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. 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 III - FOMC August 17, 1984 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 Personal income. . . . . . . Housing starts . . . . . . Page . . . . . . . . . . . . . . . . . . . . . Mid-session budget review. . . . . . . . . .. . * . . . . . . . . . . . ... Tables Personal income and expenditures . . . . . . . . . . . . Private housing construction . . . . . . . . . . . . . . . Administration mid-session review budget estimates . . . . . THE DOMESTIC FINANCIAL ECONOMY New debt financing tecnhiques. . . . . . . . . . . . .. . . . . . . . Tables Monetary aggregates . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit . . . . . . . . . . . . . . . . . . . . .. .. . Selected financial market quotations . SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Personal Income Personal income continued to grow briskly in July, boosted by another large gain in private payrolls and a second monthly rise in farm proprietors' income. In addition, increases in personal interest income continue to contribute importantly to income growth. Personal consumption expenditures slowed to a $6-1/4 billion annual rate in July, as a rebound in spending on nondurables was largely offset by a decline for durable goods. Outlays for services rose less than in earlier months. Revised data for the second quarter now show somewhat slower income growth, as farm income was revised down $2-1/2 billion (annual rate). Consumption spending was revised up $2-3/4 billion (annual rate) in nominal terms; the deflator for personal consumption expenditures was unchanged. The revisions now leave the personal saving rate at 5.7 percent in the second quarter, somewhat lower than estimated earlier. PERSONAL INCOME AND EXPENDITURES (Based on seasonally adjusted data) 1982 1983 1983 Q4 1984 Q1 Q2 May 1984 June July - - Percentage changes at annual rates1 - Total Personal Income Nominal Real 2 5.3 .4 7.5 4.3 11.0 8.6 12.4 8.3 8.7 6.6 3.9 3.9 10.3 9.8 9.8 n.a. Disposable Personal Income Nominal Real 6.1 1.1 8.5 5.3 10.8 8.3 12.7 8.6 8.2 6.1 2.4 2.9 8.9 8.3 9.5 n.a. Expenditures Nominal Real 8.2 3.1 9.0 5.7 9.2 6.8 8.6 4.6 9.6 7.5 13.9 14.4 4.4 3.7 3.2 n.a. 3 - - Changes in billions of dollars - - 11.7 5.1 3.3 -.9 17.0 11.1 9.5 3.3 25.1 15.2 13.5 4.2 26.7 12.2 9.7 3.8 20.7 13.0 11.6 2.0 9.7 4.5 3.1 -.1 25.6 13.9 12.4 1.9 24.4 11.7 10.0 2.3 7.1 6.8 10.8 16.6 8.4 5.4 12.5 13.4 Disposable personal income 11.5 16.3 20.9 23.7 15.5 5.1 18.9 20.4 Expenditures Durables Nondurables Services 12.9 2.8 2.3 7.9 15.7 3.9 3.9 7.9 17.8 7.8 2.0 8.0 9.1 -.6 5.0 4.7 23.6 6.5 8.0 9.2 26.7 15.7 4.7 6.3 8.5 .4 -. 5 8.6 5.1 5.3 6.1 5.7 5.3 Total personal income Wages and salaries Private Manufacturing Other income Personal saving rate (percent) 6.2 6.3 -5.0 7.5 3.7 5.6 1. Changes over periods longer than one quarter are measured from final quarter of preceding period to final quarter of period indicated. Changes for quarterly periods are compounded rates of change; monthly changes are not compounded. 2. Total personal income is deflated by the personal consumption expenditure deflator. 3. Average monthly changes are from the final month of the preceding period to the final month of period indicated; monthly figures are changes from the preceding month. 