CONFIDENTIAL (FR) CLASS II-FOMC

Materialfor

Staff Presentation to the
Federal Open Market Committee

February 1, 1982

Principal Assumptions

Monetary Policy
rn

Growth of M1 of 4 percent in 1982 and 3% percent in 1983

Fiscal Policy
rn

Unified budget expenditures of $ 7 3 4 billion in FY 1982 and

$777 billion in FY 1983
rn

Enacted tax and expenditure reductions implemented as scheduled

rn

Further expenditure cuts of $15 billion and tax increases

of $ 5 billion in FY 1983

Federal Budget

Fiscal Years, Unified Budget Basis

1981
Billions
01 Dollars

1982
Billions
of Dollars

1983
Billions
01
PerCBnt

Percent Change

Percent
Change

Change

Dollars

Outlays Receipts Deficit

$661 14%

$734 11%
$627 $107
4%

$777
$635
$1 42

6%
%

$603
$ 58

6%

Change in High Employment Budget
Q4 to Q4, billions of d

-

'S

.O

'0

+
0 -

'0

I
1977

I
1979

I

I
1981

I

I
1983

.O

M1*
Change, Q4 to Q4, p
It

8

6

4

1
1977

I1979 I

1 1981 L
L

1

2

1983

Interest Rate
nt

I8

2

8

A

1977

1979

1981

198,

*Adjusted lor Shlfts into ATS and NOW a c c o u n l ~

r

Real GNP
1972 Dollars

Change from end of previous period, annual rate, percent

Industrial Production

1

-

Index, 1967=100

1

- 180

-

Motor Vehicles and Construction Supplies

I
1979 1980 1981 1979 1980

I
1981

Nonfarm Payroll Employment

Unemployment Rate

F l
1
91 89

r

Millions of workers

r

P�

t

I

:11979

Manufacturing

1980

1981

1979

1980

1981

Real GNP

1972 Dollars

Change from end of previous period, annual rate. percent

1977

1

I

1979

I

I

1981

u

I I
1981 Q3 Cycle

1

1983

Comparison of Postwar Cycles in Real GNP
Index. peak=l 00

-Ill0

I

-

/ 1973 (34 Cycle

Real Personal Consumption Expenditures
Change from end of previous period, annual rate. percent

1

1979

1980

1981

1982

1983

Average 1949.1978

- 7

1 ‘\.. :-=
I\

-

-

.
I
I

.

\
I

\

I

‘I

.. .
1

II

6

- 5

- 4

I

Home Mortgage Interest Rate

Percent

1979

1980

1981

1982

1983

Housing Starts
Annual rate, millions ts

.o

L ’

\

Total

.6

.2

.8

.4

I
1979

Multifamily

1980

I

1981

I

1982

I

1983

3-month Moving Averages

3-month Moving Average

30

Total

25
10 20

Machinery

1979

-

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

man............

~

- 16 - 12

- 8

-

I

I

I

I

I

I

-8

/ - - * e - - - -

6

-

- - 4 , - - ,
- 2

I

I

I

I

I

I

1 9 7 3 4 3 Peak

- 90
87 8

-

- 85 - 80

\

\ \

\--

/--

-__-_----I
1983

- 75

I
1977 1978

I
1979

I
1980

I
1981

I
1982

Real Business Fixed Investment

r

Billions of 1972 dollars

1

1 1 7 0

I
1977 1978

I
1979

I
1980

I
1981

I
1982

I
1983

-

1972 Dollars
2.4

ItiO -

1.6

-

-

1.8

1.7

1.6

Business Inventories Relative to Sales

-

1972 Dollars. NIA Basis

4
I I

Ratio

3.5

-j3.4

-

-
3.1
I I

I

I

Change in Business Inventories

r

Annual rate, billions of 1972 dollars

1972 Dollars, NIA Basis

1

1977

1979

1981

1983

Change in Real Federal Government Purchases
Q4 to Q4, billions of 1972 dollars

r

1

4

+ 0
-

2

2

4

1979

1980

1981

1982

1983

Change in Real State and Local Purchases
0 4 to 04, billions o 1972 dollars
f

4

+ 0
1979 1980 1981 1982 1983

2

2

Percent Change in Real Total Government Purchases
0 4 to Q4. percent

+ 0
1979 1980 1981 1982 1983

2

Total Employment and Real GNP
Change, Q4 to Q4, percent

-

Change, 0 4 to Q4. millions of pe

Real GNP
Total Employment (right bar)

