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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 November 2, 1984 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 Employment situation . . . . .. . . . . . . . . . . . . . . . . Monetary aggregates . . . . . . . . .. . . . . . . . . Commercial bank credit and short- and intermediateterm business credit . . . . . . . . . . . . . . . . . . . . . Selected financial market quotations . Tables Changes in employment Selected unemployment Hourly earnings index . . .. . . . . . . . . . . THE DOMESTIC FINANCIAL ECONOMY Monetary aggregates. . . . . . . . . . . . . Tables INTERNATIONAL DEVELOPMENTS U.S. merchandise trade . . . .......... . . . Tables Oil imports . . . . . . . U.S. merchandise trade .. . . . . . . . . . . .............. . . . . . . . .. . . SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Employment situation Employment growth advanced strongly in October while the civilian unemployment rate remained unchanged. The October increase in payroll employment of 440,000 was accompanied by an upward revision in last month's employment advance from 139,000 to 231,000. The household survey also showed a substantial employment increase of 332,000 last month. The growth of payroll employment was most pronounced in the service and retail industries. But manufacturing also recovered somewhat after a one-month decline in September. The increase in retail trade employment of 138,000 follows average monthly gains of about 30,000 in the third quarter. Services employment grew by 128,000, about twice the average gain in the preceding three months. In manufacturing, employment growth among producers of durable goods (58,000) was about evenly distributed across industries, after September declines in employment in metals, machinery and equipment. At the same time, hiring remained weak in the nondurable goods sector. The average workweek in manufacturing returned to its July-August level of 40.5 hours. The unemployment rate for October remained unchanged at 7.4 percent; but the composition of unemployment shifted somewhat. A rise in the number of workers reporting that they had lost their last job was offset by a decline in unemployment among reentrants to the work force. Jobless rates for most demographic groups were about the same as their third-quarter averages. 2 The hourly earnings index, was unchanged in October, after a 0.7 percent increase in September. Those industries reporting large increases in September--services, transportation, and trade--showed small declines or no change in October. Overall, this measure of wage rates has been increasin at an annual rate of about 2.8 percent during 1984. CHANGES IN EMPLOYMENT 1 (Thousands of employees; based on seasonally adjusted data) 1983 Q1 Q2 1984 Q3 Aug. Sept. Oct. -Average monthly changesNonfarm payroll employment 2 Strike adjusted 282 282 344 339 359 366 206 199 173 235 231 157 441 448 Manufacturing Durable Nondurable Construction Trade Finance and services Total government Private nonfarm production workers Manufacturing production workers 92 70 22 22 69 96 3 108 82 25 22 88 105 1 54 46 8 64 85 122 7 -6 13 -19 10 59 66 55 29 56 -27 0 28 50 29 -114 -68 -46 18 85 127 103 56 58 -2 14 165 156 27 249 259 307 112 122 84 337 84 81 35 -14 17 -108 55 330 336 400 425 536 495 -170 -140 -426 -306 270 179 347 549 Total employment 3 Nonagricultural 1. Average change from final month of preceding period to final month of period indicated. 2. Survey of establishments. Strike-adjusted data noted. 