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 January 8, 1971 SUPPLEMENTAL NOTES The Domestic Economy Labor market. The labor market eased further in December with the unemployment rate rising from 5.8 per cent in November to 6.0 per cent, the highest level since the end of 1961. adults, The increase was among The mainly those who had been laid off from their last job. unemployment rate for men 25 years and over rose from 3.3 to 3.6 per cent--twice as high as a year ago--and for women 25 years and over from 4.7 in November to 5.0 per cent. For young persons 16 to 24 years unemployment rates remained at about their November highs. Recalls of workers on secondary layoff in auto supplier firms resulted in a reduction of insured unemployment. SELECTED UNEMPLOYMENT RATES (Seasonally adjusted) December 1969 November 1970 December 1970 3.5 5.8 6.0 Men aged: 16 to 19 years 20 to 24 years 25 and over 11.0 5.5 1.8 16.6 10.2 3.3 16.8 10.3 3.6 Women aged: 16 to 19 years 20 to 24 years 25 and over 12.8 6.1 3.0 18.6 9.5 4.7 18.4 9.1 5.0 2.4 4.5 4.2 2.1 4.3 3.6 3.5 7.3 5.9 3.7 7.7 6.1 Total Insured unemployment* White-collar workers Blue-collar workers Service workers * For survey week. - -2 Nonfarm payroll employment increased 290,000, reflecting a rebound of 375,000 in manufacturing employment following the end of the GM strike. Retail trade employment declined significantly further in December. CHANGES IN NONFARM PAYROLL EMPLOYMENT (Seasonally adjusted, in thousands) Total Manufacturing Nonproduction workers Production workers Durable Nondurable Mining Contract construction Transportation Trade Finance Service Government Federal State and local Nov. 1970Dec. 1970 Dec. 1968Dec. 1969 Dec. 1969Dec. 1970 1,805 - 451 288 73 112 -39 -1,164 - 202 - 962 373 -10 383 5 68 - 938 - 226 376 -3 11 110 114 494 163 508 332 - 5 337 - 2 - 183 - 26 79 93 285 467 - 52 519 -1 8 -51 -104 9 23 31 - 9 40 The increase in auto production was also reflected in employment gains in fabricated metals, electrical equipment, and primary metals. In nondurable goods industries, employment was again little changed. Manufacturing was still about 350,000 below its September pre-strike level and off by 1.2 million from a year earlier. About one-sixth of the decline from a year earlier occurred among nonproduction workers. - 3 - The average workweek of factory production workers edged up by 0.1 hour but at 39.7 hours in December was an hour less than a year earlier; reductions in overtime hours accounted for most of the overthe-year decline. The average workweek in private nonfarm industries as a whole was unchanged in December. Auto sales. Sales of new domestic autos rose in the last selling period of December to an annual rate of 5.6 million units from a 4.8 million rate in the first 20 days. The rise reflected the beginning of G.M.'s recovery from the strike. Sales for the month as a whole, however, were unchanged from November and were at an annual rate of 5.0 million units. Foreign car sales continued strong in December and were at a seasonally adjusted annual rate of 1.3 million units. AUTO SALES Millions of cars Total 1969 1970 9.52 8.36 Domestic 8.46 7.11 Imports 1.06 1.25 Imports as per cent of total 11.1 15.0 Inventories of new domestic autos rose sharply in December from the strike reduced November level and at month's end were 17 per cent below a year earlier. The rise reflected both the end of the G.M. -4 - strike and poor sales by Chrysler and A.M.C. (Chrysler announced employment reductions yesterday). Consumer credit. Consumer instalment credit outstanding fell $3.6 billion, seasonally adjusted annual rate, in November. This unusually large decline reflected a reduction of $5.4 billion (SAAR) in auto debt that was only partly offset by modest gains in other types of credit. Total extensions of instalment credit declined to their lowest rate since last March; on a seasonally adjusted annual rate basis November extensions were down $2.0 billion from October and were $7.8 billion below the peak of $108.8 billion in July. Repayments, on the other hand, rose to a new high for the second month in a row. The impact of the GM strike, as seen in the reduced volume of new car sales during November, dropped auto credit extensions to a six-year low. Nonautomotive consumer goods extensions were unchanged from the relatively high October figure, however, and personal loan extensions increased moderately. NET CHANGE IN CONSUMER INSTALLMENT CREDIT OUTSTANDING (Billions of dollars, seasonally adjusted annual rates) Total 1970 - QI QII QIII Oct.