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 June 4, 1971 SUPPLEMENTAL NOTES The Domestic Economy Labor market. moved higher in May. 6.1 per cent in April. The labor force, employment, and unemployment The unemployment rate rose to 6.2 per cent from The rise occurred largely among men, reflect- ing a sizeable labor force increase for the same group. Unemployment rates for women were unchanged over the month. The labor force rose fairly sharply in May, following little growth since the end of last year. However, over the year growth is still less than normally expected; in May, the total labor force was up only about 1.0 million from a year earlier or about one-third less than expected on the basis of population growth and long-range trends. LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT (Seasonally adjusted, in thousands) 1970 IVQ 1971 IQ April May Total labor force 86,504 86,537 86,665 87,028 Civilian labor force Total employment Total unemployment 83,461 78,568 4,892 83,585 78,626 4,960 83,783 78,698 5,085 84,178 78,961 5,217 5.9 10.6 3.4 5.5 17.5 5.4 9.2 5.9 10.0 3.5 5.7 17.4 5.5 9.5 6.1 10.5 3.5 6.0 17.2 5.6 10.0 6.2 10.8 3.6 6.0 17.3 5.7 10.5 Unemployment rates: (per cent) Total Men aged 20-24 years Men aged 25 and over Women aged 20 and over Teenagers White Negro and other races Nonfarm payroll employment moved up 130,000 to 70.8 million in May--about the same level as a year earlier--but still 400,000 below its March 1970 peak. Employment rose by 77,000 in trade in May, and there were small increases in most other sectors. Manu- facturing rose 30,000 over the month, with a small advance in the durable goods industries accounting for the gain. Nonproduction worker employment in manufacturing rose in May after 14 consecutive monthly declines. The average workweek rose 0.2 hours in May for production workers in manufacturing, after declining the same amount in April. The average workweek has not shown a clear upward or down- ward trend so far this year. State and local government and private nonmanufacturing employment rose somewhat over the past year, while manufacturing employment declined by 860,000, of which 235,000 were non-production workers. Retail sales. Mainly because of the higher rate of new car sales in the last part of May, our earlier estimate of retail sales for the month has been raised and now shows total sales about unchanged from April. Our earlier estimate of increase in sales at nondurable goods stores has been raised to about a 1 per cent rise from April owing to a little more strength in sales at apparel and at food stores last week. Current estimates of change are shown in the table. RETAIL SALES Seasonally Adjusted Percentage change from previous period Jan. QI Total sales Durable Auto Furniture & appl. Nondurable Apparel Food General merchandise Total less autos and nonconsumer items Total real** * ** 1971 Feb. March 1.8 .5 4.1 2.2 1.5 May* April 0 13.2 9.5 3.2 3.5 1.4 -1-1/4 24.1 16.3 7.2 4.7 1.6 - 5.3 6.1 - .2 2.7 .7 0 .5 - 1.5 .9 3.1 - .7 - 2.2 - .4 - .2 .7 1.7 - .6 3.1 1.0 .9 .9 1.7 .1 .5 - .1 - .4 1 3 2 1/2 .6 1.0 .1 1 1.4 1.4 .1 n.a. .5 3.3 - .4 2.1 3 Estimate by FR staff based on weekly sales data through May 29. Deflated by all commodities CPI, seasonally adjusted. Unit auto sales. Domestic type auto sales strengthen in the third 10 day period of May and, as a result, sales for the month were at a seasonally adjusted annual rate of 8.4 million as compared with a rate of 8.3 million in April. -4- Consumer credit. Consumer instalment credit outstanding increased $8.0 billion in April, seasonally adjusted annual rate, the largest expansion in any month since October 1969. All major com- ponents of the instalment credit total rose in April with the largest increase--$3.7 billion--in auto credit. The increase in instalment credit was augmented by a sizeable advance in noninstalment credit bringing the overall expansion in consumer indebtedness during April to $11.1 billion. Both extensions and repayments of instalment credit reached new highs. The increase in extensions was centered in nonautomative consumer goods; repayments were only a little above the March total as reductions in the automobile and home improvement components were offset by increases in nonautomotive consumer goods and personal loans. The upturn in auto credit since February has been substantial. Auto credit declined during most of 1970 with very large reductions in each month of the strike-affected fourth quarter. Although unit sales of new cars rebounded sharply in January, the proportion of credit sales was the lowest for any month in recent years, and the net change in auto credit remained negative. This was followed by a modest expansion of $0.6 billion in February (seasonally adjusted annual rate), and more substantial gains of $2.4 billion in March and $3.7 billion in April. The latest two months reflect a return to a more normal proportion of new car credit sales, marked increases in used car sales, and record-high average instalment contracts for both new and used units. -5- Wholesale prices. Wholesale prices rose at a seasonally ad- justed annual rate of 3.3 per cent between April and May -- substantially slower than the 5.6 per cent average of the first four months of the year. Price increases of industrial commodities were responsible for the increase in the overall WPI as prices of farm and food products declined on a seasonally adjusted basis for the first time this year. WHOLESALE PRICES (Per cent changes, seasonally adjusted annual rates) 6 months Dec. 1969 June to 1970 June 1970 to Dec. 3 months D ec. 1970 to Mar. 1971 Monthly Mar. 1971 April'71 to to April May 2.2 5.4 6.0 3.3 .4 3.4 11.3 2.9 6.5 6.4 -2.1 5.4 8.5 4.3 .8 1.8 2.4 4.0 25.4 7.7 .0 6.6 Producer Consumer2/ 4.1 2.7 6.0 5.1 3.9 2.2 2.1 .0r 2.1 4.4 Durable Nondurable- 2.9 2.8 5.7 4.7 2.2 1.5 3.3 r -2.1 4.4 5.6 All commodities 2.4 Farm and food 1/ Industrials -1.8 3.8 2/ Crude materials2/ Intermediate materialsFinished