3 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Housing Starts Total private housing starts dropped 6.6 percent in July to a 1.76 million unit annual rate, the lowest since March. The July rate was 9 percent below the average for the first half of the year. newly issued building permits fell 11.7 percent in July. In addition, Issuance was down by comparable margins for both single-family and multifamily construction. The decline in starts during July was broadly based. Falling for the third consecutive month, single-family starts were off 10 percent to 982,000 units at an annual rate--the first time since December 1982 that this figure has dropped below one million. Multifamily starts edged down 2 percent in July, but at an annual rate of 779,000 units multifamily production remained near its highest level in a decade and comprised a historically large share of total housing starts. All four regions of the country contributed to the July decline in total starts, with the largest falloffs occurring in the Northeast and Midwest regions. PRIVATE HOUSING CONSTRUCTION (Thousands of units, SAAR) Percent change in July from Previous Year Earlier Month Q22 1984 May1 June1 July2 1968 1898 1794 1886 1761 -6.6 1278 690 1140 759 1131 663 1092 794 982 779 -10.1 -1.9 -6.3 4.6 1809 1757 1745 1768 1562 -11.7 -10.8 1-family 2- or more family 1015 794 929 828 913 832 916 852 813 749 -11.2 -12.1 -12.6 -8.9 Mobile home shipments 298 294 295 301 n.a. n.a. QI Starts 1-family 2- or more family Permits issued 1. Revised. 2. Preliminary. Not available. n.a. -1.8 n.a. SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Mid-session Budget Review The administration released its Mid-session Review of the Budget on August 15. The report sets out the administration economic projections for 1984 and 1985 that were described in the Greenbook and provides budget estimates that take into account recent data and legislation. As shown on the following table, the budget deficit estimate for FY1984 is now $174 billion, down slightly from their April figure of $178 billion. For FY1985, the administration projects a deficit of $167 billion compared with an estimate of $179 billion last April. sion is lower defense outlays. A principal source of revi- The new defense levels are now in line with the "Rose Garden" agreement reached with Senate Republicans last spring. They are, however, at the top end of the range of defense levels being debated in Congress. For FY1985, the budget estimate now includes the provisions of the recently enacted Deficit Reduction Act, and assumes further specific deficit reduction measures proposed by the administration in February, which amount to about $7 billion. The administration's projected budget deficits for the FY1986 through FY1989 period continue to show a down trend with the FY1989 figure at $139 billion. The out-year deficits assume declines in short-term interest rates to 8 percent by the end of 1986 and to 5 percent by the end of the period. These longer-run budget projections reflect the assumption of annual growth rates of real GNP of about 4 percent and inflation rates trending down to 3-1/2 percent, little changed from previous assumptions. In addition, some further reductions in outlays below the current services baseline are assumed; these require new legislation beyond the enacted portion of the down payment plan. The current services estimates in the Mid-session Review fluctuate in a narrow range around $175 billion between 1985 and 1988. current service deficit declines to $162 billion. In 1989 the These adminisitration figures contrast sharply with the baseline estimates released by the Congressional Budget Office on August 6. The CBO baseline deficit estimate for FY1989 is $263 billion, about $100 billion more than the administration's figure. More than half of the divergence between the Administration and CBO out-year deficit estimates reflect differences in interest