-Nov. Automobile Other Other consumer goods 4.0 4.6 4.1 .0 .2 - .6 2.4 2.3 2.4 -2.3 -3.9 .6 Personal loans loans 1.7 1.9 2.1 .9 -5Retail inventories. The book value of retail inventories declined at a $4.5 billion annual rate in November, as the GM strike caused a continued runoff in auto dealers' stocks. Other durable goods retailers and nondurable outlets built stocks at a higher rate than in October or the previous quarter. CHANGE IN BOOK VALUE OF RETAIL INVENTORIES Seasonally adjusted annual rates, billions of dollars 1970 QIII October November .8 .3 4.7 2.9 - 9.7 -11.7 -4.5 -9.0 1.0 -. 7 .5 2.8 .1 1.8 -12.0 .3 2.1 -9.5 .5 4.5 QII Retail, total Durable Automotive Nonautomotive Nondurable NOTE: Detail may not add to totals because of rounding. Inventory-sales ratios rose generally at retail establish- ments in November. RETAIL INVENTORY-SALES RATIOS 1969 Retail, total Durable Automotive Nonautomotive Nondurable 1970 October November 1.50 2.14 1.73 2.77 1.50 2.15 1.72 2.80 1.47 2.16 1.84 2.55 1.48 2.20 1.87 2.57 1.20 1.21 1.18 1.19 October November - 6- Retail sales. January 2, 1971), On the basis of five weeks sales (ending total retail sales for the month of December are now estimated to be up 1.4 per cent from preliminary November sales, as indicated in the January 6 Greenbook. about Excluding sales at auto- motive, lumber, building materials, hardware, and farm equipment outlets, total retail sales in December were up 0.9 per cent from November and For the fourth quarter, total sales 8.3 per cent from a year earlier. were estimated to be down 1.2 per cent from the third quarter but excluding autos, building materials, etc., such sales were 2.1 per cent higher than in the third quarter. RETAIL SALES (Per cent changes*) December 1970 from November December 1970 1969 Retail, total Durable goods Nondurable goods QIV 1970 from QIII 1970 1.4 4.0 3.0 .9 -6.4 8.9 -8.8 2.2 .9 8.3 2.1 -1.2 Total, less automotive, building materials, lumber, hardware, and farm equipment * Changes based on 5 weeks ending January 2 for December 1970 and final October and preliminary November figures. - 7The Domestic Financial Situation Bank credit. On the basis of additional data, estimates of bank credit developments for November, December and the fourth quarter of 1970 have been revised from those presented on page III-3 of the Greenbook. The revisions for November are minor. Total bank credit and total loans, both adjusted for transfers of loans between banks and their affiliates, are now estimated to have risen at a slightly slower pace than was indicated in the Greenbook. On the other hand business loans (adjusted for transfers) are now estimated to have declined at a slightly slower pace than indicated in the Greenbook. The revision in the preliminary estimate of the annual rate change in total bank credit (adjusted for transfers) in December is also quite minor (to 9.5 per cent from 9.7 per cent), but estimates of the rates of change in components of this total have been revised significantly. Holdings of U.S. Treasury securities and other secur- ities are now estimated to have increased at annual rates of 27.6 per cent and 33.2 per cent, respectively, rather than at annual rates of 14.9 per cent and 27.4 per cent. On the other hand, the December change in total loans (adjusted for transfers) now appears weaker, as it is estimated to have declined at an annual rate of 1.3 per cent rather than to have risen at an annual rate of 3.3 per cent. Reductions in the estimated rates of growth in security loans and consumer loans are responsible for a major portion of the downward revision in estimated growth of total loans. In addition, business loans adjusted for transfers are now estimated to have declined at an annual rate of 6.5 per cent rather than 5.4 per cent. However, a -8- change in tax laws in late 1969 eliminated the benefits that firms in the extractive industries previously derived from carve-out loans and they no longer borrow heavily around the end of the year. A rough correction for this shift in seasonal pattern suggests that the decline in business loans (adjusted for