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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 September 28, SUMMARY AND OUTLOOK Prepared for the Federal Open Market Commttee By the staff of the Board of Governors of the Federal Reserve System 1983 DOMESTIC NONFINANCIAL DEVELOPMENTS Recent developments. The expansion of economic activity has moderated from the exceptionally vigorous pace of the second quarter. Industrial production and employment both increased strongly in July and August, and housing and business fixed investment remained at high levels; however, real consumer spending, which had led the rapid recovery in the second quarter, declined in August after little change in July. were weak, particularly of autos. Purchases of durable goods Wage and price inflation continues to be comparatively slow, although the summer drought has raised prices of some farm products considerably. The index of industrial production increased an estimated 0.9 percent in August, after rising 2.0 percent in July. Gains in August were widespread, but especially large in the output of home goods and construction supplies. Auto production, at a 7.5 million unit annual rate in August, was marginally higher than in July. With dealers' stocks low, current schedules call for increased output in September to 7.8 million units. Output of industrial equipment and supplies showed strong gains in August, while production of coal and steel expanded less rapidly than in July. Accompanying the expansion in output in August was a substantial increase in employment (after adjustment for strike activity), although not as large as the gains in June and July. Employment in the manufacturing sector (strike-adjusted) rose 85,000, and the factory workweek edged up one-tenth of an hour for the third consecutive month. large in services and construction. Gains in employment were also With growth in the civilian labor force roughly matching the rise in employment, the unemployment rate remained at 9.5 percent after a sharp drop in July. I-1 Consumer spending is estimated to have dropped in August after remaining about unchanged in real terms in July. Domestic auto sales declined in August, but appear to have picked up in mid-September with the increased availability of 1984 models. Purchases of furniture and appliances also declined in August, as did spending on services. In contrast, outlays for nondurable goods expanded at about the same pace as the average of the previous five months. With the drop in consumption and the boost to income from the July tax cut, the personal saving rate in July and August averaged 5 percent, a percentage point higher than the unusually low rate in the second quarter. Homebuilding strengthened in August despite the higher mortgage interest rates that have prevailed since May. Housing starts rose to over 1.9 million units at an annual rate in August, after three months in the 1-3/4 million unit range; both single- and multifamily units recorded gains. But other indicators suggest that housing activity is weakening. Building permits declined in August after four consecutive monthly increases. In addition, sales of new and existing homes fell in July, and sales of existing homes declined again in August. Spending on business fixed investment continued at the relatively high rate of the second quarter. Excluding the volatile aircraft component, shipments of nondefense capital goods in July and August averaged 3 percent above the second-quarter level. Moreover, new orders (excluding aircraft) increased 1 percent in August and have risen 20 percent since their low in late 1982. Investment in nonresidential structures has stabilized in recent months after declines earlier in the year. Recent data suggest that the rebuilding phase of the inventory cycle is beginning after the liquidiation in 1982 and the first half of 1983. In constant-dollar terms, manufacturing and trade inventories rose at an annual rate of $7 billion. Despite the July accumulation, business inventories are still quite lean, with the overall inventory-sales ratio at its lowest level since 1973. Growth in federal outlays continued to slow in July and August, reflecting lower unemployment insurance payments and a slower pace of defense and farm outlays; at the same time, the revenue side of the budget was strengthened by the economic recovery. It now appears that the budget deficit for fiscal year 1983 will be in the range of $195 billion to $200 billion. Although expenditures by state and local governments appear to have increased in the third quarter, revenues have been pushed up even more by the economic recovery and recent tax legislation, improving their financial situation. Wage increases continued to moderate as a result of high unemployment and low price inflation. In August, the hourly earnings index for production workers declined slightly, reflecting to some extent the strike in the telephone industry. This measure of wages has risen little more than 3 percent at an annual rate over the first eight months of this year. Union workers continued to accept pay cuts or freezes in certain new contracts negotiated in construction and at smaller steel firms. In addition, the recent telephone settlement provides substantially smaller wage increases than those negotiated three years earlier. Although price increases have remained moderate on balance, the effects of