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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 30, 1983 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 Mortgage activity at S&Ls . . . . . . . . . . . . . . . . . . TABLES: Mortgage activity at federally insured savings and and loan associations . . . . . . . . . . . . . . . . THE DOMESTIC FINANCIAL ECONOMY TABLES: Monetary aggregates . . . . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit. . . . . . . . . . . Selected financial market quotations. . . . . . . . . . . . . . . . . . INTERNATIONAL DEVELOPMENTS U.S. merchandise trade through August . . . . . . . . . . . . TABLES: U.S. merchandise trade. . . . . . . .. Oil imports . . . . . . . . . . . . . . . . . . . . . ... . . . * . . . SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Mortgage Activity at S&Ls Insured savings and loan associations issued new commitments to originate or purchase mortgage loans at a seasonally adjusted monthly rate of $14.3 billion in August--10 percent below the upward-revised July figure. Outstanding mortgage commitments continued to rise, however, reaching a record $47.8 billion at the end of August. The net change in total mortgage assets held by insured S&Ls amounted to $8.3 billion in August, down from a record $8.8 billion in July. The decline reflected smaller net acquisitions of mortgage loans, as holdings of mortgage-backed securities increased by $3.3 billion. Swaps of mortgages for pass-through securities, under the programs operated by FNMA and FHLMC, significantly affected the composition of S&L mortgage assets in August, as in most other months since late 1981. MORTGAGE ACTIVITY AT FEDERALLY INSURED SAVINGS AND LOAN ASSOCIATIONS (Billions of dollars, seasonally adjusted) Mortgage Commitments New Outstanding 2 (1) 1982-Jan. Feb. Mar. Apr. May Jun. Jul. Aug. (2) Net Change in Mortgage Assets Mortgage Mortgage-backed Total Loans Securities (3) (4) (5) 4.4 4.9 4.7 4.6 4.7 5.0 4.5 5.4 23.2 23.0 22.6 22.6 22.6 23.2 22.3 23.2 2.3 2.0 2.0 1.3 0.3 1.1 0.9 -1.1 0.3 -0.1 -0.9 -1.1 -1.1 -1.9 -2.2 -3.1 2.0 2.1 2.9 2.4 1.4 3.0 3.1 2.0 Sept. 6.0 24.0 0.5 -1.9 2.4 Oct. Nov. Dec. 6.7 8.3 9.4 25.8 28.4 29.4 0.2 1.8 0.0 -2.4 -0.9 -4.6 2.6 2.7 4.6 1983-Jan. Feb. Mar. Apr. May June July Aug. 10.7 12.6 13.3 12.1 12.9 14.8 15.9 14.3 32.2 35.2 38.0 40.8 43.1 44.9 46.7 47.8 2.4 5.9 5.4 4.5 3.4 7.1 8.8 8.3 0.5 2.5 1.3 3.1 2.0 3.7 5.9 5.0 1.9 3.4 4.1 1.4 1.4 3.4 2.9 3.3 r r r r r p 1 1. Insured S&Ls account for approximately 98 percent of the assets of all operating S&Ls. Net changes in mortgage assets reflect adjustments to account for conversions of S&Ls to savings banks. 2. Includes loans in process. r--revised. p--preliminary. MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1982 Q4 -----Money stock measures 1. M1 3 2. (M1) 3. M2 4. M3 13.1 (14.5) 9.3 9.5 Q1 Q2 1983 June 1 Aug. July Growth from base period to Aug. 19832 Percentage change at annual rates --- 14.1 (13.8) 20.3 10.2 12.2 (12.7) 10.1 8.1 10.2 (7.6) 10.4 10.9 8.9 (3.3) 6.6 5.5 2.8 (7.0) 6.2 8.7 9.1 (7.5) 8.1 9.1 Level in billions of dollars Aug. 1983 Selected components 7.4 10.9 10.6 8.6 5.1 7.7 141.8 8.4 2.7 4.0 7.4 8.9 -6.3 244.5 Other checkable deposits 34.0 46.2 30.6 17.9 14.7 15.5 125.8 8. M2 minus M1 (9+10+11+14) 8.1 22.4 9.4 10.4 5.9 7.2 1620.2 23.9 34.2 47.3 17.4 -68.7 -6.8 15.3 9.9 -57.5 57.8 -44.0 16.5 -12.8 14.6 -10.3 13.1 2.6 9.3 138.7 688.0 35.5 -0.5 3.9 296.1 -48.5 14.7 62.4 -24.1 12.4 25.5 2.6 10.2 2.4 24.8 8.6 -2.7 22.4 6.4 355.7 332.2 748.3 30.3 -6.0 171.0 -51.0 56.8 -18.0 18.1 3.6 -3.9 18.8 -10.0 20.0 332.6 415.7 10.4 -36.5 -2.3 13.9 -0.6 23.1 391.6 4.2 -1.5 29.3 -43.0 -49.9 -14.6 -0.5 -15.6 55.4 19.7 11.1 46.3 7.1 -14.7 73.3 32.7 34.4 -32.7 19.4 -41.9 31.2 -35.6 -21.2 -18.4 -45.8 5. Currency 6. Demand deposits 7. 9. 10. 11. 12. 13. 14. 15. 16. 17. 