THE ECONOMIC ROUNDUP

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R000701230036-3
• Release Decision: RIFPUB
• Original Classification: U
• Document Page Count: 18
• Document Creation Date: December 20, 2016
• Document Release Date: January 16, 2008
• Sequence Number: 36
• Publication Date: May 1, 1983
• Content Type: REPORT

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FOR OFFICIAL USE ONLY
THE ECONOMIC ROUNDUP
A Monthly Review of Economic Developments
Prepared by
The Office of the Chief Economist
U.S. Department of Commerce
Malcolm Baldrige
Secretary of Commerce
Robert Dederick
Under Secretary for Economic Affairs
Robert Ortner
Chief Economist
FOR OFFICIAL USE ONLY
May 1983,
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Contents
Page
SUMMARY ................................ 1
CONSUMER SPENDING ACCELERATES .......... 2
APRIL: A GOOD START FOR THE
SECOND QUARTER ............... 2
FIRST QUARTER GNP REVISIONS
AND CORPORATE PROFITS ........ 6
SECULAR AND CYCLICAL TRENDS ............ 7
FINANCIAL MARKETS ...................... 11
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Summar
Data released in may showed considerable strength. Recent gains suggest that
second quarter growth in real GNP will be more than twice last period's
2.5-percent annual rate. Inflation, which had been held to an exceptionally
modest pace since last summer by flat food prices and falling oil prices, has
picked up moderately.
? Industrial production, the composite indexes of leading and
coincident indicators, personal income, consumer spending and
confidence, employment and hours worked all easily exceeded their
first quarter performance in April.
? April data and revisions for earlier months now show considerable
strength in consumer purchases. Domestic auto sales and consumer
debt have continued to grow. Business spending for capital
equipment also appears to have turned around.
? Though first quarter growth was revised down, somewhat higher final
sales and-even heavier inventory liquidation than initially
estimated will lead to more vigorous growth as inventories are
realigned with rising demand. Corporate profits from current
operations turned up sharply, reflecting increased sales and
productivity gains.
? Recovery seems to be unfolding in a fairly typical fashion.
Manufacturing, especially of consumer durables, and construction are
rebounding much as from previous downturns. Services-producing
sectors, which are less affected by recession, are showing
correspondingly less acceleration with the business revival.
Private borrowing has picked up and Federal government financing, while easing
somewhat in the first quarter remains very high. Total borrowing, however, is
still moderate relative to GNP. Both short- and long-term rates have been
essentially flat when viewed over the span of several months, though they have
risen slightly in the last two weeks.
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Consumer Spending Accelerates
Data released last month now show revitalized consumer spending. A healthy
April performance and marked upward revisions of earlier data should ease
concerns that growth in spending has not matched production gains since late
last year. The outlook for the current quarter and beyond is better than
appeared earlier.
? Retail sales posted strong back-to-back advances of 1.7 percent and
1.6 percent in March and April. Sales at durables stores jumped 4.0
percent in April, with all major categories posting strong
increases. Sales at nondurables stores, which had grown sluggishly
in part because of gasoline price declines and food price
moderation, rose 0.5 percent. (Some of this latter advance stemmed
from the April lst gasoline tax increase.)
? After remaining at about a 6-million unit annual rate from December
to March, domestic auto sales accelerated to a 6.3-million unit rate
in April and to a 6.5-million unit rate in the first twenty days of
May. Automakers, in turn, are boosting assemblies, and production
schedules now call for a 7.0-million unit annual rate in June and an
8.1-million unit rate in the third quarter.
? Consumer installment credit rose $2.6 billion, or 0.8 percent, in
March, its fourth large advance in 5 months. Though almost one-half
of the gain steamed from automotive credit, revolving and "other"
credit posted large increases, probably reflecting improved
confidence, higher earnings and more aggressive lending by banks
experiencing strong deposit inflows.
April: A Good Start For the Second Quarter
Widespread strength of April data suggests that second quarter real. GNP growth
will be more than twice last period's 2.5 percent rate.