goods2/ - r - Revised 1/ Farm products, and processed foods and feeds 2/ Excludes foods Note: Seasonal factors have recently been revised. - 6- The rise in industrial commodity prices of 5.4 per cent, seasonally adjusted annual rate, was less than in April but considerably above the average rate for the December-April period as fuels, textiles, and metals and metal products increased. Prices of consumer nonfood finished goods accelerated in May, rising twice as fast as in the first quarter but less than in the last half of 1970. Since the May pricing date, increases in prices of some metals have been announced. Prices for aluminum fabricated pro cts were raised effective September first, following the signing of a new labor contract. The delay in the price increase reflects current high stocks of aluminum and weakness in present prices. Stainless steel prices were raised in mid-May, following two unsuccessful attempts to raise prices earlier this year, and zinc prices were increased last month for the second time this year. Among declines in prices since early May, those for copper scrap have been especially sharp as lower quotations for copper on the London market were reflected in lower domestic prices for scrap and brass mill products. Despite this downward pressure on producer prices, the copper industry is expected to grant as large a wage settlement in the next few weeks as did the aluminum industry. Increases in the prices of steel sheet and strip set for mid-June and early July will not affect the June WPI, but are expected to raise the metals group in the July index by about 0.5 per cent. - 7 - The Domestic Financial Situation The growth rates in the monetary Monetary aggregates. aggregates for May are now estimated to have been slightly stronger than was indicated in sented in the Greenbook. the table below. These revised estimates are pre- A preliminary estimate of the May growth in savings deposits at mutual savings banks and Savings and Loan associations, which has become available since the Greenbook was published, is also presented in the table. According to the estimates, these deposits expanded at an annual rate of 13.6 per cent, which is a rate of increase significantly below that prevailing over the first months of the year. four Growth in M3 (the monetary aggregate which includes these deposits) during May is estimated to have been at an annual rate of 16 per cent, down slightly from the rate of increase for April and only moderately below the first quarter rate. -8 - MONETARY AGGREGATES (Seasonally adjusted, annual rates of change, in per cent) 1971 May e 1. M1 (currency plus private demand deposits) 2. 3. M2 (M1 plus commercial bank time and savings deposits other than large CD's) 14.9 M3 (M2 plus savings deposits at mutual savings banks and S & L's) 16.0 4. Adjusted bank credit proxy 5. Commercial bank time and savings deposits a. b. 6. 16.8 large CD's other time and savings Savings deposits at mutual savings banks and S&L's 8.4 15.0 25.1 13.6 13.9 e - estimated Bank credit. transfer, is Commercial bank credit, adjusted for loan now estimated to have increased at an annual rate of 10.9 per cent in May, rather than at a 12 per cent annual rate as shown in the Greenbook. This reduction reflects a marked change in the estimated rate of advance in U. S. government securities. Holding of these securities are now estimated to have declined at a 6 per cent annual rate rather than to have increased at an 8 per cent annual rate. Sharp liquidation in Treasury bill holdings at month end are responsible for this revision. The estimate of the rate of growth in other security - 9 - holding for May has not been changed. It now appears that the annual rate of growth in total loans for May was 13.4 per cent (rather than 12.1 per cent). loan categories. This upward revision was spread among several major The estimated growth rate for business loans re- mained at an annual rate of 17.2 per cent. Nonbank depositary intermediaries. Very preliminary data suggest that deposit growth at savings and loan associations and mutual savings banks slowed during May, on a seasonally adjusted basis. It is too early to know whether this decline from the exceptionally high March and April rates of growth indicates a significant change in trend. In some recent quarters, a downward bias has appeared in the seasonally adjusted middle month of each quarter. DEPOSIT GROWTH AT NONBANK THRIFT INSTITUTIONS (Seasonally adjusted annual rate, in per cent) Mutual Savings Banks Savings and Loan Associations Both 1970 - QIII QIV 6.9 10.5 10.6 12.1 9.3 11.6 1971 - QI 17.7 26.0 23.3 15.5 15.8 21.2 29.8 19.8 26.7 25.1 18.5 24.9 January February March p/ 21.7 23.2 18.6 April p/ 14.0 14.0 14.0 May e/ p/ Preliminary. Partially estimated. e/ Note: Monthly patterns may not be significant because of difficulties with seasonal adjustment. - 10 - Mortgage market. In Tuesday's auction for FNMA forward purchase commitments, yields based on the current 7 per cent ceiling rate for FHA and VA underwritten mortgages continued to rise quite rapidly. On 6-month commitments, the private market implicit yield rose 21 basis points to 8.18 per cent--75 basis points above the 1971 low. The discount associated with the 6-month commitment yield was more than 9 points. The total bids received by FNMA declined considerably in the latest auction, probably reflecting in large degree the reduction in the maximum limits on individual bids imposed by FNMA rather than a general decline in the demand for FNMA commitments. FNMA PURCHASE AUCTIONS Amount of total offers 6-month commitments Private Received Accepted (Millions of dollars) 1971 - High May June market yield (Points) (per cent) 312 (4/26) 9.4 (6/1) 8.18 (6/1) 127 687 54 314 3.7 4.4 7.45 7.54 1,168 (5/12) April. 