8 8.6 6.9 11. Commercial banks -43.3 -19.3 -22.8 -16.5 12. savings deposits 29.1 34.1 54.4 32.1 13. small time deposits 1.7 14. Thrift institutions 3.7 -0.3 3.6 -45.4 -26.0 -22.5 -28.7 15 savings deposits 24.7 12.0 20.0 22.3 16 small time deposits 17.7 28.3 17.5 10.6 17. Large time deposits 9.5 7.4 15.9 at commercial banks, net 4 18 20.2 28.2 90.8 72.6 28.9 at thrift institutions 19. -8.9 -16.0 -33.2 -19.5 20. Term RPs, NSA 12.1 -4.2 -37.9 12.2 70.9 95.0 5.6 -7.5 14.1 7.0 -20.9 19.8 9.3 4.8 34.4 0.0 10.9 14.9 78.3 17.5 -33.5 141.3 11.2 32.2 -2.2 8.4 6.1 9.5 -24.5 -28.9 0.0 49.1 9.1 1.3 34.2 9.2 -24.3 197.2 9.3 -12.6 30.8 3.3 7.1 9.1 -Average MEMORANDA: 21. Managed liabilities at commercial banks (22+23) 22. Large time deposits, gross 23. Nondeposit funds 24. Net due to related foreign institutions, NSA Other 5 25. 26. U.S. government deposits at commercial banks6 -2.2 5.3 5.6 -18.6 17.3 17.1 10.3 76.0 -60.0 monthly change in billions of dollars-- 8.0 3.1 4.9 -8.2 -0.1 -8.1 -6.0 1.7 3.2 -9.2 -2.4 1.7 -4.1 -16.1 2.0 -3.6 -5.1 -11.0 2.2 -2.5 -1.1 1.6 3.2 -6.1 -2.0 -6.0 -3.1 -3.7 -0.5 -8.5 -2.5 -1.0 0.5 -1.0 -0.2 0.3 -0.9 -0.1 -1.6 -0.5 1. Quarterly growth rates are computed on a quarterly average basis. 2. Consists of ATS and NOW balances at all institutions, credit union share draft balances, and demand deposits at mutual savings banks. 3. Overnight and continuing contract RPs issued to the nonbank public by commercial banks, net f amounts held by money market mutual funds, plus overnight Eurodollar deposits issued by Ca an branches of U.S. member banks to U.S. nonbank customers. 4. of large denomination time deposits held by money market mutual funds and thrift in itions. 5. unsists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase and other liabilities for borrowed money (including borrowings from the Federal Reserve), loans sold to affiliates, loans RPs, and other minor items. 6. Consists of Treasury demand deposits at commercial banks and Treasury note balances. e--estimated. -10COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT Percentage changes at annual rates, based on seasonally adjusted data) 1 1979 Q4 '79 June to 1 gRO Q Q2 Apr. May Junee June '8 0 e ---------- Commercial Bank Credit 1. 2. Total loans and investments at banks2 Investments 3.4 11.5 -4.7 -4.3 -6.1r -3.8 -3.8 6.6 6.6 3.5 7.3 10.6 -4.5 20.3r 15.9 7.7 18.Or 27.9 2.1 3. Treasury securities 5.9 3.0 9.7 -16.5 4. Other securities 8.3 9.4 11.0 1.2 21.4 10.2 10.6 3.4 12.8 -9.8 -4.2 -15.Or -10.4 6.2 5. Total loans 2 6. Business loans 6.0 16.4 -8.3 -5.1 -13.9r -6.0 9.4 7. Security loans -E 8.5 -32.8 -23.8 -21.4 -50.9r 0.0 -31.3 8. Real estate loans 2.4 -2.9 10.8 9. Consumer loans n.a. n.a. 14.2 11.9 0.6 2.4 5.5 3.7 n.a. -14.3 Short- an i Intermediate-Term BusJiness Credit -- -10. 11. 12. Total short- and intermediateterm,business credit (sum of lines 13,14 and 15) Business loans net of bankers acceptances 1 Commercial paper issued by nonfinancial firms3 6.4 22.0 n.a. 0.3 n.a. n.a. 6.3 17.6 -9.2 -4.9 -16.3r -6.6 15.5 76.2 85.7 37.7 119.7 84.6 -0.4 -1.4 13. Sum of lines 11 & 12 7.0 23.1 0.8 14. Finance company loans to business 4 4.0 -2.8 n.a. 0.0 4.6 54.1 n.a. 4.8 15. -23.1 n.a. 9.2 76.3 4,.4 14.8 n.a. n.a. n.a. n.a. n.a. n.a. Total bankers acceptances outstanding4 1. Average of Wednesdays for domestic 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. . Average of Wednesdays. 4. Based on average of current and preceding ends of months. e--estimated. n.a.--not available. r--revised.
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