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 December 13, 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 THE DOMESTIC NONFINANCIAL ECONOMY Retail sales . . . . ............. ........ Industrial production. . ................ . .. Producer price index . . . . . . . . . . . . . . . . . . . Business inventories . . . . . . . . . . . . . . . . ... .. . . . 1 1 2 3 Appendix Debt ceiling increase and Gramm-Rudman Amendment . . . . . . . 8 THE DOMESTIC FINANCIAL ECONOMY Tables Retail sales . . . . . . . . . . . . . . . . . . . . . . . Industrial production. . . . . . . . . . . . . . . . . . . Recent changes in producer prices. . . . . . . . . . . .. Business inventories . . . . . . . . . . . . . . . . ... Inventory/sales ratios . . . . . . . . . . . . . . . . . . Federal budget deficit targets in the Gramm-Rudman Act . . Monetary aggregates . . . . . . . . . . . . . . . . . Commercial bank credit and short- and intermediateterm business credit . . . . . . . . .. . . . . . . . Selected financial market quotations . . . . . . . . . . . . . . . . . 4 5 6 7 7 9 12 . . 13 14 . . U.S. merchandise trade . . . . . . . . . . . . . . . U.S. bank lending to foreigners in the third quarter . . . . . 15 18 INTERNATIONAL DEVELOPMENTS Tables U. S. merchandise trade. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . Oil imports . . Claims on foreigners of U.S.-Chartered banks . . . . . . . . 15 16 19 SUPPLEMENTAL NOTES THE DOMESTIC NONFINANCIAL ECONOMY Retail sales Retail sales rose 1.1 percent in November, with gains at most major types of stores. More complete sample counts reduced the previous estimates of sales in October by 1 percentage point to show a 4.2 percent drop. The November data indicate a 0.9 percent increase in sales of the automotive group, which had dropped more than 17 percent in October. Sales of the retail control group (total sales less autos, gasoline, and mainly nonconsumer items) increased 1.4 percent in November to a level 2-1/4 percent above the third-quarter average. Outlays for general merchandise were up 1.7 percent after two month-to-month declines, while spending for the "other durable group"--which includes toys, jewelry, and sports equipment---rose sharply for the second month in a row. Spending for furniture and appliances edged down after strong gains earlier in the autumn. Industrial production The index of industrial production increased an estimated 0.4 percent in November after a downward revised 0.4 percent drop in October. (The initial estimate for October had indicated no change in production.) On balance over the past three months, the total index has shown little net change. In November, output of consumer goods increased 0.4 percent reflecting a rebound in production of light trucks and further advances for appliances and other home goods. Output of business equipment rose 0.5 percent, but the gain retraced less than half of the declines posted in the preceding two months. The index for production of defense equipment continued rising at a brisk pace. Producer price index The producer price index for finished goods rose 0.8 percent in November, reflecting large increases in food and energy prices. Although this measure of inflation has been volatile in recent months, over the past year it has risen only 1.5 percent. Finished food prices were up 1.6 percent in November, reflecting higher prices for meat, fish, and fresh fruits. items were little changed. rose 5.8 percent. Prices for other food At the farm level, the index for crude foods This was accounted for