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

October 25, 1968

SUPPLEMENTAL NOTES The Domestic Financial Situation

KEY INTEREST RATES 1968

Oct.

7

Oct. 24

Low

High

4.54 (1/3)

6.34 (5/15)

5.95

4.82 5.25 5.43 5.00 5.13

5.92 6.13 7.19 6.11 6.13

(5/21) (5/24) (6/4) (5/17) (6/25)

5.26 5.62 5.96 5.50

5.88 6.44 5.63 5.50

5.20 (1/31)

6.00 (7/18) 6.20 (5/31)

5.62 5.75

5.85 6.05

4.98 (1/29) 5.38 (3/7) 5.50 (3/7) 5.25 (2/9)

6.08 (5/21) 6.25 (5/24) 6.25 (7/25) 6.25 (5/24)

5.36 5.75 5.75 5.49

5.42

5.50 (3/7)

6.25 (7/11)

5.62

5.45 (1/31)

6.40 (5/31)

5.80

5.62 6.00

5.05 (8/1) 5.45 (10/24) 2.75 (8/8)

6.03 (5/21) 6.01 (5/31) 3.90 (5/31)

5.24 5.58

5.42 (1/12) 5.16 (8/1)

6.21 (5/21) 5.77 (3/14)

5.54

5.95 (9/5)

6.29 (6/6) 7.10 (6/3)

6.03

6.77 (10/3)

6.77

6.13 6.88

6.13 (8/29) 6.29 (2/2)

6.83 (5/24) 6.99 (6/3)

6.31 6.64

6.50 6.64

4.07 (8/8)

3.80 (8/8)

4.71 (5/24) 4.42 (5/31)

4.36 4.14

4.52 4.21

7.12 (5/6)

7,72 (6/10)

7.23 (9/3)

Short-Term Rates Federal funds (weekly average)

3-months Treasury bills (bid) Bankers' acceptances

Euro-dollars Federal agencies Finance paper CD's (prime NYC) Highest quoted new issue Secondary market 6-months Treasury bills (bid) Bankers' acceptances Commercial paper Federal agencies CD's (prime NYC) Highest quoted new issue Secondary market 1-year Treasury bills (bid) Federal agencies Prime municipals

(1/29)

(3/7) (2/2) (2/9) (3/7)

5.25 (2/8)

5.38

2.90

5.84 (10/23) 5.40

6.00 5.88 5.68

5.41 5.45 3.10

Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa With call protection Without call protection Municipal Bond Buyer Index

Moody's Aaa Mortgage--Implicit yield in FNMA weekly auction 1/ I/

5.39

5.61 5.45

7.20 (10/21)

Yield on 6-month forward commitment after allowance for commitment fee and required FNMA stock purchase. Assumes discount on 30-year loan amortized over 15 years.

-2-

International developments Canadian budget.

The Canadian Government's proposed budget

for the fiscal year ending March 31, 1970, was presented to Parliament on October 22.

Finance Minister Benson said that the main economic

problem facing Canada in the near term was the excessive degree of inflation.

Hence budget policy was aimed at restraining excess demand

and easing the pressures on financial markets that had been caused by large government deficits in the past few years. increases were proposed, including:

To this end, tax

a new Social Development Tax, at

the rate of 2 per cent of personal income up to a maximum tax payment of C$120; a second speedup of corporate tax payments; and several tax reform measures relating to estate and gift taxes and taxation of insurance companies, banks, and other financial institutions.

These

tax increases were expected to yield C$845 million in 1969-70. Including these new receipts, total budgetary receipts would increase from C$10.1 billion in 1968-69 to C$11.7 billion in 1969-70, while budgetary expenditures were expected to rise from C$10.8 billion to C$11.7 billion.

On a national income accounts basis, the budget

would swing from a deficit of C$435 million to a surplus of about C$250 million.

GNP growth was forecast at 7 to 8 per cent in 1969 (4-1/2 per

cent in real terms) compared with 8 per cent (also 4-1/2 per cent real) in 1968.

CONFIDENTIAL (FR)

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

October 28, 1968

SUPPLEMENTAL NOTES The Domestic Economy The BLS wholesale price index in October remained at the September level of 109.1 per cent of the 1957-59 average, according to preliminary estimates (to be released at 11:00 a.m., October 29).

