CONFIDENTIAL (FR) CLASS 11-FOMC

Material for

Staff Presentation to the Federal Open Market Committee
July 11, 1979

MONETARY POLICY

-

=

Growth of M-1 averages 6 percent (without ATS) in 1979 and 1980 Interest rates move lower into early 1980 and rise over balance of forecast

FISCAL POLICY
Unified budget expenditures of $494 billion in FY 1979

Unified budget expenditures of $542 billion in FY 1980

OIL PRICES
OPEC average price of about $21 .OO per barrel
effective Mid-1979; price increases in 1980 amounting to about $2.00 per barrel

r
i

FEDERAL BUDGET*
Billions 01
ars

-

500

100

300

Receipts Expenditures Deficit

1980
Admin. FRB 200

514 509 542 542 20% 33

I

I

I

I

I

I

I

I

I

1970
*Fiscal years

1972

1974

I

1976

1978

198

ECONOMIC ACTIVITY
ONFARM EMPLOYMENT Average Monthly Change
-

Thousands

of workers
1

INDUSTRIAL PRODUCTION

lex, I00

I400
150

300 145
200

140 100

I
H1

H2

(I1

02

1978

1979

1978

1979

r

REAL RETAIL SALES

Billions of
1972 dollars

1
46 45 44 43

OUSING STARTS -

Millions (

its 1.2

2.0

1 .a

DOMESTIC AUTO SALES

Millions of units

1.6

b j l !
1978 1979 1978

I-

1

14 .

I
1979

REAL GNP
1972 Dollars

r

Change from previous period, annual rate, percent

I
1974 1975

I
1976

I
1977

I
1978

I
1979

I
1980

-

7

- 96 - 94 - 92 - 90

I

I

MICHIGAN SURVEY RESEARCH CENTER

-

- 90

- 60

- 70

I

I

-

- 23

: J
- 22

- 21

I

I

, ,' '
I
1 ' I I I I I

/-.
- 9

- 8

-f--/"j

- 7

REAL NEW ORDERS Nondefense Capital Goods I-

Billions of 1972 dollars

1

I &
-

Total

h

A

- 13

- 11
9

Machinery
I I

-

7

I

I

I

1976

1977

1978

1979

1980

1973 03 Pre-Recession Peak .

-.
\

87 8%

\

- 85

I/
L

\\

\ \ \
”\

- 80
’*\%_,

I

I

I

I

2

-

-c. --

:/

-. -.------.

- 150
- 130 - 110

I

I

I

I

-

MANUFACTURES’ INVENTORIES Annual rate, billions of dollars AUTO STOCKS Change in Book Value

Millions of units

1

1.4
1.2

-

-.
1.o

.8

.6

I -

1977

1978

1979

1977

1978

1979

- 20

1972 Dollars, NIA B ss ai

BUSINESS INVENTORIES RELATIVE TO SALES

I

I

I

I

I

DEPOSIT GROWTH AT THRIFT INSTITUTIONS

r

i 1 r
16

Change from previous period, annual rate, percent

OUTSTANDING COMMITMENTS AT SAVINGS AND LOAN ASSOCIATIONS Billions of dollars

i-

1

12

8

4

1977

1978

1979

1977

1978

1979

I

36

32

28

24

HOUSING STARTS

Millions of units

2.0

1.5

1.o

0.5

1

I
1974 1975

I
1976

I
1977

I
1978

I
1979

I
1980

REAL GoV’T- * PURCHASES OF GOODS AND SERVICES

Change from previous periods annual rate, pe ?nt

5.0

2.5

+ 0
-

t
1974
r

2.5

I

I
1976

I

I
1978

I

I
1980

REAL GOV’T. * PURCHASES AS A SHARE OF GNP

P

nt

t
*

23

22

21

20

19

1974

1976

1978

1980

Federal and Stale and Local

c

REAL GNP
Index, peak quarter i00

Cyclical Comparison
108

104

100

96

LABOR MARKET
IIIIClVlLlAN LABOR FORCE W EMPLOYMENT

Change from previous PI annual rate, mil

i

0

2

+
I
1974 1975

0 -

I
1976

I
1977

I
1978

I
1979

I
1980

UNEMPLOYMENT RATE

Per cent

- 8
f/)

- 7
/ / / /

// /

- 6

- 5

I

1974

I

1975

I

1976

I

1977

I

1978

I

1979

I

1980

I

UNIT COST INDICATORS Nonfarm Business Sector

-

Change from year earlier, annual rate, per cent

-

compensation per hour

c--

- 10
8

I
1974 1976

I

I
1978

I

I
1980

4

2

+
0 2

1974 -

1976

1978

198

2

8

d

I

I

I

I

I

PRICES -

znergy

annual rate, per

-

nt’

I

I/\ I

\ \

\

.O

\

\ \
\

\

\ 1 \

-

!O

\ \

\ \

\

\

\

\ &

20

I

N
I
1976 1977

-

10

I
1978

I
1979

I
1980
Change from year ea ?r, annual rate, per1 It

Food

-

0

+
0 -

I
1976 1977

I
1978

I
1979

I
1980

GROSS BUSINESS RODUCT PRICES -

Change from year earlier, annual rate, percent

1

I

I

I

I

I
1980

1976

1977

1978

1979

AVERAGE PRICE OF APORTED OIL -

Dollars per

el 14

FOREIGN IFLATION* Consumer Prices

Q4lQ4 percentage c

?