in large part by increases in livestock prices, which reversed the declines seen in the first three quarters of 1985. Information from spot commodity markets suggest that further, but less substantial, increases in crude food prices will be seen in the coming months. Producer prices of finished energy goods climbed 3.1 percent in November -- the first advance in this group since May. Fuel oil prices continue to increase in response to the lean inventory situation, and gasoline prices have turned sharply upward due to increases in the price of crude oil. Data from spot markets since the mid-November PPI pricing date indicate that prices for gasoline may be expected to level off due to developments at the recent OPEC meeting. Outside the food and energy sectors, price increases were small. Prices of both consumer goods excluding food and energy and capital equipment edged up only 0.1 percent in November. Business Inventories The book value of retail inventories rose sharply in October, at a $48 billion annual rate, after a $23 billion accumulation in September. As indicated by data on physical units, inventories at auto dealers rose at a substantial rate in October, increase. However, sizable accumulations also were fairly widespread at other retail outlets. apparel, accounting for $27 billion of the overall In particular, stockbuilding at general merchandise, and furniture stores, which had been minimal this year through September, totaled $12 billion in October, after a $9 billion accumulation a month earlier. The rise in trade stocks brought the overall increase in the bookvalue of manufacturing and trade inventories to $37.4 billion (annual rate) in October. December 13, 1985 RETAIL SALES (Seasonally adjusted percentage change) __ 1985 Q1 Q2 Q3 Nov./Q3 1985 Oct. Nov. Total sales 1.6 2.7 2.0 -1.0 -4.2 1.1 (REAL)1 1.1 2.3 1.9 - -4.5 Total less automotive group, nonconsumer stores, and gasoline stations 1.1 1.3 1.0 .0 1.4 GAF2 1.1 1.5 1.0 .1 .8 2.5 4.4 1.1 4.3 5.6 2.0 4.2 6.2 1.6 1.1 1.1 1.7 3.3 1.4 .6 5.1 .7 1.0 .9 .7 Durable Automotive group Furniture and appliances Nondurable Apparel Food General merchandise 3 Gasoline stations 1. BCD series 59. sales release. 1.3 1.0 -. 6 -1.5 -4.9 -10.4 4.6 -10.1 -17.2 2.3 -. 4 -. 2 -1.6 -.7 .1 .9 .9 -. 4 1.3 .0 1.6 1.7 .8 Data are available approximately 3 weeks following the retail 3. General merchandise, apparel, furniture and appliance stores. 4. General merchandise excludes mail order nonstores; mail order sales are also excluded in the GAF grouping. INDUSTRIAL PRODUCTION (Percentage change from preceding period; based on seasonally adjusted data) 1985 Q2 Q3 -- Annual rate-Total Index Products Final products Consumer goods Durable Nondurable Equipment Business equipment Defense and space equipment Intermediate products Construction supplies Materials Durable goods Nondurable goods Energy materials 1985 SEP OCT NOV -- Monthly rate-- 1.3 1.9 -0.1 -0.4 .4 4.3 3.1 2.4 -4.5 4.9 4.0 3.9 3.8 3.6 3.8 .1 .0 .2 -1.0 .6 -0.4 -0.5 -0.5 -1.2 -0.2 .4 .5 .4 1.4 .1 3.9 3.8 10.9 4.0 1.7 9.8 -0.3 -0.6 1.1 -0.6 -0.7 .7 .5 .5 1.6 8.4 6.9 4.4 9.0 .4 .0 -3.2 -7.0 1.1 .9 -1.3 -2.2 9.1 -8.3 -0.4 -1.3 .9 .2 .0 .1 -0.4 -0.2 -0.4 -0.2 -0.4 -0.7 .5 .7 .2 .3 RECENT CHANGES IN PRODUCER PRICES (Percentage change; based on seasonally adjusted data) 1 Relative Importance Dec. 1984 1984 Q1 1985 Q2 Q3 -Annual rateFinished goods Consumer foods Consumer energy Other consumer goods Capital equipment Oct. 1985 Nov. -Monthly rate- 100.0 24.4 11.5 42.4 21.6 1.7 3.5 -4.1 2.2 1.8 .5 -3.0 -21.3 6.5 6.2 1.7 -8.1 27.3 1.4 1.6 -2.4 -1.6 -12.8 -.2 -1.2 .9 1.4 -.2 .8 1.0 .8 1.6 3.1 .1 .1 Intermediate materials 2 Exc. energy 95.1 80.1 1.7 2.1 -2.5 -1.0 1.1 1.2 -1.2 -1.2 .0 .0 .2 .0 Crude food materials Crude energy Other crude materials 53.0 31.7 15.4 -1.2 -1.3 -3.4 -24.9 -13.1 -13.3 -20.4 4.4 3.1 -19.9 -4.7 -4.2 6.3 -.3 .5 5.8 -.1 -.2 1. Changes are from final month of preceding period to final month of period indicated. 