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

May 1, 1970

SUPPLEMENTAL NOTES The Domestic Economy New Construction.

Seasonally adjusted outlays for new

construction put in place rose somewhat in April to an annual rate of $90.6 billion.

This was within 2 per cent of the rate a year earlier

when such outlays reached their high; on a constant dollar basis, however, the year-to-year gap actually amounted to 7 per cent. Within the private sector, expenditures for residential construction turned upward, according to the preliminary Census estimate.

But

the turn was slight and followed a downward revision of about 2 per cent for earlier months.

Nonresidential outlays--already very near

the peak achieved last September--apparently changed little.

Within

the public sector, outlays for Federally owned projects advanced from a reduced March rate; expenditures for State and locally owned projects were unchanged at a level about 4 per cent below the high reached last February.

NEW CONSTRUCTION PUT IN PLACE (Confidential FRB)

April 19701 / ($ billions)--

Per cent change from April 1969 March 1970

90.6

+1

- 2

Private Residential Nonresidential

62.5 28.0 34,4

+1 +1 --

- 1 -15 +15

Public Federal State and local

28,2 3.2 24.9

+5 --

- 5 -15 - 4

Total

1/

Seasonally adjusted annual rates; preliminary. Data for the most recent month (April) are confidential Census Bureau extrapolations. In no case should public reference be made to them.

Productivity.

Output per manhour in the private nonfarm

economy declined in the first quarter of 1970, as real output was reduced more than manhours.

Increases in compensation per manhour

continued large and unit labor costs continued to rise sharply.

It

should be noted that productivity in this broad sector has shown some net decline since late 1968. The table presents a year-over-year comparison in order to smooth out some of the erratic movements that are typical of changes between successive quarters.

Productivity was down somewhat over

the year ending in the first quarter, while compensation per manhour was up more than 6-1/2 per cent, about the same as the average rise during 1969.

As a result, unit labor costs were 7 per cent above

a year earlier in the first quarter, about the same year-over-year increase as in the last half of 1969.

PRIVATE NONFARM ECONOMY Per cent change from a year earlier

Compensation per manhour

Output per manhour

Unit labor costs

1968:IV

8.2

3.6

4,6

1969:1 II

7.0 6.9

1.8 0.3

5.1 6.6

III

7.0

0.0

IV

6.3

-0.7

7.0

6.6

-0.4

7.0

1970:1

7.0

Wages.

The average wage and benefit increase negotiated in

major collective bargaining settlements in the first quarter of 1970 was 8.6 per cent, virtually unchanged from the rise for the year 1969. Wage increases effective in the first year of the contract were larger than last year.

WAGE INCREASE IN MAJOR SETTLEMENTS Private nonfarm industries

First

Average for

1970 First

Quarter

-the year

Quarter

1969

Annual Rate (per cent)

Wages First year

7.6

9.2

10.8

Life of Contract

6.1

7.6

8.0

Wages and benefits

7.1

8.6

8.6

First-year increases accelerated sharply in nonmanufacturing-up from 10.8 per cent in 1969 to 14.1 per cent this year; in manufacturing, the rise was more moderate--up from 7.9 to 8.2 per cent.

The

settlements in manufacturing, were dominated by the G.E. and Westinghouse agreements with the electrical workers which provided relatively moderate increases.

In nonmanufacturing, settlements in retail trade

and construction predominated.

First-year increases in construction

in early 1970 averaged about 18 per cent and were above last year's in

creases.

Consumer prices.

The accompanying table replaces the table

on consumer prices on page 11-31 of the April 29 Greenbook.

The

figures appearing in the Greenbook table are the percentage changes at annual rates from the average price in one quarter to the average price in the next, and not the change from the third month of one quarter to the third month of the next, as is suggested by the table heading.

CONSUMER PRICES Percentage changes, seasonally adjusted, annual rates

Dec.'68 to Mar.'69

Mar.'69 to Jun,'69

June'69 Sept.'69 to to Sept,'69 Dec.'69

Dec.'69 Feb:70 to to Mar.'70 Mar!70

All items

6.5

6;0

5.0

6.5

6.1

4.8

Durable Commodities/ New cars 2/ Household durables-

9.9 3.2 5.4

1.1 1.2 5.4

1.8 0 1.5

5.0 4.3 1.1

2.8 2.3 3.4

4.2 -1.2 5,6

Nondurable Commodities Food Apparel

4.0 3.9 3.3

7.2 8.5 5.5

4.2 5.4 4.4

7.3 10.1 5.6

3.4 5.2 2.2

0.9 1.8 0,9

2/ Services-

8.1

6.8

7.5

6.3

10.8

12.7

10.9 2.7 12.0 13.4

8.0 3.4 4.0 16.7

7.3 4.0 4.8 9.8

1.4 4.3 12.2 4.1

9.7 4.3 16.4 26.6

12.3 4.9 3.1 45.2

3.8 6.3

4.5 5.1

1.5 5.8

1.8 5.3

2.9 7.5

2,2 6.6

Medical care Rent Transportation Mortgage interest rates Addendum: 3/ Durable productsServices less home finance

1/ 2/ 3/

Includes home purchase and used cars. These items have no significant seasonal. Excludes home purchase and used cars.

