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.

September 15, 1978

CONFIDENTIAL (FR) 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

TABLE OF CONTENTS Page

THE DOMESTIC NONFINANCIAL ECONOMY Industrial production .. . . .* . . . . . . . Book value of retail trade inventories . . . ...

TABLE: Industrial Production:

.

Summary

. . . .

..

.

THE DOMESTIC FINANCIAL ECONOMY Money market certificates . . . . .

. .

. . .

. . .

.

TABLES: Estimated Money Market Certificate Inflows Security Offerings ................. Monetary Aggregates . . ... . . . . . Interest Rates . . ..... . . . ......

.

.... . . ... ..

.

ERRATA: Part II - Page III - 13 . .

..

. .

.. .

..

..

SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Industrial production increased by an estimated 0.5 per cent in August, following revised increases of 0.7 per cent in both June and July.

Output of equipment, construction supplies, and durable goods

materials each rose by relatively large amounts again in August.

August

production of business equipment and construction supplies were both 9.4 per cent higher than a year earlier and production of durable goods materials was 10.1 per cent higher. again about unchanged and still

Production of consumer goods was

remains slightly below the April level

and was 1.8 per cent above a year earlier.

At 146.6 per cent of the

1967 average, the August 1978 total industrial production index is 6.2 per cent higher than the depressed August level of last year. Production of business equipment continued strong in August, increasing 1.1 per cent.

Output of intermediate products, especially

construction supplies, also continued to rise appreciably.

However,

output of consumer goods--both durable and nondurable--changed little again in August.

Auto assemblies were at a seasonally adjusted annual

rate of 9.4 million units--the same rate as in July. Output of materials increased 0.3 per cent in August.

Wide-

spread strength continued in the production of durable goods materials, with especially large gains in equipment parts and basic metals.

However,

production of nondurable goods materials remained at about the same

level as in July and was still 0.7 per cent below the June level, partly as a result of the paper strike.

Energy materials output declined 0.1

per cent in August, as coal production declined.

INDUSTRIAL PRODUCTION: SUMMARY (Seasonally adjusted) July

Aug.

(p)

(e)

Per ce nt changes June July Mar. Apr. Mayy From pre ceding month

Total

145.9

146.6

1.2

1.6

.5

.7

Products, total

144.9

145.6

1.4

1.0

.1

.6

Final Products Consumer Goods Durable Nondurable Business Equipment

141.9 147.2 160.9 141.7 163.5

142.5 147.3 160.8 141.9 165.3

1.8 1.5 4.2 .4 2.1

1.2 1.1 2.7 .4 1.2

Intermediate Products

155.8 153.8

156.8 155.0

.0 -.5

147.6

148,1

.9

1978 Indexes, 1967=100

Construction Supplies Materials p--preliminary

.0 .3 -1 .0 - .1

.3 -. 1 .2 -. 1

Aug.L-~ Aug.

Au . ug._ 77

.7

.5

6.2

.7

.5

5.2

.4 .7 .2 .1 .2 -. 1 .1 .1

.6

1,0

1.1

1.1

.5 .4

.3 1 .3

1.2 1.1

.8 1.1

.6 .8

7.3 9.4

2.7

1 .0

.9

.8

.3

7.6

e --estimate

Capacity utilization in manufacturing edged up to 84.8 per cent

from 84.6 per cent in June (which was revised up from the 84.1 per cent estimate of a month ago),

The July increase in the over-all manufacturing

utilization rate was concentrated in advanced processing industries, as the rate for primary processing industries and for materials producers was unchanged.

4.5 1.8 3.9 .9 9.4

The book value of retail trade inventories rose at an $11.1 billion annual rate in July, following a $5.8 billion rate increase in June; the rise in the second quarter was at a $9.8 billion rate.

In

July, durable goods retailers added to stocks at a $3.9 billion annual rate, with most of build-up in stocks of building materials and other durable goods excluding automotive goods and furniture and appliances. Nondurable inventories rose at a $7.2 billion rate,

with most of the

rise in stocks held by variety stores and apparel stores.

The ratio

of inventories to sales for all retail stores rose slightly to 1.44 in July from 1.42 in June. The book value of total manufacturing and trade inventories increased at a $19.6 billion annual rate in

July--off sharply from

both the $32.3 billion rate rise in June and the increases in the first

and second quarters of about a $44-1/4 billion annual rate .

ratio of inventories to sales for all

The

business rose a bit to 1.43 in

July from 1.41 in June.

