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 this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. 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 optimal 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. 14, 1978 1978 July 14, CONFIDENTIAL (FR) CLASS II - FOMC SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABLE OF CONTENTS Section Page THE DOMESTIC NONFINANCIAL ECONOMY Industrial production............... ................... Wholesale trade inventories........................... TABLES Industrial production: summary....................... Wholesale trade inventories: change in book value .............. ............................. THE DOMESTIC FINANCIAL ECONOMY TABLES: Interest rates ............. ....................... Monetary aggregates. .................................. CORRECTIONS Part III & IV ........................................ 4 APPENDIX Experience with the money market certificates in June................................. A-1 SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Industrial production increased an estimated 0.3 per cent in June, with gains about equally distributed between products and materials industries. This follows advances in total production of 1.5 and 0.6 per cent in April and May respectively. The preliminary second quarter index, strengthened somewhat by upward revisions in April and May levels, was up 12.3 per cent at an annual rate from the first quarter. At 144.3 per cent of the 1967 average, the index for June is 4.7 per cent higher than a year earlier. Product: Despite a small decline in auto production, output of consumer goods advanced 0.3 per cent in June. Auto assemblies were at a seasonally adjusted annual rate of 9.3 million units, allowing for the earlier-than-usual model changeover. Current schedules call for a rate of assemblies at about this level over the next few months. Production of home goods, such as appliances and nondurable consumer goods, increased somewhat further in June. Business equipment output rose 0.4 per cent in June and, at 161.4 per cent of the 1967 average, is 7.5 per cent higher than a year ago. Produc- tion of intermediate goods, such as business and construction supplies, also continued to expand. Materials: Output of durable materials advanced 0.6 per cent mainly due to the continued strength in equipment parts and basic metals. Nondurable materials production increased only slightly. -2INDUSTRIAL PRODUCTION: SUMMARY (Seasonally Adjusted) May (p) 1978 June (e) Jan. 143.8 144.3 -. 6 .3 1.2 143.3 143.7 -1.3 .8 1.4 Final Products Consumer Goods Durable Nondurable Business Equipment 140.6 147.1 159.6 142.3 160.7 141.1 147.5 159.9 142.7 161.4 -2.0 -2.7 -6.0 -1.3 -. 9 1.1 1.4 3.2 .6 1.0 1.8 1.5 4.2 .4 2.1 Intermediate Products Construction Supplies 153.2 150.4 153.6 151.0 .8 .6 -. 1 -. 4 .0 -. 5 144.7 145.3 .3 -. 4 e--estimate p--preliminary .9 Total Products, total Materials Per cent changes Mar. Apr. May June June Feb. From preceding month June 77 1.5 .8 .6 4.7 .4 4.7 4.2 2.6 2.6 2.6 7.5 .0 1.2 1.2 -. 3 2.8 -1.4 .4 .3 1.3 .8 .1 .2 2.5 1.1 1.5 6.2 7.9 .9 4.8 Wholesale trade inventories in book values declined at a seasonally adjusted annual rate of $1.2 billion in May following the exceptionally high upward revised April rate of $23.8 billion. The adjustment in wholesale trade stocks comes after six months of substantial buildup and marks the first reduction since last July. In May the slight reduction in stocks was accompanied by moderate expansion in both wholesale sales (2 per cent) and production. The ratio of inventories to sales for all wholesale trade merchants declined to 1.18 in May, a bit low on an historical basis. -3Durable wholesale inventories rose at an annual rate of $2.2 billion in May, well below