CONFIDENTIAL (FR) CLASS 11-FOMC

Materials for

Staff Presentation to the
Federal Open Market Committee

July 12, 1983

M2 and GNP
Change from end of previous period. annual rate, percent

M2
1982 9%

Nominal GNP
3%

1

1983 H1
H2 1984

15% (8%)*

9%
9% 8%

8%
8

*Adjusted lor shills into MMDAs tram saurces Outside M 2

Interest Rates

1

3-Month Treasury Bills

Percent

I

Federal Budget

-

Unified Budget Basis. Billions of Dollars

FY 1982

FY 1983
-Staff

FY 1984
projection-

Ouilays Receipts Deficit Structural Deficit

728
61 8 111
43

805 600 205
71

86 1 663
198 97

Cyclical Comparison of Surplus or Deficit as a Percent of GNP

*Excludes 1948-49

and 1980 cycles.

Billions of 1972 dollars

Real Retail Sales

Auto Sales and Production
Biliions of 1972 dollars

Millions of units

1

36

Excluding Autos and Construction Supplies

34

1979

1981

1983

1979

1981

1983

Real Retail Sales
Billions of 1972 dollars

Days Supply of Domestic Autos

1979

1981

1983

1979

1981

1983

*General rnerchandlse. apparel furnllure and appliance Stores

Cyclical Comparison of Industrial Production
Change from trough,

?nt

20

Median of Previous
10

8
. ... .. .... .> , I I I:.. I I I I I ,. :. I I I I I L.1 I I I I I.. I I I I \
T

1.1.;

1 1

.. 1..1 1 .. -6M

-12M

+6M

+12M

+18M

+24M

Nonfarm Payroll Employment
Millions of persons

r
-

Millions of persons

1
Total

90

88

- 22

-

- 20
- 18

-

- 40

1
*Excludes 1948-49 and 1 9 8 0 CYCIBS

-

38

Real GNP

1972 Dollars
1983

Change from end of previous period, per1 nt

-

Annual rate. percent change 1984 4.3 4.2 4.1 4.1

2.6 75 7.1
04 0 4 to 0 4

8

5.0
5.5

4

+
0 -

1978

1980

1982

1984

m r I
t

Cyclical Comparison of Real GNP
Change for period indicated, percent

Median of Previous Postwar Cycles*

1

Current Cycle (right bar)

I
Peak to trough

I
Trough to +4Q

I
+4Q to +8Q

I

* Excludes 1 9 4 8 - 4 9 and 1 9 8 0 cycles.

.

Real GNP-Contribution of Selected Components
Billions of 1972 Dollars

First Half 1983

I

..... .... ... .... _,........ _.........

.:.:.: :I

Private Domestic Final Sales Change in Nonfarm Inventories Federal Government

*

Net Exports

I

I

I

I

Second Half 1983

r

I
1-1
Government
Private Domest c F nal Sales

Change in Nonfarm Inventories

*

- O+ 25 50 75 Change, 1983 0 2 to 1 9 8 3 0 4 , annual rate

Private Domestic Final Sales Federal Government

*

I

r

I

I

I

7

Mortgage Rate

- 700
-12

-

- 500 - 300

- 6
Single family Starts

I
1979

I

I

I

I

I

I

I

-

1
Housing Starts

_-/.----. --_____
I

____
- 16
i ­

- 12

Annual rate, millions of units

1

2.5

-I

2.0

I
1979

I
1961

I

I
1963

I

Real New Orders for Nondefense Capital Goods

r

Billions of 1972 d c -

4 -

- 75 - 65 - 55

3-month moving average

I2

10

-

I
1980 1982 1984

I

I

I

-

As a percent of GNP

- 8 Before Tax
/--0-

1979 Peak

- / \
, / t -

- 6
AfierTax

0 -

- 2

4

-

-%,/
8, 0 '

90 - 07 2

-

70

-

-

- 60
I I

I

I

I

I

I

I

0
-

0

0

0

0

-

180

- 170
/

-

-

~

/

160

I

I

I

I

I

Index of Consumer Sentiment
Michigan Survey
~

Index. 1966 (1'

-

Index. Dec. 31,1965=50

-

w

-

-

90

-

60

I

I

I

I

I

I

I

I

I

I

Real Disposable Personal Income and Consumption Expenditures
Change, Q4 to 04.percent

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

1

Saving Rate
Percent

i
1978 1980 1982

1
,
1984

Total Employment and Real GNP
I

Ege. Q4 to Q4. percent

rnn rnn

Change, Q4 to 0 4 . millions of per

Real GNP (lefl scale) Total Employment (right bar, right scale)

