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Confidential (FR)

Class II FOMC

Part 2
September 29, 1982

CURRENT ECONOMIC AND
FINANCIAL CONDITIONS
Recent Developments

Prepared for the Federal Open Market Committee
By the staff of the Board of Governors of the Federal Reserve System

Confidential (FR) Class

FOMC

September 29, 1982

RECENT DEVELOPMENTS

Prepared for the Federal Open Market Committee
By the staff of the Board of Governors of the Federal Reserve System

Section
DOMESTIC NONFINANCIAL DEVELOPMENTS
Employment and unemployment

Page

....................................

Industrial production and capacity utilization..................
Personal income and consumer spending...........................
Business fixed investment......................................
Housing........................................... ..............
Inventory investment............ ..............................
Federal government............................................
State and local government......................................
Prices..............................................
Labor costs.............................. ............... ......

4
7
10
12
15
15
18
18
20

TABLES:
Changes in employment.
...........................................
Selected unemployment rates....................................
Industrial production..........................................
Capacity utilization rates: manufacturing and materials.........

2
2
5
5

Personal income ............................................

Retail sales...........................................

Auto sales............... . ...............................
.

Business capital spending indicators............................
Business capital spending commitments..........................
Private housing activity.....................................
Changes in manufacturing and trade inventories..................
Inventories relative to sales...................................

11
11
14
16
16

Defense outlays.................................................

Recent changes in consumer prices...........................
Recent changes in producer prices...............................
Selected measures of labor costs in

19
19

the nonfarm business sector...............................

CHARTS:
.

Industrial production...........................................
Contracts and expenditure for nonresidential
commercial structures........................................

Unemployment insurance...............................

DOMESTIC FINANCIAL DEVELOPMENTS

III

Monetary aggregates and bank credit.............................

Business finance................................................

Government finance
.........
Federal sector .............. .....................
State and local sector.....................................
Mortgage markets...................................

11
13
14

Consumer credit.................................................

Section
DOMESTIC FINANCIAL DEVELOPMENTS

Page

III

TABLES:
Monetary aggregates............................................
Commercial bank credit and short- and intermediate-term
business credit.............................................
Gross offerings of securities by U.S. corporations..............

2
6
8

Treasury and agency financing...................................

State and local government security offerings..................
Consumer installment credit...................................

12
16

CHART:
Risk premium on tax-exempt bonds...........

INTERNATIONAL DEVELOPMENTS

...................

..........
Foreign exchange markets............................
Foreign lending by U.S. banks..................................

1
5

U.S. international transactions...............................
.......
U.S. merchandise trade...............................
Capital account transactions...................................

7
7
9

U.S. current account..........................................

Foreign economic developments...................................
Individual country notes.....................................

13
15

TABLES:
Claims on foreigners of U.S.-chartered banks.....................
....
U.S. merchandise trade................................
Oil imports...........
.......................................
........................
International banking data...........

6
7
8
10

U.S. current account............................................

Summary of U.S. international transactions ......................
Growth of targeted monetary aggregates..........................
Major industrial countries

12
24

Real GNP and IP...............................................
Consumer and wholesale prices................................

25
26

Trade and current-account balances..........................

CHARTS:
Weighted-average exchange value of the U.S. dollar.............

Three-month interest rates.....................................

Industrial production in six major countries.....................
Rates of change of consumer prices in six major countries........

14
14

DOMESTIC NONFINANCIAL
DEVELOPMENTS

II - T -

September 29, 1982

SELECTED DOMESTIC NONFINANCIAL DATA

(Seasonally adjusted)
Latest data
Period

Release
date

Data

Percent change from
Three
Year
periods
Preceding
earlier
earlier
period
(At annual rate)

Civilian labor force
Unemployment rate (%) 1/
Insured unemployment rate (%) 1/
Nonfarm employment, payroll (mil.)
Manufacturing
Nonmanufacturing
Private nonfarm:
Average weekly hours (hr.) 1/
Hourly earnings ($) 1/
Manufacturing:
Average weekly hours (hr.) 1/
Unit labor cost (1967=100)

Aug.
Aug.
Aug.
Aug.
Aug.
Aug.

9-3-82
9-3-82
9-12-82
9-3-82
9-3-82
9-3-82

110.6
9.8
4.6
89.5
18.7
70.7

1.3

-. 1

9.8
4.5
-2.8
-7.3

-1.6

9.5
4.6
-3.2
-8.1
-1.9

Aug.
Aug.

9-3-82
9-3-82

34.9
7.73

34.9
7.70

35.0
7.65

35.2
7.34

Aug.
July

9-3-82
8-31-82

39.0
232.2

39.3

39.1
7.4

39.9
11.2

Industrial production (1967=100)
Consumer goods
Business equipment
Defense & space equipment
Materials

Aug.
Aug.
Aug.
Aug.
Aug.

9-15-82
9-15-82
9-15-82
9-15-82
9-15-82

138.0
144.0

Consumer prices all items (1967=100) Aug.
All items, excluding food & energy Aug.
Aug.
Food

9-23-82
9-23-82
9-23-82

292.2

Producer prices: (1967=100)
Finished goods
Intermediate materials, nonfood
Crude foodstuffs & feedstuffs

Aug.
Aug.
Aug.

9-10-82
9-10-82
9-10-82

283.0
315.8

250.8

7.3
-.8
-12.3

Personal income ($ bil.) 2/

Aug.

9-20-82

2,601.0

3.9

151.4
110.0
133.4

-1.5
-6.1
-14.0
-17.2
9.9
.0
3.3
6.0
-3.3

280.1
286.2

-3.4
1.1
-21.3
8.5
-2.7
7.7
8.0
1.1

9.0
3.1
-17.4
7.0

1.7
7.3
3.4
-2.0
-7.8
-. 4

-10.2
-3.7
-17.9
7.0
-14.0
5.9
7.1
3.5

4.0
.5
-4.2
5.7

(Not at annual rates)
Mfrs. new orders dur. goods ($ bil.) Aug.
Capital goods industries
Aug.
Nondefense
Aug.
Defense
Aug.

9-22-82
9-22-82
9-22-82
9-22-82

73.4

Inventories to sales ratio: 1/
Manufacturing and trade, total
Manufacturing
Trade

9-22-82
9-22-82

Ratio:

July
July
July

Mfrs.' durable goods inventories to unfilled orders 1/ July

19.5
5.5

-4.0
-.2
-4.2
17.3

-3.0
-.6
-4.3
15.1

9-14-82

1.49
1.70
1.30

1.48
1.70
1.29

1.52
1.79
1.29

1.42
1.63
1.23

9-22-82

.625

.621

.610

.577

88.3
18.5

-.9
-1.7

-2.8
-3.2

3.0
4.1
.7

25.0

Retail sales, total ($ bil.)
GAF 3/

Aug.
Aug.

9-13-82
9-13-82

Auto sales, total (mil. units.) 2/
Domestic models
Foreign models

Aug.
Aug.
Aug.

9-3-82
9-3-82
9-3-82

7.6
5.3
2.2

Plant & Equipment expen. ($ bil.)4/
Total nonfarm business
Manufacturing
Nonmanufacturing

1982

1982
1982

9-9-82
9-9-82
9-9-82

323.66
124.23
199.43

9-1-82
9-17-82
8-31-82

20,039
1,002
129.8

Capital Appropriations, Mfg.
1982-Q2
Housing starts, private (thous.) 2/ Aug.
Leading indicators (1967=100)
July

-10.0
-16.5
10.7

---

--22.2
-16.2
1.3

1/ Actual data used in lieu of percent changes for earlier periods.
2/ At annual rate.
3/ Excludes mail order houses.
4/ Planned-Commerce August 1982 Survey.

---6.0
2.4

-13.4
-16.5
-21.7
9.7

.4
-.4
-24.8
-32.8
5.1

-2.0
--2.4
-29.6
5.9
-3.7

DOMESTIC NONFINANCIAL DEVELOPMENTS

Economic activity has not yet shown significant signs of recovery.
The unemployment rate in August remained at July's postwar record level
and industrial production edged lower.

Retail sales were weak, as part of
In

the midyear tax cut was offset by slower growth of pretax earnings.

addition, business spending on capital goods continued to decline, but
residential construction activity has shown some small improvement.

the same time incoming data on wages and prices remain very encouraging.
Employment and Unemployment
Labor demand weakened again in August as nonfarm employment fell
210,000; moreover weekly data on initial claims for unemployment insurance
remained high though mid-September.

Substantial layoffs resumed in durable

manufacturing industries in August, and the factory workweek fell 0.3
hours, erasing the small gains that had occurred over the April to July
period.

The losses of factory jobs occurred almost entirely within the

major metals and metal-using industries, which were apparently still
experiencing difficulties in reducing inventories.

These industries,

which include primary and fabricated metals, electrical and nonelectrical
machinery, and transportation equipment, have accounted for about half of
the 2 million overall decline in nonfarm payroll employment since the
prerecession peak in July 1981.
ment leveled off.

In nondurable goods industries, employ-

Although trade and government employment growth con-

tinued to be weak in August, jobs in finance and services were still
expanding.
The unemployment rate held steady in August at 9.8 percent.

Over

the last several months, joblessness among adult men has risen faster
II-1

II-2
CHANGES IN EMPLOYMENT 1
(Thousands of employees; based on seasonally adjusted data)

1980

1981

1982
July

Aug.

-Average monthly changesNonfarm payroll employment 2
Strike adjusted

14
8

-7
-8

-113
-111

-155
-141

-177
-191

-211
-211

Manufacturing
Durable
Nondurable
Construction
Trade
Finance and services
Total government
Private nonfarm production
workers
Manufacturing production
workers

-62
-46
-16
-19
0
81
11

-40
-32
-8
-22
16
56
-26

-119
-78
-41
-31
44
25
-19

-130
-96
-34
2
-20
33
-9

-86
-46
-40
-11
18
75
-119

-115
-130
15
-27
-82
37
-13

-23

-8

-90

-124

-46

-222

-69

-48

-103

-109

-54

-90

Total employment 3
Nonagricultural

-27
-35

-2
22

-40
-87

91
87

-32
-134

107
132

1. Average change from final month of preceding period to final month
of period indicated.
2. Survey of establishments. Strike-adjusted data noted.
3. Survey of households.

SELECTED UNEMPLOYMENT RATES
(Percent; based on seasonally adjusted data)

1980

1981

7.1

Teenagers
20-24 years old
Men, 25 years and older
Women, 25 years and older

1982
July

7.6

8.8

9.5

9.8

17.8
11.5
4.8
5.5

19.6
12.2
5.1
5.9

22.0
13.9
6.4
6.6

22.8
14.4
7.1
7.3

24.1
14.4
7.5
7.4

24.0
15.2
7.5
7.0

White
Black

6.3
13.1

6.7
14.2

7.7
15.9

8.4
17.1

8.7
17.3

8.6
17.5

Fulltime workers
White-collar
Blue-collar

6.9
3.7
10.0

7.3
4.0
10.3

8.6
4.5
12.6

9.3
4.9
13.7

9.5
4.9
14.4

9.6
4.8
14.2

Total, 16 years and older

Aug.

II-3

UNEMPLOYMENT INSURANCE
(Weekly data, seasonally adjusted)
700

600

500

400

300

1980
1.

1981

1982

Only the state program components of these series are seasonally adjusted.

II-4

than among adult women, reflecting employment declines in blue-collar
industries.

As the period of economic slack has lengthened, more

individuals have been unemployed for an extended interval.

Over the

summer, about 1.7 percent of the labor force had been without a job for
more than six months--about the same as the previous high in the fourth
quarter of 1975.
Industrial Production and Capacity Utilization
Industrial production edged down 0.5 percent in August.

About half

of this decline can be attributed to a reduction in auto assemblies from
6.6 to 5.5 million units per year.

Output of other consumer goods edged

down, and there was a further reduction in the production of business
equipment.

The overall production index now stands 10 percent below its

recent cyclical peak attained in July 1981.

With the August decline in

output, the rate of capacity utilization in manufacturing dropped to 69.4
percent, only slightly above the postwar record low of 69.0 percent set
in 1975.
Output of business equipment fell 1.4 percent in August following
larger declines in the five preceding months.

Business equipment produc-

tion was 18 percent below its July 1981 peak; this compares with a drop
of 23 percent in the 1957-58 recession and a 14 percent reduction in 197475.

Cutbacks in business equipment output during August were widespread,

with the largest reduction occurring in building and mining equipment,
as oil and gas well drilling posted another large decline.

On the

positive side, output of defense and space equipment continued to trend
upward, and the production of construction supplies increased slightly

II-5
INDUSTRIAL PRODUCTION
(Percentage change from preceding period;
based on seasonally adjusted data)
__

_UY~

_______UU__I___I____U_---

a_---

1981
Q4

-16.6

-9.6
Final products
-13.2
Consumer goods
Durable
-32.6
-5.0
Nondurable
-9.4
Business equipment
Defense and space eq. 11.4

-11.8

-29.3
-24.1
-29.1
-23.3
-10.6

-14.1
-24.0
-8.3
5.8

July

August

-. 5
-.2
.7
2.0
.3
-2.2
.2
.7

-8.7

-. 5
.0
-1.9
.1

-11.0
-11.1
-10.0
-12.4

.1
.1
.8
1.8
.3
-1.8
1.1

-. 5
-1.0
-1.2
-3.7
-.2
-1.4
.8

-. 2
-.4
-. 2
1.0

MANUFACTURING AND MATERIALS
CAPACITY UTILIZATION RATES:
seasonally adjusted)
(Percent,

_ __

Manufacturing industries
Primary processing
Advanced processing
Motor vehicles & pts.