The Domestic Financial Economy

Money market certificates continued to attract a sizable volume of funds in August, albeit at a slower pace than in vious two months (see Table).

the pre-

Commercial bank sales of the six-month

certificate in August exceeded June sales by roughly $200 million.

August issuance of the money market certificate at thrift institutions, on the other hand, fell short of June issuance by almost $2 billion.

As expected, inflows in August were substantially weaker than in July, an important reinvestment period at these institutions.

No additional information is available concerning the proportion of money market certificate flows representing new money. However, judging from August deposit flow data, it seems clear that the new certificate did indeed have a significant positive impact on thrift institution deposit growth in August.

MSB and S&L combined

deposit growth continued at about the same pace as in July measured on an end-of-month basis.

This 13.8 per cent seasonally adjusted

annual rate of growth is the highest rate experienced since September

of last year. Judging from latest available survey data, roughly 68 per cent of commercial banks, 90 per cent of S&Ls and 70-75 per cent of MSBs are offering the six-month money market certificate.

ERRATUM: Part II: Page

III-13:

Table has been corrected to include omitted figures for U.S. Treasury and sponsored Federal agencies.

ESTIMATED MONEY MARKET CERTIFICATE INFLOWS Money Market Certificates Outstanding as of the End June Inflows

1-

($ billions)

2/

July Inflows-

3/

August Inflows-

($ billionsl)

($ billions)

of August:

_nf

Per cent of total

$ billions

deposits outstanding-

Commercial Banks

2.1

3.4

2.3

7.0

2.0

S&Ls

4.9

6.0

3.1

14.0

3.4

ISBs

1.6

1.9

1.5

5.0

3.6

All Institutions

8.6

11.4

6.9

26.3

1/ 2/ 3/ 4/

Commercial bank and MSB certificate Commercial bank and MSB certificate Commercial bank and MSB certificate Per cent of small-denomination time

2.8

inflow through June 28. S&L certificate inflow through June 30. S&L certificate inflow through July 31. inflow through July 26. S&L certificate inflow through August 31. inflow through August 30. and savings deposits for commercial banks.

-6SECURITY OFFERINGS (Monthly totals or monthly averages, in millions of dollars)

1978

1977

Year

QI

- e/ OIIQ

July e/

e/ Aug.-

Sept.-f/

Oct. f

A,-•r -

tA .--

Oct .-

Gross Offerings 4,518

3,370

3,998

3,400

2,900

3,400

3,700

2,016

1,582

1,819

2,100

1,500

1,500

1,800

1,089 927

765 817

883 936

1,025 1,075

1,025 475

692 700 624

475 546 561

575 619 625

885 390 825

825 450 225

Privately placed bonds

1,501

1,128

1,387

800

800

1,200

1,000

Stocks

1,001

660

791

500

600

700

621

537

743

334

437 184

425 112

507 236

100 234

5,771

5,176

7,132

5,344

7,600

5,500

4,500

3,891 1,880

3,598 1,578

4,486 2,646

3,716 1,628

6,100 1,500

3,000 2,500

3,000 1,500

1,596 743

6,100 3,330

900 1,711

4,500 733

Corporate securities--total Publicly offered bonds By quality 1/ Aaa and Aa Less than Aa 2/ By type of borrower Utility Industrial 3/ Financial

Foreign securities--total Publicly offered 4/ Privately placed State and local gov't. securities--total Long-term Short-term

100

Net Offerings U.S. Treasury Sponsored Federal agencies

1/ 2/ 3/ 4/ e/ f/

3,433 604

7,180 -2,417 1,804 2,219

Bonds categorized according to Moody's bond ratings. Includes issues not rated by Moody's. Includes equipment trust certificates. Classified by original offering date. Estimated. Forecast.

Updated

MONETARY AGGREGATES (Seasonally adjusted)-

1978

1977 Major monetary aggregates 1. M-1 (currency plus demand deposits) 2. M-2 (M-1 plus time & savings deposits at CBs other than large CDs) 3. M-3 (M-2 plus all deposits at thrift institutions) Bank time and savings deposits 4. Total 5. Other than large negotiable CDs at weekly reporting banks (interest bearing component of M-2) Savings deposits 6. 7. Individuals 2/ 8. Other 3/ Time deposits Small time 4/ 11. Large time 4/ 12.