2. Excludes materials for food manufacturing and animal feeds. BUSINESS INVENTORIES (Change at annual rates in seasonally adjusted book value; billions of dollars) Manufacturing and trade Manufacturing Trade, total Wholesale Retail Durable Auto Nondurable 1984 Q4 Q1 31.8 21.3 4.7 27.1 6.4 20.7 15.1 11.7 5.6 1.8 19.5 6.6 12.9 11.3 8.7 1.6 1985 Q2 Q3 July 3.6 -3.0 5.4 -2.0 5.6 6.5 -. 9 -. 2 -1.3 -. 7 -6.6 3.6 -2.0 5.7 -2.3 -6.5 7.9 -7.7 13.1 4.3 8.8 -5.4 -10.8 14.2 1985 Aug. Sept.r -23.2 -4.2 -19.0 -4.1 -14.9 -12.9 -17.3 -2.1 8.8 -7.9 16.7 -6.4 23.1 11.4 8.5 11.8 Oct.P 37.4 -23.5 60.9 12.9 48.0 37.4 27.8 10.6 r-Revised. p-Preliminary. Totals may not add because of rounding. INVENTORY/SALES RATIOS Manufacturing and trade Manufacturing Trade, total Wholesale Retail r-Revised. p--Preliminary. 1984 Q4 1.37 1.48 1.28 1.16 1.41 Q1 1985 Q2 Q3 July 1985 Aug. Sept.r Oct.P 1.38 1.48 1.29 1.17 1.42 1.37 1.47 1.28 1.17 1.38 1.35 1.46 1.27 1.17 1.37 1.37 1.47 1.29 1.19 1.39 1.34 1.45 1.26 1.16 1.35 1.35 1.46 1.26 1.17 1.34 1.37 1.43 1.31 1.19 1.43 8 Appendix Debt Ceiling Increase and Gramm-Rudman Amendment On December 11, the Congress passed a bill that increases the federal debt ceiling to $2.1 trillion, a level that will accomodate additional federal borrowing through most of the current fiscal year. The debt ceiling bill also contains provisions, titled the Balanced Budget and Deficit Control Act of 1985, that have been referred to frequently as the Gramm-Rudman amendment, in recognition of the original Senate sponsors. The Gramm-Rudman Act amends the Budget Act of 1974 in order to incorporate formally some practices that have emerged in recent years and to provide for an accelerated timetable for the budget process. Among the practices codified in the Act are the provision for only one annual Congressional Budget Resolution, which should be completed by April 15 of each year, and for "reconciliation" legislation to be called for in that Budget Resolution, if necessary, to change existing laws to bring spending and receipts into conformity with the Resolution targets. The Act also puts existing off-budget agencies into the unified budget totals and expands the application of the Budget Act to cover federal credit programs. The parliamentary procedures used to enforce the budget process are strengthened, including the requirement of a three-fifths majority vote to waive certain requirements. The most controversial and potentially significant elements of the Gramm-Rudman Act are a set of annual budget deficit targets that extend to fiscal year 1991, reaching zero by that time, and a new procedure called sequestration that could be implemented to reach them. are shown in the table below: The targets Federal Budget Deficit Targets in the Gramm-Rudman Act (Fiscal years, billions of dollars) 1986 171.9 1987 144 1988 108 1990 36 1989 72 1991 zero The new procedure that could be triggered to reach these targets requires the President to sequester spending for a fiscal year if a report by the General Accounting Office (based on reports to it by the Office of Management and Budget and the Congressional Budget