12 26 Discount 1,168 237 5.6 7.68 24* 786 152 7.8 7.97 1* 324 147 9.4 8.18 10 NOTE: Average secondary market yield after allowance for commitment fee and required purchase and holding of FNMA stock, assuming prepayment period of 15 years for 30-year Government-underwritten mortgages. Implicit yields shown are gross, before deduction of fee paid by investors to servicers of 50 basis points prior to August 10, 1970, auction, and 38 basis points thereafter. *Dollar limits were announced in advance by FNMA on the total offers it would accept, and on the total competitive offers that any one bidder could make. -11- With many mortgage bankers reportedly unable to find investors for the 7 per cent government-underwritten mortgages which they currently hold, FNMA has scheduled a one-time "special" auction on June 9 to provide commitments for the purchase of an unspecified volume of such loans in an effort to reduce the pressures on its normal auction system. In this special auction, lenders will be able to submit an unlimited bid, solely on a competitive basis, for FNMA purchase commitments on 7 per cent mortgages which they have ready for immediate delivery. Life insurance companies. The life insurance industry directed much of its improved fund flows in the first quarter into the corporate securities market. The extremely large net increase in common and preferred stock holdings (even after adjustment for valuation) undoubtedly reflects the sharply growing importance of variable annuity business, while the relatively large increase in short-term corporate debt most likely will be used to disburse funds for the rapidly growing volume of commitments for future acquisition of both securities and mortgages. - 12 - NET ASSET ACQUISITIONS BY LIFE INSURANCE COMPANIES DURING THE FIRST QUARTER (Millions of dollars, not seasonally adjusted) 1967 1968 1969 165 967 2,710 196 1,171 381 335 1,020 655 1,137 -467 460 276 409 415 2,843 2,456 3,132 1970 1971 Corporate Securities Short-term (less than one year) Long-term Preferred & Common Stock Mortgages Policy Loans Total Assets 938 350 493 1,131 145* 2,377* 646 719 171 268 2,500* 5,307* * Market valuation of common stock accounts for $-388 million of the net change in 1970, and $1,295 million in 1971. That information was not available for the earlier data. The extremely low volume of net mortgage acquisitions may simply represent a delay of commitment takedowns, combined with some increase in mortgage repayments. In fact, a delay in commitment dis- bursals may collaborate the exceptionally large volume of shortterm securities acquired, net; some of that increase may represent funds intended for mortgages that--for whatever reason-- were delayed in their takedowns, perhaps into the second quarter. Mortgage new commitments made during the first quarter for future takedown showed a 40 per cent increase over a year ago. - 13 Corporate and municipal securities markets. The growing view that the bond markets had over-discounted the strength of the economy and the degree of future monetary restraint resulted in a sustained high level of investor buying. In association with a light weekly calendar in the holiday-shortened first week of June, the rally that began in late May accelerated in both the corporate and tax-exempt bond markets. Yields fell back to the levels prevailing at the end of April. BOND YIELDS (Per cent) New Aaa Corporate Bonds Long-term State and Local Bonds 1970 Low 7.68 (12/18) 5.33 (12/10) High 9.30 (6/18) 7.12 (5/28) 1971 Low High 6.76 (1/29) 8.23 (5/21) 5.00 (3/18) 5.96 (3/20) May 7 14 7.88 7.93 5.84 5.96 21 8.23 5.96 28 8.06 5.86 7.79 5.70 Week of: June 4 - 14 - INTEREST RATES 1971 June 3 Highs Lows May 10 Federal funds (weekly averages) 4.82 (6/2) 3.29 (3/10) 4.41 (5/5) 4.82 (6/2) 3-month Treasury bills (bid) Bankers' acceptances Euro-dollars Federal agencies Finance paper 4.89 5.50 8.00 4.90 5.50 3.22 3.88 4.94 3.27 3.62 (3/11) (3/10) (3/17) 3.83 4.88 (2/24) 4.07 (5/6) 4.38 4.24 5.00 7.75 4.36 5.00 Short-Term Rates CD's (prime NYC) Most often quoted new issue (1/4) (1/6) (6/1) (1/6) (1/5) (3/15) 7.09 5.38 (1/6) 5.62 (1/6) 3.62 (3/24) 3.80 (3/17) 4.75 (5/5) 4.84 (5/5) 5.12 5.26 4.94 (1/4) 5.62 (1/6) 5.75 (1/7) 5.10 (1/6) 3.35 (3/11) 4.00 (3/29) 3.53 (3/10) 4.15 5.00 (e) 5.00 4.59 (5/6) 4.45 5.12 5.38 4.82 5.50 (1/6) 5.68 (1/6) 4.00 (3/24) 3.70 (3/3) 4.88 (5/5) 5.00 (5/5) 5.38 5.50 4.87 (5/18) 3.45 (3/11) 4.47 4.74 5.50 (6/3) 3.30 (5/27) 4.38 (3/3) 2.15 (3/24) 5.25 (5/5) 3.25 (5/6) 5.50 3.20 6.60 (5/18) 6.49 (5/18) 4.74 (3/22) 5.69 (3/23) 6.13 6.12 6.14 7.69 (6/2) 8.93 (1/5) 7.05 (2/16) 8.28 (2/16) 7.44 8.54 7.68 8.71 8.23 (5/20) 6.76 (1/29) 7.88 (5/6) 7.79 Municipal Bond Buyer Index Moody's Aaa 5.96 (5/20) 5.80 (5/13) 5.00 (3/18) 4.75 (2/11) 5.84 (5/6) 5.65 (5/6) 5.70 5.50 Mortgage--implicit yield in FNMA auction 1/ 8.18 (6/1) 7.43 (3/1) 7.68 8.18 Secondary market 6-month Treasury bills Bankers' acceptances Commercial paper (4-6 months) Federal agencies 4.00 (3/10) CD's (prime NYC) Most often quoted new issue Secondary market 1-year Treasury bills (bid) CD's (prime NYC) Most often quoted new issue Prime municipals Intermediate and Long-term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa 6.25 1/ 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. e--estimated - 15 - International developments Foreign exchange markets. The Bundesbank re-entered the exchange market on Wednesday, June 2, offering to buy marks (sell dollars) at a price of 28.03 U.S. cents per DM, about 2.4 per cent above par. The market rate, which had been slightly below 28 cents, immediately moved above the Bundesbank's bid rate, apparently on the belief that once the central bank had indicated its willingness to intervene at a rate above the former upper limit, that it might well raise its bid even higher in order to sell a large amount of dollars. The Bundes- bank did no business on Wednesday, but on Thursday raised its bid several times and sold $53 million. On Friday it again raised its bid rate, but somewhat less aggressively, and sold an additional $93 million. By noon in New York on Friday, the mark had advanced to 28.37 cents, 3.9 per cent above par. The Bundesbank also