greenbooks · August 19, 1985

Greenbook/Tealbook

Prefatory Note

The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.

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CONFIDENTIAL (FR) CLASS III - FOMC

August 16,

1985

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

Page

THE DOMESTIC NONFINANCIAL ECONOMY Capacity utilization . . . . Housing starts . . . . . . . Revised CBO projections . .

. .

... . .

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

. .

. . . . . .

1 1

Tables Capacity utilization in industry . Private housing construction .

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

. .

. . ... . . ..

3 4

Congressional budget office economic assumptions . . . . . . Congressional budget office baseline budget estimates. . . . Congressional budget office budget estimates with policies of the FY1986 budget resolution. . .

. .

5 5

THE DOMESTIC FINANCIAL ECONOMY Tables Monetary aggregates

. ....

. .

........

Commercial bank credit and short- and intermediate. . . . . . . . . . . . . . . . term business credit .

. .

Selected financial market quotations

INTERNATIONAL DEVELOPMENTS Foreign economic developments

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY Capacity utilization Capacity utilization in manufacturing, mining, and utilities remained unchanged at 80.8 percent in July for the fourth consecutive month.

The indexes for both manufacturing and mining have been virtually

flat in recent months, while the index for utilities has declined.

Capacity

utilization among materials producers also was unchanged in July. Housing construction Total private housing starts fell 2 percent in July to a 1.65 million unit annual rate, owing to an 8 percent decline in multifamily starts. This component of the total tends to show large month-to-month variation. In the single-family sector, starts edged up 1 percent to 1.05 million units (SAAR).

Single-family construction has not yet shown any clear

response to the declines in mortgage interest rates during the spring and early summer.

Issuance of building permits for residential construction

edged down 1 percent in July. Revised CBO projections "The Economic and Budget Outlook:

An Update" was released by the

Congressional Budget Office (CBO) on August 15.

The report updates the

CBO's economic assumptions and presents budget projections, based on the new assumptions, under baseline (FY1985) policies and under policies adopted by Congress in the first FY1986 budget resolution. are summarized at the top of the table.

Economic assumptions

The most significant differences

between the current and previous (February) CBO economic assumptions are:

about 1 percent slower real GNP growth for 1985 and about 1 percent lower Treasury bill rates over the entire projection period. The updated CBO baseline budget projection is shown in the middle panel of the table.

It assumes that entitlements and revenues will increase

in line with the formulas and tax rates specified in current law.

Nondefense

discretionary program estimates assume that the real level of spending provided in 1985 appropriations bills will be maintained in the future. And defense spending projections are based on the policy in the FY1985 congressional budget resolution, adopted in September 1984.

The baseline

deficit estimates are a bit below CBO's February estimates primarily because of the lower interest rates assumed for this projection. The CBO projection of the deficit outlook under policy adopted by Congress on August 1 in the first budget resolution for FY1986 is presented in the lower panel.

These estimates assume that FY1986 appropriations

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

Low

1967-84 Avg.

High

May

1985 June

July

86.9

69.5

81.7

82.0

80.8

Manufacturing Durable Nondurable

86.5 86.3 87.0

68.0 63.7 74.4

80.7 78.8 83.5

81.8 80.4 84.4

80.4 78.5 83.3

80.4 78.4 83.4

80.4 78.4 83.5

Mining Utilities

95.2 88.5

76.9 78.0

88.0 88.1

86.4 85.6

82.4 84.7

82.5 83.9

82.6 83.0

Industrial materials

89.1

68.4

82.7

83.1

80.2

80.3

Metal materials Paper materials Chemical materials

93.6 97.3 87.9

45.7 79.9 63.3

78.9 91.3 80.9

70.6 97.2 79.1

66.4 89.6 79.2

69.1 89.9 78.8

70.0 n.a. n.a.

Total industry

Note:

1984

All rates calculated from the recently revised (1977=100) output and capacity indexes.

PRIVATE HOUSING CONSTRUCTION (Thousands of units, SAAR)

Q2¹

1985 May¹

June¹

July²

Percent change in July from Year Previous Earlier Month

1795

1769

1681

1694

1654

-2.4

-4.4

1121 674

1076 693

1039 642

1034 660

1045 609

1.1 -7.7

4.9 -17.0

1667

1731

1778

1712

1696

-.9

6.6

1-family 2- or more-family

941 726

947 784

933 845

961 751

969 727

.8 -3.2

12.2 0

Mobile home shipments

277

281

287

270

n.a.

Starts 1-family 2- or more-family Permits issued

1. Revised. 2. Preliminary. n.a. Not available.

CONGRESSIONAL BUDGET OFFICE ECONOMIC ASSUMPTIONS (Calendar year, percent)

Nominal GNP (yr/yr) Real GNP (yr/yr) CPI-U (yr/yr) Civilian unemployment rate (CY ave.) Three-month Treasury bill rate (CY ave.)

