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

July 14,

1967

SUPPLEMENTAL NOTES

The Domestic Financial Situation Yields on FHA-insured mortgages sold in the secondary market rose further in June as average discounts exceeded 4 per cent for the first month since January.

Contract rates on conventional first

mortgages also continued higher--by another 5 basis points--in the case of new homes, but those for existing homes were unchanged, according to official estimates from the Federal Housing Administration. As in May, the increase in yields on FHA-insured mortgages, the most sensitive of the mortgage yield series, was less than the rise in returns on new issues of high-grade corporate bonds.

As a result,

the yield spread which in May was already unusually low narrowed even further--to 72 basis points.

AVERAGE RATES AND YIELDS ON SELECTED NEW-HOME MORTGAGES Primary Market:

Secondary Market:

Conventional loans Change Level (Basis points) (Per cent)

FHA-insured loans Change Level (Basis points) (Per cent)

1966 November December

6.70 6.65

0 - 5

6.81 6.77

n.a. - 4

6.60 6.50 6.45 6.40 6.45 6.50

- 5 -10 - 5 - 5 5 5

6.62 6.46 6.35 6.29 6.44 6.51

-15 -16 -11 - 6 15 7

1967 January February March April May June

NOTE: FHA series; interest rates on conventional first mortgages (excluding additional fees and charges) are rounded to the nearest 5 basis points; secondary market yields are for certain 6 per cent FHAinsured Sec. 203 loans.

-2-

Yields on new corporate bonds continued to decline this week, but issues at these lower yield levels were accorded a mixed response from investors.

Of the five new, non-convertible

offerings

this week, two negotiated issues were quick sellouts while all three competitive utility issues have large unsold balances.

Municipal bond

yields advanced again this week, although most recently have shown signs of leveling off. Common stock prices--as measured by Standard and Poor's index of 500 stocks--closed at 92.42 on July 13, little changed from the July 11 close cited in the Greenbook.

At this level prices are

still two per cent below the May peak but, nonetheless, nearly two per cent above the end of June level.

Trading volume this week has been

extremely heavy, averaging more than 11.6 million shares in the first four trading days.

International Developments The French Government on July 12 unexpectedly announced certain expansionary fiscal meesures.

A series of decrees making use

of the special powers recently obtained from the parliament had been expected some time this summer, and on Wednesday several decisions were announced.

But the unexpected addition to this list of some actions

intended to have early expansionary effects is a sign that the Government is aware of the marked softening in the French economy in recent months.

- 3Family allowances, which in France are paid for all dependent children on an ascending scale and exceed wage earnings in many households, are to be increased immediately by 4.5 per cent.

About 800

million francs are to be committed this year and charged to next year's budget, for public housing, highway construction, and telephone system A substantial sum is to be available for loans to private

expansion.

Institution of the value

businesses investing in depressed areas.

added tax system is to occur ahead of schedule for certain industries for whom the change represents a tax cut. Among the other measures announced were the highly controversial plan for profit sharing in industry and actions to reduce the deficit of the social security system.

Details of amounts and timing

of the latter are not yet available;obviously the effects will be anti-inflationary or, under present conditions, deflationary.

Corrections Table I -- T - 1:

Latest figures shown in the Greenbook for

wholesale and consumer prices are for May, not June.

The wholesale

prices for industrial commodities and sensitive materials are the FRB groupings; the FR groupings for industrial commodities showed a rise of .1 percentage point in May.

The Department of Labor preliminary

estimate of wholesale prices of all commodities for June is 106.3 (1957-59 = 100) as compared with the final estimate of 105.8 in May; for the industrial commodities grouping the BLS June estimate is 106.0, unchanged from May, April, and March.

