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Confidential (FR) Class II FOMC

May 13,

1981

SUMMARY AND OUTLOOK

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

DOMESTIC NONFINANCIAL DEVELOPMENTS

Summary
Incoming economic data have continued to suggest little growth on
balance over the past few months.

Industrial production rose somewhat

further in April, but payroll employment declined.

Total retail sales

in April fell one percent because of the slump in auto sales following
the end of temporary price concessions.

Meanwhile cost pressures remained

intense, but the rise in some price measures has been damped by developments in energy and food, and the weakness in the housing market.
Industrial production is tentatively estimated to have risen about
1/2 percent in April;

the coal strike had the effect of reducing the

level of the index by 0.3 percent.

Autos led the gain in production as

assemblies were increased by 5 percent to an annual rate of 6.8 million
units in April; however, this rate was considerably higher than the pace
of sales.

Other production increases were concentrated among hard goods

industries.
Total payroll employment dropped about 45,000 in April on a strikeadjusted basis, as job declines in construction and retail trade were
only partly offset by increases in services and manufacturing.

The rise

of 55,000 in factory employment occurred mainly at industries related to
capital goods and transportation equipment.
also edged up over the month.

The manufacturing workweek

The overall unemployment rate remained

at 7.3 percent as the household survey showed substantial increases in
both employment and the labor force.
Retail sales exclusive of automobiles and building supplies advanced
1.0 percent in April, following an upward revised 0.9 percent rise in
I-1

March.

Sales of apparel as well as furniture and appliances strengthened

in April, following weakness in previous months.

But domestic car sales,

at a 5.8 million unit annual rate in April, were off 1-1/2 million units
from the first-quarter average as the end of price concessions--as well
as actual price increases--depressed new car demand.

Sales of imported

cars also fell to an annual rate of 2.3 million units in April, 0.4 million
units below the first quarter average.
Business fixed investment outlays rose briskly in the first quarter.
Some additional near term gains in shipments are indicated by the strength
of orders for nondefense capital goods during recent months.

Nonresiden-

tial construction contracts fell, however, during the first quarter.
Moreover, for 1981 as a whole recent private surveys of capital spending
plans suggest that businesses plan only small increases in real spending
from 1980 levels.
Business on the whole has continued to maintain a cautious inventory
posture.

In constant dollars the overall ratio of inventory to sales

appears not to have changed significantly for a number of months.

In

March manufacturers'inventories increased at an annual rate of $25 billion
in book value terms, considerably less than in the two previous months.
At wholesalers, book-value inventories actually declined in March, in
large part due to a reduction in holdings by merchants of raw farm
products.

Data for retail trade stocks were not available in time for

this report.
Activity in the housing sector remained weak in March as mortgage
interest rates climbed further.

Housing starts continued at a 1-1/4

million unit annual rate, down from the 1-1/2 million rate that prevailed

I-3

around the turn of the year.

In March sales of new houses were nearly 6

percent below the fourth quarter pace and sales of existing homes were
down 16 percent.

The reduction in housing demand has been accompanied

by a smaller rate of increase in most measures of home prices, and an
actual decline in the CPI component for house prices.
In recent months, most aggregate measures of prices have shown some
moderation.

To a considerable extent, this reflected the end of the

surge of energy price increases following decontrol of domestic oil as
well as an improvement in agricultural supplies, possibly a temporary
improvement.
Outlook.

Underlying wage and price pressures remain intense.
The staff projects a rise of 1 percent in real GNP in the

second quarter, in contrast to the 6.5 percent
the first quarter of 1981.

(annual rate) increase in

Recent favorable developments, particularly

in energy markets, have lowered the staff's projection of inflation in
the current quarter; the GBP fixed-weighted price index is expected to
decelerate from 10-1/4 percent in the first quarter to 9-1/4 percent in
the second.
Personal consumption expenditures in this quarter are expected to
weaken in response to reduced auto sales and the slowing in income gains.
Housing starts are expected to remain at low levels throughout the
current quarter and outlays for residential construction are likely to
drop considerably, reflecting earlier declines in new housing starts.
Real business fixed investment is projected to continue advancing,
although not at the rapid pace of the first quarter.
The financial assumptions underlying the staff's economic projections continue to show M-1B growing 4-3/4 percent in 1981 and 4-1/4

percent in 1982 (after adjusting for the introduction of ATS and nationwide NOW accounts).

Our projection does not envision any sustained

easing of short-term interest rates from current levels over the remainder
of 1981 or in 1982.

These rates could well cause considerable strain in

many sectors in the economy, but we are not assuming major economic dislocations or financial disruptions.
In regard to fiscal policy, the staff has delayed by one quarter to
October 1st the start of the assumed 10 percent reductions in personal
income tax rates and in withholding schedules.
fiscal assumptions remain largely unchanged.

In other respects our
Mainly because of the timing

shift in the tax cut the estimate of the unified budget deficit for fiscal
year 1981 was reduced from $63 billion to $56 billion.

In fiscal year

1982, the deficit is estimated at $77 billion,about the same as previously.
Economic activity, on balance, is expected to grow very little over
the remainder of the forecast period given the restrictive financial
environment.

The sluggish growth in real activity is anticipated to

limit employment increases and to gradually boost the jobless rate to
about 8

percent by the end of 1982.

The recent moderation in price increases for energy is assumed to
continue for some time.

Food prices are still projected to rise rapidly

in the second half of this year, although by less than had been anticipated
earlier.

The higher value of the dollar in foreign exchange markets also

is expected to help ease the upward pressures on prices.

The staff's

projection of the GBP fixed-weighted price index has been lowered by
about 1/2 percentage point to a 9-1/4 percent increase over the four
quarters of 1981.

Labor cost pressures, however, are likely to remain

I-5

intense in the near term, resulting in a further squeeze on profit margins.
By 1982, the continued slack in both labor and product markets is anticipated to become an important damping factor in wage- and price-setting.
In addition, import competition should also be a restraining influence on
prices, and energy price increases are expected to remain relatively
moderate.

As a result, GBP prices are projected to decelerate to a

7-3/4 percent rate over the four quarters of next year.

STAFF GNP PROJECTIONS

Percent changes, annual rate

Nominal GNP
3/25/81 5/13/81

Real GNP
3/25/81 5/13/81

Gross domestic
business product
fixed-weighted
price index
Excluding food
Total
and energy
3/25/81 5/13/81 3/25381 5713/81

Unemployment
rate
(percent)
312581 513/81

Annual changes:
1979 1/
12.0
1980 T/
8.8
1981
11.5
1982
8.8

12.0
8.8
11.2
8.6

3.2
-. 2
1.9
.5

3.2
-. 2
2.3
.8

9.6
9.6
9.6
8.4

9.7
9.8
9.5
8.2

8.1
8.0
8.4
7.7

8.4
8.7
8.4
7.7

5.8
7.1
7.6
8.4

5.8
7.1
7.4
7.9

Quarterly changes:
1980-QL 1/
12.6
1980-Q2 T/
-1.1
1980-Q3 T/
11.8
1980-Q4 T/
14.9

