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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 September 28, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1984 TABLE OF CONTENTS Page THE DOMESTIC ECONOMY . Federal Government Budget Developments . . ....... . 1 Tables Conference agreement on FY1985 budget resolution . . . . . Monetary aggregates . . . . . . .. . . . . . . .... 2 3 Commercial bank credit and short- and intermediateterm business credit . .. . . . . . . Selected financial market quotations . . . . . . . . ... . . . . . . 4 5 INTERNATIONAL DEVELOPMENTS U.S. Merchandise Trade Through August . . . . . . . . . . . . . . . . . . . . .. . Table U.S. merchandise trade . . . . . . . . 6 SUPPLEMENTAL NOTES Federal Government Budget Developments The federal government registered a unified budget deficit of $33.5 billion in August. This unusually large monthly figure reflected an end-of- month payment of social security benefits, owing to the early Labor Day holiday. In September, outlays are expected to be much lower and the Treasury is likely to run a surplus of between $15 to $20 billion. This would bring the fiscal 1984 budget deficit to around $173 billion, about $20 billion less than in FY1983. Meanwhile, a conference agreement on the FY1985 budget resolution has been passed by the Senate and will be brought before the House on Monday. As shown on the table, the resolution projects a deficit of $181 billion in FY1985, $193 billion in FY1986, and $207 billion in FY1987. Underlying the figures are CBO's latest economic assumptions and the defense compromise that assumes annual real spending increases of 5 percent. The House version of the budget resolution includes an increase in the debt ceiling to $1.82 trillion from the current level of $1.58 trillion. The Senate needs to take a separate vote on the debt limit, after House action. In addition, Congress needs to provide interim funding for FY1985; the continuing resolution, which has passed the House, covers programs under appropriations yet to be decided. CONFERENCE AGREEMENT ON FY1985 BUDGET RESOLUTION (Billions of dollars, unified budget) 1985 Fiscal Year 1986 1987 Receipts 751 811 881 Outlays 932 1,004 1,088 Deficit 181 193 207 3 MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted)1 1983 03 -----9.5 6.9 7.4 1. M1 2. M2 3. M3 September 28, 1984 04 Q1 Q2 July Aug. 1984 Growth from Q4 1983 to Aug. 1984 Percentage change at annual rates ---4.8 8.5 9.8 7.2 6.9 8.9 6.1 6.8 10.3 Levels in billions of dollars Aug. 1984 Selected components 4. Currency 9.1 9.7 8.7 7.2 5. Demand deposits 4.0 -0.5 1.2 3.4 -5.3 245.5 6. Other checkable deposits -2.6 139.7 7. M2 minus M12 8. 9. 10. 11. 12. 13. 14. 15. 16. 9.6 15.9 9.9 6.1 9.7 6.8 7.1 3 -8.1 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money -13.1 market mutual fund shares, NSA 12.2 Commercial banks Savings deposits, SA, plus 4 11.0 MMDAs, NSA '13.7 Small time deposits 7.3 Thrift institutions Savings deposits, SA, plus 4 1.0 MMDAs, NSA 12.3 Small time deposits 23.4 19.3 -8.2 -1.2 12.4 9.8 5.4 15.5 6.7 5.9 19.3 7.3 6.5 4.4 6.4 4.9 8.6 6.2 -7.0 18.8 -0.9 11.8 2.6 8.9 9.8 15.8 17.6 24.7 22.7 11.9 -4.6 63.5 15.7 -0.4 58.1 24.8 10.0 59.0 31.5 24.2 46.4 -17.8 15.2 -1.3 16.6 50.0 -4.4 10.9 18.4 5.7 6.8 42.5 0.4 M3 minus M25 Large time deposits 6 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA -MEMORANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 7 Other 27. 28. 6.2 U.S. 6.7 156.0 5.3 34.1 -5.5 20.0 8.7 -15.5 25.6 1743.1 57.9 0.8 5.7 150.6 746.6 -7.8 19.4 6.5 368.9 -23.2 26.6 377.8 798.5 314.8 483.7 5.4 578.3 31.7 25.5 42.7 8.6 2.8 20.6 391.9 255.6 136.3 8.5 -2.0 -20.3 2.8 74.4 -27.6 42.7 63.4 85.1 Average monthly change in billions of dollars -- -2.6 -2.0 -0.6 5.3 0.1 5.2 4.6 2.0 2.6 7.0 7.9 -0.9 1.5 -2.4 3.9 423.1 313.3 1.3 -2.0 3.2 2.1 1.9 0.6 0.9 -1.8 -1.4 5.3 -35.8 109.8 145.6 government deposits at commercial 8 banks 1.0 -1.2 1.2 -1.3 12.7 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 July and August at rates of 5.6 and 10.4 percent respectively. At thrift institutions, savings deposits excluding MMDAs decreased in July and August at rates of 8.1 and 12.3 percent respectively. 