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fomc | 1,977 | I am sorry, sir-- | 6 |
fomc | 1,977 | You have supportive business inventory numbers. That is, you don't have any collapse in inventory accumulation at any point. But it isn't contributing in an algebraic way very much more to the growth in GNP. | 41 |
fomc | 1,977 | That's right. So basically, we have several sectors of the economy which have provided very substantial support in the recent past which are beginning to fade. And happily we have some components to the economy which are coming along to provide some support and give us a rate of growth which, in our projections, seems ... | 68 |
fomc | 1,977 | All right, thank you. Mr. Mayo, please. | 12 |
fomc | 1,977 | Jerry, the high-employment budget chart strikes me as being even more artificial than usual, if I may use that phrase. How do we calculate the high-employment budget balance these days? It certainly still isn't back at 4 or 4-1/2 percent unemployment. | 56 |
fomc | 1,977 | No, the unemployment rate at the moment is about 4-3/4 percent. | 18 |
fomc | 1,977 | Yes. And that's why it looks so artificial. | 10 |
fomc | 1,977 | What about the inflation rate? What's the inflation rate that's assumed? Is it the projection? | 18 |
fomc | 1,977 | This is our calculation and therefore a projection. Yes, and different from the Council [of Economic Advisers]'s projection, to that extent. The key point here, of course, is not so much the level, which will differ depending upon who does the calculation, but the movements. And my presentation really was to suggest th... | 145 |
fomc | 1,977 | Well, I guess my point is, my problem, Jerry, is that the concept is just becoming so obscure that I'm wondering why we even pay much attention to it, calculated that way, with participation in the labor force on an entirely different structure. Even the goal of 6 percent unemployment seems difficult to attain these da... | 226 |
fomc | 1,977 | We expect 32 Ph.D. dissertations on the subject, but at the moment we don't have any definitive way of answering that. That is certainly a possibility | 31 |
fomc | 1,977 | The 33rd dissertation will have the definitive answer. | 11 |
fomc | 1,977 | Until the 34th comes around. | 8 |
fomc | 1,977 | Sounds like a Masonic Lodge to me. One further question that's more broadly based as it relates to our upcoming discussion on the range of our goals over the next year on monetary aggregates. If you were to construct these figures--your outlook on 5 percent as against 5-1/2 percent as a central tendency--would you have... | 112 |
fomc | 1,977 | We specialize. Mr. Kichline will answer that one. | 13 |
fomc | 1,977 | Before answering, let me just say that we're having a great deal of difficulty with the econometric model in the money demand function, which has been causing most people difficulty. And so I think the confidence which we would associate with our alternative M1 rates of growth and what the impacts are is less today tha... | 202 |
fomc | 1,977 | Well, thank you very much. | 7 |
fomc | 1,977 | That was a 1 percent difference? | 8 |
fomc | 1,977 | One-half-- | 3 |
fomc | 1,977 | If I can follow-on there, Mr. Chairman, with a question in this connection? If I have my facts straight, your projections this time are very close to what they were last time, within a tenth or two. But the money supply assumption has implicitly been changed because you're assuming 5-1/2 from the second quarter instead... | 160 |
fomc | 1,977 | The former. The rate of growth is about 3/4 percentage point more--I think it's the equivalent of 6-1/4 percent versus 5-1/2. It's reflected in our projection most explicitly in the fact that we have lower interest rates now associated with virtually the same level of nominal GNP. But the incoming information, as we've... | 96 |
fomc | 1,977 | May I ask a question about capacity utilization? I know the projected rate of utilization reaches around 88 percent by the end of the projection period--that is, the fourth quarter of 1978--87.7 for materials and 88.3 for all manufacturing. And the unemployment rate is still 6-1/4 percent or thereabouts. Now what I won... | 157 |
fomc | 1,977 | Those rates are pretty high relative to the peaks that we obtained in 1973--particularly for manufacturing, a little less so for materials. Actually, the 88 percent is very similar to the peak rate that we achieved for total manufacturing through 1973. Materials a little better. Our peak in major materials was 93 perce... | 67 |
fomc | 1,977 | 90-what percent? | 5 |