3. Survey of households. SELECTED UNEMPLOYMENT RATES (Percent; based on seasonally adjusted data) 1983 Ql Q2 Q3 1984 Aug Sept. Oct. Civilian, 16 years and older 9.6 7.9 7.5 7.5 7.5 7.4 7.4 Teenagers 20-24 years old Men, 25 years and older Women, 25 years and older 22.4 14.4 7.8 7.2 19.5 11.9 6.1 6.1 18.7 11.5 5.7 5.9 18.7 11.5 5.6 6.1 18.4 11.9 5.5 6.3 19.3 11.4 5.5 5.9 18.8 11.1 5.5 6.1 White Black 8.4 19.5 6.8 16.5 6.4 15.9 6.4 16.0 6.4 16.0 6.4 15.1 6.4 15.4 9.5 7.6 7.2 7.2 7.2 7.1 7.1 9.5 7.8 7.4 7.4 7.4 7.3 7.3 Fulltime workers Memo: Total national1 1. Includes resident Armed Forces as employed. HOURLY EARNINGS INDEX 1 (Percentage change; based on seasonally adjusted data) 2 1983 Q1 1984 Q2 -Annual Total private nonfarm Manufacturing Durable Nondurable Contract construction Transportation and public utilities Total trade Services Q3 rate- Aug. 1984 Sept. -Monthly Oct. rate- 3.9 3.5 3.2 2.7 -.2 .7 .0 2.7 2.1 3.9 1.5 3.8 3.8 3.6 2.3 3.0 2.7 3.5 1.9 3.1 2.8 3.7 -.7 .3 .3 .2 .0 .0 .0 .1 .2 .3 .2 .4 -.3 4.3 4.7 4.9 3.7 2.7 3.3 3.1 2.5 4.9 2.6 2.1 4.2 -.4 -.3 -.4 .6 .7 1.4 .0 -. 1 -.2 1. Excludes the effect of interindustry shifts in employment and fluctuations in overtime hours in manufacturing. 2. Changes over periods longer than one quarter are measured from final quarter of preceding period to final quarter of period indicated. Quarterly changes are compounded annual rates. 5 SUPPLEMENTAL NOTES THE DOMESTIC FINANCIAL ECONOMY Monetary Aggregates Data for the monetary aggregates have been revised to incorporate new information on the level and composition of deposits received in conjunction with annual shifts among weekly, quarterly, and annual reporting panels of depository institutions and with regular quarterly reports. The bulk of revisions affects data for the third quarter of 1984, although minor revisions to other checkable deposits extend back to January 1981. In addition, institution-only money market mutual fund shares have been revised back to November 1980 to reflect new data. (Based MONETARY AGGREGATES on seasonally adjusted data unless otherwise noted)1 1983 Q4 ------- 1. 2. 3. Q1 Q2 1984 Q3 Aug. Sept. Growth from Q4 1983 co Sept. 1984 Percentage change at annual rates ---- M1 M2 M3 4.5 6.2 8.2 2.0 4.8 4.9 Levels in billions of dollars Sept. 1984 Selected components 4. Currency 5. Demand deposits 6. Other checkable deposits 7. M2 minus M12 8. 9. 10. 11. 12. 13. 14. 15. 16. 3 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, plus 4 MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, plus 4 MMDAs, NSA Small time deposits 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 9.7 8.7 7.2 7.6 7.7 5.4 156.7 -0.5 1.2 3.4 0.2 -7.8 4.4 246.4 9.6 16.2 9.9 9.1 13.0 6.9 140.8 9.7 6.8 7.1 6.8 5.7 9.1 1757,5 23.4 19.3 -7.5 -2.1 42.4 -34.8 56.9 -1.2 12.4 9.8 5.4 15.5 6.7 10.6 7.3 0.0 6.0 11.2 8.4 151.9 752.0 5.9 19.3 7.3 6.5 4.4 6.4 -3.4 18.4 7.9 -7.8 19.7 6.9 2.6 14.0 9.8 369.7 382.3 805.4 -7.0 18.8 -0.9 11.8 2.6 8.9 -13.2 22.8 -23.6 27.6 -8.4 21.3 312.5 492.8 15.9 17.5 24.7 16.1 5.4 7.2 584.6 15.7 -0.4 58.1 25.0 10.2 59.0 31.6 24.3 46.4 26.3 21.6 35.7 9.3 2.4 22.4 2.8 11.7 -14.0 392.9 257.8 135.1 17.4 11.1 8.1 50.0 -4.4 18.4 4.9 41.8 -0.4 18.2 24.6 -18.5 46.9 64.7 83.2 9.7 15.3 -29.7 2.6 76.5 -29.1 -- 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 to related foreign institutions, NSA 27. Other 7 28. 7.0 7.9 -0.9 3.2 2.1 1.9 0.6 0.9 -1.8 -0.4 2.9 1.3 -2.4 3.7 2.5 -0.7 3.2 425.5 312.7 112.8 -1.6 5.3 0.8 2.4 -35.2 148.0 U.S. government deposits at commercial banks 8 -1.2 1.2 -1.3 1.2 1.0 3.8 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly changes are calculated on an end-month-of-quarter basis. 2. 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 August and September at rates of 10.4 and 3.8 percent respectively. At thrift institutions, savings deposits excluding MMDAs decreased in August and September at rates of 15.7 and 2.8 percent respectively. 5. The non-M2 component of M3 is seasonally adjusted as a whole. "-' of large-denomination time deposits held by money market mutual funds and thrift institutions. isists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold agreements to repurchase and other liabilities for borrowed money (including borrowings from the Federal te and unaffiliated foreign banks), loans sold to affiliates, loan RPs and other minor items. Data are partially estimated. 