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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 May 15, 1981 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 THE DOMESTIC NONFINANCIAL ECONOMY Industrial Production . . . . . . . Capacity Utilization . . . . . . . Manufacturing and Trade Inventories TABLES: Business Inventories . . . . . . Inventory/Sales Ratios . . . . . Erratum . . . . . . . . . . . . THE DOMESTIC FINANCIAL SITUATION TABLES: Monetary Aggregates . . . . . . . . . . . . . . . . . Commercial Bank Credit . . . . . . . . . . . . . . . Selected Financial Market Quotations . . . . . . . . SUPPLEMENTAL NOTES Industrial Production Industrial production rose 0.4 percent in April, following increases of 0.5 percent and -0.1 percent in March and February, respectively. In April, increases were widespread among most market groupings, but the coal strike reduced the rate of growth in the total index by 0.3 percentage point. Production of business equipment-- particularly manufacturing, commercial, and building and mining equipment-are now indicated to have increased sharply in both March and April. Capacity Utilization Capacity utilization in manufacturing increased 0.3 percentage point in April to 80.3 percent. industries. Increases were widespread among major Primary processing industries operated at 80.5 percent, up from 80.2 percent in March, and advanced processing industries operated at 80.2 percent, up from 79.9 percent. The capacity utilization rate for materials producers declined in April to 81.0 percent from 81.4 percent in March. The utilization rate for producers of energy materials dropped sharply because of reduced coal production. Small declines in utilization rates also occurred for producers of both ferrous and nonferrous metals and the related mining activities. Manufacturing and Trade Inventories The book value of manufacturing and trade inventories rose at a $12.5 billion annual rate in March, following an upward revised increase in February at a $68.4 billion rate. In March, stocks held by retail trade stores and by merchant wholesalers were reduced, while those at manufacturing establishments were increased. -1- The accumulation in March by manufacturers was smaller than in either of the two preceding months, but for the quarter as a whole, these businesses increased stocks at a $35.2 billion annual rate, ten times the rate of buildup in the fourth quarter of last year. Inventories of all manufacturing and trade in the first quarter rose at a $40.5 billion annual rate, up from a $13.7 billion rate of accumulation in the preceding quarter. The ratio of the book value of inventories to sales for manufacturing and trade was unchanged in March at 1.36, down slightly from the ratio in December 1980. These ratios for retail and wholesale trade establishments in March were down a little from those at the end of last year, while the ratio for manufacturing was a little higher. BUSINESS INVENTORIES (Change at annual rates in seasonally adjusted book value; billions of dollars) Q1 Manufacturing and trade Manufacturing Trade, total Wholesale Retail Durable Auto Nondurable 48.2 41.1 7.1 7.1 0.0 -4.3 -5.6 4.4 1980 Q2 Q3 33.8 20.4 13.3 10.9 2.4 -2.9 -4.3 .3 27.5 -. 1 27.6 18.5 9.1 1.1 .4 7.9 Q4 Jan. 13.7 3.5 10.2 10.3 -. 1 .5 .5 -. 5 40.7 47.0 -6.3 -7.4 1.2 4.6 2.7 3.4 1981 Feb.(r) Mar.(p) 68.4 33.9 34.5 13.9 20.6 1.7 -2.6 18.9 Q1(p) 12.5 24.7 -12.2 -10.2 -2.0 -7.4 -11.2 5.4 40.5 35.2 5.3 -1.3 6.6 -. 