CONFIDENTIAL (FR) CLASS 11-FOMC

Materialfor

Staff Presentation to the
Federal Open Market Committee

July 6, 1981

Principal Assumptions

Monetary Policy
rn

Growth of MI-B of 4% percent in 1981,abstracting from shifts into NOWs, and 4% percent in 1982

Fiscal Policy
rn

Unified budget expenditures of $663 billion in FY 1981 and $725 billion in FY 1982 Personal and business tax cuts Personal cuts of $27 billion in FY 1982 Business cuts of $8 billion in FY 1982

rn

Federal Budget
Fiscal Years, Unified Budget Basis

1980

1981

1982

Outlays Receipts Deficit

$580

17%

$663 $603 $60

14%
16

$725 $646

9%

$520
$60

12

7

$79

Fiscal years

Percent

__

Fiscal years

Percent

-

/--

Total

- 22

'\ - 21 I '
' \

/-..
- 20
Excluding Interest

I I

- 20

1 ' s '
-

-

- 18

I l l l l l l l l l l l

:&-

19

18

l l l l l l l l l l l l-

Economic Activity
Real GNP
Change from end of previous annual rate, p t

Real Retail Sales
Billions of 1972 dollars

-E
rI
1979 HI H2

F
Unit Auto Sales
I

48
46

$4

12

L
Millions of units

1

I Q1
1981

I

I

1980

1979

1980

1981

Housing Starts and Permits
Millions of units

Nonfarm Payroll Employment

Strike adjusted

Millions of workers

92

Starts

Permits

,8

E
21

/
Total Manufacturing
1979 1980

90

20

1979

1980

1981

1961

Real GNP 1972 Dollars

Change from end of previous period, annual rate, pe

m

111

111
111

I

I
1975

I
1977

I

I
1979

I

I

HI H2 1981

I

HI H2 1982

1972 Dollars, 3-quarter moving average

-6
-4
\

.
+
0
-2

I
Saving Rate

I

I

I

I

I

I

r-

Percent

1

I

1975

I

I

1977

I

I

1979

I

1981

Housing Starts and Home Mortgage Rate
An

ial rate, millions of units -

Percent

1
Mortgage Rate

2.2

1.a

1.4

1.a

I
1978 1979

I
1980

I
1981

i
I
1
1

1

1

New Home Sales
7

Annual rate, millions o

ts

.8

.6

-

.4

I
1978 1979

I
1980

I
1981

New Home Prices

r

Change from year earlier, pel ?nt -

Adjusted for changes in quality

15

12

9

1978

1979

1980

1981

r

Housing Starts

1978

1979

1980

1981

1982

3-month moving average

-13
-

-11

-

- 9

- 7

I

I

r

Real New Orders for Defense Capital Goods
Billions of 1972 dollars 3-month moving average

1

1979

1980

1981

Corporate Bond Rate
Percent

b

a New Issues

1

1978

1979

1980

1981

1982

Corporate Profits Relative to GNP

r

Economic Profits

Percent

1

I
1978 1979

I
1980

I
1981

I
1982

Manufacturina CaDacitv Utilization
Percent

1

- 90
87 8

- 1973-Q3 Pre-RecessionPeak

I

: 1978

- 85

-----_____--
80
- 75

I

1979

I

1980

I

1981

I

1982

- 170

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

160

- 150

Auto Inventories

r

Annual rate,
millions of units

Manufacturing and Trade Inventories Relative to Sales

1

I972 Dollars

atio

1.8

A
1.7

Days Supply

Days

1

1.6

1979

1980

1981

1979

1980

1981

Change in Business Inventories

r

Annual rate, billions of 1972 dollars

1972 Dollars, NIA Basis

I 3 O

1975

1977

1979

1981

Real Federal Government Purchases
Change, Q4 to Q4. percent h 9 7 2 Dollars

1

I
1978 1979

I
1980

I
1981

I
1982

r
k

Real State and Local Purchases
Change, Q4 to Q4, percent 1972 Dollars

1

i 4

2

+ 0
1978 1979 1980 1981 1982

Real Total Government Purchases

1972 Dollars Change, Q4 to Q4. Percent

-

1977 1978 1979 1980 1981P 1982P

3.6 1.6 1.9

1.6 0.4 0.6

Total Employment

r

Change, Q4 to 0 4 . millions of persons

1

4

2

+
I
1975

0
I
1977

I

I
1979

I

I
1961

I

I

1

3

1

Civilian Labor Force

r

Change, Q4 to 0 4 . millions of persons

1975

1977

1979

1961

Labor Force Participation Rate
Percent

--------

1

64

i
1975

I

I
1977 1979

i

1951

Unit Cost Indicators
Nonfarm Business Sector
Change from year earlier, percent

r
I
1975

1

6

Personal Consumption Expenditures

I
1977

I

I
1979

I

I
1981

I
-

-

- 8

- 4

/
Output per Hour

* .

