Greenbook/Tealbook

Prefatory Note

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1

In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff.

CONFIDENTIAL (FR) CLASS II - FOMC

December 16, 1983

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

TABLE OF CONTENTS

THE DOMESTIC NONFINANCIAL ECONOMY Producer prices

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Page .

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...

TABLES: Recent changes in producer prices Industrial production . . . . Capacity utilization in industry.

INTERNATIONAL DEVELOPMENTS U.S.

Current Account

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.

..

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TABLE: U.S.

current account

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.

.

.

. . . .. . . . .. . . . . . term business credit . Selected financial market quotations. . . . . . . . . .

.

THE DOMESTIC FINANCIAL ECONOMY TABLES: Monetary aggregates .

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. .

.

. ..

.

Commercial bank credit and short- and intermediate-

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY

Producer Prices The producer price index for finished goods fell 2.1 percent at an annual rate in November, reflecting sizable declines in the indexes for consumer foods and energy goods.

In the food sector, prices at the finished

goods level declined at a 12 percent rate, while prices at the farm level were unchanged.

However, the index of crude food prices is expected to

increase sharply in the December PPI as a result of recent advances in the prices of cattle and hogs.

Prices of finished energy goods, which enter

the PPI with a one month lag, fell at a 12.5 percent rate; price declines occurred as shipments of refined products fell, especially heating fuel. Excluding food and energy, consumer finished goods prices rose at 5.5 percent rate in November.

Prices for capital equipment were unchanged last

month, with favorable price performance across most categories.

RECENT CHANGES IN PRODUCER PRICES (Percentage changes at annual rates; based on seasonally adjusted data) 1 Relative Importance Dec. 1982

Finished goods Consumer foods Consumer nonfood Energy items Other consumer goods Capital equipment

100.0 23.7 53.7 13.2 40.5 22.5

Intermediate materials Energy Foods and feeds Other

100.0 16.4 4.8 78.8

Crude materials Energy Foodstuffs and Feedstuffs Other

100.0 34.4 51.2 14.4

1981

1982

01

02

1983 03

Oct.

Nov.

3.7 2.1 4.2 -. 1 5.3 3.9

-4.7 4.1 -11.2 -35.5 -2.0 2.0

3.0 .0 4.8 11.4 3.1 1.7

2.5 1.5 3.2 3.7 2.9 2.5

.2 .0 .6

-4.0 -22.5 10.3 .8

3.3 -2.6 5.8 2.9

6.6 11.6 32.4 4.0

3.4 10.2 -13.3 2.0

-3.7 22.8

.4 2.6

2.9 -9.2

6.0 -5.1

5.6 -1.5

-2.9 -12.3

4.0 2.8

-14.0 -11.4

1.5 -7.6

18.1 -16.2

.8 5.9 61.9 20.2

2.8 -3.6

-.5 20.3

7.1 1.4 8.5 14.1 7.1 9.2 6.0 11.1 -12.9 6.6

-. 7

3.8 -2.1 13.3 -11.8 -1.2 1.6 -1.7 -12.5 5.5 -. 5 .0 3.3 1.5 -3.2 -8.4

4.0

1. Changes are from final month of preceding period to final month of period indicated; monthly changes are not compounded.

INDUSTRIAL PRODUCTION (Percentage change from preceding period: based on seasonally adjusted data) 01

1983 Q2

03

-----Annual rate-----

Sept.

1983 Oct.

Nov.

-----Monthly rate---

10.1

18.4

21.9

1.4

.8

.8

2.2 5.5 29.7 -1.8

15.0 19.0 37.0 12.9

17.8 17.1 29.7 12.5

.9 .7 2.1 .3

.8 .4 -.4 .6

.6 .2 -.2 .3

-7.6 9.8

11.4 5.0

23.1 10.2

1.3 1.3

1.6 1.1

1.3 1.0

Construction supplies

24.6

30.8

30.9

1.4

.5

.3

Materials

20.4

22.0

25.4

1.7

1.0

1.0

30.5 18.3 2.4

34.0 20.9 -2.5

31.2 19.3 20.9

2.1 3.0 -1.3

1.5 .8 -.4

1.1 .9 .7

Total Final products Consumer goods Durable Nondurable

Business equipment Defense and space equipment

Durable goods Nondurable goods Energy materials

CAPACITY UTILIZATION IN INDUSTRY (Percent of capacity, seasonally adjusted) 1978-80

Total industry Manufacturing

1982

1967-82

High

Low

Avg.