Materials producers
Durable goods mats.
Raw steel
Nondurable goods mats.
Energy materials

1978-80
High

1980
Low

----- monthly rate------

-3.2
-7.2
28.7
0.6
-22.5
5.2

-14.5

Materials
Durable goods
Nondurable goods
Energy materials

June

__--

-6.7

-10.4
-8.6
-14.5
-6.5
-17.7
2.4

Construction supplies

U---i~-~-

1982

---annual rate----Total

DII-~
~-

1982

1982
August
July

87.2

74.91

71.6

70.3

69.9

69.4

90.1
86.2
94.5

71.0
77.2
51.0

69.1
73.2
47.4

66.3
72.4
56.9

65.6
72.2
61.3

65.5
71.5
56.8

88.8

73.82

72.0

69.6

68.7

68.5

88.4
100.7
91.6
88.8

68.2
55.3
77.5
82.7

66.7
62.9
75.0
82.9

64.4
49.2
72.6
80.0

63.7
44.7
70.6
80.5

63.5
42.5
70.8
79.9

1. The post World War II low occurred in March 1975 and was 69.0 percent.
2. The March 1975 low was 69.4 percent.

II-6

INDUSTRIAL PRODUCTION

Ratio Scale,
Index, 1967 = 100

Manufacturing and Mining Production

Ratio Scale
Index, 1967 = 100

180
160

140

120

100
Millions of units
per ear

11
9
7

5
I

1973

1976

I
I

1979

I
m
1982

II-7

in August for the third consecutive month, accompanying the sluggish
recovery in residential construction.
Personal Income and Consumer Spending
Disposable personal income rose little in August, following a large
increase in July, which was generated by a cost-of-living increase in
social security benefits and the midyear tax cut.

Reflecting the weakness

in labor demand, wages and salaries--which usually account for most of the
fluctuations in personal income--rose only $2.7 billion or about one-third
the gain in July and well below the average monthly increase of $6.8
billion in the second quarter.
Consumer spending in August remained weak as total retail sales
declined 0.9 percent, offsetting most of the gain in July.

Excluding

automotive outlets and stores that primarily sell nonconsumption items,
retail sales increased 1.2 percent in July and only 0.2 percent in August.
The personal saving rate averaged 7.3 percent in July and August
compared with the second quarter average of 6.7 percent.

Some of the

recent increase in the saving rate may be attributable to concerns about
the unemployment outlook and an unwillingness to incur new debts, as well
as the usual delay in adjusting spending to the tax cut.

Measures of

consumer sentiment for both August and September suggest that spending
is being held back by high interest rates and uncertainty about future
economic conditions.
The only firm information on consumer spending in September relates
to auto sales.

Sales of new domestic autos rose to a 6 million unit

annual rate in the first 20 days of the month, compared with an average

pace of 5 million units in the preceding three months.

However, much of

II-8

PERSONAL INCOME
(Based on seasonally adjusted data)

1980

1981

1982
June

July

Aug

- - percentage changes at annual rates<l> - 11.1

Disposable personal income
Nominal
Real

10.4

2.6

6.9

4.7

8.4
8.7

2.7
2.1

3.9
3.7

1.9
1.2

5.9
4.1

11.0
.5

10.4
2.6

3.0
-1.9

3.9

12.3

9.9
9.6

Total personal income
Wage and salary
disbursements
Private

1.7
6.7
3.1 -10.5

24.0
16.0

2.1
3.5

2.8
....

- - changes in billions of dollars<2> Total personal income

19.2

Wage and salary disbursements
Private
Manufacturing

10.8
8.5
2.4

Other income
Transfer payments
Less: personal contributions
for social insurance
Memorandum:
Personal saving rate
<1>

<2>

17.9

8.8

7.0

15.9

10.1

26.2

8.5

7.1
1.1

4.0
2.7
-.2

6.8
5.6
.9

2.5
1.3
.3

7.7
4.3
-. 1

2.7
3.7
-1.6

9.1
4.3

10.3
2.9

4.2
1.3

9.5
3.1

7.7
2.1

19.2
12.9

6.0
.9

1.2

1.3

5.8

6.4

6.6

6.9

6.6

7.5

Changes over periods longer than one quarter are measured from
final quarter of preceding period to final quarter of period
indicated. Changes for quarterly periods are compounded rates of
change; monthly changes are not compounded.
Average monthly changes are from the final month of the preceding
period to the final month of period indicated; monthly figures are
changes from the preceding month.

II-9
RETAIL SALES
(Percent change from preceding period except where indicated;
based on seasonally adjusted data)

1982
Aug/Q2

May

June

1982
July

2.8

-.9

2.9

-3.1

1.2

-.9

-.7

2.4

---

2.5

-3.9

---

1.4

1.7

-.9

1.2

1981
Q4

1982
Q2

Total sales

-1.3

(Real)1

-2.4

Aug

Total, less autos and
nonconsumption items

Total, exc. auto group,
gasoline, and nonconsumption items

1.5

1.7

-1.2

1.2

-.1

-.3

1.3

-.7

3.9

-3.7

2.3

-1.8

-5.6
-7.3

.0
.2

7.1
11.4

-6.5
-9.7

5.1
7.4

-7.6
-11.5

.5
1.3

-3.5
-5.6

GAF 2
Durable goods
Automotive
Furniture &
appliances

-.8

2.6

-1.5

-2.2

1.7

-1.9

.7
-.9
1.7
.5
.4

Nondurable goods
Apparel
Food
General merchandise 3
Gasoline

-4.7

.9
.2
4.3 -1.8
2.0
-.2
-.5
2.1
-2.1 -4.8

1.7
-2.7
2.3
.3
6.0

1.8
5.4
2.1
4.5
1.4

-.9
-5.5
-1.6
-3.5
1.8

1.5
3.3
1.4
2.1
1.5

.3
-3.9
1.3
-.9
2.7

1. BCD series 59. Data are available approximately 3 weeks following the retail sales
release.
2. General merchandise, apparel, and furniture and appliance stores.
3. General merchandise excludes mail-order nonstores; mail-order sales are also excluded
in the GAF composite sales summary.
AUTO SALES
(Millions of units; seasonally adjusted annual rates)
1982
Q2
Q1
Total

May

June

1982
July

Aug.

Sept.1

8.1

7.5

8.4

6.9

7.4

7.6

n.a.

Foreign-made

2.2

2.0

2.2

n.a.

U.S.-made

5.9

5.5

6.4

4.8

5.1

5.3

6.0

Small

3.0

2.5

2.9

2.2

2.4

2.6

n.a.

Intermediate
& standard

2.8

3.0

3.5

2.6

2.7

n.a.

Note: Components may not add to totals due to rounding.
1. First 20-days.

the September increase appears to reflect sales that were made in anticipation of the termination of a number of dealer incentive programs.
Many such programs were instituted over the summer in order to eliminate
excess stocks of 1982 models.
Business Fixed Investment
Capital spending continued to decline through August reflecting
weak final demand, low capacity utilization, and high interest rates.
Equipment spending moved lower as shipments of nondefense capital goods-a rough measure of about 80 percent of expenditures on producers' durable
equipment--fell 1.8 percent in July and 3.0 percent in August.

Outlays

for nonresidential structures displayed the first signs of a sharp contraction during the recession, as construction spending dropped 3 percent in
July.

Additional reductions occurred in oil and gas well drilling, which

fell in both July and August.
Commitments data for capital spending indicate further reductions
in the months ahead.

Although orders for nondefense capital goods increased

in July, this was largely offset by a reduction in August.

Orders were

more than 10 percent below shipments in August, suggesting further reductions in shipments over the near term.

In the structures category,

contracts for commercial buildings fell 22 percent in July (in terms of
square footage) after showing substantial reductions since the beginning
of 1981.

As the accompanying chart shows, these reductions point to

appreciable declines in commercial building in the coming months.
Survey results also indicate that business plans to reduce investment spending in the months ahead.

The Commerce Department's survey of

plant and equipment spending anticipations, taken in late July and early

II-11

BUSINESS CAPITAL SPENDING INDICATORS
(Percentage change from preceding comparable period;
based on seasonally adjusted data)

1981
Q4

1982
Q1

June

1982
July

Aug.

Nondefense capital goods
shipments
Current dollars

-.4

-5.6

-3.1

-2.4

-1.8

-3.0

Addendum: Sales of heavyweight trucks (thousands)

201

217

173

162

158

183

1.5

1.1

2.4

-3.0

Addendum: Oil and gas well
drilling (millions of feet)1 34.9

34.9

40.8

37.1

35.6

29.4

Nonresidential construction
Current dollars

These data are based on completions and tend to lag ongoing
activity reported in the index of industrial production.

BUSINESS CAPITAL SPENDING COMMITMENTS
(Percentage change from preceding comparable period;
based on seasonally adjusted data)

1981
Q4

-6.5

-5.2

-4.9

-2.7

-10.7

-4.2

Addenda: Ratio of
current dollar unfilled
orders to shipments
Total
Machinery

5.84
4.36

5.94
4.30

Contracts for commercial
buildings (mil. sq. ft.)

-2.4

-15.6

Nondefense capital goods
orders
Current dollars
Machinery
Current dollars

5.84
4.25

-1.7

1982
June

July

Aug.

-5.2

5.4

-4.2

-10.1

1.7

4.5

5.87
4.27

5.95
4.25

5.86
4.25

41.8

-21.7

II-12

August, reported that businesses have cut their spending plans for 1982
The December 1981 survey reported a planned rise in plant and

again.

equipment spending for 1982 of 7.4 percent.
which steadily scaled back these plans:

This was followed by surveys

increases of 7.3 percent in

February; 2.2 percent in May; and now 0.7 percent in August.

In addition,

the Conference Board reported in early September that the nation's 1,000
largest manufacturers reduced capital appropriations by 28 percent in the
second quarter of 1982.
Housing
New residential construction activity, as measured by housing starts
and permits, fell in August, reversing much of the July increase.

Never-

theless, housing starts in August still were above the second-quarter
average.

These developments extended the gradual improvement in housing

activity that began last autumn and have paralleled the reduction in
the cost of mortgage credit.
The improvement in housing activity in recent months largely
reflects developments within the multifamily sector.

Despite a reduction

in such activity in August, multifamily starts last month were 13 percent
above the second-quarter pace and 24 percent above the trough registered
in the third quarter of last year.

As much as a third of the increase

in multifamily starts in July and August may be attributed to an increase
in HUD-subsidized (Section 8) rental construction, while the remainder
probably represents construction of condominium and co-op units.
While single-family housing activity has edged up from the quarterly
low of 537,000 units reached in the fourth quarter of 1981, the continued
absence of a recovery in sales of existing and new homes has restrained the

II-13
CONTRACTS AND EXPENDITURE FOR
NONRESIDENTIAL COMMERCIAL STRUCTURES

Construction Contracts--Commercial Buildings

L
I

Millions of Square Feet
75

1 I1

Expenditures for Nonresidential Structures--Commercial Buildings

I
1970
1.

1972
Source:

Billions of 72$

I
1974

I 1

I
1976

I
1978

F.W. Dodge Division of McGraw-Hill.

I
1980

I
1982

II-14

PRIVATE HOUSING ACTIVITY
(Seasonally adjusted annual rates, millions of units)

1981
_____

___Annual

All units
Permits
Starts
Single-family units
Permits
Starts
Sales
New homes
Existing homes
Multifamily units
Permits
Starts
Mobile home shipments

1. Preliminary estimates.
n.a.--Not available.

1982
June

July

Aug.

.99
1.08

.76
.87

.82
.92

.92
.95

.93
.91

1.06
1.20

.89
1.00

.56
.71

.42
.54

.45
.59

.49
.61

.52
.62

.50
.63

.49
.61

.44
2.35

.40
1.92

.39
1.93

.37
1.93

.37
1.98

.35
1.89

n.a.
1.79

.42
.38

.34
.33

.37
.33

.43
.35

.41
.29

.56
.57

.39
.40

.24

.21

.24

.25

.26

.25

n.a.

II-15

growth in

Sales of existing homes fell 5 percent

single-family starts.

in August, and new home sales through July were close to their recent
cyclical trough.

However, measured inventories of unsold units are at an

11-year low, and any significant improvement in sales might quickly be
translated into new production.

According to industry reports, such an

upturn in sales may have commenced in late August and early September as
mortgage interest rates fell more than they had in the month before.
Inventory Investment
Manufacturing and trade inventories increased in July at an annual
rate of $4.7 billion in constant dollars, the second consecutive month
of accumulation.

All of the accumulation occurred in trade inventories,

but the liquidation of manufacturing inventories slowed to an annual rate
of $1.7 billion from an $8.7 billion pace in the preceding month.

The

July accumulation was concentrated in automotive products, reflecting
weak auto sales in June and July.

This pushed inventory-sales ratios

higher in both wholesale and retail trade.
Constant-dollar liquidation of manufacturing inventories occurred
in durable stocks, while nondurable stocks increased in July.

Sizable

overhangs persist in a number of durable goods industries, particularly
in metals and machinery.

In constant-dollar terms, the stock-to-sales

ratio for nonelectrical machinery continued to climb in July, reaching
its highest level in the current cycle; the ratio for primary metals also
remained high in July.
Federal Government
The federal deficit totaled over $35 billion on a unified budget
basis during July and August.