12.6
-1.1
11.8
14.9

3.1
-9.9
2.4
3.8

3.1
-9.9
2.4
3.8

10.2
9.5
9.8
8.9

10.1
9.8
9.6
9.3

7.7
9.3
9.3
7.6

7.4
9.5
9.3
8.2

6.2
7.3
7.5
7.5

6.2
7.3
7.5
7.5

1981-Q1 1/
1981-Q2
1981-Q3
1981-Q4

15.5
9.0
9.5
9.6

14.9
9.2
8.4
10.0

5.8
.0
.8
.5

6.5
1.0
.3
1.5

10.5
9.6
9.3
8.9

10.2
9.3
8.9
8.6

8.3
8.6
8.1
7.9

7.5
9.2
8.3
7.7

7.4
7.5
7.7
7.9

7.4
7.3
7.4
7.5

8.4
8.0
8.2
9.7

7.8
7.7
8.7
9.4

.3
.3
.6
1.2

.2
.4
1.5
1.5

8.3
7.9
7.8
7.5

8.1
7.8
7.6
7.3

7.7
7.4
7.3
7.1

7.6
7.2
7.1
7.0

8.1
8.3
8.5
8.6

7.7
7.9
8.0
8.1

5.6
13.3
12.0
9.2
7.7
9.0

-3.6
3.1
2.9
.6
.3
.9

-3.6
3.1
3.7
.9
.3
1.5

9.8
9.4
10.0
9.1
8.1
7.7

9.9
9.5
9.6
8.7
7.9
7.5

8.5
8.5
8.6
8.0
7.5
7.2

8.4
8.8
8.4
8.0
7.4
7.0

1.4
.2
.0
.4
.4
.7

1.4
.2
-. 2
.2
.4
.2

1.7
-. 3
1.8
.6

1.7
-. 3
2.3
.9

9.4
9.6
9.6
7.9

10.3
9.7
9.2
7.7

7.2
8.5
8.3
7.3

8.2
8.6
8.2
7.2

.1
1.6
.4
.8

.1
1.6
.0
.6

1982-Q1
1982-Q2
1982-Q3
1982-Q4

2/
Two-quarter changes:
5.6
1980-Q2 1/
13.4
1980-Q4 T/
12.2
1981-Q2
9.5
1981-Q4
8.2
1982-Q2
9.0
1982-Q4

3/
Four-quarter changes:
9.9
9.9
1979-4 1/
9.4
9.4
1980-Q4 T/
10.6
1981-Q4
10.9
8.6
8.4
1982-Q4
1/

Actual.

2/

Percent change from two quarters earlier.
Percent change from four quarters earlier.

'/

May 13, 1981
CONFIDENTIAL - FR
CLASS II FOMC

GROSS NATIONAL PRODUCT AND RELATED ITEMS
(Quarterly figures are seasonally adjusted. Expenditures and income
figures are billions of current dollars at annual rates.)

1979
Q1

1980

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2496.3
2497.1
2000.7
1993.1

2571.7
2569.1
2052.3
2044.1

2564.8
2557.4
2027.4
2010.3

2637.3
2653.4
2119.9
2075.4

2730.6
2748.0
2189.4
2166.1

1631.0
882.0
749.0

1626.8
858.4
768.4

1682.2
883.0
799.2

1751.0
926.8
824.2

Gross national product
Final purchases
Private
Excluding net exports

2340.6
2316.2
1858.0
1838.1

2374.6
2341.5
1876.4
1868.2

2444.1
2430.8
1955.4
1937.5

Personal consumption expenditures
Goods
Services

1454.1
784.3
669.9

1478.0
793.8
684.2

1529.1
824.8
704.3

1582.3
855.3
727.0

Gross private domestic investment
Residential construction
Business fixed investment
Change in business inventories
Nonfarm

408.3
116.7
267.3
24.3
20.8

423.2
117.2
272.9
33.1
29.2

421.7
119.8
288.5
13.3
7.8

410.0
120.6
290.2

Net exports of goods and services 1/
Exports
Imports

19.9
259.1
239.2

8.2
266.8
258.6

Gov't. purchases of goods and services
Federal 2/
State and local

458.2
164.8
293.4

Gross national product in
constant (1972) dollar
Personal income
Wage and salary disbursements
Disposable personal income
Saving rate (percent)

-4.4

415.6
115.2
297.8
2.5
1.5

390.9
93.6
289.8
7.4
6.1

377.1
99.2
294.0
-16.0
-12.3

397.7
113.0
302.1
-17.4
-14.0

17.9
293.1
275.2

7.6
306.3
298.7

8.2
337.3
329.1

17.1
333.3
316.2

44.5
342.4
297.9

23.3
346.1
322.7

465.1
163.6
301.6

475.4
165.1
310.4

496.4
178.1
318.3

516.8
190.0
326.8

530.0
198.7
331.3

533.5
194.9
338.6

558.6
212.0
346.6

1479.9

1473.4

1488.2

1490.6

1501.9

1463.3

1471.9

1485.6

1864.6
1194.8
1580.2
5.3

1906.3
1218.6
1612.8
5.6

1972.3
1248.6
1663.8
5.4

2032.0
1282.2
1710.1
4.7

2088.2
1314.7
1765.1
4.9

2114.5
1320.4
1784.1
6.2

2182.1
1341.8
1840.6
6.1

2256.2
1397.8
1897.0
5.1

Corporate profits with I.V.A. and C.C. Adj
Corporate profits before tax

201.9
253.1

196.6
250.9

199.5
262.0

189.4
255.4

200.2
277.1

169.3
217.9

177.9
237.6

183.3
249.5

Federal government surplus or deficit (-)
(N.I.A. basis)
High employment surplus or deficit (-)

-11.5
-4.6

-8.1
5.1

-15.2
-2.3

-24.5
-7.1

-36.3
-17.1

-66.5
-21.5

-74.2
-21.2

-67.9
-13.4

29.5
7.1

21.9
-1.7

26.5
2.1

28.9
4.0

26.6
1.3

23.9
-1.7

28.6
.9

37.1
8.1

102.3
5.8

102.4
5.7

103.2
5.8

103.7
5.9

104.2
6.2

104.7
7.3

105.0
7.5

105.2
7.5

89.1
21.1

89.7
21.1

90.2
21.1

90.6
21.0

91.1
21.0

90.5
20.3

90.1
19.9

90.9
20.3

152.7
86.9
88.4

152.3
85.9
87.5

152.6
85.3
87.2

152.5
85.5

144.6
77.9
78.7

Housing starts, private (million units, A.R.) 1.64
New autos sales, (millions, A.R.)
11.56
Domestic models
9.30
2.25
Foreign models

1.84
10.65
8.16
2.49

1.79
10.79
8.63
2.16

1.23
10.65
7.87
2.77

1.06
7.68
5.53
2.14

State and local government surplus or
deficit (-) (N.I.A. basis)
Excluding social insurance funds
Civilian labor force (millions)
Unemployment rate (percent)
Nonfarm payroll employment (millions)
Manufacturing
Industrial production (1967=100)
Capacity utilization: all mfg. (percent)
Materials (percent)

1/
2/

-. 8

152.5
84.4
86.3
1.59
9.80
7.43
2.37

83.4

142.1
75.7
74.9
1.39
8.80
6.51
2.29

149.1
79.2
80.0
1.54
9.04
6.57
2.47

these estiates are shown in the Internationail evelopments section
Balance of payments data and edetal unrlyng
of this part of the Greenbook.
Components of purchases and total receipts and total expenditures are shown in the Federal Sector Accounts table
which follows.