The Domestic Financial Situation Bank credit.

Preliminary estimates of all commercial bank

credit developments for April indicate that total bank credit expanded at about the same moderate rate of increase as in March.

In addition,

the general pattern of change in major balance sheet items was also quite similar to that of March, as a comparatively strong expansion in total investments more than off-set a reduction in total loans. However, the April decline in total loans is estimated to have been somewhat larger than recorded in March, and "other" security holdings (mainly State and local securities and Federal Agency issues) increased only about half as much as in March.

The April growth in holdings of

U. S. Treasury securities, on the other hand, is estimated to have been about five times as large as the March increase.

COMMERCIAL BANK CREDIT, ADJUSTED TO INCLUDE LOAN SALES1 / (Seasonally adjusted percentage change, at annual rates)

1969 2nd Half Total loans and investments 3/

1970 March

April 2/

4.4

1.5

2.6

4.2

U. S. Govt. securities

-16.0

-15.4

9.7

48.2

Other securities

- 3.6

10.8

27.1

14.9

6.4

4.0

-3.0

-6.0

7.1

6.3

-3.3

-2.2

Total loans 3/ Business loans-'

1/ 2/ 3/ 4/

01

Last Wednesday of month series. Preliminary estimates. Loan sales are through April 22. Includes outright sales of loans by banks to their own holding companies, affiliates, subsidiaries, and foreign branches. Includes outright sales of business loans by banks to their own holding companies, affiliates, subsidiaries, and foreign branches.

On the basis of recently received information it now appears that business loans (adjusted for loan-sales) declined slightly in April instead of increasing moderately as reported in the Greenbook. The rate of decline was somewhat less than in March.

The picture

of developments in other major loan categories remains essentially the same as was reported in the Greenbook. Corporate profits in manufacturing.

A decline in corporate

profits before taxes of the magnitude estimated for the first quarter in the Greenbook--to a seasonally adjusted annual rate of $86.5 billion, from $91.4 billion in the fourth quarter and $95.5 billion in the first quarter of last year--would not likely have occurred without a marked drop in the volatile manufacturing sector.

That such a drop

did in fact take place is indicated by the published earnings reports of over 700 manufacturers that have accounted in other recent quarters for at least two-thirds of total profits in this sector. These data suggest a decline from year-earlier levels of nearly 9 per cent in profits after taxes of all manufacturing corporations (FTC-SEC series).

Because after-tax earnings were bolstered by

the reduction in the surcharge, the decline in profits before taxes must have been significantly larger--on the order of 12-13 per cent from the first quarter of 1969.

Three-fourths of the year-to-year

decline, in dollar terms, occurred in the motor vehicle, electric machinery, and primary iron and steel groups.

After-tax profits in

these industries appear to have been about 30 per cent lower than in

the first quarter of last year.

For all other manufacturing industries,

the over-all decline amounted to only 2-1/2 per cent, with the nonferrous metals and food processing groups showing sizable increases and most of the remaining industries small to moderate declines. Government securities market.

In the May quarterly refunding,

the Treasury is selling for cash $3.5 billion of an 13-month 7-3/4 per cent note discounted to yield 7.79 per cent.

Commercial banks may

pay for 50 per cent of their awards by crediting Treasury tax and loan accounts.

Simultaneously, the Treasury is reopening two outstanding

notes in exchange for the two maturing May issues.

The reopened

issues are the 7-3/4 per cent notes of May 1973, priced to yield 7.90 per cent, and the

8 per cent notes of February 1977 which will be

priced at par. Books will be open for the rights exchange on Monday through Wednesday, (May 4-6) while the cash sale will be only on Tuesday. The settlement date for all issues is Friday, May 15. Most recently the reopened 7-3/4 per cent notes of 1973 were quoted at 99.17-.19(in 1/32's) in when-issued trading--giving a yield of 7.39 per cent offered--a slight premium initial pricing on Wednesday at about 99.13.

above their

The 8 per cent notes,

which are being reopened at par, were quoted at 100.04-.06 to yield 7.96 per cent.

