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FEDERAL RESERVE BANK OF RICHM OND

ECONOMIC
REVIEW

The District Economy in Perspective:
1973
Forecasts 1974
The Agricultural Outlook for ’ 74
Financial Forecasts: 1974




The E c o n o m i c R e v i e w is produced by the Research
Department of the Federal Reserve Bank of Richmond.
Subscriptions are available to the public without charge.
Address inquiries to Bank and Public Relations, Fed­
eral Reserve Bank of Richmond, P. O. B o x 27622,
Richmond, Virginia 23261. Articles may be reproduced
if source is given. Please provide the Bank’s Research
Department with a copy of any publication in which an
article is used.




EC O N O M IC REVIEW, M A R C H /A P R IL 1974

THE DISTRICT
ECONOMY IN PERSPECTIVE: 1973
During most of 1973 both the U. S. and Fifth

in outstanding credit, with commercial bank credit

District economies geared down from the hectic pace

through October 1973 up 15 percent over a year

of 1972. Inflation, however, continued to plague the

earlier.

nation as prices rose higher and worldwide shortages

In most instances, economic developments in the

of food and raw materials became a reality. The
consumer price index rose 8.8 percent from December

A closer look at the individual sectors of the Fifth

Fifth District paralleled those of the nation at large.

1972 to December 1973, a growth substantially above

District economy, however, provides a more complete

the previous year’s increase.

perspective on District developments over the past
year.

The jobless rate was

trimmed to 4.7 percent in November 1973, as major
industries pushed capacity restraints to meet the

The Employment Picture

booming demand.
As the year progressed, production growth slowed,
in large part because of capacity limitations.

In­

dustrial production was up only 4.5 percent in D e­
cember over the comparable

1972 figure.

Total

N onagricultural em ­

ployment statistics showed moderate to substantial
improvement in the nation and the District during
1973.

Employment through the first 11 months of

the year was up 3 percent over November 1972, with

civilian employment, however, advanced rapidly dur­

gains of 2 percent in manufacturing and nearly 4 per­

ing the past year, rising 3.2 percent from December

cent in nonmanufacturing industries. A close look at

1972 to December 1973.

the major categories of nonmanufacturing employ­

The productivity of labor

in the private nonfarm economy, as measured by the
output per man-hour, changed little after a very

ment illustrates the relative strength of each.
Apart from

manufacturing, government is the

rapid increase in the first quarter of 1973, and from

leading source of jobs in the District.

late 1972 to late 1973 the increase amounted to less
than 1 percent.

ber, Federal, state, and local governments supplied

The growth of real output also slowed during 1973

In Novem ­

1,550,000 jobs or 21 percent of the District’s total
nonagricultural employment.

The 2 percent expan­

Real G N P

sion of government employment during 1973 was

rose at an annual rate of 5.5 percent through the first

slightly below the 1972 increase. Individual advances

half of the year, slowed to 3.4 percent in the third
quarter, and dipped to a 1.3 percent rise in the

for South Carolina, 3 percent for North Carolina

fourth quarter.

and Virginia, 2 percent for Maryland, and .1 percent

after a healthy 7 percent rise in 1972.

In contrast to slackened production growth during
1973, spending on goods and services surged as a
result of rapid increases in prices.

Personal con­

in government employment by states w ere: 4 percent

for the District of Columbia.

W est Virginia experi­

enced a slight .4 percent decline in government em­
ployment.

The District of Columbia’s fractional

sumption expenditures, after adjustment for seasonal

growth in government employment perhaps reflects

variation, jumped 10 percent from fourth quarter

an atttempt by the Federal Government to tighten

1972 to fourth quarter 1973, while business expendi­

employment rolls.

tures for new plant and equipment grew at a 14
percent seasonally adjusted annual rate, and govern­

Both trade and services categories also posted
sizable increases in employment during 1973.

As

The

the third largest source of nonagricultural employ­

spending growth in 1973 was accompanied by a rise

ment, wholesale and retail trade accounted for 19

ment spending advanced at a 10 percent rate.




