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. 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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 August 14, 1970 SUPPLEMENTAL NOTES The Domestic Economy Gross national product in the second quarter rose $11.6 billion to a seasonally adjusted annual rate of $971.1 billion, according to Department of Commerce revised estimates, as shown in the table. The rise is $1 billion more than indicated by the preliminary estimates published a month earlier. generally small. Revisions of the major GNP components were Nonfarm business inventory investment was raised by $0.5 billion, and net exports and personal consumption expenditures by even smaller amounts. The annual rate of increase in real GNP is now indicated to be 0.6 per cent, up a little from the earlier 0.3 per cent. rate of increase in the GNP implicit price deflator is The annual now shown at 4.3 per cent, up slightly from the preliminary figure. Revisions in small. the income side of the accounts were also quite The revised figures for personal income, wages and salary dis- bursements, disposable income, and personal saving are slightly lower than indicated earlier, and the personal saving rate is now 7.5 per cent rather than 7.6 per cent. The preliminary Commerce estimate of corporate profits before tax in seasonally adjusted annual rate. the second quarter is $82.3 billion, This is down $0.3 billion from profits in the first quarter and compares with the staff estimate of $83.0 billion in the August 12 Greenbook. Higher Federal government grants- in-aid to State and local governments raised total Federal expenditures on an N.I.A. basis slightly and the Federal deficit is now estimated at a $14.3 billion annual rate, compared with the $13.9 billion staff estimate in the Greenbook. August 14, -2- CONFIDENTIAL - FR 1970 GROSS NATIONAL PRODUCT AND RELATED ITEMS Billions of Dollars Seasonally Adjusted Annual Rates 1970 1969 I II Change 70-I to 70-II Bil. Per Cent of $ Per Year Gross National Product Final purchases Private Excluding net exports 931.4 922.9 710.7 708,8 959.5 957.9 738.3 734.8 971.1 968.1 749.7 745.6 11.6 10.2 11.4 10.8 4.8 4.3 6.2 5.9 Personal consumption expenditures Durable goods Nondurable goods Services 577,5 90.0 245.8 241.6 603.1 89.1 258.8 255.2 614.4 91.9 262.6 259.9 11.3 2.8 3.8 4.7 7.5 12.6 5.9 7.4 Gross private domestic investment Residential construction Business fixed investment Change in business inventories 139.8 32.0 99.3 8.5 133.2 29.1 102.6 1.6 134.3 28.4 102.8 3.1 1.1 -0.7 0.2 1.5 3.3 -9.6 0.8 -- 8.0 .9 2.6 1.7 1.9 3.5 4.1 0.6 Gov't. purchases of goods & services Federal Defense Other State & local 212.2 101.3 78.8 22.6 110.8 219.6 102.3 79.3 23.0 117.4 218.4 99.7 76.8 22.9 118.7 -1.2 -2.6 -2.5 -0.1 1.3 -2.2 -10.2 -12.6 -1.7 4.4 Gross national product in constant (1958) dollars 727.1 723.8 724.9 1.1 0.6 GNP implicit deflator (1958 = 100) 128.1 132.6 134.0 -- 4.3 Personal income Wages and salaries Disposable income Personal saving 748.9 509.0 631.6 37.6 782.3 531.9 665.3 44.8 801.3 539.5 683.6 51.5 19.0 7.6 18.3 6.7 9.7 2.2 11.0 -- 6.0 6.7 7.5 91.2 82.6 82.3p 200.6 191.3 9.3 195.9 197.7 -1.7 4.5 3.2 Nonfarm Net exports of goods and services Saving rate (per cent) Corporate profits before tax Federal government receipts and expenditures (N.I.A. basis) Receipts Expenditures Surplus or deficit (-) High employment surplus or deficit (-) 196.6 210.9 -14.3 -- -- -- -0.3 -1.5 0.7 13.2 -12.6 1.4 26.7 -- Personal income rose by $3.6 billion from June to July, to a seasonally adjusted annual rate of $801.8 billion. Despite a further decline in employment in July, wage and salary disbursements rose by Wage increases and a slightly lengthened workweek accounted $1.9 billion. for the rise, which was concentrated in the private nonmanufacturing industries. Manufacturing payrolls were unchanged over the month, and were still well below the December 1969 peak. Increases of about one- half billion dollars each in dividends, personal interest income and transfer payments accounted for almost half of the over-all rise in personal income. PERSONAL INCOME (Seasonally adjusted, billions of dollars) Average Monthly Change: December '69 June '69 June '70 December '69 June '70 July '70 4.7 4.0 3.6 Wages and salaries Government Private Manufacturin.g Nonmanufacturing 3.5 1.0 2.5 .7 1.8 1.7 .8 .9 -. 