The combined index of farm

-4-

products and processed foods and feeds rose again in June by about the same amount as in May, according to BLS preliminary indications. Table I --

T - 2:

The section on new security issues should

read as follows:

Date

Amount

Avg. 3 latest months

Corporate public offerings

July'67

1,85 0 e

1 ,6 1 0 e

State & local gov. public offerings

"

1,100 e

1,224 e

Change from year earlier Avg. 3 Ltest latest month months

1

New Security Issues (N.S.A.) (Millions of dollars)

Com. & fin. co. paper, change in outstandings

May '67

818

623

,3 0 0 e

696e

399 e

3 0 9e

620

266

N.S.A. - Not seasonally adjusted; e - estimated by Federal Reserve

CONFIDENTIAL fF)

SECOND SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

July 17,

1967

Changes in some of the components, however, are more significant.

These include the following:

(1) With personal income raised and total consumer purchases little changed, personal saving and its ratio to disposable income have been increased significantly.

In the second half of 1966 and

the first quarter of this year, the ratio was raised by almost a full percentage point, and in the first quarter was 7.3 per cent. (2) Inventory accumulation in 1966 and the first quarter of 1967 now total almost $2 billion more than shown by the earlier figures. (3) Corporate profits before tax was revised up by 1.8 per cent in 1966, to $83.8 billion, with an increase -- rather than a leveling off -- shown in the second half of the year. The Commerce preliminary second quarter figures indicate a rise in current dollar expenditures of $9.0 billion and in final sales of $14.0 billion; these rises are somewhat less than projected in last week's Greenbook.

Real GNP in the second quarter advanced

at an annual rate of 2.4 per cent, with the deflator also rising at a rate of 2.4 per cent per year.

Significantly smaller-than-expected

increases occurred, according to the preliminary figures, in residential construction, business fixed investment, net exports, and defense purchases of goods and services.

Total consumption expendi-

tures also increased slightly less than expected, with a smaller

increase in nondurable goods being about offset by a larger rise in durable goods expenditures.

The smaller rise inlGNP was reflected

in a somewhat smaller-than-expected rise in personal income and, despite a significant drop in Federal personal tax payments, the saving rate declined to 6.9 per cent from the exceptionally high first quarter rate. The staff projection for the third quarter has been recast to take into account the revised figures and for the third quarter we now show a rise of $14 billion in current dollar GNP, rather than $15 billion. $17 billion.

Final sales are still projected to rise about

We still expect some net liquidation of inventories

in view of continued high inventory-sales ratios in manufacturing industries and the prospects for substantial drawing down of auto stocks with the possibility of a strike in the industry.

With

liquidation projected at $1,0 billion annual rate the downdrag on GNP will be a little more than projected last week because of the higher inventory change figures now shown for the second quarter. Other changes are about the same as shown in the July 12 projection. With an increase of $14 billion in expenditures and a projected rise of 2.7 per cent in the deflator, real output rises at an annual rate of 4.3 per cent.

Consumer expenditures are again projected to in-

crease more rapidly than disposable income and the saving rate declines to 6.5 per cent from 6.9 per cent in the second quarter.

SUPPLEMENTAL NOTE:

GNP REVISION

Revised gross national product and related income figures

from the first quarter of 1964 through the first quarter of this year and the preliminary estimates for the second quarter were released today by the Department of Commerce.

This is the usual July 3-year

revision which incorporates newly available data. The attached tables on "Gross National Product and Related Items" update those in the Greenbook of July 12, 1967, and show the revised figures, the preliminary estimates for 1967-11, and the staff's projection for 1967-III recast in terms of the revised data. The revision raises only slightly earlier estimates of gross national product in both current and constant dollars, and personal income; for 1966 the upward revision in these series was only about 1/2 to 3/4 of 1 per cent. The revised GNP estimates also depict basically the same quarterly pattern of over-all developments as did the former ones.

The annual rate of increase in current

dollar GNP in the fourth quarter of last year, however, is now indicated at 7.1 per cent instead of 7.5 per cent, and in real terms 3.8 per cent instead of 4.5 per cent.

For the first quarter

of this year, the over-all effect of the revision is relatively small, and annual rates of change are 2.2 per cent for current dollar GNP and -.2 per cent for constant dollar GNP.