Office) finds that the budget deficit for the fiscal year about to begin would exceed the deficit target (by more than $10 billion except in FY 1986 and FY 1991), given the spending authority and tax laws then in effect. For fiscal year 1986, the maximum amount of spending that could be sequested is set at $11.7 billion. It is generally thought that the FY 1986 deficit will exceed the target by at least $20 billion. Since the fiscal year is already underway, however, the law provides that the sequester order for FY 1986 begin on March 1 and the maximum amount to be sequestered is seven-twelfths of $20 billion. The amount to be sequestered is intended to be spread as uniformly as possible across budget programs and accounts as they exist under law when the sequester order goes into effect. The basic guidelines provide for the amount to be sequestered to be split with half to come from defense spending and half from nondefense spending. The reduction in defense spending can be achieved by reducing outlays from new budget authority and from unobligated balances of previously enacted budget authority. For FY 1986 alone, the.President is given additional lattitude to make reductions in particular defense spending accounts that are not strictly proportional to each other. In the nondefense category, there are numerous exemptions and special rules for specific programs. The basic retirement and disability programs under Social Security are entirely exempted, as are such antipoverty programs as Medicaid, Aid to Families with Dependent Children, Supplemental Security Income and Food Stamps. Pensions are also exempted. Veterans Compensation and Reductions in certain health programs, most importantly Medicare, are limited to one percent in 1986 and two percent thereafter. Interest payments on the federal debt are exempted and special technical rules apply to a number of programs, such as guaranteed student loans and the Commodity Credit Corporation, because of contractual commitments. Similarly, contractual commitments under federal insurance and loan guarantee programs are exempted but the administrative expenses of the agencies in charge of these programs can be cut. Automatic, cost- of-living, increases in federal employee pensions and a few other nonexempt programs would be suspended to the extent necessary before other reductions would be made in the defense and nondefense categories. After taking reductions in pension outlays into account, spending for the remaining nondefense programs would be reduced by a uniform percentage sufficient to achieve one-half of the total amount to be sequestered. The nature of the exemptions from the automatic sequestering process imply that, in terms of the national income and product accounts, transfer payments would be affected relatively little while both defense and nondefense purchases would be reduced by a larger proportion. Grants to state and local governments, except for certain exempted poverty programs, would also be reduced and could lead to further reduction in spending at those levels of government. The priorities imposed by the Act on the automatic sequestering process need not apply, of course, to the normal budget process. The Gramm-Rudman Act requires the President to submit a budget that conforms to the deficit targets in the Act but, within that constraint, the level and composition of outlays and tax receipts can be proposed as the President finds appropriate. These priorities can then be modified within the normal budget process as the Congress and the