FEDERAL RESERVE B A N K OF R IC H M O N D

3

percent of the District’s nonagricultural jobs in N o­

posted a November 1973 rate of unemployment below

vember, up almost 4 percent for the year. The most
impressive gain was in South Carolina, which posted

the national average, with the exception of W est

a 7 percent increase.

cline in the District, with much of the improvement

Jobs in the service industries

Virginia.

Overall, joblessness showed a marked de­

also rose 4 percent between November 1972 and

resulting from an easing of unemployment in W est

November 1973, accounting for 15 percent of the

Virginia and Maryland.

nonagricultural employment in the District, with each

in November were:

State unemployment rates

W est Virginia, 5.5 percent;

category growing more rapidly than in 1972.

Maryland, 3.9 percent; South Carolina, 3.4 percent;

Results of the monthly survey1 of District business
conditions suggest that manufacturing employment

the District of Columbia, 2.9 percent; Virginia, 2.6
percent; and North Carolina, 2.5 percent.

declined slightly during the latter part of 1973.
Throughout the year numerous respondents reported
work disruptions resulting from raw material and
labor shortages.

Scattered lay-offs related to the

energy crisis have recently been reported.
The number of workers employed provides one
key to the growth of manufacturing industries in the
District.

After adjustment for seasonal variation,

employment in manufacturing industries grew 2 per­
cent in 1973, slightly below the 1972 growth.
state

shared

in

the

manufacturing

Each

employment

growth, with both South Carolina and Maryland
posting impressive 3 percent gains.
Perhaps an equally important measure of growth
in the manufacturing sector is man-hours.

The Dis­

trict man-hour index was up 2 percent in November
over a year earlier, with a 4 percent gain in durables
and no growth in nondurable manufacturing manhours.

Although these figures are lower than the

gains posted in 1972, they do reflect a substantial
recovery over the man-hour declines that character­
ized 1971.

Year-to-year, the man-hour index in

November was up nearly 5 percent in Maryland, 2
percent in Virginia and South Carolina, and 1 per­
cent in North Carolina. W est Virginia and the Dis­

Construction Highlights T otal new construction
in the U. S. increased at a 9 percent rate from Janu­
ary to April 1973, showed no expansion during mid­
year, and declined sharply in the fourth quarter as a
result of a decline in residential construction. Deposit
outflows from thrift institutions contributed to re­
duced mortgage lending in the second h alf; and con­
sumer resistance to escalating property and construc­
tion costs compounded the problem, resulting in a
35 percent plunge in U. S. housing starts during
1973.

In spite of labor and material shortages, how­

ever, the index of construction contracts in the Dis­
trict posted a 7 percent increase in October over a
year earlier. The jump was the result of a 43 percent
increase in nonresidential contract awards combined
with an 18 percent decline in residential awards.
Only Maryland and the District of Columbia showed
gains in the residential sector, while all District states
showed substantial growth in nonresidential awards.
Gains in the nonresidential category measured 109
percent in the District of Columbia, 101 percent in
Virginia, 58 percent in South Carolina, 40 percent
in North Carolina, 26 percent in Maryland, and 18
percent in W est Virginia.

trict of Columbia showed no change over the 1972

Agriculture Th e pages of history will mark 1973

index.

as a banner year for Fifth District farmers.

Survey respondents in January reported de­

Their

creases in hours worked per week during December,

record earnings highlighted the year as estimated net

and troublesome labor shortages continued to plague

farm income climbed to an unprecedented level.

textile and furniture manufacturers. The low unem­
ployment rate in the District does not portend any
immediate improvement in the labor shortage prob­
lem.

abundant harvest. A s a result, production gains over
1972 ranged from slight to spectacular for most

A t 3.5 percent in November, the rate of unem­
ployment in the District was below the national rate
of 4.7 percent.

Weather was generally cooperative during the
growing and harvesting seasons, helping to assure an

Not only was the aggregate rate for

the District below the U. S. figure; but each state

major crops, with output of soybeans, corn, and
peanuts at record levels.
The bountiful harvest, soaring crop and livestock
prices, and slightly smaller marketings of livestock
and poultry products combined to bring about a

1 The F ifth D istrict Opinion Survey o f Business Conditions is con­
ducted monthly by the Research Departm ent o f the Federal Reserve
Bank o f Richmond.
Respondents represent m anufacturing and
retail industries throughout the D istrict.