1985

1986

1987

1988

1989

1990

6.6 2.6 3.7

8.0 3.6 4.5

7.9 3.4 4.4

7.9 3.5 4.2

7.8 3.5 4.2

7.9 3.5 4.2

7.2

7.0

6.8

6.6

6.5

6.3

7.6

7.4

7.2

CONGRESSIONAL BUDGET OFFICE BASELINE BUDGET ESTIMATES 1 (Fiscal years, billions of dollars)

Revenues Outlays Deficit

1985

1986

1987

1988

1989

1990

737 946 210

787 1000 212

853 1082 229

931 1174 243

1002 1266 264

1083 1368 285

1. Estimates are shown on a total budget basis, which includes the outlays of off-budget entities.

CONGRESSIONAL BUDGET OFFICE BUDGET ESTIMATES WITH POLICIES OF THE FY1986 BUDGET RESOLUTION 1 (Fiscal years, billions of dollars) 1985

1986

1987

1988

19 8 9 ²

1 9 90 ²

Revenues Outlays Deficit

737 946 210

790 965 175

858 1021 163

939 1082 143

1013 1145 132

1094 1214 120

Memo: Budget Resolution deficit

210

172

155

113

n.a.

1. Estimates are shown on a total budget basis, which includes the outlays of off-budget entities. 2. CBO extrapolations.

MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted)¹ 1983:Q4 to 4 1984:Q --1. 2. 3.

M1 M2 M3

1985 May

June

August 16, 1985

JulyP

Growth from Q4 1984 to July 1985P

- Percentage change at annual rates ----

5.2 7.7 10.4

10.6 12.0 10.7

10.2 5.3 5.2

13.8 8.6 7.7

19.8 13.7 10.7

9.1 8.6 4.2

11.4(13.5) 9.2 7.8

Levels in billions of dollars July 1985P Selected components 4.

Currency

7.2

6.3

6.7

10.4

10.3

7.3

165.5

Demand deposits

1.1

7.0

8.6

15.7

23.0

0.9

260.9

Other checkable deposits

10.5

21.1

16.1

15.5

22.9

24.7

163.6

8.6

12.5

3.7

6.9

11.9

8.4

1894.5

7.3

64.7

-29.9

93.4

-20.7

-11.5

62.0

17.0 8.1

32.7 13.6

-0.7 9.3

-27.2 8.4

22.3 16.8

1.4 6.7

175.6 824.6

5.2 11.1 7.3

29.2 -1.8 7.9

11.8 6.6 6.6

9.2 7.4 8.7

30.1 2.5 7.2

-3.6 15.5

17.8 1.7

10.5 4.0

6.5 10.4

12.6 3.3

22.1

5.5

4.9

4.4

-1.0

-13.1

623.8

26.0 16.0 48.8

9.1 2.6 21.0

6.3 8.4 2.6

2.5 -4.0 13.2

-11.5 -19.0 2.3

-11.0 -7.6 -16.9

420.3 266.1 154.2

7.7 16.8 -11.7

78.5 -51.7 4.5

68.0 -29.7 -34.1

-41.1 -39.3 -33.6

64.8 64.9 76.4

7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

M2 minus M1

Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 5 plus MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, 5 plus MMDAs, NSA Small time deposits M3 minus M2

Large time deposits 7 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA

33.6 45.6 -8.3

-MEMORANDA: 23. Managed liabilities at commercial banks (24+25) 24. Large time deposits, gross 25. Nondeposit funds 26. Net due to related foreign institutions, NSA 8 27. Other

31.2 -19.5 2.4

19.3 -7.4 4.0 20.6 -6.9

436.1 388.4 844.3 343.8 500.6

Average monthly change in billions of dollars --

0.9 0.5

0.5 2.2

-2.5 -1.0 -1.5

5.2 -1.5 6.7

-3.6 -4.3 0.7

-1.3 -0.2

3.4 3.2

-4.0 4.7

-7.6 -3.5 -4.1

431.6 323.3 108.3 -38.6 146.9

U.S. government deposits at commercial 9 banks 0.2 -1.4 1.9 8.0 -5.2 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly changes are calculated on an end-month-of-quarter basis. 2. Figure in parentheses calculated from Q2 1985 base. 3. Nontransactions M2 is seasonally adjusted as a whole. 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 mutual funds. Excludes retail RPs, which are in the small time deposit component. 5. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Commercial bank savings deposits excluding MMDAs increased during June and July 1985 at rates of 14.9 percent and 12.8 percent respectively. At thrift institutions, savings deposits excluding MMDAs increased during June and July 1985 at rates of 9.2 percent and 18.3 percent respectively. 6. The non-M2 component of M3 is seasonally adjusted as a whole. 7. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 8. 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, loan RPs and other minor items). Data are partially estimated. 9. Consists of Treasury demand deposits at commercial banks and Treasury note balances. p-preliminary. 28.

COMMERCIAL BANK CREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)¹

1984 Q4

---------1.

1985 May

June

July

Levels in bil. of dollars July

Commercial Bank Credit ---------------------

Total loans and securities at banks

9.1

13.3

9.3

9.5

1813.4

Securities

5.4

20.3

9.1

15.8

416.5

U.S. government securities

-0.4

22.1

3.2

19.8

271.0

Other securities

16.7

17.1

20.3

8.3

145.5

10.3

11.2

9.3

7.7

1396.9

Total loans

Business loans

2.7

6.0

0.7

1.7

484.3

Security loans

87.8

82.1

80.0

6.0

40.2

Real estate loans

12.0

11.0

11.8

401.3

Consumer loans

14.7

14.5

12.5

11.9

274.2

Short- and Intermediate-Term Business Credit -------

-----------10.