President agree on specific legislation. The automatic sequestering procedures would only be invoked if projections of the budget deficit made just before the fiscal year began (on the basis of laws in effect and current economic forecasts at that time) indicated that the deficit target would be exceeded. The sequestering procedures would not apply if a declaration of war was in effect. They could be waived if two quarters of declining real GNP are forecast or if actual growth of real GNP was less than one percent in each of the most recent two quarters. 12 MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted) 1983:Q4 to 1984:04 M1 2. M2 3. M3 Growth from 02 Q3 1985 Sept. r Q4 1984 Oct. Nov.P Nov. to 1985P - Percentage change at annual rates ---- --1. 1 5.2 7.7 10.4 10.2 15.0 11.9 5.3 10.2 7.1 -1.6 2.1 5.2 8.1 10.1 3.9 13.0 6.6 5.0 11.6 (12.0) 2 8.6 7.8 Levels in billions of dollars Nov. 1985P Selected components 4. Currency 7.2 6.7 9.1 5.7 6.4 7.8 169.9 5. Demand deposits 1.1 8.6 11.9 12.3 -12.6 10.0 266.2 6. Other checkable deposits 10.5 16.1 26.1 17.1 7.7 23.0 175.7 8.6 3.8 8.7 5.6 3.3 4.5 1929.5 7. M2 minus M13 8. 9. 10. 11. 12. 13. 14. 15. 16. 18. 19. 20. 21. 22. Overnight RPs and Eurodollars, NSA General purpose and broker/dealer money market mutual fund shares, NSA Commercial banks Savings deposits, SA, 4 plus MMDAs, NSA Small time deposits Thrift institutions Savings deposits, SA, 4 plus MMDAs, NSA Small time deposits 5 M3 minus M2 Large time deposits 6 At commercial banks, net At thrift institutions Institution-only money market mutual fund shares, NSA Term RPs, NSA Term Eurodollars, NSA - 7.3 -28.7 19.3 9.1 18.0 33.7 69.5 17.0 -0.7 4.1 -0.7 1.4 -3.4 8.1 9.3 7.8 3.6 3.8 6.9 176.4 836.0 5.2 11.1 7.3 11.R 6.5 6.5 19.2 -4.4 3.9 9.7 -3.1 2.4 13.6 -0.6 2.4 454.5 381.6 847.6 -3.6 10.4 16.7 7.2 11.6 5.7 15.5 4.0 -4.6 -6.6 -4.1 0.0 22.1 4.8 -0.1 22.2 10.9 -1.1 643.3 26.0 16.0 48.8 6.3 -3.0 8.3 2.6 -3.2 -2.8 20.5 23.8 15.6 13.4 18.9 3.1 11.6 12.1 11.5 437.5 280.0 157.6 33.6 7.7 45.6 -8.3 16.2 1.3 -9.2 -8.5 -24.5 51.6 7.7 19.3 0.0 -12.2 22.7 44.4 -15.4 64.5 72.9 77.0 -12.1 10.6 -4.1 -0.7 357.7 489.9 Average monthly change in billions of dollars - MEMORANDA: 3. Managed liabilities at commercial 24. 25. 26. 27. 28. banks (24+25) Large time deposits, gross Nondeposit funds Net due to related foreign institutions, NSA 7 Other 4.7 3.2 -2.4 -1.0 2.4 1.2 8.4 5.2 6.8 4.1 4.0 2.1 1.5 -1.4 1.2 3.2 2.7 1.9 0.9 -1.3 1.3 1.0 3.6 -1.7 0.5 -0.2 -0.1 2.2 -0.9 3.6 457.2 336.5 120.7 -28.3 149.0 U.S. government deposits at commercial 8 banks 0.2 1.9 -0.7 -1.4 -11.5 9.6 Dollar amounts shown under memoranda for quar1. ,uarterly growth rates are computed on a quarterly average basis. terly changes are calculated on an end-aonth-of-quarter basis. 2. Figure in parentheses calculated from Q2 1985 base. 3. Nontransactions M2 is seasonally adjusted as a whole. 4. Growth rates are for savings deposits, seasonally adjusted, plus money market deposit accounts (MMDAs), not seaCommercial bank savings deposits excluding MMDAs increased during October and November 1985 at sonally adjusted. At thrift institutions, savings deposits excluding MMDAs increased rates of 4.8 percent and 1.9 percent respectively. during October and November 1985 at rates of 14.9 percent and 7.4 percent respectively. SThe non-M2 component of M3 is seasonally adjusted as a whole. ,t of large-denomination time deposits held by money market mutual funds and thrift institutions. insists of borrowings from other than commercial banks in the form of federal funds purchased, securities sold _.r agreements to repurchase, and other liabilities for borrowed money (including borrowings from the Federal Data are partially estimated. Reserve and unaffiliated foreign banks, loan RPs and other minor items). 