Full text of Statements and Speeches of John J. Balles : The Dollar, Monetary Policy and the Economic Outlook : Meeting with Salt Lake City, Utah Community Leaders, Salt Lake City, Utah

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THE DOLLAR, MONETARY POLICY
AND THE ECONOMIC OUTLOOK




Remarks of
John J. Balles, President
Federal Reserve Bank of San Francisco

Meeting With
Salt Lake City, Utah
Community Leaders

Salt Lake City, Utah
December 5, 1985




THE DOLLAR, MONETARY POLICY
AMD THE ECONOMIC OUTLOOK

Re m a r k s

of

J o h n J, B a l l e s , P r e s i d e n t
ederal

Re s e r v e B a n k

Sa n Fr a n c i s c o

of

M e e t i n g W ith
S a l t L a k e C i t y , Ut a h
Co m m u n i t y L e a d e r s

Salt Lak e City,
D e c e m b e r 5,

Utah

1985

In t r o d u c t i o n
Last

month

marked

the

end

of

the

IN

C U R R E N T B U S INESS CYCLE EX PAN SION ,
FA V O R A B L E D E V E L O P M E N T S TO NOTE.

third

year

of

MANY WAYS,

the

THERE ARE

O V E R THESE THRE E YEARS

A L M O S T 9 M I L L I O N NEW JOBS WERE C R E A T E D A ND THE TOTAL VOLU M E
OF G O O D S AND S E R V I C E S P R O D U C E D BY T HE U.S. ECONOMY,
M E A S U R E D BY INFLATION - A D J U S T E D ,

OR REAL

G P,
N

INCREA SED TO A

LE V E L MORE T H A N TEN P E R C E N T AB OVE ITS P R E V I O U S PEAK
AT THE SAME TIME,

AS

IN 1981.

THE U N E M P L O Y M E N T RATE WAS B R O U G H T DOWN

F ROM 10.7 P E R C E N T TO 7.1 PERCENT.

A L T H O U G H THIS RATE

RE M A I N S U N C O M F O R T A B L Y HIGH R E L A T I V E TO H I S T O R I C A L
EX PERIENCE,

IT IS ALSO TRUE T H A T A R E C O R D N U M B E R OF

A m e r i c a n s are at work, wit h a p p r o x i m a t e l y 60 p ercent of the
ADULT P O P U L A T I O N W O R K I N G

IN O C T O B E R —

T HE HIGHEST RATE IN

THE P O S T - W A R PERIOD.
Mo r e o v e r ,

this

business

expansion

has

been

accompanied

BY S U B S T A N T I A L IMPROV E M E N T ON THE INFLATION FRONT.

A
T

THE

PEAK OF IN F L A T I O N IN 1980, THE T W E L V E - M O N T H RATE OF C H ANGE
in the Co n s u m e r Price Index r e g i s t e r e d an a l a r m i n g 14.7
P E R C E N T ANN U A L RATE.

B Y CONTRAST,

OVE R THE LAST T W E L V E

MONTHS THE INDEX HAS RIS E N ONL Y 3.2 PERCENT, AND SO FAR IS
SH O W I N G NO S I G N S OF ACC ELERATION.




GRANTED,

WE ARE N OT AT

-

PR ICE S T A B I L I T Y YET,

2

-

BUT WE HAVE MADE I M P R ESSIVE STRIDES

OV E R TH E LAST FIVE YE A R S T O W A R D S U L T I M A T E L Y ERAD I C A T I N G
INFLATION.
There
I

have

has

just

reviewed

seen

a

been

the

some

sectors

marked

.

darker

In
in

uneven

the
the

notably

manufacturing

,

in

,

h o w e v e r , to

last

eighteen

months

.