rate assumptions. In contrast to the falling rates incorporated in the administration estimates, CBO assumes that short-term interest rates will decline to 8.9 percent by 1986 and remain at that level over the remainder of the period. Other factors contributing to the differences are the higher level of economic activity but lower inflation rate assumed by the administration and technical differences in estimating current service outlay and receipts levels. ADMINISTRATION MID-SESSION REVIEW BUDGET ESTIMATES (Billions of dollars, unified basis) Fiscal years 1986 1987 1988 1989 930 1 931 1000 -3 997 1083 -6 1077 1162 -8 1153 1220 -11 1209 671 0 671 758 6 764 826 6 832 897 6 904 986 8 994 1059 11 1070 174 0 174 172 -7 167 174 -9 166 185 -12 173 176 -16 160 162 -22 139 23.5 18.7 4.8 4.8 23.6 19.4 4.2 4.4 23.2 19.4 3.9 4.1 23.1 19.4 3.7 4.0 22.9 19.7 3.2 3.5 22.3 19.7 2.6 3.0 172 178 195 216 238 263 1984 1985 Current services Proposed changes Budget outlays 845 0 845 Receipts Current services Proposed increases Budget receipts Deficit Current services Total changes Budget deficit Outlays Memoranda: Percent of GNP Budget outlays Budget receipts Budget deficit Current services deficit CBO baseline deficit1 Note: 1. Details may not add to totals due to rounding. The Economic and Budget Outlook: An Update, August 1984. SUPPLEMENTAL NOTES THE DOMESTIC FINANCIAL ECONOMY New Debt Financing Techniques The Treasury has established regulations pertaining to bearer bonds and registered securities targeted to foreign investors, as required by the Tax Reform Act of 1984. The new guidelines, along with provisions for some new debt financing techniques, were released on August 16. As previously announced, the Treasury itself will not issue bearer bonds. To take advantage of the repeal of the withholding tax on interest payments to foreign holders of domestic bonds, however, the Treasury, in conjunction with its regularly scheduled auctions of marketable coupons, will offer additional amounts of certain issues in a special registered form targeted to foreign purchasers. Tentative plans call for issuance of such securities in conjunction with the four-year note issue likely to settle in early October. To qualify for exemption from withholding, distributors of the securities must certify that beneficial owners are neither citizens nor residents of the U.S. Certification will be required on initial purchase and in connection with each interest payment. The present wording of the certification procedure preserves a degree of anonymity for foreign holders. U.S. government sponsored agencies will be permitted to issue specially registered securities, but not bearer bonds, sometime after the first Treasury issue. Private corporate issuers, however, will be permitted to issue debt obligations in bearer form targeted to foreign purchasers, provided the requirements of the certification process are met and provided the securities are not guaranteed by the U.S. These new guidelines are not retroactive. Treasury officials also announced two changes in debt management policy. The next 20-year bond, scheduled as part of the Treasury's end-of- quarter financing package, will have 5 years of call protection. year bonds had complete call protection. Previous 20- Treasury officials will monitor the market's reaction to the new securities before deciding whether to continue the call feature. Another innovation relates to the market for zero-coupon securities. The Treasury plans to make the interest payments on certain of its securities available for separate trading on the book-entry system after the conventional sale of the securities. The Treasury feels this should help make the market for such securities more efficient by facilitating trading in the securities. 