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)

August 11, 1978

CLASS II - 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

SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy

Retail sales edged up 0.2 per cent in July, the third successive very modest monthly increase in nominal sales volume; April sales had been 3-1/4 per cent above those in December of last

year.

Sales of goods other than automotive, building materials, and

related products rose 0.6 per cent in July, after being unchanged in the preceding month.

Sales at furniture, home furnishings, and house-

hold equipment stores and at apparel stores rose appreciably after a sizeable decline in the previous month or two.

Sales at automotive

stores and at gasoline service stations declined further in July. Total retail sales in the second quarter are now estimated to have been up 4.5 per cent from the first quarter of the year when they were little changed from the sharply higher fourth quarter of last year.

Sales of durable goods in the second quarter were up 6.9

per cent from those in the preceding quarter, and sales of nondurable goods up 3.4 per cent.

-2-

RETAIL SALES (Per cent change from previous period; based on seasonally adjusted data)

QI

QII

Total sales

- .1

4.5

(Real)1 /

-2.0

1.9

.3

3.8

Total, less auto and nonconsumption items GAF Durable Auto

Furniture & appliances Nondurable Apparel Food

General merchandise Gasoline

1978 July/QII

May

June

July

.4

.2

.1

.2

n.a.

- .7

- .7

n.a.

1.0

- .1

.6

.9

-3.7

6.1

2.2

.9

- .2

2.0

-2.0 -1.7

6.9 6.5

.3 -1.3

-1.0 -2.2

.2 - .1

.6 - .6

-4.2

6.7

4.4

1.5

-2.6

5.7

.9 -4.5 3.1

3.4 6.5 3.4

.4 1.8 .6

.9 -1.9 .9

.0 - .3 - .3

.1 2.6 .5

-3.2

5.8

1.5

1.7

.7

.4

1.9

-.1

-1.9

.3

- .5

-1.7

1/ Deflated by all commodities SA consumer price index.

-3Producer prices of finished goods, seasonally adjusted, rose 0.5 per cent on average in July and were 8.1 per cent above those a year

earlier.

The July increase was down from the 0.7 per cent rise in each

of the two preceding months and a 10.4 per cent annual rate rise over the second quarter.

The smaller July rise in prices of finished goods

reflects a decline of 0.3 per cent in prices of consumer foods, after very large increases in most preceding months this year (up at a 17.9 per cent annual rate from last December through June).

Prices of

finished goods other than consumer foods rose 0.8 per cent in July,

the same as the larger average monthly increase in the second quarter. A large rise in jewelry prices accounted for something more than a quarter of the 0.8 per cent rise in the nonfoods finished goods prices. Prices of finished consumer goods increased 0.5 per cent, substantially less than the average monthly rise posted through June, as the 0.3 per cent decline in consumer foods partially offset increases for other consumer goods.

Prices of consumer finished goods other

than foods rose 1.0 per cent, reflecting an 1.8 per cent jump in prices of consumer durables, which, as in April and May, was boosted by higher jewelry prices.

The latter, reflecting higher costs for

gold, accounted for more than one-half of the increase in consumer goods excluding foods and 70 per cent of the rise on consumer durables. Prices of some household durables and passenger cars were also higher. Prices of consumer non-food nondurables rose 0.6 per cent, near the May-June rate but somewhat above the rate for the first half of the year.

-4Prices of capital equipment rose 0.5 per cent in July, a more moderate increase than those in May and June rates, although price increases--some quite large--were widespread among capital equipment items. Prices of intermediate goods advanced 0.5 per cent. Prices of intermediate foods and feeds rose 1.5 per cent, following last month's marked decline, as a result of a sharp rise reported for manufactured animal feeds; intermediate materials for food manufacturing declined more than 2 per cent.

The increase in

prices for nonfood intermediate materials, 0.4 per cent, was not much different from those of the previous 4 months. Crude goods prices were down 0.6 per cent as the first decline in these prices since late last summer reflected reduced prices for crude foodstuffs and feedstuffs, which fell 2.5 per cent. hogs, cattle, green coffee, and grains were all lower.

Prices for

Crude nonfoods

prices registered the largest increase since last November, however, with the 2.3 per cent rise owing largely to higher prices for leaf

tobacco, crude natural rubber, natural gas, iron and steel scrap, and crude petroleum. On a commodity basis, prices of all commodities increased by

0.3 per cent, the smallest increase in nearly a year; prices for industrial commodities prices rose 0.6 per cent and prices of farm and food products declined by 0.9 per cent.