the April pace of $10.0 billion. The large increase in stocks at wholesalers of motor vehicles, primarily importers of foreign cars, was offset by a substantial reduction in merchants' stocks of machinery. Nondurable inventories declined at an annual rate of $3.4 billion following the strong April accumulation of $13.8 billion. While the book value of stocks at wholesale groceries increased, merchants of raw farm products reported a sharp decline after 9 months of accumulation. The Domestic Financial Economy No textual addendums to the Greenbook were required, but the usual updating of the interest rate developments and monetary aggregates tables are contained on pages 5 and 6, respectively. CORRECTIONS Part III - Page III-14, lines 4-5 "third quarter of 1974" should read "second quarter of 1977." Part IV "+0.8." experts." Page IV-8, line 3 of table, final column, ".0" should be Page IV-12, line 18, "industry exports" should be "industry Page IV-13, lines 1-3 should read: "Foreign official assets in the United States (excluding OPEC holdings) rose by $0.6 billion in May, after having fallen by $2.8 billion in April. Exchange-" Page IV-24, 3-Month Rates for Switzerland in final column, "4.25" should be "1.62." -4- WHOLESALE TRADE INVENTORIES: CHANGE IN BOOK VALUE (Billions of dollars; seasonally adjusted, annual rate) Total Durable Nondurable Excluding farm 1975 1976 QI QII 1977 QIII QIV QI 1.4 6.2 12.0 2.6 4.7 7.5 19.5 23.8 -1.2 3.6 5.4 5.4 8.1 5.9 9.9 10.0 2.2 -2.0 2.6 6.6 -2.8 -3.4 1.6 9.7 13.8 -3.4 -.5 2.1 3.2 -.7 4.5 8.8 -.2 .5 .1 .7 1978 Apr.(r) May(p) WHOLESALE TRADE INVENTORY/SALES RATIO 1977 Total Durable Nondurable r = revised p = preliminary 1978 1975 1976 QI QII QIII QIV QI 1.24 1.22 1.24 1.21 1.24 1.23 1.27 1.20 1.18 1.88 1.79 1.77 1.76 1.78 1.73 1.76 1.65 1.67 .80 .80 .84 .79 .79 .79 .85 .82 Apr.(r) May(p) .77 INTEREST RATES (One day quotes--in per cent) 1978 Highs Lows June 19 July 13 Short-Term Rates Federal funds (wkly avg.) 3-month Treasury bills (bid) Comm. paper (90-119 days) Bankers' acceptances Euro-dollars CDs (NYC) 90 days Most often quoted new 6-month Treasury bills (bid) Comm. paper (4-6 mos.) CDs (NYC) 180 days Most often quoted new 1-year Treasury bills (bid) CDs (NYC) Most often quoted new Prime municipal note 7.78(6/28) 6.58(1/11) 7.49(6/14) 7.72(7/12) 7.20(7/11) 7.87(7/13) 8.08(7/13) 8.75(6/27) 6.09(4/24) 6.63(1/6) 6.70(1/6) 7.00(2/8) 6.69 7.67 7.85 8.50 7.18 8.00(7/12) 6.65(1/4) 7.58(6/14) 8.00(7/12) 7.54(7/13) 7.92(7/13) 6.43(1/4) 6.66(1/5) 7.23 7.70 7.54 7.92 8.34(7/5) 6.85(1/4) 8.00(6/14) 8.25(7/12) 7.84(7/13) 6.53(1/4) 7.55 7.84 8.25(7/12) 7.05(1/4) 3.55(3/3) 8.10(6/14) 4.20(6/16) 8.25(7/12) 4.40(7/7) 8.56(7/13) 8.58(7/13) 8.73(7/13) 7.38(1/4) 7.71(1/5) 8.56 8.00(1/5) 8.30 0.38 8.50 8.92(7/12) 9.64(6/5) 9.19(7/14) 9.22(7/14) 8.28(1/3) 9.09(1/3) 8.61(3/24) 8.48(1/6) 8.73 9.57 9.03(6/16) 8.96(6/16) 8.92(7/12) 6.32(7/13) 5.58(3/16) 6.16(6/15) 6.32 10.02(7/10) 9.13(1/9) 9.86(6/12) 4.40(7/7) 7.87 8.08 8.56 Intermediate- and Long-Term Treasury (constant maturity) 3-year 7-year 20-year Corporate Seasoned Aaa Baa Aaa Utility New Issue Recently Offered Municipal Bond Buyer index Mortgage--average yields in FNMA auction 0.53 8.73 9.57(7/12) 9.19p(7/14) 9.22p(7/14) 10.02(7/10) -6Updated MONETARY AGGREGATES (Seasonally adjusted)1/ 1977 1 9 78 QII-77 QIV QI QIIp April 7.5 5.6 9.5 19.0 8.0 8.0 7.9 8.2 6.9 8.3 11.5 7.8 8.6 8.6 10.7 7.7 8.0 9.8 7.5 9.8 9.9 13.1 13.4 11.0 8.3 14.4 6.9 12.5 8.6 5.4 6.6 -7.6 11.6 3.4 28.3 7.9 2.6 2.4 2.6 12.7 6.1 25.5 7.4 1.6 2.1 -5.2 12.3 10.3 15.5 6.2 3.3 4.7 -7.8 8.3 10.7 3.9 7.7 2.2 1.7 -7.8 12.8 9.9 18.3 9.1 -1.6 -2.3 15.8 18.1 14.0 24.4 9.1 4.3 5.2 -6.7 13.4 7.2 26.7 4.5 4.0 5.5 6.5 5.5 5.2 5.6 8.9 9.0 5.8 18.2 7.5 7.8 3.6 15.8 7.3 7.6 3.6 14.7 7.0 7.6 3.6 12.1 9.0 