The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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 29, SUMMARY AND OUTLOOK Prepared for the Federal Open Market Committee By the staff of the Board of Governors of the Federal Reserve System 1982 DOMESTIC NONFINANCIAL DEVELOPMENTS Recent developments. Since the last meeting of the FOMC, no sig- nificant signs of economic recovery have emerged. Consumer demand has remained sluggish despite the tax cut, and business outlays have continued to weaken. However, the major part of the cyclical inventory adjustment appears to be completed, and there has been a mild uptrend in housing. At the same time, recent news on consumer prices and labor costs confirms a continuing improvement in the inflation situation. Nonfarm payroll employment fell 210,000 in August with durable goods manufacturing accounting for more than half of the job losses. The August layoffs brought the level of nonfarm employment almost 2 million below the cyclical peak in July 1981. Although the unemployment rate remained at 9.8 percent in August, weekly data on initial claims for unemployment insurance suggest that further job losses occurred since mid-August. Industrial production declined 1/2 percent in August with about half of the drop attributable to a sharp reduction in auto assemblies. But output of other consumer goods also weakened, and business equipment production continued to decline. In September, auto assemblies and raw steel output were trimmed again. Disposable personal income was boosted by $43 billion (annual rate) in July primarily owing to an infusion from a cost-of-living adjustment to social security benefits and the mid-year tax cut. However, with employment still declining, wage and salary income growth was weak in the months preceding and following the tax cut, and consumers apparently have been cautious in incurring debt. I-1 As a result, household spending for discretionary purchases remained subdued. Sales of domestically- produced automobiles continued below the depressed second-quarter average through early September, although at mid-month consumers did respond to clearance sales on 1982 models. Consumer purchases of general merchandise, apparel, and furniture and appliances in August were at or below the second-quarter level. Business outlays for capital goods declined sharply in the third quarter, and most indicators point to a further scaling back of fixed investment over the near term. Spending for business equipment was down in both July and August, and new orders for nondefense capital goods fell short of shipments, as they have in each month since July 1981. Outlays generated by commercial construction under way, which had been wellmaintained through the early stages of the recession, dropped substantially in July, and contracts for new commercial buildings have fallen appreciably since the beginning of 1981. Furthermore, oil and gas drilling activity continued to fall during August, reflecting the uncertain outlook for petroleum prices. Housing activity has been picking up gradually since late 1981, paralleling the decline in mortgage rates. Following a surge to a 1.2 million unit annual rate in July, housing starts were at a 1 million unit pace in August--still 5 percent higher than the second-quarter average. Much of the increase in recent months has been attributable to the volatile multi-family sector, although single-family starts also have edged up. Existing home sales, however, remained extremely weak in August. Lackluster sales and high carrying costs led to a substantial inventory correction during the first half of 1982, and the overall level of stocks was reduced to pre-recession levels. However, with sales still sluggish, inventory-sales ratios remained relatively high around mid-year suggesting that some further liquidation will be required, particularly among manufacturers of primary metals and machinery. In addition, the anemic pace of auto sales had driven the days' supply of cars on dealers' lots at the end of August to the highest level since last December. Inflation at the consumer level dropped in August to a 3-1/2 percent annual rate, following a brief surge in the summer that largely reflected a jump in the price of gasoline. In addition to declines posted for gasoline and food prices in August, only moderate increases were reported for a wide range of other goods and services. By most measures, consumer prices have been rising at about a 5 percent annual rate so far this year. At the same time, producer price increases for capital equipment have been slowing, and the costs of intermediate materials have been declining. Labor cost pressures also have eased noticeably this year and should contribute to a continued moderation of inflation over the near term. Hourly compensation rose at a 6-3/4 percent annual rate over the first half of 1982--down from 8-3/4 percent last year. The downtrend in wage inflation continued into the third quarter, and by August the hourly earnings index was 6-1/2 percent above a year earlier, the month increase since 1973. lowest 12- At the same time, productivity growth, which had been declining during most of 1981, rose a bit in the first half of 1982, leading to further reductions in the growth of labor costs. Outlook. The staff now estimates that real GNP was about unchanged in the third quarter as a drop in final demand was offset by some inventory accumulation. These new estimates reflect the recent sluggishness in consumer outlays, particularly for durable goods, and weaker net exports than anticipated earlier. We expect little increase in