The

industrial commodity average rose 0.4 per cent further, with autos, lumber, and plywood accounting for nearly half the rise.

The proportion

of product classes showing increases accelerated further--approaching the levels reached during the period of sharp price advance early this year.

At an estimated 109.6, the industrial average has risen nearly

0.7 per cent from August to October, after showing little change from April to August.

Meanwhile, wholesale prices of farm products and

foods, which had risen in September, dropped back again in October to about the August level--offsetting, in the October total wholesale index, the sharp rise in industrial commodities. The preliminary nonfarm employment estimate for September will be revised down by about 70,000, reducing the September employment pickup to about 75,000.

(Confidential until November 6.)

estimate was also reduced slightly.

The August

The bulk of the September adjust-

ment occurred in the government estimate (down by 60,000 from the preliminary figure) and in services (down about 40,000). partially offsetting increase for trade.

There was a

The over-all manufacturing

figure was not revised significantly; however, the workweek estimate was raised slightly.

The table below presents revised figures for the

estimates shown on page II - 21 of the regular Greenbook.

-2-

REVISED JUNE TO SEPTEMBER NONFARM PAYROLL EMPLOYMENT CHANGES (In thousands, seasonally adjusted)

Total

*

303*

Manufacturing

-26

Nonmanufacturing

326*

Federal Government

-79

Adjusted for reduced strike activity in construction.

International developments Balance of payments. changes in

the payments balance

More nearly complete data on the September (see table on page 7)

show a larger unad-

justed surplus on the liquidity basis than the earlier estimate used in the Green Book --

$155 million rather than $72 million.

lowance for seasonality,

With a rough al-

and before special transactions,

this would

correspond to a deficit for the month of roughly $200 million. third quarter,

the liquidity deficit before special transactions would be

somewhat under a $2-1/2 billion annual rate. that is,

For the

On the published basis --

including receipts from special transactions --

the third quarter

deficit will be even lower than the $170 million registered for the second quarter. The September data for the official settlements balance show an unadjusted surplus of $185 million, about the same as was assumed in the Green Book. quarter --

This yields an estimated annual rate surplus for the

seasonally adjusted and before some relatively small special

transactions --

of about $1-1/4 billion. Part of the payments strength in

Foreign trade.

was related to a pickup in the export surplus.

September

Trade figures for the

month show that both exports and imports expanded much more sharply than had been expected, in the Green Book.

though the net surplus is

near that estimated

For the quarter as a whole the export surplus was

at an annual rate of $1.2 billion compared with a rate of about $1/4 billion in

the first

half.

-4-

Exports Imports Balance

e/

1967 2nd Otr

3rd tr.

4th Qtr.

1st Otr.

1968 2nd Qtr.

3 3rdOtr.

Total

1st Qtr.

30.5 27.0

30.6 26.7

30.8 26.4

30.5 26.2

29.9 28.6

31.7 31.3

33.2 33.1

35.4 34.2

3.5

3.9

4.4

4.3

1.3

0.4

0.1

1.2

Adjustment to balance of payments basis estimated.

Exports in the third quarter, and especially in September, were raised by shipments anticipating a possible dock strike, of increase is exaggerated.

so that the rate

For the first nine months as a whole, exports

in 1968 were 9.1 per cent ahead of exports in the same period of 1967; the increase in

the third quarter over the first

annual rate of over 30 per cent. of the strike anticipations, export gain in

half 1968 rate was at an

It is difficult to measure the effect

but on tne whole it

appears that most of the

the third quarter was related to rising demand abroad

rather than to such anticipations.

Gains were registered in the quarter

in most types of manufactured goods, though in September there were lower deliveries of aircraft and agricultural products. Imports in September als amount,

lifting the third quarter

rose by an exceptionally large import rate to $34.2 billion.

This

represented a deceleration from the much greater import increase of

the first and second quarters, but the share of imports in GNP continued

to rise slightly.

Imports of some goods,

primarily

foodstuffs, were lower in September, but gains were reported for crude materials, Canada in

fuels,

and machinery.

Trade both ways with

automobiles and parts rose considerably in Early October data.

September.