May 13,
CONFIDENTIAL CLASS II FOMC

FR

1981

PERCENT CHANGES IN GROSS NATIONAL PRODUCT
AND RELATED ITEMS
(Annual rates compounded quarterly)

S Q

QI

1979

Q2

1980

Q2

Q3

Q4

Q

3.1
3.
2.2

Q3

Constant (1972) dollars
(Loss national product
Final purchases
Private
Excluding net exports

-1.7
-2.5
-3.0
-1,6

4.1
7.2
8.7
5.5

.6
2.9
2.2
1.9

Personal consumption expenditures
Goods
Services

-1.2
-4.6
3.0

4.7
6.0
3.1

3.6
4.2
2.8

-. 3

-9.9
-3.6
13.4

-17.8
-3.1
-5.4

-5.6
-24.2
2.2

-7.9
4.0

1.2
-3.6
3.9

6.1
13.1
2.4

6.9
18.9
.6

2.5
11.9
-2.8

-5.0
-13.1
.3

.5

3.5

.8

1.3

-4.9

4.1

-1.1
-1.8
-4.8
-6.5

11.8
15.9
19.5
13.6

Gross private domestic investment
Residential structures
Business fixed investment
Gov't. purchases of goods and services
Federal
State and local

Disposable

personal income

1.7
-10.8
-. 4
-. 5

-. 4

.8
2.1

-9.9
-10.4
-13.3
-14.4

2.4
4.1
6.5
4.6

-9.8
-17.7
.0

5.1
4.0
6.4

-28.9
-60.2
-19.9

-10.0
16.0
-1.5

Current dollars
Gross national product
Final purchases
Private
Excluding net exports

5.9
4.4
4.0
6.7

12.2
16.1
17.9
15.7

8.8
11.4
9.6
12.0

12.6
12.0
10.7
10.6

Personal consumption expenditures
Goods
Services

6.7
4.9
8.8

14.6
16.6
12.2

14.7
15.6
13.5

12.9
13.1
12.7

-1.0
-10.3
10.8

14.3
12.0
17.0

-10.6
2.8
2.3

5.6
-16.7
11.0

-21.8
-56.4
-10.4

-13.3
25.7
6.0

10.6
19.8
5.6

2.6
-7.5
9.1

Gross private domestic investment
Residential structures
Business fixed investment

15.4
1.8
8.6

-1.5
9.1
25.0

Gov't. purchases of goods and services
Federal
State and local

6.2
-2.9
11.6

9.2
3.7
12.2

18.8
35.4
10.6

17.5
29.5
11.2

Disposable personal income

8.5

13.3

11.6

13.5

4.4

13.3

Personal income
Wage and salary disbursements

9.3
8.2

14.6
10.2

12.7
11.2

11.5
10.5

5.1
1.8

13.4
6.6

-10.1
-3.4

6.0
18.9

2.4
.6

2.3

Corporate profits with IVA & C.C. Adj.
Corporate profits before tax
Nonfarm payroll employment
Manufacturing
Nonfarm business sector
Output per hour
Compensation per hour
Unit labor costs

-1.9
10.0
12.1

-. 6

-18.8
-9.7
1.7
-1.7

24.8
38.6

-48.9
-61.8

21.9
41.4

2.5
-. 8

-2.7
-11.7

-1.6
-7.2

-1.4
8.1
9.7

-.3
9.6
9.9

.0
9.9
9.9

-3.0
11.2
14.6

3.8
9.3
5.3
9.2

GNP implicit deflator 1/
Gross domestic business product
fixed-weighted price index 2/
Excluding food and energy
Consumer price index (all urban)

7.8

7.8

8.1

9.3

9.8

9.7
7.2
12.5

9.5
6.9
14.0

10.0
11.1
14.3

10.1
7.4
16.5

9.8
9.5
13.1

Industrial production

-1.0

-. 3

.0

1/ Excluding Federal pay increases, rates of change were:
98
9.2 percent; 1 0-Q4, 9.7 percent.
2/ Uses expenditures in 1972 as weights.

1979-Q1,

.8

8.3 percent; 1979-Q4,

-19.2

9.6
9.3
7.7
-6.7

7.5 percent; 1980-Q1,

Q4

May 13, 1981
CONFIDENTIAL - FR
CLASS II FOMC

GROSS NATIONAL PRODUCT AND RELATED ITEMS
(Quarterly figures are seasonally adjusted. Bxpenditures and income
figures are billions of current dollars at annual rates.)

1981roec

1982

Projected

Q1

Q2

Q3

Q4

Q

q2

Q3

Q4

Gross national product
Final purchases
Private
Excluding net exports

2826.8
2834.7
2260.6
2236.3

2889.6
2875.7
2296.0
2277.3

2948.7
2937.7
2346.2
2328.6

3019.5
3013.5
2403.2
2388.2

3076.7
3073.2
2449.9
2436.3

3134.3
3130.3
2495.9
2484.4

3200.3
3195.8
2550.4
2539.8

3272.8
3268.3
2604.4
2590.7

Personal consumption expenditures
Goods
Services

1805.4

1848.7
979.8
868.9

1895.9
1004.0
891.9

1950.1
1034.2

1992.6
1053.7
938.9

2033.0
1072.1
960.9

2078.1
1093.2
984.9

2117.4
1112.5
1004.9

Gross private domestic investment
Residential construction
Business fixed investment
Change in business inventories
Nonfarm

423.1
116.3
314.7

442.5
106.8
321.8
13.9
13.9

443.7
104.8
327.9
11.0
11.0

444.1

447.2
107.3
336.4
3.5
3.5

455.4
109.8
341.6
4.0
4.0

466.2
114.3
347.4
4.5
4.5

477.8
119.8
353.5
4.5
4.5

11.5

962.5
842.8

-7.9
-5.9
24.3

915.9
105.8

332.3
6.0
6.0

Net exports of goods and services 1/
Exports
Imports

371.5
347.2

18.7
376.6
357.9

17.6
381.7
364.1

388.4
373.4

13.6
393.9
380.3

400.1
388.6

10.6
407.9
397.3

13.7
416.8
403.1

Gov't. purchases of goods and services
Federal 2/
State and local

574.1
219.6
354.5

579.7
218.8
360.9

591.5
224.5
367.0

610.3
236.9
373.4

623.3
244.0
379.3

634.4
249.3
385.1

645.4
254.5
390.9

663.9
267.2
396.7

Gross national product in
constant (1972) dollars

1509.2

1513.1

1514.0

1519.8

1520.6

1522.0

1527.7

1533.4

Personal income
Wage and salary disbursements
Disposable personal income
Saving rate (percent)