Oct.

Nov.

87.3

69.6

82.4

78.7

79.2

1983

87.5

68.8

81.8

78.9

79.4

Durable

89.4

64.8

80.5

76.5

77.1

Nondurable

87.2

73.8

83.9

81.9

82.2

Mining

90.4

69.6

86.5

71.7

72.8

Utilities 1

86.8

79.0

88.6

83.9

84.2

Industrial materials

88.9

66.6

83.3

79.4

80.0

Metal materials Chemical materials

95.4 91.3

46.2 64.0

82.2 85.1

68.5 78.2

69.7 n.a.

Energy materials

88.9

78.5

88.5

81.2

81.6

1. The 1978-80 high is below the 1967-82 average because of the unusually slow growth in demand for electricity.

INTERNATIONAL DEVELOPMENTS U.S. Current Account

The U.S. current account was in deficit by a record $48 billion at an annual rate in the third quarter, nearly $10 billion annual rate

larger than recorded in the second quarter.

These data were virtually

the same as projected in the December Greenbook. The increase in the deficit in the third quarter was more than accounted for by a rise in the merchandise trade deficit.

A sharp rise

in imports, which largely reflected the recent pick-up in U.S. economic activity, more than offset a small increase in exports.

The economic

recovery in most major trading-partner countries continues to be sluggish and the persistent high level of the exchange value of the dollar continues to adversely affect the price competitiveness of U.S. goods. U.S. CURRENT ACCOUNT (Billions of dollars, SAAR)

1982 Year

Q4

$ Change

1983 Q2

Q3

1983:3-1983:2 -9.3

-11.2

-26.5

-14.3

-38.6

-47.9

-36.4 211.2 247.6

-45.4

-35.2

-58.6

-72.7

193.4 238.8

198.0

195.7

202.3

6.7

233.3

254.3

275.0

20.7

27.3 18.0 9.3

24.0 16.9

20.4 10.9

22.8 14.3

27.7 19.0

7.1

9.5

8.5

8.7

0.2

Military, net Other services, net Unilateral transfers

0.2 5.7 -8.0

- 0.1

4.7 -9.7

2.1 4.7 -6.2

0.5 4.0 -7.3

-0.1 5.4 -8.2

-0.6 1.4 -0.9

Memo Item: Statistical discrepancy in the BOP account

41.4

58.6

35.3

-2.6

-0.3

2.3

Current Account Balance Trade balance Exports Imports Investment income, net

Direct, net Portfolio, net

-14.0

4.9 4.7

5

Partly offsetting the increasing trade deficit was a rise in net income receipts from U.S. direct investments abroad which reflected the pick-up in foreign economic activity. The third-quarter statistical discrepancy was a small $0.3 billion at an annual rate.

MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted)1 Growth

1983

_l

______

------

Money stock measures 1. M1 3 2.

(M1)

3. 4.

M2 M3

14.1 (13.8) 20.3 10.2

Q3

Sept.

Oct.

Nov.

from

base

period to Nov. 19832

Percentage change at annual rates ----

12.2 (12.6) 10.1 8.1

8.9 (6.6) 7.8 8.3

0.9 (-0.5) 4.8 7.4

1.9 (4.7) 9.3 8.5

0.7 (6.7) 7.8 12.5

5.1 (5.6) 7.9 9.4 Levels in billions of dollars

November 1983 Selected components 10.9

10.6

7.8

10.2

10.1

2.7

4.0

4.6

-5.4

-2.5

Other checkable deposits

46.2

30.6

1.9

0.0

3.8

126.4

M2 minua M1 (9+10+11+14)