4 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks SA, plus Savings deposits, 5 MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, plus 5 MMDAs, NSA Small time deposits M3 minus M2 (18+21+22) Large time deposits 6 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA -MEMORANDA: at commercial Managed liabilities 23. banks (24+25) Large time deposits, gross 24. Nondeposit funds 25. Net due to related foreign 26. institutions, NSA 7 Other 27. 28. U.S. government deposits at commercial 8 banks 52.4 311.8 226.7 85.1 -6.2 56.1 38.4 44.8 Average monthly change in billions of dollars -- -2.7 -4.0 -19.0 -16.5 -0.2 -2.9 -14.0 -4.3 -0.2 -2.1 1.3 -2.5 4.1 -2.7 -11.9 -0.7 -4.9 2.4 2.6 -3.8 7.4 2.0 2.5 1.7 -5.3 -8.1 -1.9 -51.6 132.8 0.3 0.2 0.2 1.7 11.0 -3.4 20.6 365.4 284.2 81.2 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. The The base period for M2 is the February-March 1983 average. 2. The base fqr Ml is the second-quarter 1983 average. base period for M3 is the fourth-quarter 1982 average. 3. Ml seasonally adjusted using an experimental model-based procedure applied to weekly data. 4. 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. 5. Beginning December, 1982, growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Commercial bank savings deposits excluding MMDAs, were unchanged in June and declined at rates of 10.2 percent in July and 11.2 percent in August. At thrift institutions, saving deposits excluding MMDAs increased during June at an annual rate of 12.5 percent and declined during July and August at rates of 2.0 and 0.7 percent respectively. 6. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 7. 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 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 1 (Percentage changes at annual rates, based on seasonally adjusted data) Levels in 1982 Q4 Q1 Q2 ------------- 1. 2. Total loans and securities 2 at banks Securities 3. Treasury securities 4. Other securities 5. Total loans 2 6. Business loans 7. Security loans 8. 9. 2 1983 June July Aug. bil. of dollars n Levels Aug. 1983 Commercial Bank Credit --------------------- 6.3 10.7 9.9 9.9 11.2 1515.7 15.9 25.0 23.9 18.4 8.9 422.2 43.0 61.1 53.5 36.8 10.4 174.4 2.5 5.3 5.8 6.4 8.3 247.8 3.0 5.7 4.8 6.8 11.9 1093.5 -0.3 3.9 -1.3 6.4 10.1 404.5 -5.3 -56.4 -35.4 23.0 37.2 -34.0 Real estate loans 4.8 7.1 9.7 13.0 11.6 322.5 Consumer loans 4.9 6.3 10.3 11.5 14.2 205.5 ------------- Short- and Intermediate-Term Business Credit -----10. 11. 12. Total short- and intermediateterm business credit (sum of lines 14, 15 and 16) -3.0 -3.1 -1.5 5.8 10.1 n.a. Business loans net of bankers acceptances 0.5 3.6 -0.4 7.2 11.3 10.0 396.0 10.8 44.7 Commercial paper issued by nonfinancial firms 3 13. Sum of lines 11 & 12 14. Line 13 plus loans at foreign 4 branches 15. 16. Finance company loans to business 5 Total bankers acceptances outstanding 5 n.a. -39.6 -33.1 -23.5 -13.4 -4.6 -0.4 -2.8 8.6 10.1 440.7 -4.9 0.3 -2.2 7.5 9.2 457.1 -15.2 4.0 7.8 11.5 n.a. n.a. 22.9 -30.9 -7.3 27.3 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. 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 domestically chartered banks. 5. Based on average of current and preceding ends of month. SELECTED FINANCIAL MARKET QUOTATIONS1 (Percent) Change from: 1983 1982 FOMC FOMC Recent low Recent FOMC July 13 Aug. 23 Sept. 29 low FOMC Aug. 23 Highs Dec. 21 15.61 8.69 8.48 9.21 9.41 9.04 .56 -. 37 14.57 14.36 13.55 7.90 8.01 9.10 9.30 9.39 9.19 9.33 9.37 8.81 8.11 7.96 7.97 7.95 9.10 .85 .98 1.15 -.38 -.38 -.27 Commercial paper 1-month 3-month 15.73 15.61 8.48 8.43 8.17 8.13 9.19 9.30 9.24 9.34 9.03 9.08 .86 .95 -.21 -.26 Large negotiable CDs 3 1-month 3-month 6-month 15.94 16.14 16.18 8.59 8.62 8.78 8.26 8.26 8.29 9.33 9.58 10.00 9.37 9.50 9.81 9.08 9.20 9.48 .82 .94 1.19 -.29 Eurodollar deposits 2 1-month 3-month 16.36 16.53 9.44 9.56 8.68 8.71 9.70 10.05 9.73 10.04 9.44 9.50 .76 .79 -.29 -.54 17.00 11.50 10.50 10.50 11.00 11.00 13.97 13.50 8.98 9.56 8.21 8.53 9.83 10.17 9.61 10.09 8.96 9.61 .75 1.08 -.65 -.48 9.87 10.54 10.53 9.36 10.12 10.27 10.91 11.40 11.44 11.02 11.57 11.56 10.87 11.50 11.48 1.51 1.38 1.21 -.15 -.07 9.46 .68 -.24 Short-term rates Federal funds 2 Treasury bills 3-month 6-month 1-year Bank prime rate Treasury bill futures Dec. 1983 contract June 1984 contract 8.95 -.30 -.33 Intermediate- and longterm rates U.S. Treasury (constant maturity) 15.16 3-year 14.95 10-year 14.80 30-year Municipal (Bond Buyer) 13.44 10.054 8.78 Corporate--Aaa utility Recently offered 16.34 11.96e 11.03 17.66 1982 13.635 12.55 S&L fixed-rate mortgage commitment Lows Stock prices Dow-Jones Industrial NYSE Composite AMEX Composite NASDAQ (OTC) Highs 9.554 12.38e 12.50e 12.44 p 1.41 -. 