Business loans net of bankers acceptances 2

11.

Loans at foreign branches

12.

Sum of lines 10 & 11

13.

Commercial paper issued by nonfinancial firms

9.3

6.5

0.8

0.2

480.5

26.0

-46.9

26.1

57.4

-12.2

19.5

8.7

6.8

7.5

2.6

-0.2

500.0

51.2

-6.0

43.4

14.0

1.5

78.3 578.4

14.

Sums of lines 12 & 13

15.

Bankers acceptances: 5 related4,

16.

7.9

13.7

5.1

8.0

12.2

4.2

0.2

-6.5

-5.5

-7.8

3.4

n.a.

12.4

4.4

7.0

11.7

3.9

n.a.

613.6

(June)

23.2

20.8

n.a.

10.2

n.a.

142.2

(May)

n.a.

11.4

n.a.

753.8 (May)

U.S. trade

35.4 (June)

Line 14 plus bankers acceptances: U.S. trade related

17.

Finance company loans to business

18.

Total short- and intermediateterm business credit (sum of lines 16 & 17)

14.4

7.3

n.a.--not available. p-preliminary 1. Average of Wednesdays for domestically chartered banks and average of current and preceding ends of months for foreign-related institutions. 2. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 3. Average of Wednesdays. 4. Based on average of current and preceding ends of month. 5. Includes acceptances financing U.S. imports, U.S. exports and domestic shipment and storage of goods.

SELECTED FINANCIAL MARKET QUOTATIONS¹ (Percent)

1982/1983 Cyclical low

1984

1985

Highs

March highs

June lows

FOMC July

Aug. 15

Change from: 1984 FOMC highs July

Short-term rates Federal funds 2

8.46

11.63

8.58

7.38

7.92

7.90

-3.73

Treasury bills 3 3-month 6-month 1-year

7.08 7.62 7.73

10.67 10.77 11.13

8.80 9.13 9.25

6.66 6.81 6.98

6.94 7.04 7.14

7.19 7.36 7.52

-3.48 -3.41 -3.61

Commercial paper 1-month 3-month

8.00 7.97

11.42 11.35

8.94 9.12

6.95 7.01

7.43 7.39

7.78 7.72

-3.64 -3.63

Large negotiable CDs 3 1-month 3-month 6-month

8.08 8.12 8.20

11.52 11.79 12.30

8.89 9.29 9.92

7.09 7.18 7.30

7.46 7.47 7.55

7.80 7.81 7.93

-3.72 -3.98 -4.37

Eurodollar deposits 4 1-month 3-month

8.68 8.71

11.89 12.20

8.89 9.58

7.45 7.50

7.66 7.74

7.88 8.06

-4.01 -4.14

10.50

13.00

10.50

9.50

-3.50

9.99 10.30

6.77 7.12

6.93 7.24

7.15 7.47

Bank prime rate Treasury bill futures Sept. 1985 contract Dec. 1985 contract Intermediate-

-. 02

and long-term rates

U.S. Treasury (constant maturity) 3-year 9.33 10-year 10.12 10.27 30-year

13.49 13.99 13.94

11.22 12.02 11.97

8.73 9.83 10.23

8.89 10.07 10.33

9.28 10.36 10.64

-4.21 -3.63 -3.30

Municipal revenue (Bond Buyer index)

9.21

11.44

10.25

9.10

9.25

9.47

-1.97

Corporate--A utility Recently offered

11.64

15.30

13.23

11.50

11. 4 0e

11. 7 9e

-3.51

Home mortgage rates S&L fixed-rate S&L ARM, 1-yr.

12.55 n.a.

14.68 12.31

13.29

12.05

12.13 9.72

12.236 9.576

-2.45 -2.74

1983

11.14

1984

Lows Highs Stock prices Dow-Jones Industrial 1287.20 1086.57 99.63 85.13 NYSE Composite AMEX Composite 249.03 187.16 NASDAQ (OTC) 328.91 225.30 1. One-day quotes except as noted.

Highs 1359.54 113.49 237.49 307.77

2. Averages for two-week reserve maintenance period closest to date shown. Last observation is for the maintenance period ending August 14, 1985. 3. Secondary market.

9.83 1985 FOMC July

Aug. 15

.10 -.15

Percent change from: 1984 FOMC July lows

1317.76 21.3 -1.1 1332.89 111.60 108.59 27.6 -2.7 232.59 232.86 24.4 0.1 298.51 297.61 32.1 -0.3 4. Averages for statement week closest

to date shown. 5. One-day quotes for preceding Thursday. 6. One-day quotes for preceding Friday. e--estimated

Cite this document

APA

Federal Reserve (1985, August 19). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19850820_part2

BibTeX

@misc{wtfs_greenbook_19850820_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1985},
  month = {Aug},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19850820_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}