2317.7
1442.3
1945.5
4.7

2374.1
1470.6
1989.5
4.5

2444.8
1501.6
2046.3
4.8

2503.9
1535.5
2120.2
5.5

2553.2
1563.3
2162.3
5.3

2602.6
1589.5
2200.8

2665.0
1615.9
2252.6
5.2

2717.7
1649.5
2293.3
5.2

Corporate profits with I.V.A. and C.C. Adj.
Corporate profits before tax

188.1
243.4

186.3
239.1

181.4
238.7

186.4
243.2

180.7
237.0

181.5
238.0

192.1
248.4

203.4
259.7

Federal government surplus or deficit (-)
(N.I.A. basis)
High employment surplus or deficit (-) 3/

-50.6
-1.2

-40.8
11.8

-51.9
7.4

-83.8
-19.9

-87.6
-16.5

-86.1
-8.0

-96.8
-12.6

-97.4
-7.2

35.4
5.2

34.3
3.5

34.6
3.2

35.1
3.1

33.6
.8

33.4

33.9

34.3

105.8
7.4

106.8
7.3

107.0
7.4

107.3
7.5

107.5
7.7

107.8
7.9

91.6
20.4

91.6
20.5

91.8

91.9

20.6

20.6

92.0
20.5

151.5
79.7
81.5

152.5
79.9
81.0

153.0
79.7
80.5

153.5
79.3
80.0

1.20

1.15
8.50
6.30
2.20

State and local government surplus or
deficit (-) (N.I.A. basis)
Excluding social insurance funds
Civilian labor force (millions)
Unemployment rate (percent)
Nonfarm payroll employment (millions)
Manufacturing
Industrial production (1967=100)
Capacity utilization: all mfg. (percent)
Materials (percent)
Housing starts, private (million units, A.R.)
New autos sales, (millions, A.R.)
Domestic models
Foreign models

1/

1.39
9.96
7.31
2.66

8.60
6.10
2.50

15.0

1.15
9.10
6.60
2.50

5.1

-. 1

-. 4

-. 8

108.1
8.0

108.3
8.1

92.0
20.5

92.0
20.6

92.1
20.6

154.0
78.9
79.5

154.5
78.7
79.3

155.7

156.7
78.6
79.2

1.20
8.50
6.40
2.10

1.25
8.80
6.50
2.30

78.7
79.2
1.30
8.70
6.40
2.30

1.35
8.65
6.35
2.30

Balance of payments data and details underlying these estimates are shown in the International Developments section
of this part of the Greenbook.
2/ Components of purchases and total receipts and total expenditures are shown in the Federal Sector Accounts table
which follows.
3/ Estimates in table are evaluated at a 5.1 percent high employment unemployment rate. Evaluated at a 6.1 percent
unemployment rate, the high employaent budget would show a deficit of $37.8 billion in 1980-Q4 and a deficit of
$46.9 billion in 1981-04, and a deficit of $36.3 billion in 1982-Q4.

May 13,
CONFIDENTIAL - FR
CLASS II FOMC

1981

PERCENT CHANGES IN GROSS NATIONAL PRODUCT
AND RELATED ITEMS
(Annual rates compounded quarterly)

1981
Q2

Q1

1982
Proiected
Q4

19 1 Q2
Q3

Q2

_Q 3

Constant (1972) dollars
Gross national product
Final purchases
Private
Excluding net exports

6.5
6.1
6.5
5.6

1.0
-2.3
-2.0
-1.0

.3
.6
.9
1.4

1.5
2.2
2.3
2.9

.2
.5
.2
.6

.4
.3
.4
.7

1.5
1.5
1.7
1.7

1.5
1.5
1.7
1.3

Personal consumption expenditures
Goods
Services

4.7
9.0
.1

.6
-1.9
3.5

2.2
2.5
1.9

3.9
4.5
3.4

1.1
-.1
2.4

.8
.2
1.6

1.7
1.1
2.3

1.0
.6
1.5

Gross private domestic investment
Residential structures
Business fixed investment

12.9
1.0
12.3

17.4
-34.2
2.0

-4.8
-14.2
1.3

-6.1
-3.8
-1.0

-3.9
-2.2
-1.4

.6
1.3
-.2

2.5
8.5
.4

2.8
11.5
.6

Gov't. purchases of goods and services
Federal
State and local

4.4
12.5
-.1

-3.3
-7.2
-.9

-.3
1.6
-1.4

2.0
6.9
-.9

1.8
6.9
-1.2

.1
2.4
-1.4

.5
3.7
-1.4

.7
4.1
-1.5

2.5

.0

3.4

7.0

.4

-.2

2.2

.7

Gross national product
Final purchases
Private
Excluding net exports

14.9
13.2
13.7
13.6

9.2
5.9
6.4
7.5

8.4
8.9
9.0
9.3

10.0
10.7
10.1
10.6

7.8
8.2
8.0
8.3

7.7
7.6
7.7
8.1

8.7
8.6
9.0
9.2

9.4
9.4
8.7
8.3

Personal consumption expenditures
Goods
Services

13.0
16.3
9.3

10.0
7.4
13.0

10.6
10.3
11.0

11.9
12.6
11.2

9.0
7.8
10.4

8.4
7.2
9.7

9.2
8.1
10.4

7.8
7.3
8.4

Gross private domestic investment
Residential structures
Business fixed investment

28.0
12.3
17.7

19.7
-28.9
9.4

1.1
-7.3
7.8

.4
3.9
5.5

2.8
5.8
5.0

7.5
9.7
6.3

9.8
17.4
7.0

10.3
20.7
7.2

Gov't. purchases of goods and services
Federal
State and local

11.6
15.1
9.5

4.0
-1.4
7.4

8.4
10.8
6.9

13.3
24.0
7.2

8.8
12.5
6.5

7.3
9.0
6.3

7.1
8.6
6.2

12.0
21.5
6.1

Disposable personal income

10.6

9.4

11.9

15.3

8.2

7.3

9.7

7.4

Personal income
Wage and salary disbursements

11.4
13.4

10.1
8.1

12.4
8.7

10.0
9.3

8.1
7.4

8.0
6.9

9.9
6.8

8.1
8.6

Corporate profits with IVA & C.C. Adj.
Corporate profits before tax

10.9
-9.3

-3.8
-6.9

-10.1
-.6

11.5
7.7

-11.7
-9.9

1.8
1.7

25.5
18.7

25.7
19.5

3.0
2.5

.0
2.7

.8
1.0

.5
-.2

.3
-.4

.1
.0

.2
.6

.3
1.6

3.6
11.3
7.5

.8
9.4
8.5

-. 6
9.2
9.9

.5
8.5
8.0

-. 4
9.2
9.6

.0
7.9
7.9

1.1
7.7
6.6

.8
7.7
6.8

7.8

8.1

8.2

8.3

7.6

7.3

7.1

7.8

L10.2
7.5
10.8

9.3
9.3
9.3

8.9
8.3
11.3

8.6
7.8
10.5

8.1
7.5
8.8

7.8
7.3
7.9

7.6
7.2
7.4

7.3
7.0
7.0

6.6

2.7

1.3

1.3

1.3

1.3

3.1

2.6

Disposable personal income
Current dollars

Nonfarm payroll employment
Manufacturing
Nonfarm business sector
Output per hour
Compensation per hour
Unit labor costs
GNP implicit deflator 1/
Gross domestic business product
fixed-weighted price index 2
Excluding food and energy
Consumer price index (all urban)
Industrial production
1/

Excluding Federal pay increases, the rates of change are:
7.5 percent; 1982-Q4, 6.9 percent.
2/ Uses expenditures in 1972 as weights.