10 MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted)1 1983 1984 Q4 Q3 -- 9.5 6.9 7.4 1. Ml 2. M2 3. M3 August 17, - Q2 Q1 July** June 1984 Growth from Q4 1983 to July 1984 Percentage change at annual rates ---- 6.2 6.8 10.3 4.8 8.5 9.8 11.3 7.0 9.1 -1.5 4.9 8.8 Levels in billions of dollars July 1984 Selected components 4. Currency 5. Demand deposits 14. 16. 17. 18. 19. 155.0 1.2 3.6 14.7 -5.8 247.1 9.9 7.0 -3.5 138.2 6.1 9.7 6.9 7.0 5.6 7.0 1735.5 -8.1 Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA -13.1 12.2 Commercial banks Savings deposits, SA, plus 4 11.0 MMDAs, NSA 13.7 Small time deposits 7.3 Thrift institutions Savings deposits, SA, plus 23.4 19.3 -8.2 -60.8 -6.4 55.9 -1.2 12.4 9.8 5.4 15.5 6.7 18.8 9.2 12.9 7.1 150.4 743.1 5.9 19.3 7.3 6.5 4.4 6.4 1.6 17.3 7.5 -5.8 20.3 9.4 794.7 1.0 12.3 -7.0 18.8 -0.9 11.8 2.6 8.9 -8.4 18.9 -15.5 26.9 321.0 9.8 15.8 17.5 25.0 17.9 24.4 577.1 11.9 -4.6 63.5 15.7 -0.4 58.1 24.8 10.0 59.0 31.5 24.2 46.4 37.5 29.0 54.3 32.6 26.9 43.6 389.4 255.3 134.1 -17.8 15.2 -1.3 16.6 50.0 -4.4 10.9 18.4 5.3 6.8 41.8 2.2 8.6 -40.9 -56.3 3 NSA 4 Small time deposits M3 minus M2 5 Large time deposits 6 At commercial banks, net At thrift institutions 20. Institution-only money market 21. Term RPs, 22. Term Eurodollars, NSA mutual fund shares, NSA NSA - MEMORANDA: 23. Managed liabilities at commercial banks (24+25) Large time deposits, gross 24. Nondeposit funds 25. 26. Net due to related foreign institutions, NSA 7 Other 27. 28. 6.2 15.9 MMDAs, 15. 10.2 9.6 M2 minus M12 13. 7.2 -0.5 7. 12. 8.7 4.0 Other checkable deposits 10. 11. 9.7 21.2 6. 8. 9. 9.1 deposits at commercial U.S. government 8 banks Average monthly change in -2.6 -2.0 -0.6 5.3 0.1 5.2 1.3 -2.0 3.2 2.1 1.0 -1.2 8.5 -6.1 -10.7 371.2 371.9 473.7 42.6 59.2 88.6 billions of dollars -- 6.9 7.8 -0.9 -1.6 9.8 -11.4 3.8 3.1 0.6 421.8 315.8 1.9 0.6 0.9 -1.8 -5.6 -5.8 -0.3 0.9 -34.4 140.3 1.2 -1.3 0.7 -1.2 105.9 11.7 1. Quarterly growth rates are computed on a quarterly average basis. Dollar amounts shown under memoranda for quarterly changes are calculated on an end-mont-of-quarter basis. 2. Nontransactions M2 is seasonally adjusted as a whole. 3. 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 EPs, which are in the small time deposit component. 4. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seasonally adjusted. Commercial bank savings deposits excluding MKDAs declined during June and July at rates of 1.9 and 6.6 percent respectively. At thrift institutions, savings deposits excluding MMDAs decreased in June and July at rates of 0.7 and 8.8 percent respectively. 5. The non-M2 component of K3 is seasonally adjusted as a whole. 6. Net of large-denomination time deposits held by money market mutual funds and thrift institutions. 7. 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 commercial banks and Treasury note balances. COMMERCIAL BANKCREDIT AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data) 1 1983 Q4 19842 Q1 Q2 -..-....--.--...... 1. 2. 3. 4. 5. Securities Treasury securities 3 3 Business loans 7. Security loans 8. Real estate loans 9. Consumer loans JulyP 1670.4 -15.6 431.9 -26.9 184.5 247.4 8.0 1238.5 12.9 459.0 -104.7 25.1 15.9 362.8 20.5 ---------- ----------- 1.8 -7.2 Other securities Total loans June Commercial Bank Credit ------- Total loans and securities 3 at banks 6. 