the summer drought have begun to show up in food prices. The producer price index for crude foods jumped nearly 4 percent in August (after three months of decline), with large increases registered for soybeans, corn, poultry, and fresh vegetables. The consumer price index rose at an annual rate of about 5 percent in July and August, after a 3 percent average increase during the preceding six months. The food component of the CPI turned up a bit in August after two months of decline, as sharp increases in prices of fresh vegetables and poultry were largely offset by further declines in meat prices. The pickup in the CPI also reflected higher gasoline and auto prices. Outlook. The staff estimates that real GNP will increase nearly 7 percent at an annual rate in the third quarter, essentially the same as the Department of Commerce's "flash" estimate, but with some differences in composition. The principal factor in the deceleration from the 9-3/4 percent growth rate for real GNP in the second quarter is an estimated sharp reduction in the growth of consumption spending from the torrid 10 percent annual rate in the second quarter. All other major components of final demand--investment, government, and exports--are estimated to increase at or above second-quarter rates. With production outpacing sales, there is expected to be a swing toward inventory accumulation after six quarters of destocking. The staff's assumptions about monetary policy are little changed since the last Greenbook. M2 is assumed to grow from here on at around an 8 percent rate--the middle of the FOMC's tentative range for 1984. Interest rates are projected to remain near current levels for the rest of this year and to decline only a little, if at all, during 1984. For fiscal policy, the staff's estimate of the budget deficit for fiscal year 1984 has been raised I-5 $6 billion to $198 billion, reflecting the diminished likelihood of a major tax initiative. The rate of expansion of the economy is projected to moderate further in the fourth quarter to a growth rate of about 5 percent. The deceleration largely reflects a smaller contribution from inventory accumulation. Growth in final sales is expected to be slightly higher, with stronger consumption about offset by a slackening in other sectors. Real GNP is expected to rise about 4-1/4 percent during 1984. Business fixed investment should maintain a normal recovery pace in an environment of rising capacity utilization and improved profitability. In addition, federal defense outlays and state and local government spending are expected to provide considerable support to GNP growth. Rising exports of goods and services also should become a source of strength, in contrast to the experience of 1982 and 1983. However, advances in consumer spending for autos and other durable goods as well as housing outlays are likely to moderate from the rapid pace in 1983. With the outlook for real activity over the next five quarters essentially unchanged from the last Greenbook, the staff projections of unemployment, wages, and prices are also little changed. The civilian unemployment rate is projected to decline about one percentage point over the next five quarters, reaching 8-1/2 percent at the end of 1984. Despite the continuing slack in labor markets, somewhat higher inflation and improved profits suggest less downward pressure on wage increases. increase in payroll taxes will add to labor costs. In addition, an Over the four quarters of 1984, hourly compensation is projected to rise about 5 percent, close to I-6 the pace expected for 1983. For prices, the gross business product fixed- weighted price index is projected to rise 4-1/2 percent during 1984, slightly higher than the pace expected for 1983. September 28, 1983 STAFF GNP PROJECTIONS Percent changes, annual rate Gross domestic business product fixed-weighted price index Nominal GNP Real GNP Total 8/17/83 9/28/83 8/17/83 9/28/83 8/17/83 Excluding food and energy 9/28/83 8/17/83 9/28/83 Unemployment rate (percent) 8/17/83 9/28/83 Annual changes: 1981 <1> 1982 <1> 1983 1984 12.2 4.0 7.9 9.4 12.2 4.0 7.7 9.4 2.6 -1.9 3.2 5.0 2.6 -1.9 3.3 5.0 9.5 6.0 4.4 4.5 9.5 6.0 4.2 4.5 9.3 6.9 5.2 4.3 9.3 6.9 5.0 4.4 7.6 9.7 9.7 8.6 7.6 9.7 9.7 8.6 -5.5 1.0 -1.0 -1.3 -5.5 1.0 -1.0 -1.3 4.9 4.5 5.8 3.8 4.9 4.5 5.8 3.8 5.8 6.4 5.4 3.9 5.8 6.4 5.4 3.9 8.8 9.4 10.0 10.7 8.8 9.4 10.0 10.7 10.3 10.1 9.3 9.0 10.3 10.1 9.4 9.1 Quarterly changes: 1982 Q1 Q2 Q3 Q4 <1> <1> <1> <1> 1983 Q1 <1> Q2 <1> Q3 Q4 1984 Q1 Q2 Q3 Q4 -1.4 6.6 2.7 2.5 8.2 13.5 12.4 8.6 8.2 13.3 11.1 9.1 2.6 8.7 8.2 4.8 2.6 9.7 6.9 4.8 3.6 5.3 4.3 4.5 3.6 4.1 4.4 4.8 6.7 4.7 4.4 4.3 6.7 3.5 4.8 4.7 8.7 8.6 8.5 8.6 8.8 8.8 9.0 8.8 4.1 4.1 3.8 3.8 4.1 4.3 4.4 4.1 4.2 4.5 4.7 4.9 4.4 4.5 4.7 4.9 4.0 4.3 4.5 4.8 4.3 4.3 4.4 4.7 -2.3 -1.2 -2.3 -1.2 4.7 4.7 4.7 4.7 6.1 4.6 6.1 4.6 1.1 1.3 1.1 1.3 Two-quarter changes: <2> 2.5 2.6 1982 Q2 <1> Q4 <1> 2.5 2.6 1983 Q2 <1> Q4 10.8 10.5 10.7 10.1 5.6 6.5 6.1 5.8 4.4 4.4 3.9 4.6 5.7 4.4 5.1 4.7 -. 6 -1.1 -. 6 -1.0 8.7 8.5 8.8 8.9 4.1 3.8 4.2 4.3 4.4 4.8 4.5 4.8 4.1 4.6 4.3 4.6 -. 3 -. 3 -. 3 -. 4 2.0 -1.7 6.0 4.0 2.0 -1.7 6.0 4.2 8.7 4.7 4.4 4.6 8.7 4.7 4.2 4.6 9.2 5.4 5.0 4.4 9.2 5.4 4.9 4.4 .9 2.4 -1.7 -. 6 .9 2.4 -1.6 -. 