CONFIDENTIAL (FR) CLASS 11-FOMC

Material for

Staff Presentation to the Federal Open Market Committee
February 8, 1983

Principal Assumptions

Monetary Policy
rn

Growth of M2 of 8 percent from 1983-Q1 base

Fiscal Policy No further action on FY 1983 budget.

Deficit-reducing actions of about $40 billion in FY 1984

Energy
Oil prices decline about 8 percent to $29 per barrel.

Federal Budget

Fiscal Years. Unified Budget Basis, Billions of Dollars

1982

1983
Administration
Staff

1984

Administration Staff

Outlays Receipts Deficit Structural
Deficit

728 618
111

805

802
600

849
660

847 643 204

598

208

201

189

45

n.a.

72

n.a.

87

Outlays and Receipts as a Percent of GNP

Interest Rates
Percent

1

Domestic Autos
c

Real Retail Sales
Annual rate, millions of UnltS Excluding Autos and Construction Supplies

Annual rate, billions of dollars -

8

Sales
Sales

- 35
34

Production

4

I

I

I
12

Days Supply
80 60 1980 1981 1982 1980 1981 1982
11

Housing Starts and Permits

r I-

Nonfarm Payroll Employment

Annual rate, millions of units

1-1
-11.8

r 1 l1.2

. 6

Permits

1
-1
92
90 88
Hours

Millions of persons

Manufacturing Work Week

-

1

1980

1981

1982

1980

1981

1982

Real GNP
Change from end of previous period, annual rate, percent
7

1972 Dollars

mmm

I
1978 1979 1980 1981 1982

I

1983 1984

Conmarison of Postwar Cvcles in Real GNP

Average of Previous
Postwar Cycles
excluding 1980

Current Cycle

-CQ

- 2Q

Trough

+2Q

+ 4Q

+6Q

+8Q

Housing Starts and
Home Mortgage Rate
Anr

Homes Sold

Percent Annual rate, millions o

I rate, millions of units

2.0

1.5

1.c

Housing Starts

-1979 1980 1981 1982 1979 1980 1981 1982 Annual rate, millions - iits of
2.0

-i,n,

New and Existi

r

1.5

Total
/--­+-

"
CL-----

c*­

- 1.o

Single-family

.5

1979

1980

1981

1982

1983

1984

Real Income and Spending

m r

Change. Q4 to Q4, percent

Disposable Personal Income Personal Consumption Expenditures (right bar)
4
4

1979

1980

1981

1982

1983

1984

Saving Rate

I
1979 1980

I
1981

I
1982

I
1983

I

1984

Nondefense Capital Goods

3-month moving averages

Billions of 1972 dollars

I

Value of New Nonresidential Construction Put in Place

-

Billions of 1977 dollars

1
I

Real New Orders Shipments

14

12

t
-

Real Shipments

1979

1980

1981

1982

1979

1980

1981

1982

Corporate Economic Profits Relative to GNP

Percent

1

- 8 - 6

*--------c cc_de

/--.
C.

After Tax
c-­

c

/--_------

-

4

I

I

I

I

I

-

-I 7 0

1
-

\\ \--------

*/

** .-

/
-160

0)

- 150

I

I

I

I

I

Domestic Auto Inventories

Manufacturing Inventories
Millions of units Billions of 1972 dollars

-

-16

Relative to Sales

Ratio

1979

1980

1981

1982

1979

1980

1981

1982

Change In Business Inventories
Billions of 1972 c -

ars

372 Dollars, NIA Basis
20

0 -

+

20

I
1979 1980

I
1981

I
1982

I
1983

I
1984

Business Inventories Relative to Sales
Ratio

p 7 2 Dollars, NIA Basis

1
3.5

3.3

3.1

I
1979 1980

I
1981

I
1982

I
1983

I
1984

Change in Real Federal Government Purchases
Calendar-year change billions of 1972 dollars

pefense

Nondefense

-2

+

1979

1981

1983

Change in Real State and Local Government Purchases

r

Calendar.year change. billions of 1972 dollars

1

+ 0
2

2

1979

1981

1983

Percent Change in Real Total Government Purchases

r
1979 1981

Calendar-year change. percent

1983

Total Employment and Real GNP . -

- Q4 to Q4, percent nge

Change, Q4 to Q4, millions of pe

Real GNP(left scale) MTotal Employment (right bar, right scale)

