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

September 6, 1974

By the Staff Board of Governors of the Federal Reserve System

SUPPLEMENTAL NOTES The Domestic Economy Labor market.

The unemployment rate edged up .1 percentage point

in August to 5.4 percent, seasonally adjusted, October, 1972. age.

the highest level since

The increase was concentrated among men 20-to-24 years of

Jobless rates for other major groups showed little change, except

for teenagers whose unemployment rate declined.

The civilian labor force

declined by some 100,000 as decreased participation by adult women and teenagers more than offset a rise by adult males. Nonfarm payroll employment (establishment survey) rose by some 80,000 in August as declines in

durable manufacturing were more than offset

by gains in the service industry and State and local government.

The

overall increase was due in part to a 30,000 net decline in workers on strike.

In contract construction,

even though over 100,000 striking workers

returned to their jobs in the most recent survey period, only 20,000.

Since December,

employment rose by

construction jobs have declined nearly 200,000.

Average weekly hours in manufacturing edged up .1 hour to 40.3 hours, while

overtime was unchanged.

Compared with August 1973, total factory hours

and overtime have declined by .2 and .4 hour respectively. The private nonfarm hourly earnings index rose .9 percent in August, as did also the manufacturing component.

The sharpest increase

was in contract construction, up 2.6 percent from July. months from May to August, 12 percent, dollars,

In the three

the total index rose at an annual rate of over

reaching a level 8.9 percent above a year earlier.

however,

In constant

the index declined 3.0 percent over the 12-month period

ending in July, the latest date for which the consumer price index is available.

-2-

LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT (Seasonally adjusted, in thousands)

Change from: Aug. 1973 July 1974 Aug. . 1974 1974

Ana.

1974

Total labor force Civilian labor force Total employment Nonagricultural Unemployed

93,281 91,061 86,187 82,907 4,874

-106 -106 -125 -163 19

Nonfarm payroll employment Manufacturing

77,177 19,801

77 -114

Aug. Unemployment rate (percent) Total Males 20+

5.4 3.8 5.2 15.3 3.3

Females 20+ Teenagers State insured

Auto sales.

1974

July 1974

Anu.

1974

2,270

2,357 1,674 1,656 683

1,430 -

60

Aug.

5.3 3.5 5.2 16.2

3.4

1973

4.7 3.1 4.8 14.3 2.6

Sale of new autos rose sharply last month to the

highest level this year.

August sales of new domestic-type autos were at

a 9.6 million unit annual rate, 17 percent above July and slightly above the rate in August a year ago. were at a 9.7 million unit rate.

In the last 10 days of the month, sales The strength of sales throughout

August was due in part to consumer buying of 1974 models in anticipation of large price increases on 1975 models and to dealer incentive contests of Ford and Chrysler on small cars. Foreign car sales in August were at a 1.6 million unit rate, 17 percent above July but 6 percent below the same month last year.

Recent

- 3 -

strength may be due to the fact that relative prices now favor these imported makes as their announced prices have not changed. share on a seasonally adjusted basis was 13.9 percent,

The import

the same as in

July but below the 14.9 percent of August 1973. Anticipated plant and equipment spending.

The Commerce Depart-

ment's most recent survey of plant and equipment expenditures--taken in late July and August--shows business planning a 12.5 percent increase for 1974, little different from the previous survey taken last May.

Manu-

facturers have revised average plans upward a bit, but still expect outlays to rise by about 20 percent for the year.

Materials producing

industries continue to show the greatest strength within manufacturing, with an increase of about 30 percent indicated for 1974.

Outside of manu-

facturing, plans on average remain about the same for the year, with further downward revisions by public utilities offset by increases in communications. Outlays in the second quarter turned out to be $.8 billion larger than had been indicated by May plans, the second successive quarter in which actual expenditures exceeded anticipations.

For the third and

fourth quarters the level of anticipated outlays is little changed from the prior survey.

Thus, with higher second quarter outlays, the rise

now indicated for the last half of the year is less than earler anticipations.