Adjustment for normal seasonal factors

II-16
CHANGES IN MANUFACTURING AND TRADE INVENTORIES
(Billions of dollars at annual rates)

1980

1981

1981
Q4

38.4
23.0
14.1
8.9
10.6
4.9

37.5
19.1
13.8
5.4
6.7
11.6

18.5
3.8
3.0
.8
9.5
5.3

-29.0
-12.4
-9.5
-2.9
-7.2
-9.4

-.1
-19.8
-7.1
-12.7
15.7
4.1

-54.3
-30.4
-12.6
-17.9
-14.2
-9.7

28.8
-16.0
-7.0
-9.0
21.0
23.8

5.1
-2.4
-5.9
3.5
-.3
7.8

-1.7
.9
.5
-3.0

7.1
2.6
1.5
3.1

1.7
-3.6
4.8
.6

-15.5
-8.1
-3.4
-4.0

-3.2
-7.3
2.8
1.3

-23.9
-8.1
-9.7
-6.1

7.6
-8.7
7.7
8.6

&.7
-1.7
4.3
2.1

1982
May

June

July(r)

Book Value Basis
Total
Manufacturing
Durable
Nondurable
Wholesale trade
Retail trade
Constant Dollar Basis
Total
Manufacturing
Wholesale trade
Retail trade

INVENTORIES RELATIVE TO SALES 1

1974
Cyclical
Peak 2

1980
Cyclical
Peak 2

1.64
1.95
2.51
1.39
1.24
1.57

1.52
1.76
2.37
1.17
1.19
1.46

1.76
2.18
1.40
1.52

1.76
2.11
1.47
1.45

1981
Q4

May

1982
June

July(r)

1.51
1.75
2.35
1.16
1.16
1.45

1.51
1.79
2.41
1.18
1.14
1.42

1.49
1.73
2.35
1.12
1.18
1.40

1.46
1.72
2.33
1.13
1.14
1.35

1.48
1.70
2.34
1.10
1.18
1.41

1.49
1.70
2.33
1.11
1.21
1.40

1.76
2.12
1.45
1.47

1.76
2.15
1.43
1.46

1.73
2.10
1.42
1.45

1.70
2.09
1.37
1.40

1.73
2.08
1.42
1.47

1.74
2.08
1.45
1.47

Book Value Basis
Total
Manufacturing
Durable
Nondurable
Wholesale trade
Retail trade
Constant Dollar Basis
Total
Manufacturing
Wholesale trade
Retail trade

Ratio of end-of-period inventories to average monthly sales for the period.
Highs are specific to each series and are not necessarily coincident.
Revised estimates.
Preliminary estimates.

II-17

would reduce this deficit to about $26 billion--or $156 billion at an
annual rate.

On the receipts side of the budget, individual withholding

has been reduced by the July 1 tax cut.

In addition, the pace of corporate

tax receipts has slowed as a result of substantial refunds on prior-year
Federal outlays over this period were increased by the

tax payments.

July cost-of-living adjustment for social security benefits.

And, as

the table below shows, defense outlays (other than compensation) have
been adding to the rise in total outlays in recent months, after relatively
little growth early this year.
Defense Outlays
(Unified budget, billions of dollars at annual rates)
Jan.Mar.

FY1981
Apr.June

JulySept.

Oct.Dec.

Jan.March

Procurement

32.1

36.8

38.6

40.9

40.5

46.8

44.9

Operations and
maintenance

51.3

51.8

56.5

57.4

59.3

58.3

63.2

Other defense1

33.5

35.0

31.3

36.4

35.1

39.5

40.3

144.6

148.4

Total defense excluding compensation 2
116.9
123.6
126.4
134.7
134.9
1. Primarily compensation and research and development.
2. Military outlays by the Department of Defense.

FY1982
Apr.June

Congressional action on the FY 1983 budget continues to lag behind
the timetable established in the 1974 Budget Act.

At most, four of the

thirteen appropriations bills are expected to be completed during the
current week before the beginning of a congressional recess on October 2.
A continuing resolution that will provide interim funding for the government until December 15 has passed the House; the Senate is expected to

July and
August

II-18

take up the continuing resolution this week.

The resolution funds most

programs at current levels; defense expenditures would be funded at the
higher level approved by the House appropriations committee.

The President

has called for a special session of Congress after the November elections
to complete the appropriations process.
State and Local Government
State and local purchases remain sluggish, with revised secondquarter data showing no change in real spending.

Construction spending

rose a little in June and July, but was still 3.6 percent below a year
earlier.

The only observed strength occurred in highway expenditures.

Preliminary data indicated that state and local government employment declined by over 100,000 in July, and stayed at that level in August.
Previously, employment had held steady from January to May, followed by a
32,000 reduction in June.

The recent sharp drop in jobs appears rather

unusual, but could be related to problems in measuring school employment
over the summer months.
Prices
The price data for August suggest that the acceleration in prices
earlier this summer mainly reflected temporary developments in markets
for energy, food, and housing, rather than a widespread pickup of inflation.

The consumer price index rose at a 3-1/2 percent annual rate in

August, its smallest increase since April; CPI increases have averaged
about 5 percent at an annual rate so far this year.
producer goods also rose moderately in August.

Prices of most

Moreover, the widespread

weakness in materials prices this year and the continued deceleration in
wages point to an underlying trend toward lower inflation rates.

II-19
RECENT CHANGES IN CONSUMER PRICES 1
2
(Percentage change at annual rates; based on seasonally adjusted data)
Relative
importance
Dec. 1981
100.0
All items
16.6
Food
11.1
Energy
26.1
Homeownership
All items less food,
energy, and homeowner49.8
ships
3.3
Used cars
19.9
Other commodities 3
26.6
Other services 3
Memorandum:
Experimental CPI 4

100.0

1982
July

Aug.

1980

1981

12.4
10.2
18.1
16.5

8.9
4.3
11.9
10.1

1.0
3.9
-8.0
-2.4

9.3
7.3
12.9
19.8

7.0
-. 8
16.9
5.3

3.3
-3.3
.0
4.7

9.9
18.3
8.1
10.3

9.4
20.3
6.1
10.6

5.4
5.5
4.8
6.3

6.9
3.5
3.7
8.0

7.7
19.4
7.4
9.3

4.8
11.4
1.1
6.7

10.8

8.5

2.7

5.8

9.6

3.2

1. Based on index for all urban consumers (CPI-U).

2. Changes are from final month of preceding period to final month of period
indicated; monthly changes at simple annual rates.
3. Includes the home maintenance and repair items of homeownership costs.
4. BLS experimental index for "All items"--CPI-U-X1--which uses a rent
substitution measure for homeownership costs.

RECENT CHANGES IN PRODUCER PRICES
(Percentage change at annual rates; based on seasonally adjusted data)1
Relative
importance
Dec. 1981

1982
Q2

July

Aug.

1980

1981

100.0
21.9
12.7
44.6
20.8

11.8
7.5
27.8
10.4
11.4

7.1
1.4
14.1
7.1
9.2

.9
6.1
-18.5
3.9
2.4

4.1
11.5
-15.7
5.3
6.2

6.9
-17.7
69.0
3.6
5.6

7.3
1.4
14.6
7.7
8.1

Intermediate materials 2
Exc. energy

94.7
77.6

12.4
10.1

7.3
6.6

-1.8
.1

-1.4
.4

6.1
-1.2

-.8
-1.2

Crude Materials
Food
Energy
Other

50.7
33.6
15.7

8.6
26.9
7.5

-14.0
22.8
-11.4

23.3
-5.8
-40.3

24.3
2.0
24.9

-32.7
11.5
12.6

-12.3
2.4
-7.5

Finished goods
Consumer food
Consumer energy
Other consumer goods
Capital equipment

1. Changes are from final month of preceding period to final month of
period indicated; monthly changes at simple annual rates.
2. Excludes materials for food manufacturing and animal feeds.

II-20

One factor that boosted inflation rates in the early summer was a
rebound in energy prices.

Although the pickup in energy inflation will

boost aggregate price measures for the third quarter, monthly data show
that the rise in gasoline prices proved to be short-lived.

At the retail

level, energy prices slowed substantially in July and then leveled off in
August.

Gasoline prices fell slightly in August and were below their

levels of a year earlier.

There is substantial slack in world oil markets,

which should continue to ease near-term pressure on energy prices.
In the food sector, just as in the energy sector, an upturn in
inflation in early summer proved to be temporary.

The CPI measure of

food prices fell at a 2 percent annual rate from June to August after
rising at a 7-1/4 percent rate over the three preceding months.

addition, prices of crude foods have dropped sharply over the summer,
reflecting both sluggish demand and another year of exceptionally good
harvests.
The rise in homeownership costs-a third factor that had boosted the
CPI earlier in the summer--also slowed in August as house prices leveled
off.

Recent declines in mortgage interest rates are expected to show up

in the CPI beginning in September.

Starting in January, the All-Urban

CPI will no longer include mortgage interest rates or the current house price
measure, which has become increasingly unreliable because of a shrinking
FHA-insured sample base.

Excluding food, energy, and homeownership, the

August CPI increase was at about a 5 percent annual rate.
Labor Costs
Wage inflation decreased considerably this year, reflecting the downtrend in the overall rate of inflation and the erosion of employment

II-21
SELECTED MEASURES OF LABOR COSTS
IN THE NONFARM BUSINESS SECTOR
(Percentage change at annual rates; quarterly
changes based on seasonally adjusted data)

1981
1980

1981

1982
04

Dec. 1981Aug. 1982

Hourly Earnings Index, wages - production workers1
Total private nonfarm
Manufacturing
Contract construction
Transportation and
public utilities
Trade
Services

9.6

8.4

8.5

7.3

6.5

6.4

6.5

10.9
7.7

8.8
8.1

8.7
8.9

7.7
8.8

8.7
9.0

6.6
2.3

7.3
4.6

9.3
8.8
9.5

8.5
7.1
9.1

6.4
8.0
9.3

7.7
4.3
9.2

7.4
3.8
5.1

6.0
6.4
7.6

5.7
4.7
7.5
1981-Q4 to
1982-Q2

Employment Cost Index, wages and salaries - all persons 2
Total
By occupation:
White collar
Blue collar
Service workers
By bargaining status:
Union
Nonunion

9.1

8.8

8.4

7.9

7.4

4.8

6.1

8.7
9.5
8.2

9.1
8.6
8.3

7.8
9.3
8.8

8.9
7.1
6.7

7.6
6.4
8.5

5.0
3.7
7.7

6.3
5.1
8.1

10.9
8.1

9.6
8.5

10.3
7.7

8.9
7.7

7.8
7.0

5.5
3.8

6.6
5.3

Major Collective Bargaining Settlements 3
Contracts with COLAs
Contracts without COLAs

8.0
11.7

1982-H1
1.4
7.2

8.2
10.8

1981-Q4 to
1982-Q2

Labor Costs and Productivity - all persons 1
Compensation per hour
Output per hour
Unit labor costs

10.6
.3
10.2

9.0
-.3
9.3

9.8

7.3
-3.5
11.2

7.7
.6
7.1

6.0
.5
5.5

6.7

.4
6.4
last 12 months

Employment Cost Index, Compensation

Compensation per hour

Year-todate

9.8

1. Changes over periods longer than one quarter are measured from final quarter of
preceding period to final quarter of period indicated. Quarterly changes are at compound rates; monthly changes are not compounded.
2. Percent change from final month of preceding period to final month of period indicated. Quarterly changes are compounded; seasonal adjustment by FRB staff.
3. First-year adjustments.

II-22

opportunities.

From December to August, the hourly earnings index for

production workers, a fixed-weighted measure of wage rates covering about
four-fifths of all nonfarm workers, rose 6-1/2 percent at an annual rate,
down from 8-1/2 percent for 1981.

The more comprehensive employment cost

index, which includes white-collar workers as well as production workers,
provides more perspective on how widespread this deceleration has become.
White-collar earnings had risen close to 9 percent for most of the last
two years, but in the first half of 1982, they rose at only a 6.3 percent
rate.

Blue-collar earnings in this index also have decelerated from 8.6

percent in 1981 to a rate of 5.1 percent in the first half of 1982.
Average hourly compensation, which includes wages as well as fringe benefits,
rose 6-3/4 percent in the first half of 1982, about the same rate of increase
as for wages alone and 2 percentage points below last year's pace.
Improvement in productivity performance during the first half of
1982 helped to offset the effect of increases in compensation on labor
costs.

Output per hour advanced at a 1/2 percent annual rate in the first

and second quarters following a cyclical decline in the last half of 1981,
and increases in unit labor costs in the private nonfarm sector averaged
about 6-1/2 percent over the past two quarters, down considerably from
an increase of nearly 9 percent in 1981.

DOMESTIC FINANCIAL
DEVELOPMENTS

III-T-1
SELECTED FINANCIAL MARKET QUOTATIONS1
(Percent)
___

_1__~

11_1_

____~

1981

1982

Early summer

FOMC

_~_^___~_II~

Change from:
FOMC
Early summer
Highs
Sept. 28
Aug. 24

Highs

Aug. 24

20.06

14.81

9.04

10.16P

-4.65

1.12

Treasury bills
3-month
6-month
1-year

17.01
15.93
15.21

13.19
13.40
13.12

7.61
8.94
9.52

7.48
8.97
9.58

-5.71
-4.43
-3.54

-. 13
.03
.06

Commercial paper
1-month
3-month

18.63
18.29

14.89
15.00

8.11
9.00

9.85
10.25

-5.04
-4.75

1.74
1.25

18.90
19.01
18.50

14.99
15.58
15.70

8.95
9.63
10.67

10.02
10.42
10.91

-4.97
-5.16
-4.79

1.07
.79
.24

19.80
19.56

15.66
16.28

9.76
10.36

11.18
11.61

-4.48
-4.67

1.42
1.25

21.50

16.50

13.50

-3.00

14.20
14.07

13.69
13.67

10.09
11.18

8.75
10.64

-4.94
-3.03

-1.34
-. 54

maturity)
16.59
15.84
15.20

14.98
14.73
14.26

11.81
12.35
12.16

11.66
11.85
11.76

-3.32
-2.88
-2.50

-. 15
-. 50
-. 40

Municipal (Bond Buyer)

13.30

12.63

10.824

10.584

-2.05

-.24

Corporate--Aaa utility
Recently offered

17.72

16.19

13.70e

13.2 7 p

-2.92

-.43

18.63
1981

16.93

16.215
1982

15.195

Highs

Short-term rates
Federal funds

Large negotiable CDs
1-month
3-month
6-month
Eurodollar deposits
1-month
3-month

Bank prime rate
Treasury bill futures
Dec. 1982 contract
June 1983 contract
Intermediate- and longterm rates
U.S. Treasury (constant
3-year
10-year
30-year

S&L fixed-rate mortgage commitment

FOMC
Aug. 24

-1.74
-1.02
Percent change from:
1981
FOMC
Aug. 24
Highs

Sept. 28
Stock Prices
Dow-Jones Industrial
1,024.05
874.90
919.33
-10.2
5.1
7.0
66.10
70.70
-10.7
79.14
NYSE Composite
8.8
-24.1
288.70
380.36
265.28
AMEX Composite
NASDAO (OTC)
223.47
172.23
189.04
-15.4
9.8
4. One-day quotes for preceding Thursday.
1. One-day quotes except as noted.
2. Averages for statement week closest to date shown. 5. One-day quotes for preceding Friday.
p--preliminary. e--estimated.
3. Secondary market.
Highs

DOMESTIC FINANCIAL DEVELOPMENTS

M1 rebounded in August after three months of small declines and
continued to expand rapidly in September, moving this aggregate back
above the upper end of its 1982 growth range.