06 -.17 1.17 13.305 13.895 13.725 Percent change from: 1983 FOMC FOMC 1983 FOMC July 13 Aug. 23 Sept. 29 high Aug. 23 776.92 58.80 118.65 1248.30 99.01 246.38 1197.82 95.90 241.07 159.14 328.91 314.59 1. One-day quotes except as noted. 9.704 -.08 1192.89 94.27 229.67 1240.14 96.86 232.50 -.7 -2.2 -5.6 4.0 2.7 1.2 293.66 299.29 -9.0 1.9 4. One-day quotes for preceding Thursday. 2. Averages for statement week closest to date shown. 5. One-day quotes for preceding Friday. 3. Secondary market. p--preliminary. e--estimated. INTERNATIONAL DEVELOPMENTS U.S. Merchandise Trade Through August In August the U.S. merchandise trade deficit increased to a record high monthly level. For July-August combined, the deficit was about $73 billion annual rate, well above the second quarter deficit and about double the first quarter rate. U.S. Merchandise Trade 1/ (billions of dollars, seasonally adjusted annual rates) Total Exports Agrc. Nonagric Total Imports Oii Nonoil Trade Balance Years 224.2 237.0 211.2 42.2 44.0 37.2 182.1 193.0 174.0 249.8 265.1 247.6 170.5 187.3 186.4 -25.5 -28.1 -36.4 2 3 4 243.2 240.1 231.2 233.5 48.9 44.0 39.9 43.4 194.3 196.1 191.4 190.2 261.1 269.5 264.9 264.9 179.6 186.3 188.8 194.5 -17.9 -29.4 -33.6 -31.4 1982 - 1 2 3 4 222.5 220.0 209.0 193.4 40.3 41.7 33.8 33.1 182.2 178.2 175.2 160.3 247.0 243.4 261.3 238.8 185.1 190.0 192.3 178.3 -24.4 -23.4 -52.3 -45.4 1983 - 1 - 2 - J/A 198.3 195.7 202 36.0 35.3 38 162.0 160.3 164 233.3 254.3 275 191.3 202.2 210 -35.2 -58.6 -73 Months 1983 - Jan. Feb. Mar. 201.7 192.3 200.0 37.4 35.9 34.8 164.4 156.4 165.2 241.7 224.5 233.6 51.7 36.0 38.2 190.0 188.5 195.4 -39.9 -32.1 -33.6 Apr. May June 194.5 196.8 195.7 35.4 33.8 36.8 159.1 163.0 158.9 245.3 263.8 253.8 42.3 59.7 54.3 203.0 204.1 199.4 -50.8 -67.1 -58.1 July Aug. 201 202 37 38 164 164 269 281 61 69 208 212 -68 -79 1981 1982 Quarters 1/ As used in the Balance of Payments accounts and in the GNP accounts. Exports in August were at virtually the same level as in July, and for the two months combined were at a rat *e only marginally higher than those recorded for the previous three quarters. Sluggish economic activity in major trading partner countries and the high exchange value of the dollar continue to adversely affect demand for exports. The rise in agricultural exports in July and August was importantly attributable to the higher export price of soybeans. Small increases in exports of chemicals, machinery, consumer goods, and automotive products to Canada were largely offset by a drop in commercial aircraft exports from strong first-half rates. Most of the change in merchandise trade flows in recent months were in imports in response to the pick-up in U.S. economic activity. Rising oil imports accounted for two-thirds of the August import increase and nearly half of the July increase. The volume of oil imports reached more than 6-1/2 million barrels per day (seasonally adjusted) in August, up from a second quarter average of just over 5 mbd. Oil import prices rose about 2 percent in August from July levels but were still well below the level of prices at the beginning of the year. [The oil import data for August are preliminary estimates.] The rise in nonoil imports in July and August was largely in a wide range of manufactured goods. OIL IMPORTS 1983 1982 Year Volume (mbd, SA) Price ($/BBL) Value (Bil$ SAAR) 5.36 31.26 61.2 1Q 3.91 29.41 42.0 2Q J/Ae July 5.16 27.69 52.1 6.3 28.25 65.0 5.96 27.94 60.8 Aug.e 6.6 28.60 69.0
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