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 this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. 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 optimal 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.

CONFIDENTIAL (FR) CLASS II

March 17, 1978

- 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 Section

Page

THE DOMESTIC NONFINANCIAL ECONOMY Total private housing starts ............................ Personal income ... .................................... Impact of coal shortages on employment................... The book value of manufacturing and trade inventories....................................

1 2 3 3

TABLES: Private housing starts and residential building permits .......................... .............

2

Business inventories ...................................

5

THE DOMESTIC FINANCIAL ECONOMY TABLE:

Interest rates............................................

7

APPENDIX

Senior loan officer opinion survey on banking lending practices ..........................

A-1

SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Total private housing starts rose 2 per cent in February to a seasonally adjusted annual rate of 1.58 million units, after posting the sharpest decline, 30 per cent, of the post-war period in the previous month.

For much of February,

as was the case in January, adverse weather

conditions apparently were a substantial factor inhibiting starts.

Starts

of single-family units fell nearly 6 per cent in February to an annual rate of 1.09 million units, the lowest rate since January of last year. Multifamily starts, on the other hand,

increased 25 per cent last month

to a rate of 489 thousand units per year, after declining by nearly two-thirds in the preceding month.

Starts activity by region was mixed.

In the Northeast and South, total starts in February were down 39 per cent and 10 per cent, respectively, while they rose 43 per cent in the North Central States and 5 per cent in the West. Residential building permits increased 8 per cent in February to an 1.62 million units rate, after a drop of 17 per cent in January. As with starts, all of the February increase in permits was in multifamily units, which rose 40 per cent to the highest rate since early 1974.

Single-family permits declined 6 per cent further in February.

-2-

PRIVATE HOUSING STARTS AND RESIDENTIAL BUILDING PERMITS _

__

STARTS 1 - family 2 - or more - family Northeast North Central South West PERMITS 1 - family 2 - or more - family Northeast North Central

South West

(Thousands of units at Per cent seasonally adjusted annual rate)change from: Dec. Jan. Feb. Jan. Feb. 1977(r)

1978(r)

2,203

1,547

1,574 629

19

78

(p)

1978

1977

1,580

+2

- 10

1,155 392

1,091 489

-6 +25

- 20 + 26t,

119 432 905 667

118 281 654 494

72 402 588 518

-39 +43 -10 + 5

- 40 - 2 - 10 - 9

1,811

1,496

1,622

+ 8

+

1,210 601

1,027 469

967 655

- 6 +40

- 9 + 41

187 392 662 570

152 276 545 523

202 368 507 545

+33 +33 - 7 + 4

+ 68 + 7 + 4 - 5

324

322

269

-17

-

MEMO:

Mobile home shipments

NOTE:

r - revised, p - preliminary.

6

2

Personal income in February increased $8.2 billion to a seasonally adjusted annual rate of $1,634.1 billion.

Wage and salary disbursements

rose almost as much last month as total income; the increase in these was reduced by about $1-1/2 billion (in annual rate terms) because of layoffs resulting from coal and electricity shortages.

Other types of income

except that of farm proprietors also increased; farm income declined sharply

again in February but not as much as in January.

-3-

The impact of coal shortages on employment in manufacturing and trade establishments in eleven coal-dependent states declined during the week ended March 11, according to a special survey of large

establishments in 11 mid-western states by the Bureau of Labor Statistics. Approximately 22,900 factory workers were on layoff for all or part of that week because of coal and electricity shortages.

Workers on

layoff in manufacturing were down 2,600 from the preceding week, were less than had been anticipated by employers responding to the survey a week earlier, and were a quite small proportion of the 7.8 million factory workers in those States.

Aggregate hours worked in manufacturing

were reduced by about 1.3 per cent in the March 5 to 11 week because of coal shortages, down from an 1.8 per cent reduction in the previous week.

Cutbacks in employment in trade establishments were limited

during that week, as earlier, and the reduction in aggregate hours was unchanged from 3.0 per cent in the preceding week. The book value of manufacturing and trade inventories increased at a $26.0 billion annual rate in January, after a small decline in December.

