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 May 19, By the staff Board of Governors of the Federal Reserve System 1972 SUPPLEMENTAL NOTES The Domestic Economy Consumer prices. The consumer price index in April increased at a seasonally adjusted annual rate of 2.1 per cent, following little change in March. Food prices in April declined at a one per cent rate, while nonfood commodity and service costs rose at 2.0 and 3.7 per cent rates, respectively. The overall index was 3.4 per cent above the level of a year earlier. (Percentage changes, CONSUMER PRICES seasonally adjusted annual rates) August 1971 to April 1972 All items Food Commodities less food Services 1/ March 1972 to April 1972 2.8 2.1 4.1 1.4 3.5 -1.0 2.0 3.7 2.7 2.0 3.0 3.8 1.6 1.0 Addendum: All items less mortgage costs 2/ Services less home finance 1/ 2/ Commodities less food, used cars, home purchase 3/ 1/ 2/ 3/ Not seasonally adjusted. Home financing costs excluded from services reflect Confidential: property taxes and insurance rates as well as mortgage costs, which in turn move with mortgage interest rates and house prices. Confidential. NOTE: Seasonally adjusted changes based on revised seasonal factors. - 2 - Significant reductions in food prices occurred in April for beef, fresh vegetables, poultry, and eggs. Beef prices, were still more than 9 per cent above their year-ago levels. however, Depart- ment of Agriculture data show further declines in beef prices in April after the first week, which is the CPI pricing date. A further drop in gasoline prices offset in part advances in other commodity prices--apparel, new cars (seasonally adjusted), used cars and household durables. Most service costs continued to rise at well below pre-freeze rates. Manufacturers' orders and shipments. goods rose 0.9 per cent in April (advance, New orders for durable partial sample) after rising 1.7 per cent in March. (The final March figure was almost unchanged from the preliminary.) New orders for capital equipment were down 1 per cent from an upward-revised March level, and slightly below the first quarter average. Other major groups showed moderate increases from March levels. MANUFACTURERS' NEW ORDERS FOR DURABLE GOODS (Per cent change) April (advance) from March Durable goods, total Primary metals Motor vehicles & parts Household durables Defense products Capital equipment Construction and other durables April (advance) from Q I avg. .9 1.5 .1 4.6 .6 3.6 4.7 7.4 7.4 -1.1 .2 -15.2 -.2 2.2 -3Shipments rose 1.8 per cent in April but were still below the level of incoming orders, and the order backlog rose 0.2 per cent-a somewhat lower rate than the previous five months of increase. The order backlog for capital equipment rose for the third straight month. Gross national product. The revised Commerce estimates of GNP and related series (released May 18) are shown in detail in the Greenbook of May 17. The total of $1,103.6 billion, annual rate, is little changed from the preliminary estimate, but real GNP is now shown to have increased at an annual rate of 5.6 per cent, rather than the 5.3 per cent estimated earlier. Larger increases now estimated for personal consumption expenditures and business fixed investment are about offset by smaller increases in Federal and State and local purchases and a larger decline in net exports. Personal income, and wage and salary disbursements also are little different than indicated earlier. However, the figure for personal Federal tax payments has been raised $1.5 billion, primarily because of larger final settlements on 1971 liabilities than first estimated; and disposable personal income is lower by nearly this amount. Lowering disposable income while raising consumption expenditures resulted in a 7.0 per cent saving rate, down from 7.8 per cent in the final quarter of last year. Federal Government deficit is On a national income account basis, the estimated at $13.3 billion, only about half the deficit in the preceding quarter. - 4 - The Domestic Financial Situation Corporate profits. The preliminary first quarter estimates released May 18 by the Bureau of Economic Analysis (Commerce Department) show a substantial increase in seasonally adjusted aggregate corporate profits before tax, both before and after adjustment for changes in inventory valuation. This increase was entirely in the profits of domestic nonfinancial corporations. Profits originating in the rest of the world returned to the same level as the first quarter of 1971, i.e., $5.2 billion at an annual rate. This represents a 17.5 per cent decline from the previous quarter, when there was substantial repatriation of foreign earnings. The earnings of financial institutions at $14.1 billion in the first quarter of 1972 were virtually unchanged from the level maintained throughout 1971. Although many banks have reported lower first quarter earnings, the banking sector as a whole is estimated to have maintained earnings at a level slightly above that of the fourth quarter. For the domestic nonfinancial corporate sector as a whole, profits were up 13.7 per cent from the first quarter of 1971 and 10 per cent from the fourth quarter. Eliminating inventory profits reduces the rates of increase, but they are still