Re l a t e d

of

recovery

failing

the

the

to

to

the

This

share

unevenness

uncomfortably

good
we

news

have

this

has

expansion, with
in

the

agriculture, forestry, mining

industries.

ways

side

composition

conspicuously

—

other

a

slowing

markedly

prosperity

among

been

has

large

overall
and

showed

some
up

,

differences

in

STATE U N E M P L O Y M E N T RATES WITHIN T HE TW E L F T H DISTRICT.
So m e

decline

in

the

rate

AS AN E X P A N S I O N MATURES.

of

INDEED,

economic

growth

is

normal

SOME F O R E C A S T E R S HAVE

B E G U N TO RAIS E THE P O S S I B I L I T Y OF A R E C E S S I O N NEX T YEAR.
Al t h o u g h

this

possibility

cannot

be

ruled

out

completely,

OUR RE S E A R C H STAFF AT THE B A N K B E L I E V E S AT THIS POINT THAT A
C O N T I N U A T I O N OF THE E C ONOMIC E X P A N S I O N T H R O U G H 1936 IS ST ILL
THE MOST L I K E L Y PROSPECT.
Before

I

turn to some p a r t i c u l a r s of this forecast,

I

WO ULD LIKE TO GIVE YOU A L I T T L E B A C K G R O U N D ABOUT THE FEDER AL
B U D G E T AND T R A D E DEFICITS,
DOLLAR,

A ND THE P R O B L E M S THESE D E V E L O P M E N T S HAVE POSED FOR

M O N E T A R Y POLICY.




THE R E C E N T B E H A V I O R OF THE

- 3 The Bu d g e t

and

Trade Deficits

F o r c a l e n d a r yea r

1985,

the fe d e r a l g o v e r n m e n t budget

D E F I C I T IS P R O J E C T E D TO BE A M I N D - B O G G L I N G
Between

1981

and

1983

$193

the d e f i c i t r e l a t i v e to

T R I P L E D TO ABOU T 5 PE R C E N T OF GNP,
N E I G H B O R H O O D EVE R SINCE,

BILLION,

GP
N

almost

AND HAS R E MAINED

IN THAT

THERE IS NO P R E C E D E N T IN OUR

P E A C E - T I M E HI S T O R Y FOR N UMBERS OF THIS MAGNITUDE,

GIVEN THE

DEA DL OCK THAT HAS P R E V A I L E D IN C O N G R E S S FOR THE LAST S E V E R A L
YE A R S OVER A T T E M P T S TO COM E TO GRIP S WITH THE BU DG ET
IMBALANCE,

I AM N OT O P T I M I S T I C TH A T TH E DEFI CIT WILL BE CUT

SIGNIFICANTLY
DEBATE,

IN THE F O R E S E E A B L E FUTURE.

FOR EXAMPLE,

THE P R O T R A C T E D

IN R E C E N T W E E K S OVE R L E G I S L A T I O N TO CUT

THE D E F I C I T IN C O N N E C T I O N WITH R A I S I N G THE FE DE RAL DEBT
C E I L I N G HAS ONLY SERVED TO C O N F I R M THIS VIE W IN MY MIND.
The FE D E R A L D EFICIT R E P R E S E N T S A S U B S T A N T I A L C L A I M ON
OUR N A TION'S SAVINGS,

C U R RENTLY A B S O R B I N G B ETWEEN

PE R C E N T OF THE NET SA V I N G S MADE 3Y HOUSEHOLDS,
AND STATE AND LOC A L GO VERNMENTS.

45

TO

50

BUSINESSES

TH I S HAS RE S U L T E D IN SOME

OF THE T R A D I T I O N A L " C R O W D I N G OUT," AS IT IS CALLED,

OF

HOUSING AND B U S I N E S S C A P I T A L O U T L A Y S THAT OCCUR WHEN
D E F I C I T S PUT U P W A R D P R E S S U R E ON INTEREST RATES.
EXPANSION,

HOWEVER,

IN THIS

THE B U R D E N OF F I N A N C I N G THE B U D G E T

D E F I C I T HAS FA L L E N TO A S I G N I F I C A N T EXT ENT ON THE FOR EIGN
SE C T O R OF T HE E CONOMY —

IN O T H E R WORDS,

ON INDUSTRIES WITH

IM P O R T A N T EXPORT MA R K E T S OR THAT FACE H E A V Y C O M P E T I T I O N FROM
F O R E I G N IMPORTS.