The January rise was more than twice that in the

final quarter of last year but about the same as for the year as a

whole.

Sales (or shipments) by manufacturers, merchant wholesalers,

and retailers each declined in in that inventory buildup.

January,

and apparentlywere factors

The inventory to sales ratio for manu-

facturing and trade businesses increased to 1.46 in January from 1.41 in December; for each of these types of business the inventory to sales ratio rose in January. The over-all inventory increase in January was fairly evenly divided between durable goods, and also among manufacturers, wholesalers, and retailers.

At wholesale establishments the buildup was

mainly in nondurable goods, while at retailers in durable goods--mainly at establishments handling automotive products and building, hardware, and related products.

BUSINESS INVENTORIES (Change at annual rates in seasonally adjusted book value; billions of dollars)

1975 Manufacturing and trade

1976

mm

1975

1977

QI I

QII

1978

QIII I QIV

Dec. I, Jan.

-3.4

24.5

34.2

32.1

26.4

12.5

-. 5

26.0

Durable

-1.3

12.4

17.6

20.2

19.2

11.3

8.4

13.6

Nondurable

-2.1

12.1

16.6

11.9

1.2

-8.9

12.5

-1.2

13.6

23.0

14.3

17.1

10.3

4.8

17.0

4.7

7.5

11.4

8.1

12.4

2.8

-6.6

8.9

1.3

1.8

-. 6

Trade, total Wholesale Retail Auto

-1.4

6.2

12.0

.3

7.4

11.1

-,8

1.8

2.2

2.6 11.8 2.4

7.3

6.5

INVENTORY/SALES RATIO

-

"

1975

1976

QI

QII

1977 QIII

QIV

Dec.

Jan.

Manufacturing and trade

1.58

1.48

1.46

1.46

1.48

1.44

1.41

1.46

Trade, total

1.35

1.33

1.34

1.34

1.36

1.33

1.31

1.36

Wholesale

1.24

1.22

1.24

1.21

1.24

1.23

1.19

1.22

Retail

1.45

1.42

1.42

1.45

1.48

1.43

1.42

1.49

1978

Inventory to sales:

-6-

The Domestic Financial Economy No textual addendums to the Greenbook were required, but the usual updating of interest rate developments is contained in the table on page 7.

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

1977

1978 Lows

Feb. 27

Mar. 16

6.65(12/28)

4.47(1/5)

6.80(3/1)

6.77(3/15)

6.36(10/13) 6.68(12/30) 6.75(12/29) 7.56(12/29)

4.39(4/28)

4.63(1/10) 4.66(1/3) 4.88(1/5)

6.40 6.75 6.80 7.31

6.25 6.75 6.80 7.25

6.70(12/21)

4.50(1/5)

6.75(2/22)

6.73(3/15)

6.55(10/13) 6.75(10/18)

4.54(1/3) 4.63(1/7)

6.70 6.78

6.60 6.79

6.92(11/9)

4.65(1/5)

7.13(2/22)

7.13(3/15)

6.64(10/13)

4.66(1/3)

6.83

6.79

7.10(12/28) 3.65(12/30)

5.00(1/5) 2.65(1/7)

7.38(2/22) 3.60(2/24)

7.25(3/15) 3.60(3/17)

7.40(12/29) 7.77(12/29) 8.00(12/29)

5.73(1/3) 6.50(1/3) 7.20(1/3)

7.70 7.94 8.20

7.64

8.30(12/28) 9.18(2/25) 8.36(12/16) 8.48(12/30)

7.87(1/5) 8.77(9/9) 7.90(1/5) 7.95(1/5)

8.48 9.21

8.45

5.93(2/2) 8.98(12/26)

Highs

Short-Term Rates Federal funds (wkly avg.) 3-month Treasury bills (bid) Comm. paper (90-119 days) Bankers' acceptances Euro-dollars CDs (NYC) 90 days Most often quoted new 6-month Treasury bills (bid) Comm. paper (4-6 mos.) CDs (NYC) 180 days Most often quoted new 1-year Treasury bills (bid) CDs (NYC) Most often quoted new Prime municipal note Intermediate- and Long-Term Treasury (constant maturity) 3-year 7-year 20-year Corporate Seasoned Aaa Baa Aaa Utility New Issue Recently offered Municipal Bond Buyer index