3

i
I
f
I

r ’
20 B

I I
I

d

I

16

6

12
4 E

2
4

1
1978

WEIGHTED AVG. EXCHANGE VALUE March 1973=100 THE U S . DOLLAR*

1

FOREIGN ROWTH* Real GNP

Q4lQ4 percentage c

e

4

-

2

1977
*Average of G-10countries plus Switzerland using total 1972-1976 average trade

1978

1979

1980

U.S. MERCHANDISE TRADE
NON-AGRICULTURAL EXPORTS
Billions of 1972 dollars,

AGRICULTURAL EXPORTS
1

-

Billions of dollars,

Billions of 1972 dollars, ratio scale

Billions of dollars, ratio scale

40

80
60
c -

30

20

_----.
Volume Volume
10

40

d L 1980 1976 1978
OIL IMPORTS
Millions of barrelslday, ratio scale

I
1976

I

I
1978

I

I
1980

NON-OIL IMPORTS
ratio s le. s Billions of 1972 dollars, ratio scale Billions of dollars, ratio scale

r

80

40

, ,
20

1976

1978

1980

1976

1978

1980

MERCHANDISE TRADE AND CURRENT ACCOUNT BALANCES -

Billions of dollars

-

-

Current Account

- 20
I@*----

+ 0

-Trade &lance
-

-

- 20 - 40

I
1974

I

I
1976

I

I
1978

I
1980
Billions of 1972 dollars

GNP EXPORTS AND IMPORTS OF GOODS AND SERVICES

r

1

Bil Ins of 1972 dollars

-

Billions of dollars

-

20

0------0

20

/-10

+ 0

I I

:
8 '

-

lo

-

+ 0

-

10 -

- 10

2t -

- 20

I

I

I

I

I

FUNDS RAISED BY OMESTIC NONFINANCIAL §ECTORS -

Billions of

ws

U S . Government
Private
100

300

-

200

100

1974

1975

1976

1977

1978

1979

1980

HOUSEHOLDS

3orrowing

Billions of dollars

1 0

60

20

40

I
1974

I
1976

I

I
1978

I

I
19E
P-W .

r

-

t

Liquidity Share of Disposable Income For Other Than Debt Service

-

0

-

'a

----____.
t
-

76

L ,
1974 1976 1978 1980

CORPORATE FINANCE
r

Billions of dollars
---7

1974

1976

1978

1980

Liquid Assets to Short-Term Liabilities

Short-Term Total Debt

1974

1976

1978

1980

BALANCE SHEET RATIOS

-

-ti0

Commercial Banks

-

30

Securities to Earning Assets

-

.-----_.

_*_--*--_.

c

25

.20

-

I-

Savings and Loans

B

6

.4

I
1974

I
1976

I

I
1978

I

I
1980

INTEREST RATES
Pel

I 1970 I

I

1972

I

I

1974

I

I

1976

I

I

1978

I

I

19E

ONETARY POLICY ALTERNATIVES
3EAL GNP ( % )

*

1979 -1.5 -1.3

1980

1981

5 per cent M-1

0
0.8 1.3

0.5
1.4
2.5

6 per cent M-1
7 per cent M-1

- 1.1

PRICES (%)
5 per cent M-1
6 per cent M-1 7 per cent M - 1 9.5 9.6 9.6 8.8 9.0 9.1 8.7 9.1 9.5

UNEMPLOYMENT RATE ( % ) 5 per cent M-1
6 per cent M-1 7 uer cent M-1 6.9 6.9 6.8 8.3 7.9 7.6 9.6 8.7 8 .O

3 MONTH TREASURY BILL RATE ( % )

5 per cent M-1
6 per cent M - 1

9% 8! h
73 L

10%
9% 8%

103~

9% 83 h

7 per cent M-1

' M1 growth rates equivalent to those in the absence of ATS.
GNP implicit deflator measured from fourth quarter to fourth quarter. Level end quarter of each year

Comparison of Staff and Administration Economic Forecasts

I _

Staff

1979 Administration

1980

Staff

Administration

Nominal G X ’ (percent change Q I V to Q I V ) Real GNP (percent change Q I V to OW)

8.2

9.2

9.8

10.3

-1.3

-0.5

0.8

2.0

GNP Implicit Deflator
(percent change Q I V to Q I V ) Unemploymenr Rate (QIV, in percent)

9.6

9.8

9.0

8.1

6.9

6.6

7.9

6.9