-

I'm

y o u 'r e

sure

all

/
4

-

familiar

by

how

with

the

story

of

HOW T HE GROWIN G BUDGET DEFICI T U L T I M A T E L Y T R A N S L A T E D INTO A
D E P R E S S E D FO R E I G N SECTOR OF THE ECONOMY,

THE MA SSIVE

C A P I T A L INFLOW FROM A B R O A D P R O M P T E D BY HIGH INTEREST RATES
HER E BID UP THE VALU E OF THE D O L L A R BY A P P R O X I M A T E L Y 50
P E R C E N T B E T W E E N M I D - 1 9 8 0 AND EARLY 1985,
MAKE OUR E X P O R T S E X P E NSIVE

T H E EFFECT WA S TO

IN TER M S OF FO R E I G N CU RREN CIE S,

WHILE T H E D O L L A R PR ICE OF IMPORTS TO THE U.S. FELL.
RESULT,

OUR B A L A N C E ON OUR I N T E R N A T I O N A L ACCOU NT

D E T E R I O R A T E D A L A R M I N G L Y AS E X P O R T S G R E W SLUGG ISH LY,
SOME SE C T O R S DECLINED,
THA T OUR DEFIC IT
INVESTMENT
BILLION,
L et

AS A

WHILE IMPORT S SURGED,

IT

AND IN

NOW APPEA RS

IN TR A D E IN GO O D S AND S E R V I C E S PLUS

INCOME FOR 1985 WILL REAC H A REC O R D OF $ 1 4 0 - $ 1 5 0

AN U N P R E C E D E N T E D FIGURE,
me

note

BU D G E T DEFICI T

parenthetically

that

I

recognize

that

the

IS NOT THE ONLY FACTOR A C C O U N T I N G FOR THE

HIGH D O L L A R AND THE IMPACT ON OUR FO R E I G N TRADE.
P O L I T I C A L STABILITY,

LOW INFLATION,

OUR

V I G O R O U S ECONOMY,

AND

D I V E R S I F I E D RAN G E OF IN VEST MEN T O P P O R T U N I T I E S ALL HAVE MADE
THE D O L L A R A P A R T I C U L A R L Y A T T R A C T I V E IN V E S T M E N T VE H I C L E
RECENT YEARS.

HOWEVER,

IN MY OPINION,

THE B U D G E T D EFI C I T

HAS BE EN TH E SINGLE MOST IM PORTANT FACTOR P R O D U C I N G THE
SHAR P RUN-UP




IN

IN THE D O L L A R ' S VALUE SI N CE 1980,

-

5

-

Un e v e n E c o n o m y

As

3Y

we've all be en made AWARE

d o l l a r ' s impact on
economy.

U.S.

On one hand,

and TOURISTS,
OT H E R HAND,

now,

the stro ng

c o m p e t i t i v e n e s s has led to a dual
from the s t a n d p o i n t of

U.S.

THE STRONG D O L L A R HAS BE EN A BONANZ A.

U.S.

CONSUMERS
ON THE

FIRMS C O M P E T I N G WITH O V E R S E A S B U S I N E S S E S

HAVE BEE N PUT AT A SEVERE COS T D I S A D V A N T A G E .

OF THE 9

M I L L I O N N EW JOB S C R E A T E D SINCE 1982, ALMOST IX M I L L I O N HAVE
BEEN IN THE SERVICE AND TRADE SECTOR S WHICH ARE FAIRLY WELL
IN S U LATED FROM I MP OR T COMPETITION.
BEEN L I T T L E GRO WTH

IN CONTRAST,

IN M A N U F A C T U R I N G EMPLOY MEN T,

THERE HAS
AND AN

AC T U A L LO S S OF A L M O S T A HALF M I L L I O N JOBS IN AGRI CUL TUR E.
This

uneven

development

has

led

to

FOR P R O T E C T I O N FOR A WI D E R A N G E OF U.S.
IN CLU DING AGRICU LTU RE,

STEEL,

increasing

INDU S T R I E S

AND TEXTIL ES.

P R O T E C T I O N I S M IS NOT T HE ANSWER,

demands

IN

MY OPINION,

IT DOES NOT A D D R E S S THE

F U N D A M E N T A L P R O B L E M THAT WE AS A NATION ARE NOT SAVI NG
E N O U G H TO F I N A N C E OUR E X P E N D I T U R E S FOR H OUSING AND PL A N T AND
EQUIPMENT,

C O V E R THE FEDER AL DEFI CIT, hUd BE IN B ALANCE ON

OUR I N T E R N A T I O N A L ACCOUNT.