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Percent Changes
_
April/March
April/1983I
198:3I 1982IV
Leading Indicators
1.1
3.1
5.6
Coincident Indicators
1.0
1.3
1.3
Civilian Employment
0.4
0.4
0.0
Nonfarm Payrolls
0.3
0.4
0.2
Industrial Production
2.1
3.0
2.3
Personal Income
0.8
1.2
0.9
Disposable Income
1.0
1.3
1.0
Consumer Spending
1.0
1.5
1.1
Retail Sales
1.6
2.3
0.1
April
19831
1982IV
NAPM* Diffusion Index
57.1
52.3
38.7
Factory Workweek (hours)
40.1
39.5
38.9
Factory Overtime (hours)
3.0
2.4
2.3
Capacity Utilization,
Manufacturing
71.1
69.1
67.6
Consumer Confidence Index
77.3
67.0
52.7
(Conf. Board)
Consumer Sentiment Index
89.1
75.3
72.5
(U. of Mich.)
*National Association of Purchasing Management
The second column of the above table shows that April employment, hours,
industrial production and consumer spending already represent clear gains from
their first quarter averages.
? Increases of 1.1 percent and 1.0 percent in the indexes of leading
and coincident indicators put them 3.1 percent and 1.3 percent above
their first quarter levels, respectively.
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? Both the household and establishment measures of employment grew
strongly, while February and March payrolls were revised up. The
April payroll gain was about evenly split between durable
manufacturing and services. The factory workweek and factory
overtime increased 0.5 hour, while initial claims for unemployment
insurance continued to fall. Aggregate hours in manufacturing
jumped 2.1 percent.
? The 2.1-percent rise in industrial production was the largest
one-month advance since August 1975, and production data for the
first three months of the year were revised up. All major
industrial categories except mining increased, led by strong gains
for durable consumer goods, business equipment, defense goods and
construction materials. As a result, capacity utilization in
manufacturing rose to its best level in almost a year.
? Almost three-fourths of all industries reported payroll employment
increases in April, up from 55 percent in January. The Federal
Reserve also reports that industrial production has been rising in
an increasing number of industries.
? Personal income surged 0.8 percent in April after a strorrl
0.6-percent advance in March. Improved wages and salaries,
especially in manufacturing, accounted for most of the increases.
Disposable personal income, reflecting 1982-83 tax cuts, rose 1.0
percent, to a level 1.3 percent above its first quarter average.
The slow pace of inflation--a 0.8-percent annual rate for the CPI
during the last six months--implies that these nominal gains are
largely increases in real purchasing power.
? Reflecting the growth in incomes, consumption also surged in April
to 1.5 percent above its first quarter average. Even if nominal
spending were unchanged in May and June and the deflator increased
at the first quarter rate, consumption spending would contribute
about 2.5 percentage points to real GNP growth in the current period.
? Both measures of consumer attitudes have posted large increases in
the last four months, and April levels were well above first quarter
averages. Despite the large 0.8-percent March increase in consumer
installment credit, debt use relative to income remains low because
of healthy income growth.
? Though the saving rate in April was a low 5.7 percent, consumers
appear willing to spend added take-home pay, and the mid-year tax
cut will help to sustain the important broadening of spending which
appears to be underway.
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Apparent weaknesses in two areas do not significantly threaten near term real
growth.
? Residential construction remains vigorous, even though housing
starts fell 8.4 percent in April and 8.8 percent in March. These
pullbacks from unusually high levels in January and February still
leave housing starts at an annual rate of 1.5 million units, almost
20 percent above their pace late last year. April's healthy
6.5-percent gain in permits (the seventh increase in the last eight
months) suggests that starts should turn up again, encouraged by the
continued downward drift of mortgage interest rates. Even without
any improvement in starts, residential construction will contribute
to real growth this quarter as work continues on projects already
initiated.
millions
2.0-7-,-
1 . 6 '.
$1972 billions
Residential Construction, NIPA
(right scale) :;
Housing t
? 2 Starts
;left scale)*..