Digitized 4 FRASER
for


phenomenal gain in cash farm income and to boost
farmers’ gross income to a new high.

E C O N O M IC REVIEW, M A R C H /A P R IL 1974

Farm

with holdings of U. S. Government obligations de­

production expenses also soared to new heights.
Much of the increase resulted from sharply higher

But the year was not without its problems.

clining 10 percent to $2.0 billion and other security

prices of farm-originated production inputs, particu­
larly feed and feeder livestock. These rising costs

assets of member banks in the District were $33.9

led, in turn, to cutbacks in livestock and poultry pro­

states, total assets on the last Wednesday in Decem­

duction. And before the fall marketing season ended,

ber posted the following year-end increases: South

some farmers were feeling the crunch of the fuel

Carolina, 31 percent; North Carolina, 19 percent;

crisis.

Virginia, 16 percent; W est Virginia, 15 percent; the

Market values of farm real estate continued to
advance rapidly, moving upward throughout the fivestate area.

W ith the growing value of farm real

holdings climbing 9 percent to $5.6 billion.

Total

billion in November, up 17 percent over 1972.

By

District of Columbia, 13 percent; and Maryland, 12
percent.
District member banks also experienced sizable

estate assets and record farm earnings, farmers’ finan­

deposit expansion during 1973.

cial positions improved greatly.

deposits in November were $27.5 billion, 12 percent

Banking Developments

T he 1973 statistics for

member banks in the Fifth District clearly reflect the
strong demand that characterized the year. Through
November 1973, the bank debits index rose 22 per­
cent for the District, exceeding last year’s gain.
Large increases were reported in each state, ranging
from a low of 14 percent in North Carolina to a high
of 37 percent in West Virginia.

Unusually strong

business loan demand resulted in a dramatic increase
in loans and discounts by District member banks.
At $21.2 billion in November, loans and discounts
were up 23 percent over a year earlier.

In the in­

above November 1972.

Total deposit gains by state

were 30 percent in South Carolina, 13 percent in
North Carolina, 11 percent in W est Virginia and
Virginia, 8 percent in Maryland, and 7 percent in
the District of Columbia.

Time deposit volume in

the District showed a sharp increase of 18 percent
during 1973 while demand deposit balances rose only
5 percent.

By state, time deposit expansion ranged

from 50 percent in South Carolina to 15 percent in
Virginia and the District of Columbia.

Demand

deposit balances grew in each District state, with the
exception of a 2 percent decline in Maryland.

vestments category, District bank activity was mixed,




Total member bank

FEDERAL RESERVE B A N K OF R IC H M O N D

B. Gayle Ennis

5

£ nercjij Shortages Cloud Outlook

...

FORECASTS 1974
Each year the Federal Reserve Bank of Rich­
mond compiles forecasts of the economy’s perfor­
mance in the coming year.

This year the principal

forecasting problem has been the extent and duration
of the petroleum embargo.

Our forecasts of the

economy’s performance in 1974 are all beclouded by
energy considerations.

The energy shortfall, pro­

jected by various forecasters to range between 1^4
and Zy2 million barrels of oil per day, has had a
substantial impact on what was the standard fore­
cast before the Arab embargo.
Prior to the Arab oil embargo most business and
academic forecasters were predicting a rate of growth
of G N P of 7.4-8.6 percent and a rate of increase in
the implicit deflator (the price index for items in­
cluded in G N P ) of 5.0 percent, resulting in 2.4-3.5
percent real growth in the economy.
After the
petroleum shortage became known, the projected rate
of growth of current dollar G N P was not changed
significantly, but the predicted rate of price increase
was raised to the 6.5-7.0 percent range. Thus, cur­
rent forecasts are calling for a considerably lower in­
crease in the rate of growth of real G N P — around
1.2 percent.
Energy considerations also induced the seers to
forecast a higher average unemployment rate for 1974
than was forecast before the embargo. The consensus
now is for a 5.5 percent average unemployment rate
in 1974 as opposed to a 5 percent rate before the
embargo.
The forecasts published after the embargo had
varied assumptions regarding the petroleum shortfall
and the length of the Arab boycott, so these consider­
ations add another large measure of uncertainty to
the already difficult problem of forecasting the yearahead performance of the economy.
At the time
their forecasts were published, many of the fore­
casters had no clear conception of the extent of the
shortfall. Moreover, since there was no scientific way
to project the length and strength of the Arab em­
bargo, the forecasts were necessarily more subjective
than in past years.
Digitized 6 FRASER
for