22.4

9.4

7.5

6.0

11.6

10.1

1657.9

35.1

46.4

-9.6

23.1

83.8

-57.5 57.8

-44.0 16.5

-11.2 12.3

-12.9 10.1

1.7 13.1

7.8 14.9

138.7 710.1

296.1 -48.5 14.7

62.4 -24.1 12.4

10.1 14.9 8.0

4.0 17.3 5.0

3.4 23.1 7.0

8.0 21.7 8.1

360.3 349.7 760.9

171.0 -51.0

56.8 -18.0

2.8 12.3

-6.9 14.4

-8.7 19.4

-11.7 23.6

325.1 435.9

-36.5

-2.3

10.6

21.8

4.5

37.8

412.6

-43.0 -49.9 -14.6

-0.5 -15.6 55.4

13.8 -4.4 71.9

23.5 2.1 80.4

8.3 -12.7 63.4

20.6

325.4 227.1 98.3

-32.7 19.4

-41.9 31.2

21.9 8.0

24.6 -31.9

21.1 150.3

5.

Currency

6.

Demand deposits

7. 8.

4

Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, plus MMDAs, NSA5 Small time deposits Thrift institutions Savings deposits, SA, plus 5 MDAs, NSA Small time deposits

9. 10. 11. 12. 13. 14. 15. 16.

17.

M3

minus M2 (18+21+22) Large time deposits

6

At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA

MEMORANDA: 23. Managed liabilities at coercial banks (24+25) 24. Large tima deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 27. Other 7 28.

U.S. government deposits at commercial banks 8

19.4

-14.9 0.0

9.2 -6.4

-21.2

14.4 33.9

145.3 241.6

55.7

40.6 49.4

Average monthly change in billions of dollars --

-18.8 -16.5 -2.3

-0.2 -4.3 4.1

-2.9 -1.2 -1.7

-4.8 2.5

2.4 1.7

1.2 -2.9

0.2

0.2

1.2

0.7 -0.9 1.6

-8.8 -5.1 -3.7

19.8 2.6 17.2

377.5 280.8 96.7

-4.4

9.0

-46.9 143.6

0.6 -4.1

5.2

8.2 -10.4

1. uarterly grow~h rates are cpuced on a quarterly average bass. Dollar mounts shown under memoranda for quarterly changes are calculated on an end-sonch-of-quarter basis. 2. The base period for MI is the second quarter of 1983. The base period for M2 is Feb./Mar. of 1983. The base period for M3 is the fourth quarter of 1982. 3. MHseasonally adjusted using an experimental modal-based procedure applied to weekly data. 4. Overnight and continuing contract RPs issued to the nonbank public by commercial banks plus overnight Eurodollar deposits issued by branches of U.S. banks to U.S. nonbank customers, both net of amounts held by money market autual funds. Excludes retail RPs, which are in the small tim deposit component. 5. Beginning December 1982, growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Commrcial bank savings deposits excluding MMDAs declined during September, At thrift institutions, savings deposits excluding October, and November at rates of 8.7, 10.5 and 7.9 respectively. MMDAs declined during September, October, and November at races of 3.3, 3.9 and 10.5 respectively. 5. Net of large-danomination time deposits held by money market mutual funds and thrift institutions. I. Consists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold under agreements to repurchase and other liabilities for borrowed money (including borrowings from the Federal Reserve and unaffiliated foreign banks), Loans sold to affiliates, loan RPs and other minor items. Data are partially estimated. 8. Consists of Treasury demand deposits at commrcial banks and Treasury note balances.

7 COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) _

1

__

~~_

1983 Q1 ,--

Q2 %

.

.=.

Q3

Sept.

Comeria

Oct.

Nov.P

BnkCrdi

Levels in bil. of dollars Nov. 1983P

------------------------ Commercial Bank Credit --------------1. Total loans 2 and securities at banks 2.

4.9

9.9

13.9

1551.1

23.9

6.3

4.8

14 1

13.1

433.7

53.5

13.3

17.2

36.6

25.7

186.2

5.3

5.8

1.3

-3.4

-2.9

1.9

246.8

5.7

4.8

9.5

4.9

8.3

14.1

1118.1

3.9

-1.3

7.6

0.3

6.9

8.0

409.7

-34.0

-5.3

25.1

36.5

75.9

47.6

26.2

Securities

3.

Treasury securities

4.

Other securities

5.

8.6

9.9

Total loans 2 2

6.

Business loans

7.

Security loans

8.

Real estate loans

7.1

9.7

11.6

13.8

11.0

10.6

332.1

9.