announced on Wednesday an increase, from nearly 14 per cent to almost 16 per cent, in the required reserve ratio applicable to German banks' domestic liabilities, and an increase in the ratio on foreign liabilities to double that on domestic liabilities. The aim of both the Bundesbank's dollar sales and the increase in reserve requirements was to restrict the domestic monetary base, particularly in the face of large deliveries of marks to the market by the Bundesbank on maturing forward exchange contracts (amounting to more than $2-1/2 billion equivalent in June and July). - 16 Call money rates in Frankfurt, which had been extremely low during May (less than 1 per cent much of the time) firmed to over 6 per cent in response to these actions by the Bundesbank. Other major foreign currencies, with the exception of the Canadian dollar, firmed along with the mark from mid-week. There was no significant intervention by other European central banks, but the Bank of Japan purchased around $200 million for the week. Eurodollar interest rates moved up sharply last week and on Monday, June 1. Since then they have eased off somewhat but not below a 7 to 7-1/2 per cent range for one month and longer maturities. The spreads between Eurodollar rates and comparable U.S. rates have been unusually wide since early May. Meanwhile rates in European national markets have changed relatively little, with the exception of very short-term German money market rates which fell to low levels after the huge influx of funds from abroad early in May; these rates returned to more normal levels this week in response to the Bundesbank's raising of reserve requirements and its resumption of offers to sell dollars. As a result of the decline in general levels of German and British short-term rates when discount rates were lowered early in April and of the rise in U.S. rates since then, the spreads between rates in European national markets and those in the United States narrowed in April and May. Corrections. Page II-35 should be followed by the present II-39. Page II-36 should be followed by the present II-40. SUPPLEMENTAL APPENDIX A: LOAN COMMITMENTS SURVEY* Data provided by the 48 large banks in the Loan Commitments Survey of April 30 indicate that bank loan commitment policies eased further during the three month period ending April 30. About 45 per cent of the respondent banks reported that their policies on new loan commitments had become less restrictive since January 31, while only one bank reported that its policies had become somewhat more restrictive. The remaining banks reported that their policies were unchanged. Decreased demand for loans was cited by four banks as the principal factor responsible for their shift toward a less restrictive policy, while another seven attributed their policy change to an increase in funds availability. The remaining 11 banks that moved to less restrictive policies indicated that their decisions were induced by a combination of weak loan demands and increased fund availability. New Commitments The recent easing in commitments policy appears to have had a decided impact on the extension of new commitments as the volume of new commitments during the April survey period rose to $23.4 billion, $4 billion above the volume reported in the January 31 survey and the largest on record since the full panel of respondents began reporting in early 1969. More than four-fifths of the $4 billion increase in new commitments was for loans to commercial and industrial firms, raising the quarterly volume to a new high of nearly $18 billion. While the volume of new commitments for term loans rose moderately, the bulk of the increase in commitments for commercial and industrial loans was in confirmed lines of credit ($2.7 billion). As in the previous quarter, the volume of new commitments extended to nonbank financial institutions and for real estate mortgages expanded further, both reaching new highs. To some extent seasonal influences contributed to the large increase Banks generally review and in new commitments recorded in this survey. (The renew expiring credit lines early in the first half of each year. amount of this seasonal influence cannot be accurately ascertained due to the relative newness of this survey.) Nevertheless, record levels of new commitment activity should not be surprising since the Loan Commitments Survey became operational during a period of monetary restraint and is now passing for the first time through a period of bank accommodation to monetary ease. *Prepared by Marilyn Barron, Research Assistant, Banking Section, Division of Research and Statistics. -2 - Takedowns, expirations, and cancellations Takedowns, expirations, and cancellations (hereafter referred to simply as takedowns) increased sharply over the three months of the report period, but the volume was somewhat below the high recorded in July of last year. In part, this high level probably reflects the normal expiration of yearly commitments under confirmed lines of credit that occurs early in the calendar year. A new record high may be established during the May through July period, however, if the expectations of reporting banks turn out to be correct, as about one quarter of the banks (13) indicated they were expecting their takedown volume to increase while only 2 banks felt that takedown volume would decline. Unused commitments The volume of new commitments was well above the level of takedowns between January and April, and unused commitments increased $3.8 billion to a new high of $62.3 billion. Growth in unused commitments to commercial and industrial firms accounted for most of the overall rise, but outstandings to nonbank financial institutions and for real estate mortgages also rose. QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U S BANKS 1/ Table 1: NEW AND UNUSED COMMITMENTS (Billions of dollars not seasonally adjusted) Takedowns, New commitments made during 3-month ending Oct. 31 Jan. 31 April 30 Grand total