fomc | 1,977 | 93 percent. So we remain a bit under there, and of course this is the sector where we ran into trouble back in 1973. | 29 |
fomc | 1,977 | Quite a bit, this is 87, this is 88. | 14 |
fomc | 1,977 | It's 88. | 4 |
fomc | 1,977 | You're 5 points below | 5 |
fomc | 1,977 | We're 5 points below, so we still have a fair amount--not a fair but a reasonable amount--of margin there. But certainly we will be approaching the position where selective problems will be developing, I would think. | 45 |
fomc | 1,977 | Which would have implications for the rate of inflation. | 10 |
fomc | 1,977 | In terms of your reference to unemployment, I think one has to, as you know, recognize structural changes that have tended to occur in the labor market--tended to bias up the unemployment rate. And, in addition, we've just recently been through a period of enormous growth in the labor force, which was very largely made... | 107 |
fomc | 1,977 | You mean 6-1/4 might be a pretty good rate of unemployment? | 17 |
fomc | 1,977 | Well, 6-1/4 by capacity, yes. | 13 |
fomc | 1,977 | Although I haven't heard anything here in the city that would suggest acceptance of that. | 16 |
fomc | 1,977 | Not at 6-1/4, but as a goal. But the Council [of Economic Advisers] has recognized--the government, Administration--has recognized the fact that a goal of 4 or 4-1/2 is now unrealistic, and we're talking about 5-1/2, 5-3/4, in that neighborhood. | 74 |
fomc | 1,977 | Well, as I recall the figures, if we had a labor force composition similar to that of 1970--teenagers, women, and adult men--the consequences today would be roughly 1 percent lower on the unemployment rate. | 47 |
fomc | 1,977 | The mid-60s, roughly. | 8 |
fomc | 1,977 | If you had the same composition-- | 7 |
fomc | 1,977 | Going back to the mid-60s-- | 9 |
fomc | 1,977 | What-- | 2 |
fomc | 1,977 | If you went back to the mid-60s. | 11 |
fomc | 1,977 | --about 1 percentage point difference. | 8 |
fomc | 1,977 | Mr. Chairman, may I talk. In focusing on your capacity level, have you taken cognizance of the full pack of energy regulations and anything like that, which could reduce that capacity level below the 88? | 44 |
fomc | 1,977 | We haven't explicitly considered that, but we are aware that there are some problems. The aluminum situation in the West is one. We understand that there are some aluminum facilities in the Southwest that use natural gas that are not effective in today's environment. They are included in these numbers in the capacity s... | 120 |
fomc | 1,977 | But your projection is basically exclusive of those problems, but it may have reduced them? | 17 |
fomc | 1,977 | We will know more about that as we get reports in. Basically, we derive our stock figures, our capacity figures, from producers themselves, and there is some lag in getting that kind of information. But as we get it, of course, we will build that in, and it will reflect their view of what the energy situation has done ... | 72 |
fomc | 1,977 | Well, I think we should move on. Mr. Balles, please. | 16 |
fomc | 1,977 | Well, Mr. Chairman, my question has already been anticipated by Bob Mayo, but I would like to elaborate a bit and perhaps suggest something in terms of how we deal with this matter in the future. Since we're faced with a choice of alternatives A to D in terms of the longer-term growth ranges of the aggregates today, I ... | 222 |
fomc | 1,977 | All right. | 3 |
fomc | 1,977 | You recollect correctly, and I think the last time that it was done might have been something like a year ago. And I believe that the major difficulty that we faced is our own concern about measuring policy impacts in a model in which the money stock is quite important, or interest rates are quite important. You specif... | 197 |
fomc | 1,977 | Well, thank you. I was sure that the staff had some views on this and was undoubtedly doing some work on it. In our Bank, we happen to be convinced that, currently, M2 is a better predictor of the real economic variables than M1, and that was detailed in a paper circulated recently. My own staff does do these calculati... | 197 |
fomc | 1,977 | I think that we must leave some elbow room for the staff. Unless there is a request of this kind from the entire Committee or a sizable number of Committee members, I think we should rely on the judgment of our staff. However, any member of the Committee who wants the calculation that Mr. Kichline has described, and wh... | 105 |
fomc | 1,977 | What about-- | 3 |