substantial. The largest percentage gain occurred in the profits of durable goods manufacturers. Construction, trade, and services behaved much like the sector as a whole. While the regulated industries showed little change in the book profits, they did show a decline from the fourth quarter level in profits plus inventory valuation adjustment. -5- Preliminary data on manufacturing before-tax profit margins indicate that while margins are up slightly for manufacturing as a whole and for durables as a group, in most cases the bulk of the increase occurred between the first and the fourth quarters of 1971. For manufacturers of many categories of nondurables, profit margins appear to be lower than they were a year ago. Even so, with sales higher, the B.E.A. estimates of total profits for this group show gains over both the first and the fourth quarters of 1971. Most of the increase in book profits is reflected in a substantial rise in retained earnings. The effective tax rate has been declining as a result of the investment tax credit, liberalized depreciation guidelines, actual operating losses in some sectors, and the recent large charges to surplus from the write-off of unprofitable operations which give rise to tax credits with no reduction in profits before tax. The dollar amount of dividends paid has changed little if at all; thus, the payout rate has declined substantially. The bulk of retained income, however, takes the form of capital consumption allowances; when these are added to undistributed profits, the increase in corporate internal funds is even more striking. CORPORATE PROFITS: PRELIMINARY All Corporations 4/ 1972-I $Billion SAAR Percentage change from 1971-IV 1971-I Domestic Nonfinancial Corporations 1972-I $Billion Percentage change from 1971-IV 1971-I SAAR Profits before tax and inventory valuation 86.0 8.2 4.9 66.7 11.0 7.9 Profits before tax 91.6 10.4 6.5 72.3 13.7 9.9 Profits tax liability 39.3 2.6 8.0 32.1 3.9 10.0 Profits after tax 52.3 16.7 5.2 40.2 22.9 9.8 Dividends 25.8 .8 2.0 21.5 .9 4.9 Undistributed profits 26.5 38.0 8.6 18.7 64.0 16.1 Cash flow 1/ 92.8 18.1 4.5 82.2 20.2 5.5 Effective tax rate (percent) 2/ 42.9 -6.9 +1.4 44.4 -8.6 +.0 Payout rate (percent) 3/ 49.3 -13.7 -3.1 53.5 -17.9 adjustment 1/ 2/ 3/ 4/ Capital consumption allowances plus undistributed profits. Profits tax liability/Profits before tax. Dividends/Profits after tax. Includes both foreign and domestic profits. -4.5 - 7 INTEREST RATES 1972 Highs Lows April 17 May 18 3.18 (3/1) 4.18 (4/12) 4.32 (5/17) 2.99 3.75 3.38 4.62 3.85 4.62 4.50 5.31 3.79 4.50 Short-Term Rates Federal funds (wkly. avg.) 4.32 (5/17) 3-month Treasury bills (bid) Comm. paper (90-119 day) Bankers' acceptances Euro-dollars 3.94 4.62 4.50 5.94 (3/15) (4/21) (4/20) (3/27) (2/11) (2/29) (2/23) (3/8) 4.25 4.75 CD's (prime NYC) 4.50 (4/12) 3.50 (2/23) 4.50 (4/12) 4.38 (5/17) 4.75 (4/19) 3.50 (2/16) 4.70 (4/12) 4.39 (5/17) 4.44 (4/4) 4.62 (5/2) 4.76 (4/13) 3.35 (1/10) 3.88 (3/3) 3.79 (2/17) 4.28 4.62 4.67 4.27 4.50 4.75 (4/12) 5.25 (4/12) 3.88 (2/23) 3.70 (2/2) 4.75 (4/12) 5.00 (4/12) 4.62 (5/17) 4.68 (5/17) 4.86 (4/4) 5.32 (4/14) 3.57 (1/8) 4.32 (1/17) 4.75 5.31 4.55 4.88 5.12 (5/17) 3.15 (4/13) 4.62 (1/19) 2.35 (1/12) 5.12 (4/12) 3.15 (4/13) 5.12 (5/17) 6.28 (4/13) 6.22 (4/14) 5.47 (1/13) 5.95 (1/14) 6.21 6.21 5.86 6.06 7.37 (4/24) 7.14 (1/17) 8.29 (1/3) 8.17 (1/19) 7.31 8.24 7.30 8.27 New Issue Aaa 7.42 (4/14) 6.86 (1/14) 7.42 (4/14) 7.25 Municipal Bond Buyer Index Moody's Aaa 5.54 (4/13) 4.99 (1/13) 5.25 (4/13) 4.65 (1/13) 5.54 (4/13) 5.25 (4/13) 5.29 5.15 7.63 (5/15) 7.54 (3/20) 7.60 7.63 (5/15) Most often quoted new Secondary market 6-month Treasury bills (bid) Comm. paper (4-6 mo.) Federal agencies CD's (prime NYC) Most often quoted new Secondary market 1-yer Treasury bills (bid) Federal agencies 4.48 CD's (prime NYC) Most often quoted new Prime municipals 2.85 Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa Mortgage-implicit yield in FNMA auction 1/ Yield on short-term 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. CORRECTIONS Section I Table I-T-I, for wholesale the seasonally adjusted figures should be: wholesale prices, 117.4; industrial commodities, 117.1; farm products & foods and feeds, 118.5. The per cent change from preceding period should be: wholesale prices, 3.4; industrial commodities, 4.2; farm products & foods and feeds, -1.0. For consumer prices, the per cent change from preceding period should be 2.0 for food, and 3.1 for commodities, except food. The per cent change from three periods earlier should be 7.2 for food and 1.4 for commodities except food. Page 22, line 4. Last word should be seven (not eight). Section II Table II-T-I. The data for "FNMA auction yield" should read across as follows: Section III Page 14. 7.63, .07, .02, and .06. The heading at the top of the first column should read (8/16 to 9/30 only). Section IV Page 13-21, should be III, page 13-21. 

Federal Reserve (1972, May 22). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19720523_part3

@misc{wtfs_greenbook_19720523_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1972},
  month = {May},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19720523_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}