Time and savings deposits sub-

Aug. '77 to Aug.P Aug. '78

QIV

QI

QII

June

July

7.5

5.6

9.5

5.9

5.5

7.8

8.2

6.9

8.3

7.8

8.6

10.5

8.4

10.7

7.7

8.0

8.4

9.7

11.7

9.4

13.1

13.4

11.0

6.7

10.8

8.5

12.3

8.6 5.4 6.6 -7.6 11.6 3.4 28.3

7.9 2.6 2.4 2.6 12.7 6.1 25.5

7.4 1.6 2.1 -5.2 12.3 10.3 15.5

4.5

4.0

5.5

8.9 11.0 12.6 -1.6 -4.3 8.7 -2.3 -0.6 9.9 15.8 -54.5 -16.3 17.7 24.1 15.3 6.2 14.0 11.1 24.4 47.8 31.5 5.2

ject to rate ceilings (6+10) Deposits at nonbank thrift institutions 5/ 9.2 8.9 7.6 14.4 13. Total 9.9 9.0 7.9 15.4 14. Savings and loan associations 15. Mutual savings banks 9.9 5.8 3.9 4.4 16. Credit unions 20.0 18.2 15.8 16.8 Average monthly changes, MEMORANDA: 0.2 -1.2 1.1 4.0 Total U.S. govt. deposits 17. 18. Total large time deposits 6/ 5.7 4.4 2.8 1.5 1.0 0.7 1.7 1.5 19. Nondeposit sources of funds 7/

2.4

7.6

7.6

9.0 2.5 3.3 -8.2 14.7 7.8 29.1 4.8

10.9 11.2 13.5 11.6 12.8 15.6 6.2 7.9 6.5 11.8 11.7 18.0 billions of dollars 2.9 4.5 0.0

0.7 1.5 2.3

0.4 3.8 1.3

p--preliminary. 1/ Quarterly growth rates are computed on a quarterly average basis. 2/ Savings deposits held by individuals and nonprofit organizations. 3/ Savings deposits of business, government, and others, not seasonally adjusted. 4/ Small time deposits in denominations less than $100,000. Large time deposits are time deposits in denominations of $100,000 and above excluding negotiable CDs at weekly reporting banks. 5/ Growth rates computed from monthly levels based on average of current and preceding end-of-month data. 6/ All large time certificates, negotiable and nonnegotiable, at all CBs. 7/ Nondeposit borrowings of commercial banks from nonbank sources include Federal funds purchased and security RPs plus other liabilities for borrowed money (including borrowings from the Federal Reserve), Eurodollar borrowings, and loans sold, less interbank borrowings.

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

1978 Highs

Lows

Aug. 14

Sept. 14

Short-Term Rates Federal funds (wkly. avg.)

8.33(9/13)

6.58(1/11)

7.87(8/16)

8.33(9/13:

3-month Treasury bills (bid) Comm. paper (90-119 days) Bankers' acceptances Euro-dollars CDs (NYC) 90 days Most often quoted new

7.77(9/14) 8.43(9/14) 8.45(9/14) 9.06(9/14)

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

6.88 7.76

7.77 8.43 8.45

8.34(9/13)

6.65(1/4)

7.85(8/9)

8.34(9/13)

6-month Treasury bills (bid) Comm. paper (4-6 mos.) CDs (NYC) 180 days Most often quoted new

7.87(9/14) 8.46(9/14)

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

7.24 7.81

7.87 8.46

8.63(9/13)

6.85(1/4)

8.20(8/9)

8.63(9/13)

7.95(9/14)

6.53(1/4)

7.64

7.95

8.63(9/13) 4.55(7/28)

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

8.32(8/9) 4.40(8/11)

8.63(9/13) 4.45(9/8)

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

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

8.26

8.34

8.37

8.33

8.00(1/5)

8.50

8.37

8.69

9.43 8.81(8/11) 8.89(8/11)

8.62(9/13) 9.39(9/13)

1-year Treasury bills (bid) CDs (NYC) Most often quoted new Prime municipal note

7.85 8.31

9.06

Intermediate- and Long-Term Treasury (constant maturity) 3-year 7-year 20-year Corporate Seasoned Aaa Baa Aaa Utility New Issue Recently offered

9..18(7/7) 9.22(7/14)

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

Municipal Bond Buyer index

6.32(7/13)

5.58(3/16)

6.03(8/10)

6.02

10.02(7/10)

9.13(1/9)

9.82(8/7)

9.78(9/5)

Mortgage--average yields in FNMA auction

8.92(7/12) 9.64(6/5)

8.74 8.72