commitments Total- Comm. & Indust. Total- Nonbank Finan. Institutions Total- Real Estate Mortgages MEMO: Const. Loans (Included above) Comm. & Industrial Term Loans Revolving Credits Total Term & Revolving 2/ Confirmed Lines of Credit Other Commitments expirations, and cancellations during 3-month ending Oct. 31 Jan. 31 April 30 Unused commitments Change during 3-months Outstandending ing on Oct. 31 Jan. 31 April 30 April 3 15.2 19.4 23.4 10.6 15.7 19.4 4.6 3.7 3.8 62.3 11.6 14.6 17.9 8.4 11.8 14.7 3.2 2.8 3.1 47.6 2.6 3.7 4.0 1.3 2.9 3.7 1.3 0.7 0.3 11.3 1.0 1.2 1.5 0.9 0.9 1.0 0.1 0.2 0.5 3.4 0.8 1.0 1.2 0.8 0.8 0.7 3/ 0.1 0.4 2.7 0.9 2.8 1.4 4.0 1.8 4.0 0.7 1.5 1.3 3.1 1.5 3.8 0.1 1.3 0.1 0.9 0.3 0.1 1.8 13.0 3.9 5.6 6.0 2.6 4.4 5.6 1.3 1.2 0.4 15.4 7.1 0.6 8.3 0.7 11.0 0.9 5.1 0.8 6.8 0.6 8.9 0.5 2.0 -0.2 1.5 0.1 2.3 0.4 29.0 3.1 Nonbank Financial Institutions Finance Companies For Mortgage Warehousing All Other 1.6 2.2 2.2 0.5 1.8 2.1 1.1 0.5 3/ 7.2 0.4 0.6 0.7 0.8 0.6 1.2 0.3 0.5 0.5 0.7 0.6 0.9 0.1 0.1 0.1 0.1 3/ 0.3 1.6 2.6 Real Estate Mortgages Residential Other 0.3 0.7 0.4 0.8 0.6 1.0 0.3 0.6 0.3 0.6 0.4 0.6 0.1 0.1 0.1 0.1 0.2 0.4 1.0 2.3 42 banks). I1/ articipants in Quarterly Interest Rate Survey with total deposits of more than $1 billion (L 2/ This item may exceed sum of previous two items because some banks report combined total only. 3/ Less than $50 million. NOTE: Figures may not add to total due to rounding. A-4 Table 2: VIEWS ON COMMITMENT POLICY Number of Banks Oct. 31 1969 Total number of banks responding: Jan. 31 1970 Apr. 30 1970 July 31 1970 Oct. 31 1970 Jan. 31 1971 Apr. 48 48 48 48 47 48 30 1971 Unused commitments in the past three months have: Risen rapidly Risen moderately Remained unchanged Declined moderately Declined rapidly Takedowns in the next three months should: Rise rapidly Rise moderately Remain unchanged Decline moderately Decline rapidly Commitment policy compared to three months ago is: Much more restrictive Somewhat more restrictive Unchanged Less restrictive Much less restrictive Table 3: Indicated Change EXPLANATION OF RECENT CHANGE IN NEW COMMITMENT POLICIES AS INDICATED IN THE CURRENT SURVEY Number of Banks Indicating Change Reasons for Change (Number of Banks) Reduced Availability Increased Loan Demand nd of Funds Both Demand And Funds More restrictive Less restrictive 22 Decreased Loan Demand Increased Availability of Funds 4 7 Both Demand And Funds 11 SUPPLEMENTAL APPENDIX B: BANK LENDING PRACTICES SURVEY* The results of the May 15 Survey of Bank Lending Practices reflect the changes in the economy and in financial market attitudes that have developed since the February survey. These changes found expression both in banker appraisals of loan demand and in the concomitant altering of lending policies. Demand for business loans was reported to have picked up at 40 per cent of the participating banks, whereas in the two previous surveys few had reported any strengthening and more than three-fifths of the panel had experienced appreciable weakening. Currently, about 60 per cent of the respondents anticipate further expansion in loan demands by commercial and industrial firms during the summer months. These expectations of strengthing loan demands, along with the rise in market rates of interest since the preceding survey likely played an important role in essentially halting further easing in lending terms and conditions. In both the November, 1970 and February, 1971 surveys, lending policies in general had been eased sub- stantially. policies. But banks now appear to be largely maintaining these easier Terms and Conditions Interest rates fluctuated widely during the early spring and the respondents were quite varied in their reactions to changes in the prime rate, which had been at 6 per cent on the previous survey date (February 15), then dropped in stages to 5-1/4 and was back to 5-1/2 on the current survey date. More than 40 per cent of the respondents indicated higher interest rate charges, while 20 per cent reported lower interest rates. At the remaining banks, interest rate policies were reported as unchanged since February. Supporting balance requirements and standards of credit worthiness were maintained at about the same levels as reported in the previous survey, with possibly a slight tilt in the direction of firming (see Table 2A). Maturity restraints on term loans, however, were eased slightly further. Although banks are now somewhat more lenient in reviewing loan requests from new and nonlocal customers, they emphasized repeatedly that they seek highquality borrowers only. The respondents were virtually unanimous in emphasizing that, though their overall lending terms are now more lenient than late last year, their standards of credit worthiness have not been relaxed. *Prepared by Marilyn Barron, Research Assistant, Banking Section, Division of Research and Statistics. -2Lending to Finance Companies Supporting balance requirements on loans to finance companies have not changed significantly since the previous survey. In certain other areas of lending policy, banks reported some divergence in treatment accorded finance companies as compared with nonfinancial businesses. However, the net responses of respondents show that only about 5 per cent had firmed interest rates on loans to noncaptive finance companies while 20% had increased lending charges for nonfinancial businesses (Table 2A). On the other hand, over one-fifth indicated an increased interest in establishing or enlarging credit lines for finance companies while few indicated any further easing on credit lines for nonfinancial businesses, except for a moderate move toward leniency with respect to new customers. Willingness to Make Other Loans The comfortable liquidity position afforded most banks by the large influx of deposits this year, at a time of generally sluggish loan demands, has led to greater flexibility in lending policies over a range of types of credit. In the latest survey banks