7 1984 Q2 Q4 Four-quarter changes: <3> 1981 1982 1983 1984 Q4 <1> Q4 <1> Q4 Q4 10.8 2.6 10.7 8.6 10.8 2.6 10.4 8.9 <1> Actual. <2> Percent change from two quarters earlier. <3> Percent change from four quarters earlier. I-8 CONFIDENTIAL - FR CLASS II FOMC September 28, 1983 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of current dollars at annual rates.). 1981 Q1 Q2 1982 Q3 Q4 Q1 Q2 Q3 Q4 Gross national product Final sales Private Domestic final purchases 2866.6 2855.7 2279.4 2247.5 2912.5 2897.5 2314.0 2292.9 3004.9 2971.4 2371.1 2348.3 3032.2 3017.9 2395.1 2365.9 3021.4 3047.1 2417.3 2387.4 3070.2 3081.4 2449.8 2416.5 3090.7 3095.6 2439.9 2439.0 3109.6 3165.9 2486.2 2480.6 Personal consumption expenditures Goods Services 1802.8 953.2 849.6 1835.8 964.0 871.8 1886.1 984.6 901.5 1904.1 978.5 925.6 1938.9 989.1 949.7 1972.8 997.6 975.2 2008.8 1010.0 998.9 2046.9 1025.1 1021.8 Gross private domestic investment Residential structures Business fixed investment Change in business inventories Nonfarm 455.5 111.6 333.1 10.9 8.1 472.1 109.5 347.6 15.0 5.0 495.8 101.7 360.6 33.6 24.1 476.2 94.3 367.6 14.3 6.2 422.9 87.3 361.3 -25.7 -27.6 432.5 91.0 352.7 -11.2 -8.8 425.3 87.9 342.3 -4.9 -2.3 377.4 96.8 337.0 -56.4 -53.7 Net exports of goods and services <1> Exports Imports 31.9 367.3 335.4 21.1 369.2 348.1 22.8 367.5 344.7 29.2 371.0 341.7 29.9 358.4 328.5 33.3 364.5 331.2 .9 346.0 345.0 5.6 321.6 316.1 Gov't. purchases of goods and services Federal <2> State and local 576.3 215.7 360.5 583.5 220.4 363.2 600.3 232.4 367.9 622.8 248.5 374.3 629.8 249.7 380.0 631.6 244.1 387.5 655.7 261.7 394.0 679.7 279.2 400.5 Gross national product in constant (1972) dollars 1510.1 1512.5 1525.8 1506.9 1485.8 1489.3 1485.7 1480.7 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 2338.3 1451.7 1967.6 5.7 2394.2 1478.1 2010.4 6.0 2490.9 1512.3 2092.0 7.2 2516.6 1530.6 2120.5 7.5 2528.1 1542.8 2127.9 6.1 2563.2 1563.8 2159.0 5.9 2591.3 1579.8 2191.5 5.6 2632.0 1586.0 2227.8 5.4 Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax 194.7 243.9 185.0 219.0 197.6 227.7 192.0 217.2 162.0 173.2 166.8 178.8 168.5 177.3 161.9 167.5 Federal government surplus or deficit (-) (N.I.A. basis) High employment surplus or deficit (-) <3> -43.4 -15.4 -47.3 -12.3 -62.4 -29.7 -95.8 -46.4 -108.5 -38.1 -113.2 -32.7 -158.3 -64.9 -208.2 -99.6 State and local government surplus or deficit(-) (N.I.A. basis) Excluding social insurance funds 35.3 5.4 36.7 6.1 37.3 5.9 32.0 .2 28.8 -3.5 32.0 -. 8 Civilian labor force (millions) Unemployment rate (percent) Nonfarm payroll employment (millions) Manufacturing 108.2 7.4 91.0 20.2 108.8 7.4 91.2 20.3 108.6 7.4 91.4 20.3 109.1 8.3 91.0 19.9 109.3 8.8 90.3 19.4 Industrial production (1967-100) Capacity utilization: all manufacturing (percent) Materials (percent) 151.8 80.6 82.7 152.5 80.8 81.9 153.0 80.3 82.0 146.3 75.9 76.2 141.7 72.9 73.0 Housing starts, private (million units, A.R.) New auto sales (millions, A.R.) Domestic models Foreign models 1.39 9.96 7.31 2.66 1.18 7.89 5.63 2.25 .96 9.04 6.90 2.14 .87 7.36 5.13 2.23 .94 8.12 5.90 2.22 31.3 -2.1 32.9 -1.2 110.1 9.4 89.9 19.1 110.6 10.0 89.3 18.7 111.0 10.7 88.8 18.3 139.4 71.6 70.7 138.2 135.2 69.0 67.1 .95 7.53 5.53 1.99 71.0 69.4 1.12 7.78 5.56 2.22 1.26 8.57 6.08 2.49 <1> Balance of payments data and details underlying thee 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 6.0 percent high employment unemployment rate. September 28, 1981 Constant (1972) 1983 PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Annual rates compounded quarterly) CONFIDENTIAL - FR CLASS II FOMC Q1 Q2 9.0 6.8 7.3 6.6 .7 -. 9 -. 6 .8 1982 Q3 Q4 Q1 -4.9 -2.3 -3.7 -3.9 -5.5 -1.3 -1.6 .0 Q2 Q3 Q4 -1.0 -1.5 -4.0 -. 9 -1.3 4.5 3.0 3.4 .9 -. 1 2.1 3.6 5.1 1.9 Dollars Gross national product Final sales Private Domestic final purchases Personal consumption expenditures Goods Services .5 -1.6 2.8 3.5 3.5 3.6 -3.0 -6.8 1.4 12.9 -11.7 6.0 12.3 -30.7 8.7 -22.4 -30.2 -1.6 Gross private domestic investment Residential structures Business fixed investment 26.3 -2.3 13.2 Gov't. purchases of goods and services Federal National defense State and local 4.5 12.5 6.7 .1 -2.0 2.2 13.4 -4.6 3.8 15.2 6.3 -2.7 4.4 1.9 Gross national product Final sales Private Domestic final purchases 20.5 16.1 16.9 15.3 Personal consumption expenditures Goods Services -34.1 -28.5 -5.9 3.4 17.9 -14.3 -5.8 -13.0 -8.8 3.9 10.0 7.5 .2 -. 2 .2 -1.3 -. 5 -5.0 -14.0 13.0 1.3 9.4 26.3 14.0 -. 4 8.9 -1.4 -3.4 1.9 -. 3 2.6 6.6 6.0 6.2 8.3 13.3 10.6 10.2 10.0 3.7 6.4 4.1 3.0 -1.4 2.7 1.9 -1.6 3.8 2.5 9.4 7.8 7.0 14.7 16.6 12.7 7.5 4.6 10.9 11.4 8.8 14.3 3.9 -2.5 11.1 7.5 5.1 10.1 7.8 6.1 9.5 Gross private domestic investment Residential structures Business fixed investment 49.9 7.9 21.4 15.4 -7.5 18.7 Gov't. purchases of goods and services Federal National defense State and local 12.9 18.8 12.9 9.6 5.1 8.9 23.8 2.9 12.0 23.6 10.2 5.3 Disposable personal income 13.1 9.0 Personal income Wage and salary disbursements 13.6 11.7 Disposable personal income -34.6 53.2 -6.6 10.6 28.3 5.1 -. 1 Current Dollars Corporate profits with I.V.A. and C.C. Corporate profits before tax 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 Adj. 7.2 3.5 11.2 9.5 18.2 -9.1 15.9 30.7 33.9 7.2 4.6 2.1 3.5 6.2 1.2 -8.7 18.0 8.1 16.1 32.1 20.8 6.8 15.5 29.5 16.5 6.8 17.2 5.6 1.4 6.0 6.1 6.8 9.9 7.5 17.2 9.6 4.2 4.9 1.8 3.2 5.7 5.6 4.5 4.2 6.4 1.6 51.1 17.2 -18.5 -35.0 30.2 16.9 -10.9 -17.2 -49.3 -59.6 12.4 13.6 4.1 -3.3 -14.8 -20.3 1.7 .8 .9 2.4 1.1 .1 -1.8 -7.2 -3.0 -9.5 -1.8 -7.5 -2.7 -7.7 -2.3 -8.6 5.2 11.5 6.0 .4 7.3 6.9 3.8 9.6 5.6 -4.4 7.6 12.6 .1 10.0 9.9 -. 