production and employment along with slow income growth for the next few months. In the fourth quarter, real GNP is projected to increase only slightly. Weakness in business invest- ment spending will continue to be a drag on real activity. Nevertheless, households are expected to gradually increase their consumption relative to income; the saving rate is projected to fall back to 6.7 percent in the fourth quarter from 7.1 percent in the third quarter. Moreover, lower interest rates should continue to bolster housing demand. Owing largely to this summer's temporary surge in gasoline prices, the index for gross domestic business product prices is estimated to have risen at a 6-1/4 percent annual rate in the third quarter of 1982 compared with a 4-1/4 percent rate over the first half. In the fourth quarter, this measure of inflation is expected to recede to a 5-1/4 percent rate. The monetary policy assumption underlying the staff projection is little changed from the last Greenbook. The increase in M1 over the remainder of this year is assumed to be consistent with the FOMC's objective of growth around the upper end of the current 2-1/2 to 5-1/2 percent range. In 1983, Ml growth is still assumed to be 4-1/2 percent. Short-term interest rates are expected to remain close to their recent levels in the near term before trending upward moderately during 1983 as I-5 private credit demands expand with rising economic activity. Improving inflation expectations, however, should relieve some of the resulting pressure on long-term rates. On the $165 fiscal side, the projected deficit for FY 1983 of about billion is somewhat higher than in the last Greenbook, primarily be- cause of the weaker economic outlook for the balance of this calendar year. The FY 1982 deficit is still estimated to total $112 billion. The outlook for economic growth in 1983 is little different from the last Greenbook. Building on the moderate improvement in final demand beginning in the fourth quarter of 1982, real GNP is projected to increase 3-1/4 percent over 1983. Businesses are expected to begin the year with their inventory liquidation essentially completed, leading to an increase in production. A moderate rise in consumer spending is expected to extend into early next year as real income improves. This year's uptrend in housing starts should continue to translate into higher construction spending, and the contraction in business fixed investment is projected to taper off. In the second half, consumer outlays are projected to be boosted by the third stage of the tax cut. Moreover, the pickup in real output growth should support a mild turnaround in business spending for equipment and some cautious stockbuilding. Because the recovery is relatively weak by historical standards, the slack in labor markets and in industrial capacity is expected to recede very slowly. The unemployment rate is projected to remain close to 10 percent through the middle of next year and still to be above 9-1/2 percent at the end of 1983. This environment should foster a further moderation in wage and price inflation. The passthrough of lower I-6 rates of price increase and the slow pace of hiring are expected to restrain the rate of increase of hourly compensation. A cyclical improve- ment in productivity growth is likely to ease further the rate of increase in labor costs. The gross domestic business product price index is pro- jected to increase 4-1/2 percent during 1983, down from 5 percent during 1982. Detailed data for these projections are shown in the tables that follow. September 29, 1982 STAFF GNP PROJECTIONS Percent changes, annual rate -------------------------------------------""------------------- Gross domestic business product fixed-weighted price index Nominal GNP Real GNP ------------------------------------- Total 8/18/82 9/29/82 8/18/82 9/29/82 8/18/82 Excluding food and energy 9/29/82 8/18/82 9/29/82 Unemployment rate (percent) 8/18/82 9/29/82 Annual changes: 8.9 11.6 4.7 7.4 1980 <1> 1981 <1> 1982 1983 8.9 11.6 4.5 6.9 -. 4 1.9 -1.6 2.4 -. 4 1.9 -1.7 2.0 10.1 9.6 6.1 5.1 10.1 9.6 6.0 5.0 19.6 5.3 11.4 3.0 19.6 5.3 11.4 3.0 7.9 -1.5 2.2 -5.3 7.9 -1.5 2.2 -5.3 10.4 8.6 9.3 7.4 10.4 8.6 9.3 7.4 8.4 9.4 11.0 8.6 8.4 9.4 11.0 8.6 -1.0 7.1 7.5 7.6 -1.0 6.8 6.4 6.4 -5.1 1.7 1.0 2.3 -5.1 2.1 .1 1.0 4.4 4.3 6.5 5.2 4.4 3.8 6.3 5.2 5.3 6.7 5.7 5.0 5.3 5.9 6.1 5.3 Quarterly changes: 1981 Q1 Q2 Q3 Q4 <1> <1> <1> <1> 1982 Ql <1> Q2 <1> Q3 Q4 8.8 9.5 10.0 9.9 8.8 9.5 10.0 10.2 1983 Q1 Q2 Q3 Q4 Two-quarter changes: <2> 1981 Q2 <1> Q4 <1> 12.2 7.1 12.2 7.1 3.1 -1.6 3.1 -1.6 9.5 8.3 9.5 8.3 8.9 9.8 8.9 9.8 -.1 .9 -. 1 .9 1982 Q2 <1> Q4 3.0 7.5 2.8 6.4 -1.8 1.6 -1.6 .5 4.4 5.8 4.2 5.8 6.0 5.4 5.6 5.7 1.2 .4 1.2 .7 1983 Q2 Q4 6.8 8.1 6.8 8.2 2.2 4.0 2.2 3.9 5.0 4.3 4.9 4.3 4.9 3.8 4.9 3.9 -.1 -. 3 -. 2 -. 3 10.3 8.9 5.1 4.6 10.3 8.9 5.0 4.6 9.4 9.3 5.7 4.4 9.4 9.3 5.6 4.4 Four-quarter changes: <3> 1980 1981 1982 1983 Q4 <1> Q4 <1> Q4 Q4 9.4 9.6 5.2 7.5 9.4 9.6 4.6 7.5 <1> Actual. <2> Percent change from two quarters earlier. <3> Percent change from four quarters earlier. I-8 CONFIDENTIAL - FR CLASS II FOMC September 29, 1982 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of current dollars at annual rates.) 1980 Q1 Q2 1981 Q3 4 Q Q1 Q2 Q3 Q4 Gross national product Final purchases Private Excluding net exports 2575.9 2576.6 2057,4 2043.4 2573.4 2573.9 2037.9 2013.7 2643.7 2664.8 2126.3 2087.3 2739.4 2757.1 2197.3 2173.8 2864.9 2852.7 2274.6 2243.4 2901.8 2877.2 2294.0 2270.3 2980.9 2949.1 2348.9 2323.0 3003.2 2989.9 2363.6 2340.1 Personal consumption expenditures Goods Services 1618.7 871.4 747.3 1622.2 855.7 766.6 1682.0 886.4 795.6 1745.8 925.2 820.6 1799.9 957.5 842.4 1819.4 960.0 859.4 1868.8 982.5 886.3 1884.5 976.1 908.3 Gross private domestic investment Residential structures Business fixed investment Change in business inventories Nonfarm 424.0 113.5 311.2 -.7 .7 391.0 91.2 300.2 -. 