Consumer loans

6.3

10.3

15.8

12.8

24.8

18.7

215.4

------------10. 11.

Business loans net of bankers acceptances Commercial paper issued by non3 financial firms

12.

Sum of lines 10 & 11

13.

Line 12 plus loans at foreign branches 4

14. 15. 16.

3.6

Finance company loans to business

-33.1 -0.4

5

Total bankers acceptances outstanding Total short- and intermediateterm business credit (sum of lines 13, 14 and 15)

5

-0.4

Short- and Intermediate-Term Business Credit 7.4

-23.5 -2.8

0.9

5.2

9.0

401.1

18.8

46.4

2.6

447.5

0.3

3.8

9.9

465.7

4.0

31.2

34.5

n.a.

-30.9

12.9

-3.1

-1.5

n.a.

8.7

-27.1

8.7

n.a.

n.a

p--preliminary n.a.--not available. 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, unconsolidated nonbank affiliates of the bank, the bank's holding company (if

not a bank),

and unconsolidated nonbank

subsidiaries of the holding company. 3. Average of Wednesdays. 4. Loans at foreign branches are Loans made to U.S. firms by foreign branches of domestically chartered banks. 5. Based on average of current and preceding ends of month.

n.a.

SELECTED FINANCIAL MARKET OUOTATIONS 1 (Percent) 1982 FOMC Highs Dec. 21

19R3 Spring FOMC lows Oct. 4

Short-term rates

FOMC Nov. 15

1983

Dec.

15

Change from: Spring FOMC lows Nov. 15

Federal funds 2

15.61

8.69

8.48

10.00

9.42

9.52

1.04

Treasury bills 3-month 6-month 1-year

14.57 14.36 13.55

7.90 8.01 8.11

7.96 7.97 7.95

8.65 8.86 9.00

8.78 8.94 9.06

9.17 9.29 9.31

1.21 1.32 1.36

Commercial paper 1-month 3-month

15.73 15.61

8.48 8.43

8.17 8.13

9.05 9.02

9.14 9.14

9.88 9.85

1.71 1.72

15.94 16.14 16.18

8.59 8.62 8.78

8.26 8.26 8.29

9.13 9.18 9.36

9.25 9.42 9.59

9.93 9.95 10.15

1.67 1.69 1.86

16.36 16.53

9.44 9.56

8.68 8.71

9.38 9.48

9.45 9.75

10.10 10.18

1.42 1.47

17.00

11.50

10.50

11.00

11.00

11.00

13.55 11.48

9.32 9.80

8.37 8.71

9.29 9.77

9.30 9.88

9.65 10.15

1.28 1.44

9.36 11.12 10.27

10.82 11.46 11.47

10.96

14.80

9.87 10.54 10.53

11.70 11.72

11.27 11.96 11.99

1.91 .84 1.72

Municipal revenue (Bond Buyer index)

14.32

10.814

9.21

10.004

10.184

10.56

1.35

Corporate--Aaa utility Recently offered

16.34

11. 9 6e

11.03

12.38e

12.60e

12.90p

1.87

17.66 1982

13.635

.83 -.09 13.655 13.475 13.385 1983 Percent change from: FOMC FOMC 1983 FOMC Oct. 4 Nov. 15 Dec. 15 highs Nov. 15

Large negotiable CDs

3

1-month 3-month 6-month Eurodollar deposits 2 1-month 3-month Bank prime rate Treasury bill futures Mar. 1984 contract Sept. 1984 contract

Intermediate- and longterm rates U.S. Treasury (constant maturity) 15.16 3-year 14.95 10-year 30-year

S&L fixed-rate mortgage commitment 5

12.55

Lows Highs Stock prices Dow-Jones Industrial 776.92 1248.30 1236.69 1247.97 1236.79 -.9 95.49 93.52 -5.5 58.80 99.01 96.24 NYSE Composite 219.59 -10.9 229.41 219.38 118.65 246.38 AMEX Composite -16.3 275.35 294.81 278.92 328.91 159.14 NASDAO (OTC) 4. One-day quotes for preceding SOne-day quotes except as noted. SAverages for statement week closest to date shown. 5. One-day quotes for preceding e--estimated. p--preliminary. SSecondary market.

-.9 -2.1 .1 -1.3 Thursday Friday.