1981-Ql,

7.8 percent; 1981-Q4,

7.5 percent;

1982-Q1,

May 13,
CONFIDENTIAL CLASS

II

1981

GROSS NATIONAL PRODUCT AND
RELATEDITEMS
(Expenditures and income figures are billions of current dollars.)

FR

FOMC

Projected
1981
19-2

1975

1976

1977

1978

1979

1980

1549.2

1.189.4

1718.0
1706.2
1344.1
1330.4

1918.0
1897.0
1502.5
1506.7

2156.1
2133.9
1701.3
1701.9

2413.9
2396.4
1922.6
1909.2

2626.1
2632.0
2097.3
2074.0

2921.2
2915.4
2326.5
2307.6

3171.0
3166.9
2525.1
2512.8

Personal consumption expenditures
Goods
Services

976.4
539.5
437.0

1084.3
598.5
485.7

1205.5
657.8
547.7

1348.7
729.1
619.6

1510.9
814.5
696.3

1672.8
887.6
785.2

1875.0
995.1
879.9

2055.3
1082.9
972.4

Gross private domestic investment
Residential construction
Business fixed investment
Change in business inventories
Nonfarm

206.1
55.3
157.7
-6.9
-10.5

257.9
72.0
174.1
11.8
13.9

322.3
95.8
205.5
21.0
20.2

375.3
111.3
242.0
22.2
21.8

415.8
118.6
279.7
17.5
13.4

395.3
105.3
296.0
-5.9
-4.7

438.3
108.4
324.2
5.8
6.3

461.7
112.8
344.7
4.1
4.1

Net exports of goods
Exports
Imports

26.8
154.9
128.1

13.7
170.9
157.1

-4.2
183.3
187.5

219.8
220.4

13.4
281.3
267.9

23.3
339.8
316.5

18.9
379.5
360.6

12.4
404.7
392.3

339.9
122.7
217.2

362.1
129.2
232.9

394.5
143.9
250.6

432.6
153.4
279.2

473.8
167.9
305.9

534.7
198.9
335.8

588.9
224.9
363.9

641.7
253.7
388.0

1233.9

1300.4

1371.7

1436.9

1483.0

1480.7

1514.0

1525.9

11265.0
806.4
11096.1
8.6

1391.2
889.9
1194.4
6.9

1538.0
983.8
1311.5
5.6

1721.8
1105.2
1462.9
5.2

1943.8
1236.1
1641.7
5.2

2160.2
1343.7
1821.7
5.6

2410.1
1487.5
2025.4
4.9

2634.6
1604.5
2227.3
5.2

Corporate profits with I.V.A. and C.C. Adj.
Corporate profits before tax

110.5
132.1

138.1
166.3

164.7
192.6

185.5
223.3

196.8
255.4

182.7
245.5

185.6
241.1

189.4
245.8

Federal government surplus or deficit
(N.I.A. basis)
High employment surplus or deficit (-)

-69.3
-29.2

-53.1
-20.1

-46.4
-23.0

-29.2
-15.7

-14.8
-2.2

-61.2
-18.3

-56.8
-.5

-92.0
-11.1

Gross national product
Final purchases
Private
Excluding net exports

1556.1

.216.2

and services 1/

Gov't. purchases of goods and services
Federal 2/
State an
local
Gross national product in
constant (1972) dollars
Personal income
Wage and salary disbursements
Disposable personal income
Saving rate (percent)

-. 6

State and local government surplus or
deficit (-) (N.I.A. basis)
Excluding social insurance funds

5.5
-7.6

16.6
.9

28.1
10.1

29.0
9.0

26.7
2.9

29.1
2.1

34.9
3.8

33.8
-.1

Civilian labor force (millions)
Unemployment rate (percent)

92.6
8.5

94.8
7.7

97.4
7.0

100.4
6.0

102.9
5.8

104.7
7.1

106.7
7.4

107.9
7.9

Nonfarm payroll employment (millions)
Manufacturing

77.0
18.3

79.4
19.0

82.5
19.7

86.7
20.5

89.9
21.1

90.7
20.4

91.7
20.5

92.0
20.6

117.8
72.9
73.4

130.5
79.5
81.1

138.1
81.9
82.7

146.1
84.4
85.6

152.5
85.6
87.4

147.1
79.1
79.8

152.6
79.6
80.8

155.2
78.7
79.3

1.16
8.66
7.08
1.58

1.54
10.12
8.63
1.50

1.99
11.13
9.07
2.06

2.02
11.28
9.29
1.99

1.75
10.70
8.38
2.32

1.29
9.04
6.62
2.42

1.22
9.04
6.58
2.46

Industrial production (1967=100)
Capacity utilization:
Materials (percent)

all

manufacturing (percent)

Housing starts, private (million units, A.R.)
New auto sales, (millions, A.R.)
Domestic models
Foreign models

1.27
8.66
6.41
2.25

1/ Balance of payments data underlying these estimates are shown in the International Developments section of this
part of the Greenbook.
2/ Components of purchases and total receipts and total expenditures are shown in the Federal Sector Accounts table
which follows.

May 13,
CONFIDENTIAL - FR
CLASS II FOMC

1981

PERCENT CHANGES IN GROSS NATIONAL PRODUCT
AND RELATED ITEMS

1975

1976

-1.1
.3
-.1
-. 6

Personal consumption expenditures
Goods
Services
Gross private domestic investment
Residential structures
Business fixed investment

1977

Projected
1981
1982

1978

1979

5.4
4.2
5.3
6.2

4.8
4.7
15.4
5.2

3.2
3.5
4.0
2.9

-. 2
.7
.2
-1.0

2.2
1.9
2.2
2.7

.8
.8
.8
1.2

2.2
1.3
3.3

5.6
6.7
4.3

4.7
4.2
5.4

2.9
1.9
4.1

.5
-1.4
2.6

3.1
3.5
2.5

1.7
1.2
2.4

-20.8
-12.5
-12.1

19.2
21.3
5.3

7.6
2.9
9.1

1.3
-5.2
6.5

1980

Constant (1972) dollars
Gross national product
Final purchases
Private
Excluding net exports

Gov't. purchases of goods and services
Federal
State and local

2.1
.8
2.9

.0
-. 7
.5

2.0

Disposable personal income

2.0

-12.5
-18.6
-3.0

3.5
-4.6
2.5

-1.2
-3.9
-. 2

3.7

1.5
1.9
1.2

2.9
6.3
1.0

.4
1.5
-. 2

.7
3.9
-1.2

3.6

4.4

3.1

.7

2.2

2.1

8.0
9.6
9.0
7.9

10.9
9.6
10.5
11.8

12.4
12.5
13.2
12.9

12.0
12.3
13.0
12.2

8.8
9.8
9.1
8.6

Personal consumption expenditures
Goods
Services

9.9
9.0
11.1

11.1
10.9
11.2

11.9
10.8
13.1

12.0
11.7
12.4

Gross private domestic investment
Residential structures
Business fixed investment

-9.9
-4.7
.8

25.1
30.2
10.3

16.5
16.1
17.7

10.8
6.6
15.6

Gov't. purchases of goods and services
Federal
State and local

11.8
10.6
12.5

6.5
5.3
7.3

9.7
6.6
11.4

9.5
9.5
9.6

Disposable personal income

9.8

9.0

11.5

Personal income
Wage and salary disbursements

8.2
5.3

10.0
10.4

Corporate profits with IVA & C.C. Adj.
Corporate profits before tax

16.5
-3.3

25.0
25.9

Noniarm payroll employment
Manufacturing

-1.7
-8.8

-. 9

Current dollars
Gross national product
Final purchases
Private
Excluding net exports

Nonfarm business sector
Output per hour
Compensation per hour
Unit labor costs
GNP implicit deflator
Gross domestic business product
fixed-weighted price index 1/
Excluding food and energy
Consumer price index (all urban)
Industrial production
1/ Uses expenditures in 1972 weights.