4 4.0 384.1 97.6 307.8 -21.2 -15.4 410.3 110.5 317.5 -17.7 -12.3 455.7 113.6 330.0 12.2 10.0 475.5 109.5 341.3 24.6 19.3 486.0 101.2 353.0 31.8 24.6 468.9 95.5 360.2 13.2 6.0 Net exports of goods and services <1> Exports Imports 14.0 335,7 321.7 24.2 337.3 313.1 39.0 337.2 298.2 23.5 346.7 323.2 31.2 365.4 334.2 23.7 368.9 345.1 25.9 367.2 341.3 23.5 367.9 344.4 Gov't. purchases of goods and services Federal <2> State and local 519.2 189.6 329.6 536.0 198.8 337.2 538.5 193.3 345.2 559.8 207.0 352.8 578.1 217.0 361.1 583.2 218.2 365.0 600.2 230.0 370.1 626.3 250.5 375.7 Gross national product in constant (1972) dollars 1494.9 1457.8 1463.8 1479.4 1507.8 1502.2 1510.4 1490.1 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 2086.8 1319.7 1766.9 5.5 2109.6 2185.3 1332.1 1360.5 1845.5 1781.0 6.1 6.1 2260.0 1412.2 1902.9 5.5 2330.0 2380.6 2458.2 2494.6 1452.8 1479.4 1512.3 1531.2 1958.7 1996.5 2060.0 2101.4 6.5 5.4 6.1 7.5 Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax 195.3 268.2 172.2 217.6 177.8 238.1 181.2 245.9 200.3 253.1 185.1 225.4 193.1 233.3 183.9 216.5 Federal government surplus or deficit (-) (N.I.A. basis) High employment surplus or deficit (-) <3> -39.7 -18.4 -67.5 -20.3 -73.1 -19.3 -65.2 -10.6 -39.7 10.4 -40.5 22.0 -58.0 5.9 -101.7 -20.3 29.1 3.3 23.3 -2.8 27.1 -1.0 33.0 3.9 31.3 1.1 32.9 1.7 33.5 1.2 29.1 -4.2 106.5 6.3 106.8 7.3 107.2 7.6 107.5 7.5 108.1 7.4 108.8 7.4 108.7 7.4 109.2 8.3 90.9 20.9 90.3 20.3 89.9 19.9 90.5 20.1 90.9 20.2 91.2 20.3 91.4 20.3 91.0 19.9 142.3 75.9 75.2 148.8 79.1 80.1 151.8 79.9 82.2 State and local government surplus or deficit(-) (N.I.A. basis) 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) 152.7 83.4 85.8 Housing starts, private (million units, A.R.) New auto sales (millions, A.R.) Domestic models Foreign models 1.25 10.65 7.87 2.77 144.5 77.9 78.9 1.06 7.68 5.53 2.14 1.39 8.80 6.51 2.29 1.50 9.04 6.57 2.47 1.40 9.96 7.31 2.66 152.5 79.8 81.2 1.17 7.89 5.63 2.25 153.0 79.2 81.2 .96 9.04 6.90 2.14 146.3 74.8 75.2 .87 7.36 5.13 2.23 <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 5.1 percent high employment unemployment rate. Evaluated at a 6.1 percent unemployment rate, the high employment budget would show a deficit of $30.9 billion in 19 8 0-Q4, and a deficit of $43.3 billion in 1981-Q4. September CONFIDENTIAL - FR CLASS II FOMC 29, 1982 PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Annual rates compounded quarterly) 1980 Q1 Q2 1981 Q3 Q4 Q1 Q2 7.9 5.4 5.5 4.7 Q3 -1.5 -4.0 -4.0 -2.8 Q4 ----- ------- - --- ----- -- - -- -- -- ---------- ----- ---- ---- -- ----- ----- -- ------Constant (1972) Dollars Gross national product Final purchases Private Excluding net exports 1.5 1.6 .8 -1.3 -9.6 -9.6 -12.4 -13.7 1.6 3.3 5.4 5.7 Personal consumption expenditures Goods Services -. 7 -2.3 1.2 -8.7 -16.1 .4 5.4 5.7 5.1 5.7 8.6 2.6 4.4 6.9 1.5 -2.7 -5.1 .1 2.9 4.0 1.7 -3.3 -6.2 .0 Gross private domestic investment Residential structures Business fixed investment -4.5 -21.6 2.5 -32.5 -61.7 -20.4 -5.1 20.4 3.5 22.6 59.8 6.6 25.0 1.0 8.0 14.9 -17.4 1.1 6.9 -31.9 9.3 -22.6 -25.3 .6 5.2 12.3 13.2 1.2 3.1 10.5 .5 -1.1 -4.7 -12.5 -2.5 .3 -.3 -2.6 -2.1 1.0 5.2 12.2 8.0 1.3 -4.1 -3.2 11.5 -4.6 3.6 14.8 7.6 -2.7 7.0 20.4 10.1 -. 8 1.1 -6.6 5.2 3.0 3.7 .6 4.8 1.2 Gross national product Final purchases Private Excluding net exports 12.2 11.8 10.2 9.5 -.4 -. 4 -3.7 -5.7 11.4 14.9 18.5 15.4 15.3 14.6 14.0 17.6 19.6 14.6 14.8 13.4 5.3 3.5 3.5 4.9 11.4 10.4 9.9 9.6 3.0 5.7 2.5 3.0 Personal consumption expenditures Goods Services 10.7 9.4 12.3 .9 -7.0 10.7 15.6 15.1 16.0 16.1 18.7 13.2 13.0 14.7 11.1 4.4 1.0 8.3 11.3 9.7 13.2 3.4 -2.6 10.3 Gross private domestic investment Residential structures Business fixed investment 7.1 -14.0 13.3 -27.6 -58.2 -13.3 -6.8 31.0 10.4 30.1 64.5 13.3 52.2 11.5 16.7 18.5 -13.4 14.5 9.2 -27.0 14.3 -13.3 -20.8 8.4 Gov't. purchases of goods and services Federal National defense State and local 18.5 29.5 28.8 12.7 13.6 20.8 10.4 9.6 1.9 -10.5 1.7 9.8 16.8 31.3 25.3 9.2 13.7 20.9 15.4 9.7 3.6 2.2 22.1 .4 12.2 23.5 10.8 5.7 18.6 40.7 36.7 6.2 Disposable personal income 12.7 3.2 15.3 13.0 12.3 7.9 13.4 8.3 Personal income Wage and salary disbursements 10.7 11.4 4.4 3.8 15.1 8.8 14.4 16.1 13.0 12.0 9.0 7.5 13.7 9.2 6.1 5.1 Corporate profits with.I.V.A. and C.C. Adj. Corporate profits before tax 29.4 34.2 -39.6 -56.7 13.7 43.4 7.9 13.8 49.3 12.2 -27.1 -37.1 18.4 14.8 -17.7 -25.8 Nonfarm payroll employment Manufacturing 1.8 -1.2 -2.3 -10.4 -1.8 -7.5 2.7 4.2 1.8 1.3 1.0 2.8 .8 .1 -1.8 -8.1 Nonfarm business sector Output per hour Compensation per hour Unit labor costs -. 4 11.9 12.4 -4.6 10.2 15.5 3.4 10.4 6.8 3.1 9.8 6.5 4.9 11.8 6.6 -1.3 7.1 8.6 -. 3 9.0 9.3 -3.5 7.3 11.2 Gov't. purchases of goods and services Federal National defense State and local Disposable personal income Current Dollars 10.1 Industrial production __________I__- .4 9.6 10.5 6.8 8.8 10.4 9.6 13.5 GNP implicit deflator <1) Gross domestic business product fixed-weighted price index <2> Excluding food and energy Consumer price index (all urban) 9.9 9.7 7.7 10.0 9.7 12.8 8.6 9.4 7.8 7.4 8.6 7.7 -5.8 19.3 -19.8 8.4 1.9 1.4 -16.6 ____ - - ----- ----------- --------------------------- <1> Excluding Federal pay increases, rates of change were: 1980-Q1, 1981-q1, 10.8 percent; 1981-Q4, 7.8 percent. <2> Uses expenditures in 1972 as veights. 