1979 1980
1981 1;82
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6
? The merchandise trade deficit swelled to $4.6 billion in April, from
an average of $3.6 billion in the preceding 5 months, as i;1tports
grew and exports declined. Activity abroad has not yet shown the
same strength as the domestic economy, and the dollar remains high,
stifling exports and encouraging imports.
-" i
95- 1
$ billions
- =0
Merchandise Trade Balance
n (right scale)
v 1 9 r
C.
7 v .~.
1C 7 7 i / v ( 07 2
l
Trade-Weighted Dollar (left scale)
IU
First Quarter GNP Revisions and Corporate Profits
Real GNP growth in the first quarter was revised down from a 3.1-percent
annual rate to 2.5 percent. The rise in the fixed-weighted price index was
unchanged at 3.2 percent. Deeper inventory cutting and slightly better final
sales embodied in the revisions point to faster growth this quarter and over
the balance of the year.
? Real inventory investment was revised down $3.7 billion while
non-residential fixed investment, government purchases and personal
outlays for durables and services were revised up modestly. The
trade balance was revised down because of a higher estimate of
imports.
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? Real final sales, excluding purchases by the Commodity Credit
Corporation, grew at a 3.4-percent rate. The fact that stocks have
already been cut more than estimated earlier implies a faster growth
potential for later in the year when inventories are rebuilt to
acconmlodate rising demand.
? Real spending for producers' durable equipment increased at a
surprising 9.9-percent annual rate in the first quarter, primarily
in purchases of computers, autos and trucks. The 1.8-percent gain
in industrial production of business equipment in April, following a
0.9-percent rise the month before, and the back-to-back jumps in
nondefense capital goods orders of 9.6 percent in April and 4.5
percent in March suggest that equipment spending may have turned its
cyclical corner.
As businesses increased shipments and trimmed costs in the first quarter,
profits rebounded smartly from their poor fourth quarter showing.
? Profits from current production rebounded 12.6 percent before taxes,
following a 1.0-percent decline in the preceding period. The
after-tax gain in operating profits was slightly less, 12.3 percent,
reflecting the higher levies imposed by the Tax Equity and Fiscal
Responsibility Act.
? Nonfinancial corporations, particularly manufacturers of durable
goods, accounted for most of the first quarter profits climb.
Earnings of motor vehicle firms posted the largest increase after a
fourth-quarter loss; losses by primary metals producers narrowed;
profits of nondurables manufacturers fell modestly, reflecting a
large decline among petroleum firms; and earnings of
non-manufacturing and financial corporations improved. Profits of
savings and loan associations turned positive for the first time
since the fourth quarter of 1980, accounting for most of the
increase in financial sector profits.
Secular and Cyclical Trends
The major economic sectors are not affected uniformly by the business cycle.
Employment in services-producing sectors is affected relatively little.
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Payrolls - Non-Volatile Sectors
76 77 78
82 83
? Payroll employment in finance, insurance, real estate and other
services has been rising fairly steadily throughout the post-war
period. This growth slowed, but did not stop, over the past four
years of sluggish economic performance. Payrolls in wholesale and
retail trade flattened during this period.
? Payrolls of state and local governments have fallen since 1980 as a
result of these jurisdictions' fiscal pressures, declining school
enrollments, and reduced federal aid.
Employment in manufacturing and construction, however, has continued to
experience pronounced cyclical changes.
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-Payrolls - Cyclical Sectors
millions millions
6.0
14 _=
Durable Goods Manufacturing
(left scale) -
? Construction payrolls move approximately in tandem with the business
cycle, as timing differences of residential (leading) and
non-residential (lagging) employment tend to offset one another. As
usually happens, housing recovered early in this cycle, while
non-residential construction has been sluggish, reflecting excess
capacity.
? Because durable goods purchases are more postponable than spending
on nondurable goods or on services, the durables sector exhibits the
most variation over the cycle. Just as they indicated early
weakness at the beginning of this downturn, durables payrolls also
have shown the unfolding strength of the recovery.