1977

I

I

1979

I

I

1981

I

I

1983

Civilian Labor Force

r

1977 1979 1981

Change, 0 4 to 0 4 , millions of persons

1

3

2

1

1983

-
//-------" / / I

--___
-9 -8 -7

-

-6

I

I

I

I

I

Unit Cost Indicators
Nonfarm Business Sector

-

Change from year earlier, per ?nt -

Compensation per Hour

10

8

I
1977

I
1979

I

I
1981

I

I

1983

Output per Hour

Change from year earlier, percent

1

i
4

1977

1979

1981

1983

Unit Labor Costs

Change from year earlier, percent

1

I
1977

I
1979

I

I
1981

I

I

1983

PersonalConsumption Prices Fixed-weighted Indexes

Changefrom year earlier,percent

-

-

- 40 - 30 - 20

-

1977

1979

1981

1983

Fixed-weighted Index

Unit Labor Costs

-

- 12

-

- 4

I

I

I

I

I

I

Foreign Exchange Value of the U.S. Dollar

r

I

Weighted Average Dollar*/Relative Consumer Prices

I

1977

I

1978

I

I
1979 1980

I

i

1982

1981

I

Short-term Interest Rates

r

Percent per annum

1

1977

1978

1979

1980

1981

1982

'Weiohted averme eoeinst o of G-10 Counhies DIYS r Switzerland usin0 total 1972-76

avemoe trade 01 these Comhies.

-

Foreign Average 1953-73

2

I
Real GNP

I

I

I

I

I

I

I

I

r
I
Foreign Average 1953-73

Change from Q4 to Q4, percent

1
United States
- 66
5.5

- 44

Foreign

&* = : '

c-

,-+=
-4

- 22

0
0 -

+

/
.
1974

- 22

I

I
1976

I

I
1978

I

1
1980

I

I
1982

I

Unemployment Rate
Percent

United States

_-----.------. ------.----1 1 0
8 a4

6

4 2

Foreign

*
I
I
1960

Foreign Average 1953-73

I

I
1974

I
1976

I

I
1978

I

I
1962

1

J

Weighted average 01 G - 1 0 countries plus Switzerland using total 1972.75 average trade of these countries

Nonagricultural Exports
Bill %of 1972 dollars

-

Billions - ollars of 240

-

200

160

120

80

60

c

40 1979

I
1980

I
1981

I
1982

I
1983

Agricultural Exports
Billions of 1972 dollars

E

Billions of- lars di 60

A
-

50

40

30

20-15 10 L

,c---

volume

_____------­ -

I

I

Ion-Oil Imports
Bil ns of 1972 dollars

-

Billions o f '

)Ilars
240

200

160

120

80

60

-

-

40 1979

I
1980

I
1981

I
1982

I

1983

ars

00

80

60

40

1979

1980

1981

1982

1983

Current Account Transactions
Billions of dollars Non-Trade Current Account Transactions Trade Balance (negative bars)

1

40

20

+

0 -

20

40

I
1979 1980

I
1981

I
1982

I
1983

1

Current Account Balance
Billions of dollars

+
0 20

I
1979 1980

I
1981

I
1982

I

1983

GNP Exports and Imports of Goods and Services

r

Billions of 1972 dollars

1

1979

1980

1981

1982

1983

Total Funds Raised by Domestic Nonfinancial Secta
P E
IllarS

18

400

16

300

14

200

12

100

U.S. Treasury Borrowings as a Percent of Total Funds Raised by Domestic Nonfinancial Sectors
ent

40

30

20

10

I
978 1979

I
1980

I
1981

I
1982

I

1983

NonfinancialCorporations

-

- 60

--. --.
- 40

- 20

V

0 -

+

I

I

I

I

I

I

I

I

I

I

r-Net Interest/Profits Plus Interest
/'---/ /

- 40 - 30 - 20

1
I I I I I I I I I I
Short-term Debt Relativeto Total Debt Outstanding

-

Pe

-

!nt

42

38

34

I

I

I

Household Borrowing
Percent

r

Billionsof dollars

As a percent of Disposable Pers

me

Auto Loan Delinquencies
Percent

Mortgage Loan Delinquencies
Percent

2.6

2.4

.

1.3

2.2

2.0

1.a

1978

1979

1980

1981

'
1976 1979 1980 1981

State and Local Government Operating Surplus

\\

-

-\

.---2

90

- 80

- 70

60

-

- 75
- 65

-

- 55

I

I

I

I

I

I

-

Percent -

- 105 - 100 \

95

-

’-. -

90

I I I I I I I I I I I I I I I I I I I I I I I
1960 1965 1970 1975 1980

85

Inflation
Change, 0 4 to 04. percent

F N P Deflator

1

1982 Forecast Summary

Board Members
Range
Median

Voting Presidents
Range
Medlan

Nonvoting Presidents
Range
Median

Staff

Change, Q4 to Q4, percent

Nominal GNP Real GNP GNP Deflator

8-10

8%

8-9%

9

6'/2-9!4

8%

8

%-2

1%

1-2%

2

0-2

1%

1%

6%-7%

7%

7-7%

7

6%-7%

7

6%

Average Q4 level, percent

Unemployment Rate

8%-9%

8%

8%-9

9

8%-9%

9

9%