10.5 percent; 1980-q4, 9.4 percent; September 29, 1982 CONFIDENTIAL - FR CLASS II FOMC GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of current dollars at annual rates.) ------------------- Projected-----------1982 1983 Q1 Q2 Q3 Q4 Q1 Q2 Q3 --Q4 Gross national product Final purchases Private Excluding net exports 2995.5 3031.1 2401.0 2369.7 3045.2 3061.4 2430.5 2395.6 3093.0 3082.3 2435.3 2430.6 3141.3 3144.3 2482.8 2475.7 3195.2 3194.2 2522.7 2526.5 3245.8 3240.8 2558.5 2569.8 3308.1 3298.1 2604.5 2620.0 3376.4 3362.4 2653.6 2672.7 Personal consumption expenditures Goods Services 1919.4 987.0 932.4 1947.8 995.7 952.1 1991.2 1011.3 979.9 2034.0 1033.6 1000.4 2074.4 1049.8 1024.6 2107.9 1064.5 1043.4 2150.7 1083.7 1067.0 2193.3 1105.7 1087.6 Gross private domestic investment Residential structures Business fixed investment Change in business inventories Nonfarm 414.8 93.4 357.0 -35.6 -36.0 431.5 95.5 352.2 -16.2 -15.0 450.1 98.5 340.9 10.7 10.7 438.7 104.0 337.7 -3.0 -3.0 453.1 113.0 339.1 1.0 1.0 466.9 119.5 342.4 5.0 5.0 479.3 122.0 347.3 10.0 10.0 493.4 122.5 356.9 14.0 14.0 Net exports of goods and services <1> Exports Imports 31.3 359.9 328.6 34.9 365.8 330.9 4.7 346.5 341.8 7.1 340.6 333.5 -3.8 338.9 342.7 -11.3 346.8 358.1 -15.5 358.2 373.7 -19.1 371.9 391.0 Gov't. purchases of goods and services Federal <2> State and local 630.1 249.7 380.4 630.9 244.3 386.6 647.0 255.0 392.0 661.5 264.7 396.8 671.5 270.1 401.4 682.3 276.6 405.7 693.6 283.7 409.9 708.8 294.6 414.2 Gross national product in constant (1972) dollars 1470.7 1478.4 1478.6 1482.2 1490.2 1498.6 1512.9 1527.8 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 2510.5 1541.6 2117.1 6.6 2552.7 2600.5 1556.6 1573.1 2151.5 2207.6 6.7 7.1 2641.6 1597.7 2244.6 6.7 2679.6 1620.5 2282.8 6.4 2719.6 1643.0 2314.3 6.2 2767.3 1669.1 2372.9 6.7 2813.5 1701.4 2409.5 6.3 204.7 184.5 Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax Federal government surplus or deficit (-) (N.I.A. basis) High employment surplus or deficit (-) <3> State and local government surplus or deficit (-) (N.I.A. basis) 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) 157.1 171.6 155.4 171.7 164.1 177.7 166.0 174.0 170.2 172.8 177.5 173.5 191.5 180.3 -118.4 -17.0 -119.6 -3.9 -155.3 -35.3 -162.2 -32.5 -159.6 -21.8 -164.8 -22.5 -193.3 -53.4 27.7 -6.8 32.1 -3.6 35.6 -1.3 33.7 -4.4 34.6 -4.7 36.1 -4.4 39.0 -2.7 42.2 -. 7 109.1 8.8 110.2 9.5 110.6 10.0 110.8 10.2 111.1 10.1 111.4 10.0 111.6 9.9 112.0 9.7 90.4 19.4 90.0 19.1 89.5 18.7 89.5 18.6 89.7 18.6 89.9 18.7 90.3 18.9 90.8 19.2 139.3 70.3 69.6 138.1 69.5 68.7 139.3 69.8 69.2 141.2 70.3 70.2 143.1 70.9 71.2 141.7 71.6 72.0 .92 .95 1.10 Housing starts, private (million units, A.R.) 7.70 New auto sales (millions, A.R.) 8.12 7.53 Domestic models 5.90 5.53 5.50 2.22 2.20 1.99 Foreign models --- ----- -- ------------ --------------- - - - - - - - - - - - - - - - - - - 1.20 8.40 6.10 2.30 1.25 8.60 6.30 2.30 1.25 8.80 6.50 2.30 146.6 72.4 73.3 1.20 9.20 6.80 2.40 -197.4 -58.0 149.1 73.6 75.1 1.20 9.20 6.80 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 5.1 percent high employment unemployment rate. Evaluated at a 6.1 percent unemployment rate, the high employment budget would show a deficit of $57.3 billion in 1982-Q4, and a deficit of $84.4 billion in 1983-Q4. I-ll September 29, CONFIDENTIAL CLASS II FOMC --------------1982 Q1 Const 1982 PERCENT CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Annual rates compounded quarterly) FR (1972) ollar------------------- Q2 ------------------- Q3 Projected----------------1983 Q4 Q1 Q2 ------------------- Q3 Q4 -------------- Constant (1972) Dollars Gross national product Final purchases Private Excluding net exports -5.1 .2 1.0 .9 2.1 -. 9 .2 .6 .1 -1.7 -3.3 -.4 1.0 1.9 2.3 2.4 2.2 1.7 1.8 3.0 Personal consumption expenditures Goods Services -36.5 -10.2 -5.0 14.9 12.9 -11.8 2.4 9.0 -14.5 -9.5 19.5 -8.1 8.2 33.4 -2.3 8.0 19.7 .4 7.0 4.1 2.4 8.3 -2,4 7.5 -2.9 -5.5 -7.9 -1.1 -5.3 -13.5 21.4 .4 5.0 13.8 8.5 -. 3 .4 2.3 2.2 -. 9 1.3 4.6 6.0 -.8 2.0 6.4 10.1 -.9 2.2 6.6 10.9 -.7 1.9 5.2 8.9 -.3 -1.9 3.1 3.4 1.6 1.5 .8 5.7 1.9 Gross national product Final purchases Private Excluding net exports -1.0 5.6 6.5 5.2 6.8 4.1 5.0 4.4 Personal consumption expenditures Goods Services 7.6 4.5 11.0 6.1 3.6 8.7 9.2 6.4 12.2 8.9 9.1 8.6 8.2 6.4 10.0 6.6 5.7 7.5 -9.8 24.3 -3.7 13.8 39.4 1.7 12.8 25.1 3.9 11.1 8.6 5.8 12.3 1.6 11.5 Gross private domestic investment Residential structures Business fixed investment Gov't. purchases of goods Federal National defense State and local and services Disposable personal income Current Dollars Gross private domestic investment Residential structures Business fixed investment -38.8 -8.4 -3.5 17.1 9.4 -5.3 18.4 13.2 -12.2 2.4 -1.4 -1.8 5.0 .6 -8.3 26.4 6.7 10.6 18.7 13.8 5.7 9.3 16.1 17.7 5.0 6.2 8.4 11.0 4.7 6.6 10.0 14.4 4.4 6.8 10.7 15.8 4.2 9.1 16.3 21.0 4.3 Disposable personal income 3.0 6.7 10.8 6.9 7.0 5.6 10.5 6.3 Personal income Wage and salary disbursements 2.6 2.7 6.9 3.9 7.7 4.3 6.5 6.4 5.9 5.8 6.1 5.7 7.2 6.5 6.8 8.0 -46.7 -60.5 -4.3 .2 24.4 14.9 4.7 -8.1 10.5 -2.7 18.1 1.5 35.5 16.6 30.7 9.6 -1.7 -7.2 -2.5 -7.0 .7 .1 1.1 1.8 1.6 5.4 1.0 5.9 4.9 2.0 6.0 4.0 1.2 5.0 3.8 3.5 5.6 5.5 Gov't. purchases of goods and services Federal National defense State and local Corporate profits with I.V.A. and C.C. Adj. Corporate profits before tax -2.4 -9.0 Nonfarm payroll employment Manufacturing Nonfarm business sector Output per hour Compensation per hour Unit labor costs .5 6.0 5.5 4.6 Industrial production - - - - -- - ----- - ---- -11.8 ---- 6.4 3.8 5.9 4.6 GNP implicit deflator <1> Gross domestic business product fixed-weighted price index <2> Excluding food and energy Consumer price index (all urban) 2.5 6.5 3.9 6.3 6.1 8.1 -6.7 -3.4 2.2 6.2 10.1 - - ----- - -- - -- <1> Excluding Federal pay increases, the rates of change are: 1982-Q1, 1983-91, 4.7 percent; 1983-Q4, 3.7 percent. <2> Uses expenditures in 1972 as weights. 