Expansion in M2 and M3

accelerated in August from already rapid growth rates and, even with a
marked slowdown in September, these aggregates remained well above their
longer-run ranges.
Reflecting some tightening in reserve availability accompanying the
recent strength in M1, the federal funds rate has risen over the intermeeting period.

At the time of the August FOMC meeting, the funds rate

had fallen to the 9 percent area, well below the discount rate, as market
participants were anticipating further System action to ease money market
conditions.

More recently, funds have traded primarily between 9-3/4 and

10-1/2 percent.
Private short-term market rates in the one- to three-month maturity
range have risen 3/4 to 1-3/4 percentage points during the intermeeting
period, but Treasury bill rates are about unchanged.

The widening spread

between Treasury bills and private instruments is probably explained by
heightened concern about credit quality.

Recently, this concern seems to

have been accentuated by the exposure of domestic banks to potential losses on their foreign loans.

Large quality spreads in commercial paper

rates also attest to continued market nervousness about the financial
health of domestic corporations, although such spreads have receded somewhat from the exceptionally high levels reached in late August.
Bond yields have fallen about 25 to 50 basis points since the August
FOMC meeting.

The Treasury yield curve is still steeply upward sloping in
III-1

III-2

MONETARY AGGREGATES
(Based on seasonally adjusted data unless otherwise noted)1

Aug.

QIV. '81
to
Aug. '82

10.4
13.9
14.2
18.4

5.6
5.8
10.2
11.3

8.1

1982

1981
Q1

June

-Percentage

July

change at annual rates--

Money stock measures
1. M1
2
2. (M1)
3. M2
4. M3

10.4
9.5
9.8
8.7

3.6
9.5
10.7

-0.3
2.9
6.6
8.8

Selected components
5. Currency

7.9

9.3

9.4

3.7

6.5

-0.5

-5.8

-8.8

-2.1

2.6

-2.7

3.3

-0.3
-4.0
9.7
12.6

Demand deposits

Other checkable deposits

27.6

49.5

19.6

6.9

-1.4

38.4

28.3

8. M2 minus M1 (9+10+11+14)

9.9

9.5

11.5

8.7

12.9

15.4

11.7

-44.1

63.6

-8.4

8.4

35.9

27.3

74.2
10.3
-11.9
20.8
1.5
-11.7
6.6

33.8
9.4
8.7
9.7
1.6
10.2
-1.5

20.9
17.2
2.0
23.8
6.0
0.6
8.1

31.4
9.9
-3.7
15.8
2.4
-3.2
4.5

19.2
14.4
-22.5
29.1
11.0
-17.7
21.7

60.9
12.3
-8.4
20.3
4.8
-5.8
8.6

32.7
13.5
-0.3
19.6
4.9
0.8
6.5

11.2

3.3

16.9

19.8

26.9

38.4

16.7

3.5
0.2
19.5

8.9
6.1
21.6

19.1
19.9
15.5

25.0
20.3
20.5

27.4
32.6
4.0

12.9
11.7
18.1

17.0
17.0
16.9

132.8
0.0

-2.5
-29.9

15.2
6.2

32.9
-51.5

106.8
-69.2

209.3
122.4

47.9
-9.2

9.
LO.
11.
12.
13.
14.
15.
16.
17.

Overnight RPs and Eurodollars, NSA 3
General purpose and broker/dealer
money market mutual fund shares,NSA
Commercial banks
savings deposits
small time deposits
Thrift institutions
savings deposits
small time deposits
M3 minus M2 (18+21+22)
Large time deposits
4
at commercial banks, net
at thrift institutions
Institutions-only money market
mutual fund shares, NSA
Term RPs, NSA

-Average
MEMORANDA:
23. Managed liabilities at commercial
banks 4 (24+25)
24.
Large time deposits, gross5
25.
Nondeposit funds 5
26.
Net due to related foreign
5
institutions, NSA
27.
Other 5 ,6
28.

U.S. government deposits at commercial
7
banks

monthly change in billions of dollars--

0.2
-0.2
0.4

0.6
2.7
-2.1

6.3
5.8
0.5

10.7
8.4
2.3

6.1
10.6
-4.5

5.2
6.8
-1.6

3.9
4.8
-0.9

-2.3
2.6

-2.1
0.0

0.4
0.1

1.6
0.7

-4.8
0.4

-4.1
2.4

-1.7
0.8

0.8

1.9

-2.5

-5.4

-1.5

0.8

-0.3

1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for
quarterly changes are calculated on an end-month-of-quarter basis.
2. Ml seasonally adjusted using alternative model-based procedure applied to weekly data.
3. Overnight and continuing contract RPs issued to the nonbank public by commercial banks, net of amounts held
by money market mutual funds, plus overnight Eurodollar deposits issued by Caribbean branches of U.S. member
banks to U.S. nonbank customers. Excludes retail RPs, which are in the small time deposit components.
4. Net of large-denomination time deposits held by money market mutual funds and thrift institutions.
5. Adjusted for shifts of assets and liabilities to International Banking Facilities (IBFs) which affected
flows from December 1981 to June 1982.
6. 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.
7. Consists of Treasury demand deposits at commercial banks and Treasury note balances.

III-3

This configuration suggests market

the maturity range out to 2 years.

expectations of a rise in rates in the months ahead as a recovery in
economic activity and the resulting growth in private money and credit
demands along with the prospect of continued massive federal borrowing
outweigh the improved inflation outlook.
The Treasury raised a record $60 billion in the market in the third
quarter, financing a large deficit and building up its cash balance.
State and local governments also have continued to borrow heavily, primarily in the form of revenue bonds.

In contrast, borrowing by nonfinan-

cial corporations appears to have diminished, particularly in short-term
markets.

Bond offerings, however, have picked up in response to improved

conditions in long-term capital markets.

Household borrowing in the mort-

gage and consumer installment credit markets has remained sluggish.
Monetary Aggregates and Bank Credit
With all components gaining strength, M1 increased at a 10-1/2 percent annual rate in August and still more rapidly in September, after
three consecutive months of weakness.1

(Data on the monetary aggregates

in September will be included in the Greenbook Supplement.)

Demand depos-

its increased in August for the first time since January of this year and
accelerated sharply in September.

This increase, along with renewed growth

in other checkable deposits after a net decline between April and July,
seems partly due to the recent large decline in market interest rates. 2

1. The alternative model-based seasonal adjustment procedure indicates an
even sharper turnaround in narrow money growth from July to September.
2. One way in which declines in interest rates probably affect money holdings is by increasing the balances banks require corporations to hold in
conpensation for receiving services. An Appendix to the Greenbook Supplement will report on an informal survey conducted recently by System staff
concerning bank practices contributing to the responsiveness of compensating balances to changes in interest rates.

III-4

addition, increased stock market transactions in August may have contributed to the strength of demand balances in early September.
M2 grew in August at the fastest rate since April 1981, as the bulge
in its M1 component was augmented by a pickup in growth of its nontransactions component.

This acceleration mainly reflected a surge in general

purpose and broker-dealer money fund shares as returns on the funds lagged
declines in market rates.

In addition, overnight RPs strengthened--as bank

dealer positions rose--and runoffs of savings deposits moderated, likely
reflecting the reduced opportunity cost of holding such instruments as well
as prevailing economic uncertainties.

Small time deposit inflows at com-

mercial banks and thrifts dropped, particularly in the shorter maturities.1
Following the August surge, growth of the nontransaction component of
M2 has slowed sharply in September.

In early September, as market rates

backed up, money market fund shares leveled off and are expected to register
only a moderate increase on a month average basis. 2

Although savings depos-

its appear to have edged upward this month, small time deposit inflows evidently weakened further. 3
1. Commercial banks continue to issue substantially more small time deposits than thrifts except in the longer maturities. The longer maturity
accounts include the 2-1/2 year and over small saver certificate--the
only account at present where thrifts benefit from a ceiling differential-and the ceiling-free 3-1/2 year certificate.
2. Money market mutual funds do not appear to be as vulnerable to outflows
of shares as they were in the late summer of 1980, when they lost 10 percent of their assets in 4-1/2 months as interest rates rose. The average
maturity currently is 37 days, compared with 51 days in August of 1980,
which should allow fund managers to take advantage of any rise in rates
more quickly than in 1980.
3. Inflows at S&Ls to the new 7 to 31 day accounts were $400 million in the
first 10 days of September. Inflows to commercial banks may be stronger as
there currently is no ceiling differential for thrifts. In addition, scattered reports imply some interest by commercial enterprises, who would be
more likely to deposit funds in a commercial bank than in a thrift institution.

III-5

M3 grew in August at a near-record 18.4 percent rate, but growth in
September appears to be to the slowest since the spring of 1980.

Its non-

M2 components accelerated in August as a pickup in growth of institutiononly money funds, along with a resumption of growth of term RPs, more than
offset a slowdown in issuance of large CDs.

The increase in term RPs was

concentrated at commercial banks and may in part have reflected financing
of increased holdings of Treasury securities in trading accounts.

The

slowdown in M3 in September reflected not only weak M2 growth but also a
small decline in large time deposits, a runoff of term RPs, and a sharp
slowdown in the growth of institution-only money funds.
Bank credit growth in August continued at about the moderate July
pace, somewhat slower than in the first half of the year.

Acquisitions

of securities picked up, but loan growth slowed and was well below the
rate of expansion in the first half of the year.

Consumer and real estate

lending remained sluggish, and business loan growth dropped to the lowest
rate since last November.
partial data for September.

A slowing in bank credit growth is indicated by
Business loan growth at large banks picked up

through mid-September, but this was more than offset by slower growth in
other loans and investments at these banks and by weaker credit extensions
at U.S. agencies and branches of foreign banks and at small banks.

A sig-

nificant portion of the strengthening in business loans at large banks
seems to have been associated with takedowns for mergers. 1
1. Takedowns involving two acquisitions have been reported to date. The
first, by R. J. Reynolds, involved a credit of $250 million on September 2
and is believed to have been booked primarily at U.S. banking offices.
The second, by Occidental Petroleum, involved two credits totalling $1.75
billion. Financing of the Bendix - Martin Marietta - Allied deal boosted
bank credit in the second half of September.

III-6
COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT
(Percentage changes at annual rates, based on seasonally adjusted data) 1

1981
Q4

1982
Q2

June

QIV '81
to
July

Aug.

Aug. '82

--Commercial Bank Credit1. Total loans and investments
at banks2 ,3

6.4

10.1

7.9

5.1

6.4

9.5

4.8

5.7

4.7

1.7

2.4

8.5

5.8

Investments

Treasury securities

-7.8

11.5

4.9

-5.2

7.3

13.4

8.5

Other securities

11.2

2.8

4.8

5.1

0.0

6.1

4.5

6.9

11.5

9.0

6.4

7.6

5.8

10.8

9.2

16.8

14.8

14.2

9.9

3.3

15.4

58.6

-18.3

-26.8

-64.1

92.3

22.9

4.3

Total loans 2 ,3

3
Business loans 2 ,

Security loans

Real estate loans

7.3

7.8

6.6

7.3

0.8

4.4

7.4

Consumer loans

4.1

2.8

3.0

2.6

5.7

2.5

4.1

-Short10.

Total short- and intermediateterm business credit (sum of
lines 14, 15 and 16)

and Intermediate-Term Business Credit--

13.8

15.2

13.1

10.6

14.2

n.a.

9.3

16.5

15.7

17.7

11.3

2.1

15.8

Commercial paper issued by nonfinancial firms5

21.3

30.0

16.8

2.0

38.2

-1.9

27.4

13.

Sum of line 11 & 12

10.8

18.2

15.9

15.6

14.9

1.8

17.3

14.

Line 13 plus loans at foreign
branches 6

14.0

18.4

15.7

13.6

15.2

5.3

18.2

7.6

1.0

1.5

10.5

17.8

n.a.

20.9

11.7

10.2

-6.6

0.0

n.a.

11.

12.

Business loans net of bankers
acceptances3

15.

Finance company loans to business 7

16.

Total bankers acceptances outstanding 7

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. Adjusted for shifts of assets and liabilities to International Banking Facilities (IBFs) which affected flows
from December 1981 to June 1982.
4. Growth of bank credit from the FOMC's December-January base through August 1982, not adjusted for shifts of
assets from domestic offices to IBFs, was at an annual rate of 7.6 percent. Adjusted for such shifts after
January, growth over this period was 8.4 percent.
5. Average of Wednesdays.
6. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks
7. Based on average of current and preceding ends of month.
n.a.-not available.