fomc | 1,977 | Whether it should be done as a regular presentation, I think that should depend partly on the thinking of our staff and partly on the wishes of the Committee. I don't think we can load up these meetings in response to individual requests. I think individual requests of Committee members should always be respected. But ... | 85 |
fomc | 1,977 | I might say, Mr. Chairman, that I have asked for the data, and they've been made available. It is a question of remembering to ask for it in time. If we can sort of put in a standing order, I'd be satisfied. | 50 |
fomc | 1,977 | Well, I see no reason why it can't be done in the same way the flow of funds table is done, except to make it just once a quarter. But I would be opposed to giving much Committee time to it, because I don't think those figures are worth anything. I mean I think that the aim of the Committee [as has been explained], pro... | 208 |
fomc | 1,977 | Chuck, I think you're right on the allocation of time here, which is precious, but I found the staff's answer to my question important and yet I don't want to pursue it in detail. They have developed a model--we certainly are all sophisticated enough to know the perils of these models. And their judgment as to the incr... | 161 |
fomc | 1,977 | Well, it's particularly [useful] running it out a long time, even though it's very hazardous and all the qualifications attached. Since we're dealing with something that has an effect only with a long lag, it isn't really helpful to ask ourselves what it will accomplish over a year. It accomplishes minute differences. ... | 94 |
fomc | 1,977 | But we are revising these paths quarterly, so I take some shelter in that. | 17 |
fomc | 1,977 | I don't want to prolong this unnecessarily, Mr. Chairman, but I find myself very sympathetic with what Mr. Partee had to say. It seems to me there is some danger of lending more weight to this than it's really worth. What we have is an equation, as I understand it, that's always going to have more or less the same answ... | 149 |
fomc | 1,977 | Paul, I wasn't suggesting every month. I was suggesting like once a quarter, when we consider the longer-term ranges. | 24 |
fomc | 1,977 | I think Paul's point is still that the staff can give you the schedule that's good for all time on what 1 percent [more] or 1 percent less of the money supply will do one year, two years, three years out in terms of real GNP and the price deflator. | 59 |
fomc | 1,977 | Until they revise the equation. | 6 |
fomc | 1,977 | That is, if you're just reading the model. Now, we used to try to adjust the model. We never did present to the Committee just the econometric model. If you go to the econometric model, which I think is really all that can be done now [given] the state of the information we have, why, it will give you the same answer e... | 77 |
fomc | 1,977 | Well, Chuck, I'll say one more thing on this and then I will shut up. Does that suggest to you, then, that this choice among alternatives A, B, C, and D, isn't really a meaningful choice? | 46 |
fomc | 1,977 | I think it's meaningful in the sense that I expressed it earlier. We are trying to probe to see what is the minimum rate of growth we can achieve. And I think, in that sense, you do have, indeed, ranges of choices of the kind that are shown in A, B, C, and D. Except for D, there's not very much difference between them. | 76 |
fomc | 1,977 | That would only say that you have to make up your mind. | 13 |
fomc | 1,977 | In the last analysis, what are we talking about? We're talking about being guided by judgment or being guided by a mechanical model. And some of us may wish to be guided by the latter. May God bless the efforts of those who proceed in either way. Let us move on. | 57 |
fomc | 1,977 | That's--forgive me, Mr. Chairman, but that's really not the issue. The issue is time. We take these one-year data. We always find that, for a painful increase in interest rates, we get very little gain on inflation-- | 50 |
fomc | 1,977 | That's what the model tells us. And then if we take two years, it increases; take three years, it increases more. And that answer is given once and for all, as Mr. Partee and Mr. Volcker have indicated. We know what the model is going to tell us. If we don't, we haven't been listening. However, look, I have no objectio... | 144 |
fomc | 1,977 | Mr. Chairman, we can put that-- | 9 |
fomc | 1,977 | It's a free society, and each of us thinks for himself, thank God. | 16 |
fomc | 1,977 | We can put that together. I would hope it's quarterly and not monthly, though. | 17 |
fomc | 1,977 | No. We've talked too much about this. Let's move on to Mr. Baughman. | 19 |