reported additional willingness to extend single-family mortgage loans, continuing the pattern begun early in 1970. Given the interest rate attractiveness of consumer instalment loans, banks are still quite eager to make this type of loan. More than a fourthe of the respondents expressed a further willingness to make term loans to businesses, especially those of an intermediate-term maturity. Other Variables The smaller banks in this survey (with less than $1 billion in deposits) appeared to experience somewhat stronger loan demand than the Moreover, comments larger banks (with deposits of $1 billion or more). supplied by individual banks also suggest some regional variations in loan A few banks outside national loan markets noted particularly that demand. they had not experienced the run-off in business loans evident at the major money center banks. NOT FOR QUOTATION OR PUBLICATION TABLE 1 PAGE 01 QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ (STATUS OF POLICY ON MAY 15, 1971 COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS & PERCENT OF TOTAL BANKS REPORTING) MUCH STRONGER TOTAL BANKS PCT BANKS PCT MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER BANKS BANKS BANKS PCT PCT PCT MUCH WEAKER BANKS PCT STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TO THREE MONTHS AGO 125 100.0 0.8 49 39.2 57 45.6 18 14.4 0 0.0 ANTICIPATED DEMAND IN NEXT 3 MONTHS 125 100.0 0.0 75 60.0 49 39.2 1 0.8 0 0.0 ANSWERING QUESTION EBANKS PCT MUCH FIRMER POLICY BANKS PCT MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY BANKS BANKS BANKS PCT PCT PCT LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS: INTEREST RATES CHARGED 100.0 0.0 42.7 35.5 19.4 COMPENSATING OR SUPPORTING BALANCES 100.0 0.0 7.2 88.8 4.0 STANDARDS OF CREDIT WORTHINESS 100.0 0.0 7.2 92.0 0.8 MATURITY OF TERM LOANS 100.0 0.8 4.8 85.6 8.8 ESTABLISHED CUSTOMERS 100.0 0.0 3.2 86.4 8.0 NEW CUSTOMERS 100.0 0.8 5.6 72.8 19.2 LOCAL SERVICE AREA CUSTOMERS 100.0 0.0 2.4 87.1 8.1 NONLOCAL SERVICE AREA CUSTOMERS 100.0 0.8 9.8 77.1 REVIEWING CREDIT LINES OR LOAN APPLICATIONS I/ 10.7 SURVEY OF LENDING PRACTICES AT 125 LARGE BANKS REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY MAY 15, 1971. AS OF MUCH EASIER POLICY BANKS PCT NOT FOR QUOTATION OR PUBLICATION TABLE ANSWERING QUESTION BANKS PCT 1 ICONTINUEDI MUCH FIRMER POLICY BANKS PCT PAGE 02 MODERATELY FIRMER ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY PCT BANKS BANKS POLICY BANKS PCT PCT MUCH EASIER POLICY BANKS PCT FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS 124 100.0 8.1 109 87.9 0.0 INTENDED USE OF THE LOAN 125 100.0 2.4 113 90.4 0.0 88 70.4 11.2 0.8 LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: INTEREST RATES CHARGED 100.0 0.0 COMPENSATING OR SUPPORTING BALANCES 100.0 0.0 4.0 119 95.2 0.8 0.0 ENFORCEMENT OF BALANCE REQUIREMENTS 100.0 0.0 8.8 112 89.6 1.6 0.0 ESTABLISHING NEW OR LARGER CREDIT LINES 100.0 1.6 6.4 79 63.2 28.0 0.8 ANSWERING QUESTION BANKS WILLINGNESS TO MAKE OTHER TYPES PCT CONSIDERABLY LESS WILLING BANKS PCT 17.6 MODERATELY LESS MILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING BANKS BANKS BANKS PCT PCT PCT OF LOANS TERM LOANS TO BUSINESSES 100.0 0.0 88 70.4 26.4 CONSUMER INSTALMENT LOANS 100.0 0.0 79 63.7 28.2 SINGLE FAMILY MORTGAGE LOANS 100.0 0.8 71 58.3 34.4 MULTI-FAMILY MORTGAGE LOANS 100.0 0.8 104 85.2 11.5 ALL OTHER MORTGAGE LOANS 100.0 0.8 91 73.9 22.0 PARTICIPATION LOANS WITH CORRESPONDENT BANKS 124 100.0 0.0 99 79.9 19 15.3 LOANS TO BROKERS 122 100.0 0.0 110 90.2 8 6.6 2/ FOR THESE FACTORS, FIRMER MEANS THE FACTORS WERE CONSIDERED MORE IMPORTANT CREDIT REQUESTS* AND EASIER MEANS THEY WERE LESS IMPORTANT. IN MAKING DECISIONS FOR APPROVING CONSIDERABLY MORE WILLING BANKS PCT NOT FOR QUOTATION OR PUBLICATION TABLE 2 PAGE 03 COMPARISON OF QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DEPOSITS 1/ (STATUS OF POLICY ON MAY 15, 1971, COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS IN EACH COLUMN AS PER CENT OF TOTAL BANKS ANSWERING QUESTION) SIZE TOTAL $1 & OVER UNDER h1 OF BANK MUCH STRONGER $1 . OVER UNDER sI -- TOTAL DEPOSITS IN BILLIONS MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER $1 & OVER $1 & OVER S1 E OVER UNDER $S UNDER $1 UNDER 1I MUCH WEAKER $1 C OVER UNDER h1 STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TO THREE MONTHS AGO 100 100 0 1 31 45 50 43 19 11 0 0 ANTICIPATED DEMAND IN NEXT 3 MONTHS 100 100 0 0 52 66 48 33 0 1 0 0 TOTAL $1 C OVER UNDER $1 MUCH FIRMER $1 & OVER UNDER $1 MODERATELY FIRMER ESSENTIALLY UNCHANGED MODERATELY WEAKER I$ & OVER SI C OVER $I & OVER UNDER h1 UNDER $1 UNDER $1 MUCH WEAKER SI1 OVER UNDER $S LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS: INTEREST RATES CHARGED 100 100 0 0 41 44 42 31 17 21 0 4 COMPENSATING OR SUPPORTING BALANCES 100 100 0 0 4 10 94 84 2 6 0 0 STANDARDS OF CREDIT WORTHINESS 100 100 0 0 4 10 96 89 0 1 0 0 MATURITY OF TERM LOANS 100 100 0 1 6 4 83 88 11 7 0 0 ESTABLISHED CUSTOMERS 100 100 0 0 2 4 85 88 7 8 6 0 NEM CUSTOMERS 100 100 2 0 0 10 77 69 17 21 4 0 LOCAL SERVICE AREA CUSTOMERS 100 100 0 0 0 4 86 87 B 9 6 0 NONLOCAL SERVICE AREA CUSTOMERS 100 100 0 1 6 13 78 76 12 10 4 0 REVIEWING CREDIT LINES OR LOAN APPLICATIONS I/ SURVEY OF LENDING PRACTICES AT 54 LARGE BANKS (DEPOSITS OF $I BILLION OR MORES AND $1 BILLION) REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF 71 SMALL BANKS (DEPOSITS OF LESS THAN MAY 15, 1971. NOT FOR QUOTATION OR PUBLICATION TABLE 2 SIZE NUMBER ANSWERING QUESTION $1 E OVER UNDER SI OF BANK MUCH FIRMER POLICY $S E OVER PAGE 04 (CONTINUED) UNDER St -- TOTAL DEPOSITS IN BILLIONS MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY $1 & OVER $1 E OVER $1 E OVER UNDER $1 UNDER $1 UNDER $1 MUCH EASIER POLICY $I & OVER UNDER $1 FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS 100 100 INTENDED USE OF THE LOAN 100 100 LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: INTEREST RATES CHARGED COMPENSATING OR SUPPORTING BALANCES ENFORCEMENT OF BALANCE REQUIREMENTS ESTABLISHING NEW