- 8-

INTEREST RATES

Late 1969

_

Highs

Lows

April 6

April 30

9.32 (12/11)

7.45 (3/25)

7.93 (4/1)

8.43 (4/29)

6.39 7.25 8.60 6.84 (4/3) 7.25

6.93 8.00 8.53 7.04 (4/24) 7.31

6.75 9.05 (12/31) 7.19 (4/3)

6.75 7.50 (4/1)

6.75 7.62

Treasury bills (bid) Bankers' acceptances Commercial paper Federal agencies

8.09 (12/29) 8.88 (12/31) 9.00 (12/31) 8.58 (11/20)

6.18 7.25 7.88 6.91

6.47 7.38 8.13 7.05 (4/3)

7.18 8.12 8.13 7.24 (4/24)

CD's (prime NYC) Highest quoted new issue Secondary market

6.25

7.00

7.00 7.50

7.00

9.15 (12/31) 7.00 (4/1) 7.86 (11/24) 6.20 (4/13) 6.25 (12/11) 3.80 (3/27)

6.33 4.00 (4/3)

4.45 (4/24)

Treasury coupon issues 5-years 20-years

8.33 (12/29) 7.05 (3/25) 7.14 (12/29) 6.55 (2/27)

7.38 6.69

7.94 7.08

Corporate Seasoned Aaa Baa

7.91 (12/31) 7.78 (3/10) 8.91 (12/31) 8.57 (3/10)

7.80 8.63

7.93 8.84

8.85 (12/5)

8.55 (4/3)

8.91

Short-Term Rates Federal funds (weekly averages) 3-months Treasury bills (bid)

Bankers' acceptances Euro-dollars Federal agencies

Finance paper CD's (prime NYC) Highest quoted new issue Secondary market

8.08 (12/29) 6.08 8.75 (12/31) 7.13 11.56 (12/18) 8.00 8.39 (11/20) 6.80 8.25 (12/3) 7.25

(3/24) (3/30) (4/20) (4/10) (4/28)

6.00

6-month

1-year Treasury bills (bid) Prime municipals

(3/23) (3/30) (3/30) (4/17)

7.80

7.15

Intermediate and Long-Term

New Issue Aaa No call protection Call protection

8.20 (2/27)

Municipal Bond Buyer Index Moody's Aaa

6.90 (12/19) 5.95 (3/12) 6.57 (12/26) 5.75 (3/12)

6.11 (4/2) 5.90 (4/2)

6.73

Mortgage--implicit yield in FNMA Biweekly auction 1/

8.87 (12/29) 9.04 (4/20)

9.07

9.04 (4/20)

6.50

1/ 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.

-9-

The following two tables were inadvertently ommitted from the Greenbook of April 29. to 111-26 of the Greenbook.

They relate to the text on pages III-24

- 10 -

PROJECTED CHANGES IN FEDERAL BUDGET OUTLAYS (Billions of dollars, Fiscal Years)

Total outlays, January

udget Document

Changes resulting from completed Congressional action Federal employee pay raise-HEW appropriations (mainly education) Veterans education benefits Items not subject to tight control Interest on the Federal debt Agriculture price supports

1970

1971

197.9

200.8

i1.6 1.2 .3 .1

1.8 1.3 .2 .3

.5 .4 .1

.5 .4 .1

Anticipated miscellaneous changes Proposed postal rate increase, net(negative expenditure) Cuts in medicare Cuts in HUD (mostly model cities) Cuts in NASA Administration release of construction funds Family assistance program, House postponement Revenue sharing program, postponement All other, net

-1.0

+ .6

.2 - .4 - .2 - .2 ---- .4

- .4 --

Total outlays, new Staff estimate

199.0

203.7

-.6 - .5 - .3 1.2

1/ Assumes $.4 billion of pay raise absorption through personnel economies in fiscal year 1971. 2/ Reflects failure to raise postal rates in fiscal 1970, and rate increases resulting in additional revenues of $1.6 billion in fiscal 1971 offset by revenue hikes of $1.2 already assumed in January Budget. 3/ Includes $0.3 billion of additional spending for education outside of HEW appropriation bill, additional pollution outlays, housing incentives, and miscellaneous.

- 11 -

STAFF ESTIMATE OF HIGH EMPLOYMENT SURPLUS (Billions of dollars, SAAR)

High Employment SurDlus/Deficit (-)W/

IV Year

- 15.1 - 18.7 - 3.6 - 2.4 - 10.0

I II III IV Year

3.8 7.8 3.9 5.6 5.3

10.1 13.5 7.7 6.6 9.5

5.8

- 0.2 - 10.9 - 6.2 - 3.7 - 5.3

1968

1969

I II III

1970

I

II l

-

III IV Year 1971

Actual NIA Surolus/Deficit (-)

I II

e--estimated by Board Staff.

1.0 4.9 9.6

4.8 13.4 18.1

-

8.4 9.5 2.8 0.1 5.2

)0.0