4 5.8 6.2 2.3 7.2 4.7 1.3 5.8 4.4 10.6 5.9 9.4 9.0 4.3 5.6 3.7 3.8 10.6 9.0 10.5 8.1 8.9 8.5 9.2 10.6 12.1 7.2 8.2 7.1 4.9 5.8 3.0 4.5 6.4 5.3 5.8 5.4 7.7 3.8 3.9 1.9 1.9 1.4 -16.6 -6.5 -3.4 <1> Excluding Federal pay increases, rates of change were: 1981-Q1, 1982-Q1, 4.2 percent; 1982-Q4, 3.5 percent. <2> Uses expenditures in 1972 as weights. -14.9 7.5 4.4 10.8 -37.8 -26.5 -6.7 8.4 21.6 -25.6 15.8 3.9 3.8 3.7 -26.0 8.0 10.5 percent; -11.8 1981-Q4, -6.5 -13.0 -11.3 8.1 percent; -38.0 46.9 -6.0 -8.2 I-10 September 28, CONFIDENTIAL - FR CLASS II FOMC 1983 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of current dollars at annual rates.) Projected 1983 Q1 1984 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Gross national product Final sales Private Domestic final purchases 3171.5 3210.9 2533.5 2516.5 3272.0 3286.6 2603.2 2611.7 3359.5 3337.9 2643.3 2669.7 3433.8 3396.6 2689.9 2734.6 3507.0 3467.5 2736.4 2788.3 3581.5 3547.7 2795.0 2847.7 3659.8 3627.9 2858.4 2909.6 3737.9 3705.8 2919.5 2970.3 Personal consumption expenditures Goods Services 2073.0 1035.6 1037.4 2147.0 1077.3 1069.7 2187.2 1098.6 1088.6 2239.0 1127.7 1111.3 2281.6 1147.0 1134.6 2325.0 1166.3 1158.7 2368.7 1186.6 1182.1 2413.9 1206.2 1207.7 Gross private domestic investment Residential structures Business fixed investment Change in business inventories Nonfarm 404.1 111.3 332.1 -39.4 -39.0 450.1 128.4 336.3 -14.5 -10.3 504.1 139.1 343.4 21.6 24.6 532.8 143.1 352.5 37.2 30.2 546.2 144.1 362.6 39.5 43.5 556.5 149.6 373.1 33.8 37.8 572.8 156.6 384.3 31.9 29.9 588.5 160.6 395.8 32.1 30.1 Net exports of goods and services <1> Exports Imports 17.0 326.9 309.9 -8.5 327.1 335.6 -26.4 332.8 359.2 -44.7 339.1 383.8 -51.9 345.7 397.7 -52.7 360.0 412.7 -51.2 372.7 423.9 -50.8 387.3 438.1 Gov't. purchases of goods and services Federal <2> State and local 677.4 273.5 404.0 683.4 273.7 409.7 694.6 275.7 418.9 706.7 278.8 427.9 731.1 294.4 436.7 752.7 307.4 445.3 769.5 315.3 454.2 786.3 322.9 463.4 Gross national product in constant (1972) dollars 1490.1 1525.1 1550.6 1569.0 1585.0 1601..8 1619.2 1635.6 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 2657.7 1610.7 2255.9 5.4 2713.6 1648.4 2301.0 4.0 2768.3 1681.8 2367.6 4.9 2846.4 1720.2 2431.9 5.2 2898.8 1754.8 2476.3 5.1 2951.3 1786.6 2521.6 5.1 3010.1 1819.7 2570.8 5.2 3067.9 1853.5 2619.6 5.2 181.8 169.7 218.2 203.3 248.1 220.8 253,7 220.4 251.6 212.3 265.5 220.2 280.9 229.6 297.7 240.4 -183.3 -72.4 -166.1 -65.1 -185.1 -95.5 -199.5 -114.8 -194.2 -112.9 -197.3 -121.9 -196.3 -126.4 -196.6 -130.9 40.4 5.5 51.7 16.1 53.6 17.3 57.5 20.5 54.9 17.2 52.2 13.8 49.0 9.9 45.8 6.0 110.5 10.3 111.2 10.1 112.1 9.4 112.5 9.1 113.0 8.9 113.5 8.8 113.9 8.6 114.4 8.4 88.8 18.3 89.5 18.5 90.3 18.8 91.3 19.3 91.9 19.6 92.5 19.8 93.2 20.1 93.9 20.4 138.5 70.7 70.1 144.5 73.8 73.5 150.5 76.7 76.6 153.4 77.8 78.1 155.7 78.5 79.4 157.9 79.3 80.5 160.6 80.2 81.8 163.1 81.1 83.0 Corporate profits with I.V.A. and C.C. Corporate profits before tax Adj. Federal government surplus or deficit (-) (N.I.A. basis) High employment surplus or deficit (-) <3> State and local government surplus or (N.I.A. basis) deficit (-) Excluding social insurance funds Civilian labor force (millions) Unemployment rate (percent) Nonfarm payroll employment (millions) Manufacturing Industrial production (1967=100) Capacity utilization: all manufacturing (percent) Materials (percent) Housing starts, private (million units, A.R.) New auto sales (millions, A.R.) Domestic models Foreign models 1.69 8.46 6.06 2.40 1.68 9.08 6.81 2.27 1.81 9.30 6.90 2.40 1.65 9.80 7.40 2.40 1.65 9.90 7.50 2.40 1.75 9.80 7.60 2.20 1.80 9.95 7.65 2.30 1.80 10.10 7.70 2.40 <1> 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 6.0 percent high employment unemployment rate. I-11 September 28, 1983 PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Annual rates compounded quarterly) CONFIDENTIAL - FR CLASS II FOMC ----------- Projected-------------1984 1983 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Gross national product Final sales Private Domestic final purchases 2.6 .6 3.0 3.9 9.7 6.8 8.8 11.9 6.9 2.5 2.9 5.1 4.8 2.8 3.3 5.5 4.1 4.0 3.1 3.3 4.3 5.3 4.6 3.7 4.4 4.8 4.8 3.7 4.1 4.2 4.2 3.1 Personal consumption expenditures Goods Services 2.9 4.4 1.4 10.0 13.5 6.4 3.0 3.7 2.2 5.0 6.4 3.3 2.7 2.4 3.1 2.5 2.1 3.0 2.3 2.1 2.5 2.2 1.6 2.9 Gross private domestic investment Residential structures Business fixed investment 28.7 57.3 -1.5 49.8 79.5 7.9 52.9 34.8 9.0 22.1 7.6 8.3 6.7 -1.7 8.3 2.4 10.8 8.3 7.4 14.5 8.5 6.3 4.8 8.1 -1.1 -2.8 7.4 .0 1.1 -1.9 12.9 3.2 1.1 -1.6 19.0 2.9 7.9 16.1 6.4 2.7 8.2 17.1 6.4 2.5 4.6 7.5 3.3 2.6 4.4 6.8 5.0 2.7 7.2 6.4 2.4 2.2 2.5 2.1 9.1 7.2 7.2 10.1 8.8 8.6 7.1 8.1 8.8 9.6 8.9 8.8 9.0 9.3 9.4 9.0 8.8 8.9 8.8 8.6 Constant (1972) Dollars -8.8 -18.0 6.5 -1.8 Gov't. purchases of goods and services Federal National defense State and local Disposable personal 2.9 income 3.5 Current Dollars Gross national product Final sales Private Domestic final purchases 13.3 9.8 11.5 16.0 Personal consumption expenditures Goods Services 15.1 17.1 13.0 7.7 8.1 7.3 9.8 11.0 8.6 7.8 7.0 8.7 7.8 6.9 8.8 7.7 7.1 8.3 7.9 6.8 8.9 31.4 75.3 -5.7 53.9 76.7 5.1 57.3 37.9 8.8 24.8 12.0 11.0 10.4 2.8 12.0 7.8 16.2 12.1 12.2 20.1 12.6 11.4 10.6 12.5 -1.3 -8.0 7.8 3.5 3.6 .3 10.7 5.8 6.7 3.0 16.1 9.3 7.2 4.6 24.1 8.9 14.5 24.3 16.1 8.5 12.4 18.9 10.4 8.1 9.2 10.7 7.8 8.2 9.0 10.0 9.3 8.4 8.2 8.7 9.7 12.1 8.3 8.4 11.3 11.8 9.5 59.0 5.4 107.5 106.0 67.0 39.0 23.9 15.6 25.3 18.3 26.2 20.2 .1 -.1 2.9 5.2 3.8 7.3 4.4 9.9 2.8 6.4 2.6 5.6 3.0 5.7 3.0 5.6 6.1 4.3 -1.6 4.8 4.5 -. 