Academic journal article Federal Reserve Bulletin

Record of Policy Actions of the Federal Open Market Committee

Academic journal article Federal Reserve Bulletin

Record of Policy Actions of the Federal Open Market Committee

Article excerpt

Record of Policy Actions of the Federal Open Market Committee

Domestic Policy Directive

The information reviewed at this meeting suggested that the expansion of economic activity might be moderating from the vigorous pace experienced earlier in the year. Information on output and spending in the third quarter was still fragmentary, but recent statistics, including data on labor market activity, pointed on balance to some slowing in the rate of economic growth. Measures of price and wage inflation showed little change from recent trends, apart from the continuing upward impetus to food prices stemming from the drought.

Total nonfarm payroll employment rose more slowly in July and August, but gains in overall employment remained sizable. After four months of strong increases, manufacturing employment fell slightly although some industries with strong domestic and export sales recorded further increases. The civilian unemployment rate edged up in July and rose somewhat further to 5.6 percent in August, returning to its average level of the first half of the year.

Industrial production advanced somewhat further in August after a sharp increase in July. Production gains were recorded for most categories although they generally were smaller than those in July. Total industrial capacity utilization was little changed in August. Utilization rates remained at relatively high levels in primary processing industries but slipped in manufacturing as a whole after four months of increases.

Total retail sales were little changed on balance in July and August. Outlays for durable goods declined in both months, partly because of some slowing in unit sales of new automobiles. Sales of nondurable goods increased at a sluggish pace.

Recent information on business capital spending suggested some moderation from the very rapid growth in earlier months of the year. Real outlays for equipment continued to expand in July but at a pace well below that of the first half of the year as shipments of office and computing equipment fell. Nonresidential construction activity apparently edged higher in July despite further contraction in oil drilling and in spending on industrial and commercial structures other than office buildings. Inventory investment in the manufacturing and wholesale sectors in July evidently remained at about the moderate second-quarter pace. Housing starts rose in July, as multifamily construction rebounded from a reduced June level, but single-family starts remained close to the average pace of the first half of the year. Sales of new and existing homes retreated from their June pace, which had been the highest in more than a year.

The nominal U.S. merchandise trade deficit fell appreciably further in July from a considerably reduced second-quarter rate and was the lowest monthly deficit since March 1985. Virtually all of the improvement in July was due to a reduction in imports. The total value of exports was little changed from the June level as a sharp reduction in exports of automotive products about offset small increases in most other major categories. Economic activity in major foreign industrial countries slackened in the second quarter, but expansion appeared to have resumed in the current quarter.

Producer prices of finished goods, propelled by further substantial increases in refinery prices for gasoline, registered another large advance in August. At the level of crude materials, producer food prices were up sharply for the fourth straight month, reflecting the continuing effects of the drought. Consumer prices, available for July, advanced at about the second-quarter pace. Consumer food prices surged again; and energy prices rose further, mainly because of higher gasoline prices. Excluding food and energy items, consumer prices increased at about the average pace of the preceding 12 months.

In the foreign exchange markets, the trade-weighted value of the dollar changed little on balance over the period since the Committee meeting on August 16. …

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