5. The non-M2 component of M3 is seasonally adjusted as a whole. 6. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold ier agreements to repurchase and other liabilities for borrowed money (including borrowings from the Federal eserve 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 INTERMEDIAT-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)1 1983 Q4 -- Q2 02 19842 June June July Aug. Levels in bil. of dollars Commercial Bank Credit ------1. 2. Total loans and securities 3 at banks Securities 3. Treasury securities 4. Other securities 5. Total loans 3 3 12.4 14.0 7.2 1.7 8.5 8.4 1678.4 10.8 4.4 -9.2 -16.8 1.7 10.6 434.4 25.1 -2.3 -11.1 -28.4 7.3 13.1 184.8 0.6 9.5 -7.9 -8.6 -2.4 9.7 249.6 12.9 17.5 13.1 8.2 11.0 7.6 1244.0 10.1 18.9 17.1 14.5 10.2 9.1 461.8 -115.6 29.8 -112.2 22.3 6. Business loans 7. Security loans 60.8 -4.4 -38.5 8. Real estate loans 10.3 14.5 14.5 15.9 11.4 11.6 366.2 9. Consumer loans 22.1 21.5 21.6 21.0 21.2 14.0 251.2 ------ --- Business loans net of bankers acceptances 10.3 18.2 Commercial paper issued by non4 financial firms 25.9 20.1 59.5 35.2 63.2 Sum of lines 10 & 11 11.8 18.4 14.6 12.6 515.0 12.0 18.1 13.8 14.1 535.6 18.9 -22.2 2.9 -11.8 80.9 12.4 10.5 616.5 10. 11. 12. 3. Line 12 plus loans at foreign branches 5 6 Short- and Intermediate-Term Business Credit -------- 17.3 15.6 9.1 9.6 451.8 14. Total bankers acceptances outstanding 15. Line 13 plus total bankers acceptances outstanding 13.1 12.7 6 Finance company loans to business 29.0 28.8 8.4 10.7 10.6 n.a. n.a. 15.1 14.9 23.0 18.2 12.1 n.a. n.a. 16. 17. Total short- and intermediateterm business credit (sum of lines 15 and 16) p--preliminary n.a.-not available. 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Growth rates beginning 1984 have been estimated after adjusting for major changes in reporting panels and Data should be regarded as highly definitions that caused breaks in series at the beginning of January. preliminary. 3. Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, unconsolidated nonbank affiliates of the bank, the bank's holding company (if not a bank), and unconsolidated nonbank subsidiaries of the holding company. 4. Average of Wednesdays. 5. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 6. Based on average of current and preceding ends of month. SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) .... 1981 Cyclical peak . AA 1983 Cyclical low FOMC July 17 1984 FOMC Aug. 21 Sept. 27 Change from: FOMC FOMC July 17 Aug. 21 Short-term rates Federal funds 2 20.06 8.42 11.21 11.77 10.73 -.48 17.01 15.93 15.21 7.55 7.62 7.73 10.18 10.62 10.96 10.42 10.59 10.68 10.16 10.26 10.30 -.02 -. 36 -.66 -.26 -.33 -. 38 18.63 8.00 18.29 7.97 11.04 11.18 11.30 11.24 10.68 10.69 -. 36 -. 49 -.62 -.55 18.90 19.01 18.50 8.08 8.12 8.20 11.28 11.58 12.13 11.42 11.56 11.76 10.81 10.89 11.15 -.47 -.69 -. 98 -.61 -.67 -.61 19.80 19.56 8.68 8.71 11.51 12.01 11.66 11.81 11.24 11.43 -.27 -.58 -.42 -.38 21.50 10.50 13.00 13.00 12.75 -.25 -.25 8.89 10.86 11.45 12.57 10.59 11.56 10.12 11.15 -1.33 -1.42 -.47 -.41 9.33 10.12 10.27 13.12 13.37 13.18 12.44 12.62 12.35 12.13 12.31 12.12 -. 99 -1.06 -1.06 -.31 -.31 -.23 9.21 10.884 10.474 10.474 -. 41 14.10 e 13.83 e -1.02 -1.04 Treasury bills 3-month 6-month 1-year Commercial paper 1-month 3-month 3 Large negotiable CDs 1-month 3-month 6-month Eurodollar deposits 2 1-month 3-month Bank prime rate Treasury bill futures Dec. 1984 contract Dec. 1985 contract - Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 16.59 15.84 10-year 30-year 15.21 Municipal revenue (Bond Buyer index) 14.24 Corporate--A utility Recently offered 18.33* 11.64 14.85e 18.63 N.A. 1982 12.55 10.49 1983 14.685 13.605 Lows Highs Home mortgage rates S&L fixed-rate FNMA ARM, 1-yr. 14.395 13.255 1984 FOMC FOMC July 17 Aug. 21 -. 