III-7

Available evidence indicates that public awareness of problem loans
at commercial banks likely had some impact on investor willingness to purchase bank CDs as the quality spread between CD and Treasury bill rates
has widened recently and remains substantially above the average for the
first half of this year.

Prior to September, actual runoffs of CDs were

concentrated largely at those banks receiving the most widespread publicity.

Three such banks, Continental, Seattle First, and to a lesser

extent, Chase, appear to have had difficulty rolling over CDs in both
July and August.

These banks, however, were apparently able to rely

on the interbank market--principally by borrowing through their foreign
branches and International Banking Facilities--to make up for these outflows and their lending did not slacken appreciably relative to other
large banks during the period.

In September the decline in CD issuance

was more general among large banks, as the weakening in loan growth at
small banks augmented the supply of funds in the domestic interbank market.
Business Finance
The weakening in business demands for short-term credit has extended
beyond business loans at banks to commercial paper issuance.

However, the

falloff in short-term financing has been largely matched by a pickup in
long-term borrowing as declining interest rates elicited a sizable increase
in bond offerings.

Gross public offerings of corporate bonds in U.S. mar-

kets reached $5.3 billion in August on a seasonally adjusted basis, compared to a monthly average rate of $2.2 billion in the first half of the
year.

In September such offerings are estimated to have edged down only

slightly to $5.0 billion.

III-8
GROSS OFFERINGS OF SECURITIES BY U.S. CORPORATIONS
(Monthly totals or monthly averages, millions of dollars)

1981
Year

1982
Q1

----------------

Corporate securities--total
Securities sold in U.S.
Publicly offered bonds
Privately placed bonds
Stocks

July

Aug.

Sept.

Seasonally adjusted--------------

6,348

6,100

6,350

5,691

9,890

8,330

5,833
3,138
582
2,113

4,718
2,088
725
1,905

4,973
2,279
461
2,233

5,352
2,568
604
2,180

8,714
600
2,814

6,830
5,000
600
1,230

1,382

1,377

339

1,176

1,500

Securities sold abroad1

5,300

----Domestic offerings, not seasonally adjusted--Publicly offered bonds--total 2
By industry
Utility
Industrial
Financial
By quality 3
Aaa and Aa
A and Baa
Less than Baa
No rating (or unknown)

3,138

1,873

2,824

2,868

5,000

4,000

1,079
1,192
867

693
464
716

938
577
1,309

558
1,509
801

1,080
2,210
1,710

700
1,640
1,660

1,182
1,448
226
282

694
796
133
250

956

555

1,330
1,118
202
218

2,145
2,405
25
425

1,390
1,615
310
685

178

100

122

910
297

1,129
394

1,180
218

120
101

2,112

1,865

2,170

1,927

2,100

1,400

676
1,054
382

660
964
241

510
1,011
649

368
720
839

1,100
700
300

800
300
300

Memo items:
Convertible bonds
Original discount bonds
Par value
Gross proceeds
Stocks--total 4
By industry
Utility
Industrial
Financial

1,086
227

p--preliminary.
f--forecast.
1. Notes and bonds, not seasonally adjusted.
2. Total reflects gross proceeds rather than par value of original discount bonds.
3. Bonds categorized according to Moody's bond ratings.
4. Includes equity issues associated with swaps of equity for debt.

III-9

The mix of bond offerings in the third quarter has shifted toward
industrial concerns, which had sold relatively few bonds earlier in the
year.

Although firms continue to emphasize short- and intermediate-term

issues, the most recent financings have included a greater number of bonds
maturing in 20 to 30 years, including a few large industrial issues.

addition to funds raised in domestic markets, close to $1.2 billion of
Eurobond offerings were sold by U.S. companies in August.

The pace of

such offerings has strengthened further in September, as foreign investors
have been willing to purchase such bonds at more favorable yields than
those in U.S. markets.
If corporations are to restore measures of balance sheet liquidity
to more "normal" levels, the volume of future bond issuance will have to
be huge.

The combined amount of 415 shelf registrations plus the recent

backlog of conventionally registered issues that could be brought to market
without prior notice currently totals about $20 billion, but this represents only a small portion of the funding activity that might be undertaken
once firms feel the time is right.

To date, bond issuance has been fairly

restrained as finance officers evidently have been reluctant to pass up
the immediate interest savings made possible by comparatively low shortterm rates and are perhaps hoping for still lower long-term rates.
The decline in interest rates through late August helped spark a
strong and broadly-based rally in equity prices.

Since the rally began

the major composite indexes have risen 18 to 22 percent, in heavy trading
reportedly dominated by institutions.

The continuation of the rally

through September, albeit on a much less steep trajectory, suggests that
factors other than interest rates also have exerted a positive influence.

III-10
TREASURY AND AGENCY FINANCING 1
(Total for period; billions of dollars)
1982

Aug. e

Sept. f

-21.0

-16.8

-4.9

57.0

14.4

21.1

21.5

59.2
22.2
37.0
-2.2

15.3
6.2
9.1
-. 9

22.0
11.1
10.9
-.9

21.9
4.9
17.0
-.4

-8.2

-42.6

9.0

11.5
-.4
11.9
-2.5

f July

Treasury financing
Combined surplus/deficit(-)
Means of financing deficit:
(1) Net cash borrowing
from the public
Marketable borrowings/
repayments(-)
Bills
Coupons
Nonmarketable
(2) Decrease in the cash
balance
Memo: Cash balance
at end of period
(3) Other 2

2.0

-17.5

2.4

-20.4

11.0

28.5

10 .4

8.0

28.4

-2.8

3.1

6.0

-5.5

3.8

5.4

3.8

Federally sponsored credit
agencies net cash borrowing 3

1.6

-.3

-. 3

2.9

1.2

-. 2

FHLB

3.0

-.4

FNMA

3.4

4.0

Farm Credit Banks

2.1
.6

Other

e--estimated.
f--forecast.
1. Numbers reported on a not seasonally adjusted, payment basis.
2. Includes checks issued less checks paid, accrued items and other
transactions.
3. Includes debt of Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, the
Federal Farm Credit Bank System, and the Student Loan Marketing
Association. Excludes mortgage pass-through securities issued by
FNMA and FHLMC.

III-11

It is possible that investors have revised downward their expectations of
future inflation; lower inflation rates should eliminate some of the factors that damped corporate profitability and raised investors' risk premiums over the past decade.
The rise in share prices prompted increased stock issuance in August,
primarily offerings by utilities which were boosted by a sizable AT&T issue.
Merger deals, however, continue to absorb outstanding stock.
Government Finance
Federal sector.

In September the Treasury raised a record $21.9 bil-

lion of new cash in the market, to finance a $4.9 billion combined deficit
and an extraordinary buildup in its cash balance.

The bulk of this borrow-

ing--$17.0 billion--was done in the coupon market, the remainder being
accomplished by enlarging the size of the regular weekly and monthly bill
auctions.
The Treasury compressed the auction schedule of its 4- and 7-year
notes and 20-year bonds into a shorter time period than usual in an effort
to increase bidding interest in the issues.

In addition, the Treasury

moved the settlement dates of the 7-year note and 20-year bond into September--thus magnifying the increase in the cash balance in September--in
light of the impending expiration of the temporary debt ceiling.

Congress

subsequently approved legislation to increase the debt ceiling to $1.3
trillion for fiscal year 1983.

The 20-year issue in September was the

first bond sold since this past February, when the Treasury exhausted its
authority to issue bonds with coupons greater than 4-1/4 percent;
authority was included in the August tax bill.

expanded

III-12

STATE & LOCAL GOVERNMENT SECURITY OFFERINGS
(Monthly averages, billions of dollars)

1982

1981
Year

----------------6.80
4.00
2.80

Total
Long-term
Short-term

8.45
5.25
3.20

--------------

Total
Long-term
Mortgage revenue
Short-term
e--estimate.

6.40
3.60
.60
2.80

July

August

September

Seasonally adjusted ------------9.40
5.25
4.15

9.10
6.00
3.10

11.20
6.80
4.40

9.80
6.70
3.10

Not seasonally adjusted ------------

7.05
4.40
.30
2.65

10.25
6.00
.95
4.25

8.80
5.80
2.35
3.00

10.70
6.50
1.20
4.20

10.00
6.50
1.50
3.50

f--forecast.
RISK PREMIUM ON TAX-EXEMPT BONDS
(monthly1)

Prime-Grade Yields 2
1.20

1.00

.80

.60

1980
1981
1982
1. Estimate for September 1982.
2. Salomon Brother's medium-grade (Baa+ to A) yield minus prime-grade
(Aa+ to Aaa) yield.

.40

III-13

Federally sponsored credit agencies did essentially no net new borrowing in August, although they are estimated to have borrowed $1.6 billion in September.

The FHLBs have reduced outstanding debt over the past

couple of months because of sizable repayments of advances by thrift institutions.

Mortgage purchases by FNMA have been substantial over the past

two months, but the agency has financed a large part of its purchases by
reductions in liquid assets which had reached an abnormally high level at
the end of July.
State and Local Sector.

The gross volume of municipal bond issuance

was a record $6.8 billion (seasonally adjusted) in August and about that
again in September.

Recently, offerings of municipal securities have been

boosted by the sale of a large volume of mortgage revenue bonds, averaging
about $1.7 billion per month for the third quarter.

The decline in inter-

est rates over this period may have prompted a number of issuers to come
to market.

In addition, federal law restricts the total value of mortgage

bonds that can be sold by tax-exempt housing authorities within any given
state for any given year; thus, any part of a state's quota not sold during
the year is lost.

Also, mortgage revenue bond issuance has become more

attractive because of an IRS ruling and a change in the tax law that have
increased the spread allowed between the yields on these bonds and on the
mortgages or other investments purchased with their proceeds.
Spreads between yields on general obligation and revenue issues have
narrowed considerably over the past month from the historically high 150
basis point gap that had opened up in August.

Investors at that time may

have been attracted to general obligations in the wake of the bankruptcy
of Lombard-Wall, since municipal authorities had been prominent among the

III-14

RP creditors in this firm.1

Within the general obligation market itself,

quality spreads between yields on prime- and medium-grade securities are
comparatively wide by historical standards, but lower-rated issuers still
have access to the market.

With its economy and state revenues especially

dependent on the cyclically-sensitive automobile industry, Michigan has
evoked the most concern among investors.

Michigan is the only state that

presently has a MIG-3 rating on its notes, which would be expected to
raise significantly the costs of its scheduled offering of $500 million of
short-term debt in October. 2

The state, however, has tentatively acquired

a letter of credit from five Japanese banks that will enhance the quality
of these notes and reduce interest costs.
Mortgage Markets
In the primary market, interest rates on new commitments for 30-year,
fixed-rate conventional home mortgages at savings and loan associations
have declined since the August FOMC meeting by about a percentage point
to 15.19 percent.

Declining yields in secondary mortgage markets produced

relatively narrow discounts on GNMA-guaranteed securities, prompting a 50
basis point cut in the ceiling rate for level-payment FHA/VA home loans to
13-1/2 percent, effective September 24.
Rates posted by both FNMA and FHLMC for the purchase of some types
of adjustable-rate home mortgages have come down markedly since mid-year.
1. Several issuers of revenue securities, notably the New York State Dormitory Authority, invested funds in repurchase agreements with LombardWall. Expeditious release of the money to these authorities by the courts
may have alleviated the concern of market participants as to the potential
problems resulting from lengthy bankruptcy proceedings.
2. The bond ratings of Washington, New Hampshire, and Minnesota were also
reduced this year. Municipal note ratings range from MIG (Moody's Investors Grade)-l, the highest, down to MIG-4.

III-15

The largest reductions have been made for those programs with short-term
rate indexes and few constraints on future changes to mortgage rates or
payments.

At FNMA, for example, the rate posted for adjustable rate mort-

gages indexed to 6-month Treasury bills and having no limits on rate or
payment adjustments was 13.44 percent on September 22, down by about 4
percentage points from June 30.
Despite the decline in mortgage rates, available evidence indicates
that mortgage market activity continued sluggish through August at savings
and loan associations.

New and outstanding mortgage commitments edged up,

but stayed within the narrow bands that have prevailed since late last
year.

The net change in total mortgage assets at S&Ls declined by about

10 percent in August to the lowest level of the year; as in other recent
months holdings of mortgage backed securities increased substantially while
the volume of mortgage loans declined.

This change in portfolio composi-

tion primarily reflected large swaps of conventional mortgages for more
liquid federally underwritten pass-through securities that are eligible
collateral for borrowing under repurchase agreements.
The quality of home mortgage credit clearly has deteriorated further
owing to slack overall economic activity and weaker home prices.

Delin-

quency rates on home mortgages climbed to new highs during the second quarter of this year; foreclosure rates remained at the elevated levels shown
in the first quarter, but they still were below the highs reached in 197375, according to the Mortgage Bankers Association.
Consumer Credit
Growth in consumer installment credit, which had risen during the
second quarter to almost a 5 percent annual rate, slowed to a 2 percent

III-16

annual rate in July, mainly because of flatness in loans for autos and
non-auto consumer goods.

Moreover, available bank data suggests that

installment credit growth was weak again in August.
CONSUMER INSTALLMENT CREDIT
(Seasonally adjusted)

1980

1981
Q1

1982
June
Q2

July

----Percent annual rate of growth--Change in outstandings -- total
By type:
Automobile credit
Revolving credit
All other

0.5

6.4

1.8

4.8

4.9

2.1

0.4
2.5
-0.3

8.2
8.1
4.1

-0.7
-0.3
4.9

5.8
10.4
1.5

6.2
10.1
1.6

0.6
12.1
-0.9

--------------- Percent-------------Delinquency rates:1
Closed-end credit at
commercial banks
Auto loans at finance
companies

2.61

2.38

2.37

2.19

2.16

n.a.

