STRICTLY CONFIDENTIAL (FR) CLASS 11-FOMC

Materials for

Staff Presentation to the
Federal Open Market Committee

July 16, 1984

Principal Assumptions
Monetary Policy
rn

Growth of M2 of around 7% percent during 1984 and 1985. Growth of M1 of 6% percent in 1984 and 5% to 6 percent in 1985.

rn

Fiscal Policy
rn

Deficit-reducing actions of around $25 billion for FY 1985.

Other
rn

Foreign exchange value of the dollar declines 15 percent.

Federal Budget

Fiscal Years, Unified Budget Basis, Billions of Dollars

1983
Actual

1984
Staff

1985
Staff

Outlays Receipts Deficit

796 601 195

847 671 176 11 3

938 749 189

3
Structural Deficit

93

172

-

Outlays and Revenues

Percent of GNP

-

- 25
’ \
’ \

8-c*

c .

- 23

- 21

----**0

*-I9

-

- 17

I
1970

I

I

I

I
1975

I

I

I

I

I
1980

I

I

I

I

I
1985

Real GNP

r

Change from end of previous period, annual rate, percent

1

I

I
1981 1982

I
1983

I
1984

Real Private Domestic Final Purchases

r
I

Change from end of previous period, annual rate, percent

Consumption, Fixed-investment, and Housing

1
8

4

+ 0

-

I
1981 1982

I
1983

I
1984

I

I

Private Housing Starts

Manufacturing Employment
Millions of units Chanae. annual rate, millions of Demons

r

2.0

1

1.5

+ 0
1

1.o

'82

1983

1984

'82

1983

1984

Industrial Production

Industrial Production
Index, 1967=100

r

1

-

Index, 1 E

100

-

Durable Consumer Goods

170

150

Construction Supplies
130
130

Equipment

110

110

I
'82 1983 1984 '82 1983

I
1984

Real GNP
Change, annual rate, percent

1

3

+ 0

-

I
1983 1984

I
1985

Contribution to Change in Real GNP

-

Change. annual rate, billions of 197

ars

Private Domestic Final Purchases
Nonfarm Inventory Investment Government

*

00

Net Exports (right bar)

75

50

25

+ 0

25

Hi

HZ

I

H1

HZ

1984
%Excluding CCC

1985

Real New Orders for Nondefense Capital Goods

Real Value of Nonresidential Construction Put in Place
us

3-month moving average

Billions of 1972

-

Billions of 1977

us

14

75

12

70

10

55

1981

1982

1983

1984

1981

1982

1983

1984

Capital Equipment Prices

Corporate Economic Profits

-

Change from year earlier. percent

r

Percent of GNP

1

t
1981 1982 1983 1984 1981 1983 1985

3

Real Business Fixed Investment

-

Change from trough, percent
Change, Q4 to Q4, percent

I

1

1

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

. .

1Trough I

I

I

I
+4Q

I

I

I

I
+8Q

I

I

I

I
+12Q

*Excludes reCOverleS Iolbwlng IrOUghS m 1949 and 1980

Real Personal Consumption Expenditures
Change, annual rate, pc
7

Consumer Attitudes
It

r

Index 1966=100

Michigan Survey
I00

80

60

1981

1982

1983

1984

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

t"

Real DPI

Real PCE (right bar)

1
6 4

1961

1983

1985

Saving Rate

I
1981

I
1983

I

I
1985

New Home Sales
Thousands inits

ARMS as a Percent of Total Conventional Mortgage Loans
F
mt

700

60

500

300
1981 1982 1983 1984

t,
2 0
1981 1982 1983 1984 Millions I tits

I /.J’

40

Private Housing Starts

I .8

I .2

.6

Total Employment and Real GNP
Change, Q4 to Q43millions of persons Change, Q4 to 0 4 , percent

Total Employment Real GNP (right bar)