Strictly confidential weekly data

for October through the 23rd indicate that we are having a repetition of the very large liquidity deficits for this month that occurred in 1966 and 1967, when they averaged nearly $800 million --

before special transactions but not seasonally adjusted.

Large private capital transactions in

October that affected the

balance included the sale of an International Bank bond issue in the U.S. market and the liquidation of a large U.S. direct investment in

the United Kingdom,

are roughly offsetting. in

exports in

shipments in

but these known transactions

There may well have been a sizable drop

early October because of the acceleration of September,

September deficit,

if

with the effect of improving the

payments for exports are current,

at the

expense of the October figures. The official settlements balance showed deficits in late September and early October as liquid liabilities to private foreign accounts declined,

but then shifted toward surplus in

the

-6-

week ended October 23,

as U.S. banks again raised their Euro-dollar

borrowings via foreign branches. hard to evaluate,

Prospects for this balance are

but the supply of Euro-dollars seems likely to

come under pressure as economic activity in up,

speculation against sterling and the French franc is

liquidity in U.S.

Europe and Japan picks

the German financial market is

diminished,

reduced somewhat,

and

companies draw down the proceeds of foreign borrowings to stay

within the control guidelines.

U.S. BALANCE OF PAYMENTS (In millions of dollars)

I

II

1 9 6 7 III

IV

I

II

1 9 6 8 IIIP

Sept.P

Seasonally adjusted

1/

Goods and services,net1,293 Trade balance 2/ 975 Exports 2/ 7,661 Imports 2/ -6,686 Services balance 318

1,269 1,098 7,703 -6,605 171

1,359 1,085 7,626 -6,541 274

848 319 7,478 -7,159 529

356 87 7,924 -7,837 269

492 9 8,302 -8,293 483

Remittances and pensions -262 Govt. grants & capitaLl/-1,176

-392 -1,039

-358 -988

-263 -1,008

-266 -1,164

-280 -1,101

U.S. private capital Direct investments Foreign securities Banking claims Other

-975 -653 -259 79 -142

-1,104 -651 -199 -198 -56

-1,788 -902 -476 -435 25

-1,638 -815 -332 95 -586

-646 -374 -385 364 -251

-1,230 -1,034 -81 204 -319

865 382 304 78 70 413

1,202 724 584 140 97 381

766 18 -215 233 117 631

353 150 147 3 30 173

1,365 331 119 212 -92 1,126

2,171 923 160 763 -19 1,267

-250

-458

207

-34

-305

-222

Foreign capital, nonliq. Official foreign accts. Long-term deposits U.S. Govt. liab. Int'l. institutions 4/ Other 5/ Errors and omissions

Balances, with and without seasonal adjustment (Liquidity balance, S.A. Seasonal component Balance, N.S.A. Official settlements balance, S.A. Seasonal component Balance, N.S.A. 6/

2 17

e

3,196 -2,979

deficit)

-522 302 -220

-802 -410 -1,212

-1,742 -159 -1,901

-660 411 -249

-170 303 133

-36* -450* -486*

n.a. n.a. 1541

-1,764 485 -1,279

-806 101 -705

247 -272 -25

-1,082 -314 -1,396

-535 629 94

1,459 102 1,561

390* -300* 90*

n.a. n.a. 1851

-904 -1,362 401 57

137 -22 -267 426

571 74 474 23

Total monetary reserves -1,027 Gold stock -51 Convertible currencies -1,007 31 IMF gold tranche

e/ */

e

-505 267 -238

Reserve changes,

1/ 2/ 3/ 4/ 5/ 6/

3 05

8,850 -8,545

419 -15 424 10

N.S.A. 375 -92 462 5

(decrease -) 181 -1,012 1,145 48

207 74 136 -3

Equals "net exports" in the GNP. from Census basis. Balance of payments basis which differs a little Net of scheduled and non-scheduled repayments. Long-term deposits and Agency securities. Includes some foreign official transactions in securities. Differs from liquidity balance by counting as receipts (+) increase in liquid liabilities to commercial banks, private nonbanks, and international institutions (except IMF) and by not counting as receipts (+) increases in certain nonliquid liabilities to foreign official institutions. Adjustment to "balance of payments" basis estimated. Strictly Confidential.