4 -3.7 7.0 Totals may not add due to rounding. r = revised p = preliminary INVENTORY/SALES RATIOS 1981 1980 Manufacturing and trade Manufacturing Trade, total Wholesale Retail r = revised p = preliminary Q1 Q2 Q3 Q4 Jan. Feb.(r) Mar.(p) Q(p) 1.41 1.57 1.26 1.15 1.38 1.50 1.71 1.32 1.21 1.43 1.45 1.64 1.28 1.18 1.40 1.38 1.55 1.23 1.12 1.35 1.35 1.54 1.17 1.06 1.31 1.36 1.55 1.19 1.08 1.31 1.36 1.56 1.19 1.09 1.30 1.36 1.57 1.19 1.08 1.31 -4- Erratum Part 2, page 111-2: "FOMC Mar. 31". Heading on last column should read MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1 1980 Q3 1981 Q4 ---Money stock measures 1. M-1A 2. (Adjusted) 2 3. M-1B 4. (Adjusted)2 5. M-2 6. M-3 Selected components 7. Currency Q1 Feb. Mar. Apr. Apr. '80 to Apr. '81 Percentage change at annual rates ---- 11.5 n.a. 13.9 n.a. 15.7 13.1 8.0 n.a. 10.9 n.a. 8.1 10.3 10.9 8.5 5.9 7.2 -18.6 (0.3) 6.6 (1.1) 8.4 12.0 -21.5 (0.9) 8.7 (1.5) 9.8 10.8 -5.2 (7.2) 11.2 (7.3) 15.2 9.3 0.3 (14.2) 18.7 (13.9) 11.8 9.8 -0.4 n.a. 11.1 6.1 11.2 9.1 n.a. 11.8 11.9 8. Demand deposits 11.8 8.0 -29.2 -34.6 -10.6 -4.9 -4.4 9. Other checkable deposits 58.0 57.6 380.2 272.0 123.4 136.8 224.1 7.2 9.0 10.1 -33.1 174.0 16.5 45.4 171,4 -43.8 43.4 130.7 93.9 0.7 -23.0 6.7 -9.7 14.2 -0.4 -22.8 16.0 2.0 -2.1 4.2 -1.4 -3.0 15.3 5.9 -9.2 9.1 5.0 -4.3 -0.5 -5.1 11.0 -3.7 -4.5 -0.0 11.6 8.4 29.2 10.1 24.1 10. M-2 minus M-1B (11+12+13+16) 11. Overnight RPs and Eurodollars, NSA 3 12. Money market mutual fund shares, NSA 13. Commercial banks 14. savings deposits 15. small time deposits 6. Thrift institutions 17. savings deposits 18. small time deposits Large time deposits at commercial banks, net at thrift institutions 22. 4 Term RPs, NSA 16.4 135.6 15.4 0.0 84.5 5.6 75.7 10.8 22.9 2.9 9.7 22.8 -15.5 9.8 3.6 12.8 -31.2 30.0 3.2 -30.7 19.1 -9.5 21.8 36.2 22.8 17.6 36.5 21.9 42.9 32.9 30.0 -17.3 -20.9 0.0 41.5 14.4 -27.8 -66.5 -14.3 19.1 47.8 1.7 15.4 7.8 -2.4 0.7 9.6 12.0 8.0 --Average monthly change in billions of dollars-MEMORANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due td related foreign institutions, NSA 27. Other 5 28. U.S. government deposits at 6 commercial banks -0.3 0.3 -0.6 7.7 5.6 2.1 4.2 4.4 -0.2 3.0 4.5 -1.5 -6.8 -2.3 -4.5 -1.6 2.7 -4.3 2.1 2.9 -0.8 -1.9 1.3 -0.2 2.4 -1.5 1.3 0.1 -1.7 -4.6 0.2 -4.1 -0.2 -2.3 1.5 1.1 1.2 3.5 0.6 0.8 -1.0 0.3 1. Quarterly growth rates are computed on a quarterly average basis. 2. Figures in parentheses have been adjusted to remove the distorting effects since the beginning of 1981 of shifts of funds out of demand deposits and other accounts into NOW accounts. Based on a variety of evidence, it is estimated that 77-1/2 percent of inflows into other checkable deposits--in excess of "trend"was from demand deposits in January, and 72-1/2 percent in February, March and April. 3. Overnight and continuing contract RPs issued to the nonbank public by commercial banks, net of amounts held by money market mutual funds, plus overnight Eurodollar deposits issued by Caribbean branches of U.S. member banks to U.S. nonbank customers. 4. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 5. 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 Reserve), loans sold to affiliates, loan RPs, and other minor items. Changes since October 1980 are partially estimated. 6. Consists of Treasury demand deposits at commercial banks and Treasury note balances. n.a.