OR LARGER CREDIT LINES NUMBER ANSWERING QUESTION $1 & OVER UNDER $1 CONSIDERABLY LESS WILLING 1I C OVER UNDER $1 MODERATELY LESS WILLING ESSENTIALLY UNCHANGED S1 C OVER 1I E OVER UNDER $1 UNDER $1 MODERATELY MORE WILLING $1 E OVER UNDER $1 CONSIDERABLY MORE WILLING $I C OVER UNDER $1 WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES CONSUMER INSTALMENT LOANS SINGLE FAMILY MORTGAGE LOANS MULTI-FAMILY MORTGAGE LOANS ALL OTHER MORTGAGE LOANS 2/ PARTICIPATION LOANS WITH CORRESPONDENT BANKS 100 100 17 14 0 3 LOANS TO BROKERS 100 100 8 6 4 0 FOR THESE FACTORS, FIRMER MEANS THE FACTORS WERE CONSIDERED MORE IMPORTANT CREDIT REQUESTS. AND EASIER MEANS THEY WERE LESS IMPORTANT. IN MAKING DECISIONS FOR APPROVING B- 3 TABLE 2A NET RESPONSES OF BANKS IN LENDING PRACTICES SURVEYS (In per cent) May Aug. Nov. Feb. May 1969 1969 1969 1970 1970 Aug. Nov. Feb. May 1970 1970 1971 1971 Strength of loan demand1 (compared to 3 months ago) 60.0 30.6 28.0 -1.6 12.1 16.0 -56.8 -54.4 25.6 Anticipated demand in next 3 months 41.8 5.7 11.2 13.6 -32.0 -13.6 59.2 91.0 75.6 41.4 42.3 78.3 68.3 40.6 42.2 49.6 57.6 36.0 35.2 34.4 -12.8 38.4 18.4 22.4 20.8 17.6 10.4 15.2 -73.6 -85.5 24.8 -0.8 -23.4 22.4 4.8 0.8 14.4 -7.2 -25.0 20.9 3.2 6.4 -3.2 47.2 80.2 46.7 71.3 51.6 81.4 48.8 68.8 36.8 60.8 32.0 56.5 18.4 34.4 14.4 31.4 5.6 17.6 5.6 22.6 .1.6 6.4 -3.2 16.1 67.2 65.0 46.0 29.9 71.6 68.5 39.2 21.6 18.5 12.0 18.5 9.6 LENDING TO 8.9 -8.0 NONFINANCIAL BUSINESSES- Terms and Conditions Interest rates charged Compensating or supporting balances Standards of credit worthiness Maturity of term loans Reviewing Credit Lines Established customers New customers Local service area customers Nonlocal service area customers -32.0 -40.8 -33.6 -16.8 -44.0 -7.2 -56.8 -14.4 -45.8 -8.1 -35.2 -1.7 Factors Relating to Applicant (Net percentage indicating more important) Value of depositor as source of business Intended use of loan --14.5 -9.6 -24.0 4.1 -4.8 LENDING TO NONCAPTIVE FINANCE COMPANIES2Terms and Conditions Interest rates charged Compensating or supporting balances Enforcement of balance requirements Establishing new or larger credit lines 50.8 27.9 42.6 62.4 48.0 35.0 42.3 62.0 19.3 26.7 34.7 48.4 14.5 -16.0 21.7 6.4 30.7 16.0 32.2 21.6 64.3 17.2 45.5 57.5 62.0 65.9 26.9 49.7 58.3 62.5 48.0 24.2 30.4 36.3 42.3 21.6 17.7 19.7 21.8 22.2 9.7 -41.6 -54.1 5.6 12.1 1.6 -4.0 3.2 23.4 6.4 -4.1 7.2 22.6 -10.4 -38.7 -20.8 3/ WILLINGNESS TO MAKE OTHER LOANS- Term loans to businesses Consumer instalment loans Single-family mortgage loans Multi-family mortgage loans All other mortgage loans Participation loans with correspondent banks Loans to brokers 38.4 48.4 31.5 10.6 40.0 59.3 36.1 20.5 12.8 8.8 -28.8 -54.4 -4.1 -- -24.2 -42.1 -8.2 -11.6 -25.6 -55.4 3.4 --12.4 -24.2 9.9 5.0 -15.4 -31.2 5.6 20.3 -2.4 10.6 -23.2 -34.7 -36.9 -8.2 -17.9 -9.6 -39.2 -13.7 -0.9 -27.9 -6.6 l/ Per cent of banks reporting stronger loan demand minus per cent of banks reporting weaker loan demand. Positive number indicates net stronger loan demand, negative number indicates net weaker loan demand. 2/ Per cent of banks reporting firmer lending policies minus per cent of banks reporting weaker lending policies. Positive number indicates net firmer lending policies, negative indicates net easier lending policies. 3/ Per cent of banks reporting less willingness to make loans minus per cent of banks more willing to make loans. Positive number indicates less willingness, negative number indicates more willingness. CONFIDENTIAL (FR) SUPPLEMENTAL APPENDIX C SURVEY OF STATE AND LOCAL LONG-TERM BORROWING ANTICIPATIONS AND REALIZATIONS DURING THE FIRST QUARTER 1971* With declining interest rates, State and local governments in the first quarter of 1971, as in the final month of 1970, were generally able to carry out their borrowing and capital outlay plans, according to the FRB-Census 1/ Survey of State and Local Long-term Borrowing Anticipations and Realizations (See Table 1). The declining level of interest rates on State and local securities was reflected in only small interest rate induced changes in borrowing; interest rates had virtually no impact on capital outlays in the first quarter of 1971 (See Table 2). State and local governments responding to the survey indicated that they had borrowed about $5.6 billion as planned and an additional $.8 billion 2/ beyond plans. Previously postponed borrowing finally accomplished during the January to March period accounted for at least $0.7 billion of the $6.7 billion of long-term securities actually sold. Borrowing Short-Falls Despite the easier financial market conditions and the record volume of their borrowing, the State and local sector still had $1.7 billion in gross short-falls from borrowing plans in the first quarter. Only $350 million, or 20 per cent of the short-falls, were not considered temporary by the potential borrowers. Almost 60 per cent of all setbacks,as shown in Table 3, involved administrative and legal problems, believed in part to relate to the current litigation surrounding pollution control revenue bonds. 1/ 2/ The Governments Division of the Bureau of the Census is responsible for the design of the sample as well as the polling of respondents. The survey accounted for 95 per cent of the $6.7 billion actually borrowed during the quarter. Results presented in this analysis represent the responses of 529 State and local units representing a response rate of approximately 90 per cent. The non-respondents had no borrowing anticipations for the quarter and are assumed not to have had long-term borrowing. *Prepared by Paul Schneiderman, Economist, Capital Markets Section, Division of Research and Statistics. Table 1 LONG-TERM BORROWING BY STATE AND LOCAL GOVERNMENTS 1969:111-1971:III (Dollars in Billions) (1) Anticipations (2) Gross Borrowing Setbacks + (3) Accelerations And Unplanned Borrowing = (4) Actual Borrowing Memo: Net Borrowing Setbacks (Col. 2-Col. 3) 1969-III IV 5.38 6.81 3.07 4.71 .15 .88 2.46 2.98 2.92 3.83 1970-I II III IV 5.32 5.20 5.88 6.51 3.03 2.71 2.21 1.70 1.82 1.24 .79 1.05 4.11 3.73 4.46 5.86 1.21 1.47 1.42 .65 1971-I II 7.32 6.49 1.40 n.a. .76 n.a. 6.68 n.a. .64 n.a. Table 2 INTEREST RATE INDUCED LONG-TERM BORROWING SETBACKS AND CAPITAL OUTLAY CUTBACKS 1969: III - 1971: I (Billions of dollars) Change in Tax-exempt 1/ Bond Yields 1969 - III IV 1970 - I II III IV 1971 - I 1/ 2/ Gross Borrowing - Accelerations and Unplanned = Net Interest Related Capital Outlay Impact Cutbacks Setbacks Borrowing .40 1.75 .00 1.75 .68 .60 2.36 .00 2.36 1.20 - .63 .75 - .51 .81 1.10 .59 .00 .05 .07 .81 1.05 .52 .20 .25 .06 - .81 .53 .34 .19 .06 - .71 .45 .15 .30 Bond Buyer Index, calculated from first week in the quarter to last week in the quarter. Less than $10 million. 