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 some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. 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 optical 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. Content last modified 6/05/2009. CONFIDENTIAL (FR) SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System July 22, 1966 SUPPLEMENTAL NOTES The Domestic Economy The Consumer Price Index rose .3 per cent in June, following a rise of only .1 per cent in May, reflecting seasonal recovery in foods and continuation of substantial and widespread increases among services. Nonfood commodities changed little. CONSUMER PRICES Per cent change to June from: June Dec. May 1966 1965 1965 All items 0.3 1.7 2.5 Foods 0.4 3.0 3.5 0.1 0 0.1 -0.2 0.6 0 0.7 1.0 0.9 -1.9 0 0.6 1.2 2.2 1.9 -0.6 -3.7 -0.6 Services 0.4 2.3 3.7 Medical care Transportation Rent Other household 0.7 0.2 0 0.7 3.2 1.6 0.6 2.8 4.7 3.9 1.3 4.2 Nonfood commodities Apparel Other nondurables New cars Used cars Household durables Medical services--doctors'and dentists' fees and health insurance changes--rose .7 per cent further in June, and the rise of 3.2 per cent in the first half of this year is almost as large as the one in all of 1965 and exceeds the increase in 1964. BLS notes in its report that mortgage interest rates rose 2 per cent in June, and altogether, household services showed a relatively large increase. -2The first-half rise in this group--2.8 per cent--was more than the increase in all of 1965 and twice that in 1964. Even with the rise in rent continuing at a slow pace, the increase in total services this year has accelerated to an annual rate of 4.5 per cent--a rate equaled in 1957 but not exceeded since the Korean War period. The June increase in food prices was, according to BLS, in line with seasonal expectations. The increase of 3.5 per cent over the year from June 1964 mainly reflects a 14 per cent rise in pork. Supplies of pork usually reach their seasonal low in July. The subsequent expansion in supplies this year will be considerably greater than seasonal. International Developments The measures announced by Prime Minister Wilson on Wednesday relate to: 1. Restraint of private domestic demand; 2. Deferment of public investment demand; 3. Limitation of overseas expenditure by the Government and by tourists and emigrants; 4. A "standstill" on wages, dividends, and prices. The new measures to restrain private domestic demand come on top of a credit policy which is meant to keep bank advances to the private sector at virtually their present level this year and on into next year, despite the great squeeze on business liquidity which the -3- selective employment tax will create in September-January. Instalment credit downpayments are increased (for cars to 40 per cent) and repayment periods reduced. The existing power to raise indirect tax rates by 10 per cent (the "regulator", last used in 1961) is applied to the taxes on alcoholic beverages and on gasoline and oil, and to the "purchase tax" on a wide range of consumer goods, especially durables. Postal and telephone charges are raised. A 10 per cent surcharge will be levied on surtax paid in the fiscal year that ended last April. Private construction, outside of housing and the industrial field, will be limited by requiring approval for smaller projects than those hitherto covered, and by requiring special permits for any sizable office building construction in the Midlands and the South of England. In so far as any of the foregoing measures necessitate parliamentary action, such action is virtually certain to be forthcoming. Investment projects of nationalized industries and to a lesser extent those of central and local government (but not those for housing, schools or hospitals) are to be deferred in such a way as to have a significant impact in the current fiscal year and to make a 150 million cut in 1967/68 below what such outlays would have been expected to be. (This would be a cut of the order of magnitude of 10 per cent in the categories to which it applies.) For a direct impact on the balance of payments, the Government's own overseas expenditures are to be cut by 100 million, -4not counting military expenditures in Germany. Of this cut, economic aid would take £20 million, military aid £5, and apparently defense expenditures most of the rest. Mr. Callaghan was in Germany on Thursday totalk about the offset agreement and the strength of British forces there. British tourists abroad are to be limited to £50 per person a year, excluding fares. Other measures affect emigrants' allowances and cash gifts. The measures relating to wages, dividends, and prices are not clearly defined. The Government is to consult with the TUC and the Confederation of British Industries and then to issue a White Paper in the near future. A voluntary six-months "standstill" on wages, salaries, and other types of income is called for, months of "severe restraint." followed by six A 12-month standstill on prices is called for, with exceptions for increases necessitated by higher import costs, higher indirect taxes, etc. The Prices and Incomes Bill which is now before Parliament is to be strengthened so as to back up this program. Corrections Page III - 6: In the second sentence of the middle paragraph change "lead" to "had" before September. Delete the last two words in that page. Page III - 13: Insert "June" between May and July in Page III - 21: The top part of the table should be in the table. Billions of Dollars. APPENDIX A: FINAL BUDGET RESULTS FOR FISCAL 1966. The final budgetary figures for fiscal 1966 show that Federal revenues on all three budgets have risen more sharply than was expected only three weeks ago. The primary reason for this is that the Treasury underestimated the impact of the June 20 acceleration in employer withheld tax payments. In their July revisions the Commerce Department has also built a larger effective withholding rate into national accounts revenues. Small changes in this rate can lead to fairly important changes in total revenues. The final budget figures show no important changes in Federal expenditures. Special defense expenditures for Vietnam were $5.8 billion during fiscal 1966, about $1,1 billion more than expected in January. Total nondefense expenditures were off by about $500 million. Cash expenditures are much higher relative to Budget projections than are expenditures on the other accounts. This can be explained by the large first half expenditures of FHLB and the agricultural lending corporations, which are included in total cash payments but not in the other budgets. At the same time, the projection error in cash receipts was larger than in the other budgets, and the deficit deviated from January projections by about the same amount as in the other budgets. The revenue revisions have the obvious effect of making the budget look more restrictive than it was previouly felt to be. Although the full employment surplus in fiscal 1966 was much lower than in 1965, it now appears to have increased moderately during the fiscal year. A--T - 1 (In FEDERAL BUDGETS billions of dollars) By Half-Years By Fiscal Years July - Dec. 1964 Jan. - June 1965 t 1964 1J9 July - Dec. Jan. - June 1966 1965 Half-year totals, not seasonally adjusted 1966 Administrative Budget Receipts Expenditures Deficit (-) 39.6 48.1 - 8.5 53.5 48.4 5.2 43.2 53.0 - 9.9 61.4 53.9 7.5 89,5 97.7 - 8.2 93.1 96.5 - 3.4 104.6 106.9 - 2.3 100.0 106.4 - 6.4 Cash Budget Receipts Payments Deficit (-) 51.3 61.5 -10.2 68.4 60.9 7.5 55.0 67.1 -12.0 79.4 70.5 9.1 115.5 120.3 - 4.8 119.7 122,4 - 2.7 134.4 137.6 - 3.2 128.2 135.0 - 6.9 128.8 131.0 Jan. 1966 Budget Document Annual Rates, seasonally adjusted National Income Budget Receipts Expenditures Deficit (-) Full Employment Budget Receipts Expenditures Surplus (+) 116.3 118,1 124.5 120.2 125.4 126.7 138.7 135.7 115.0 116.3 120.4 119.1 132.0 131.2 - 1.8 4.3 - 1.3 3.0 - 1.3 1.3 .8 121.2 117.6 128.8 119.8 128.0 126.4 138.8 135.7 120.8 115.2 125.0 118.8 133.4 131.0 3,6 9.0 1.6 3.1 5.6 6,3 2.4 .1.i• i___________________ - 2.2 

Federal Reserve (1966, July 25). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19660726_part3

@misc{wtfs_greenbook_19660726_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1966},
  month = {Jul},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19660726_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}