Last year the forecasters underestimated the actual
G N P total for 1973 by almost $27 billion.
The
previous year they underestimated the G N P total by
more than $11 billion. Three years ago they did
considerably better, overestimating G N P by only $3
billion. The additional uncertainty in the economic
outlook introduced by energy shortages, however,
may have reduced the probability of an accurate 1974
forecast from small to nil.
It might be desirable to begin the discussion of the
forecasts by noting that a recession is predicted by
almost all of the forecasters during the coming year.
The average unemployment rate, 4.9 percent in 1973,
is expected to increase by approximately 0.6 percent­
age points. The rate of real growth is expected to
slow from 5.9 percent to 1.2 percent; and industrial
production, which increased almost 9 percent in 1973,
will increase only 1.1 percent in 1974. Corporate
profits before taxes, after turning in a stellar per­
formance and increasing 30 percent in 1973, are e x ­
pected to fall between 7 and 10 percent in 1974.
On the other hand, most seers are expecting re­
covery from the recession to have begun by the
second half of 1974. The consensus of our quarterly
predictions is for real G N P to fall $0.9 billion in the
first quarter and $0.5 billion in the second, but to
rise $4.0 billion in the third, and $5.6 billion in the
fourth quarter. Thus, the forecasters place much
store in the basic resiliency of the U. S. economy.
Most of them, also, expect the oil embargo to be over
by mid-year 1974 although some expect it to last
throughout 1974.
This article attempts to convey the general tone
and pattern of some 50 forecasts received by the R e­
search Department of this Bank. Not all of them
are comprehensive forecasts, and some incorporate
estimates of future behavior of only a few key eco­
nomic indicators. The consensus is drawn this year
only from those forecasts published after the imposi­
tion of the Arab oil embargo. Moreover, since there
were varying assumptions in the individual forecasts
regarding the duration of the embargo, the general
tone and pattern may not necessarily lie based upon

E C O N O M IC REVIEW, M A R C H /A P R IL 1974

1973 Forecasts in Perspective
T h e consensus
forecast for 1973 G N P, published in last February’s
Monthly Review, was $1,261.5 billion, a projected
increase of 9.5 percent over 1972. The forecasts
ranged from a low of $1,250.0 billion to a high of
$1,269.7 billion. After allowing for price rises, the
growth of real G N P was predicted to account for
about one-third of the 9.5 percent rise. Latest esti­
mates by the Department of Commerce indicate a
1973 G N P total of $1,288.2 billion, which is $26.7
billion higher than the consensus forecast of business
and academic economists and $18 billion higher than
any forecast collected last year. In 1972, the fore­
casters also underestimated G N P, but by only $11
billion. This $26.7 billion error is one of the largest
misses in recent memory, and the error is almost
solely attributable to underestimating the increase in

the more accurate energy assumptions, but only the
most prevalent. This Bank publishes also a Business
Forecasts booklet, which is a compilation of repre­
sentative business forecasts with names and details
of the various estimates. N o summary article can
begin to be as informative as the actual forecasts
themselves, so serious readers are urged to look at
the individual forecasts in more detail in Business
Forecasts 1974.

The views and opinions set forth in this article
are those of the various forecasters.

No agree­

ment or endorsement by this Bank is implied.