1978

I

I

1980

I

I

1982

I

I

1984

Civilian Labor Force

r

Change, 0 4 to Q4, millions of persons

1

-

----9

:
-

-6
-3

-

I

I

I

I

I

I

Hourly Earnings Index

r
1

Change from year earlier, pe,

Major Union Contracts

- nt

Manufacturing

2

r
-

Hourly Compensation

-
Trade and Construction

r 7
F ?nt
Contribution to Wage Change

'

Total

10

Prior Agreements

5

Services

-

Adjustments New Settlements
\

+ 0

-

I
1981

I
1983

1979

1981

1983

1979

Change from year earlier, percent

Nonfarm Business Sector

1

- 8
\
-\----

-

4

I

I

I

I

I

I

I

Output per Hour end Real GNP

r

Change from end of previous period. annual rate. percent

1

I

Nonfarm Business Sector

I
1977

I
1979

I

I
1981

1

I
1983

I

Unit Labor Costs

r

Change from end of previous period. annual rate, percent

Nonfarm Business Sector

1

Nonpetroleum Import Prices

r

Change from end of previous period, annual rate, percent

1
- 20

/

/

/\ \

\-lo

+
I

0
-

GNP Prices

r t

Change from end of previous period, annual rate, percent

1
h

A Unit Labor Costs

Nonfarm Business Sector

Foreign Exchange Value of the U.S. Dollar
r

March 1973 = 100

1
- 120

-

-

-110

Weighted Average Dollar"

'*rn

Price Adjusted Dollar
Weighted Average Dollar*/Relatlve Consumer Prices

- 100
90

-

80

I
1978

I

I

1980

I

I

1982

I

I

1984

Short-term Interest Rates
c

Percent per annum

1

Industrial Countries
Consumer Prices

*

Change from previous year, percent

1

3-month moving average

Index. 1980=100

-

- 102 -

98

1980

1981

1982

1983

94 1980
1981

1982

1983

Comparison of Real GNP Cycles

**
Index. troL
100

1974-77
r
Trough=1975 Q2 108

I04

0/0
/

Current Cycle

'
/-

Trough=l982 Q 3

'00

I
-2Q

I
-4Q
SIX

I

I
Trough

I

I

I

I
+4Q

I

I
16Q

I

I
+8Q

I

+ 2Q

*Weighled average of

m a p c o u n t m s usmg total i972-1976 average trade 01 these countlles
avera~e trade 01 these coYntries

**We#ghtea average of G 10 counlnes DIUS Swzerlana usmg total 1972-1976

Non-OPEC Developing Countries
Trade Volume Trade Prices
Change from year earlier, percent

r

Excluding Oil

1
10

Ixcluding Oil

Change from year earlier, I

'nt

10

5
Imports

/ / /.

5

+ 0
5

i

0
-

1981

1982

1983

1984

,
5
Exports
1981 1982 1983 1984

Trade and Current Account Balances

Trade

Billions of d,

'S

Current Account (right bar)

+ 0

-

!
O

10

50

80

1979

I

1980

I

1981

I

1982

I

1983

I

1984

U.S. Merchandise Trade
Volume
r-

Price
Change, Q4 to 04, percent 1 Imports Change, Q4 to Q4, percent

I

I

1

Imports

I

1981

1982

1983

1984

1981

1982

1983

1984

Trade and Current Account Balances -

Q4, seasonally adjusted, annual rate, billions of dollars

I

Trade (leftbar)
1 -

- 0

I
I I
I I

I

- 20

I

- 40
60

I

I I

I

L

I'
I I
I

-

80

- 100

I
1979 1980

I
1981

I
1982

I
1983

I
1984

Estimated Effects of Stronger Dollar

r
-

U.S. Trade and Current Account Balances

04.seasonally adjusted annual rate, billions of dollars

1
I I
-

2o

40

I

60

Current Account (nght bar)

80

-

Trade

a
1979

m]
I

Staff Forecast collar Remains at 1983 az Level

I I I I 1,j
i-I

- 100

-120 1980

I

1981

I

1982

I

1983

I

1984

Real GNP Growth and Inflation

3NP

Change, 04 to (14. percent
l f

i

CPI

Change, a4 to

a4. percent

,,tf pa $

Forecast

-

I? I? Dollar Remains at // 1983 az Level
P 1 I

4

.