P R O T E C T I O N I S M WOULD ONLY SHIFT

THE BUR DEN OF THE BUDGE T DE F I C I T TO SOME O T H E R SECTOR,
E L I M I N A T E IT.
Relief

for

Ea r l y

the
this

Dollar
year

,

P R O S P E C T S FOR THE U.S.




the

emergence

ECONOMY,

of

less

optimistic

S U B S E Q U E N T D E C L I N E S IN

NOT

6

-

INTEREST RATES,

-

AND S U B S T A N T I A L F OREIGN EXCH A N G E

I N T E R V E N T I O N ON TH E O R D E R OF

$10

U.S.

BI L L I O N 3Y THE

AND

O T H E R C E N T R A L B A N K S IN LATE F E B R U A R Y H E L P E D TO PUSH THE
D O L L A R DOWN A P P R O X I M A T E L Y 8 P E R C E N T B E T W E E N F E B R U A R Y AND
Se p t e m b e r .
These

developments

were

A G R E E M E N T BY THE GROUP OF
Ja p a n ,

the

5,

followed

by

the

Se p t e m b e r

U.S.,

WHICH C O N S I S T S OF THE

Un i t e d K i n g d o m , F r a n c e

Ge r m a n y ,

and

to

coordinate

THEIR OV ERALL E C O N O M I C P O L I C I E S TO EN C O U R A G E F URTHER O R D E R L Y
D E P R E C I A T I O N OF THE DOL L A R AND TO S U P P O R T SUCH C O O R D I N A T I O N
WITH F O R E I G N - E X C H A N G E MA R K E T I N T E R V E N T I O N WHERE APPR OPR IATE .
Since

the

ag r e e m e n t , the

dollar

has

declined

P E R C E N T AG AINST O T H E R C U R R E N C I E S AS A WHOLE.
Fe b r u a r y

there

has

been

a

total

drop

of

15

a

further

THUS,

percent

7

SINCE
in

the

TRADE W E I G H T E D VALUE OF THE DOLLAR.
Ho w e v e r ,

the

depreciation

HAS V A R I E D A G R E A T DEAL.

against

individual

SINC E THE G-5 AGREEMENT,

currencies

THE

D O L L A R E S S E N T I A L L Y HAS RE M A I N E D U N C H A N G E D A G AINST THE
C a n a d i a n dollar,

has d e p r e c i a t e d

A G A I N S T THE J A P A NESE YEN,

approximately

15.9

percent

AND HAS D E C L I N E D 6. 8 PE RCENT

A GAI NST THE MAJOR E U R O P E A N CURRENCI ES.
T h e D ECLINE IN THE DOL LA R'S VALUE SINCE FE B R U A R Y HAS
BEEN HEART ENI NG,

BUT N E V E R T H E L E S S THE D O L L A R ' S VALUE STILL

REMAINS APPROXIMATELY
OPINION,




35

P E R C E N T ABOV E ITS

1980

BASE.

IN MY

FU R T H E R S I G N I F I C A N T P R O G R E S S IN B R I N G I N G THE D O LLAR

-

7

-

DO WN WIL L D E P E N D UPON, A M O N G O T H E R THINGS,

MEANINGFUL

R E D U C T I O N S IN T HE U.S. F E DERAL BU D G E T DEFICIT,
REA SONS I HAVE A L R E A D Y D E S C R I B E D TO YOU.

FOR THE

I ALSO HAVE

D E S C R I B E D TO YOU MY V I E W S A B O U T T HE L I K E L I H O O D OF THAT
HAPPENING

IN THE F O R E S E E A B L E FUTURE.

IN THI S CONTEXT,

IT IS IN T E R E S T I N G TO NOTE THAT JAPAN,

WHOSE C U R R E N C Y HAS MOVED THE MOST AGAIN ST THE DOLLAR,

HAS

S U P P O R T E D ITS F O R E I G N E X C H A N G E I N T E R V E N T I O N WITH A RA N G E OF
D O M E S T I C POLICY

INITIA TIV ES.