7.91

8.17

8.71(2/24)

9.21 -- (3/17)

8.70(2/24)

8 .6 4p( 3 /17

5.45(11/17)

5.65(2/23)

5.58

8.46(1/12)

9.35(2/22)

9.36(3/6)

Mortgage--average yields in

FNMA auction

FR 2018 Approved by Federal Resrve Board Approval expiresJanuary, 1980

FOR F.R. USE ONLY

ATTACHMENT A

December 1977

SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES FOR

The purpose of this questionnaire is to obtain information on recent changes in bank practices regarding selected types of loans. ALL DISCUSSION OF LOANS IN THIS SURVEY SHOULD BE RESTRICTED TO LOANS AT DOMESTIC OFFICES. The questionnaire should be completed by a senior officer thoroughly familiar with the lending practices of the bank in the areas covered. The views expressed will be treated as unofficial.

LOAN DEMAND

Much Stronger

Moderately Stronger

Essentially Unchanged

Moderately Weaker

Much Weaker

Much Firmer

Moderately Firmer

Essentially Unchanged

Moderately Easier

Much Easier

Much

Moderately

Essentialy

Moderately

Much

Firmer

Firmer

Unchanged

Easier

Easier

1. Indicate the strength of demand for commercial and industrial loans (after allowing for your bank's usual seasonal variation) now as compared with three months ago. ......... 2. Indicate how strong the demand for commercial and industrial loans (after allowing for your bank's usual seasonal variations) is expected to be during the next three months as compared with now ............................ INTEREST RATE POLICIES With respect to the commercial and industrial loan terms and conditions listed below, indicate your bank's practices now as comared with three months ago. 3. Standards of credit worthiness to qualify for prime rate .... 4. Standards of credit worthiness to qualify for a given spread above prime and/or the structure of spreads between the prime rate and lending rates to nonprime borrowers. .......

Willingness to make short-term (maturities under one year) loans with predeterminedrates... ...... . ... . 6. Willingness to make long-term (maturities of one year or more) loans with predetermined rates ................

5.

CREDIT AVAILABILITY AND NONPRICE TERMS

Indicate your bank's practices now as compared to three months earlier regarding approval of lines of credit or loan applications for commercial and industrial loans for the types of borrowers listed below. 7. Established customers .......... . . . .... ..... 8. New customers............................... 9. Local service area customers ................. .... 10. Nonlocal service area customers ...................

Indicate what the size and enforcement of compensating balance requirements for the types of loans listed below are now as compared to three months earlier. 11. Commercial and industrial loans. ................... 12. Loans to finance companies ........ ..............

Indicate your bank's willingness to make the type of loans listed below now as compared to three months ago. 13. Construction and land development loans secured by real estate .. ................................... 14. Real estate loans secured by 1-4 family residential properties ....... ..... . ... ................ 15. Real estate loans secured by multi-family (5 or more) residential properties .. . ......................... 16. Commercial and industrial loans secured by real estate . .. 17. Instalment loans to individuals .......... ... ....... 18. Commercial and industrial loans of 1 to 5-year maturity.... 19. Commercial and industrial loans of over 5-year maturity. ... . ..... ... 20. Loans to finance companies....... . . 21. Loans to brokers and dealers in securities. ............. 22. Participation loans originated by correspondent banks .....

Moderately Greater

Considerably Greater

_

Essentially Unchanged

Moderately Less

Considerably Less

T-

_

1

If convenient, please provide illustrative detail regarding the specific types of loans affected by recent changes in lending practices.

If you have reported significant changes in lending practices, we would also appreciate a description of the particular situation which has brought about changed lending practices at your bank.

