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 - FOMC

April 13,

SUPPLEMENT

__

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

1979

TABLE OF CONTENTS THE DOMESTIC NONFINANCIAL ECONOMY Industrial production . . . Capacity utilization . . .. Retail trade inventories .

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Manufacturers and trade inventories . . . . . . .

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THE DOMESTIC FINANCIAL ECONOMY Money market certificate

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TABLES: Net Flows into Money Market Certificates Monetary Aggregates . . . . . . . . Selected Financial Market Quotations . .

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SUPPLEMENTAL NOTES

The Domestic Nonfinancial Economy Industrial production increased 0.8 per cent in March, following two months in which the level of total output was almost unchanged. Advances were widespread among products and materials.

Rebounds from

earlier weather effects contributed significantly to substantial increases in production of motor vehicles and parts, steel, and coal; these increases accounted for a large part of the rise in the total index.

Production in

March was 0.9 per cent higher than in December 1978, equivalent to an annual rate of growth during the first quarter of 3.5 per cent.

At 152.2 per cent

of the 1967 average, the index for March is 8.0 per cent above the level a year earlier. Output of consumer goods increased 0.8 per cent in March, reflecting a rebound in automotive products, a moderately large increase in home goods, and a modest gain in consumer nondurable goods such as food.

The rate of

auto assemblies increased about 6 per cent to an annual rate of 9.4 million units.

Over the first quarter of 1979 output of home goods, which includes

appliances and TV, carpeting, furniture, and miscellaneous items, has risen sharply, but the level of output in March was only modestly above that of last fall.

Production of business equipment advanced moderately in March,

as it had in the two preceding months, with continued strength evident in the output of manufacturing, power, and commercial equipment and a large rise in output of transit equipment; business equipment production in March was 8.6 per cent above a year earlier.

-2 Production of materials advanced 1.0 per cent in March, following small declines in February and January that were due in part to weather

and other production problems.

Durable materials output increased sharply

in March, reflecting increases in basic metals and in parts for equipment and consumer durables.

Coal production rose significantly but was below

late 1978 levels. Capacity utilization in manufacturing and in materials production rose in March, partly reflecting production rebounds from earlier weather effects--particularly in motor vehicles and parts, steel, and coal.

In

some sectors levels of production late in 1978 moved relatively close to capacity, and with moderate gains in output over the past three months capacity utilization rates in March were little different, or still below, those at year end. In manufacturing, capacity utilization rose 0.4 percentage point to 86.3 per cent, the same as in December, 1978.

Capacity utiliza-

tion in primary processing industries rose 0.5 percentage point to 88.7 and in advanced processing industries it rose to 85.1 per cent, up 0.4 percentage point.

Utilization of capacity in industrial materials industries

in March rose 0.8 percentage point to 87.9 per cent.

Operating rates for

basic metal industries and energy materials each rose by more than 1 percentage point and the rate for nondurable goods materials rose by 0.4 percentage point.

The March utilization rates for primary processing

industries, basic metal materials production, and energy production were

-3below their December rates and those for advanced processing industries and nondurable goods materials production were a little higher than in December. Retail trade inventories in February declined in book value terms at an $8.9 billion annual rate, following an $11.1 billion rate of increase in January.

In the fourth quarter of 1978 these inventories

had been accumulated at a $9.9 billion annual rate; over 1978 they had increased in book value terms by $10.7 billion.

Stocks were reduced

in February at a quite rapid pace at department stores and at nondurable goods stores in the aggregate other than general merchandise, apparel, and food; stocks were also reduced by retail lumber, building materials, and hardware establishments.

Stocks of both department stores and variety

stores, which make up the general merchandise grouping, were reduced each of the three consecutive months ending in February.

Stocks of automotive

stores and furniture and appliance stores rose somewhat in February.

The

ratio of inventories to sales for all retail outlets in February declined to 1.42 from 1.44 in January. Manufacturers and trade inventories in February increased at a $42.1 billion annual rate in book value terms, down from a $54.6 billion. rate in January.

In the fourth quarter of last year these inventories

rose at a $39.5 billion rate.

The ratio of inventories to sales in

February remained at 1.41, historically a relatively low ratio.