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Industrial Production, Final Products
Business Equipment:
Durable Consumer Goods
index
I 20L
Defense and Space
Equipment
11 7 75 76 77 7c. 79 CO C S2 03
? The chart above indicates that most of the volatility within
durables manufacturing stems from production of consumer durables.
Business equipment production, though less volatile, is now showing
signs of an upturn. Meanwhile, defense production, which began to
grow in the late 1970's, has accelerated since late 1982 and is
lending important support to the recovery in manufacturing.
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Financial Markets
Although interest rates rose during the last two weeks, as shown in the chart
below, both short and long rates have changed little since late last year.
Interest Rates
A J J A S 0 ii
1982
F A
198?
? Growth of the monetary aggregates slowed in April and the broad
measures, M2 and M3, are below their upper targets limits. The
narrow measure, Ml, grew 13.7 billion in the first three weeks of
May and is within 2.3 billion of the upper limit for the fourth
quarter of this year. The acceleration in the growth of M1,
compared with the broader aggregates, in part reflects the
introduction of new types of deposits. As a result, the Fed is
giving more weight to the performance of M2 and M3.
Growth of the Monetary Aggregates
(percent change, annual rate, seasonally adjusted)
Ml
M2
M3
January
10.2
34.2
12.7
February
24.9
26.8
14.1
March
17.1
11.7
8.5
April
-3.1
3.2
4.6
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o Corporate and household net. borrowing rose in the first quarter,
while Federal government borrowing slowed. However, corporate
borrowing remains modest, about half of what it was a year ago,
while government borrowing more than doubled in the third quarter of
last year and has remained very high. Households sharply increased
their mortgage and installment debt last quarter.
o Federal government borrowing typically moderates during recoveries
as receipts improve and expenditures for unemployment compensation
ease. However, total public and private borrowing usually rises
relative to GNP during expansions. Moreover, the Federal deficit is
expected to remain large this time. The first quarter increase in
total debt was 14.5 percent of GNP, up from 12.2 percent a year ago,
as shown in the table below. This is a relatively moderate level
compared to the peak of 18.6 percent in calendar 1978 and the most
recent yearly low of 13.2 percent in 1975.
Net Credit Market Borrowing by Nonfinancial Sectors
($ billions, seasonally adjusted annual rate)
1982
1983
1
2
3
4
1
U.S. Government.
99.7
100.6
215.5
229.2
189.1
Households
82.1
94.0
80.8
97.3
125.5
Nonfinancial Corporations
106.2
85.1
109.0
33.5
(55.2
Other Nonfinancial Business
33.6
48.1
25.0
28.1
25.3
State and Local Governments
26.4
55.8
33.4
67.5
52.4
Foreign
16.5
18.4
8.3
18.2
2.7
Total
364.5
402.0
472.0
473.8
460.2
Percent of GNP
12.2
13.2
15.3
15.2
14.5
o Households usually supply a large portion of the funds borrowed in
credit markets, about 70 percent over the last two decades.
Deposits held by households, as estimated by the Federal Reserve,
have grown dramatically in the last two quarters, in large part
because of the popularity of the money market deposit accounts.
All of the growth, however, respresents a shift from other
financial instruments, as total financial saving has remained
relatively stable.