Name of bank officer completing this report (PLEASE PRINT)

Name and location of bank

Title

This report is authorized by law [12 U.S.C. §248(a)and 12U.S.C.§248(1)]. Your voluntary cooperation in submitting this report is needed to make the results comprehensive, accurate, and timely,

The Federal Reserve System regards the individual bank information provided by each respondent as confidential. If it should be determined subsequently that any information collected on this form must be released, respondents will be notified.

PLEASE RETURN THE COMPLETED QUESTIONNAIRE TO REACH THE FINANCIAL STATISTICS DIVISION, ROOM 901, FEDERAL RESERVE BANK OF NEW YORK FOR RECEIPT NO LATER THAN THE THIRD BUSINESS DAY AFTER THE REPORT DATE.

APPENDIX SENIOR LOAN OFFICER OPINION SURVEY ON BANK LENDING PRACTICES* The Federal Reserve's quarterly survey of lending practices at large banks has been revised in a number of ways, in particular to improve our understanding of the general interest rate policies regarding term loans. (The new survey form is Attachment A.) The new survey will continue to be taken on the 15th of the mid-month of each quarter,

and the results of the new survey taken in February 1978 at 121 large banks are attached (Attachment B). The general cast of the survey results is different in one regard from a typical example of the predecessor survey. The range of responses to individual questions on lending terms is wider than had normally been the case; senior lending

officers may have read the new survey form more carefully than had been their practice and as a consequence answered the questions more carefully. Over 30 per cent of the 121 senior loan officers respond-

ing to the survey taken in mid-February reported moderately stronger business loan demand than three months earlier. About 55 per cent of the respondents anticipated a further strengthening in business loan demands in the next three months, somewhat higher than the 45 per cent who were expecting stronger loan demand at the time of the November survey. Changes in price and nonprice terms of lending were mixed, and the tilt toward a firming of loan policies noted in the August and November surveys was not continued in February. The prime rate charged by major banks was raised just prior to the November survey and again in early January, increasing from 7 1/2 per cent to 8 per cent in these two steps. In prior surveys, a climate of rising rates would have insured that a substantial number of respondents to the lending practices survey would have reported that their interest rate policies had tightened. From the old survey, it was impossible to tell whether such a tightening meant that bank lending rates had risen relative to market rates or had simply risen absolutely. The new survey attempts to clarify this issue by asking respondents several questions about interest rates on commercial and industrial loans. For example, respondents are now asked whether they have firmed or eased standards of credit-worthiness to qualify for the prime rate and what their policies are for spreads between the prime and actual lending rates. In the February survey, responses to these two questions were *

Prepared by Patricia Davis and Paul Boltz, Economists, Banking Section, Division of Research and Statistics.

A-2

mixed, and on balance moves toward ease at some banks were matched by tightening moves at others.

A noticeable minority of banks indicated an increased willingness to make fixed rate short-term business loans, in response to another new question on the survey. For term loans, responses were much more diverse, with no trend discernible in willingness to

make fixed-rate loans. It is notable, however, that the majority of responses indicating increased willingness to make term loans with fixed rates were from very large money center banks with assets of over $5 billion. On nonprice terms, a growing number of respondents continued to report an easing of compensating balance requirements compared to those reporting firmer requirements--particularly on commercial and industrial loans. The banks reporting easing requirements were almost evenly divided between the two size groups. More than 80 per cent of the respondents reported no change in their policies related to reviewing credit lines or loan applications. A noticeable number of banks continued to report a greater willingness to make consumer instalment and single-family mortgage loans. Participation loans with correspondents also were cited by 12 per cent of the respondents as an area in which their banks were allocating increased loan funds. The pattern of responses concerning other categories of loans was essentially unchanged from recent surveys. The February survey indicated both easing and firming of price and nonprice lending terms. On balance, however, the results showed little change in lending policies at the majority of banks.