10. Kay Levels in bil. of dollars JulyP Short- and Intermediate-Term 247.9 Business Credit ---------- Business loans net of bankers acceptances 10.3 18.1 16.8 27.5 14.0 11.5 448.9 by nonCommercial paper issued 4 financial firms 25.5 15.1 69.4 33.5 74.4 65.7 57.8 12. Sum of lines 10 & 11 12.0 17.7 21.9 27.9 20.4 17.2 506.7 13. Line 12 plus loans at foreign 5 branches 12.1 17.5 21.9 29.0 18.9 15.9 526.2 18.9 -22.2 45.4 61.2 16.4 n.a. n.a. 13.1 12.1 24.9 33.3 18.4 n.a. n.a. 29.0 28.8 8.4 7.2 10.7 n.a. n.a. 15.3 14.4 22.5 29.4 17.5 n.a. n.a. 11. 6 14. Total bankers acceptances outstanding 15. Line 13 plus total bankers acceptances outstanding 16. 17. Finance company loans to business Total short- and intermediateterm business credit (sum of lines 15 and 16) 6 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. Growth rates beginning 1984 have been estimated after adjusting for major changes in reporting panels and Data should be regarded as highly definitions that caused breaks in series at the beginning of January. preliminary. 3. Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, mconnot a bank), and mconsolidated nonbank solidated nonbank affiliates of the bank, the bank's holding company (if subsidiaries of the holding company. 4. Average of Wednesdays. 5. Loans at foreign branches are loans made to U.S. firms by foreign branches of domestically chartered banks. 6. Based on average of current and preceding ends of month. 12 SELECTED FINANCIAL MARKET QUOTATIONS 1 (Percent) 1981 Cyclical peak 1983 Cyclical low FOMC May 22 1984 FOMC July 17 Aug. 16 Change from: FOMC FOMC May 22 July 17 Short-term rates Federal funds 2 20.06 8.42 9.75 11.21 11.63 1.88 Treasury bills 3-month 6-month 1-year 17.01 15.93 15.21 7.55 7.62 7.73 10.04 10.50 10.70 10.18 10.62 10.96 10.26 10.50 10.61 .22 .08 -. 09 -.12 -.35 Commercial paper 1-month 3-month 18.63 18.29 8.00 7.97 10.16 10.52 11.04 11.18 11.19 11.18 1.03 .66 .15 Large negotiable CDs 3 1-month 3-month 6-month 18.90 19.01 18.50 8.08 8.12 8.20 10.47 11.10 11.80 11.28 11.58 12.13 11.34 11.50 11.71 .87 .40 -. 09 .06 -.08 -.42 Eurodollar deposits 2 1-month 3-month 19.80 19.56 8.68 8.71 10.73 11.58 11.51 12.01 11.60 11.79 21.50 10.50 12.50 13.00 13.00 .50 -8.71 10.86 11.29 12.68 10.71 12.57 10.11 11.49 -1.18 -1.19 9.33 10.12 10.27 12.86 13.52 13.53 13.12 13.37 13.18 12.46 12.70 12.51 -.40 -. 82 -1.02 -.66 -.67 -.67 9.21 10.824 10.884 10.47 -. 35 -. 41 -. 74 -. 69 Bank prime rate Treasury bill futures Sept 1984 contract Dec. 1985 contract .42 .09 -.22 -. 60 -1.08 Intermediate- and long-term rates U.S. Treasury (constant maturity) 3-year 16.59 15.84 10-year 30-year 15.21 Municipal revenue (Bond Buyer index) 14.24 Corporate--A utility Recently offered 18.33* 11.64 14.90 e 14.85e 14.165 18.63 N.A. 1982 12.55 10.49 1983 14.045 13.005 14.545 13.255 Lows Highs 14.685 13.605 1984 FOMC July 17 Home mortgage rates S&L fixed-rate FNMA ARM. 1-yr. FOMC May 22 .50 -.14 .25 -.35 Percent change from: FOMC FOMC May 22 July 17 Aug. 16 Stock prices Dow-Jones Industrial 776.92 1287.20 1116.62 1112.90 1209.14 8.3 8.6 94.23 6.6 7.4 58.80 99.63 88.43 87.76 NYSE Composite 2.3 7.0 207.29 202.68 193.64 118.65 249.03 AMEX Composite 4.0 7.2 240.80 233.50 250.33 159.14 328.91 NASDAQ (OTC) Thursday. 4. One-day quotes for preceding 1. One-day quotes except as noted. 2. Averages for statement week closest to date shown. 5. One-day quotes for preceding Friday. 3. Secondary market. e--estimateid. *September average. 

Federal Reserve (1984, August 20). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19840821_part3

@misc{wtfs_greenbook_19840821_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1984},
  month = {Aug},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19840821_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}