CONFIDENTIAL

--

FR

July 17, 1967

REVISED GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of dollars, with quarterly figures at annual rates) 1967 1964

1965

1966

1966 III

IV

I

IIp

Proj. III

Gross National Product Final sales Private

632.4 626.6 497.9

683.9 674.5 538.1

743.3 729.9 575.6

748.8 737.4 579.7

762.1 743.6 581.9

766.3 759.2 588.8

775.3 773.2 598.0

789.3 790.1 610.1

Personal consumption expenditures Durable goods Nondurables goods Services

401.2 59.2 178.7 163.3

433.1 66.0 191.2 175.9

465.9 70.3 207.5 188.1

470.1 70.9 209.5 189.8

473.8 70.6 210.3 192.9

480.2 69.4 214.2 196.6

488.9 72.1 216.6 200.2

497.9 73.6 220.8 203.5

Gross Private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm

94.0 27.1

118.0 24.4

6.4

107.4 27.0 71.1 9.4 8.4

116.4 23.7 81.2 11.4 12.0

122.2 20.9 82.8 18.5 19.0

110.4 21.4 81.9 7.1 7.3

106.1 22.7 81.3 2.1 2.2

105.9 24.5 82.2 -. 8 -1.0

8.5

6.9

5,1

4.6

4.3

5.3

5.2

5.5

Gov't purchases of goods & services Federal Defense Other State & local

128.7 65.2 50.0 15.2 63.5

136.4 66.8 50.1 16.7 69.6

154.3 77.0 60.5 16.5 77.2

157.7 79.5 63.0 16.6 78.1

161.7 81.5 65.6 15.9 80.2

170.4 87.1 70.2 16.8 83.3

175.2 89.5 72.6 16.9 85.6

180.0 92.2 75.1 17.1 87.8

Gross National Product in Constant (1958) dollars GNP Implicit deflator (1958=100)

581.1 108.8

616.7 110.9

652.6 113.9

654.8 114.4

661.1 115.3

660.7 116.0

664.6 116.7

671.7 117.5

Personal income Wage and salaries Disposable income Personal saving Saving rate (per cent)

497.5 333.7 438.1 26.2 6.0

537.8 359.1 472.2 27.2 5.8

584.0 394.6 508.8 29.8 5.9

589.3 399.6 512.4 29.2 5.7

601.6 407.4 522.0 34.6 6.6

612.9 414.7 532.7 38.8 7.3

618.9 418.0 540.2 37.1 6.9

629.5 426.0 547.0 35.5 6.5

66.8

76.6

83.8

84.0

83.9

79.0

n.a.

115.0 118.1 -3.0

124.8 123.4 1.4

143.2 142.9 .3

145.6 146.3 - .7

148.6 151.9 -3.3

149.1 160.9 -11.9

75.8 2.7 73.1 5.2

77.2 2.7 74.5 4.5

78.9 3.1 75.8 3.8

79.1 3.2 76.0 3.8

79.8

(millions)

58.3 17.3

60.8 18.0

63.9 19.1

Industrial production (1957-59=100) Capacity utilization, manufacturing (per cent)

132.3

143.4

156.3

Net Exports

Corporate profits before tax Federal government receipts and expenditures (N.I.A. basis) Receipts Expenditures Surplus or deficit (-) Total labor force (millions) " Armed forces " Civilian labor force Unemployment rate (per cent) Nonfarm payroll employment Manufacturing

61.1 5.8

86

Housing starts, private (millions, A.R.)1.56 Sales new U.S.-made autos (millions, .R.)

n.a. --

7.62

not available

80.2 13.4 13.7

n.a. 163.2 n.a.

n.a.

n.a. n.a. n.a.