SINCE THE S E P T E M B E R MEETING,

S H O R T - T E R M IN TERE ST RATES HAVE R I S E N S I G N I F I C A N T L Y

IN

ADDITION,

THE JAP ANES E HAVE A N N O U N C E D FISC AL

SUCH AS L O W - I N T E R E S T H OUSING PROGRAMS,
DEMANDS,
up

IN JAPAN.

INITIATIVES,

TO ST I M U L A T E DOME S T I C

AS WELL AS VA R I O U S T E C H N I C A L CH A N G E S THAT WI LL OPEN

Ja p a n

to

foreign

pharmaceutical

and

telecommunications

FIRMS.
Mo n e t a r y Po l i c y
Ov e r

the

last

y e a r -a n d -a

-h a l f ,

the

most

pressing

C O N C E R N OF MO N E T A R Y P O L I C Y HAS BE EN TO F A C I L I T A T E THE
T R A N S I T I O N OF THE ECONO MY TO MORE M O D E R A T E BUT S U S T A I N A B L E
RAT ES OF G R O W T H AS THE N E G A T I V E E F F E C T S OF THE BUDGET
D EFICIT BEG AN TO MAKE T H E M S E L V E S FELT ON THE TRADE ACCOUNT.
Th i s

goal

helps

explain

the

F e d 's

concern

about

how

to

R E S P O N D TO THE RA PID GROWTH O V E R THE LAST 12 MONTHS OF 11,5
PERCENT

IN THE

M
l

MO N E T A R Y AGGREGATE,

C U R R E N C Y AND ALL C H E C K A B L E DEPOSITS.




WHICH C O N S I S T S OF
THIS GROWTH HAS PUT

M
l

-

8

-

WELL ABOV E THE O R I G I N A L 4 TO 7 P E RC ENT HI TA RGET FOR 1985
A D O P T E D LAST YEAR,

AND EVEN S I G N I F I C A N T L Y ABOVE THE NEW,

H I G H E R T A RGETS FOR THE SECOND HALF OF THE YEAR A DOP TED LAST
Ju l y ,
Un d e r

c i r c u m stances, the

ordinary

inflationary

dangers

OF SUCH A RA P I D RATE OF HI GRO W T H WOUL D HAVE BEEN C A U S E FOR
concern

,

But,

as

Ch a i r m a n Vo l c k e r

emphasized

HIS L E T T E R TO C O N G R E S S M A N W A L T E R FAUNTROY,
Ho u s e

Subcommittee

on

recently

CH A I R M A N OF THE

Do m e s t i c Mo n e t a r y P o l i c y ,

C I R C U M S T A N C E S HAVE NOT 3EEN ORDINARY,

MI' S RAP ID G R O W T H HAS

BEEN A C C O M P A N I E D BY A SHARP D ECLIN E IN ITS V E L OCITY ~
RATE AT WHICH

in

TH E

IT C I R C U L A T E S IN THE ECONOMY.

Th i s d e c l i n e is r e m i n i s c e n t of t he de c l i n e in v e l o c i t y
in 1982-83 WHICH,

IN ret rospect,

appe ars to have r e f l e c t e d

G R E A T E R B U S I N E S S AND HO U S E H O L D W I L L I N G N E S S TO KEEP L A R G E R
A M O U N T S OF C U R R E N C Y AND C H E C K A B L E D E P O S I T S ON HAND AS
INTEREST RA TES DECLINED,

A L T H O U G H THE P A R A L L E L S ARE NOT

PERFECT, PART OF THE C U R R E N T D E C L I N E IN V E L O C I T Y AND
A C C O M P A N Y I N G SURGE IN

M
l

AP P E A R S TO BE THE SAME P H E N O M E N O N

-- A RE S P O N S E TO THE G E N E R A L D E C L I N E
HAS O C C U R R E D SI NCE M I D -1984,

IN INTEREST RATES THAT

ADDITIONALLY,

THERE HAS BEEN

THE EFFECT OF D E R E G U L A T I O N OF INTEREST RAT ES P A Y A B L E ON
CH E C K A B L E DEPOSITS.
B e cause of t he u n c e r t a i n t y ab out

