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 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 . 6 . 7 . . 8 . . . 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 . . . . . . . 9 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 80.8 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 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) Q1 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. n.a. 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 7.2 7.2 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. 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 Q1 Q2 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 2 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 5. Demand deposits 1.1 7.0 8.6 15.7 23.0 0.9 260.9 6. 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 3 4 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 6 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 Q1 Q2 ---------1. 2. 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 3. U.S. government securities -0.4 22.1 3.2 19.8 271.0 4. Other securities 16.7 17.1 20.3 8.3 145.5 10.3 11.2 9.3 7.7 1396.9 5. Total loans 6. Business loans 2.7 6.0 0.7 1.7 484.3 7. Security loans 87.8 82.1 80.0 6.0 40.2 8. Real estate loans 12.0 12.0 11.0 11.8 401.3 9. 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 3 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 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. n.a. 142.2 (May) n.a. 11.4 n.a. 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) 4 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 9.50 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 

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

@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}
}