11.2
10.8
10.9
11.3

8.6
8.6
8.5
8.9

10.7
9.0
12.8

12.1
12.1
12.1

9.6
8.8
10.5

-4.9
-11.3
5.8

10.9
2.9
9.5

5.3
4.0
6.3

12.9
18.5
9.8

10.1
13.1
8.4

9.0
12.8
6.6

12.2

11.0

11.2

10.0

12.0
12.3

12.9
11.8

11.1
8.7

11.6
10.7

9.3
7.9

12.6
15.9

6.1
14.4

-7.2
-3.9

1.6
-1.8

2.0
1.9

-3.4

1.2
.7

.3
.3

1.2
9.9
8.6

.2
8.5
8.4
7.7

3.2
3.7

5.1
4.2

3.7
2.8

2.1
9.6
7.4

3.2
8.1
4.7

-. 2
8.5
8.7

-. 8
9.6
10.4

-. 4
9.8
10.3

9.6

5.2

7.3

8.5

9.0

8.8

9.2
9.2
9.1

5.5
6.0
5.8

7.8
7.5
7.7

9.7
8.4
11.3

9.8
8.7
13.5

9.5
8.4
10.6

8.2
7.6
8.9

-8.9

10.8

4.4

-3.5

3.8

1.7

5.8

.9

May 13,

FEDERAL SECTOR ACCOUNTS
(billions of dollars)

Unified budget receipts
Unified budget outlays
Surplus(+)/deficit(-), unified
budget
Surplus(+)/deficit(-), off-budget
agencies 2/
Combined deficit to be financed

1981

iv198

Board

_I
FRB Staff Estimates
Calendar quarters; unadjusted daata
1980
1981
1982
I*
II
I
II
III
IIl
IV
IV*

651.1
728.3

533.0
601.1

622.5
693.3

127.0
160.6

135.2
167.3

184.5
165.3

158.6
168.2

144.2
192.5

146.1
166.7

195.1
182.8

165.7
186.4

-45.0

-77.2

-68.1

-70.8

-33.6

-32.1

19.2

-9.6

-48.3

-20.6

12.3

-20.7

-16.7
-61.7

-17.5
-94.7

-15.3
-83.4

-23.2
-94.0

-2.2
-35.8

-6.4
-38.5

-7.8
11.4

-7.6
-17.2

-1.3
-49.6

-4.7
-25.3

-5.4
6.9

-6.2
-26.9

60.0
0.0

79.3
3.6
0.5

85.1
0.3
8.6

27.7
8.7
-0.6

-5.5

1.7

92.4
0.0
2.3

-4.3
-1.6

40.1
3.0
6.5

25.8
4.0
-4.5

-0.9
-4.0
-2.0
12.0

Fiscal
Year
1980*

FY1981e/
Admin.
F.R.
1/
Board

FY1982e/
Admin.
F.R.
1/
Board

520.0

579.6

600.3
655.2

605.3
661.4

650.3
695.3

-59.6

-54.9

-56.1

-14.2
-73.8

-23.6
-78.5

-24.0
-80.1

-j

S

r----

CY1981e
F.R.

I

Means of financing combined deficits:
Net borrowing from public
Decrease in cash operating balance
Other 3/

70.5
3.2
0.1

71.0

end of period

21.0

15.0

15.0

15.0

12.3

12.0

12.3

15.0

12.0

8.0

21.4

18.2

24.9

19.9

24.3

20.6

9.0

6.9

4.9

5.0

527.3
578.2
190.2
126.1
64.1
388.0
-50.9

609.5
663.1
216.6

665.0
707.1
244.7
172.9
71.8
462.4

650.1
738.7
246.2
171.9
74.3
492.5
-88.6

540.8
602.0
198.9
131.7

629.5
686.3
225.0
154.3

68.4
446.5
-53.6

614.3
667.1
218.8
148.5
70.2
448.3
-52.8

67.2

70.7

403.1
-61.2

461.3
-56.8

n.a.
n.a.

-1.2
-24.4

-14.3
n.a.
n.a.
-41.9
e--eatimated

-18.3
-41.7

-0.5
-26.6

Cash operating balance,
Memo:

Sponsored agency borrowing 4/

6.0
1.5

Seasonally

NIA Budget
Receipts
Expenditures
Purchases (total)
Defense
Nondefense
All other expenditures

Surplus(+)/deficit(-)

High employment (H.E.) surplus(+)/deficit(-)
evaluated at H.E. unemployment rate of:
-16.7
5.1 percent
-39.5
6.1 percent
*--actual

148.2

-42.1

5.0

adjusted annual rates
627.5
668.3
218.8
151.0
67.8
449.5
-40.8

647.0
698.9
224.5
156.6
67.9
474.4
-51.9

633.8
717.6
236.9
L64.8
72.1
180.7
-83.8

642.0
729.6
244.0
169.3
74.7
485.6
-87.6

654.5
740.6
249.3
174.5
74.8
491.3
-86.1

670.1
766.9
254.5
179.1
75.4
512.4
-96.8

11.8
-1.2
-13.4
-14.0
-37.8
-26.1
n.a.--not available

7.4
-19.5

-19.9
-46.9

-16.5
-43.8

-8.0
-35.8

-12.6
-41.0

573.2
641.1
212.0
141.6
70.4
429.1
-67.9

609.7
660.3
219.6
144.9
74.8
440.7
-50.6

1. Fiscal Year 1982 Budget Revisions, March 1982. In its report on the Second Concurrent Resolution for fiscal year 1981, the Congress recommended receipts of
$605.0 billion and outlays of $63.4 billion.
2. Includes Federal Financing Bank, Postal Service Fund, Rural Electrification and Telephone Revolving Fund, and Rural Telephone Bank.
3. Checks issued less checks paid, accrued items and other transactions.
4. FRB staff estimates include Federal Home Loan Banks, FN A, Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives marketable debt
on an offerings basis.

DOMESTIC FINANCIAL DEVELOPMENTS

Summary.

Market interest rates have moved up substantially since

the March 31 FOMC meeting.

Short-term rates now stand 3 to 5 percentage

points higher, reflecting primarily the tightening of reserve positions
that accompanied the surge in the narrow money stock during April.