3 1.8 4.5 2.7 .9 6.4 5.5 1.0 4.7 3.7 3.3 4.0 4.5 4.3 4.1 3.5 4.3 4.4 4.8 4.7 4.4 4.3 4.9 4.5 4.3 5.0 6.1 5.8 7.0 6.4 Gross private domestic investment Residential structures Business fixed investment Gov't. purchases of goods and Federal National defense State and local services Disposable personal income Personal income Wage and salary disbursements Corporate profits with I.V.A. and C.C. Corporate profits before tax Nonfarm payroll employment Manufacturing Adj. 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 10.1 18.3 11.1 6.4 6.3 9.2 18.0 7.5 7.6 8.3 9.4 -3.2 -.7 -13.8 7.9 <1> Excluding Federal pay increases, the rate of change in 1984-Q1 is 4.1 percent. <2> Uses expenditures in 1972 as weights. September 28, 1-12 CONFIDENTIAL - FR CLASS II FOMC 1983 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Expenditures and income figures are billions of current dollars.) 1977 1978 1979 1980 1981 1982 2631.7 2641.5 2103.7 2079.7 2954.1 2935.6 2339.9 2313.6 3073.0 3097.5 2448.3 Gross national product Final sales Private Domestic final purchases 1918.3 1895.3 1501.5 1505.5 2163.9 2137.4 1705.5 1706.6 2417.8 2403.5 Personal consumption expenditures Goods Services 1204.4 657.0 547.4 1346.5 728.5 618.0 1507.2 813.5 693.7 1668.1 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 324.1 95.8 205.2 23.0 21.9 386.6 111.2 248.9 26.5 25.4 423.0 118.6 290.2 14.3 8.6 401.9 102.9 308.8 Net exports of goods and services <1> Exports Imports -4.0 182.7 186.7 -1.1 218.7 219.8 Gov't. purchases of goods and services Federal <2> State and local 393.8 143.4 250.4 1929.1 1915.9 883.5 784.5 -Proj ected-1983 1984 2430.9 3309.2 3308.0 2617.5 2633.1 3621.6 3587.2 2827.3 2879.0 1857.2 970.0 887.1 1991.9 1005.5 986.4 2161.5 1084.8 1076.7 2347.3 1176.5 1170.8 474.9 414.5 90.8 348.3 472.8 -24.5 -4.5 18.5 10.9 -23.1 1.2 1.4 566.0 152.7 378.9 34.3 35.3 13.2 281.4 268.1 23.9 338.8 314.8 26.3 368.8 342.5 17.4 347.6 330.2 -15.7 331.5 347.1 -51.6 366.4 418.1 431.9 153.6 278.3 474.4 168.3 306.0 537.8 197.0 340.8 595.7 229.2 366.5 649.2 258.7 390.5 690.5 275.4 415.1 759.9 310.0 449.9 1369.7 1438.6 1479.4 1475.0 1513.8 1485.4 1533.7 1610.4 1540.4 1314.0 5.9 1732.7 1106.3 1474.0 6.1 1951.2 1237.6 1650.2 5.9 2165.3 1356.7 1828.9 6.0 2435.0 1493.2 2047.6 6.6 2578.6 1568.1 2176.5 5.8 2746.5 1665.3 2339.1 4.9 2982.0 1803.6 2547.1 5.1 Corporate profits with I.V.A. and C.C.Adj. Corporate profits before tax 167.3 194.7 192.4 229.1 194.8 252.7 175.4 234.6 192.3 227.0 164.8 174.2 225.4 203.5 273.9 225.6 Federal government surplus or deficit(-) (N.I.A. basis) High employment surplus or deficit(-) -45.9 -30.6 -29.5 -29.2 -16.1 -18.6 -61.2 -36.0 -62.2 -25.9 -147.1 -58.8 -183.5 -87.0 State and local government surplus or (N.I.A. basis) deficit (-) Excluding social insurance funds 28.0 10.1 30.3 10.0 30.4 6.6 30.6 3.5 35.3 4.4 31.3 -1.9 Civilian labor force (millions) Unemployment rate (percent) 99.0 7.1 105.0 5.8 106.9 7.1 108.7 7.6 110.2 9.7 Nonfarm payroll employment (millions) Manufacturing 82.5 19.7 86.7 20.5 89.8 21.0 90.4 20.3 91.2 20.2 89.6 18.9 138.1 82.2 82.6 146.1 84.7 85.6 152.5 86.0 87.6 147.0 79.6 80.4 150.9 79.4 80.7 1.96 11.13 9.07 2.06 2.00 11.29 9.29 2.00 1.72 10.68 8.36 2.32 1.30 9.04 6.62 2.42 1.10 8.56 6.24 2.32 Gross national product in constant (1972) dollars Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 983.2 Industrial production (1967-100) Capacity utilization: all manufacturing (percent) Materials (percent) Housing starts, private (million units, New auto sales (millions, A.R.) Domestic models Foreign models - -- -- A.R.) 102.3 6.1 -9.8 104.3 352.2 138.6 71.1 70.1 1.06 8.00 5.77 2.23 130.5 341.1 50.8 14.9 111.6 9.7 90.0 18.7 146.7 74.8 74.6 1.71 9.16 6.79 2.37 -196.1 -123.0 50.5 11.7 113.7 8.6 92.9 20.0 159.3 79.8 81.2 1.75 9.94 7.61 2.33 -- <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. I-13 CONFIDENTIAL - FR CLASS II FOMC September 28, PERCENT CHANGES IN GROSS NATIONAL AND RELATED ITEMS 1977 1983 PRODUCT -Proj ec ted-1983 1984 1978 1979 1980 1981 1982 5.0 4.9 5.6 5.5 2.8 3.5 4.0 2.9 -. 3 .5 .1 -1.0 2.6 1.8 2.0 2.7 -1.9 -.7 -1.3 -.1 3.3 2.5 3.0 4.7 5.0 4.1 4.0 4.5 .5 -1.4 2.7 2.7 2.1 3.3 1.4 .1 2.9 4.3 5.5 2.9 3.5 3.8 3.1 13.1 40.5 -.8 15.5 12.6 8.4 3.8 Constant (1972) Dollars Gross national product Final sales Private Domestic final purchases Personal consumption expenditures Goods Services 5.0 5.1 4.9 4.5 4.2 4.8 2.7 1.9 3.7 Gross private domestic investment Residential structures Business fixed investment 16.1 18.6 11.7 10.5 2.8 12.8 -. 2 -5.3 7.3 1.5 3.7 .8 .2 2.0 -.1 .4 3.3 1.3 1.8 2.6 1.1 2.2 4.2 3.9 1.0 .8 3.8 5.2 -1.0 1.8 5.6 7.1 -. 