Ml's

behavior,

as well

AS THE C O N C E R N TO PR E V E N T THE E X P A N S I O N FROM BE I N G D E R A I L E D




9

-

-

3Y THE E C O N O M Y ' S A D J U S T M E M T S TO THE BUDGET A ND TRADE
IMBALANCES,

C H A I R M A N V O L C K E R INDICATED IN HIS LE T T E R TO

Co n g r e s s m a n F a u n t r o y
OR

F M,
OC

that

F e d e r a l O p e n M a r k e t Co m m i t t e e ,

the

DE C I D E D THAT Ml GROWTH AB O V E TH E R E V I S E D 3 TO 8

PE R C E N T T A RGETS W O U L D BE ACCEP TAB LE,

MEANWHI LE,

THE O T HER

M O N E T A R Y AND CR EDIT A G G R E G A T E S USED AS T A R G E T S BY THE FED
ARE G E N E R A L L Y W I T H I N THE G R O W T H RA N G E S SET FOR THE YEAR,
Un d e r

c i r c u m s t a n c e s , in

these

the

setting

of

monetary

POLICY, P A R T I C U L A R A T T E N T I O N

IS BE ING G I V E N TO O N - G O I N G

D E V E L O P M E N T S IN T HE ECONOMY,

IN DO M E S T I C CREDIT MARKETS,

AND

IN F O REIGN EXC HANGE MARKETS,
Fc o n o m i c Ou t l o o k
Let

me

conclude

by

saying

EC O N O M I C OUT LOO K FOR THE U.S.
staff

at

the

B ank

is

THE N A T I O N A L ECONOMY,

a

few

words

ECONOMY,

predicting

a

3, 3

about

the

AND FOR UTAH,
percent

OUR

expansion

AS M E A S U R E D BY THE G RO WT H

IN REAL

B E T W E E N THIS Q U A R T E R AND THE FOURTH Q U A R T E R OF 1986,

in

GP
N

fHIS

IS S O M E W H A T H I G H E R THAN THE 2 P E R C E N T GAIN E X P E C T E D THIS
YEAR,

WHICH R E P R E S E N T E D A SLU G GISH FIRST HALF BUT A S T R O N G E R

SECOND HALF,
WE EX P E C T THA T C O N S U M E R S P ENDING WILL C O N T I N U E TO GROW
T H R O U G H 1986 BUT S I G N I F I C A N T L Y BELOW THE R E L A T I V E L Y ROB UST
RAT E S FOR T HE FIRST THREE Q U A R T E R S OF THIS YEAR,

AS

H O U S E H O L D S IN 1986 BUILD UP THEIR D E P L E T E D SAVINGS.
SAME TIME,




A t THE

A R E L A T I V E L Y LOW O P E RATING RATE FOR F A C T O R I E S AND

-

10

-

W I D E S P R E A D V A C A N C I E S IN O F F I C E SPACE SU G G E S T THAT B U S I N E S S ' S
E X P E N D I T U R E S ON E Q U I P M E N T AND C O N S T R U C T I O N WILL BE SLUGGISH.
A RECENT ilCGRAW HlLL SURVEY OF B U S INESS C A P I T A L S P E N D I N G
IN T E N T I O N S S H O W E D SLI GHTLY L O W E R DO L L A R O U T L A Y S NEX T YEAR
C O M P A R E D TO THIS.

EVEN A F T E R TA KING INTO ACCOUNT THAT

S U R VEY'S C H R O N I C T E NDENCY TO BE P E S S I S M I S T I C , AND M A KING
SOME R E A S O N A B L E E S T I M A T E S OF PR I C E INCREA SES FOR C A P I T A L
GOODS,

IT ST ILL A P P E A R S THAT WE COULD END UP WITH B U S I N E S S

C A P I T A L S P E N D I N G (IN I N F L A T I O N - A D J U S T E D TERMS) G R O W I N G MORE
SL OWLY NEXT YEA R THAN THIS.
Ho w e v e r ,

by

the

second

half

of

next

year

,

the

effects

OF THIS Y E A R ' S D E P R E C I A T I O N OF THE D O L L A R WIL L BEG I N TO GIVE
A BO OST TO THE ECONOM Y AS OUR EX P O R T S 3EC0ME MORE
C O M P E T I T I V E AB ROAD AN D D O M E S T I C P R O D U C E R S ARE BETTER ABLE TO
CO M P E T E WITH

IMPORTS.