-

I
1977

I
1979

I

I
1981

I

I
1983

I

Civilian Labor Force
Change. Q4 to Q4, millions of persons

1

1977

1979

1981

1983

Unemployment Rate

r

Percent

1

I
1977

I
1979

I

I
1981

I

I
1983

I

Hourly Earnings Index
Change from year earlier, pert l t -

Union Wage Changes
Percent

[

I

t

Total

-

1 1 2

Hourly Earnings Index

-

1978 1979 1980 1981 1982

Change from year earlier, percent

1

I
1970

I
1972

I

I

I
1974

I
1976

I

I
1978

I

I
1980

I

I
1982

I

I

1984

Unit Cost Indicators
Nonfarm Business Sector

-

Change from end of previous period. annual rate, percent

- 12
Compensation per Hour -

-

-\
-. -----/---. -._
4

I

I

I

I

I

Output per Hour

8

-

----_-----____ +
4

0 -

-

-

4

I
1979

I
1981

I

I
1983

I
fnt

-

Change from end

of previous period, annual rate,

12

8

4

1
1979

I
1981

1

I

I
1983

Energy Prices

Change, a4 to

a4, I

nt

3od Prices -

Change, Q4 to Q4, p

It

Consumption Expenditures Fixed-weighted Index
40

Personal Consumption Expenditures Fixed-weighted Index 2

30
8

20
4

10

1979

1981

1983

r
I

Gross Business Product Prices
Fixed-weighted Index

\

Total

Unit Labor Costs
4

1979

I

1980

I

1981

I

1982

I

1983

I

1984

Foreign Exchange Value of the U.S. Dollar *

Foreign GNP Growth
March 19
100 130

r

-

Change from previous year, pe
G-10 Countries (left bar)

-

!nt 6

120

Non-OPEC Developing Countries

5

4

110

3
100
2 90 1

80

+ 0
1

I
1980 1981 1982 19f 1980 1981

I
1982

U.S. Merchandise Exmrts

Components of the Export Decline between 1981 Q1 and 1982 Q4

r

Seasonally adjusted, annual rates, billions of dollars

1

By Area
Total
Developed OPEC Non-OPEC Developing Countries Other
-50

Billions of dollars

By Commodity
Total
-50

-21 -1

-22
-5

Agricultural -18 Nonagricultural -32 Of which: Industrial Supplies-I 2 Machinery Aircraft

*weighted

avera~e against G.7 0 countries plus Switzerland using total 1972.76 average trade 01 these countries.

7

-

-

-8

-

-14

-4

\

:

6

)wh-A\:
+ 0
4

-

I
Consumer Prices

I
Real GNP

I

I

8

-

Change from Q4 to 04, PE

-

Change from Q4 to Q4, perci

lm U.S.

nrn Foreign** (right bar)

lm

U.S. Foreign** (right bar)

1
1982

1

1982

1983

1984

* **

Weighted average of six major foreign countries using total 1972.76 average trade of these countries Weighted average of G - 1 0 countries pius Switzerland "sine total 1972.76 average trade of lhese countries

-

- 120
- 100

-

I
I

-
--___---- /c/ d C

80

-

60

I

GNP Exports of Services
Billions of 1972 dollars

_----_---

1
loo 60

t
1980 1981 1982
1963 1984

GNP Exports of Goods and Services
Billions of 1972 dollars

I
1983 1984 1980 1981 1982

Oil Imports
Millions of barrels/day

L-

Billions of dollars

Average Price of Imported Oil

Joo
Value

I, \* -/ .84

-__-­

______---60

- 80

Projection

29.00

- . / - - . . / - ______-­
c ---'
_/--

Volume

-

40

I

I

I

r-

-

c

Value

c

- _* - _ _ -

*-

/--

___--__-- -

270

230

- 190 - 150

110 90 70

-

---I
I

Volume c -

- 110 -

_______-_-------­
I
Billions of dollars

50

r
1981 Imports, Goods Exports, Goods Trade Balance Services, Net Unilateral Transfers Current Account Balance
Fouttn quartet is estimated
DPrOjeCtion

1982 247 21 1

1983' 259 193

1984'

264 236 -28 39

307

225
-82

-36 37" -8' -7e

-66
38

39
-1 1 -54

-7 5

-9 -37

Current Account Balance

r

Seasonally adjusted. annual rates. billions of dollars

1

2o

I
1980 1981

H1

H2

H1

H2

H1

1982

1983

1984

Foreign Exchange Value of the U.S. Dollar

r..