4.2 percent; 1982-Q4, 4.7 percent; 7.0 September 29, CONFIDENTIAL - FR CLASS II FOMC 1982 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Expenditures and income figures are billions of current dollars.) --- -- -- -- -- -- -- -- -- -- -- -- - - -- --- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- -- -- -- -- -- -- ----Projected--- 1976 1977 1978 1979 1980 1981 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- -- -- -- -- -- -- -- -- -- -- -- - 1982 1983 - -- -- -- -- Gross national product Final purchases Private Excluding net exports 1718.0 1706.2 1344.1 1330.3 1918.3 1895.3 1501.5 1505.5 2163.9 2137.4 1705.5 1706.6 2417.8 2403.5 1929.1 1915.9 2633.1 2643.1 2104.7 2079.5 2937.7 2917.3 2320.4 2294.3 3068.7 3079.8 2437.4 2417.9 3281.4 3273.9 2584.8 2597.2 Personal consumption expenditures Goods Services 1084.3 598.5 485.7 1204.4 657.0 547.4 1346.5 728.5 618.0 1507.2 813.5 693.7 1667.2 884.7 782.5 1843.2 969.1 874.1 1973.1 1006.9 966.2 2131.6 1075.9 1055.6 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 257.9 72.0 174.1 11.8 13.9 324.1 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 8.6 402.3 103.2 309.2 -10.0 -5.7 471.5 104.9 346.1 20.5 15.0 433.8 97.8 346.9 -11.0 -10.8 473.2 119.2 346.4 7.5 7.5 Net exports of goods and services <1> 13.8 170.9 157.1 -4.0 182.7 186.7 -1.1 218.7 219.8 13.2 281.4 268.1 25.2 339.2 314.0 26.1 367.3 341.3 19.5 353.2 333.7 -12.4 353.9 366.4 362.1 129.2 232.9 393.8 143.4 250.4 431.9 153.6 278.3 474.4 168.3 306.0 538.4 197.2 341.2 596.9 228.9 368.0 642.4 253.4 388.9 689.0 281.2 407.8 Gross national product in constant (1972) dollars 1298.2 1369.7 1438.6 1479.4 1474.0 1502.6 1477.5 1507.4 Personal income Wage and salary disbursements Disposable personal income Saving rate (percent) 1391.2 889.9 1194.4 6.9 1540.4 983.2 1314.0 5.9 1732.7 2160.4 1951.2 1106.3 1237.6 1356.1 1474.0 1650.2 1824.1 6.1 5.9 5.8 2415.8 1493.9 2029.1 6.4 2576.3 1567.2 2180.2 6.8 2745.0 1658.5 2344.9 6.4 Exports Imports Gov't. purchases of goods and services Federal <2> State and local Corporate profits with I.V.A. and C.C.Adj. Corporate profits before tax 138.1 166.3 167.3 194.7 192.4 229.1 194.8 252.7 181.6 242.4 190.6 232.1 160.7 173.8 186.0 177.8 Federal government surplus or deficit(-) (N.I.A. basis) High employment surplus or deficit(-) -53.1 -16.6 -45.9 -20.4 -29.5 -15.9 -16.1 -1.9 -61.4 -17.1 -60.0 4.5 -138.9 -22.2 31.7 -.1 32.3 -4.0 38.0 -3.1 -178.8 -38.9 State and local government surplus or deficit (-) (N.I.A. basis) Excluding social insurance funds 16.6 .9 28.0 10.1 30.3 10.0 30.4 6.6 Civilian labor force (millions) Unemployment rate (percent) 96.2 7.7 99.0 7.1 102.3 6.1 105.0 5.8 106.9 7.1 108.7 7.6 110.2 9.6 111.5 9.9 Nonfarm payroll employment (millions) Manufacturing 79.4 19.0 82.5 19.7 86.7 20.5 89.8 21.0 90.4 20.3 91.1 20.2 89.9 19.0 90.2 18.9 147.0 79.1 80.0 150.9 78.4 79.9 Industrial production (1967=100) Capacity utilization: all manufacturing (percent) Materials (percent) 130.4 79.5 81.1 138.1 81.9 82.7 146.1 84.4 85.6 152.5 85.6 87.4 Housing starts, private (million units, A.R.) New auto sales (millions, A.R.) Domestic models Foreign models 1.54 10.12 8.63 1.49 1.96 11.13 9.07 2.06 2.00 11.29 9.29 2.00 1.72 10.68 8.36 2.32 28.1 .9 1.30 9.04 6.62 2.42 1.10 8.56 6.24 2.32 139.6 70.3 69.9 1.04 7.94 5.76 2.18 145.0 71.8 72.5 1.23 8.95 6.60 2.35 <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 September 29, 1982 CONFIDENTIAL - FR PERCENT CHANGES IN GROSS NATIONAL PRODUCT CLASS II FOMC AND RELATED ITEMS ---------------------------------'----------------------------------------- 1976 1977 1978 1979 1980 1981 1.9 1.0 1.0 1.8 -- Projected-1982 1983 1.8 1.9 1.7 Constant (1972) Dollars Gross national product Final purchases Private Excluding net exports 5.5 5.0 2.8 5.1 4.9 3.5 6.0 6.5 5.6 5.5 4.0 2.9 -. 4 .5 .0 -1.1 Personal consumption expenditures Goods Services 5.0 5.1 4.9 4.5 4.2 4.8 2.7 1.9 3.7 .3 -1.5 2.4 16.1 18.6 11.7 10.5 2.8 12.8 -. 2 -5.3 7.3 Gross private domestic investment Residential structures Business fixed investment 19.2 21.3 5.3 Gov't. purchases of goods and services Federal National defense State and local .0 -. 6 -2.3 .4 1.5 3.7 .8 .2 2.0 -. 1 .4 3.3 1.3 1.8 2.6 1.1 3.6 4.0 4.9 2.7 Disposable personal income -11.8 -20.1 -2.2 8.3 -4.9 3.6 -1.7 -. 8 -1.0 -. 2 2.0 1.5 1.5 2.3 -11.4 -9.4 -4.7 2.3 4.3 4.0 1.1 .9 3.7 4.9 -. 8 .3 2.6 6.4 -1.1 1.4 4.6 8.0 -.7 .2 2.5 1.5 2.3 Current Dollars 12.8 12.8 13.6 13.4 Gross national product Final purchases Private Excluding net exports 8.9 10.0 9.1 8.5 11.6 10.4 10.2 10.3 Personal consumption expenditures Goods Services 11.0 10.9 11.2 11.1 9.8 12.7 11.8 10.9 12.9 11.9 11.7 12.2 10.6 8.8 12.8 10.6 9.5 11.7 7.0 3.9 10.5 8.0 6.9 9.3 Gross private domestic investment Residential structures Business fixed investment 25.1 30.2 10.4 25.7 33.1 17.9 19.3 16.1 21.3 9.4 6.6 16.6 -4.9 -13.0 6.5 17.2 1.7 12.0 -8.0 -6.8 .2 9.1 21.9 -. 