ATTACHMENT 3 TABLE

1

PAGE

SENIOR LOAN

OFFICER OPINION SURVEY ON BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. (STATUS OF POLICY ON FEBRUARY 15, 1978 COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS & PERCENT OF TOTAL BANKS ANSWERING QUESTION)

MUCH STRONGER BANKS

PCT

MODERATELY STRONGER BANKS

PCT

ESSENTIALLY UNCHANGED BANKS

DEM A N D

LO AN

PCT

MODERATELY EASIER BANKS

PCT

MUCH EASIER BANKS

PCT

TOTAL BANKS ANSWERING

STRENGTH O F DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANKS USUAL SEASONAL VARIATION): 1.

COMPARED TO

2.

ANTICIPATED DEMAND IN NEXT 3 MONTHS

THREE MONTHS EARLIER

MUCH FIRMER BANKS

INTEREST

RATE

PCT

38

31.5

77

121

67

55.4

51

121

MODERATELY FIRMER

ESSENTIALLY UNCHANGED

MUCH EASIER

PCT

BANKS

5

4.2

109

5

4.2

0

0.0

120

14

11.6

90

16

13.3

O

0.0

121

BANKS

PCT

MODERATELY EASIER BANKS

PCT

BANKS

PCT

POLICY

STANDARDS OF CREDIT WORTHINESS: 3.

TO QUALIFY FOR PRIME RATE

1

0.9

4.

TO QUALIFY FOR SPREAD ABOVE PRIME

1

0.9

CONSIDERABLY GREATER

MODERATELY GREATER

ESSENTIALLY UNCHANGED

MODERATELY LESS BANKS

PCT

MUCH LESS

PCT

BANKS

PCT

BANKS

PCT

0

0.0

18

14.9

95

78.6

7

5.8

1

0.9

121

1

0.9

22

18.2

68

56.2

26

21.5

4

3.4

121

BANKS

BANKS

PCT

WILLINGNESS TO MAKE FIXED RATE LOANS: 5.

SHORT-TERM (UNDER

6.

LONG-TERM (ONE YEAR OR LONGER)

ONE YEAR)

MUCH FIRMER BANKS A V A

CREDIT NONPR

IC

I

I L A TERMS

REVIEWING CREDIT LINES APPLICATIONS FOR:

OR

T Y

L

ESITABLLSEu CUSTOMtkkS

B.

NEW CUSTOMERS

9.

LOCAL SERVICE AREA CUSTOMERS

11. 12.

COMMERCIAL & LOANS

INDUSTRIAL LOANS

TO FINANCE COMPANIES

BANKS

13.

SECURED CONSTRUCTION & LAND DVLPMNT

PROPERTIES

14.

1-4 FAMILY RESIDENTIAL

15.

MULTI-FAMILY RESIUENTIAL PROPERTY

16.

COMMERCIAL

17.

INSTALLMENT

18.

& INDUSTRIAL

PROPERTY

LOANS TO INDIVIDUALS

AND INDUSTRIAL LOANS OF:

1-5 YEARS MATURITY OVER

5 YEARS MATURITY

LOANS TO FINANCE COMPANIES ~I.

PCT

BANKS

PCT

BANKS

PCT

2

1.7

117

96.7

13

10.9

98

61.7

6

5.0

110

91.7

13

11.0

101

84.9

15

12.4

79

65.3

27

22.4

5

4.2

109

90.1

6

5.0

PCT

MODERATELY GREATER BANKS

PCT

ESSENTIALLY UNCHANGED BANKS

PCT

MUCH LESS

MODERATELY LESS BANKS

PCT

BANKS

PCT

TO MAKE OTHER TYPES OF LOANS:

SECURED REAL ESTATE LOANS:

COMMERCIAL

BANKS

MUCH EASIER

REQUIREMENTS FOR:

CONSIDERABLY GREATER

WILLINGNESS

PCT

MODERATELY EASIER

AND

NONLOCAL SERVICE AREA CUSTOMERS

COMPENSATING BALANCE

BANKS

ESSENTIALLY UNCHANGED

LOAN

7.

10.

PCT

MODERATELY FIRMER

LOANS TO SECURITIES BROKERS

22. PARTICIPATION LOANS WITH CORRESPONDENT BANKS

& DEALERS

0

0.0

14

11.6

95

78.6

12

10.0

0

0.0

121