RESULTS FOR 1973 AND TYPICAL FORECAST FOR 1974
Percentage
Change
Unit or
Base

Preliminary Forecast
1973
1974*

Gross national p rod u ct__________________ _______ $ billions

1972/
1973

1973/
1974

1,288.2

1,386.1

11.5

7.6

Personal consumption expenditures___ _______
Durables ___________________________ _______
Nondurables _______________________ _______
Services ____________________________ _______

$
$
$
$

billions
billions
billions
billions

805.0
131.1
336.3
337.6

861.4
131.6
361.8
367.3

10.8
11.7
12.1
9.2

7.0
0.4
7.6
8.8

Gross private domestic investment____ _______
Business f ix e d ________ ____________ _______
Residential structures_______________ _______
Change in business inventories — __________

$
$
$
$

billions
billions
billions
billions

201.5
136.0
58.0
7.4

211.2
151.4
52.1
9.0

13.0
15.1
7.4
—

4.8
11.3
-10.2
—

Government purchases________________ _______ $ billions
Net e x p o rts ___________________________ _______ $ billions

277.2
4.6

305.2
5.0

8.7
—

10.1
—

Gross national product (1958 dollars) -________ $ billions
Plant and equipment expenditures_______ _______ $ billions
Corporate profits before taxes __________ _______ $ billions
Private housing starts __________________ _______
millions
Automobile sales________________________ _______
millions

837.3
99.95
127.5
2.04
11.44

847.3
110.9
122.4
1.65
9.7

5.9
13.0
30.1
-13.4
4.6

1.2
11.0
-4.0
-19.0
-15.5

Rate of unemployment__________________________

percent

4.9

5.5

—

—

Industrial production in d e x ______________ _______
Wholesale price index __________________________
Consumer price index __________________ _______
Implicit price deflator __________________ _______

1967=100
1967=100
1967=100
1958=100

125.4
135.5
133.1
153.9

126.8
146.7
142.2
163.7

8.9
13.8
6.2
5.3

1.1
8.3
6.8
6.4

^Figures are constructed from the typical percentage change forecast for 1974.
consensus were made after the oil embargo.




FEDERAL RESERVE B AN K OF R IC H M O N D

All forecasts used for the

7

prices. The implicit price deflator had been estimated
to increase 3.3 percent, but that measure of prices of
goods and services included in G N P actually rose
5.3 percent. Thus, real G N P was predicted rather
accurately to total $837.1 billion, and it actually
amounted to $837.3 billion.
The largest underestimate of the rate of price in­
crease thus accounted for almost all of the $26.7
billion underestimate for 1973 GN P. In 1972, fore­
casters predicted a 3.2 percent rate of increase in the
deflator, which actually rose 3.0 percent, but they
had not anticipated Phases I and II of the President's
price control program. Most observers would agree
that if it were not for the price and wage controls,
the rate of price increase in 1972 would have ex­
ceeded 3.2 percent. In any event, with the exception
of the 1972 forecasting performance, the predictors
have exhibited a definite tendency to underestimate
the rate of price increase in recent years.
The consensus of quarter-by-quarter forecasts for
1973 was for current dollar G N P to rise by approxi­
mately $29.9 billion in the first quarter, $26.2 billion
in the second quarter, $24.5 billion in the third quar­
ter, and $23.9 billion in the fourth. The realized in­
creases came to $43.3 billion, $29.5 billion, $32.5 bil­
lion, and $29.5 billion for the four quarters, respec­
tively. The quarterly predictions of the implicit G N P
deflator were for increases of 4.1 percent, 3.2 percent,
3.5 percent, and 3.7 percent.
For the four 1973
quarters, the implicit deflator actually rose at annual
rates of 6.1 percent, 7.4 percent, 7.0 percent, and
7.9 percent during the year.
The consensus 1973 forecast projected personal
consumption expenditures for the year at $784.6
billion. As might have been expected from the under­
estimation of the rate of price increase, current esti­
mates place personal consumption expenditures much
higher, at $805.0 billion.
Gross private domestic
investment, on the other hand, was predicted quite
accurately, at $201.5 billion. Thus, considering price
increases, real investment spending in 1973 did not
come up to the forecasters’ expectations.
O f the
components of investment spending, the forecasters
underestimated residential construction expenditures
by $4 billion but overestimated the investment in
business inventories by almost the same amount. As
usual, the forecasters were very close to the mark on
government purchases of goods and services, under­
estimating them by only $0.5 billion.
The forecasters also underestimated, but by a
substantial margin, the net exports turnaround in
1973. Net exports in 1972 had exerted a $4.6 billion
drag— but the actual figure showed a surplus of ex­
ports over imports of $4.6 billion. Not one of last
Digitized 8 FRASER
for