O UR STAFF E S T I M A T E S THAT THE DECLINE

TO DATE IN THE D O L L A R ' S VA L U E WO U L D 3E S U F F I C I E N T TO BOOST
6HP GROWTH

IN THE SECON D HALF OF 1986 RE L A T I V E TO ITS

S L U G G I S H PAC E IN THE FIRST HALF OF THE YEAR.
TIME,

HOWEVER,

A
T

THE R E S U L T I N G RISE IN T HE PR I C E OF IM PORTS

FROM A D E P R E C I A T I N G D O L L A R IS EX P E C T E D TO RESU LT
UPTICK

THE SAME

IN A S L IGHT

IN I N F L ATION FROM THIS YEAR'S E X P E C T E D RISE OF AB OUT

3h perc ent .

Finally,

it appear s that there wi l l be l i tt le

C H A N G E IN THE O V E R A L L U N E M P L O Y M E N T RATE IN THE ECONOMY,
R E C E N T L Y AT A RATE OF A L I T T L E OVER 7 PERCENT.




-

11

-

Ut a h Sc e n e
Let
ECONOMY,

me

now

turn

to

a

brief

discussion

of

the

Ut a h

A TASK WHICH I U N D E R T A K E C A U T I O U S L Y AS SOMEONE FROM

O U T S I D E YOU R STATE.

AT OUR BANK,

WE DO A T T E M P T TO M O N I T O R

KEY E C O N O M I C D E V E L O P M E N T S IN OUR N I N E - S T A T E AREA.

THUS,

I

WILL GIV E YOU A VIEW OF THE UTAH OU T L O O K AS IT A P P E A R S TO
OUR R E SEARCH STAFF.
IN R E C E N T MONTHS,

UTAH,

LIKE THE NATION,

S L O W D O W N IN E M P L O Y M E N T GROWTH.
Utah

remains

low

,

and

in

HOWEVER,

Se p t e m b e r

stood

HAS SEEN A

U N E M P L O Y M E N T IN
at

5.9

percent

LO WER THAN BOTH THE UTAH RATE THIS TIME LAS T YEAR,
6.5 PERCENT,
The
well

,

,

WHICH WAS

AND THE N A T I O N A L RATE OF 7.1 PERCENT.

trade

and

Together

service

these

two

sectors
sectors

in

Utah

are

make

up

close

doing
to

PE R C E N T OF UT A H ' S N O N A G R I C U L T U R A L E M P L O Y M E N T BASE,

very

45
AND IN

THE PAST YEAR E M P L O Y M E N T IN THESE SE C T O R S HAS GROWN MUCH
FA S T E R THAN HAS TOTAL STATE E MPLOYMENT.
R E F L E C T S STRON G C O N S U M E R SPENDING,
T O U R I S T INDUSTRY

THIS GROWTH

AS WELL AS A G R O WING

IN UTAH.

AS YOU KNOW,

FEDERAL,

STATE,

AND LO C A L G O V E R N M E N T S

T O G E T H E R ACCOUN T FOR 20 P E R C E N T OF THE S T A T E ' S JOBS.
GOVERN MEN T,

THE MOST IM PORTANT JOB SOURCE,

E S P E C I A L L Y RAPIDLY,

LOCAL

HAS GROWN

PA R T L Y DUE TO THE C O N T I N U I N G NEED FOR

A D D I T I O N A L S CHOOLS TO EDU CATE UTAH'S GRO WING POPULA TION .
Federal




government

employment

has

received

a

boost

in

recent

12

-

YE A R S FROM D E F E N S E SPENDING,

-

WHIC H P R O V I D E S A L M O S T 60

P E R C E N T OF UTA H'S F E D E R A L G O V E R N M E N T EMPLOYMENT.
Other
Al t h o u g h

nonresidential

residential
lower

sectors, however, present

SUGGEST,

construction

construction

mortgage

interest

HOWEVER,

a

activity
rates

.