--not available. e--estimated. -6COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1 1980 1981 Q4 Q3 Q2 ---------1. 2. Total loans and investments 2 at banks Investments Q1 Commercial Feb. Mar. Apr. Apr. 80 to Apr. 81 Bank Credit ----------8.1 -4.1 12.9 14.6 12.0 20.5 11.9 10.5 9.8 -0.6 4.4 2.2 .7 -4.2 4.2 14.6 22.9 3. Treasury securities 13.1 39.1 11.1 15.2 18.0 4. Other securities 11.4 11.5 12.3 8.0 5.6 5.5 -9.4 10.2 15.6 6.7 7.4 -1.5 6.4 6.7 -9.3 15.2 21.2 8.1 4.7 2.5 3.6 9.7 -17.1 -10.2 60.1 25.0 -32.1 33.0 1.9 4.5 11.0 9.4 12.4 9.1 -16.9 -7.6 -0.2 -1.4 -4.1 2.1 5. Total loans 2 2 6. Business loans 7. Security loans 8. Real estate loans 9. Consumer loans -10. 11. 12. Total short- and intermediateterm business credit (sum of lines 14, 15 and 16) Business loans net of bankers acceptances Short- and Intermediate-Term 7.2 n.a. 22.4 6.9 n.a. Business Credit 9.0 14.4 15.4 15.6 14.2 n.a. -10.7 14.3 24.1 7.6 4.5 3.3 .4 9.3 -11.4 14.9 62.6 13. Sum of lines 11 & 12 -2.9 14. Line 13 plus loans at 4 foreign branches -0.6 9.6 Finance company loans to 5 business -2.3 Total bankers acceptances 5 outstanding 31.5 16. 64.2 10.6 2.5 Commercial paper issued by 3 nonfinancial firms 15. -3.3 -3.0 30.7 23.8 21.0 10.5 7.3 19.4 13.7 -4.6 14.6 21.0 -15.7 -19.3 10.1 29.2 n.a. 6.2 -1.0 9.9 11.4 10.3 .6 11.0 8.5 6.6 -3.3 n.a. n.a. 35.6 56.2 62.3 n.a. n.a. 1. Average of Wednesdays for domestic chartered banks and average of current and preceding ends of months for foreign-related institututions. 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 domesticchartered banks. 5. Based on average of current and preceding ends of months. e--estimate. n.a.--not available. SELECTED FINANCIAL MARKET QUOTATIONS (Percent) 1980 Mid June* Dec. Low High 1 1981 FOMC May Mar. 31 14 Change from: Dec. FOMC High Mar. 31 Short-term rates 2 8.99 19.83 14.93 18.21 -1.62 3.28 Treasury bills 3-month 6-month 1-year 6.18 6.60 7.00 17.14 15.74 14.06 12.46 12.03 11.73 16.67 15.64 14.65 -. 47 .59 4.21 3.61 2.92 Commercial paper 1-month 3-month 6-month 7.98 7.78 7.59 20.77 19.88 18.58 13.74 13.21 12.88 18.57 18.29 17.25 -2.20 -1.59 -1.33 4.83 5.08 4.37 Large negotiable CDs 3 1-month 3-month 6-month 7.96 7.90 7.66 21.29 20.90 19.19 13.72 13.54 13.52 18.80 19.01 18.50 -2.49 -1.89 -. 69 5.08 5.47 4.98 Eurodollar deposit 2 1-month 3-month 8.88 8.99 22.54 21.36 14.56 14.78 19.39 19.56 -3.15 -1.80 4.83 4.78 12.00 21.50 17.50 19.50 -2.00 2.00 U.S. Treasury (constant maturity) 3-year 10-year 30-year 8.56 9.47 9.49 14.41 13.57 13.17 13.27 13.13 12.65 15.38 14.24 13.66 .97 .67 .49 2.11 1.11 1.01 Municipal (Bond Buyer) 7.44 10.56 10.094 10.83 .27 .74 10.53 10.79 14.51 15.03 15.075 15.83P 14.716 15.73P 1.32 .70 .76 1.02 14.95 15.406 1.17 .72 Federal funds Bank prime rate -. 10 Intermediate- and longterm rates Corporate Aaa New issue Recently offered Primary conventional mortgages 12.35 16.126 1980 Mid-Oct. 1981 Mar.-Apr. FOMC High Low Mar. 31 Stock Prices 972.44 Dow-Jones Industrial 77.24 NYSE Composite AMEX Composite 363.33 199.43 NASDAQ (OTC) 1. One-day quotes except as noted. 759.13 55.30 215.69 124.09 1981 1,003.87 78.27 360.60 210.18 Averages for statement week closest to date shown. Secondary market. One-day quotes for preceding Thursday. Percent change from: Mar.-Apr. FOMC May.14 Low Mar.31 -3 28 973.07 -3 37 76.02 369.29 71 2 2 215.18 73 5. One-day quotes for preceding 6. * Friday. One-day quotes for preceding Friday. Most lows occurred on or around June 13.
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