CONFIDENTIAL (FR) CLASS 11-FOMC

Materialfor

Staff Presentation to the Federal Open Market Committee
February 2, 1981

Principal Assumptions

Monetary Pollcy
rn

Growth of M-1A of 4% percent in 1981 and 3% percent in 1982, abstracting from shifts into NOWs Growth of M-16 of 4% percent in 198 and 4% percent in 1982, abstractingfrom shifts into NOWs

rn

Fiscal Policy
rn

Unified budget expenditures of $ 656 billion in P 1981 and I I $726 billion in P 1982

rn

Tax reduction of $35 billion $29 billion for individuals effective mid-1981 $ 6 billion for businesses retroactive to January 1981

Federal Budget
7

Fiscal Years, Unified Budget Basis

1980
Billion8
Of

1981
Billions
Of

1982
Billions
Of

Dollars

Percent Change

Percent
Change

Dollars

Doilars

Percent Change

Outlays Defense Nondefense

$580 136
444

17%

656 162
494

13%

726 187 539

11%

Receipts Deficit

520 60

12%

600 57

15%

645 81

8%

-

_ I

- 8

-

f=L
-

-6

: ’ \

\ \

\ \ \ \

’L­
\b--%

---

-4 -

1975 1977 1979 1981

-

-6

yL
/ / / /
i

/p-.
/

/

-. ---

4

-2

04

a4

/--*

-

- 15 - 10

-

3-Month Treasury Bill

- 5

*Abstractina from Shins into ATS and NOW accounts

Economic Activity
Real Retail Sales
Billions of 1972 dollars
48

Housing Starts and Permits -

r
Starts

Millions of units

1
2.0

1.6

44

40

Permits Unit Auto Sales
Millions of units

1.2

.8

I
1978

I

i
1979 1980

I
1978 1979 1980

Industrial Production
Index, 1967=100

Nonfarm Employment

-

r

Millions of workers

I

1

Total

I

&
Total

160

140

-

Motor Vehicles and Construction Supplies

, F
1978

Manufactu;L]

21

L
1978 1979 1980

20 1979 1980

Real Gross National Product
1972 Dollars
Change from previous period, annual rate, I .

-

b a r t e r 1y

1975

1977

1979

1981

r
c

Change previous period, annual rate, p

-

Annual

H1
1975 1977 1979

H2 1981

H1

t

Real Disposable Personal Income

-

fl
Unrevised
1978 1979

Billions of 19 -

Saving Rate IllarS

I020

r

Perc -

Revise-

-

-

Unrevised

-

1980

Household Debt Repayment

-

- 23

-

- 19

Personal Consumption Expenditures on Food and Energy
Relative to Disposable Personal Income

Percent

1
- 27 - 26

.I 975

1976

1977

1978

1979

1980

r
t-

1960

Saving Rate
Percent

1
8

0.7

6

i4
1965 1970
1975 1980

r

Real Personal Consumption Expenditures and Disposable Income
Change from previous period, annual rate,

-

1972 Dollars

1978

1979

1980

1981

1982

Housing Starts and Home Mortgage Rate
Millions of units Percent

7
Rate
2.0

1.6

1.2

.8

1978

1979

1980

1981

1982

Monthly Mortgage Cost and Household Income
Thousands of dollars

r

c-

40

New Homes
30

600

20

400

Average Household Income

1978

1978

1980

1981

1962

r

Housing Starts
Millions of units, annu

-

de

!.O

I .5

I .o

.5

Real New Orders
Billions of 1972 dc ars

Business Construction Contracts

-

I n d e f e n s e Capital Goods
15

r

Millions of squa

-

feet

100

Total

13
11

80

Machinery

-

9

60

1978

1979

1980

1978

1979

1980

Manufacturing Capacity Utilization

r
-

Percent

1
*---I

1973-Q3Pre-Recession Peak

-

90
07 8

- 85
-

~------------___----.