5 4.0 4.9 2.7 .6 3.2 .5 3.2 Gross national product Final sales Private Domestic final purchases 11'7 11.1 11.7 13.2 12.8 12.8 13.6 13.4 11.7 12.4 13.1 12.3 8.8 9.9 9.0 8.5 12.2 11.1 11.2 11.2 4.0 5.5 4.6 5.1 7.7 6.8 6.9 8.3 Personal consumption expenditures Goods Services 11.1 9.8 12.7 11.8 10.9 12.9 11.9 11.7 12.2 10.7 8.6 13.1 11.3 9.8 13.1 7.3 3.7 11.2 8.5 7.9 9.2 Gross private domestic investment Residential structures Business fixed investment 25.7 33.1 17.9 19.3 16.1 21.3 9.4 6.6 16.6 Gov't. purchases of goods and services 8.8 11.0 8.0 7.5 9.7 7.1 8.0 11.2 9.8 9.6 11.5 9.9 13.4 17.1 17.3 11.4 10.8 16.3 17.4 7.5 10.0 12.2 12.0 10.8 Personal income Wage and salary disbursements 10.7 10.5 12.5 12.5 12.6 11.9 Corporate profits with I.V.A. and C.C.Adj. Corporate profits before tax 21.1 17.1 15.0 17.7 Nonfarm payroll employment Manufacturing 3.9 3.6 Nonfarm business sector Output per hour Compensation per hour Unit labor costs 2.2 7.5 5.2 Gov't. purchases of goods and services Federal National defense State and local Disposable personal income -11.8 -20.3 -2.4 9.2 -5.1 5.2 -14.5 -15.4 -4.8 Current Dollars Federal National defense State and local Disposable personal income 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 as weights. 5.9 -5.0 -13.2 6.4 18.2 1.4 14.1 -12.7 -13.0 -1.1 14.1 43.8 -2.1 19.7 17.1 11.1 9.0 12.9 16.5 6.6 6.4 6.5 14.2 6.3 10.0 12.6 14.5 8.4 12.0 6.3 7.5 8.9 11.0 9.6 12.5 10.1 5.9 5.0 6.5 6.2 8.6 8.3 1.3 10.3 -9.9 -7.1 9.6 -3.3 -14.3 -23.2 36.8 16.8 21.5 10.9 5.1 4.2 3.6 2.6 .6 -3.6 .8 -. 6 -1.7 -6.5 .4 -. 8 3.2 6.8 .6 8.6 8.0 -1.5 9.0 10.7 -. 7 10.4 11.1 -. 1 7.8 7.9 3.3 5.8 2.3 1.9 5.1 3.1 7.4 8.6 9.2 6.0 4.3 4.2 8.0 7.8 7.6 9.9 8.6 11.3 10.0 8.5 13.5 6.0 6.9 6.2 4.2 5.0 3.2 4.5 4.4 4.9 5.8 4.4 -3.6 -8.1 5.8 8.6 2.6 September 28, 1983 FEDERAL SECTOR ACCOUNTS (Billions of dollars) Fiscal Year 1982* Unified budget receipts Unified budget outlays Surplus/deficit(-), unified budget Surplus/deficit(-), off-budget 3 agencies Combined deficit to be financed Means of financing combined deficit: Net borrowing from public Decrease in cash operating balance 4 Other :ash operating balance, (emo: end of period Sponsored agency borrowing 5 FY1983e Admin. F.R. 1/ Board FY1984e 2/ Admin. F.R. 1/ Board 9 CY 1982* CY1 83e/ F.R. Board 1982 IV* | I* FRB Staff Estimates Calendar quarters; unadjusted data 1984 1983 II* III IV I II III 618 728 -111 600 810 -210 601 798 -197 668 848 -180 662 860 -198 609 740 -131 611 804 -193 137 205 -68 140 201 -61 167 196 -29 158 197 -39 147 211 -64 154 213 -59 189 218 -30 172 218 -45 -17 -128 -16 -226 -11 -209 -14 -194 -15 -213 -15 -146 -13 -206 -1 -69 -2 -63 -4 -34 -4 -43 -2 -66 -3 -63 -4 -34 -5 -50 135 -11 4 216 9 1 212 -8 4 194 0 0 198 17 -2 161 -8 -8 197 2 7 62 10 -2 56 4 3 47 -13 -1 48 -9 4 47 19 1 55 11 -3 51 -13 -4 46 1 4 29 20 37 20 20 20 18 20 15 28 37 18 7 21 20 20 n.a. -2 n.a. 21 17 2 -2 -3 0 2 2 5 7 7 Seasonally adjusted annual rates 653 644 660 686 701 860 880 898 819 829 279 294 307 274 276 207 219 227 233 199 68 75 69 60 74 591 553 581 585 545 -199 -194 -197 -166 -185 719 915 315 237 78 600 -196 -115 -126 NIA Fudget Receipts Expenditures Purchases Defense Nondefense All other expenditures Surplus/deficit(-) High Employment (H.R.) surplus/deficit(-) evaluated at the unemployment rate of 6 percent 628 740 251 173 78 489 -112 632 827 280 199 81 547 -198 633 819 276 198 78 543 -186 701 873 300 227 73 573 -172 691 888 299 229 70 589 -197 617 764 259 179 79 . 506 -147 645 828 275 205 71 553 -183 613 821 279 191 89 542 -208 623 807 274 194 79 533 -183 -46 n.a. -83 n.a. -119 -59 -87 -100 -72 *-actual 1. 2. 3. e-estimated 4. Mid-Session Review of the 1984 Budget, July 1983. 5. The August CBO reestimate of the First Concurrent Resolution on the Budget -- Fiscal Year 1984 indicated revenues of 8677 billion and outlays of $860 billion; outlays would be $8.5 billion higher if the "Reserve fund" for recession relief is fully utilized. Includes Federal Financing Bank, Postal Service Fund, Rural Electrification and Telephone Revolving Fund, Rural Telephone Bank and (beginning in FY19R2) the Strategic Petroleum Reserve. NOTE.: Quarterly figures may not add to yearly totals due to rounding. -65 -95 -113 -122 n.a.--not available Checks issued less checks paid, accrued items and other transactions. FRB staff estimates and actuals include Federal Home Loan Banks, FHLMC (excluding participation certificates), FNMA (excluding mortgage-backed securities), Federal Land Banks, Federal Intermediate Credit Banks for Cooperatives, and Student Loan Marketing Association marketable debt on a payment basis. DOMESTIC FINANCIAL DEVELOPMENTS Recent developments. M1 appears to have increased at about a 3 percent annual rate in September, in line with August's reduced pace of advance. Demand deposits declined in September, as in August, and growth of other checkable deposits slowed further, to a rate well below that recorded over the first half of the year. Growth of M2 and M3 in September was at annual rates of 5-1/4 and 7-1/2 percent, respectively, thus continuing the relatively moderate pace of advance of July and August. Reflecting savers' responses to the steepening in the maturity structure of interest rates that occurred over the late spring and early summer, small time deposits recorded another relatively strong expansion, while the total of savings and MMDA accounts declined once again in September. M3 growth was bolstered by continued substantial issuance of large time deposits by thrift institutions. Levels for all three aggregates are now comfortably within ranges specified by the FOMC. Domestic nonfinancial debt is estimated to have expanded at about a 9 percent annual rate over the third quarter, and for the year to date, this aggregate has risen at a rate around the middle of its FOMC monitoring range. Commercial bank credit advanced at about a 9-1/4 percent annual rate over the third quarter, a bit slower than the pace recorded over the first half of the year, as growth in total