2.27

1.89

1.77

1.61

1.51

1.60

1. Number of loans delinquent 30 days or more, as percent of total.
n.a.--not available.
Consumer installment credit has expanded at an unusually slow pace
during the business cycle downturn not only because of weaker demands, but
also because many lenders have maintained relatively stringent credit policies since the 1980 recession and the consumer credit restraint program.
Several recent financial developments, however, appear to favor more rapid
growth in consumer financing in the near term.

The yield spread between

consumer loan rates and the marginal cost of deposit funds rose during the
second and third quarters, and survey data and other reports indicate a
greater willingness by larger commercial banks to extend consumer loans.
In addition, the continued decline to new lows of delinquency rates on both

III-17

outstanding closed-end loans at commercial banks and automobile credit at
finance companies, which also reflected in part the cautious lending practices evident since 1980, may provide added impetus to growth in consumer
credit.

INTERNATIONAL DEVELOPMENTS

Foreign Exchange Markets
As shown by the chart on the next page,

the weighted average

value of the dollar has appreciated slightly further during the third
quarter, despite the sharp declines in
to foreign interest rates.

dollar interest rates relative

During the periods when the declines in

dollar interest rates were most pronounced --

particular,

for

several weeks following the FOMC meeting at the beginning of July,
and again during the weeks just prior to the August FOMC meeting -the exchange value of the dollar declined markedly, but only temporarily.

From its trough at the time of the August FOMC meeting to
reached on September 27-28,

the 13-year peak that it

the weighted

average value of the dollar appreciated by about 5 percent.
weighted-average

This

change reflected appreciations of roughly 7 percent

against the yen and Swiss franc, 5-1/2 percent against the mark,
4-1/2 percent against the pound,
dollar.

and 1/4 percent against the Canadian

In part, the dollar's appreciation since late August has been

associated with an increase of around 125 basis points in
dollar interest rates,

reflecting an upturn in dollar interest rates

and a continued gradual decline in
rates.

relative

the average of foreign interest

In addition, an important part of the dollar's strength

during recent months has been related to major uncertainties about
financial and political conditions throughout the world.

The report

of an August U.S. trade deficit that was much greater than most
market participants expected had only a temporary downward impact on
the value of the dollar.

IV-1

IV-2

Strictly Confidential (FR)
Class II-FOMC
9/29/82
March 1973=100
WEIGHTED AVERAGE EXCHANGE VALUE OF THE U.S. DOLLAR
r-17

, -.

- 1 124

1982

IV-3

. Subsequently,

French officials announced that they were

arranging a $4 billion Eurocurrency credit to supplement their reserves
available for supporting the franc.

The prospective collapse of the

Schmidt government (see the discussion on German developments below)
contributed to a moderate strengthening of the mark against other
EMS currencies during September as market participants anticipated
that German economic policy might become somewhat more conservative.
At the end of September the Belgian franc was the weakest currency
in the EMS band, about 1/2 percent above its intervention floors
against the Dutch guilder and Irish pound.
Interbank trading in Mexican pesos has virtually halted since
the August FOMC meeting following the Mexican Government's decisions
to nationalize private Mexican banks and to impose comprehensive

IV-4

foreign exchange controls.

Mexico's outstanding international debts

for the large part have been rolled over and Mexico has been engaged
in negotiating a credit program with the International Monetary Fund.
At the end of August it

was announced that a $1.85 billion short-

term credit line had been extended to Mexico from the United States
and member countries of the Bank for International Settlements.

The Mexican crisis has contributed to intensified concerns about the ability of a number of other Latin American
countries to make scheduled external payments, and Bolivia has fallen
into arrears on a relatively small amount of debt.
Prices of precious metals have fluctuated widely since the
August FOMC meeting.

After trading in

relatively

narrow range

around $350 per ounce from mid-July through mid-August, gold appreciated to more than $500 an ounce at times during the second week
of September,
currently.

subsequently depreciating to about $415 an ounce

IV-5

Foreign lending by U.S. banks.

Claims on foreigners held by domestic

offices and foreign branches of U.S.-chartered banks increased only about
$7 billion in the first half of 1982 compared with $31 billion in the same
period one year earlier.

About one-third to one-half of the slowdown

resulted from the appreciation of the U.S. dollar in the first half of
1982, which reduced the dollar value of the foreign currency assets of the
foreign branches.

The appreciation primarily affected local-currency

claims at branches in G-10 countries, reducing the dollar value of their
claims by $8-10 billion.

(An even larger such reduction occurred a year

earlier.)
U.S. bank claims on smaller industrial countries increased in the
first half of 1982 about in line with recent past behavior, and claims on
OPEC also rose.

But there was a marked slowing in net new lending to non-

OPEC developing countries.

Net lending to Mexico and Brazil continued

strong in the first half, but net lending to Argentina, Korea, Philippines,
and Chile slowed sharply or became negative.

U.S. bank claims on Eastern

European countries, especially Poland, declined significantly in the first
half.

The decline for Poland largely reflected the assumption by the CCC

of bank credits that the U.S. government had guaranteed.
The clouded outlook for future international lending by U.S. and foreign banks, especially affected by the difficulties of Mexico and other
Latin American countries in repaying debts, is shown by Morgan Guaranty
data indicating a low level of announced syndicated Eurocurrency bank credits for developing countries in both July and August, particularly for
Latin American borrowers.

These data suggest a growing reluctance by

bankers to commit themselves to provide additional medium-term credits to
these countries.

IV-6
CLAIMS ON FOREIGNERS OF U.S.-CHARTERED BANKS
(Billions of dollars)

Claims on

Net Increase
Half-Yearly
Yearly
1981
1982
1980
1981
1st H 2nd H
1st H

Total, all countries

48.1

60.3

30.8

29.5

G-10 and Switzerland

23.7

11.8

6.2

5.6

Smaller industrial
countries
OPEC countries
of which:
Venezuela
Others
Non-OPEC developing
countries
of which:
Mexico
Brazil
Argentina
Korea
Philippines
Chile
Taiwan
Others
Eastern Europe
of which:
Bulgaria
Czechoslavakia
East Germany
Hungary
Poland
Romania
USSR
Yugoslavia

1.7

6.8

3.2

3.6

-.2

1.7

-.5

2.2

-.8

1.2

-. 3
-. 2

14.4

3.9
1.0

18.4

2.0

-. 1
.1
-.1

1.7
2.9
.9
1.2

-. 1

*/
-.1

-3.6

170.3

3.2

31.6

11.0

25.3

9.4
15.9

4.2

2.4
1.2
-.4

-. 6
.2
.2
.7
.5
.3

419.2

-. 2
1.1

5.6
2.8
1.4
2.3
.9
2.1
.9
2.4

7.4

6.9

Outstanding
June 1982

100.0

23.9
20.2
8.9
8.8
6.2
6.0
5.8
20.2

-1.3

*/
-. 2

.1
.3

-.2
.5

.2
.2

Offshore banking
centers

6.6

16.6

12.3

Miscellaneous and
unclassified

2.3

4.7

1.7

Change of less than $0.1 or -$0.1.

4.3

67.3

3.0

18.3

IV -

U.S. International Transactions
Merchandise trade.

In August the U.S. merchandise trade deficit

was substantially larger than in July primarily because the value of nonoil imports rose sharply.

The August nonoil import increase was spread

over a broad range of manufactured items (from machinery to clothing);
a marginal rise in the value of foreign car imports accounted for a
small fraction of the total nonoil import increase.
For July-August combined, the trade deficit was more than twice
the size of the second-quarter rate; a 4-1/2 percent drop in exports
was combined with a 9 percent increase in imports.

Most of the decline

U.S. Merchandise Trade*
1981

Year
Value (Bil. $, SAAR)
Exports
Agricultural
Nonagricultural

1982

Aug.
July/Aug. July
(Est.)
(Est.)
207.7 213
210.3
35
34.5
34.9
173.1 178
175.4

236.3
44.3
192.0

230.4
42.4
188.0

223.1 220.4
42.0 42.7
181.1 177.7

264.1
77.6
186.5

267.1
72.4
194.7

246.6 243.5
62.6 53.7
184.0 189.8

265.2
71.7
193.5

244.8
71.4
173.5

285
72
213

-27.8

-36.7

-23.5 -23.1

-54.9

-37.1

-72

Volume (Bil, 72$, SAAR)
Exports - Agric.
- Nonagric.

18.1
70.5

18.6
66.6

18.5
62.8

19.3
62.1

n.a.
n.a.

16.0
60.6

n.a.
n.a.

Imports - Petroleum
- Nonpetrol.

5.9
72.1

5.8
76.3

5.0
69.8

4.5
72.7

n.a.
n.a.

5.9
66.6

n.a.
n.a.

Imports
Petroleum
Nonpetroleum
Trade Balance

*/ International Transactions and GNP basis. Monthly data are estimated.

IV -

in exports was in agricultural shipments, particularly wheat and corn.
Export prices for agricultural products continued to weaken in July
and August in response to generally good crops and sluggish demand;
some traditional purchasers of U.S. wheat and corn have sought other
suppliers who

offered either better prices or easier credit terms;

Japan sought easier prices,and Brazil and Eastern Europe sought easier
credit.

Since May, the U.S.S.R. has not purchased any additional U.S.

wheat or feedgrain;

deliveries on the May order were completed in July.

The decline in non-agricultural exports was spread over industrial
supplies (particularly coal and metals), machinery and consumer goods as
continued sluggish demand frommajor trading partners and effects of a
strong dollar were reflected in shipments.
The July-August rise in imports was largely in oil.

The volume

of oil imports in both July and August was 6.3 million barrels per day,
one-third higher than in the second quarter.

U.S. oil consumption was

apparently somewhat lower in the third quarter than in the second but
there was some buildup in total petroleum and product inventories (on a
seasonally adjusted basis).

Oil import prices were about 75 cents per

barrel higher in July-August than in the second quarter reflecting the

1981

Oil Imports
Volume (mbd, SA)
Price ($/BBL)
Value (Bil. $, SAAR)

4Q
5.99
34.42
72.4

1 982

1Q
5.33
32.17
62.6

2Q
4.82
30.53
53.7

July/Aug. June July
(Est.)
6.26
5.38 6.26
31.30
30.94 31.25
71.7
61.4 71.3

Aug.
(Est.)
6.26
31.40
72.0

IV - 9

delayed impact of the increase in spot prices during late spring.
Since June, spot crude oil prices have been somewhat lower.

For nonoil

imports,the increase was largely in manufactured goods, ranging from
chemicals to machinery and consumer goods.

The value of foreign car

imports in July-August was marginally less than in the second quarter.
Steel imports dropped sharply from second-quarter rates.
Capital-Account Transactions.
offices

Net liabilities of U.S. banking

(including IBFs) to their own foreign offices fell, on a monthly

average basis, by about $4 billion in August (see line 1(a) of the table
below).

Data for the first eight days of September indicate a further

sizable reduction in net liabilities; in fact, U.S.-chartered banks
shifted to a position of net supplier of funds to their foreign offices
(line 1(b)).

Regional U.S. banks have generally maintained or increased

net placements with their foreign offices as yields in the Eurodollar
interbank market have remained attractive when compared with the cost
of funds raised through domestic CDs.

Banks also continued to increase

their net claims on unaffiliated foreigners through July.
Loans to U.S. nonbank residents from foreign branches of U.S.
banks (line 2 of the table) accelerated during August on a daily average
basis.

As outlined in previous Greenbooks, bank loans booked at foreign

branches tend to increase when the prime rate exceeds LIBOR by substantial
amounts; in August, the spread between those rates rose to as much as
330 basis points.

By mid-September, however, incentives had changed

considerably: the prime rate exceeded LIBOR by less than 150 basis points.

IV - 10

Though there have been reports that investors have recently begun
favoring low-risk assets such as U.S. Treasury issues and high-grade U.S.
corporate debt and equity, there is no evidence yet that private foreign
investors have shifted substantial amounts into such instruments.

For

example, available data for August indicate that private foreign holdings
of U.S. Treasury obligations may have declined somewhat.

Net foreign

purchases of U.S. corporate stock appear from preliminary data to have
been no larger in August than they were on average during the first seven
months of 1982, shown in 1982 (line 2(b), page IV-12 in the Summary Table of
U.S. International Transactions. These data are consistent with information
acquired in conversations with several brokerage houses, which indicated
that foreign participation in the sharp stock market surge during August
was noticeable only briefly and in small volume.

International Banking Data
(billions of dollars)

1980
Dec.

1981
Dec.

Mar.

1 9 8 2
June July

Aug.

Sept. 4/

1. U.S. Offices' Banking
Positions Vis-a-vis Own
Foreign Offices 1/
6.5
(a) Total
-15.2
(b) U.S.-Chartered Banks
(c) Foreign-Chartered Banks 21.7

9.2
-8.9
18.1

11.0
-4.2
15.2

16.6 14.6
2.8 1.7
13.8 12.9

10.5
-0.7
11.2

4.7
-6.4
11.1

2. Credit Extended to U.S. Nonbank Residents by Foreign
Branches of U.S. banks 2/
(a) Total
(b) New York Banks Only

4.2
2.7

13.2
8.8

13.8
9.1

14.2 14.4
9.7 10.1

15.9
11.0

16.2
11.3

3. Eurodollar Holdings of U.S.
Nonbank Residents 3/

60.8

1/
2/
3/
4/

93.6 103.9

114.5

n.a . n.a.

Average of Wednesdays; net due to own foreign office = (+).
Daily Averages.
End of month.
Through September 8.

n.a.

IV - 11

U.S. Current Account.

In the second quarter, the U.S. current

account surplus increased to an $8 billion annual rate; this was about
twice the size of the surplus in the first quarter.