2/ Table 3 GROSS LONG-TERM BORROWING SHORT-FALLS BY UNIT TYPE AND REASON FOR SHORT-FALLS FIRST QUARTER, 1971 (Data are in Millions of Dollars Unless Otherwise Specified) Unit Type States and State Colleges Counties Cities and Towns Special Districts School Districts TOTAL PER CENT MEMO: NO PLANS TO REINITIATE (Millions of dollars) Interest Rate Induced Rates Expected Too Exceeded To Fall High Ceiling Administrative and Legal Delay All Others Total Per Cent 9.9 12.5 322.8 475.3 108.6 929.1 55.8 .0 5.5 11.1 97.6 30.4 144.6 8.7 23.2 4.4 7.5 230.5 47.4 313.0 18.8 .0 4.8 4.8 54.0 .5 64.1 3.9 3.2 11.9 29.9 121.7 46.2 212.9 12.8 36.3 39.1 376.1 979.1 233.1 1,663.7 100.0 2.2 2.4 22.6 58.8 14.0 100.0 3.2 5.0 15.1 234.7 97.7 355.7 C- 5 CONFIDENTIAL (FR) Interest rates were a stated barrier for about 5 per cent of the short-falls, but expectations of further declines in interest rates were responsible for the postponement of about $375 million of planned borrowing. Most sensitive to first quarter movements in investor yield requirements were State agencies and public institutions of higher learning whose financial managers had rescheduled their offerings for the second quarter of this year in the hope of better market terms. Of course, yields in fact rose in the second quarter and the next survey will indicate whether these units postponed planned financing again. Alternative Means of Finance Long-term borrowing setbacks--most of which were considered temporary--had little effect on capital outlay plans of State and local governments. About 30 per cent of the postponed borrowing did not involve funds needed for current outlays, having been originally scheduled in advance of need. As indicated in Table 4, one-half of postponements of long-term offerings led directly to the issuance of short-term debt; over one-third of this short-term debt, in turn, reflected postponements of long-term offerings for interest rate reasons, especially expectations of lower long-term rates in the second quarter. Table 4 ALTERNATIVE MEANS OF FINANCING BORROWING SETBACKS FIRST QUARTER, 1971 (Millions of dollars) Interest All Setbacks Induced Setbacks Short-term borrowing 732.4 289.3 Use of liquid assets 186.5 113.3 35.8 20.1 414.5 27.5 Reductions of other outlays Not currently needed Other Total Memo: Capital Outlay Cutback 90.2 .0 1,459.4 450.2 204.3 1.3 C- 6 CONFIDENTIAL (FR) Long-term Borrowing Accelerations and Borrowing in Excess of Plans The downward glide of municipal yields during the first quarter induced some offerings prior to initially planned issue dates. Altogether, the amount involved accounted for about 20 per cent of the approximately $760 million in accelerated and expanded borrowing. The staff feels, moreover, that apart from this direct effect, declining rates were also instrumental in stimulating early authorizations and speed-ups in project plans development. Table 5 FACTORS INFLUENCING LONG-TERM BORROWING IN EXCESS OF ANTICIPATIONS FIRST QUARTER, 1971 (Data are in millions of dollars unless otherwise specified) Interest Rate Project Plans Early Induced Ready Early Authorization All others Total Per Cent States and state colleges 56.3 41.0 34.8 27.4 159.5 21.0 Counties 18.6 20.9 9.8 47.6 96.9 12.8 Cities and towns 28.0 54.9 19.8 115.5 218.2 28.7 Special districts 10.0 52.2 36.8 99.0 13.0 School districts 38.0 7.2 17.2 123.3 185.7 24.5 100.0 Total Per Cent .0 150.9 176.2 81.6 350.6 759.3 19.9 23.2 10.7 46.2 100.0 C - 7 CONFIDENTIAL (FR) The rise in construction costs fell heaviest upon school districts, accounting for about 15 per cent of their borrowing above planned levels. These units had borne a significant part of the previous impact of higher interest rates, having been forced to cancel long-term issues and having few financing alternatives to use as an expedient. Now that long-term markets permit these units to borrow, inflation in the construction industry has forced school districts to borrow more in order to finance previously postponed projects. Anticipations Long-term borrowing plans for the current (second) quarter show a modest increase over anticipations reported in December of 1970. This increase is attributed to borrowing postponed during the first quarter. Even with the rise in interest rates during the current quarter, it appears as if State and local units, net, will borrow close to their anticipated levels. This suggests that most units no longer expect a near-term decline in interest rates and see no point in further delay. Table 6 LONG-TERM BORROWING ANTICIPATIONS 1 / (Billions of dollars) Auth. April-June Unauth. Total As of: December 31, 1970 3.4 2.3 5.7 March 31, 1971 4.4 2.1 6.5 Net change 1.0 -.2 .8 1/ The anticipations in table are based upon results of the December 31, 1970 survey of the entire sample adjusted for changes reported by those units which borrowed or had plans to borrow at the time of the March 31, 1971 survey. 

Federal Reserve (1971, June 7). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19710608_part3

@misc{wtfs_greenbook_19710608_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1971},
  month = {Jun},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19710608_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}