1
6 3

+
0
I
1981

I
1983

I
Participation Rate

I
1965

1
Percent

r

Civilian Labor Force
Change, Q4 to 04. millions of persons

i r
3

1
65

2

63

1

61

1981

1983

1965

1970

1975

1980

1985

Unemployment Rate
Percent

10

8

---------______
6 1981 1983 1985

Average Hourly Earnings Index

r

Change from year earlier, percent

1

r

Average Hourly Earnings Index
Change from year earlier, percent

Trade and Services

1
and Services
1983 1984

,Trade

i8

1981

1982

1983

1984

1981

1982

compensation and Output per Hour
Change from year earlier, percent

>ompensationper Hour

1
1 ”
I
1985

I
1981

I
1983

I

Unit Labor Costs
Change, Q4 to Q4, percent

1

8
4

1981

1983

1985

Gross Business Product Prices and Unit Labor Costs
-

Change from year earlier. per -

nt

-

-

2

8

4

Food and Energy Prices

Nonpetroieum import Prices

-

Change from year earlier. pel

-

nt

-

Change from year earlier, pc

-

nt

\

Energy

6

I6

8

8

+
0

-

+
0

-

I
1981

I
1983

I

I
1985 1981

I

I
1983

I

I
1985

Short-term Interest Rates
Percent per annum

t
1 1981

Weighted Average Foreign Interbank" -

1

1985 4 March 1973=100

1983

Foreign Exchange Value of the

U S . Dollar

140

120

rice Adjusted Dollar
Weighted Average Dollar*/ Relative Consumer Prices 100

80

1981
*Weighled average agamst or 0 1 foreign G-10 COUntrbeS

1983

1985

Economic Activity

United States

I
1981

I
1983

I

I
1985

-

-8 -6

-

Real GNP

---_--__ ------______I

- 4

-2

+ 0
- 2

I

I

I

Non-OPEC Developing Countries

r

Change from year earlier, percent

1

t
I
1981

4 2

I
1983

I

I
1985

U S . Exports By Area

r
Developed Countries
Developing Countries

1981 a1=100

7120
A
60

Developing Countries

1981

1982

1983

1984

U.S. Exports to Developed Countries
7

1981 a1=100

Canada

-

- 120

-100

- 80

Western Europe
-

-

60

-

I

U.S. Exports to Developing Countries

1

F

Mexico

I

r Developing Countries

-

40

1981 a1=100

1
1120

Mexico

I
1981 1982

I
1983

I

1984

Nonagricultural Export Growth
Change, 0 4 to Q4.1 ent

Value

0

Price Volume
20

15

10

5

+ 0

-

I
1983 1984

I
1985

5

Non-oil Import Growth
Change, Q4 to Q4, I
Int

30

25

20

--- 1
I I
I
I

15

I I I

I
I

10

I

I
I

I
I
I

I

5

I---;

I

I

40 5

I
1983 1984 1985

U.S. Current Account Transactions
Receipts

r
Total Current Account Receipts

Billions of dollars, annual rate

___----___-----

1

Service Receipts

---

i 4 00
200
0

1981

1983

1985

Payments

Billions of dollars, annual rate

0
-

200

400

Total Current Account Payments
1981
1983 1985

Trade and Current Account Balances
Billions of dollars. annual rate

Surplus

+ 0
- 100 - 200

-

I
1981

I
1983

I

I
1985

J

-
0

Billions of dollarr

-

,11%

1983Q4 to 1984Q2

0

0 0

/ ’

/

0

0

/. /’
8%

/

- 560C

/A

- 5400

- 5200

1
1983

I

I

I

I

I

I

I

I

I

I

I

I

I

1984

Funds Raised by Domestic Nonfinancial Sectors
Ratio to GNP

Funds Raised by Businesses and Households
Ratio l GNP o

1
Current Recovery Current Recovery Range of Previous

j.l
+6Q

-2Q

Trough

+2Q

+4Q

+6Q

-2Q

Trough

+2Q

+4Q

i

.I0

.05

*Excludes recoverles following troughs m 1949 and 1980

Households
Selected Borrowing
Billions of

, -

liars

200

150

I00

50

1975

1977

1979

1981

1983

1985

Financial Assets and Debt
PI

?ntof DPI -

Delinquency Rates
Percent of DPI

1

-

It

.
9 1

3

Auto Loans

2

7 1

Mortgage Loans

5c 175 1978 1981 1984

I
1975

I

I

I

I

I

I

I

I
1984

1978

1981

Nonfinancial Corporations
Financing Gap
Billions o t Mars

400

300

200

100

I
1975

I
1977

I

I
1979

I

I
1981

I

I
1983

I

I
1985

Funds Raised

-

Billions of -

,

Ratio of Short-term to Total Debt
lars io

Borrowing (top bar)

rnn Equity
nm
00

5

0
-

+

I
1982 1983

I
1984

I
1985

'75

4

1978

1981

1984

Rate Spread

r

Bank Stock Index
ints

Bank CD - T-Bill, 3 month
320

S&P- NYC Banks

1941-43=10

80

!40

70

60

60

,
1982 1983 1964

50

S&L Stock Index

S&L Pre-tax Operating Earnings
194110

Y
1982 1983

r

Percent o

ts

+ 0
.5

1984

,
.5
1982

.o

1Q83

1984

Forecast Summary

Board Members
'ercent change, a 4 lo a 4 Range
Medlan

Presidents
Range
Median

Staff

Nominal GNP
1984 1965 9% to 11
53% to

10 9

10'h
8

10

Real GNP
1984 1985

5% to 6% 'h to 4%

6

5 to 6%
2%t03%

6

6 '%
2 3%

3%

3

GNP Deflator
1964 1985

3% to 4 % 4 to 6%

33%

4 to 4%

4%

5%

5 % to 7%

6

3 3% 5 '%

iuerage level, a 4 , percent

Unemployment Rate
1984 1985

6%t07%
6 % to 8

7
6%

6 % to 7% 6'% to 7%

7

6 3%

63%

6%

FOMC Projections for 1984
-

Reported to Congress Feb. 7,1984 Range
Percent change.

Central Tendency

a4 to

04

Nominal GNP Real GNP GNP Deflator
Average leuel,Q4. percent

8 to 10%

9 to 10
4 to 4% 4% to 5

3% to 5
4 to 6

Unemployment Rate

Forecast Summary
-

Annual Averages Board Members
Percent change, annual average
Range

Presidents

Staff

Median

Nominal GNP
1984 1985 10 to 11% 6% to 10 10% 9

‘/.
6% to 7 3 to 4

11 8%

Real GNP
1984 1985

6 to 7
2 to 5

6’h
31 %

6 3%

7
3%

3%

GNP Deflator
1984 1985
3% to 4 3 3%

3% to 4%
5 to 8%

3%
5%

33 h
4 3/4

4 to 5 %

5

Average level. percent

Unemployment Rate
1984 1985

7 to 7%
6 % to 7%

7%
6%

7% to 7%
6 % to 7 %

7%
6%

7‘h
6%