Much of the higher

current account surplus was attributable to a rise in net income from
portfolio investments (line 7 in the table below): income receipts from
U.S. claims on foreigners rose more than income payments to foreigners
on foreign portfolio holdings in the United States.

Net direct invest-

ment income receipts, line 6, was little changed from the relatively
low levels of 1Q82, largely reflecting weak economic conditions abroad.
The merchandise trade deficit was about the same in second quarter as
in the first quarter with the value of both exports and imports declining marginally.

U.S. Current Account
(Bil. $, seasonally adjusted annual rates)
Year
1981

Current Account Balance

1982

1981
Q3

$ change
Q2 - Q1

4.5

3.0

-3.7

4 .4

8.2

+3.8

-27.9
236.3
264.1

-31.3
230.8
262.2

-36.7
230.4
267.1

-23 .5
223 .1
246 .6

-23.1
220.4
243.5

+0.4
-2.7
-3.1

Investment Income, net
Dire ct, net
Port folio, net

33.0
24.1
9.0

32.7
21.8
10.9

34.1
24.2
10.0

27 .4
17 .3
10 .1

30.7
17.7
13.0

+3.3
+0.4
+2.9

Other Serv ices, net
Unilateral Transfers

6.0
-6.6

8.9
-7.2

6.4
-7.5

8 .7
-8 .2

7.5
-6.9

-1.2
+1.3

Trade Bala nce
Expo rts
Impo rts

Note:

Details may not add to total because of rounding.

IV-12

Summary of U.S. International Transactions
(in billions of dollars)

Private Capital
Banks
1. Change in net foreign positions of banking
offices in the U.S. (+ = inflow)
a) with own foreign offices
b) all other
Securities
2. Private securities transactions, net
a) Foreign net purchases (+) of U.S.
corp. bonds
b) Foreign net purchases (+) of U.S.
corp. stocks
c) U.S. net purchases (-) of foreign
securities
3.

Foreign net purchases (+) of U.S. Treasury
obligations 1/

1981
Year

13 9 8 Q1981
1
Q-3
Q-4

-34.7
3.3
5.1
-3.3
-31.3
-1.7

-19.9
.8
-20.8

1982
Q-1 Q-2

-1.0 -14.0
6.6 -2.6
-7.5 -11.3

-2.5

1.4

2.1

4.7

.2
-2.9

May

1982
June

-4.9
.9
-5.7

July

-5.0 -8.6
-.2 -5.4
-4.8 -3.2

1.5

-. 2

-.2

-. 5

-. 4

-. 7

-. 5

-5.5

-.6

2.5

-.8

1.1

1.3

2.0

-.7

1.6

-1.3

5.1

-5.5

8.1

-2.9

1.6

1.5

1.4)

1.6

-10.8
12.7
3.3

-5.5
2.5
-2.5

.9
1.9
5.4

-6.8
5.0
-1.1

-4.6
2.7
3.5

-1.0
.5
1.9

.5
.6
.2

5.0
.1

-4.6
-. 9

4.4
3.7

-1.3
-1.6

-2.1
3.7

.1
1.4

.5
.9

4.7
-3.1

-.1

-. 4

-. 7

-. 5

-0.1
1.2
-5.5
1.1
5.0

Official Capital

Changes in foreign official reserve assets
in U.S. (+ = increase)
a) By area
G-10 countries and Switzerland
OPEC
All other countries
b) By type
U.S. Treasury securities
Other 2/

Changes in U.S. official reserve assets
(+ = decrease) 3/

Other transactions (Quarterly data)
6. U.S. direct investment (-) abroad

-3.3

-8.7
21.3
-13.9
4.5
25.8

-1.0
4.5
-1.6
0.8
-0.4

-1.0
9.3
-3.3
-0.9
9.5

MEMO:
U.S. merchandise trade balance -- part of line 9
(Balance of payments basis, seasonally adjusted) -27.9

-7.8

-9.2

7.
8.
9.
10.

Foreign direct investment (+) in U.S.
Other capital flows (+ = inflow) 4/ 5/
U.S. current account balance 5/
Statistical Discrepancy 5/

-5.9

n.a.
n.a.
n.a.
n.a.
n.a.

-5.8

-2.1

-3.0

Includes U.S. Treasury notes publicly issued to private foreign residents.
Includes deposits in banks, commercial paper, acceptances, & borrowing under repurchase agreements.
Includes newly allocated SDR's of $1.1 billion in January 1981.

Includes U.S. government assets other than official reserves, transactions by nonbanking concerns,
allocations of SDRs, and other banking and official transactions not shown elsewhere.
Includes seasonal adjustment for quarterly data.
Less than $50 million.
NOTE:

Details may not add to total because of rounding.

-2.6

IV - 13

Foreign Economic Developments.

Foreign economic activity remains

generally sluggish, with no firm evidence of a sustained recovery.

Al-

though real GDP rose strongly in Japan and France in the second quarter,
more recent indicators suggest that this

strength has not continued.

Real GDP in the second quarter edged up slightly in the United Kingdom,
declined somewhat in

Germany,

and fell

sharply in

Canada and Italy.

the major foreign industrial countries, industrial production has generally been depressed (see chart).

The rate of unemployment in August

rose to 9.6 percent (11 million people) in the EC and to 12.2 percent in

Canada.

Investment

surveys in

the major foreign industrial

economies suggest that investment spending will be weak this year.
nomic activity has also been depressed in
tries.

Eco-

the major Latin American coun-

In Mexico, real GDP growth has virtually stopped this year fol-

lowing four years of increases of over 8 percent per

year.

Real

GDP de-

clined last year in Brazil and Argentina; in the first half of 1982, real
GDP was weak in Brazil and declined in Argentina and Chile.

Total imports

of these four countries are being drastically reduced this year.
The deceleration of consumer price inflation
tries

continued on average

in major foreign coun-

(see chart), but remains uneven.

Consumer

prices accelerated in Italy this summer, though they are still rising
more slowly than last

year.

Consumer price inflation has not abated sig-

nificantly in Germany in the last year, despite the low rates of increase
in July and August, while in France the recent deceleration appears to be
explained by price controls and a VAT reduction.

In the United Kingdom,

the twelve-month inflation rate has continued its decline.

IV - 14

1973 = 100

INDUSTRIAL PRODUCTION IN 6 MAJOR COUNTRIES* (MONTHLY)

116

-112

-108

II I
1979

1980

1981

104

1982

RATES OF CHANGE OF CONSUMER PRICES IN 6 MAJOR COUNTRIES*
(PERCENTAGE CHANGE FROM PREVIOUS YEAR, MONTHLY DATA)

PERC

-- 12

-- 10

I
1979

1111111111111111 1111111
1980

1981

1982

* Trade-weighted average of Canada, France, Germany, Italy, Japan, U.K.

IV -

The external position of several of the major foreign countries
continues to reflect the relative weakness of these economies.

The

trade and current balances for Canada and Germany have risen from last
year; in Italy (where current account data are not yet available for
the second quarter) the trade deficit has declined in the first seven
months of this year, compared with the same period in 1981.

France and

the United Kingdom are the only major foreign countries in which the cumulative trade balance this year is significantly below the corresponding
figure for 1981.
Individual Country Notes.
percent (s.a.)

Second-quarter GNP in Germany was 0.4

below the level of the first quarter, and the average

level for the first half of this year was virtually unchanged from last
year's first half.

Industrial production continued to decline in July

for the fourth consecutive month; the latest three-month average of the
industrial production index was about equal to its 1978 level.
of unemployment reached 7.9 percent (s.a.)
points above the level of August 1981.

The rate

in August, two percentage

The volume of orders, which

earlier this year had been supported by strong orders from abroad, has

declined in recent months as foreign orders weakened.

Bankruptcies this

year have been occurring at a rate 50 percent above last year's rate.
Despite the general weakness of demand, the rate of consumer price inflation has declined only slightly from last year's relatively high level.
Germany's current account this year provides the only bright spot
in the economy.

During the first eight months, the deficit was reduced

to $2.2 billion compared to last year's $10.8 billion for the same period.

This large improvement was due to rapid growth in export volume

IV -

earlier this year and more recently, as export volume growth slowed, to
sustained improvement in the terms of trade.
The Bundesbank has continued on its course -- begun late last
year -- of a cautious lowering of interest rates.

In a series of steps,

the last of which took place on August 27, the Lombard rate was lowered
from 12 to 8 percent.

Central Bank money growth, having been close to

the upper limit of the 4 to 7 percent target range through July, slowed
somewhat in August.

On September 23, the Bundesbank lowered reserve

requirements on all categories of deposits by 10 percent; the required
reserve ratio on sight deposits is now 10-1/8 percent, down from 11
percent.
On September 15, the Bundestag passed a supplementary federal budget that increased the 1982 deficit by DM 7.2 billion to DM 33.9 billion
(2

percent of GDP).

sion.

The supplement was induced by the ongoing reces-

Nevertheless, fiscal policy remains relatively tight; this year's

public sector deficit, now estimated at DM 70 to 75 billion, will be
smaller than last year's DM 80 billion (5

percent of GDP).

On September 17, the Social Democrat - Free Democrat coalition
government collapsed with the resignation of all FDP cabinet members
and the withdrawal of that party from the government.

On October 1, the

Bundestag is expected to elect the leader of the conservative Christian
Democrat party, Helmut Kohl as new chancellor.

Mr Kohl will form a con-

servative-liberal coalition government which will include once more the
FDP.

National elections are expected to be called by March 1983.
The pace of economic activity in Japan continues to be slow, while

the policy debate over measures to stimulate the economy has intensified.

IV -

Data on real GNP in the second quarter showed surprising strength -- a
5 percent rate of growth (s.a.a.r.).

The more rapid growth of GNP was

led by strength in private consumption and government investment, which
in the latter case was attributable to the heavy front-loading of public
works expenditure under the FY 1982 budget.

Despite this advance, sec-

ond-quarter GNP was only 2-1/2
percent above its year-previous level, and
more recent indicators of activity suggest that the domestic economy is
in a much less bouyant state than that suggested by the new GNP numbers.
Industrial production (s.a.)

in August declined by almost 1 percent; its

average level for the three months ending in August was about 3 percent
(s.a.a.r.) above the average of the previous three months.
ry orders (s.a.),
July.

New machine-

particularly orders from abroad, were down sharply in

The latest assessments of the economy by both the Bank of Japan

and the Economic Planning Agency stressed that plant and equipment investment by small and medium-scale firms and housing have been particularly weak, but that personal consumption has shown some signs of recovering.
Wholesale prices have risen slightly more rapidly in recent months,
largely due to the yen's weakness, but the three-month average (for JuneAugust) was only 1.7 percent (a.r.) above its level of the previous three
months.

Despite an increase of almost 1 percent in August, which was at-

tributed mainly to recent typhoon damage to crops, the corresponding
three-month average for the CPI was virtually unchanged.
Japan's current-account surplus (s.a.) was halved in July to $570
million, bringing the cumulative surplus for the year so far to about
$4 billion.

Both imports and exports contracted in July -- the latter

IV -

for the third consecutive month.

Preliminary data suggests that demand

for exports continued to be weak in August.
Faced with the prospect of reduced government revenues, Prime
Minister Suzuki announced a reversal of his previous stand on reconstruction of government finances and said that the government would
float an additional ¥3 trillion ($11 billion equivalent) in
bonds to cover the expected FY1982 deficit.

government

The authorities also are

reported to be considering a proposal for additional expenditures.
Latest data for the United Kingdom indicate a continuation of the
sluggish recovery in economic activity and a further deceleration of
prices.

In July, industrial production rose 1 percent (s.a.); in the

six months to July, the production index increased some 3 percent
(s.a.a.r.).

Real GDP in the second quarter of this year was

percent

(s.a.a.r.) above the level registered in the first quarter and 1 percent above its year-earlier level.

Despite recent increases, real GDP

in the second quarter was 5 percent below the previous peak reached in
the second quarter of 1979.
Consumer prices in July and August essentially were unchanged.
Between April and August, the annual rate of increase in consumer prices
was only 3 percent.

During the same four-month period, wholesale prices

rose 6 percent (a.r.).
After two consecutive monthly surpluses, the U.K.'s trade balance
moved into deficit in August.

The cumulative trade balance for the first

eight months of 1982 was $1 billion (s.a.).

During the same period, the

current account registered a surplus of some $3 billion.

IV -

Nominal interest rates in the United Kingdom have continued to decline.

At the end of August,

the London clearing banks lowered their

base rates from 11 percent to 10
cent months,

percent.

As has been the case in re-

Bank of England actions to lower short-term money market

rates preceded the reduction in the clearing banks' base rates.

In the

six months to August, growth in each of the U.K.'s three targeted monetary aggregates was within the authorities' 8-12 percent target range.
French GDP grew by 1 percent (s.a.)
industrial production rose by 1
measure in the previous quarter.

percent,

in the second quarter while
reversing declines in

each

GDP was 1-3/4 percent above its level

of a year earlier while IP was virtually unchanged.

July surveys indi-

cate both actual and anticipated production is nearly stagnant.

Stocks,

although below last year's peak, are still excessive and have been rising recently; while orders, although above last year's lows, are still
weak and recently have been falling.

Unemployment has continued to in-

crease throughout this year and in August was 8.9 percent compared with
8.3 percent at the end of last year.
Price controls in France seem to be working better than had been
expected.

In July and August the annual rate of inflation (n.s.a.) was

only 3-1/2
percent.

Part of the decline of the inflation rate can be as-

cribed to a redcution

in the VAT on some commodities.

The current-account deficit in
$6

the first

half of 1982 was nearly

billion (s.a.) compared with a deficit of less than $1

billion for

the first half of last year and a deficit of $5 billion for the whole
of 1981.