year’s forecasters expected so large a recovery in the
balance of trade in 1973.
Consistent with the forecasters’ accuracy on pre­
dicting the rate of real growth of G N P, however, was
their accurate prediction of the rate of unemploy­
ment. The unemployment rate, estimated to average
5.0 percent in 1973, actually averaged 4.9 percent.
In other areas, the 1973 forecasters underesti­
mated the index of industrial production. The index
rose 8.9 percent for the year, against a forecast of a
7.0 percent gain. Corporate profits before taxes were
also substantially underestimated. Predicted to in­
crease 12.8 percent, profits actually rose by a whop­
ping 30.1 percent for the year, to $127.5 billion. The
consumer price index, like the implicit price de­
flator for GN P, was substantially underestimated.
Consumer prices were expected to increase 3.4 per­
cent ; they actually rose 6.2 percent.

1974 FORECASTS IN BRIEF
Gross National Product Forecasts for 1974 cu r­
rent dollar G N P center around $1,386.1 billion. This
typical forecast represents an approximate 7.6 per­
cent yearly gain, which is considerably less than the
11.5 percent increase registered in 1972, again pri­
marily because of the expected energy shortfall.
Prices, on the other hand, are expected to increase
by 6.4 percent and thus to account for approximately
five-sixths of the rise in G N P this year.
GNP
measured in constant dollars, or real G N P, is ex­
pected to increase only 1.2 percent in 1974, compared
to almost a 6 percent rise in 1973. Estimates for
increases in current dollar G N P ranged from a low
of 5.6 percent to a high of 9.3 percent. The typical
quarterly estimates indicate that G N P should in­
crease $19.8 billion in the first quarter of 1974 and
$19.0 billion in the second. The economy is then
expected to recover, and the increases in the third
and fourth quarters are expected to be $24.5 billion
and $28.1 billion, respectively.
Personal consumption expenditures are expected
to total $861.4 billion for 1974, up 7.0 percent from
1973.
Forecasters estimate that expenditures for
durable goods will remain approximately constant,
showing an increase of only 0.4 percent for 1974,
while expenditures for nondurables and services will
increase 7.6 percent and 8.8 percent, respectively.
The large slowing in the rate of expansion of durable
goods expenditures is expected to stem primarily
from a slowdown in automobile purchases, which are
again related to energy considerations. The increases
in nondurables and services expenditures are ex­
pected to reflect mostly price increases.

EC O N O M IC REVIEW, M A R C H /A P R IL 1974

Government purchases of goods and services are
projected to total $305.2 billion.
This estimate
represents a 10.1 percent increase, which is somewhat
larger than the 8.7 percent gain of 1973. The 1974
forecasts range from increases of 8.6 to 11.6 percent.
Gross private domestic investment is expected to
rise by about 4.8 percent in 1974. This estimate also
represents a considerable slowing from the 13.0 per­
cent 1973 pace. Much of the slowdown, however,
can be attributed to residential construction, which
is expected to continue its pullback from the record
1972 pace. Expenditures for residential construction,
in fact, are expected to decline 10.2 percent from the
1973 level, even though price increases are expected
for housing. Business fixed investment is only ex­
pected to slow moderately from its 15.1 percent 1973
pace to an 11.3 percent rate of increase in 1974.
Many forecasters expect energy considerations to
cause considerable investment expenditures in the
automotive and petroleum industries and in the util­
ities, which will at least partially offset possible pull­
backs elsewhere.
The forecasters, however, were
probably less consistent in their investment forecasts
than in any other aggregate. The predictions for
residential structures range from a 22.5 percent de­
cline to a 2.7 percent decline. Those for business
fixed investment range from increases of 7.4 percent
to 13.4 percent. And investment in business inven­
tories, which had a consensus of sorts of $9.0 billion,
had a range of forecasts from — $3.0 billion to $10.3
billion.
Industrial Production T he typical forecast for
the Federal Reserve index of industrial production
(1967=100) is 126.8, an increase of 1.1 percent,
which is substantially less than the 8.9 percent gain
in 1973.
Anticipated gains are in production of
machinery; declines are in the production of auto­
mobiles and, to some extent, steel.
Housing T he construction industry is expected
to continue its slowing from the record 1972 pace.
Private housing starts, which totaled 2.38 million in
1972 and slowed to 2.04 million in 1973, are expected
to total 1.65 million units in 1974. A n anticipated
decline in the demand for vacation homes explains a
substantial portion of the expected housing decline,
although continued expectations of high mortgage
rates and other financing difficulties lead the fore­
casters to predict a decline in the number of primary
dwellings started in 1974.
Corporate Profits The consensus forecast indi­
cates that this year should be slightly less profitable
for corporations than 1973, with pretax corporate
profits expected to decline 4.0 percent to $122.4