9.6 4.4 16.8 11.9 12.6 7.4 19.9 May Junep to Major monetary aggregates 1. M-1 (currency plus demand deposits) 2. M-2 (M-1 plus time & savings deposits at CBs other than large CDs) 3. M-3 (M-2 plus all deposits at thrift institutions) Bank time and savings deposits 4. Total 5. Other than large negotiable CDs at weekly reporting banks (interest bearing component of M-2) 6. Savings deposits 7. Individuals 2/ 8. Other 3/ 9. Time deposits 10. Small time 4/ 11. Large time 4/ 12. Time and savings deposits subject to rate ceilings (6+10) Deposits at nonbank thrift institutions 5/ 13. 14. 15. 16. Total Savings and loan associations Mutual savings banks Credit unions 14.4 15.4 9.9 20.0 Average monthly changes, $ billions MEMORANDA: 17. Total U.S. Govt. deposits 18. Total large time deposits 6/ 19. Nondeposit sources of funds 7/ 0.2 5.7 1.5 -1.2 4.4 1.7 1.1 2.8 0.9 0.4 1.7 1.1 -1.0 5.1 0.1 4.0 1.6 1.5 -0.1 3.6 1.4 p--preliminary 1/ Quarterly growth rates are computed on a quarterly average basis. 2/ Savings deposits held by individuals and nonprofit organizations. 3/ Savings deposits of business, government, and others, not seasonally adjusted. 4/ Small time deposits are time deposits in denominations less than $100,000. Large time deposits are time deposits in denominations of $100,000 and above excluding negotiable CDs at weekly reporting banks.. 5/ Growth rates computed from monthly levels based on average of current and preceding end-of-month data. 6/ All large time certificates, negotiable and nonnegotiable, at all CBs. / Nondeposit borrowings of commercial banks from nonbank sources include Federal funds purchased and security RPs plus other liabilities for borrowed money, including borrowings from the Federal Reserve, Eurodollar borrowings, and loans sold, less interbank loans. A-1 APPENDIX EXPERIENCE WITH THE MONEY MARKET CERTIFICATES IN JUNE* Survey data for the month of June indicate that the money market certificate has attracted a sizable volume of deposits in its first month (See Chart). By the end of June commercial banks had issued an estimated $2.1 billion of the new certificates. As anticipated, thrift institution sales were even stronger owing to the rate ceiling differential and more intense promotion. An estimated $4.9 billion of the certificates were issued by S&Ls in June. MSB sales amounted to roughly $1.6 billion.1/ Survey data available for commercial banks and MSBs suggest that the largest institutions accounted for a slightly greater fraction of money market certificate sales than of small-denomination time deposits as a whole. Large commercial banks, which hold 23 per cent of all small-denomination time deposits outstanding, accounted for 32 per cent of certificate sales. For large MSBs the proportions were closer, with money market certificate sales at 54 per cent of the savings bank total and holdings of small time deposits at just under half of outstanding accounts. The Chart also indicates that by the end of June money market certificates represented roughly one-half of one per cent of smalldenomination time and savings deposits at commercial banks, and 1.2 per cent of total deposits at thrift institutions. *Prepared by Sherry Atkinson, Economist, Capital Markets Section, Division of Research and Statistics. 1/ Commercial bank and MSB estimates are for certificate sales through June 28. Due to additional survey data, the MSB figure has been revised slightly from earlier estimates. 

Federal Reserve (1978, July 17). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19780718_part3

@misc{wtfs_greenbook_19780718_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1978},
  month = {Jul},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19780718_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}