The second quarter deficit of $4.4 billion was over twice the

first quarter deficit of $2.1 billion.

The trade-balance deficit for

IV - 20

the first eight months of this year was nearly $10 billion, compared
with only $5 billion in 1981.
The draft budget for 1983 was presented in early September and
contained no surprises.

Expenditure will increase by about 12 percent

and revenue by about 9 percent.

Although the budget is characterized

officially as an austerity measure,

the deficit will remain at about 3

percent of GDP.

The budget also includes tax changes to encourage saving

and to direct it

toward investment in equity.

Real GDP in Italy fell by 1.5 percent (s.a.)

in the second quarter

after rising by a revised 1.2 percent in

the previous quarter.

trial

industrial production was 4

production remains weak:

percent below its
in 1980.

in July,

Indus-

year-earlier level and almost 7 percent below its peak

The business conditions survey at the end of June showed a sub-

stantial deterioration from that recorded three months earlier.
terioration in outlook was across the board,

The de-

but most significantly with

respect to new foreign orders, forecasts of new total orders, and forecasts of production.
Although wholesale price inflation has moderated this year, consumer price inflation has accelerated in the last three months, contrary
to the usual seasonal pattern.

Part of the increase is attributable to

the CPI was almost 18 percent above its year-

VAT increases.

In August,

earlier level.

The trade account has improved in the first seven months

of the year with a $8.2 billion deficit compared with a deficit of $11
billion in the corresponding period of last year.
On August 25,

the Bank of Italy lowered its

centage point to 18 percent.

discount rate by 1 per-

This change was expected earlier in the

IV -

month when an increase in indirect taxes was decreed, but was postponed
by the fall of the first Spadolini government.

The Spadolini government

was promptly reconstituted with the same five-party coalition and the
same cabinet.

This lack of change of the government was seen as an in-

dication that the tax measures will be approved by Parliament.
The absence of an agreement on the wage indexation system has delayed the settlement of new contracts for over one-half of the labor
force.

In the absence of contractual increases, wage inflation has de-

celerated:

in May, wages were 17 percent above their level of the pre-

vious year, compared with rates of increase of 22-24 percent for most of
1980 and 1981.
In Canada, real GNP fell sharply in the second quarter and by more
than was generally expected.

The second quarter decline of 8-1/2
percent

(s.a.a.r.) -- which represents the fourth consecutive quarter of declines
-- leaves the level of real GNP more than 6 percent below the level
reached in the second quarter of last year.

Weakness was widespread, al-

though there was some recovery of personal expenditure and of merchandise
exports which rose sharply following three quarters of decline.

A sharp

run down of inventories of $3.1 billion (2.4 percent of GNP) and a sharp
decline in business investment of about 8.3 percent were the major contributors to the drop in real GNP in the second quarter.

Liquidity prob-

lems, low profits, excess capacity, a fall off of foreign investment and
strikes were the main factors behind the weak inventory and investment
performances.
taken

The mid-year survey of investment intentions, which was

in May and June and showed intentions well below those at the

start of the year, suggests that there would be virtually no real growth

IV -

investment spending this year.
Consumer price inflation for the most recent three-month period

(June to August)

averaged 10.9 percent

(a.r.),

down slightly from the

11.6 percent pace of the preceding three months.
the price of food were the main elements in

Sharp increases in

the continued rapid rise

in the consumer price index.
The current-account balance (s.a.)

for the first

half of this year

posted a surplus of almost $700 million, compared with a deficit of $2.9
billion for the same period last year.

The first half surplus reflects

primarily weak economic activity and, in the second quarter, a recovery
in merchandise exports.
On September 19, the Socialist Democrats were elected to return to
power in Sweden following six years of rule by a three-party coalition.
A major issue in

the campaign was the high rate of unemployment,

was officially 3.7 percent in August.

which

If the part of the labor force

in job retraining programs, relief work, and subsidized labor programs
is

included,

rate.

the unemployment rate would be almost double the official

Real GDP in the first

cyclical peak (198 0:Q

quarter was 1

percent below the previous

), and industrial production has been flat in the

twelve months ending in May.

However, the rate of consumer price infla-

tion has improved markedly in

the past year:

in August,

the CPI was

7-3/4 percent above its year-earlier level, compared with a 13-3/4 percent rise in the corresponding period last year.
The continued weakness of real economic activity in Belgium led to
a further rise in the unemployment rate in July.

In response to relative

IV - 23

stability of the Belgian franc on the exchange markets, depressed domestic activity, and reduced interest rates abroad,

the Belgian National

Bank lowered its discount rate in late August and again in September to
12.5 percent.
In the Netherlands,

industrial production during the second quar-

ter of this year averaged slightly higher than its first quarter level,
but was unchanged from the final quarter of 1981.

Unemployment rose

further in the summer, and inflation appears to be slowing.

The slow

pace of domestic activity contributed to modest import demand and a
trade surplus of $2.4 billion for the first half of the year.

In re-

sponse to declines in interest rates at home and abroad, the Netherlands
Bank lowered its discount rate one percentage point to 7 percent on
August 27.

GROWTH OF TARGETED MONETARY AGGREGATES
(PERCENTAGE CHANGE)

COUNTRY
CANADA

TARGET
PERIOD

TARGETED
AGGREGATE
M1

TARGET

PRESENT
AUG.-OCT.

4-8%

FROM TARGET
BASE PERIOD
1.2

OVER LAST
12 MONTHS
-. 2

DEC. 1982
DEC. 1981

12.5-13.5%

GERMANY

CBM

Q4 1982
Q4 1981

JAPAN

M2*

Q3 1982
Q3 1981

SWITZERLAND

ADJUSTED
CBM

1982
1981
APR.
FEB.

KINGDOM

-LM3
PSL2
UNITED
STATES

,\L
.. 1

12.1

14.9

16.8

4-7%

6.4

5.0

6.0

5.8

8.9

9.1

5.0

AUGUST

JULY

11.5

10.8

12.2

AUGUST

8.6

7.1

AUGUST

3.6

3.3

AUGUST

10.7

AUGUST

8-12%

8.6

9.2

2.5-5.5%

5.7

5.6

DATA SEASONALLY ADJUSTED EXCEPT FOR SWITZERLAND.
OOUIH RATES COMPOUNDED AND ANNUALIZED.

JULY

AUGUST "

10.8

TARGETS ARE NOT SET.

3.8

AUGUST

17.5

8-12%

6-9%

11.4

JULY

8.1

APR. 1983
FEB. 1982
1983
1982

LAST
OBSERVATION

7.8

8-12%

Q4 1982
Q4 1981

GROWTH OF M2.

-16.9

3.0

Q4 1982
Q4 1981

*i-ORECAST

-2.1

17.2

1983
1982

APR.
FEB.

OVER LAST
3
MONTHS

1980

FRANCE

UNITED

OVER LAST
. MONTHS

10.2

REAL GNP AND INDUSTRIAL PRODUCTION IN MAJOR INDUSTRIAL COUNTRIES
(PERCENTAGE CHANGE FROM PREVIOUS PERIOD, SEASONALLY ADJUSTED)

-~"

-L-~l~

___

II-

-I

1981
1979

.5
-2.0

3.1
1.3

1.9
2.2

1.2

1.6 -1.1

1.0

2.6 -3.1 -4.6

-2.3 -2.1
-2.9 -2.3

".2
"&1.0

-. 6
-1.5

1.2
.5

.2
.3

-. 2
-2.5

.5
.9

-. 5
-. 3

.7
.1
.0 -1.2

GDP
IP

3.7
1.1
4.5 -1.1

-2.3

GNP
IP

4.4
5.3

1.8
-. 1

-.
-2.1

GDP
IP

5.0
6.9

4.0
-. 2
4.5 -2.5

GNP
IP

5.2
8.3

4.2
7.1

3.0
3.0

.7
1.6

UNITED
KINGDOM:

GDP
IP

1.7
2.7

-2.4
-6.6

-2.2
-4.7

-".9
-2.4

-.4 -. 2
-1.4
.3

UNITED
STATES:

GNP
IP

2.8
4.4

-. 4
-3.6

1.9
2.6

1.1
4.5

1.9 -. 4
2.0
.5

GERMANY:

ITALY:

JAPAN:

1982
01
02

1981

2.9
5.3

FRANCE:

I--

98 0

GNP
IP

CANADA:

-'.4
-1.2

.8 -1.1 -1.7
-. 7 1.5 -4.9
.7
1.7

*GNP DATA ARE NOT PUBLISED ON MONTHLY BASIS.

1.2
-. 3

Q4
-.

.7
1.3

l.Q
1.3

-. 2 -.4
1.3 -. 9
1.2-1.5
1.0- 1.4

.7 -. 7
1.6 2.6

1.0 1.3
-. 9 -1.7

.2
1.0

.5--1.3
.3 -4.4

.4
5

-1.3
-3.1

.1
.2
.5
-1.7

SJ J
MAY

*
1.5

2.6
4.5

.5
.4

JUN.

JUL.

*
-2.5

*
-2.9

.0
*

-*.9 -2.8
*

'.6

-&4.0

-1.7

2.4

AUG.
*

N.A.

-1.9

N.A.

3.0

N.A.

-. 8

1.1

N.A.

-1.5

-. 7

-. 5

CONSUMER AND WHOLFSALE PRICES IN MAJOR INDUSTRIAL COUNTRIES
(PERCENTAGE CHANGE FROM PREVIOUS PERIOD)
_

~C~

MEMO:

1982

1981

Qi 92

MAY

CANADA:

CPI
WPI

3.2
2.7

3.1
2.2

3.0
2.1

2.5
1.2

2.5
1.4

3.1
2.0

FRANCE:

CPI
WPI

3.0
1.4

3.3
4.3

3.9
4.1

3.2
2.3

2.8
2.7

3.1
2.6

GERMANY:

CPI
WPI

2.2
3.9

1.8
2.3

1.2
2.1

1.2
1.8

1.5
1.8

1.4
1.3

.6
1.1

.9
.6

ITALY:

CPI
WPI

5.2
5.0

4.4
5.1

3.0
3.5

4.6
4.0

4.0
3.3

3.2
2.0

1.1
.5

JAPAN:

CPI

WPI

1.1
4.7

1.5
1.1

.0 1.3
1.4 **.1

.1
--. 6

UNITED
KINGDOM:

CPI
WPI

2.4
3.0

4.9
3.4

1.7
2.1

2.5
2.3

UNITED
STATES:

CPI (SA)
WPI (SA)
-

2.6
2.5

1.9
2.3

2.8
1.1

1.9
1.2

1.7
2.2

1.4
.4

1982
JUL.
JUN.
1.0
.5

.5
.2

LATEST 3 MONTHS
AUG.
.5
I.1

10.9
5.8

.3
N.A.

12.1
11.3

.2
.2

-. 2
-1.3

5.5
6.4

1.6
.3

1.5
1.5

1.8
N.A.

16.9
12.8

.1
.2

-. 8
.6

.8
.3

2.8
1.1
8.6
8.2

3.2
1.7
1.0
-. 1
--

FROM YEAR AGO

1.0
1.0

.6
.6

.3
.6

TRADE AND CURRENT ACCOUNT BALANCES OF MAJOR INDUSTRIAL COUNTRIES#
(BILLIONS OF U.S. DOLLARS; SEASONALLY ADJUSTED)

L
1981
Q2 Q3

1982
01 Q2

1980

1981

TRADE
CURRENT ACCOUNT

6.7
-1.6

5.7
'5.2

1.4
.8
-1.2 L1.8

.6
-2.1

TRADE 4
CURRENT ACCOUNT

-14.2
'7.8

*10.7
*4.8

-2.5 -1.9
*1.7
.2

*1.9 -3.1
*1.3 -2.1

TRADE
CURRENT ACCOUNT (NSA)

4.9
-16.5

11.9
*7.6

.2
3.1
-4.4 -2.3

3.1

5.5

-4.9

4.1

TRADE
CURRENT ACCOUNT (NSA)

-22.3
-8.4

-16.0
-9.1

-4.6 -5.0
-5.8 -2.3

*4.0 -2.5
.3
-. 9

JAPAN:

TRADE +
CURRENT ACCOUNT

2.1
-10.7

20.1
4.6

3.3
-1.0

5.5
2.0

6.3
2,5

UNITED
KINGDOM:

TRADE
CURRENT ACCOUNT+

2.9
7.4

N.A.
N.A.

3.9
5.9

2.4
4.4

N.A.
N.A.

UNITED
STATES:

TRADE
CURRENT ACCOUNT

,25.3
1.5

-27.9
4.5

CANADA:

FRANCE:

GERMANY

ITALY:

&4.3 -6.5
3.2 1.4

Q4
2.8
-. 2

JUN.

1982
JUL.

AUG.
N.A.

2.9
.2

3.8
.5

1.6

1.2

-2.8
-2.1

-4.3
-4.4

-2.0

-1.3

5.0
-. 8

5.3
.6

2.0
.0

N.A.
-.7

N.A.
N.A.

-6.0
N.A.

-1.8
N.A.

-.2

-.4

N.A.

5.0
1.1

4.4
.9

5.3
2.5

1.7
1.0

.9
2.6

.6
1.3

.1
.9

-7.8 -9.2
.8
-. 9

-5.9
1.1

-5.8
2.1

S'THE CURRENT ACCOUNT INCLUDES GOODS, SERVICES, AND PRIVATE AND OFFICIAL TRANSFERS.
+ OUARTERLY DATA ARE SUBJECT TO REVISION AND ARE NOT CONSISTENT WITH ANNUAL DATA.
* COMPARABLE MONTHLY CURRENT ACCOUNT DATA ARE NOT PUBLISHED.

-3.0
*

1.7
.6

-2.6
*

N.A.
N.A.

N.A.
*

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, October 5, 1982 : Greenbook Part 2

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