2 8.8 11.0 8.0 7.5 9.7 7.1 8.0 11.2 13.5 17.1 17.5 11.5 10.9 16.1 .7.0 7.9 9.0 10.0 12.2 12.0 10.5 11.2 7.4 7.6 Personal income Wage and salary disbursements 10.0 10.4 10.7 10.5 12.5 12.5 12.6 11.9 10.7 9.6 11.8 10.2 6.6 4.9 6.5 5.8 Corporate profits with I.V.A. and C.C.Adj. Corporate profits before tax 25.0 25.9 21.1 17.1 15.0 17.7 1.3 10.3 -6.8 -4.0 5.0 -4.3 -15.7 -25.1 15.8 2.3 3.2 3.7 3.9 3.6 5.1 4.2 3.6 2.6 .6 -3.6 .8 -.6 -1.4 -6.0 .4 -.5 2.2 7.5 5.2 .6 8.6 8.0 -1.3 9.3 10.7 -.9 10.2 11.2 1.4 9.7 8.1 -.2 7.1 7.3 5.8 8.6 9.3 9.4 6.2 6.1 6.3 6.5 9.9 8.6 11.3 10.1 8.6 13.5 9.6 9.4 10.3 4.4 -3.6 2.6 Gov't. purchases of goods and services Federal National defense State and local Disposable personal income Nonfarm payroll employment Manufacturing Nonfarm business sector Output per hour Compensation per hour Unit labor costs 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. 10.7 5.9 5.8 6.0 7.1 6.3 -7.5 3.9 September 29, 1982 FEDERAL SECTOR ACCOUNTS Fiscal Year 1981* FY1982e/ F.. Admin. 1/ Board Y198312/1 .T. Adain. 1/ bard CY 1981* CY1982e/ . F Board FRB Staff Eatimates Calendar quarters; unadjusted data 1981 IV* 198298 I I II* III IV I II III 599.3 657.2 -57.9 622.1 731.0 -106.9 616.9 728.7 -111.7 646.5 761.5 -115.0 618.8 785.0 -166.2 619.1 691.6 -72.5 609.0 728.9 -119.9 146.0 194.2 -48.2 143.6 167.3 -23.7 178.9 181.4 -2.5 148.4 185.8 -37.4 138.1 194.4 -56.3 141.9 195.8 -54.0 184.6 193.6 -9.0 154.3 201.2 -46.9 -21.0 -78.9 -19.3 -1282 -16.6 -128.3 -14.9 -129.9 -14.6 -180.8 -22.4 -94.9 -15.8 -135.7 -3.6 -51.8 -2.0 -25.7 -5.8 -8.3 -5.2 -42.6 -2 .8 -59.1 -3.6 -57.6 -4.1 -13.1 -4.1 -51.0 lMeans of financing combined deficit Net borrowing from public Decrease in cash operating balance Other 4 79.4 2.3 -2.8 126.7 134.4 -9.8 3.7 126.0 (3.9 174.3 8.6 -2.1 87.3 0.3 7.3 146.9 -3.4 -7.9 35.6 6.7 9.5 32.8 -1.0 -6.1 9.0 2.0 -2.8 57.0 -17.5 3.1 48.1 13.1 -2.1 54.9 1.9 0.8 15I. 0.4 -3.1 55.5 -6.8 2.3 Cash operating balance, end of period 18.7 n.a. 28.5 n.a. 19.9 12.0 15.4 12.0 13.0 11.0 28.5 15.4 13.5 13.1 19.9 35.7 46 A 20.1 50.1 27.5 30.0 22.3 4.0 1.6 9.1 5.4 6.2 6.7 7.4 7.2 615.5 666.3 218.1 146.5 71.5 448.2 -50.9 n . na. nA . n .. noa . n. . n.a. 616.4 740.1 249.9 1728 77.1 490.2 -123.8 n .a .a. a. . n . na . n . . a.e. 632.8 802.8 273.8 198.5 75.3 529.0 -170.0 628.2 688.2 228.9 153.7 75.2 459.3 -60.0 614.6 753.5 253.5 178.5 75.0 500.0 -138.9 625.7 727.4 250.5 166.9 83.6 476.9 -101.7 609.9 728.3 249.7 166.2 83.5 478.6 -118.4 Seasonally adjusted annual rates 617.0 613.0 618.4 634.0 643.2 736 A 768.3 780.6 793.6 808.0 2443 255.0 264.7 270.1 276.6 176.2 182 .0 189 .6 194 .6 201.2 68.2 73.0 75.1 75.5 75.4 492.3 513.3 515.9 523.5 531.4 -119.6 -155.3 -162.2 -159.6 -164.8 635.6 828.9 283.7 208.7 75.0 545.2 -193.3 6.9 -17.7 n.. n .. -19.1 -46 . n.A. n .. -32.5 -61.1 4.5 -20.8 -22.2 -50.4 -20.3 -43.3 -17.0 -41.4 Unified budget receipts Unified budget outlays Surplus/deficit(-), unified budget Surplus/deflcit(-), off-budget agencies 3 Combined deficit to be financed Helo: Sponsored agency borrowing 5 (14 NIA Badget Receipts Expenditures Purchases Defense Nondefense All other expenditures Surplus/deficit(-) High Employment (IH..) surplas/deflcit(-) evaluated at 8.8. unemployment rate of: 5.1 percent 6.1 percent *-actual I. 2. (M Hid-Seasion Review of the 1983 Bdget, July 1982. Fiscal Year 1983, the In the First Concurrent Reolutlon on the Wsdget - Congress recommended revenues of $665.9 billion end outlays of $769.8 billion. Includes Federal Financing Bank, Postal Service Fuvl, Rural Electrification 3. and Telephone Revolving Fund, Rural Tlephone lank and (beginning in FY1982) the Strategic Petroleum Reserve. NOTS: Quarterly figuree may not add to yearly totals due to rounding. e-estimated -3.9 -30.7 -35.3 -59.9 -32.5 -57.3 n ..- -21 a -47.3 -22.5 -48.5 -53.4 -79.4 not available 4. Checks issued less checks paid, accrued items and other tranactions. 5. PFR staff estimates include Federal Home Ioan Banks, FHLHC (excluding participation certificates). FNHA (excluding mortgage backed securities), Federal land Banks. Federal Intermediate Credit Banks for Cooperatives. and Student loan Marketing Association marketable debt on a payment basis . FKR and Adminastration estimates are not stricly comparable. DOMESTIC FINANCIAL DEVELOPMENTS Recent developments. M1 has surged in August and September, grow- ing at an annual rate of 10-1/2 percent in August and even more rapidly in September, after three months of small net declines. Although the recent strength in M1 may in part be attributable to some special factors, such as an increased volume of financial transactions and the accumulation of liquid balances out of the July tax cut, it likely also reflects the effects on the demand for liquid deposits associated with the sizable declines in interest rates since July. Broader money supply measures accelerated in August, spurred in part by sizable inflows to money market funds whose yield declines lagged those in the market. Growth in M2 and M3 is estimated to have slowed sharply in September when money market fund inflows slowed, small time deposit growth moderated and large time deposits and term RPs declined. With M1 strengthening, bank reserve positions have tightened on balance over the intermeeting period, contributing to a rise in the federal funds rate from around 9 percent just before the August FOMC meeting to the current 9-3/4 to 10-1/2 percent range. Other private short-term mar- ket rates generally have moved up 3/4 to 1-3/4 percentage points, but Treasury bill rates are little changed from their levels at the time of the August FOMC meeting. In long-term markets, bond yields have declined somewhat since the August FOMC meeting, evidently reacting to the generally weak incoming economic data. Stock prices have risen 5 to 10 per- cent, extending the rally begun just before the August FOMC meeting. The disparate movements in interest rates on private and Treasury short-term obligations apparently reflected investors' heightened awareness I-15 I-16 of--and aversion