8. Consists of Treasury demand deposits at commercial banks and Treasury note balances. COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1 Levels in bil. of dollars 19842 Q1 Q2 Q3 2. Treasury securities 4. Other securities 5. 8.7 8.2 6.9 1688.5 -9.2 4.4 1.7 10.6 0.8 434.6 -11.1 4.4 7.3 13.1 -7.1 183.7 9.5 -7.9 4.5 -2.4 9.2 6.7 250.9 17.5 13.1 9.2 11.0 7.4 9.0 1253.9 18.9 17.1 7.4 10.2 9.1 2.8 463.3 177.6 25.6 -2.3 Total loans 3 3 Sept. 8.0 4.4 3. Sept.' 7.2 13.9 Securities Aug. Commercial Bank Credit ---------------------- ------------------------1. Total loans and securities at banks 3 July 6. Business loans 7. Security loans -4.4 -38.5 8. Real estate loans 14.5 14.5 11.4 11.4 11.6 10.8 369.5 9. Consumer loans 21.5 21.6 14.8 21.1 14.0 8.6 253.0 --------------- 10. 11. 12. -112.2 Short- and Intermediate-Term Business Credit ----------- 18.2 17.3 7.7 9.1 9.6 4.4 453.9 Commercial paper issued by nonfinancial firms 4 22.8 67.1 43.8 55.4 39.2 32.3 64.9 Sum of lines 18.7 22.5 11.7 13.3 18.4 22.6 11.4 14.3 6.3 538.8 -22.2 45.4 -11.8 2.9 -11.8 -26.7 79.1 12.9 25.4 8.4 12.0 10.9 10 & 11 6 14. Total bankers acceptances outstanding 15. Line 13 plus total bankers acceptances outstanding 17. 9.8 Business loans net of bankers acceptances Line 12 plus loans at foreign branches 5 16. 19.7 Finance company loans to business Total short- and intermediateterm business credit (sum of lines 15 and 16) 6 518.8 617.9 28.8 8.4 n.a. 10.6 14.0 n.a. n.a. 15.1 22.9 n.a. 11.8 11.3 n.a. n.a. 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. 7. Beginning in September, growth rates for total loans and investments, total loans, business loans, and real estate loans have been adjusted to eliminate effects of loan reclassifications and of loan transfers from Continental Illinois National Bank to the FDIC. SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) 1983 Cyclical low 1984 1984 FOMC Oct. 2 Nov. 1 Change from: 1984 FOMC Highs Oct. 2 Highs FOMC Aug. 21 8.42 11.63 11.63 10.60 9.84 -1.79 -. 76 7.55 7.62 7.73 10.67 10.77 11.13 10.42 10.59 10.68 10.23 10.36 10.39 9.01 9.20 9.33 -1.66 -1.57 -1.80 -1.22 -1.16 -1.06 1-month 8.00 11.42 3-month 7.97 11.35 11.30 11.24 10.77 10.73 9.51 9.52 -1.91 -1.83 -1.26 -1.21 Large negotiable CDs 3 1-month 3-month 6-month 8.08 8.12 8.20 11.52 11.79 12.30 11.42 11.56 11.76 10.86 11.01 11.25 9.47 9.53 9.84 -2.05 -2.26 -2.46 -1.39 -1.48 -1.41 Eurodollar deposits 4 1-month 3-month 8.68 8.71 11.89 12.20 11.66 11.81 11.09 11.41 9.74 10.11 -2.15 -2.09 -1.35 -1.30 10.50 13.00 13.00 12.75 12.00 -1.00 -.75 8.89 10.86 11.96 13.20 10.59 11.56 10.25 11.43 9.00 10.51 -2.96 -2.69 -1.25 -. 92 U.S. Treasury (constant maturity) 3-year 9.33 10-year 10.12 30-year 10.27 13.49 13.99 13.94 12.44 12.62 12.35 12.29 12.54 12.35 11.18 11.66 11.53 -2.31 -2.33 -2.41 -1.11 -. 88 -. 82 Municipal revenue (Bond Buyer index) 9.21 11.44 10.475 10.655 10.62 -. 82 -. 03 Corporate--A utility Recently offered 11.64 15.30 14.10e 13.90e 13.12e -2.18 -. 78 12.55 10.49 1982 14.68 13.70 1983 14.396 13.256 14.266 12.906 -. 21 14.056 -. 63 -. 70 -1.50 12.206 Percent change from: FOMC FOMC Short-term rates Federal funds 2 Treasury bills 3-month 6-month 1-year Commercial paper Bank prime rate Treasury bill futures Dec. 1984 contract Dec. 1985 contract Intermediate- and long-term rates Rome mortgage rates S&L fixed-rate FNMA ARM. 1-yr. 1984 FOMC FOMC Lows Stock prices Dow-Jones Industrial Highs Aug. 21 Oct. 2 Nov. 1 776.92 1287.20 1239.73 1191.36 1217.09 NYSE Composite 58.80 99.63 96.30 94.38 96.48 AMEX Composite 118.65 249.03 209.78 212.77 NASDAQ (OTC) 159.14 328.91 253.33 246.10 1. One-day quotes except as noted. 2. Averages for two-week reserve maintenance period closest to date shown. Last observation is for maintenance period ended October 24. 3. Secondary market. Aug. 21 -1.9 Oct. 2 2.1 .1 2.2 208.64 -.6 -2.0 247.97 -2.2 .7 ,4. Averages for statement week closest to date shown. 