- 4-

COMMERCE SURVEY RESULTS OF ANTICIPATED PLANT AND EQUIPMENT EXPENDITURES 1974 (Percent increase from 1973)

1973-IV1/ Survey Date

Dec. 1973

Feb. 1974

May 1974

Aug. 1974

to 1974-11

1974-II1/ to 1974-IV

All Industry

12.0

13.0

12.2

12.5

14.8

8.5

Manufacturing

16.8

19.3

19.8

20.2

23.2

10.6

Durables

16.6

17.6

16.8

19.2

19.7

13.6

Nondurable s

17.1

21.1

22.8

21.2

26.7

7.7

9.1

9.1

7.6

9.4

7.1

29.6

36.1

17.4

2/ Nonmanufacturing 2/

7.7 22.8

Railroads

17.2

21.3

Other transportation

-5.7

-8.6

Electric utilities

15.7

17.0

13.6

12.0

Gas utilities

18.3

29.7

18.1

10.9

Communications

10.8

10.1

7.4

10.2

3.2

1.4

1.2

Commercial

.2

6.4

.9

6.1

16.5 -13.6 10.6 2.6

1/

Figures are expressed at annual rates, not compounded.

2/

Includes industries not shown separately.

3/

Confidential results.

29.1

2.4 35.5

3/

14.3= -3.7

3

/

-5-

Construction.

The seasonally adjusted total value of new

construction put in place in current dollars edged down in August from the upward revised July rate.

Private residential outlays slowed further

and were more than a fifth below their February 1973 peak.

Private non-

residential construction on balance continued only slightly below its record high in June 1974, even though outlays for commercial buildings have been declining in recent months.

Despite a rise in Federally-owned

construction expenditures, public construction in August was virtually unchanged from a month earlier.

In constant dollar terms, total construc-

tion outlays declined further and were 15 percent below their February 1973 high. NEW CONSTRUCTION PUT IN PLACE (Seasonally adjusted annual rates, in billions of dollars)

1973 QII Total - current dollars Private Residential Nonresidential Public State and local

Federal

QI

1974 QII(r) Aug.(p)l

Percent change in August 1/from July 1974 Aug. 1973

134.4

134.7

138.6

136.8

102.3

98.5

99.4

96.9

- 1

- 8

58.1 44.2

49.4 49.1

49.5 49.9

47.9 49.0

- 2 --

-19 + 6

32.2

36.3

39.2

40.0

+ 1

+25

27.2

31.2

33.6

34.6

4.9

5.1

5.6

5.4

-

+ 7

Total - 1967 dollars 89.6 83.1 82,7 79.5 - 1 1/ Data for August 1974 are confidential Census Bureau extrapolations. case should public reference be made to them. -Means change less than 1 percent.

+27

+15 -10 In no

-6-

The Domestic Financial Situation Bank credit.

Data now available confirm that the growth of total

loans and investments at all commercial banks slowed from the July pace. In August, as in July, banks sold Treasury securities and kept their holdThe expansion of total loans was

ings of other securities unchanged.

considerably below the July rate, but still more rapid than during the second quarter. COMMERCIAL BANK CREDIT 1/ (Seasonally adjusted changes at annual percentage rates)

1974

1973

1973 QIV Total loans and investments 2/ U.S. Treasury securities Other securities Total loans 2/ 2/ Business loans 2/ Real estate loans Consumer loans

QI

QII

6.3

15.9

11.5

-25.5

25.8

6.4

17.6

6.8

9.1

I

1974 June 7.8

July 13.1

8.5 -35.7

*

Aug.pe/ 10.5 -13.0

13.4

--

--

22.4

16.0

19.7 7.6 4.3

18.7 8.6 4.3

7.1

17.4

12.7

6.2

4.6 15.9 10.1

22.2 12.2 5.4

23.0 12.2 4.4

12.3 10.7 4.4

(Average monthly change, billions of dollars) Memorandum: Security loans

-

-

.1

-

.1

.3

2.2

1.0

Last-Wednesday-of-month series except for June and December, which are adjusted to the last business day of the month. 2/ Includes outstanding amounts of loans reported as sold outright by banks to their own holding companies, affiliates, subsidiaries, and foreign branches. pe/ Partially estimated. 1/

- 7Nonfinancial business credit demands remained large in August, with corporations borrowing both at banks and in the commercial paper market.

However, on average for the last three months, the growth of both

business loans at banks and total short-term business credit remained 5 or 6 percentage points below the first-half pace.

Much of the strength in

business loans at large banks reflected lending to durable and nondurable manufacturing firms, though the growth of loans to these concerns tapered off by month's end. the month.

Lending to construction firms also was sizable during

However, large repayments of loans by foreign businesses

provided some offset to these increases.