8. Consists of Treasury demand deposits and note balances at commercial banks. p-preliminary COMMERCIAL BANK CREDIT ANDSHORT- ANDINTERMEDIATE-TERM BUSINESS CREDIT (Percentage changes at annual rates, based on seasonally adjusted data)1 1985 Q2 Q1 Q3 --------- Sept. Oct. Nov.P Levels in bil. of dollars Nov.P Commercial Bank Credit -- ----- 1. Total loans and securities 2. 3. 4. at banks 10.4 9.3 8.6 8.2 2.0 16.3 1869.4 Securities 5.7 5.5 12.4 13.7 1.1 29.9 435.4 -13.6 22.2 275.0 U.S. government securities 10.4 0.0 9.0 7.5 Other securities -3.1 16.1 18.8 25.1 27.8 43.4 160.4 11.9 10.4 7.4 6.6 2.4 12.1 1434.0 5. Total loans 6. Business loans 10.1 2.6 2.4 3.7 -0.5 9.4 490.8 7. Security loans 17.8 87.8 -19.0 45.8 -6.3 -12.7 37.5 8. Real estate 11.2 12.4 11.2 8.3 13.5 13.6 419.2 9. Consumer loans 18.1 14.9 11.1 7.8 4.3 10.7 283.8 loans Short- and Intermediate-Term Business Credit 10. Business loans net of bankers acceptances 11. Loans at foreign branches 12. Sum of lines 10 & 11 13. Commercial paper issued by 3 nonfinancial firms 14. Sums of lines 12 & 13 15. Bankers acceptances: related4,3 16. 9.4 2 3.6 487.1 -0.7 17.0 -18.6 19.2 7.0 4.0 -1.2 506.3 -6.0 33.8 -46.9 5.1 7.9 58.5 86.1 1.5 -1.2 6.8 16.4 592.4 -1.1 21.0 -20.6 n.a. 34.3 (Oct) U.S. trade Line 14 plus bankers acceptances: U.S. trade related to business 17. Finance company loans 18. Total short- and intermediateterm business credit (sum of lines 16 & 17) 4 -5.5 -12.2 4.5 6.7 0.2 5.1 n.a. 618.7 (Oct) 21.4 8.0 -1.7 10.0 n.a. 145.1 (Oct) n.a. 763.7 (Oct) 7.6 6.9 1.5 -0.6 5.8 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. firas by foreign branches of doaestically chartered banks. 3. Average of Wednesdays. 4. Based on average of current and preceding ends of aonth. aiports, U.S. exports and domestic shipment and storage of goods. 5. Consists of ecceptances that finance U.S. SELECTED FINANCIAL MARKET QUOTATIONS1 (Percent) 1982/1983 Cyclical low ~--- 1985 1984 Highs March highs June lows FOMC Nov. Dec. 12 Change from: 1984 FOMC highs Nov. Short-term rates Federal funds 2 8.46 11.63 8.58 7.38 8.09 8.01 -3.62 -.08 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 7.24 7.32 7.38 7.08 7.07 7.10 -3.59 -3.70 -4.03 -.16 -.25 -.28 8.00 7.97 11.42 11.35 8.94 9.12 6.95 7.01 7.88 7.78 7.80 7.70 -3.62 -3.65 -.08 -.08 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 7.80 7.80 7.81 7.76 7.74 7.73 -3.76 -4.05 -4.57 -.04 -.06 -.08 Eurodollar deposits 4 1-month 3-month 8.68 8.71 11.89 12.20 8.89 9.58 7.45 7.50 7.96 8.00 8.20 8.09 -3.69 -4.11 .24 .09 10.50 13.00 10.50 9.50 9.50 9.50 -3.50 10.30 10.58 7.12 7.47 7.06 7.20 7.02 6.77 - U.S. Treasury (constant maturity) 3-year 9.33 13.49 13.99 10-year 10.12 30-year 10.27 13.94 11.22 12.02 11.97 8.73 9.83 10.23 9.02 9.93 10.18 8.38 9.27 9.58 -5.11 -4.36 -.64 -.66 -.60 Municipal revenue (Bond Buyer index) 8.965 -2.48 -.44 11.03e -4.27 -.44 Commercial paper 1-month 3-month Bank prime rate Treasury bill futures Dec. 1985 contract Mar. 1986 contract - -. 04 -. 43 Intermediate- and long-term rates 9.21 11.44 10.25 9.10 9.40 11.64 15.30 13.23 11.50 11. 4 7e 12.55 n.a. 1983 14.68 12.31 1984 13.29 11.14 12.01 9.30 Lows Highs 12.05 9.83 1985 FOMC Nov. -4.72 Corporate--A utility Recently offered Home mortgage rates S&L fixed-rate S&L ARM, 1-yr. Highs -3.18 -. 