5. One-day quotes for preceding Thursday. 6. One-day quotes for preceding Friday. e--estimated. U.S. Merchandise Trade In September, the U.S. merchandise trade deficit was larger than in August but less than the record July level. For the third quarter as a whole, the trade deficit was more than $30 billion larger, at an annual rate, than in either the first or second quarters. Imports in the third quarter increased sharply from the second-quarter level. Despite sharp month-to-month volatility, the rate of imports in all three months exceeded that recorded in the second quarter. The increase for the third quarter as a whole was spread among a wide range of commodity categories, particularly industrial supplies and machinery. Among individual items, strong increases were recorded for steel, chemicals, electronic equipment and parts, clothing and textiles, and passenger car imports from Canada and Japan. Oil imports declined slightly in the third quarter. The volume imported decreased steadily during the period; a rate of about 5.3 million barrels per day (mbd) in September brought the quarterly average to about 5.7 mbd. The price of imported oil dropped to about $27.30 per barrel in September and reflected weak spot prices during the summer; the average for the third quarter was about $27.80 per barrel. From the OIL IMPORTS 1983 Volume (mbd, SA) Price ($/BBL) Value (Bil. $, SAAR) */ Estimated. Year Q4 Q1 5.20 28.42 53.80 5.53 28.30 57.14 5.40 28.05 55.41 Q2 5.76 28.26 59.61 1984 Q3* 5.65 27.80 57.70 Aug. Sept.* 5.59 27.77 56.78 5.35 27.30 53.40 summer until early October spot prices strengthened as OPEC reduced its level of crude oil production. Recent cuts in prices by Norway, the United Kingdom and Nigeria reflect a weakness in the price of light crude oil relative to heavy crude oil. The value of exports in the third quarter was slightly higher than in the second quarter. The increase was largely in manufactured goods (especially computers and parts, industrial supplies, and parts and vehicles to Canada). By area, a sharp decline in nonagricultural exports to Canada (in items other than automotive products) was offset by small increases in exports to Western Europe, Japan, Mexico, and other Latin American countries. The value of agricultural exports in the third quarter was maintained at about the second-quarter rate because a sharp increase in wheat shipments (largely to the Soviet Union) offset declines in other commodities (particularly soybeans and corn). November 2, 1984 U.S. Merchandise Trade 1/ (billions of dollars, seasonally adjusted annual rates) Total Exports Agric. Nonagric. Total Imports Oil Nonoil Trade Balance Years 1980 1981 1982 1983 224.3 237.1 211.2 200.3 42.2 44.0 37.2 36.6 182.1 193.1 174.0 163.6 249.8 265.1 247.7 261.3 79.4 77.8 61.3 53.8 170.4 187.3 186.4 207.5 -25.5 -28.0 -36.5 -61.1 Quarters 1982 - 1 2 3 4 221.9 220.5 208.3 194.1 40.1 41.7 33.6 33.5 181.9 178.8 174.7 160.5 250.2 243.7 257.8 239.0 63.3 53.3 67.2 61.2 186.9 190.3 190.6 177.8 -28.3 -23.2 1983 - 1 2 3 4 197.0 195.0 201.7 207.3 35.3 34.8 37.2 39.2 161.7 160.2 164.5 168.1 234.1 254.5 271.8 284.9 43.1 51.3 63.7 57.1 191.0 203.2 208.1 227.8 -37.1 -59.5 -70.0 -77.6 1984 - 1 2 3 215.7 218.4 220 41.2 37.1 36 174.5 181.3 184 319.2 321.3 356 55.4 59.6 58 263.8 261.7 298 -103.4 -102.9 -136 Feb Mar 217.0 214.8 215.4 41.8 39.3 42.5 175.1 175.5 173.0 323.5 304.9 329.1 54.1 53.4 58.7 269.3 251.6 270.4 -106.5 -90.1 -113.6 Apr May June 215.5 222.8 216.8 38.4 39.3 33.6 177.1 183.6 183.2 344.6 312.4 307.0 64.4 54.2 60.3 280.2 258.3 246.7 -129.1 -89.6 -90.2 July e/ Aug e7 Sept e/ 221 224 214 36 34 37 185 190 177 390 328 350 63 57 53 326 271 297 -169 -104 -136 -49.5 -45.0 Months 1984 - Jan 1/ As used in the Balance-of-Payments accounts and in the GNP accounts. data are estimated. Monthly
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