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Funds Supplied to Credit Markets
by Households
($ billions, seasonally adjusted annual rate)
1982
1983
1
2
3
4
Deposits and Currency
155.0
78.9
100.1
219.8
377.0
Money market mutual Funds
38.0
40.5
86.5
-66.4
-:105.2
Credit Market Instruments
37.0
107.9
61.2
88.7
?-49.8
Insurance and Pension
Reserves
82.4
92.0
82.4
97.6
77.1
Total 312.6
Percent of Total Funds
319.3
330.2
339.7
:299.1
Supplied by All Sectors 85.8
79.4
70.0
71.7
65.0
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DCONOP:IC INDICATORS
Apr
Mar
Feb
Jan
Dec
Nov
General Indicators (% change)
Composite Index of Leading Indicators
1.1
2.2
1.4
3.0
1.0
0.5
Composite Index of Coincident Indicators
1.0
0.7
-0.4
1.4
-0.2
0.1
Composite Index of Lagging Indicators
-1.0
0.2
-1.2
-1.4
-1.9
NAPM Composite Diffusion Index (percent)
Employment
Total Employment (change in 000's)
362
40
-43
12
-38
-48
Payroll Employment (change in 000's)
258
196
-161
355
-185
-127
Unemployment (change in 000's)
-53
-109
44
-590
130
330
Unemployment Rate (percent)
Initial Claims for Unemployment
Insurance (000's)
470
479
478
507
531
616
Factory Workweek (hours)
40.1
39.6
39.1
39.8
38.9
38.9
Production and Orders
Industrial Production (% change)
2.1
1.2
0.4
1.6
0.2
-0.6
Capacity Utilization, Manufacturing (%)
71.1
69.8
68.9
68.5
67.5
67.4
Auto Production (mil. units, AR)
5.9
5.5
6.4
5.9
5.4
4.4
Total New Orders (% change)
2.1
3.1
-3.1
3.5
3.1
0.2
Nondurable Goods (% change)
0.5
2.9
-0.3
-0.8
-0.4
-0.1
Durable Goods (% change)
3.8
3.2
-6.0
8.1
7.2
0.5
Nondefense Capital Goods (% change)
11.7
4.5
-6.5
4.2
-1.5
-0.7
Inventories
Manufacturing and Trade
Inventories (% change)
-1.1
0.2
-0.9
-0.6
-1.0
Inventory/Sales Ratio
1.45
1.50
1.48
1.52
1.53
Chg. in Auto Inventories (mil. units, AR)
-0.3
-0.3
0.6
0.3
-0.4
-2.2
Prices and Wages
Consumer Price Index (% change)
0.6*
0.1*
-0.2*
0.2*
-0.3
0.0
Food (% change)
0.5
0.6
0.0
0.1
0.0
0.0
Energy (% change)
2.0
-0.9
-3.7
-2.5
0.3
0.8
All Other Items (% change)
0.4*
0.2*
0.4*
0.5*
-0.2
-0.1
Producer Prices
Finished Goods (% change)
-0.1
-0.1
0.1
-1.2
0.3
0.6
Intermediate Goods (% change)
-0.2
-0.7
-0.1
-0.3
0.0
0.3
Crude Goods (% change)
1.4
0.6
0.6
-0.3
-0.2
1.0
Hourly Earnings Index (% change)
Hourly Earnings Index (12-month
% change)
5.2
5.5
5.8
5.5
6.0
5.6
* - revised methodology
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ECONOMIC INDICATORS (cont'd)
Apr
Mar
Feb
Jan
Dec
Nov
Consumer Spending and Income
Personal Income (% change)
0.8
0.6
0.1
0.3
0.3
0.7
Wages and Salaries (% change)
0.8
0.6
-0.1
1.0
0.5
0.0
Disposable Personal Income (% change)
1.0
0.6
-0.1
0.5
0.2
0.8
Real Disposable Personal Income (% change)
0.3
-0.1
0.:2
0.1
0.7
Personal Consumption Expenditures
1.0
0.8
-0.1
0.5
0.3
1.0
(% change)
Real Personal Consumption Expenditures
(% change)
Retail Sales (% change)
1.6
1.7
-1.2
-0.:2
0.0
1.7
Domestic New Car Sales (mil. of units, AR)
6.3
6.0
6.0
6.0
6.1
6.8
Saving Rate (percent)
5.7
5.8
5.9
5.9
5.9
6.0
Consumer Installment Credit
2582
735
2725
2418
2015
(change, $ millions)
Consumer Confidence Index (Conf. Board)
77.3
77.1
65.8
58.0
53.5
54.8
Consumer Buying Plans (Conf. Board)
77.2
87.9
75.8
71.9
75.2
80.5
Consumer Sentiment (U. Mich.)