-4The Domestic Financial Economy Money Market Certificate (MMC) issuance by commercial banks and thrift institutions increased in March. $15.4 billion (NSA) Table).

in March,

Net sales of MMCs amounted to

compared to $11.7 billion in February (see

The March figure represents the third largest monthly increase

in MMC balances and is

20 per cent above the average monthly net sales

of the certificates, which were introduced in June of last year. These data shed only limited light on the impact of the March 15 change in MMC rate ceilings, in part because intramonthly data are available only for S&Ls and because seasonal patterns are unknown.

Furthermore,

the MMC flows could well have been influenced by efforts of savers-encouraged by advertising--to deposit funds prior to the lowering of rates.

As they stand, however, the figures do not evidence an immediate

impact on overall MMC issuance; nor do they indicate a shift in market share to commercial banks as a consequence of the elimination of the rate differential.

-5-

Net Flows into Money Market Certificates (in billions of dollars)

Commercial

1/ 1/ Net MMC Flows-- at: FSLIC-Insured 2 S&Ls MSBs- 1 5.4 1.6 6.4 1.9 3.3 1.5 4.2 1.1 7.4 2.8 7.9 1.9 6.2 2.0

1978-June July August September October November December

banks 2.1 3.4 2.3 1.9 4.2 5.8 3.3

1979-January February March Total MMC balances

8.9 4.1 5.3P41.3

14.2 5.9 7.9 68.8

4.7 1.7 2.22 / 21.4

13/ 10.1-

15.8

15.0

Percent of total deposits outstanding

All Institutions

9.1 11.7 7.1 7.2 14.4 15.6 11.4 27.8 11.7 15.4/ 131.5 13.3

1/ Net flows are defined as total MMCs issued less maturing MMCs. Commercial bank and MSB net flows are based on the last Wednesday of each month. 2/ Figures for MSBs derived from FDIC survey data. S/ Percent of small-denomination time and savings deposits for commercial banks. E/ Preliminary.

REVISED MONETARY AGGREGATES (Seasonally adjusted)1/

8H

QIII

Mar.

1979

1978 QIV

Q1

Major monetary aggregates 1. M-l (currency plus demand deposits) 8.0 8.1 4.4 -2.4 2. M-2 (M-l plus time & savings deposits at CBs, other than large CDs) 7.7 9.9 7.7 1.6 3. M-3 (M-2 plus all deposits at thrift institutions) 8.3 10.4 9.3 4.6 Bank time and savings deposits 4. Total 12.2 11.3 12.4 8.4 5. Other than large negotiable CDs at weekly reporting banks (interest bearing component of M-2) 7.6 11.1 10.2 4.4 6. Savings deposits 2.9 2.3 -0.9 -10.2 7. Individuals 2/ 2.7 3.5 -0.8 -10.2 8. Other 3/ 5.2 -12.7 -2.6 -10.5 9. Time deposits 11.7 18.5 19.2 15.9 10. Small time 4/ 6.8 12.0 15.1 17.2 '1. Large time 4/ 21.5 30.3 26.2 13.4 2. Time and savings deposits subject to rate ceilings (6+10) 4.7 6.3 6.1 2.1 Deposits at nonbank thrift institutions 5/ 13. Total 9.2 11.1 11.6 8.8 14. Savings and loan associations 9.5 12.3 13.1 11.3 15. Mutual savings banks 5.6 6.8 7.8 4.6 16. Credit unions 17.0 13.7 10.1 0.8 Average monthly changes, MEMORANDA: -2.0 0.3 1.1 -0.5 17. Total U.S. Govt. deposits 6/ 1.3 3.6 3.3 4.9 Total large time deposits 7/ 18. 4.5 2.5 1.1 0.7 Nondeposit sources of funds 8/ 19.

S

'78

to

Feb.