4 1.3 1.9 .3 1.6 0 1.6 Other sources (net) 1.2 2.3 1.7 Total personal income The Domestic Financial Situation Nonbank depositary intermediaries. July at mutual savings banks is complete data, now estimated, Deposit growth during on the basis of more to have exceeded a seven per cent annual rate which is considerably higher than the earlier six per cent estimate. Deposit -4- growth at nonbank thrift institutions during June and July taken together is now estimated to have approached a ten per cent annual rate--an exceptional increase over past experience. DEPOSIT GROWTH AT NONBANK THRIFT INSTITUTIONS (Seasonally adjusted annual rates, in per cent) Mutual Savings Banks 1970 - May* June* s/ July* Memo: P/ r/ e/ * June & July p/ Savings and Loan Associations 6.4 6.0 7.1 r/ 5.6 7.9 14.3 e/ 6.6 11.2 Both 5.9 7.3 12.0 9.6 Preliminary. Revised, though still preliminary. Estimate based upon sample data. Monthly patterns may not be significant because of difficulties with seasonal adjustment. Large savings banks in New York City had deposit inflows during the first week of August that continued their pattern of recent months of being larger than last year but smaller than in 1967 and 1968. Apparently, those institutions could identify no impact from the reportedly heavy individual subscriptions to the recent Treasury issue; payment date is not until August 17, but there have been scattered reports in the news media of thrift institutions elsewhere in the country that claimed to have already experienced outflows as a result of the low-minimumdenomination offering. The Federal Home Loan Bank Board has just issued regulations, to be effective September 14, to permit depositors in Federal savings and loan associations to authorize third-party payments from their accounts. This action, which implements a provision of the Housing and Urban Development Act of 1968, provides that the payments authorised are neither transferable nor negotiable and hence, according to the FHLBB, are not like checks drawn on bank accounts. Mortgage rates. During July, average returns on conventional new-home mortgages increased slightly in the primary market, mainly reflecting higher rates permitted under recent upward revisions in usury ceilings in such States as Pennsylvania, Kentucky, and South Dakota (in July) and New Jersey (in April). In the West, where usury ceilings have not posed a market barrier, conventional home-loan rates edged down further in July to a level 25 basis points below the record high posted early this year. Meanwhile, average yields declined slightly in the secondary market for FHA-insured home mortgages, which are ordinarily exempt from usury limits. Despite a sharp improvement during July in the unusually-depressed yield spread of mortgages over new issues of high-grade corporate bonds, both conventional and Government underwritten home loans continued to offer no net investment incentive for diversified lenders. AVERAGE RATES AND YIELDS ON SELECTED NEW-HOME MORTGAGES Primary market: Conventional loans Yield spread Level (basis (per cent) points) Secondary market: FHA-insured loans Yield Discount spread Level (points) (basis (per cent) points) 1969 Low High 7.55 (Jan.) 8.35 (Nov.,Dec.) -40 (Dec.) 69 (Feb.) 7.85e (Jan.) 8.62 (Dec.) -13 (Dec.) 108 (Feb.) 2.8e (Jan.) 8.7 (Dec.) 1970 9.25e 9.29 9.20 79e 99 60 5.7e 6.0 5.3 -5 -55 -56 9.10 9.11 9.16 50 1 5 4.6 4.7 5.0 .3 9.11 48 4.7 January February March 8.55 8.55 8.55 9 25 -5 April May June 8.55 8.55 8.55 July 8.60 Note: FHA series; interest rates on conventional first mortgages (excluding additional fees and charges) are rounded to the nearest 5 basis points. On 8-1/2 per cent FHA loans, a change of 1.0 points in discount is associated with a change of 13 to 15 basis points in yield. Gross yield spread is average mortgage return, before deducting servicing fees, minus average yield on new issues of high grade corporate bonds with 5-year call protection. e/ Estimated. Government securities market. More complete data indicate that dealer awards of the new notes in the mid-August refunding totaled $1.67 billion, about $400 million more than indicated in the Greenbook. Awards of the 7-year issue are estimated at $789 million, of the 3-1/2 year issue $530 million, and of the 18-month issue $355 million. -7- INTEREST RATES '1970 July 20 August 13 Highs Lows 9.39 (2/18) 6.82 (8/12) 7.59 (7/15) 6.82 (8/12) 6.08 (3/24) 7.13 (3/30) 8.00 (4/20) 6.50 (7/24) 7.25 (4/28) 6.37 Short-Term Rates Federal funds (weekly averages) 3-months Treasury bills (bid) Bankers' acceptances Euro-dollars Federal agencies Finance paper CD's (prime NYC) Highest quoted new issue Secondary market 6-month Treasury bills (bid) Bankers' acceptances Commercial paper (4-6 months) Federal agencies CD's (prime NYC) Highest quoted new issue Secondary market 7.92 8.75 10.50 8.30 8.19 (1/6) (1/13) (1/9) (1/9) (1/30) 7.88 8.80 6.53 (7/17) 7.75 6.75 9.25 (1/23) 6.75 6.75 6.75 (4/10) 7.94 7.99 (1/5) 8.88 (1/13) 9.13 (1/8) 6.18 7.25 7.88 6.91 8.50 (1/28) (3/23) (3/30) (3/30) (4/17) 6.53 7.50 8.33 7.01 7.75 6.75 7.75 6.64 6.47 7.63 7.38 8.25 8.00 7.14 (7/17) 7.32 7.00 9.15 (1/7) 7.00 7.25 (4/17) 7.00 7.88 7.00 7.80 7.59 (1/9) 5.60 (1/9) 6.20 (4/13) 3.80 (3/27) 6.60 4.80 (7/16) 6.64 4.20 8.30 (1/7) 7.73 (5/26) 7.05 (3/25) 6.55 (2/27) 7.59 6.94 7.62 7.12 Corporate Seasoned Aaa Baa 8.60 (6/24) 9.45 (7/8) 7.78 (3/10) 8.57 (3/10) 8.46 9.40 8.10 9.43 New Issue Aaa No call protection Call protection 9.29 (6/17) 8.20 (2/27) 8.58 8.53 Municipal Bond Buyer Index Moody's Aaa 7.12 (5/28) 6.95 (6/18) 5.95 (3/12) 5.75 (3/12) 6.60 (7/16) 6.30 6.50 (7/16) 6.10 Mortgage--implicit yield in FNMA auction 1/ 9.36 (1/2) 9.04 (4/20) 9.21 (7/13) 9.03 (8/10) 1-year Treasury bills (bid) Prime municipals Intermediate and Long-Term Treasury coupon issues 5-years 20-years 8.53 I/ Yield on 6-month forward commitment after allowance for commitment fee and required purchase and holding of FNMA stock. Assumes discount on 30-year loan amortized over 15 years. International Developments U.K. merchandise trade. British merchandise trade in July, according to the official statistics released Thursday, recorded a huge surplus of £137 million, balance of payments basis. This result reflects the effects of the dock strike in the latter half of July in conjunction with the fact that the statistics cover different periods for exports and imports. Because of lags in the filing of documents, the trade figures report export deliveries not for the calendar month but for the month up to, approximately, the 20th. Imports, on the other hand, are reported more promptly, and the import statistics are thus for the calendar month. The export figures for July, therefore, were far less affected by the dock strike than the import figures. Exports, as officially reported, were virtually unchanged from June, but imports declined by 25 per cent. The trade balance in August will almost certainly record an abnormally large deficit, since the export statistics will include most of the period when the dock strike was in progress. It is thus clear that neither the July trade figures, nor the August figures to come, can be at all useful in assessing the underlying condition or direction of merchandise trade. In fact, the after effects of the dock strike--even when timing differences in recording exports and imports have ceased to matter--are likely to distort the trade results to some degree for several months. British trade in the first six months of the year is discussed in the Greenbook, in the section on foreign trade of major industrial countries. Reserve requirements in Germany. The German central bank last Wednesday imposed severe marginal reserve requirements, indicating thereby that it intends to maintain its restrictive monetary policy. It had been thought in July, when the Bundesbank reduced the discount rate from 7-1/2 per cent to 7 per cent, that the tighter fiscal policy the Government had just adopted might allow monetary policy to relax somewhat. However, in its meeting this week, the Bundesbank Council concluded that continuing demand and price pressures in Germany warrant maintaining a tight monetary policy. The increase in reserve require- ments was decided on in order to offset additions to domestic liquidity caused by flows of funds from abroad. The new marginal requirements are 40 per cent on increases in sight and time liabilities and 20 per cent on increases in savings deposits over the average level in April, May and June of this year. Added to regular reserve requirements, this means that the large German banks will have to hold 52 per cent cash reserves against increases in sight deposits, 48 per cent against increases in time liabilities, and 26 per cent against increases in savings deposits.The limited availability and relatively high cost of credit in German financial markets since late last year has caused large-scale 1/ However, average reserve requirements cannot exceed 30 per cent against sight deposits, 20 per cent against time deposits and 10 per cent against savings deposits. -10- capital imports by German banks and non-banks, which together with a continuing large trade surplus have generated very substantial over-all balance of payments surpluses. Last March, marginal reserve require- ments against additions to the banks' liabilities to non-residents were imposed. Inflows to Germany continued, however, and after Bundesbank reserves rose by over $900 million during the first two weeks of June alone, over-all reserve requirements were raised 15 per cent, effective July 1. Since then, however, the net foreign assets of the Bundesbank have increased by about $900 million more--mainly before the end of July. Purchases of foreign exchange by the Bundesbank of course create reserve funds for the German banks. It was to prevent such additions to bank reserves from undermining the tight credit policy that the Bundesbank announced the new marginal reserve requirements. These requirements apply to liabilities to both residents and non-residents and replace those imposed in March against increases in liabilities to non-residents alone. The March measures have had only limited effect because of direct borrowing abroad by German non-banks. 

Federal Reserve (1970, August 17). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19700818_part3

@misc{wtfs_greenbook_19700818_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1970},
  month = {Aug},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19700818_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}