89.1
80.8
74.6
70.4
71.9
72.1
Construction
Real Construction Expenditures
(% change)
Private Residential (% change)
6.2
1.8
3.2
5.0
5.9
8.0
Private Non-residential (% change)
-2.9
-2.5
-4.0
0.3
-2.2
0.6
Public (% change)
-5.5
-4.3
-10.6
15.4
-9.3
1.5
New Home Sales (% change)
-4.0
0.8
-3.1
15.5
-2.9
13.3
Housing Starts (000's of units, AR)
1490
1627
1784
1694
1280
1361
Housing Starts (% change)
-8.4
-8.8
5.3
32.3
-6.0
19.2
Housing Permits (% change)
4.7
-0.8
2.2
9.1
8.1
6.3
Mortgage Interest Rates, FHLM2 (percent)
12.78
12.80
13.04
13.31
13.62
13.83
Money and Credit Conditions
M1 (% change)
-0.3
1.3
1.9
0.8
0.9
1.1
M2 (% change)
0.3
0.9
2.0
2.5
0.7
0.8
Federal Funds Rate (percent)
8.80
8.77
8.51
8.68
8.95
9.20
3-month Treasury Bills, Auction Rate (percent)
8.25
8.30
8.13
7.81
8.01
8.04
Bank Prime Rate (percent)
10.50
10.50
10.98
11.16
11.50
11.85
Treasury Bond Yields (percent)
10.19
10.34
10.60
10.37
10.33
10.18
Corporate Bond Yields (percent)
11.65
11.81
12.11
12.04
12.15
11.89
Commercial and Industrial Short
-0.6
0.0
-0.2
1.0
-2.0
-1.9
Term Credit (% change)
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ECONOMIC INDICATORS (cont' d)
Apr Mar Feb . Jan Dec Nov Oct
International Trade
Merchandise Exports ($ billions) 16.1 16.8 16.3 17.4 16.3 15.8 16.7
Merchandise Imports ($ billions) 20.7 20.4 19.9 21.0 20.0 19.7 21.9
Trade Balance, c.i.f. ($ billions) -4.6 -3.6 -3.6 -3.6 -3.7 -3.9 -5:3
National Accounts 1983 _
I IV
Nominal GNP (% change, AR)
Real GNP (% change, AR)
Real Disposable Income (% Change, AR)
Real Consumption (% change, AR)
Real Nonresidential Fixed Investment
(% change, AR)
Real Residential Fixed Investment
(% change, AR)
Housing Starts (000's of units, AR)
Change in Business Inventories
($72, billions)
1982
III II
8.3 2.6 5.8 6.8 -1.0
2.5 -1.1 0.7 2.1 -5.1
1.8 0.3 1.3 3.1 -1.9
2.6 4.5 0.6 2.5 2.5
5.6 -6.0 -7.6 -11.8 -5.0
79.6 39.3 -5.3 12.9 -10.2
1702 1261 1122 950 903
-16.1 -20.3 3.4 -4.4 -15.4
Net Exports ($72, billions) 23.5 27.2 27.5
Real Government Purchases (% change, AR) -8.5 12.0 8.4
Fixed-weighted Price Index (% change, AR) 3.2 4.9 5.9
IV III
3.0 11.4
-5.3 2.2
1.2 4.8
-3.3 2.9
0.6 9.3
-25.3 -31.9
870 961
4.8 16.5
35.7 36.9 36.5 39.2
-5.3 -2.9 7.0 3.6
4.1 4.8 8.5 8.9
Corporate Profits (% change)
Before-tax (current production) 12.6 -1.0 7.0 -1.1 -14.6
After-tax (current production) 12.2 1.2 5.3 -0.4 -10.6
Before-tax (book) 1.3 -2.4 5.0 0.0 -20.7
After-tax (book) -4.5 -1.3 2.6 1.1 -20.6
Approved For Release 2008/01/22 : CIA-RDP85M00364R000701230036-3
-4.8 4.3
1.4 4.5
-7.2 3.5
-3.9 3.1