Mar.-

Mar. '791

-3.7

0.7

4.6

2.3

3.6

6.9

4.7

6.0

8.4

8.6

-1.4

10.5

6.5 -12.0 -10.6 -31.8 20.3 22.6 16.3

5.6 -6.1 -5.3 -16.3 14.0 26.0 -6.4

8.6 -2.1 -1.7 -7.1 17.8 15.9 21.3

3.8

8.9

5.7

8.2 11.0 4.2 -6.8 billions -4.6 3.1 2.9

9.1 10.4 10.1 12.0 5.9 6.2 11.4 9.0 of dollars -0.7 0.0 3.1 -3.7 2.1 5.8

e--estimated. 1/ Quarterly growth rates are computed on a quarterly average basis. 2/ Savings deposits held by individuals and nonprofit organizations. Savings deposits of business, government, and others, not seasonally adjusted. 3/ 4/ Small time deposits are 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. Growth rates computed from monthly levels are based on average of current and preceding 5/ end-of-month data. 6/ Includes Treasury demand deposits at commercial banks and Federal Reserve Banks and Treasury note balances. All large time certificates, negotiable and nonnegotiable, at all CBs. 7/ Nondeposit borrowings of commercial banks from nonbank sources include Federal funds 8/ for borrowed money (including borpurchased and security RPs plus other liabilities borrowings, and loans sold, less Eurodollar gross Reserve), Federal the rowings from interbank borrowings.

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I

- 7 SELECTED FINANCIAL MARKET QUOTATIONS (per cent) 1978 1/ High*

Low

10.25

6.58

10.25

9.30 9.51 9.62

6.16 6.45 6.55

Commercial paper 1-month 3-month 6-month

10.29 10.52 10.56

Large negotiable CDs 4/ 1-month 3-month 6-month

End of 1978

1978 - 1979 2/ FOMC FOMC Feb. Mar. Apr. 6 20 3

Change from: Apr. 12

End of 1978

Mar. FOMC

Short-term rates Federal funds 1/

10.06

10.09

9.95

9.933/

-.32

-.16

9.26 9.48 9.69

9.21 9.34 9.30

9.52 9.47 9.38

9.52 9.49 9.30

9.69 9.65 9.37

+.43 +.17 -.32

+.17 +.18 -.01

6.48 6.68 6.70

10.32 10.55 10.61

9.75 9.92 9.97

9.78 9.98

9.65 9.76 9.79

10.04 10.10 10.11

-.28 -.45 -.50

+.26 +.17 +.13

10.36 10.96 11.52

n.a. 6.77 6.97p

10.29 10.83 11.44

9.86 10.14 10.50

9.96 10.22 10.51

9.87 10.11 10.39

10.11 10.31 10.57

-.18 -.52 -.87

+.15 +.09 +.06

Euro-dollars 3-month

11.95

7.20

11.69

10.81

10.94

10.56

10.88

-.81

-.06

Bank prime rate

11.57

7.75

11.75

11.75

11.75

11.75

11.75

0

0

9.59 9.22 9.00

7.40 7.72 8.01

9.59 9.23 8.99

9.13 9.01 8.94

9.39 9.15 9.09

9.35 9.13 9.05

9.49 9:25 9.13

-.10 +.02

-.10 --. 10

+.14

+.04

Municipal (Bond Buyer) 5/

6.67

5.58

6.61

6.22

6.30

6.28

6.33

-.28

+.03

Corporate Aaa New issue 6/ Recently offered 7/

9.30 9.54

8.61 8.48

-

9.60

9.6 8 p

-

9.51

9.40

9.65

9.59

9.6 7p

+.16

+.02

10.38

8.98

10.38

10.40

10.40

10.45

10.48

+.10

+.08

Low 8/

High 8/

End of 1978

FOMC Feb. 6

FOMC Mar. 20

Apr. 3

Apr. 12

Treasury bills 3-month 6-month 1-year

9.93

Intermediate- and longterm rates

S. Treasury instant maturity) 3-year 7-year 20-year

Primary conventional mortgage 7/

Stock prices Dow-Jones Industrial NYSE Composite

AMEX Composite NASDAQ (OTC) 1/

--

Mar. FOMC

742.12 48.43

907.74 60.38

805.01 53.62

822.85 54.99

850.31 56.45

868.33 57.55

870.50 57.53

+65.49 +3.91

+20.19 +1.08

119.73 102.66

176.87 149.53

150.56 117.98

158.16 124.31

173.02 128.79

179.85 132.33

180.32 133.54

-29.76 +15.56

+7.30 +4.75

Daily averages for statement week, except where noted.

2/

One-day quotes except as noted.

3/

Average for statement week ending April 11.

4/

Secondary market.

5/

One-day quotes for preceding Thursday. verages for preceding week.

ne-day quotes for preceding Friday. /b Calendar week averages.

*

End of 1978

All highs were reached at or close to the end of 1978.