transfers) may have been at an annual rate of 3.5 per cent to 4 per cent rather than the reported 6.5 per cent. As a result of adjustments in November and December data, estimates of fourth quarter bank credit developments have also been revised. Total loans and investments (adjusted for transfers) are now estimated to have increased over the fourth quarter at an annual rate of 5.2 per cent rather than 5.3 per cent. Estimates of the annual rates of increase in both categories of investments have been raised--U.S. Treasuries to 1.4 per cent from -2.8 per cent and Other Securities to 34.0 per cent from 32.0 per cent. The annual rate of decline in total loans for the fourth quarter has been changed to -1.8 per cent from -0.3 per cent. COMMERCIAL BANK CREDIT ADJUSTED TO INCLUDE OUTSTANDING AMOUNTS OF LOANS SOLD TO AFFILIATES1/ (Seasonally adjusted percentage changes, at annual rates) 1970 QIVp Total loans & investments 2/ U.S. Govt. securities Other securities Total loans 2/ Business loans 3/ 1970 November DecemberP 5.2 7.6 9.5 1.4 34.0 -1.8 -9.2 4.3 35.6 .8 -7.5 27.6 33.2 -1.3 -6.5 1/ Last Wednesday of month series. 2/ Includes outstanding amounts of loans sold outright by banks to their own holding companies, affiliates, subsidiaries, and foreign branches. 3/ Includes outstanding amounts of business loans sold outright by banks to their own holding companies, affiliates, subsidiaries, and foreign branches. - 9- Monetary aggregates. Estimates of the annual rates of change in currency plus demand deposits (M1) for December and the fourth quarter of 1970 have been revised from those published in the table on page III - 5 of the Greenbook. M1 is now estimated to have risen in December at an annual rate of 6.7 per cent rather than 7.9 per cent and over the fourth quarter at an annual rate of 3.6 per cent rather than 3.9 per cent. Because of these adjustments in rates of change in M1, the annual rate of growth in M 2 has been lowered for December (to 12.7 per cent) and for the fourth quarter (to 9.2 per cent). December data for savings deposits at mutual savings banks and S&L's have become available since the Greenbook was written. The December and fourth quarter annual rates of change in these deposits and in the monetary aggregates, M3 and M4, which include these deposits, are also presented in the table below. MONETARY AGGREGATES (Per cent, annual rates of change) 1970 QI 1. 2. 3. 4. Currency plus private demand deposits December 3.6 6.7 Commercial bank time and savings deposits 21.6 28.3 a. b. large CD's other time and savings 79.3 15.2 105.4 19.1 Savings deposits at mutual savings banks and S&L's 11.0 12.9 Adjusted bank credit proxy 8.1 16.2 Concepts of money 5. M 1 = (1) 3.6 6.7 6. M2 = (1) + (2) 9.2 12.7 7. M3 = (1) + (2b) + (3) 9.8 12.8 8. M4 = (1) + (2b) + (3) + (2a) 12.1 16.2 - 10 - Estimates of the change in the adjusted bank credit proxy have also been revised. The proxy is now estimated to have increased at an annual rate of 16.2 per cent in December and at an annual rate of 8.1 per cent in the fourth quarter. Nonbank depositary institutions. As expected, savings and loan associations experienced no pressure on their deposits during the early part of the December-January reinvestment period. In fact, the modest net outflow was smaller, by a wide margin, than that incurred during any other recent comparable period. While the favorable experi- ence was well dispersed geographically, the most dramatic relative improvement was in the San Francisco FHLB district. SAVINGS AND LOAN ASSOCIATIONS DECEMBER GRACE-PERIOD DEPOSIT FLOWS* (Millions of dollars) 1966 1967 1968 1969 1970 All U.S. San Francisco District U.S. except San Francisco -558 -442 -553 -580 - 24 -102 - 85 -210 -129 36 -456 -357 -343 -451 - 60 * Data are for the last three business days in December, and exclude interest or dividends credited. Preliminary estimates for the month of December indicate, also as expected, that deposit growth continued to be strong at both sets of nonbank institutions. For the fourth quarter as a whole, the rate of growth in deposits was somewhat larger than the unusually high third quarter rate. - 11 - DEPOSIT GROWTH AT NONBANK THRIFT INSTITUTIONS (Seasonally adjusted annual rates, in per cent) Mutual Savings Banks Savings and Loan Associations Both 2.4 6.3 6.6 8.7 1.4 7.1 11.5 11.9 1.7 6.9 