- 80

- 75

1978

1979

1980

1981

1982

Real Business Fixed Investment
Billions of 1972 dollars

I65

I55

145

1978

1979

1980

1981

1982

Total Manufacturing and Trade Inventories

1972 Dollars

Billions of dollars

-

Relative to Sales 1972 Dollars

atio

20 6

1.7

250

1.6

' '
1978 1979 1980 1978 1979 1980

240

1.5

c
I

Business Inventories Relative to Sales
Ratio

1972 Dollars, NIA Basis
3.6

3.4

3.2

I

I

I

I

I

I

1975

1977

1979

1981

1972 Dollars, NIA Basis -

- 30 -

&

-

A

..--.. -.C_..-

- 10
-
- 20

+

0

-

Real Defense Spending Less Compensation
Change from previous period, percent

10

6

2
1978 1979 1980 1981 1982

1972 Dollars

-

-

. --'.----_

- 38

-----_-

28

State and Local Government Operating Budget
Billions of dollars
3 1 0

8

1978 1979 1980 1981 1982

2

Real Total* Government Purchases Of Goods and Services

r
-

Change from previous period, percent

- 1972 Dollars -

1 -3

- 1

.-. ._--------.-. .

*Federal nnd Slate nnd Local

Nonfarm Employment
Change, millions of

WOI

rs

4

2

+ 0

H1 ti2 H1 H2

Civilian Labor Force

r
1975 1977 1979

Change, millions of workers

1
1

3

2

1981

Unemployment Rate
Percent

9
c-

--Me4

7

1975

1977

1979

1981

Unit Cost Indicators
Nonfarm Business Sector
Change from year earlier. -annu rate, pel 3nt -

10

-

6

1975

1977

1979

1981

- a

-

4

Zr v--'

p ,

; / , . \

+ 0
4

-

Output,per Hour

1975

1977

1979

1981

Unit Labor Costs
"\ '\, , '
\

- 12

L ',
4

8

Prices
Fixed-Weighted Indexes

r
c

Personal Consumption Expenditures

Change from previous annual rate,

Id,

-

mt

15

3
0

5

r
I-'

Gross Business Product

Change from previous p, annual rate, pe

-

id,

!nt

12

9

Excluding Food and Energy

-

6

1978

1979

1980

1981

1982

Foreign Exchange Value of the U.S. Dollar

Monthly

M a r c h 1973=100

-

00

Weighted Average Dollar

*

90

-

v
1977 1978

Price Adjusted Dollar =
Weighted Average Dollar*/Relative

80

Consumer Prices

1979

1980

1981

Short-Term Interest Rates

c

P e r c e n t pei

-

n

Monthly
8

4

0

6

I
1977

I
1978

I
1979

1
1980

I
1981

*Weighted average against or 01 0-10 countries DIUS Switzerland usin0 total 1972-78 avera~e trade of these countries.

Real GNP
Change from 0 4 to Q4, percent

United States Weighted Average Foreign*

1
4

2

+
0
1978 1979 1980 1981 1982

Consumer Prices

Change from Q4 to Q4, percent

1

1978

1979

1980

1981
Of

1982
these countries.

*Weighted average against G-10 countries plus Switzerland using total 1972-76 average trade

I

12

8

4

+

0 -

&scale

ratio

de ratio scale

ratio ! :ale -

60

50

40

30

BC

-_---,----15

6(

-

4c

10 1976 1980 1982

1978

1980

1982

Non-Oil Imports
Billions of 1972 dollars, itio scale

ratio scale

2 0
3 0

-

ratio Scale -120

-

- 100 80

,--------r
Value
60

-

%
10

O

;

y

'

40

Volume
-

-

-

Volume

: I T , - -.-----7

-

6-

1976

1980

1982

1978

1980

1982

Current Account Transactions
Billions of dollars Non-Trade Current Account Transactions

40

20

+

0
-

20

40
1978 1979 1980 1981 1982

Current Account Balance
Billions of dollars

20

+

0
-

H I H2 1978 1979 1980 1981 1982

GNP Exports and Imports of Goods and Services

-

r
-

Billions of 1972 dollars

-

:L
Exports,,---' Imports

___-------­ ___--------

- 170 -

- 150 - 130 -

. ', ______________110

Funds Raised By
Domestic Nonfinancial Sectors

Billions of

-

lllars

L

Imprivate

-
400

300

200

100

1977

1978

1982

Federal Government Borrowing Relative to GNP

c

It-

A I\

r-

Percent

Nonfinancial Corporations
Financing Gap

-

Funds Raised
Billions of dollars

1
4140

Total

Billions of dollars

ql*
mt

1977

1979

1981

Short-term Debt
Relative to
Total Debt Outstanding

-

Liquid Assets Relative to Short-term Liabilities
Percent

34

30

26

22

1977

1979

1981

1977

1979

1981

Household Borrowing
Billions of dollars

Other
Home Mortgages
200

1977

1

L

L

I

160

120

80

40

Net Income to Assets
Savings and Loan Associations
Percent

I

1973

1975

1977

1979

1981

Mutual Savings Banks