loans accelerated while expansion of security holdings slowed significantly. Against the backdrop of slower growth in monetary aggregates and widespread indications that the pace of economic activity is moderating, interest rates generally have declined since the August FOMC meeting, with short-term rates off about 1/4 to 1/2 percentage point and bond yields and I-15 I-16 conventional mortgage rates down about 1/8 to 1/4 of a point. In general, interest rates remain about 3/4 to 1-1/2 percentage points above their lows for the year established in early May. Major stock indexes have increased about 2 percent to 4-1/2 percent since the August FOMC meeting. Business credit demands have remained moderate in the third quarter. Gross offerings of bonds in September, as in August, amounted to only about two-thirds the average monthly volume recorded over the first seven months of the year, as firms continued to delay debt restructuring activities in the face of relatively high bond yields. Growth in business loans at banks and commercial paper, on the other hand, accelerated in July and again in August, but appears to have moderated in September. Credit demands of the household sector appear to have accelerated further in the third quarter. Consumer installment credit, after expanding at a 16-1/2 percent annual rate in July, is estimated to have posted sizable though somewhat smaller gains in August and September. A drop-back in growth of such credit would be consistent with the slackening of sales of autos and other durable goods. For the quarter, growth is estimated at about a 15 percent annual rate, up considerably from the second quarter's 11 percent rate of advance. a record pace in July. S&Ls added to their holdings of mortgages at Judging from the further sharp rise in outstanding commitments in that month as well as the continued substantial issuance of CDs by these institutions, growth likely remained relatively strong in August and September. Also, real estate loan growth at commercial banks was appreciably faster in the third quarter than in the second. In the government sector, states and municipalities' gross offerings of bonds increased markedly in August and then dropped back in September. I-17 Overall, such borrowing in the third quarter was below the extraordinary volume of offerings recorded over the spring of the year. The U. S. Treasury has continued to issue new debt in record volume to finance its combined budget deficit. Indeed, in the third quarter the Treasury's secu- rity offerings are once again expected to exceed its deficit, resulting in a further buildup in its end-of-quarter cash balance to an unprecedented $37 billion level. Outlook. Given the prospects for more moderate growth in economic activity and for inflationary pressures to remain muted, the recent prevailing balance between demands and supplies for money and credit appears likely to prove sustainable over coming months. Thus, the general level of interest rates likely will change little over the balance of the year. However, market participants' expectations appear to be even more tentatively held than normal at the present time, and thus bond yields may continue to be more responsive than usual to incoming news pertaining to economic activity, inflation and monetary growth rates. The staff is now estimating that the Treasury will run a combined deficit of about $66 billion in the fourth quarter, up about $23 billion from the third quarter. The volume of debt to be issued by the Treasury will be about the same as in the third quarter, however, as the Treasury has indicated that it intends to meet a sizable part of its financing needs through running down its cash balance. State and local debt issuance is expected to continue at a pace in line with recent months. Household borrowing is expected to continue in the next several months at around the recent strong pace. Installment debt growth will be buoyed by a resumption of somewhat brisker auto sales, while mortgage debt growth I-18 is projected to ease slightly in light of some slackening in housing activity. In line with the projected further accumulation of inventories and additional strengthening of fixed investment spending, businesses are likely to increase their issuance of debt. But with profits rising rapidly and thus bolstering internal funds, the volume of such financing is likely to remain relatively light. Barring a strong rally in the bond market, shorter- term business debt is likely to continue growing moderately. INTERNATIONAL DEVELOPMENTS Recent developments. Activity abroad continues to revive, although the pattern among countries is mixed. In the second quarter, real GNP rose strongly in Canada and more moderately in Germany and Japan; real output rose marginally in France, but declined in Italy and in the United Kingdom (after a sharp rise in the first quarter) where there is some concern that the recovery may be faltering. Unemployment abroad remains high by historical standards, although it has moved down from the peak rates of last spring in Canada and the United Kingdom. Fiscal policies in most major industrial countries abroad are restrictive, and interest rates changed little on balance during the intermeeting period, although firming slightly in late September as central banks in Germany, Austria, and the Netherlands raised their key lending rates by 1/2 of 1 percent. The