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) CLASS II

September 12, 1975

- FOMC

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY Retail sales..........,..............................*....... - 1 Merchant builders........................................... - 3

TABLES: Retail sales.,... ....... ...,,,,,,,,,, ......... ........... Home sales,..................,.....,........

- 2 - 4

THE DOMESTIC FINANCIAL ECONOMY New York City situation..........,.................

........

Treasury financing plans............................... Corrections.................................................

- 6 - 8

TABLES: Outline of Treasury financing plans.......................

-8

Interest rate...............,........................

- 9

THE INTERNATIONAL DEVELOPMENTS

Additional monetary policy measures.... APPENDIX None

.............. ,.....

-10

SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Retail sales in August were 0.8 per cent lower than July, according to the advance report.

Much of the drop from the sharply

improved July level was attributable to lower sales of the automotive group and food stores.

Spending at automotive outlets was off 1 per

cent and outlays for food consumed at home were down 2.4 per cent. It is common for a strong month such as July to be followed by some loss in sales in the following month, and total sales in August are a substantial 3.5 per cent above the second quarter average.

(This is the same gain reported in the second quarter over

the first).

Spending for the automotive group was 8.7 per cent

higher than the second quarter and outlays for food stores were up 2.3 per cent.

Sales of the combined general merchandise, apparel,

and furniture and appliance stores (GAF) were 2 per cent higher than the second quarter.

- 2 RETAIL SALES (Seasonally adjusted, percentage change from previous period) __

_

___

__ Total sales

Durable Auto Furniture and appliance Nondurable Food Stores General merchandise

Gasoline Stations

IV-I

I-II

2.7

3.5

3.5

1.4

5.3 7.2

4.5 4.5

5.6 8.7

- .7

5.1

1.8**

1.4

1.6

3.1

2.9

1.2

2.6 2.3

.3 1.2

5.5 2.7

1.5 4.7

1.6

3.1

1.0

5.0 2.2

____

__

I

July

Aug.

2.4

- .8

3.5

2.9

-1.8

5.3

4.4

-1.0

.4

2.2

-

1.4

2.9

-2.4

.2 1.4

-1.0 3.2

1.0

.6

2.0

- .5

2.0

.5

- .4

1.0

n.a.

.6

II-Aug.

_

June

----

C-l----

.7

.1

Total, less auto and nonconsumption items

GAF Real*

.9

*Deflated by all commodities CPI, seasonally adjusted. *-Incorporates revision by Census in advance report.

.9

n.a.

- 3 -

Merchant builder sales of new single-family homes declined 8 per cent further in 521,000 units. December,

July to a seasonally adjusted annual rate of

Although more than a third above the low last

the July sales rate was nearly a tenth below the second

quarter average, which reflected, in part, the initial impact of the 5 per cent tax credit enacted in

late March.

The stock of unsold new homes rose in

July and by the end

of the month represented nearly 9 months' supply at the current sales rate.

The median price on the mix of units sold rose to $39,200--

about $2,000 above the rising median price of unsold units. Sales of existing homes edged down in first

July.

This was the

month-to-month decline since January and the July figure was

only 6 per cent below the peak rate in early 1973.

The median price

of used homes sold declined to $35,850--9 per cent above a year earlier.

- 4 HOME SALES

Median Prices of Homes Sold Sales Indexes of Unit Volume New Home Sales and Stocks Months' (1972=100, seasonally adjusted) New Existing Homes Homes homes homes Existing New supply sold 1/ for sale 2/ A(hous. of doL.) homes homes 31 (thousands of units) 1974

QI

523

452

10.4

73

106

35.2

30.9

QII QIII QIV

550 490 417

436 414 400

9,5 10.1 11.5

77 68 58

105 99 93

35.6 36.2 37.3

32.2 32.8 32.2

426 576

396 377

11.2 7.9

59 80

95 108

38.1 39.0

33.8 35.4

Jan. Feb. Mar.

404 411 463

404 409 396

12.0 11.9 10.3

56 57 64

87 97 100

37.2 37.9 38 .8

33.2 33.9 34.2

Apr. (r)

570

388

8.2

79

106

39.2

34.9

(r) May June (r)

593 565

382 377

7.7 8.0

83 79

108 109

39.6 38.1

35.2 36.2

July (p)

521

381

8.8

73

105

39.2

35.9

1975 QI Q41

1/ 2/ 3/

(r)

Seasonally adjusted annual rate. Seasonally adjusted, end of period. Converted to 1972 index for comparison with existing home sales, which are not available on any other basis.

-5

-

The Domestic Financial Situation New York City situation.

Yields in the municipal securities

market, already at record levels, rose still further this past week. The Bond Buyer 20-bond Index reached a new record level of 7.40 per cent, 6 basis points above the week earlier level.

Earlier in the

week yields had fallen as it became apparent that the New York State legislature would pass a financing package that would tide the City over until mid-December.

Following the announcement of increased

Treasury borrowing over the new four months and the relatively slow investor response to the longest maturity included in New York State's $755 million note offering--despite tax free returns ranging to 8.00 per cent--yields on other municipal securities once again moved up. Of the $755 million raised by the New York State offering, $250 million is

to be used to purchase MAC notes to aid the City.

Later, New York State will provide an additional $500 million to the City,

$250 million in

the form of purchases of MAC bonds and $250

million through a loan secured by mortgages on City-owned housing. In addition to this State aid, the City will receive $1,550 million dollars from prepayment of real estate taxes, from purchases of MAC bonds by banks,

City and State pension funds,

and City sinking funds,

and from roll-overs of City notes held by the 11 NYC clearing house banks.

-6The new legislation also establishes an Emergency Financial Control Board (EFCB),

dominated by the Governor,

which will assume

almost complete control of New York City's fiscal affairs.