rosy

remains

has

The

less

been

most

picture

.

robust,

sluggish

recent

,

despite

data

THAT WHILE MULTI FAMILY C O N S T R U C T I O N MAY BE

W E A K E N I N G FURTHER,

S I N G L E - F A M I L Y C O N S T R U C T I O N IS P I C K I N G UP

SLIGHTLY.
Ma n u f a c t u r i n g

activity

HAS TH R O U G H O U T THE NATION.

in

Ut a h

has

been

s l u g g i s h , as

THIS TREND P R O B A B L Y WILL

C O N T I N U E SO LONG AS THE DOLLAR R E M A I N S STRONG.
R E S I D E N T I A L C O N S T R U C T I O N AND MANUFACTURI NG,
PR O B L E M LI ES IN TH E MIN ING SECTOR.

K e n n e c o t t 's U t a h

operations

illustrates.

R E F L E C T I N G THE K E N N E C O T T CLOSURE,

BEYOND

UT A H ' S MAJOR

D E P R E S S E D WO RL D P R I C E S

HAVE HIT C O P P E R P R O D U C T S P A R T I C U L A R L Y HARD,
of

it

AS THE C L O S I N G
Largely

E M P L O Y M E N T IN M I N I N G

I N D U S T R I E S FELL A W H O P P I N G 2 2 P E R C E N T OV ER TH E PAST YEAR,
AND P R E S E N T L Y THERE IS NO RE LIEF
OUR MINING

IN SIGHT.

THE OUTLOOK FOR

INDUSTRI ES WILL C O N T I N U E TO BE IMP ACT ED A D V E R S E L Y

BY THE S T R O N G DO L L A R A ND BY W O R L D W I D E D I S I N F L A T I O N .
U t a h 's

economy

is

reducing

its

reliance

on

the

weak

MI N I N G AND M A N U F A C T U R I N G I N D U STRIES AND, LI KE THE NATION,
EV O LVING

INTO A MORE SE R V I C E O R I E N T E D ECONOMY.

SP E N D I N G RE M A I N S STRONG,




IF

CONSUMER

THE C H A N G E S IN UTA H ' S E C O N O M I C BASE

-

13

-

SHOULD P R O V I D E A SO UND BA SIS FOR C O N T I N U E D E C O N O M I C GROWTH.
The

low

unemployment

rate

in

the

state

is

an

especially

E N C O U R A G I N G SIGN.
Co h c l u d i n g Re m a r k s
IN SUMMARY,

WE SEE T HE E C O NO MIC E X P A N S I O N C O N T I N U I N G AT

A MO D E R A T E PA CE T HROUGH 1986.
IS LIKELY,

SOME UPTICK

IN INFLA TIO N ALSO

A L T H O U G H THE RATE STILL WI L L BE S U B S T A N T I A L L Y

BELOW THE D O U B L E DIGIT RATES THAT B A T T E R E D THE EC O N O M Y AS
RECENTLY AS FOUR YEAR S AGO.
Ad m i t t e d l y

the

uneven

tone

as

between

OF THE ECONOM Y IS LIKELY TO CO NTINUE,

different

sectors

U N L E S S OR UNTIL THE

M A S S I V E I M B A L A N C E IN THE F E D E R A L D EFICIT

IS REDUCED,

WITH A

CO N S E Q U E N T FU R T H E R L O W E R I N G OF BOTH

INTEREST RA T E S AND THE

I N T E R N A T I O N A L V A L U E OF THE DOLLAR.

S O L U T I O N S TO THESE

P R O B L E M S ARE B E Y O N D THE ABILITY OF MO N E T A R Y P O L I C Y ALO N E TO
remedy

.

Ne v e r t h e l e s s , I

believe

that

T h e Fe d e r a l Re s e r v e

C A N TAKE C O N S I D E R A B L E S A T I S F A C T I O N FROM ITS KEY ROLE IN
CU R B I N G

IN FLATION SINC E 1980, WHILE AT THE SAME TIME SEEING

THE EC O N O M Y AS A WHOLE ENJOY ONE OF THE S T R O N G E R E X P A N S I O N S
OF T HE P O S T - W A R PERIOD.