- 8RATE SPREADS AND CHANGES IN

BUSINESS LOANS AND COMMERCIAL PAPER

(Amounts in billions of dollars, seasonally adjusted monthly changes) Prime rate

less 30-59 day commercial paper rate (per cent)

Business

Annual

Dealer placed commercia paper

loans at all commercial banks 1/

Total

rate of change in total (per cent)

Average monthly changes 1973--QIII QIV

--

2.1 .6

.1 1.1

2.2 1.7

1,6.1 12.3

1974--QI QII

--- 2.9 3.2

.4 .1

3.3 3.3

23.7 22.1

1973--Oct.

+.52

-. 1

2.4

2.3

16.7

Nov. Dec.

+.38 -.04

1.2 .7

1.0 -.1

2.2 .6

15.7 4.2

1974--Jan. Feb. Mar.

+.42 +.85 -. 09

2.0 1.2 5.6

1.7 1.6 -2.0

3.7 2.8 3.6

26.0 19.3 24.4

Apr. May

-. 08 +.39

4.8 3.0

-. 2 .5

4.6 3.5

30.6 22.7

June

+.38

1.8

.1

1.9

12.1

July Aug. pe/

+.04 +.22

2.9 2.8

.7 .4

3.6 3.2

22.7 19.8

Weekly pattern: 3 1974--July 10 17 24 31 Aug.

Sept.

. . . . . . . . . . . . . . . . . . . ... .. ... .... ... ... .... ... ... . ... . . . . . i. . . . . . . . . . . . . . iiii iiiii iiiiii iii iii : :

7

+.45

14

+.38

21

+.13

28

-4

.. . .

. . . . . . . . . . . . .

. . . . . -. 23 -. 13 - . 25 +.05 +.55

: :

ii

:

;

ii

;

;

: :

:

:

:

:

!

:

:

:;

iiii:;::::

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

. .... ..... .. ....... . . . ...

. .

.

.

+.06.................

2/

Changes are based on last-Wednesday-of-month data and are adjusted for outstanding amounts of loans sold to affiliates. Measured from end-of-month to end-of-month.

pe/

Partially estimated.

1/

INTEREST RATES 1974 ihs

Aug. 19

Los

Sept. 5

Short-Term Rates Federal funds (wkly. avg.) 3-month Treasury bills(bid) Comm. paper (90-119 day) Bankers' acceptances Euro-dollars CD's (NYC) 90-119 day Most often quoted new

13.55(7/3)

8.81(2/27)

12.02(8/14)

11.64(9/4)

9.74(8/23) 12.25(7/17) 12.50(8/15) 14.38(7/16)

6.93( 2/6) 7.75(2/22) 7.75(2/26) 8.25(2/18)

8.84 11.88 12.20 13.50

9 33 11.88 11.7. 13.31

12.00( 9/4)

7.88(2/20)

11.88(8/14)

12.00(9/4)

9.36 11.75 10.50 10.50(9/4)

6-month Treasury bills(bid) Comm. paper (4-6 mo.) Federal agencies CD's (NYC) 180-269 day Most often quoted new

9.86(8/23) 12.13(7/10) 10.63(3/28)

6.80(2/19) 7.16(2/19)

8.88 11.75 9.88

11.90(8/21)

7.5.,(:/27)

10.50(8/14)

1-year Treasury bills (bid) Federal agencies

9.65(8/23) 10.18(8/26)

6.37(2/15) 7.01(2/19)

8.64 9.59

9.12 9.97

9.75(7/17) 6.51(7/12)

7.00(2/27) 3.70('/15)

9.25(8/14) 6.00(8/16)

5.7-(9/6)

8.79(8/23) 8.72(8/26)

6.72(2/14) 1/4)

8.53 8.55

8.59 8.65

9.10(8/30) 9.90(8/30)

7.73( 1/2) 8.54( 1/2)

9.01 9.76

9.07 9.86

10.31(9/4 )

8.05(2/13)

10.10(8/14)

6.95(7/10)

5.16( 2/6)

6.61(8/15)

1u.38(8/26)

8.43(2/25)

10.12(8/12)

7.50('/22)

CD's (NYC) Most often quoted new Prime municipals

9.00(9/4)

Intermediate and Long-Term Treasury coupon issues

5-years 20-years

Corporate Seasoned Aaa Baa New Issue Aaa Utility Municipal Bond Buyer Index Mortgage--average yield in FNMA auction

7.40(

10.31(9/4)

6.88

10.38(8/26)