I

i2
1981 1982

I 983 a2 Level

I+
1984

0
-

1981

1982

1983

1984

1983

GNP and Credit Growth
............ ........ . . . ............. . ........... . .. .................... ... ............ . .. ............ ...... . . ......... ........... . .. ........... ............ .......... ...........
Change from year earlier, 6

2nt

16

12

a

d

Federal Government Share of Total Credit Flows
-

-

-

Households
Selected Borrowing
Billions of dollars

Consumer Attitudes

O.K. to use savings for major purchases

Percent

35

1977

1979

1981

1983

Outstanding Financial Assets
F e i a t i v e to Disposable Personal Income

Loan Delinquencies
Ratio

O.K. to use credit

I

25

15

15

1977

1979

1981

1

Consumer Loans

Percent

1

Outstanding Debt
Relative to DPI

h F j: : 1
1977 1979 1981 1983 1977

I

I

1979

I

I

1981

I

I

1983

Nonfinancial Corporations

Net Interest/Profits plus Net Interest

- 50 - 40

Capital Expenditures

300

-

200

Internal Funds

150

250
\
\

‘ 30 L

- 20

I

I

I

I

I

I

1978

1980

1982

1984

1978

1980

1982

1984

-

- 200

-A
-100

I

I

I

I

I

I
Percent

r

Earnings-Price Ratio

1
1980 1982 1984

15

10

1978

1978

1980

1982

1984

State and Local Government

Operating Budget
Billions of dollars

1
10

+

0
-

S Annual rate, billions Of do1 '

-

10

2
0

1978

1980

1982

1984

Selected Sources and Uses of Funds

Annual rate, billions of dollars

1981 Net borrowing Net acquisition of financial assets
U.S. Treasury

1982 45.8 42.4 30.0

1983 H1 64.5 75.2 72.0

22.3 23.0 8.8

Commercial Bank Earnings
Percent of assets

1

Banks Larger Banks

1982H1 H2

.97 .88 All

.82 1 1 , 7

1983 0 1 1.00

.84

Banks With Assets of $ 1 Billion or More

I
1973

I

I
1975

I

I
1977

I

I
1979

I

I
1981

I

I
1983

Commercial Bank Loan Loss Provisions
of $1 Billion or More

Percent of assets Banks Banks

I
1973

I
1975

I

I
1977

I

I
1979

I

I
1981

I

I
1983

-

Thrift Institutions Earnings

Percent of assets

- 1

a1 9

+ 0
- 1

MSBs

-

1973

1975

1977

1979

1981

1983

Forecast Summary

Board Members
Range

Voting Presidents
Range

Percent change.

Nonvoting Presidents
Range
Median

Staff

Adminis' tration

04 to 04

Median

Median

Nominal GNP
1983 1984 9% tolo% 7 to 10% 10 9% 9%10ll'% 8 % to 1 1 9% 10 9tOll% 7%1011% 1 0 ' . 9% 9.6 8.3 10.4
9.7

Real GNP
1983 1984
5 lo 6 5%
4% to 6 5
4 % 10 6

5
4 1%

5.5

5.5

3105%

4 v2

3 I0 4 '!I

4%

4 to 5

4.2

4.5

GNP Deflator
1983 1984 4 to 5 3% I0 5
4 'i.

4 v2 to 5 vz 4 to 7

4 '%
5%

4 % to 7

5!/2

4%
5

3.9
4.1

4.6
5.0

4%

3x107

Average

04 level

Unemployment Rate
1983 1984

g%tog~.
8% to 9

9% 8 3%

8%109% 8 to 9%

9% 8%

9% to 9% 8% to 9 %

9% 8%

9.4 8.6

9.6
8.6

FOMC Projections
to Congress February 16, 1983

Percent change, Q4 to 0 4

Nominal GNP Real GNP GNP deflator

7% to 11%

3 to 5%

3% to 5%

Average level in the fourth quarter, percent

Unemployment rate

9% to 10%

Forecast Summary

Board Members
Range
Median

Voting Presidents
Range
Median

Nonvoting Presidents
Range

Staff

Adminis­ tration

Percent change.
BnnUal BYerageS

Median

Nominal GNP
1983 1984 7 % 10 9 % 8 % to 10% 8 93 k 7 % 10 9 8 % to 12 7 % 10 8 % 8 % 10 12 73% 10 1 . , 7.7 8.7

7.8
10.2

Real GNP
1983 1984

3 to 5
4 % lo 6

3 3% 5

2 % 10 4 4 to 5

2% to 3%
4 10 5%

3
5

3.2 4.9

3.1

5.2

GNP Deflator
1983 1984 4% lo 4% 3 % to 4 %
4% 4% to 5

4.3 3.6

4.6

4 ,/.

4

10

7

4.8

Annual average level

Unemployment R a t e
1983 1984 9% 10 10 8 % 10 9% 10 9 9 % 10 10 8 % 10 9 %
9 % t O 10

10 g

9.8 8.9

9.9 8.9

8%109%