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

December 13,

1968

SUPPLEMENTAL NOTES The Domestic Economy Book value of business inventories rose sharply in October, according to preliminary data, as an upward bulge in trade--mainly at retail--was superimposed on an increase in manufacturers' equal to the average rise for the thrid quarter.

stocks about

(Manufacturing The

inventory changes for October are discussed in the Greenbook.)

magnitude of the over-all rise in October--even after adjustment to a GNP basis because of the inventory valuation adjustment--raises the distinct possibility that the Greenbook projection of fourth quarter inventory accumulation may be low.

CHANGES IN INVENTORIES (Book value in millions of dollars, seasonally adjusted)

QIII (monthly

September

October

average) 734

800

1,401

Durable Nondurable

494 239

404 396

860 541

Trade, total Wholesale Retail Durable Nondurable

225 31 194 61 133

404 -10 414 121 293

896 100 796 543 253

Manufacturing, total

509

396

505

Manufacturing and trade

More than two-fifths ($355 million) of the increase in retail inventories was in the automobile group, and reflected continued high production during a month when sales declined moderately.

Dealer

- 2-

stocks of autos on a unit base also rose sharply in October, and continued up in November, but much more slowly.

While the stock-sales

ratio for durable goods retailers rose significantly, the over-all ratio for durables in manufacturing and trade changed little, as strong sales resulted in lower ratios in a number of industries.

For nondura-

bles, the over-all stock-sales ratio rose slightly, mainly as manufacturers inventories increased.

The Domestic Financial Situation Nonbank depositary institutions.

Preliminary indications are

that the thrift institutions sustained their improved savings inflows

during November.

Mutual savings bank inflows accelerated further to a

7.4 per cent seasonally adjusted annual rate, which is the fourth monthly increase from the July low.

Although only fragmentary informa-

tion is now available for savings and loan associations, it suggests improvement over the modest year ago experience, but the extent of the increase is still not clear.

It is hoped that S&L data will be avail-

able for the FOMC meeting. GROWTH IN SAVINGS AT THRIFT INSTITUTIONS (Seasonally adjusted annual rate in per cent)

1967 - I II III IV 1968 - I

II III IV July August September October November p/ r/ Revised.

Mutual Savings

Savings and Loan

Banks

Associations

9.6 10.8 8.6 7.0

9.4 11.1 9.7 6.2

9.5 11.0 9.4 6.4

7.2

5.6

6.1

6.6 6.3

5.6 6.0

5.9 6.1

5.9 6.2 6.8 6.9 r/ 7.4 2/

4.7 6.1 7.2 7.4 n.a. Preliminary.

Both

5.1 6.1 7.1 7.2 n.a.

-3-

During the entire month of November, FHA data (confidential until Monday noon, December 16) confirm that returns on home mortgages edged higher in a period of generally upward rate pressures throughout the capital market.

Average contract interest rates on conventional

first mortgages in the primary market returned to their earlier postwar high of 7.30 per cent, according to the estimates shown in the table, which are rounded to the nearest 5 basis points.

In the private

secondary market for Government underwritten mortgages, the increase in yields as well as discounts accelerated, but to levels still below highs reached earlier this year.

Since returns on new issues of high

grade corporate bonds also rose modestly during November as a whole, average gross yield spreads favoring home-mortgage investment remained at or close to their reduced October margins, which were comparatively unattractive by standards prevailing before 1965.

-4-

AVERAGE RATES AND YIELDS ON SELECTED NEW-HOME MORTGAGES

Primary Market: Conventional loans Ll Yield Level

r cen) cent)

spread (basis

L Level

cent cent)

points)

Secondary Market: FHA-insured loans Yield

spread (basis

Discount (points)

points)

1967 6.77 6.81

24 30

6.5 6.8

51

6.81

57

6.8

45 r/ 24

6.78 6.83

49 27

6.6 7.0

6.90

38

6.94

42

7.9

7.15 7.25

49 60

7.50e 7.52

84e 87

6.le 6.3

July August September

7.30 7.30 7.30

76 104 100

7.42 7.35 7.28

October November*

7.25 7.30

November December

6.65 6.70

12 19

January

6.75

February March

6.75 6.80

April May June

1968

Note:

68 r/ 66

7.29 7.36

88 109 98 72 r/ 72

5.5 5.0 4.4 4.5 5.1

FHA series: Interest rates on conventional first mortgages (excluding additional fees and charges) are rounded to the nearest 5 basis points. Secondary market yields and discounts are for certain 6 per cent, FHA-insured Sec. 203 loans through April 1968. Data for May 1968 estimated by Federal Reserve based on the new 6-3/4 per cent regulatory rate, on which a change of 1.0 points in discount is associated with a change of 12 to 13 basis points in yield. Gross yield spread is average mortgage return, before deducting servicing fees, minus average yield on new issues of high grade corporate bonds. * - Data for November 1968 are confidential until Monday noon, December 16.