27 -. 39 -. 10 -.60 -. 25 Percent change from FOMC FOMC July 17 Aue. 21 Sept. 27 14.295 13.005 Stock prices Dow-Jones Industrial NYSE Composite 776.92 58.80 1287.20 99.63 1112.90 87.76 1239.73 96.30 1216.76 96.19 9.3 9.6 -1.9 -.1 2.4 11.0 214.85 209.78 193.64 249.03 118.65 AMEX Composite -1.2 7.2 250.29 253.33 233.50 328.91 159.14 NASDAQ (OTC) i. One-day quotes except as noted. 4. One-day quotes for preceding Thursda) 2. Averages for statement week closest to date shown. 5. One-day quotes for preceding Friday. 3. Secondary market. e--estimated. *September average. Supplemental Notes U.S. Merchandise Trade Through August In August, the U.S. merchandise trade deficit was reduced substantially from the record July rate as imports declined faster than exports. Nonetheless, the deficit for the July-August period combined was a record, more than $20 billion (annual rate) larger than in either the first or second quarters. Exports for the July-August period increased strongly from the second-quarter rate. About one-third of the rise was in machinery shipments with the remaining being spread among a broad range of commodity categories, especially automotive cars and parts to Canada and chemicals. Agricultural exports rose slightly on balance as increased shipments of wheat to China and the USSR were largely offset by a decline in exports of soybeans to Europe. While imports declined sharply in Agust from the record July amount, the average for the two-month period was still substantially higher than the second quarter rate. More than 40 percent of the increase was in imports of machinery, particularly office machines and electric and electronic machines and equipment. About one-third of the increase was in industrial supplies-especially steel and chemicals. Imports of automotive products in July-August were at about the same rate as in the second quarter; increased shipments of cars from Canada and Japan were offered by a sharp decline in imports of cars from Europe. The value of oil imports for July-August was only slightly higher than the second quarter rate. On a seasonally adjusted basis, the volume of imports averaged about 5.8 million barrels per day for the two-month period as 7 imports in August dropped to about 5.6 mbd. The average import price of oil also declined in August by over 50 cents per barrel, bringing the average price for the two months to $28.00 per barrel (on a balance-ofpayments basis). September 28, 1984 U.S. Merchandise Trade (In billions of dollars, seasonally adjusted annual rates) Census Basis 1/ -- CIF Value Exports Imports 2/ Balance 2/ (2) (3) (1) Years: 1981 1982 1983 BOP and GNP Bases 3/ Balance (4) 233.7 212.2 200.5 273.4 254.9 269.9 -39.7 -42.7 -69.4 -28.0 -36.5 -61.1 200.9 194.8 201.3 205.6 244.6 260.3 280.3 294.7 -43.6 -65.5 -79.0 -89.2 -37.1 -59.5 -70.0 -77.6 213.0 212.4 224.9 332.4 332.2 368.4 -119.3 -119.8 -103.4 -102.9 n.a. 197.8 199.0 207.1 274.3 284.9 281.7 -76.5 -85.9 -74.6 -67.7 -80.0 -62.3 Nov. 204.4 204.8 Dec. 207.6 305.6 290.2 288.4 -101.2 -85.4 -80.8 -98.1 -77.5 -57.2 219.9 206.5 212.7 333.5 327.6 335.9 -113.6 -121.1 -123.2 -106.5 -90.1 -113.6 Apr. May June 210.3 356.5 215.4 321.5 211.6 318.5 -146.3 -106.1 -106.9 -129.1 -89.6 -90.2 July Aug. 233.3 216.4 402.0 334.7 -168.7 -118.3 -164.2 Quarters: 1983 - 1 2 3 4 1984 - 1 - 2 - J/A -143.5 Months: 1983 - July Aug. Sept. Oct. 1984 - Jan. Feb. Mar. n.a. 1/ Published monthly by the Census Bureau. 2/ CIF value includes insurance and freight charges for imports only. 3/ Data as defined and used in the Balance of Payments Account and in the GNP Account - does not include insurance and freight charges for imports. In addition, different seasonal factors are used than in Census basis data.
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