’.,-

\_-0*-

+
0 -

-

- 4

I
1975

I
1977

I

I
1979

I

1
1981

I

Change from year earlier, percent

Unit Labor Costs

- 12

\ -

-.
- 4

8

I
1975

I
1977

I

I
1979

I

I
1981

I

Gross Business Product Prices

Fixed-weightedindexes

Change from year earlier, percent -

Total

I
1978 1979

I
1980

I
1981

I

1982

Foreign Exchange Value of the U.S. Dollar
March 19 bonthly

00

05

95

85

Price

I

I
1977 1978

I
1979

I
1980

I
1981

Short-Term Interest Rates
bonthly

Percent per

m

I8

14

10

6

1977

I

1978

1

1979

I

1980

I

1981

Consumer Prices
Change, Q4 to Q4, percent United States Weighted Average Foreign*

2

8

4

-

+

0

-

3
I
1978 1979 1980

1
1981 1982

Real GNP
Change, 0 4 to Q4, per -

lt

-

6

4

2

+

0 -

1
1978 1979 1980

,
1981

I
1982

International Oil Market Developments

-

-

40

--u---/----

- 32 - 24
16

-

-

8

I
World Crude Oil Production*

I

I

I

0

Millions of barrels per day

1
OPEC

I

mNonOPEC

I 50

30

10 1978 1979 1980 1981 1982

U.S. Oil imports

r

Millions of barrels per day

110

1
*Excludina the USSR and China

I

I

I

0

Billions of 1972 dollars, ratio scale

Non-Oil Imports

Billions of dollars, ratio -

ale 140 '00

50

20

80

60

4%

I
1975

I

I
1977

I

I
1979

I

I
1981

I

Billions of

Nona ricultural Exports

r

7

972 dollars, ratio scale

Billions of dollars, ratic cale - 240
200

160

120

50

50

40 -

-

I

I

I

I

I

I

I

I

GNP Exports and Imports of Goods and Services
r
Billions of 1972 dollars 1

:/-

Exports
cccc-------____

- 170

- 150

Imports

. *

/--

_____-- 130

- 110

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

-

7

- 20
1111111 111111

mmmrm

mi . . . , . i
tuJr

1 1 ;I ; 1
! ! I I

+ 0
-

-

1I
1

I-20
I
1

I

I

H1

H2

H1

ti2

-

-

-

8

-- , /-

\\
\

\

’. ---I

- 8

-

4

1

I

I

I

I

I

Interest Rates

r
*

Funds Raised by Nonfinancial Sectors
Percent As a percent of GNP

1

I I
1979
~ C C O U ~ ~ S

I

1

I
1981

I

1975

1977

Abstracling tiom Shills into ATS and NOW

Households

Billions (
lars

Other
Home Mortgages

AS

a Petcent Of

1977 1978 1979
1980 1981P 1982P

41 41 42

I60 I

28 29 27

20

80

40

L
1977 1979 1980

L

Total Debt Outstanding
Relative to Disposable Personal Income

1977

1978

1979

1980

1981

1982

Nonfinancial Corporations
Funds Raised
Billions of ,
S

Borrowing at Banks
Billions of dollars

60

Short-Term

1

m
20

Short-Term Debt Relative to Total Debt Outstanding

AI
1977 1979

90

40

1981

1977

1979

1981

Corporate Profits
Percent cent After Tax

-

Billions of dollars

1
I

-

A 2 0

-

---------As a percent of GNP

100

1977

1979

1981

1977

1979

1981

Average Hourly Earnings index
Nonfarm Business Sector

r

: Change from year earlier, I

nt

3-month moving average

0

9

8

I
1978 1979

I
1980

I
1981

I

1982

Hourly Compensation
Nonfarm Business Sector
Change, Q4 to Q4, pet ?nt -

tI

Legislated Changes

12

8

4

1978

1979

1980

Unit Labor Costs
Change from year earlier, percent

Nonfarm Business Sector 10

6

I
1975 1977

I

I
1979

I

I
1981

7

- 30 - 20

:

I

I

I

I

I

I

10

1

r-

Foreign Exchange Value of the Dollar

Index, March 1973=100
1

I

I
1977

I

I
1979

I

I

14
1981
-

1oo

90

1975

Fixed-weighted index

u

-

9

-

6

I

1

I

I

1

. .

Comparison of Staff and Administration* Economic Forecasts

Percent change, 0 4 to 0 4

1981

Staff Administration
Staff

1982
Administration

Nominal GNP
Real GNP
Implicit GNP Deflator
Unemployment Rate

0 4 Level

10.8 2.5 8.1 7.8

11.8 2.5 9.1 7.7

8.4 1.2 7.0
8.3

12.9 5.2 7.3 7.0

* P r e i i m n q and subiecl lo change