In

long-term markets most yields have established new all-time highs, rising
about 1 percentage point over the intermeeting period; in the primary
mortgage market, rate increases have been somewhat smaller.
The total of funds raised by nonfinancial firms in domestic markets
during April appears to have fallen slightly below the first-quarter pace.
The pattern of financing continued to shift towards longer-term sources of
funds, as public offerings of stocks and bonds increased further from an
already sizable first-quarter figure.

The large volume of corporate bond

sales was especially remarkable in view of the high and rising level of
long-term interest rates.

Even so, quite a few offerings were postponed,

and a number of those that were brought to market were convertible debentures, issues with shorter maturities, or obligations with below-market
coupons sold at deep discount.
At the short end of the maturity spectrum, business credit demands
slackened further, especially in the commercial paper market, where rates
rose more than 4 percentage points and were quite volatile from day to day.
In recent weeks, banks have adjusted their prime lending rates several times
as market rates of interest have continued to rise; however, earlier in
April the

prime held steady at a level that was quite high relative to

other costs of borrowing.

As this gap narrowed in late April and early

May, business loans at large U.S. banks resumed their expansion following
I-14

I-15

two months of decline, and loans to U.S. residents at the foreign branches
of these banks slowed.

Also, business loans at U.S. agencies and branches

contracted in April for the first time since mid-1980.
In March net borrowing by the household sector continued to display
trends that had characterized earlier months of the quarter, with net mortgage formation slackening and consumer credit picking up.

Net acquisitions

of mortgages by savings and loan associations during that month fell to
their lowest level since last June, and information from field reports
indicates that the weakness in mortgage lending extended into April.

The

volume of consumer installment credit outstanding, on the other hand, rose
at a 12 percent clip in March--its strongest growth since September 1979.
The pick-up in consumer credit was driven by auto loans, which in turn
reflected a rebate-induced fillip in sales.
Demands on credit markets by the federal government have eased off
this quarter, reflecting the usual seasonal excess of receipts over expenditures.

In April the Treasury ran off $9-1/2 billion in bills, while rais-

ing $6 billion in coupon issues.

Early in May the Treasury raised $2.1

billion in cash in a typical 3-part mid-quarter refunding operation.

In

the state and local sector, the volume of long-term debt offered in April
swelled to $4.7 billion despite a number of postponements that were due
primarily to unsettled market conditions.
After adjustment for shifts into NOW accounts, M-1B expanded at a
14-1/4 percent annual rate in April--about double the March pace.

Some of

the surge in transaction balances may signal a cessation of the unexplained
weakness in money growth relative to GNP that emerged in the first quarter.

I-16

Changes in the processing and payment of federal taxes appear on balance
to have had little effect on M-1B in April.
Despite the more rapid growth in M-1B, expansion of M-2 moderated
to a 12 percent rate in April after having accelerated throughout the
first quarter.

Most of the deceleration in M-2 was attributable to a

fall-off in growth of money market mutual funds as the yield advantage
between these instruments and other money market assets evaporated over
the month.

Also, savings and small time deposits at banks and thrift

institutions were flat during April.

In contrast to M-2, growth in M-3

edged up to 10 percent in April, reflecting sharply reduced runoffs of
large time deposits.
Outlook.

The recent surge in monetary growth has followed an extra-

ordinary increase in velocity during the first quarter.

Over the next few

months, the staff anticipates that demands for transaction balances will
continue to be substantial and that short-term rates of interest will
remain near their current levels.

Rates on long-term bonds also are

expected to remain high, as a heavy forward calendar of offerings in all
sectors limits the scope for significant declines.
With corporate profits showing little improvement and planned expenditures for plant and equipment rising in nominal terms, the external
financing requirements of nonfinancial business firms are projected to
increase over this quarter and the next.

With long-term rates at histori-

cally high levels, most of these needs are likely to be met through shortterm financings in the months ahead, but the volume of bond offerings is
also expected to remain substantial.

I-17

The Treasury's overall demand on credit markets will remain seasonally light through midyear.

Nevertheless, as is typical during such

periods, the Treasury is expected to restructure its debt towards longerterm offerings.

In the state and local government sector, credit demands

probably will continue at about the strong pace of recent months; however,
widening yield spreads between lower- and higher-rated issues suggest that
investors have developed some concerns about the credit quality of taxexempt issues.
Mortgage borrowing by households probably will remain slack in coming months, as the high cost of borrowing deters both construction activity
and purchases of new and existing homes.

Expansion in consumer installment

credit appears likely to back off from the March pace to a rate of growth
more like the first-quarter average, reflecting sluggish auto sales and
some weakness in spending on other consumer durables as well.

INTERNATIONAL DEVELOPMENTS

Summary.

The U.S. dollar has appreciated by more than 8 percent

on a weighted average basis since the last Greenbook, of which 1-1/2
percent took place on the two days following Mitterand's victory in the
French presidential election.

It has risen most against the continental
For

European currencies and only slightly against the Canadian dollar.

the first time since late 1977, the dollar is back above its level of
March 1973, when the period of generalized floating exchange rates began.
The rise in the dollar since late March has been associated
primarily with a change in interest differentials.

Interest rates on

3-month dollar-denominated assets have risen about 500 basis points,
while foreign interest rates on average have risen only slightly.

Recent

data showing relatively favorable U.S. trade and inflation performance
also have tended to strengthen the dollar.
Foreign interest rate movements since the last Greenbook have
differed widely across countries.

Interest rates have declined by about

35 basis points in Japan and the United Kingdom and have been roughly
unchanged in Germany.

In contrast, interest rates have risen by 300

basis points in Canada, and by 200 to 300 basis points in France,
Switzerland, and Belgium.

Official discount rates were raised in

Switzerland and Belgium.

There was no official

I-18

I-19

U.S. intervention during the period, except on the day of the attempted
assassination of President Reagan.
Within the EMS pressures on the Belgian franc intensified at the
end of March.

After a new government under former
Finance Minister Eyskens was formed in early April, exchange market
pressure subsided.
The French franc
slipped to nearly 1 percent below the DM in the EMS just prior to the
second round of the election on May 10 and fell to the floor following
Mitterand's victory.

The U.S. merchandise trade deficit for the first quarter fell to
$15 billion (s.a.a.r.; international accounts basis), from $24 billion
in the fourth quarter, as the deficit dropped sharply in March.

In the

first quarter, the volume of both agricultural and nonagricultural
exports increased sharply; nonagricultural exports to Canada and, to a
lesser extent, Latin America were particularly strong.

Import volume

rose only slightly despite the strong growth of U.S. GNP.

The increase

in the volume of non-petroleum imports was concentrated in industrial
supplies.

The volume of oil imports was essentially unchanged, while

oil import prices rose 7 percent from the fourth quarter to the first.

I-20

Outflows of funds through U.S. banking offices were reported in
March and April, and at the end of April U.S. banks had a net creditor
position of about $1-1/2 billion with their foreign offices.

Eurodollar

investments of money market mutual funds fell slightly in April after
having risen $4-1/2 billion in the first quarter.

In April, these

holdings accounted for about 10 percent of total assets of money market
mutual funds --

a proportion that has shown little change over the past

year.
Official reserve holdings in the United States rose $5-1/2 billion
in the first quarter, accounted for entirely by OPEC countries.