to--risk, as potential difficulties of banks with their foreign credits seemed to mount and prospects for a weak economic recovery promised little relief from stress on domestic businesses. Risk premia in bond yields are sizable and have widened somewhat in recent months. None- theless, credit reportedly remains available to lower-rated bond issuers, and in short-term markets businesses have successfully turned to bank sources when lowered credit ratings have made commercial paper issuance difficult. In the household sector delinquencies on mortgage debt have increased further, but installment loan problems continue low and bankruptcies remain below the rates reached last spring. Spurred by the declines in long-term yields, businesses have stepped up their bond issuance substantially in August and September. With over- all borrowing needs apparently declining somewhat at the same time, businesses have been able to reduce significantly their reliance on shorterterm sources of funds. Commercial paper outstanding has declined over the two months, and business borrowing at banks dropped off sharply in August; although bank business lending appears to have picked up in September, this has been associated in large part with borrowing to fund the retirement of stock in corporate takeovers. Household borrowing appears to have diminished a bit in July and August. Total consumer installment credit growth slowed in July, and remained weak at commercial banks in August. In home mortgage markets, sizable declines in yields have been registered since July; at least through August, however, incoming data did not indicate a pickup in activity. I -17 Tax-exempt financing by state and local governments has become a more important source of funds to the home mortgage market in the third quarter, as sales of mortgage revenue bonds have more than doubled from the pace of the past year and a half following modification and clarification of the rules governing issuance of these obligations. Sales of tax-exempt bonds for other purposes also have picked up somewhat as bond yields have fallen, and total issuance of tax-exempt bonds rose to a record level in August and remained robust in September. Borrowing by the federal government has increased substantially further in recent months to finance a huge deficit and a massive build-up in the Treasury's cash balance in anticipation of possible difficulties that might have arisen had the statutory debt limit not been acted upon by September 30. Outlook. With the economy likely to demonstrate little strength in the near term and inflation continuing to abate, demands for money and credit are expected to produce little net movement in interest rates from recent levels. In such a financial and economic environment businesses are likely to continue to encounter substantial difficulties, with adverse implications for banks and other lenders, and investors probably will remain apprehensive about risk. The staff's forecast assumes that financial markets will continue to handle such developments in an orderly fashion, without disruptive shifts in the ability or willingness of lenders to extend credit, and without major increases in demands for money for precautionary purposes. Business needs for external financing are expected to ease slightly further in the fourth quarter as inventories are run off and plant and equipment spending declines. With long-term rates remaining around cur- rent lower levels, bond issuance should continue at the more rapid pace INTERNATIONAL DEVELOPMENTS Recent developments. The exchange value of the dollar tended up- ward, with only a few short-lived declines, from the beginning of the year to July, and has held around the July high through September. Since the last FOMC meeting, when the dollar was temporarily depressed the trade-weighted average value of the dollar has risen about 4-1/2 percent. The dollar's average value in the July-September period this year has been about 35 percent above its 1980 average. During Septem- ber fluctuations in the spread between interest rates on dollar assets and other assets have been moderate, with dollar rates turning up against foreign rates. Several currencies have come under pressure since the last FOMC meeting. Within the European Monetary System the French franc, Belgian franc and Danish krone all weakened against the German mark, especially when a shift from the Schmidt government to a more conservative coalition seemed likely. The French franc came under pressure early in September The pressure eased when the French government arranged a Eurocurrency credit of $4 billion. Pressure on the Danish krone diminished after a change in government and announcement of strong liquidity-tightening measures by the central bank. In the case of Sweden, a conservative government was voted out, I-19 The pace of economic activity abroad slowed further in the second quarter, with industrial production dropping in most industrial countries, and real GDP performing only slightly better. Con- sistent signs of recovery are lacking, and such forward-looking indicators as surveys of investment intentions suggest weakness for the remainder of the year. Unemployment in the European Community averaged 9.4 percent in July, and the August rate in Canada was 12.2 percent. Consumer price inflation continues to decelerate in major foreign countries, but rather unevenly. Italy, Germany and France are having somewhat less success in reducing the rate of inflation, while inflation has been dropping relatively quickly in Britain. At the end of August a $1.85 billion credit for Mexico was announced, to