- 5 -

Corporate and municipal bond yields.

Yields on corporate

and municipal bonds continued to advance this week.

Several new issues

in both markets, however, were accorded an enthusiastic response from investors at new record yields.

The corporate Aaa new issue series

registered 6.92 per cent, a gain of 11 basis points from the week earlier.

While the week-to-week advance in this series overstates the

actual rise in

yields,

the level of yields now appears to be accurately

reflected.

BOND YIELDS (Weekly averages, per cent per annum)

Corporate ooae Aaa New Seasoned With call protection

State and local Government S&P High Grade

Bond Buyer's (mixed qualities)

1968 Low High

6.13 (8/30) 5.95 (9/13) 4.15 (8/9) 6.92 (12/13) 6.44 (12/13) 4.93 (12/13)

4.07 (8/9) 4.82 (12/13)

Week ending: Nov.

1 8 15 22 29

-6.43 6.55 6.64* 6.68

6.15 6.16 6.15 6.17 6.28

4.63 4.64 4.68 4.70 4.70

4.56 4.56 4.58 4.62 4.64

Dec.

6 13

6.81 6.92

6.31 6.44

4.83 4.93

4.76 4.82

* - Some issues included carry 10-year call protection.

- 5a -

KEY INTEREST RATES

1968 Low

High

Nov. 25

Dec.

12

4.56 (1/3)

6.38 (5/15)

5.45-(11/20)

5.82 (12/10

(5/21)

5.42 6.00 6.91 (11/21) 5.77 (11/21) 5.88

5.89

6.00 (11/21) 6.05 (11/21)

6.00 6.20

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

4.82 5.25 5.43 5.00 5.13

(1/29)

5.25

(2/8)

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

5.20 (1/31)

5.92 6.13 7.19 6.11 6.13

(12/12) (6/4)

(5/17) (6/25)

6.00 (12/12) 6.20 (12/12)

6.13

7.06 6.02 5.88

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

6.08 (5/21) 6.25 (12/12)

5.50 (3/7)

6.25 (12/12) 6.40 (5/31)

5.75 (11/21)

2.75 (8/8)

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

5.58 3.20 (11/21)

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

6.21 (5/21) 5.81 (12/12)

5.70 5.62

5.95 (9/5) 6.77 (10/3)

6.47 (12/12) 7.18 (12/12)

6.26 7.05

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

6.92 (12/12) 7.14 (12/5)

6.64 (11/21) 6.78 (11/21)

6.92 7.07

Municipal Bond Buyer Index Moody's Aaa

4.07 (8/8) 3.80 (8/8)

4.82 (12/12) 4.45-(12/12)

4.62 (11/21) 4.35 (11/21)

4.82

Mortgage--implicit yield in FNMA weekly auction 1/

7.12 (5/6)

7.72 (6/10)

1-year Treasury bills (bid) Prime municipals

5.45 (1/31) 5.05 (8/1)

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

5.56 6.13 6.00

5.91 (11/21)

6.20 (11/21)

5.96 6.25

6.00 6.16 6.25 6.30 5.83 3.65

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

1/

7.40

6.05 5.81 6.47

7.18

4.45 7.51 (12/9)

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.

-6-

International Developments The U. K. trade figures for November, announced on Thursday, show a further strong rise in exports while imports dropped back to the September level.

For the last three months together, the trade deficit

was at a rate substantially lower than in the spring and summer.

How-

ever, in comparison with 1966 the import rise still exceeds that of exports.

(In

UNITED KINGDOM MERCHANDISE TRADE billions of dollars, annual rates)

Year 1966

April-Sept. 1967 1968

Sept.

Oct. 1968

Exports 1/ Imports 2/

14.7 16.7

14.8 17.5

15.2 18.6

16.2 18,8

15.7 19.2

16.7 18.7

Balance

-2.0

-2.7

-3.4

-2.6

-3.5

-2.0

Balance (B/P basis)

-0.3

-1.1

-1.7

-1.0

-2.0

-0.5

1/ 2/

Nov.

F.o.b.; including re-exports C.i.f.; excluding U. S. military aircraft.

The exchange market at first of buying of sterling.

reacted favorably with a wave

Later on Thursday and also today the Bank of

England has again had to support the rate. at substantial discounts: 5 per cent per annum today.

Forward sterling continues

for the three-month contract, a little over

PROPOSED 1969 FOMC GREENBOOKS AND MEETINGS

Greenbook

Meeting

January 8

January 14

January 29

February 4

February 26

March 4

March 26

April 1

April 23

April 29

May 21

May 27

June 11

June 17

July 9

July 15

August 6

August 12

September 3

September 9

October I

October 7

October 22

October 28

November 19

November 25

December 10

December 16