March

-.._ -... - ..__. ....

-.._ -... - 100 -... -

I
Hypothetical Impact on Price Level of Changes in the Foreign Exchange Value of the U.S. Dollar from 1980 Q3to1984 Q4

1.
:loo
- 120

H2

- 110

90

Percent

-40 -

1

2

3

4

1980

1981

1982

1983

1984

U.S. international Transactions
Billions of dolla 1976 1. Current account less 2. Reinvested earnings, net plus 3. Change in US. government assets** 4. Statistical discrepancy 5. Subtotal 6. Private capital a. U.S. assets abroad b. Foreign assets in the U.S. 7. Official capital a. 1977 1978 -14.8 8.8 -4.7 11.9 1979 -0.5 15.0 -3.7 25.2 6.0 -11.4 -24.3 12.9 36.4 -0.4 -18.0 -45.9 27.8 1980 1.5 10.9
-5.1

-

1981 4.5 8.9 -5.1 25.8 16.3 -17.0 -86.0 69.0 0.7 -4.1

1982* 1983p 1984 -7 3.5 -6.5 30 -6 25 -37 -54 6 -6 25

4.4 -14.1 6.0 -4.2
10.4

4.8

5

-3.7
-2.5

28.9 14.5

-16.3 -19.7 -36.8 17.1 15.1 -2.6

a
-11 -115 104

-41

7.7 -23.0 -40.5 48.2 -55.9 32.8 8.4 -7.0 15.4

34.4 -13.7 0.7 0.0

-2
-6

U S . assets abroad

b. Foreign assets in the US.

a

33.7 -13.7

0

*Partially estimated

'*Other than U.S. official resewe assets, line 78.
FPrOjeCtiOn

Aggregate Credit Flows
Chanae from Year earlier. oercent

Households
Outstanding Financial Assets
Ratio b e l a t i v e to Disposable Personal income

Consumer Attitudes

1

-

Index. 1977=100

1

35 25

O.K. to use savings
lor major purchases

F

Outstanding Debt Relative to DPI

\ / j15 1
lor major purchases
1977 1979 1981 1983

1978

1980

1982

Consumer Loan Delinquencies

Mortgage Loan Delinquencies
?nt

-

Percent 1

2.4

/I

-0

2.0

-

1.6

1.2

1979

I

1980

I

1981

I

.8 1982

1979

1980

1981

1982

Nonfinancial Corporations
Financing Gap

-
Capital Expenditures

Billions of dollars Billions of dollars

200
- 150

-1.5

- 100

I
1974

I
1976

I

I
I 978

I

I
1980

I

I
1982

I

I
1984

Interest Relative to Income

Net Interest/Profits Plus Interest

Percent

0 4 ]

-

---_____
30
20

[

Percent

1982 Q1 02 03

37.3
38.4 37.0 37.2

-

Q4

I
1974

I
1976

I

I
1978

I

I
1980

I

I
1982

I

I

1984

I
Percent

Short-Term Debt Relative to Total Debt Outstanding -

-

Percent

1982 QI
-

48.4
48.6
48.6
47.5

Q2

Q3

-

04

I
1974

I
1976

I

I
1978

I

I
1980

I

I
1982

I

I
1984

State and Local Government
Operating Budget
Billions of dollars

Ratings on State General Obligation Bonds
Percent

10

100

+ 0

-

50

1978

1980

1982

1984

'74

'76

'78

'80

'82

Municipal Bond Yield Relative to Treasury Bond Yield

Tax-exempt Bond Issuance

-

Billions of - rs do

.9

-

50

- .7

30

1978

1980

1982

1978

1980

1982

- 8

- .7
Banks with Assets of $1 Billion or more
- .6

Avg 01-03

I

I

I

I

I

I

I

I

I

.5

I
1974

I

I
1976

I

I
1978

I

I
1980

I

I

1982

Thrift Institution Earnings

r
I
1974

Percent of assets

1

I

I
1976

I

I
I 978

I

I
1980

I

I

1982