Private

foreign purchases of U.S. corporate stocks totalled $1.7 billion in the
first quarter, about the same as the unusually high rate of the fourth
quarter.
The OPEC surplus fell moderately from $55 billion in the first half
of 1980 to an estimated $48 billion in the second half.
were little

changed,

Oil revenues

as a 9 percent increase in price was more than

offset by a 10 percent decline in volume.

An unusually small (7 percent)

increase in commodity imports by OPEC kept the surplus from declining
more rapidly.
For 1980 as a whole, recorded OPEC investments in the United States
rose to 14 percent of the OPEC surplus, up from 11 percent in 1979.
Investments in the United Kingdom in 1980 (excluding Eurocurrency deposits)
remained at about 3 percent of the OPEC surplus, while investments in
other industrial countries rose from 13 to 16 percent of the surplus.
Flows of OPEC funds into Eurocurrency deposits -the most important OPEC investment outlet --

at $41 billion, still

diminished as a share of the

I-21

total surplus from about 50 percent in 1979 to about 40 percent in 1980.
Direct and indirect loans to devleoping countries decreased sharply from
$9.6 billion (15 percent of the surplus in 1979) to $6.5 billion
(6 percent) last year.
Incoming data continue to show sluggish economic activity on
average in foreign industrial countries, although it is widely anticipated
that a slow and gradual recovery will begin after mid-year.

Inflation

rates in most countries increased in the first quarter.
Outlook.

The U.S. current account is now forecast to show a small

surplus this year but to swing to a deficit of roughly $10 billion in
1982.

Previously the staff expected the current account to be in

essentially a balanced position in both years.
There are two major elements underlying the revised outlook.
First and more important is the sharp rise in the value of the dollar
since the last Greenbook.

The staff believes that the market may have

ovverreacted to incoming data on trade and prices here and abroad and
to the rise in U.S. interest rates.

Therefore, we expect the dollar to

fall back from current levels over the forecast period.

However, since

the inflation outlook for the United States has improved, the dollar may
be somewhat higher at the end of the period than we thought previously.
The recent and expected strength of the dollar is not likely to
have a large effect on the current account balance in 1981, but is
forecast to increase import volumes and decrease export volumes significantly next year.

I-22

The other element in the revised outlook is the increasing
evidence that global oil consumption is declining, in response to earlier
oil price rises, more than had been estimated earlier.
the outlook for oil prices now is a bit weaker.

Consequently,

The staff is now

assuming that, except for an increase by Saudi Arabia to the level of
other exporters, nominal oil prices will not rise during the second half
of this year and that real oil prices will rise only about 2 percent
during the course of 1982.

Such a real price increase would be in line

with some of the long-term pricing strategies being considered by OPEC.
Given this assumption, the staff forecast shows a lower value of oil
imports in both 1981 and 1982 than had previously been forecast.
These two elements --

a stronger dollar and a weaker oil market --

tend to have partially offsetting effects on the U.S. current account,
but they both tend to reduce the deficits of other industrial countries.
As a consequence of this and of forecast slow growth abroad, the
current-account deficits of most major foreign countries are likely to
show substantial improvement in 1981-82.

CONFIDENTIAL (FR)
CLASS II FOMC

1980
ANN.

1.

3.

1982
ANN .

1981
Q I

1981
Q IIt

1981
OIIIt

1981
Q IV,

1982
Q Ip

1982
0 lIt

1982
QIII

P

1982
0 IVf

CURRENT $, NET
EXPORTS OF G&S
IMPORTS OF G&S

23.3
339.8
316.5

18.9
379.6
360.6

12.4
404.7
392.3

24.3
371.5
347.2

18.7
376.6
357.9

17.6
381.7
364.1

15.0
388.4
373.4

13.6
393.9
380.3

11.5
400.1
388.6

10.6
407.9
397.3

13.7
416.8
403.1

CONSTANT 72 $, NET
EXPORTS OF G&S
IMPORTS OF G&S

52.0
161.1
109.1

48.1
165.2
117.1

43.8
164.9
121.1

51.8
164.9
113.1

48.4
165.1
116.7

46.9
165.3
118.4

45.3
165.5
120.2

44.1
164.8
120.6

43.2
164.6
121.4

43.2
164.8
121.6

44.5
165.3
120.8

72.7

74.6

75.8

73.4

74.4

75.1

75.5

75.8

75.9

75.7

75.6

-27.4

-23.8

-39.2

-14.8

-22.3

-26.5

-31.6

-34.1

-37.5

-42.0

-43.1

EXPORTS (EXCL. MILITARY)
AGRICULTURAL
NONAGRICULTURAL

221.8
42.0
179.8

246.5
48.8
197.7

250.5
53.2
197.3

247.7
50.5
197.2

246.4
47.7
198.6

245.6
47.7
198.0

246.2
49.2
197.0

247.4
51.1
196.2

248.6
52.4
196.2

251.3
53.9
197.4

254.8
55.5
199.3

IMPORTS
PETROLEUM AND PRODUCTS
NONPETROLEUM

249.1
78.9
170.2

270.3
86.5
183.8

289.7
88.1
201.6

262.5
83.0
179.5

268.6
88.0
180.6

272.2
87.8
184.4

277.8
87.3
190.5

281.4
86.8
194.6

286.1
87.8
198.3

293.3
88.9
204.4

297.9
88.7
209.2

0.1

3.0

-9.7

12.4

3.8

0.5

-4.5

-7.5

-10.0

-11.8

-9.5

32.5

30.7

33.5

31.4

30.0

30.7

30.9

30.5

31.4

34.2

37.9

1.7
10.5

0.3
9.1

2.0
7.3

0.3
10.8

0.4
9.0

0.8
7.3

2.0
7.0

2.2
7.6

2.4
7.5

2.6
6.8

2.8
6.8

U.S. MERCHANDISE TRADE BALANCE 2/

U.S. CURRENT ACCOUNT BALANCE
OF WHICH: NET INVESTMENT INCOME

4.

1981
ANN.

1981

GNP NET EXPORTS

TERMS OF TRADE (1972=100) 1/

2.

May 13,

OUTLOOK FOR U.S. NET EXPORTS AND RELATED ITEMS
(BILLIONS OF DOLLARS, SEASONALLY ADJUSTED ANNUAL RATES)

FOREIGN OUTLOOK - TEN INDUSTRIAL COUNTRIES 3/
REAL GNP, X CHANGE, ANNUAL RATES
% CHANGE, ANNUAL RATES
CONSUMER PRICES
----------------------------------------------------------------------------------------------

1/ GNP EXPORT IMPLICIT DEFLATOR DIVIDED BY GNP IMPORT IMPLICIT DEFLATOR.
2/ INTERNATIONAL ACCOUNTS BASIS.
3/ GEOMETRIC WEIGHTS USED TO AGGREGATE FOREIGN REAL GNP AND CONSUMER PRICES -- PERCENT SHARE IN TEN-COUNTRY TOTAL MULTILATERAL
TRADE. CANADA (9.1%), JAPAN (13.6%), UNITED KINGDOM (11.9%), GERMANY (20.8%), FRANCE (13.1%), ITALY (9.0%), BELGIUM (6.4%),
THE NETHERLANDS (8.3%), SWITZERLAND (3.6%), SWEDEN (4.2%).
P/ PROJECTED.