76.5 3.7

80.3 3.4 76.9 3.7

80.2 3.5 76.7 3.8

80.7 3.5 77.2 3.9

64.1 19.2

64.8 19.4

65.5 19.4

65.5 19.2

65.8 19.3

157.6

158.8

157.0

155.6

157.4

3.3

89

91

91

90

1.51

1.22

1.09

.98

8.76

8.38

8.47

8.13

87

85

85

1.21

1.26

1.36

7.33

7.83

8.25

CONFIDENTIAL --

FR

July 17, 1967

REVISED CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly changes are at annual rates)

1964

1965

1966

Gross National Product Final sales Private

41,9

51.5 47.9 40.2

59.4 55,4 37.5

12.1 14,7 8,2

GNP in constant (1958) dollars Final sales Private

30.1 30.0 28.4

35.6 32.6 29,5

35,9 32.1 21.9

5.5 8.3 4.4

Gross National Product Final sales Private

7.1 7.2 7.7

8.1 7.6 8.1

8.7 8.2 7.0

6.6 8.1 5.7

Personal consumption expenditures Durable goods Nondurable goods Services

7,0 9.8 6.0 7.2

8.0 11.5 7.0 7.7

7,6 6.5 8.5 6.9

7.4 15.8 4.6 7.5

Gross private domestic investment Residential construction business fixed investment

7,9 0.4 12.5

14.3 -0.4 16.4

5.1 1.6 12.6 9.1

6.0 2.5 0.2 9.9 9.6

GNP in constant (1958) dollars Final sales Private GNP Implicit deflator

5.5 5.5 6.5 1.5

6.1 5.7 6.4 1.9

5.8 5.3 4.4 2.7

3.4 5.2 3.4 3.2

Personal income Wage and salaries Disposable income

6.9 7.3 8.3

8.1 7.6 7.8

8.6 9.9 7.8

12.4

14.6

Federal government receipts and expenditures (N.I.A. basis) Receipts Expenditures

.5 3.7

Nonfarm payroll employment Manufacturing

2.9 1.6

Gov't purchases of goods & services Federal Defense Other State & local

Corporate profits before tax

Industrial production Housing starts, private Sales new U.S.-made autos n.a. -- Not available.

42.0 35.8

1rl.6

6.4 -3.2 3.8

1966 I IV III (Billions of Dollars)

13.3 6.2 2,2

4.2 15.6 6.9

1967 Projected III II

9.0

14.0

14.0 9.2

16.9 12.1

3.9 8.7 5.7

7.1 9.9 6.8

4.7 7.4 6.2

7.2 8.7 8.1

6.5

5.4 -6.8 7.4 7.7

7.2 15.6 4.5 7.3

7.4 8.3 7.8 6.6

9.9 -9.6 12.8

-7.1 19.9 -32.6 -47.3 12.7 7.9

-38.6 9.6 -4.3

-15.6 24.3 -2.9

-0.8 31.7 4.4

13.1 15.3

17.2 10.1 24.6 10.1 31.5 16.5 0.0 -16.9 10.0 10.8

21.5 27.5 28.0 22.6 15.5

11.3 11.0 13.7 2.4 11.0

11.0 12.1 13.8 4.7 10.3

3.8 -0.2 -2.2 3.1

-.2 6.3 2.9 2.4

2.4 5.3 4.4 2.4

4.3 6.0 5.2 2.7

8.3 9.6 7.2

8,3 7,8 7.5

7.5 7.2 8.2

3.9 3.2 5.6

6.9 7.7 5.0

9.5

1.9

-.5

-23.4

n.a.

n.a.

8.5 4.5

14.7 15.8

11.3 22.8

8.2 15.3

1.3 23.7

n.a. 5.7

n.a. n.a.

4.2 4.4

5.1 5.8

3.3 3.5

4.0 4.0

4.3 0.0

0.0 -4.1

1.8 2.1

8.4 -3.4 15.0

9.0 -18.9 -4.4

3.0 -39.3 -15.8

-4.5 88.4 -39.6

-3.6 16.5 27.3

4.6 31.7 21.5

20.8 -1.2 10,9

6.2 -81.3 33.6

6.3 -. 4 -0.3 1.0.1 -2.8 3.7 (Per Cent) 7.1 2.2 3.4 8.4 1.5 4,7 3.1 -1.7 1.5