fomc | 1,977 | Mr. Chairman, a question with respect to the inventory data. You have the impression that these data attempt to take into account the continuing shift of business firms to the so-called LIFO method. Or [do] they just kind of pass that by and [are] based largely on inventory estimates at current market prices? | 64 |
fomc | 1,977 | Well, the GNP inventory estimates attempt to make-- | 11 |
fomc | 1,977 | I'm sorry, I can't hear you. | 8 |
fomc | 1,977 | I'm sorry. The GNP inventory estimates attempt to make an adjustment for shifts between LIFO and FIFO. They do surveys periodically to get some kind of estimate of the percentage of firms using each of the types of accounting procedures and adjust for it. Now, there is obviously a lag in that kind of calculation becaus... | 104 |
fomc | 1,977 | But if the attempt is to deflate the inventory, then we could be looking at a series of inventory-sales ratios which do not adequately reflect the volume of goods and inventory in relation to the volume of sales being valued at current prices. And I am wondering whether there is a possibility that we've got more goods ... | 75 |
fomc | 1,977 | Well, it's certainly true that-- | 7 |
fomc | 1,977 | I thought that there was a bias like that in those statistics. | 13 |
fomc | 1,977 | What bias do you mean, Mr. Chairman? | 10 |
fomc | 1,977 | The kind of bias that Mr. Baughman is suggesting. | 13 |
fomc | 1,977 | You mean as prices tend to rise, biases over a period of time exist? | 16 |
fomc | 1,977 | Now that the rise in price is clearly reflected in the sales figures and less so in the inventory figures. | 21 |
fomc | 1,977 | That's correct. You would get that kind of thing. I think this is one of the most difficult areas to calculate, to deflate and calculate a real figure. But looking at the various kinds of inventory figures that we have available--the book-value figures are generally undeflated and without adjustments for types of accou... | 125 |
fomc | 1,977 | To clear this up, Jerry, they standardize inventory change in the GNP, but the book-value figures are not standardized-- | 26 |
fomc | 1,977 | The book-value figures are not standardized. Nor are-- | 11 |
fomc | 1,977 | --and so the inventory-sales ratio is reflecting--in addition to a lag, say, at the time that Ernie is speaking of--changes in the mix, that is, changes as you get more and more LIFO firms and fewer and fewer FIFO firms; there would be a drift-- | 59 |
fomc | 1,977 | Absolutely correct. | 3 |
fomc | 1,977 | Would it be possible to adjust them based on a changing rate of inflation? Would that be just too complicated to be meaningful? | 25 |
fomc | 1,977 | You do have such a series that does show that the inventory ratios are higher, I think, than you get on a conventional basis. | 27 |
fomc | 1,977 | There is a deflated rate series on book value. Is that what you were talking about? | 19 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | Well, I understand that [the] Commerce [Department] does go through a process in which they attempt to neutralize the effects of the shifting proportion of firms that are on LIFO. But I guess it seems to me the meaningful inventory ratio to be looking at would be a ratio between inventories valued at market prices and ... | 80 |
fomc | 1,977 | My understanding of this is that there are two deflated series, and unfortunately they show different answers. | 20 |
fomc | 1,977 | There is a series on book value that is deflated fairly recently, and there is the GNP deflated series. | 24 |
fomc | 1,977 | All this is terribly complicated. I don't know where we are going to get. The one simple thought to put to the statistical people is, in gathering their inventory figures, could they not get inventory figures for LIFO firms and then for other firms and examine these two bodies of data separately? Then you can get at th... | 121 |
fomc | 1,977 | Unfortunately--I don't want to [complicate] the discussion--but apparently firms switch back and forth, though they are not supposed to. At the end of the year they use one process, and then during the year they use another process. It's apparently a terribly, terribly messy business and tends to give you within-year s... | 102 |
fomc | 1,977 | Might I interrupt? There is a great problem connected with going on LIFO. Once you have gone on LIFO, you can't return periodically. And furthermore, you can't even indicate what the difference between LIFO and FIFO is in your annual statement. | 51 |
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