The

EFCB will make revenue estimates for each month for the next three years.

These estimates will form the basis for an expenditure plan

drawn up by the City, which will reduce the City's deficit over the three year period.

This plan must be completed by the end of October,

and the EFCB will have control of all City revenues to insure subsequent City compliance.

Penalties for any failure of City officials

to comply with the plan include fines and imprisonment. Despite the new plan, uncertain future.

the City still

Most important,

appears to face an

even after the plan's provisions

are fully implemented, the City will need to raise $1.8 billion outside the plan to cover financing requirements in the latter half of December and January. Treasury financing plans. released a new,

higher,

On September 10,

estimate of its

the Treasury

borrowing needs for the

remainder of 1975, and detailed some of its plans to raise the required new cash.

The announcement had a negative impact on the

yields of all government securities, especially intermediate-term coupon issues where the greatest increases in supply are slated. Yields on some of these issues have increased by as much as 30

-7basis points in the last few days.

Corporate and municipal markets

also weakened in response to the Treasury's announcement.

In the

latter market, yield increases were accentuated by the poor reception accorded the longer-term issues offered as part of the $755 million financial package of New York State brought to market on Wednesday. The Treasury now expects to need $44.0 to $47.0 billion of new cash in the second half of 1975--$3 to $6 billion above its previous estimate. to date.

About $22 billion of this total has been raised

Details of the remaining $22 to $25 billion yet to be

raised are shown in the table on the next page. The staff has revised its third and fourth quarter projections of Treasury borrowing to conform to the new pattern of Treasury financing and to reflect the Treasury's intention to finish the year with a higher cash balance than had been anticipated. Third quarter borrowing has been raised from $20.9 to $22.3 billion to include the note and bill auctions now scheduled for September. Fourth quarter borrowing has been left unchanged at $24.7 billion. The half year borrowing total is at the upper end of the Treasury's estimate.

- 8 -

Outline of Treasury Financing Plans

Type of Issue

Auction Date

Due Date

Amount

New Money

2-year note

September 16

September 30

$3.0

$1.0

1-year bill

September 17

September 23

1.9

1.0

29-month note

September 24

October 7

2.0

2.0

2-year note

2 or 3rd week of October

October 31

2 or 3rd week of October

Early November

Intermediate-term note

Other: Note issues

E End of October to mid-December

Bills:(additions to weekly bill auctions and cash management bills)

Over 4th Quarter

3.0

2.5

2.5

1.5-4.0

1.5-4.0

7.0-10.0

CORRECTIONS: Part II - Section IV. page 2, lines 16-18, U. S. banks' gross liabilities to their own foreign branches rose by $300 million in the four weeks ended September 3.

- 9 INTEREST RATES (One day quotes - in per cent)

Highs

1975 Lows

7.70(1/8)

3.13(5/21)

6.15(8/23)

6.15(9/10)

6.90(1/2) 9.00(1/2)

4.88(6/16) 5.38(6/2) 5.40(5/30)

5.42 6.63

Aug.

18

Sept.

11

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

5.69(5/21)

6.75 7.13

6.46 6.75 6.90 7.31

9.00(1/1)

5.38(6/11)

6.63(8/13)

6.88(9/10)

7.05(8/25)

5.18(6/11)

8.75(1/2) 7.67(1/2)

5.38(5/23) 5.68(6/12)

6.97 6.75 7.61

6.91 6.75 7.42(9/10)

C.38(1/1)

5.75(6/18)

7.00(8/13)

7.80(9/10)

7.35(8/21)

0.00(8/25)

5.37(2/5) 6.03(2/20)

7.22 7.99

7.23 7.01(9/10)

0.00(1/1) 4.35(8/15)

6.00(3/12) 3.40(2/7)

7.00(8/13) 4.35(8/15)

7.75(9/10) 4.10(9/12)

8.52(9/11) C.66(9/11)

6.93(2/19) 7.58(2/21)

0.40 8.55

8.52 8.66

9.02(4/30) 10.63(1/20)

8.57(2/26) 10.27(4/3)

0.96 10.36

8.93 10.37

9.80(4/3)

8.89(2/6)

9.53(0/20)

9.63p

Municipal Bond Buyer Index

7.40(9/10)

5.27(2/13)

7.18(8/20)

7.40

Mortgage--average yield in FNMA auction

C.70(9/8)

8.78(3/10)

9.32(8/11)

9.70

6-month Treasury bills (bid) Comm. paper (4-6 mo.) Federal agencies CD's (NYC) 180-269 day Most often quoted new 1-year Treasury bills (bid) Federal agencies

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

0.00(1/1) 10.25(1/3)

Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa Utility

- 10 -

The International Developments Additional monetary policy measures.

At its meeting of

September 11, the Central Bank Council of the German Bundesbank announced further reductions in the bank's discount and Lombard rates. Effective September 12, these rates were lowered by 0.5 percentage points, to 3 and 4.5 per cent respectively.

These reductions follow

similar 0.5 percentage point cuts in mid-August, and mark the seventh time since last October that the Bundesbank has reduced the discount rate and the eighthtime it has reduced the Lombard rate.

The Bundes-

bank also announced an increase of DM 3 billion in credit institutes' rediscount quotas, effective October 1.

In commenting on the monetary

policy moves, Bundesbank President Karl Klasen noted that these actions were aimed at easing the level of costs for German industry and were needed to provide further stimulation to the German economy. The Netherlands Bank on September 12, announced a 1 percentage point reduction in its bank rate to 4½ per cent effective September 15.

The Bank of Italy on September 12 announced a 1 per-

centage point reduction in its bank rate to 6 per cent effective September 15.