- 5 -

RECENT CHANGES IN PRODUCER PRICES (Per cent change at compound annual rates; based on seasonally adjusted data)l/

Relative Importance Dec. 1977

QI

1977 QII QIII

QIV

QI

1978 QII June

July

Finished goods Consumer foods Consumer nonfoods Capital equipment

41.2 10.3 18.7 12.2

10.0 17.9 9.0 5.0

6.4 4.3 7.8 6.8

2.9 -2.3 4.0 6.0

7.2 7.4 4.7 10.9

9.6 21.2 5.1 7.1

11.2 14.6 10.7 9.1

8.7 13.3 5.3 9.7

6.2 -4.0 12.5 6.0

Materials : Intermediate 2 / Crude nonfood Crude food

45.5 4.6 6.3

8.9 25.6 24.0

5.5 -8.1 -16.6

7.1 -5.3 -19.6

4.2 20.1 27.6

9.0 15.7 43.6

6.2 12.4 25.2

5.6 20.2 23.2

5.0 27.8 -30.9

Energy 3 /

11.3

22.8

15.2

7.6

2.7

4.3

9.9

11.6

Memo:

1/ 2/ 3/

Changes are from final month of preceding period to final month of period indicated. Monthly changes are not compounded. Excludes intermediate materials for food manufacturing and manufactured animal feeds. Fuels and related products and power.

5.9

-6

-

Sales of money market certificates continued strong in July, exceeding sales in June by almost $3 billion (see Table).

The

step-up in issuance was observed at both commercial banks and thrift institutions.

As expected, inflows into the new certificates apparently

surged in early July--an important reinvestment period--and continued to be sizable throughout the rest of the month. No additional information is available concerning the proportion of money market certificate flows representing new money. However, judging from July deposit flow data, it seems clear that the new certificate did indeed have a significant positive impact on thrift institution deposit growth in July.

Deposit growth at S&Ls is estimated

to have accelerated from 10.3 per cent (SAAR) in June to 16 per cent in July, measured on an end-of-month basis.

MSB deposit growth

continued at about the same pace as in June--almost double the AprilMay rate.

-7

-

Estimated Money Market Certificate Inflows Money Market Certificates Outstanding as of the End of July: Per cent of total deposits outstanding $ billions

June Inflows 1/ ($ billions)

July Inflows 2/ ($ billions)

Commercial Banks

2.1

3.4

5.5

1.4

S&Ls

4.9

6.1

11.0

2.7

MSBs

1.6

1.9

3.5

2.6

All Institutions

8.6

11.4

20.0

2.1

1/

Commercial bank and MSB certificate inflow through June 28. ficate inflow through June 30.

S&L certi-

2/

Commercial bank and MSB certificate inflow through July 26. ficate inflow through July 31.

S&L certi-

3/

Per cent of small-denomination time and savings deposits for commercial banks.

ERRATUM: Part II Page 11-6:

The revised chart with corrected scale on bottom panel should be substituted for chart shown.

Page III-11, lines 4-5: two years".

"the past three years" should read

the past

Also, see revised chart for page III-10.

-8

-

AUTO SALES (Millions of units, S.A.A.R.)

DEALERS' INVENTORIES OF AUTOS (Millions of units, end of month, seasonally adjusted)

1.8

1.4

1.0

.6,.

-9

-

BUSINESS LOAN COMMITMENTS AND COMMITMENT UTILIZATION AT SELECTED LARGE BANKS 1/

.lions of

(End of period, not seasonally adjusted)

dollars 260

220 Total Commitments

180

140 Unused Commitments

-^

^

\

I

I

Llll

___I

I LI I I

0

I

Per cent 6 -

Unused Commitments as a Per Cent of Total Commitments

II 1975 i/

1976

1 1 1 1 11 1 I. 1977

1978

Sample consists of 134 large weekly reporting banks which account for about 85 per cent of commercial and industrial loans.

Ip.

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

1978

July 17

August 10

Highs

Lows

7.94(7/19)

6.58(1/11)

7.94(7/19)

7.83(8/9)

7.20(7/11) 7.90(7/24) 8.10(7/14) 8.75(6/27)

6.09(4/24) 6.63(1/6) 6.70(1/6) 7.00(2/8)

6.99 7.88 8.05 8.63

6.85 7.76 7.85 8.25

8.00(7/26)

6.65(1/4)

8.00(7/12)

7.85(8/9)

7.54(7/13) 7.95(7/24)

6.43(1/4) 6.66(1/5)

7.49 7.94

7.23 7.85

8.34(7/5)

6.85(1/4)

8.25(7/12)

8.20(8/9)

7.89(7/20)

6.53(1/4)

7.80

7.64

8.32(8/9) 4.55(7/28)

7.05(1/4) 3.55(3/3)

8.25(7/12) 4.50(7/14)

8.32(8/9) 4.30(8/4)

8.60(7/25) 8.60(7/25) 8.73(7/13)

7.38(1/4) 7.71(1/5) 8.00(1/5)

8.54 8.55 8.69

8.26

8.92(7/12) 9.64(6/5) 9.18(7/7) 9.22(7/14)

8.28(1/3) 9.09(1/3) 8.61(3/24) 8.48(1/6)

8.89 9.59 9.17(7/14) 9.22(7/14)

8.64(8/9 9.47(8/9) 8.80(8/11) 8.89(8/11)

6.32(7/13)

5.58(3/16)

6.32(7/13)

6.03

9.13(1/9)

10.02(7/10)

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 Mortgage--average yields in FNMA auction

10.02(7/10)

8.37 8.45

9.82(8/7)