51 11.506 -3.01 9.306 Percent change from: 1984 FOMC Nov. lows Dec. 12 Stock prices 1287.20 1086.57 1511.70 119.12 85.13 99.63 'MEX Composite 249.03 249.03 187.16 328.91 kSDAQ (OTC) 328.91 225.30 328.91 _ One-day quotes except as noted. 2. Averages for two-week reserve maintenance period closest to date shown. Last observation is the average-to-date for the maintenance period ending December 18, 1985. 3. Secondary market. Dow-Jones Industrial NYSE Composite 8.2 39.1 1396.67 1511.24 7.2 111.07 39.9 119.12 5.0 29.2 230.24 241.78 8.6 295.25 42.3 320.58 295.2 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 U.S. Merchandise Trade On a revised basis, the merchandise trade deficit increased to $133 billion at an annual rate in the third quarter of 1985. Imports rose throughout 1985 to reach, in the third quarter, the same average value recorded during the second half of last year. Exports declined steadily, and in the third quarter were 7 percent below the average value of late last year. The volume of nonoil imports increased in the third quarter in line with a pick-up in economic activity. Much of the strength in imports was in consumer goods (particularly textiles), capital goods, and in automotive products. The increase in capital goods occurred even though imports of business and office machines were well below last U.S. MERCHANDISE TRADE1/ Year 1984 Value (Bil. $, SAAR) Exports Agricultural Nonagricultural Imports Oil Nonoil Trade Balance Volume (Bil 72$, SAAR) Exports Agricultural Nonagricultural Imports Oil Nonoil 1/ 9 Months 1985 Q3 Q4 219.9 38.3 181.6 215.0 29.1 185.9 222.6 36.6 186.0 225.0 38.9 186.1 334.0 57.5 276.5 328.6 48.1 280.4 338.5 57.0 281.5 -114.1 -113.6 16.3 63.2 5.3 106.3 1984 1985 Q2 Q3 221.1 32.7 188.5 214.5 28.5 186.0 209.2 26.1 183.2 348.5 57.8 290.7 315.0 41.9 273.1 328.8 52.3 276.6 341.8 50.2 291.6 -115.9 -123.5 -93.8 -114.3 -132.6 13.5 63.5 15.6 64.6 17.4 64.4 15.0 64.2 13.1 63.3 12.5 62.9 4.7 110.1 5.3 107.5 5.4 111.1 4.0 107.0 5.0 109.0 5.0 114.4 International transactions basis. Q1 All data were revised December 11, 1985. 16 year's value. The volume of industrial supplies changed very little; the value of steel imports in the third quarter increased slightly from first and second quarter averages but was still 10 percent less than in 1985-Q4. Nonoil import prices turned up fractionally, on average, in the third quarter following three quarters of declines. The increase in import prices was in the manufactured goods categories showing the greatest strength in imports -automotive products. consumer goods, capital goods, and Prices of imported fuel and industrial supplies continued to decline. Oil in the third quarter was imported at about the same rate as in the second quarter. The decline in value resulted from a drop in the price of oil imports by nearly $1.25 per barrel. OIL IMPORTS1/ Year 1984 Volume (mbd, SA) Price ($/BBL) Value (Bil. $, SAAR) 1/ 5.62 27.95 57.52 9 months 1985 4.99 26.42 48.12 International transactions basis. 1984 Q3 5.66 27.91 56.96 Q4 5.62 27.59 57.81 1985 Q2 Q1 4.34 26.43 41.91 5.30 27.01 52.25 All data were revised December 11, Exports in the third quarter declined for the third quarter in a row. While the decrease in agricultural exports from the second to the third quarter was relatively moderate, the value of agricultural exports has dropped about 30 percent since the fourth quarter of 1984. one-third of the decline was in price and two-thirds in volume. About Ample foreign supplies and the effect of the high exchange value of the dollar on prices have seriously affected the ability of U.S. farmers to market their goods abroad. 