10.0 10.9 8.4 8.1 9.5 11.8 9.2 14.3 10.7 8.8 12.8 1970 - QI QII QIII QIV p/ October* November* p/ December* p/ * Monthly patterns may not be significant because of difficulties with seasonal adjustment. p/ Preliminary. December and fourth quarter data are partially estimated. Corporate and municipal securities markets. The corporate bond market started the new year in a weak position, with a heavy carryover of dealer inventories and a sharp increase over December yields evident in the rate set on the first major offering of the year. However, the quick sell-out of this bond indicated that investor expectations of future declines in interest rates were still strong. These expectations were re-enforced by cuts in the prime rate and discount rate, and succeeding issues came at substantially lower yields. By the end of the first week in January, dealer stocks were reduced to comfortable levels and yields on new high-grade issues had dropped below the December lows. Municipal bond yields continued to rise for the fourth week in a row, however, and were 40 basis points above their December low in the week ending January 8. Although commercial bank purchases continued - 12 - at a high level, they apparently did not increase sufficiently to offset the market pressures generated by abnormally heavy inventories on dealer shelves and the steadily building forward calendar. BOND YIELDS (In per cent) New Aaa 1/ Coroorate Bonds- Long-term State2/ and Local Bonds- 1970 7.68 (12/18) 9.30 (6/18) 5.33 (12/11) 7.12 (5/28) 4 11 18 25 7.95 7.74 7.68 -- 5.41 5.33 5.47 5.50 1 8 7.59 5.58 5.74 Low High Week of: December January 1/ With call protection (includes some issues with 10-year protection). 2/ Bond Buyer (mixed qualities). NOTE: Section III Tables relating to Federal Finance. The projections shown for Treasury borrowing did not allow for an active constraint imposed by the $395 billion debt ceiling. Given this ceiling, the Treasury may need to economize on cash balances and forego some of the February and March cash borrowing that is assumed in the tables. CORRECTIONS Page II - 26 should follow page II - 24 and be renumbered II - 25. - 13 - INTEREST RATES 1970 Highs Lows Dec. 14 1971 Jan. 7 Short-Term Rates Federal funds (weekly averages) 9.39 (2/18) 3-months 7.93 (1/6) Treasury bills (bid) Bankers' acceptances 8.75 (1/13) Euro-dollars 10.50 (1/9) 8.30 (1/9) Federal agencies 8.25 (2/1) Finance paper CD's (prime NYC) Most often quoted new issue 6.75 (10/30) Secondary market 9.25 (1/23) 6-month Treasury bills (bid) Bankers' acceptances Commercial paper (4-6 months) Federal agencies CD's (prime NYC) Most often quoted new issue Secondary market 7.99 8.88 9.13 8.50 (1/5) (1/13) (1/8) (1/28) 4.82 (12/30) 4.91 (12/9) 4.74 5.25 6.50 4.81 5.38 (12/17) 4.80 4.81 (12/31) 5.25 5.25 (12/31) 7.38 6.38 (12/18) 4.97 (12/11) 4.90 (12/10) 5.75 5.50 5.50 (11/25) 5.63 (12/9) 5.38 (12/23) 5.70 (12/9) 4.78 5.50 5.63 5.12 3.82 (1/6) (12/17) (12/4) (12/4) (12/18) 4.84 5.38 (e) 5.75 5.13 (12/11) 5.38 5.65 4.87 5.38 (e) 5.58 5.10 7.00 (10/7) 9.38 (1/23) 5.50 (12/23) 5.63 (12/9) 5.50 (12/23) 5.80 (12/9) 5.50 5.70 7.62 (1/30) 4.74 (12/31) 4.80 4.71 7.50 (9/16) 5.60 (1/9) 5.50 (12/23) 5.63 (12/9) 2.95 (12/17) 3.00 5.50 3.00 Treasury coupon issues 5-years 20-years 8.30 (1/7) 7.73 (5/26) 5.85 (12/4) 5.87 6.15 (12/16) 6.16 6.06 6.32 Corporate Seasoned Aaa Baa 8.60 (6/24) 9.47 (8/28) 7.47 (12/29) 7.67 8.57 (3/10) 9.16 7.43 8.87 9.30 (6/19) 7.68 (12/18) 7.74 (12/10) 7.59 7.12 (5/28) 1-year Treasury bills (bid) CD's (prime NYC) Most often quoted new issue Prime municipals Intermediate and Long-Term New Issue Aaa Municipal Bond Buyer Index Moody's Aaa 6.95 (6/18) 5.33 (12/10) 5.33 (12/10) 5.74 5.15 (12/10) 5.15 (12/10) 5.40 Mortgage--implicit yield in FNMA biweekly auction 1/ 9.36 (1/2) 8.36 (12/28) 8.43 8.36(12/28) 1/ Yield on 6-month forward commitment after allow ance for commitment fee and required purchase and holding of FNMA stock. A ssumes discount on 30-year loan amortized over 15 years. e--estimated. 

Federal Reserve (1971, January 11). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19710112_part3

@misc{wtfs_greenbook_19710112_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1971},
  month = {Jan},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19710112_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}