be supplied by the United States, other G-10 member countries, Spain and Switzerland. Mexico's decisions to nationalize private Mexican banks, institute comprehensive controls on capital and current transactions, and peg the currency while inflation soars, have clouded progress on negotiations for a stabilization program approved by the IMF. Mexico has arranged postponement of principal on debts due to private banks through late November. As part of a spreading economic crisis in Latin America, Bolivia has fallen into arrears on a relatively small amount of debt, Argentina's weakening ability to make external payments has raised concerns, and there are similar concerns about Brazil, Chile and others. In the U.S. international accounts, the merchandise trade deficit rose sharply in August, raising the July-August rate to about twice the rate in the first half. Exports in July-August declined moderately, mainly because of reduced agricultural exports, while imports rose considerably. The jump in imports reflected higher prices and quan- tities for oil imports and a lesser increase in other imports. The overall current account surplus in the second quarter was $8 billion (SAAR), a small increase over the first-quarter rate mainly as a result of higher net interest receipts from abroad. Available data on private capital flows indicate sizeable net outflows since June. U.S. banking offices' net liabilities to affi- liated foreign offices were reduced by $6 billion (on a daily average basis) through August, and were reduced further in early September. U.S.-chartered banks have become net suppliers of funds to their foreign offices. Bans also continued to increase their net claims on unaffiliated foreigners by substantial amounts through July. what offsetting these outflows, Some- foreign branches of U.S. banks increased their claims on U.S. nonbanks by about $2 billion from June to early September. Private securities transactions resulted in small net outflow in July; foreign participation in the stock market upsurge in August is reported to have been small. Outlook. The prospects for economic recovery abroad this year grow dimmer as the slowdown continues and policy remains geared primarily to curbing inflation and seeking ways to reduce budget deficits. While an upturn is still projected by the end of this year, this year's growth rate (Q4-Q4) is now expected to be under 1 percent for the major foreign countries, and next year's is expected to be about 2-1/2 percent. The combination of weak demand abroad and, especially, the appreciation of the dollar, is projected to produce a doubling of the I-22 U.S. trade deficit to about a $65 billion rate next year. That is close to last month's projection, but the projection of the current account deficit has been raised to about $39 billion, mainly because of the likely drop in investment income and border receipts from Mexico. The weighted average value of the dollar has held relatively firm at a high level for several months, despite the downward pressure that might be expected from the relatively sharp drop in dollar interest rates. However, the staff expects that as the market observes the steep rise in the U.S. trade and current account deficits over the next year the exchange value of the dollar will decline substantially. September 29, 1982 OUTLOOK FOR U.S. NET EXPORTS AND RELATED ITEMS (BILLIONS OF DOLLARS, SEASONALLY ADJUSTED ANNUAL RATES) CONFIDENTIAL (FR) CLASS II FOMC 1981 ANN. 1. 1982 ANN. 1983 ANN.. 19 83C 1983t 1983C 198 3 Q I 1982t 1982? 1982 1982 O IV Q II QIII QI !------- -------------- Q II QIII Q IV GNP NET EXPORTS CURRENT $, NET EXPORTS OF G&S IMPORTS OF G&S 26.1 367.4 341.3 19.5 353. 2 333.7 -12.4 353. 9 366.4 31.3 359.9 328.6 34.9 365.8 330.9 4.7 346.5 341.8 7.2 340.6 333.5 -3.8 338.9 342. 7 -11.3 346.8 358 .1 -15.5 358.2 373. 7 -19.1 371.9 391.0 CONSTANT 72 $, NET EXPORTS Of G&S IMPORTS OF G&S 42.0 158. 116.4 31.7 148. 117.1 23.3 144.3 121.0 37.0 151.7 114.7 35.7 154.4 118.7 27.1 146.2 119.1 27.2 143.0 115.8 24.0 140.7 116.8 22.8 142.5 119.7 23.0 145.4 122.4 23.4 148.7 125.3 80.1 82.0 81.4 80.7 -44. 1 -44. -53.7 -63.0 -71.0 -77.6 208.5 36.5 172.0 205.9 42.0 164.9 203.1 43.0 160. 1 203.7 441.2 159.5 207. 5 4 5.8 161.7 213.9 47.6 166. 3 256.5 66.0 190.5 250.0 60.0 190.0 256.8 60. 1 196.7 266.7 62.6 204.1 278.6 66.2 212.3 291.5 68.8 222.7 -36.3 -43.2 -48. 79.0 83.3 81.0 82.9 84.9 82.6 -27.9 -34.7 -66.3 -23.5 -23.53 -23.11 -23. -48.-48.0 EXPORTS (BICL. HILITARI) AGRICULTURAL NONAGBICULTURAL 236. 3 44.3 192.0 214.5 40.8 173.7 207.1 45.2 161.9 223.1 42.0 181. 220.4 42.7 177.7 IMPOBTS PETROLEUM AND PRODUCTS NONPETROLEUM 264.1 77.6 186.6 249.2 60.6 188.6 273.4 64.4 209.0 246.6 62.6 184.0 243.5 53.7 189.8 TEBS OF TADE (1972=100) 2. O.S. 1/ BBRCHANDISE TRADE BALANCE 2/ 82.7 ----------------------------3. U.S. CURREBN OF WHICH: 4. ACCOUNT BALANCE MET INVESTBMET INCOME FOREIGN OUTLOOK - ----------- 4.5 -5.7 -38.9 4.9 8.3 33.0 29.7 32.4 27.4 30.7 30.3 30.5 29.7 30.8 3J. 6 35.4 .4 9.7 .4 8.4 2.0 7.4 .2 7.9 .0 9.1 .8 6.8 1.7 7.6 2.5 7.8 2.3 6.9 2.6 6.7 3.0 6.7 -19. -16.) -27. TEN INDUSTBIAL COUNTIES,3/ REAL GNP, 5 CHANGE, ANNUAL BATES CONSUMER PRICES, S CHANGE, ANNUAL BATES 1/ GNP EXPORT IMPLICIT DEFLATOR DIVIDED BY GNP IMPORT IMPLICIT DEFLA2OB. 2/ INTERNAIIONAL ACCOUNTS BASIS. 3/ GEOBETRIC .EIGHTS USED TO AGGREGATE FOREIGN JBAL GNP AND CONSUMER PRICES -- PERCENT SHARE IN TEN-COUNTRY TOTAL nULTILATEBAL TRADE. GERMANM (20,8), JAPAN (13.65,, RANCE (13.11), UNITED KINGDOM (11.91), CANADA (9.15), ITALY (9.01), THE NETHERLANDS (8.31), BELGIUM (6.41), SWEDEN (4.21), SWITZERLAND (3.65). P/ PBOJECIEQ. f
@FedFRASER