dollar's foreign exchange value has fluctuated within a range of two percent. After firming moderately late in August, the dollar depreciated to earlier levels, reflecting an easing of dollar interest rates and reports showing a widening U.S. trade deficit. The U.S. merchandise trade deficit rose in July to an annual rate of about $70 billion, up from the second quarter rate of nearly $60 billion, as imports advanced further across a broad range of goods. Oil imports accounted for about half of the July rise. Net inflows through banks continued in August, in large part reflecting borrowings from their own foreign offices by the largest I-19 I-20 U.S. banks. These banks reportedly extended the maturities of their interbank borrowings by substituting term borrowings in the Eurodollar market for short-term funding in the United States. Among the major debtor countries Mexico, Chile, Ecuador and Peru are continuing to operate under stabilization programs agreed to with the IMF, and have recently drawn on bank credit lines. Mexico repaid on schedule the emergency financing received from the BIS and U.S. authorities and has announced that by year-end it will repay $560 million of private sector interest arrears owed to commercial banks. Mexico is current on public sector interest payments. Mexico also announced that the "free" rate for the peso would be allowed to depreciate about 0.1 percent per day. On the other hand, Brazil, which signed a new letter of intent with the IMF following its failure to meet earlier performance tests, may have difficulty in meeting the new conditions of the Fund program, especially if the Brazilian parliament rejects a decree law limiting the degree of wage indexation. Argentina is in danger of falling out of compliance with the terms of its Fund agreement. Outlook. The staff's forecast continues to be for moderate recovery abroad, with little or no reduction in unemployment from In current levels and some further slight deceleration in inflation. light of the relatively slow pace of recovery in foreign G-10 countries -GNP is expected to grow about 2 percent from the fourth quarter of 1982 to the fourth quarter of this year, and by somewhat more in 1984 -reinforced by the high exchange rate for the dollar, U.S. exports are not expected to pick up in volume terms until the second quarter of I-21 next year, and the trade balance is expected to deteriorate further throughout the forecast period. The trade deficit is expected to rise from the nearly $60 billion annual rate of the second quarter of this year to about $110 billion in the last half of next year. The current account deficit is projected to be about $80 billion in 1984. These record deficits, in contrast to the substantial current account surplus expected for foreign G-10 countries as a group, are expected to contribute to a substantial depreciation of the dollar by the end of 1984. CONFIDENTIAL CLASS II (FR) FOMC SEPTEMBER 27, 1983 OUTLOOK FOR U.S. NET EXPORTS AND RELATED ITEMS (BILLIONS OF DOLLARS, SEASONALLY ADJUSTED ANNUAL RATES) 1982 ANN. 1. GNP 1983 Q1 1983 Q2 1983-P 1983-P 04 03 1984-P 1984-P 1984-P 1984-P 01 02 03 Q4 17.4 347.6 330.2 -15.7 331.5 347. 1 -51.6 366.5 418.1 1.0 346.0 345.0 5.5 321.6 316. 1 17.0 326.9 309.9 -8.5 327. 1 335.6 -26.4 332.8 359.2 -44.7 339.1 383.8 -51.9 345.7 397. 7 -52.7 360.0 412.7 -51.2 -50.8 372.7 423.9 387.3 438. 1 CONSTANT 72 $, NET EXPORTS OF G+S IMPORTS OF G+S 28.9 147.3 118.4 9.4 136.7 127.) 3.2 143.5 140.3 24.0 146.4 122.4 23.0 136.5 113.5 20.5 137.3 116.8 12. 3 136.2 123.9 5.8 136.6 130.7 -0.9 136.8 137.7 -1.5 137.7 1.2 141.7 140.4 4.8 145.2 140.4 8.3 149.5 141.2 84.6 89.0 85.8 83.9 84.6 89.7 88.7 88.7 89.0 86. 5 85.1 83.6 -36.4 -65.8 -109.5 -52.3 -45.4 -35.2 -58.6 -75.4 -93.9 EXPORTS (EXCL. MILITARY) AGRICULTURAL NONAGRICULTURAL 211.2 37.2 174.0 198.0 36.6 161.4 210.6 40.0 170.6 209.0 33.8 175.2 193.4 33.1 160.3 198.0 36.0 162.0 195.7 35.3 160.3 198.2 36.1 162.2 200.1 38.8 161.3 202. p 40.0 161.9 207.2 41.1 166.2 212.9 40.2 172.8 220.4 38.7 181.7 IMPORTS 247.6 61.2 186.4 263.8 55.6 208.2 320.1 67.5 252.6 261.3 68.9 192.3 238.8 60.5 178.3 233.3 42.0 191.3 254.3 52.1 202.2 273.7 63.2 210.5 294.0 65.2 228.8 305.2 65.3 239.9 315.9 66.6 249.3 323.9 67.4 256.5 335.3 70.6 264.7 -11.2 -43.6 -81.9 -26.4 -26.5 -14.3 -38.8 -50.8 -70.4 -79.5 -81.9 -81.8 -82.5 27.3 24.0 20.4 23.7 29.0 29.9 28.3 30.1 31.4 33.7 0.6 2.7 1.3 1.9 2.2 2.7 2.3 2.6 3.0 6.0 4.5 6.0 5.1 5.6 5.5 5.5 5.1 5.1 NET MERCHANDISE TRADE BALANCE 2/ PETROLEUM AND PRODUCTS OLEUM NONP ERTR U.S. 1982 04 EXPORTS OF G+S IMPORTS OF G+S TERMS OF TRADE (1972=100) 1/ 3. 1982 Q3 NET EXPORTS CURRENT $, 2. U.S. 1983-P 1984-P ANN. ANN. C UR RENT ACCOONT BALANC E OF WHICH; NET INVESTMENT INCOME 27.3 25.8 30.9 -0.1 1.2 2.4 8.1 5.7 5.4 139. 88. 0 -103.2 -108.7 -111.0 -115.0 4.FOREIGN OUTLOOK - TEN INDUSTRIAL COUNTRIBS 3/ REAL GNP, RATES CHANGE, ANNUAL % CONSUMER PRICES, % CHANGE, ANNUAL RATES -1.8 6.0 I/ GNU BXPORT IBPLICIT DBELATOR DIVIDBD BT GUP IMPORT IMPLICIT DBFLATOR 2/ INTERNATIONAL ACCOUNTS BASIS PERCIET SHARE IN TBE-COUNTRB TOTAL ROLTILATERAL 3/ GEOBETRIC 8EIGHTS USED TO AGGRBGATE PORBIGN RUAL GNP AND COMSUBER PRICES TRADE. BELGIOU ITALT (9.01), THE lBTHERLANDS (8.351), CANADA (9. 15), PANC (13.65), (13. 15), NITED KIIGDON (11. 0), (20.85), JAfPA ( 6 GERIMi <SMEDBE (4.25), SUITBBRLAND (3.65) (6.45), P/ PROJECTED
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