1985. Q3 5.34 25.78 50.21 17 The volume of nonagricultural exports has inched down each quarter during the past year as the effect of the strong dollar on prices offset the effect of a moderate rate of economic expansion abroad. Much of the decline in nonagricultural exports was in machinery (particularly computers and other electronic items) and chemicals. 18 U.S. bank lending to foreigners in the third quarter. Claims on foreigners of U.S.-chartered banks rose a slight $1.3 billion in the third quarter. However, after adjustment for the effect of a 9 percent decline in the weighted average value of the dollar against other G-10 currencies on the value of nondollar claims ($105 billion in June), it appears that claims fell about $10 billion. In nominal terms, in the first three quarters of 1985 claims were reduced by $5.3 billion; on an exchange-rate-adjusted basis, the drop appears to be on the order of $20 billion. The decrease in dollar exchange rates has principally raised the dollar value of claims on the G-10, smaller developed, and East European countries. Claims on non-OPEC developing countries were virtually unchanged, on an unadjusted basis, in the third quarter. In this group, claims on Latin America as a whole declined slightly as decreases in claims on several countries, notably Brazil and Mexico, exceeded an increase of $0.7 billion in claims on Argentina that reflected the effect of the U.S. banks' share of Argentina's September drawing of $2.2 billion on the $4.2 billion of new money loans (from U.S. and non-U.S. banks) signed in the third quarter. Claims on non-OPEC developing countries in Asia and Africa rose slightly because of an increase of $0.8 billion in claims on China, which stepped up its foreign borrowing again this year. For the first three quarters of 1985, claims on all non-OPEC developing countries fell $1.8 billion, of which $1.5 billion was in claims on Latin America. 19 TABLE 1. CLAIMS ON FOREIGNERS OF U.S.-CHARTERED BANKS (Billions of dollars) Changes (no sign=increase) 1984 1985 Year -28.1 Total, all countries Q-1 1.8 Q-2 Outstanding Q-3 9/30/85 -8.4 1.3 403.9 Non-OPEC developing countries 1.3 -1.1 -0.8 0.1 111.1 (Latin America) 2.1 -0.6 -0.3 -0.6 75.5 -0.8 -0.5 -0.5 0.7 35.6 OPEC countries -3.1 -0.4 -1.6 0.3 24.1 Eastern Europe -0.9 -0.1 0 0.3 4.6 Smaller developed countries -2.2 -0.9 -0.5 -0.2 32.3 6.4 153.2 (Asia and Africa) G-10 countries Offshore banking centers -20.0 4.8 -6.0 -3.5 -0.4 0.2 -0.2 0.3 0.3 Miscellaneous -5.6 0.4 61.2 17.8 Among other country groups, a long series of declines in claims on OPEC countries was followed by a small rise in the third quarter, while claims on Eastern Europe rose slightly for the first time in several years in reflection of net new lending to Yugoslavia. Claims on the smaller developed countries, which have been dropping since mid-1984, fell again in the third quarter as claims on South Africa were reduced a further $0.6 billion. This brought claims on South Africa to $3.3 billion outstanding in September, compared with a peak of $5 billion a year earlier. An increase in claims on G-10 countries was largely offset by a fall in claims on offshore banking centers. 

Federal Reserve (1985, December 16). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19851217_part3

@misc{wtfs_greenbook_19851217_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1985},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19851217_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}