TYPICAL* QUARTERLY FORECAST FOR 1974
Quarter-by-Quarter Changes in Billions of Dollars
Unless Otherwise Noted
I
--19.8

II
----19.0

III
----24.5

IV
----28.1

12.0

14.8

15.4

17.0

Gross National Product
Personal Consumption
Expenditures
Gross Private Domestic
Investment
Net Exports
Government Purchases

- 0 .2
1.3
-0 .5 - 1 .0
8.0
7.0

Gross National Product
(1958 dollars)

- 0 .9 - 0 .5

Implicit Price Deflatorf
Rate of Unemployment ( %)

6.3
5.1

5.8
5.5

3.0
4.9
0.1 - 0 .4
7.5
8.3
4.0

5.6

4.9
5.7

4.8
5.8

t Percentage changes at annual rates.
* Median.

billion. Considering their other forecasts, however,
an expected decline of only 4.0 percent in profits
from the record $127.5 billion registered in 1973
means that forecasters expect businesses to continue
what is a relatively good profit performance by his­
torical standards.
Corporate profits before taxes,
after all, increased over 30 percent in 1973. The most
pessimistic forecaster expects a 10.8 percent profit
decline; the most optimistic a 2.7 percent fall.
Unemployment M ost forecasters are predicting
an increase in the rate of unemployment for 1974.
The typical forecast for the year is around 5.5 per­
cent, which is 0.6 percentage points above the 4.9
percent average for 1973. The forecasters expect
the unemployment rate to increase to a 5.8 percent
average for the fourth quarter of 1974, with the
largest jump from 5.1 percent to 5.5 percent coming
during the second quarter.
Prices This year the forecast indicates an in­
crease in the rate of advance of prices. The implicit
G N P deflator, which rose 5.3 percent in 1973, is
expected to increase 6.4 percent. The consumer price
index is also expected to increase more rapidly, 6.8
percent compared to 6.2 percent in 1973. The whole­
sale price index, on the other hand, is expected to
rise by 8.3 percent, which is considerably less than
the 13.8 percent rate of advance registered in 1973.
Net Exports The nation’s trade position, which
showed a $4.6 billion surplus in 1973, is expected
to remain close to the same level ($5.0 billion) in
1974. Most of the forecasters, however, were not
expecting the increase in crude oil prices to be as

FEDERAL RESERVE B AN K OF R IC H M O N D

9

large as they now appear to be. If that information
had been available to them at the time that they made
their forecasts, it would undoubtedly have affected
to some extent their forecasts for 1974 net exports.
The estimates for net exports ranged between $2.5
and $9.7 billion.
Quarter-by-Quarter Forecasts Fifteen forecast­
ers made quarter-by-quarter forecasts for 1974. As
indicated by the accompanying table, these forecasters
generally expected the economy to slow in the first
half of the year and to recover during the second.
Recovery was predicted to come about because of an
end to the Arab oil boycott and because the auto­
mobile industry, having converted more of their fa­
cilities to the production of smaller cars, would exper­
ience a recovery in sales from first half levels. T o
illustrate the diversity of the quarterly estimates,
however, the typical forecast for real G N P in the
first quarter, a decline of $0.9 billion, was drawn
from forecasts that ranged from a decline of $7.4
billion to a rise of $2.6 billion. Six of the fifteen
forecasters predicted two consecutive quarters of
negative growth in real GN P, which is considered
by many to be a sufficient condition for defining a
recession.
Three of the fifteen predicted positive
growth rates for real G N P in all of the 1974 quarters.
Only one expected to see a declining real G N P for
as long as three consecutive quarters in 1974.
Summary Forecasters this year have had a par­
ticularly difficult problem put before them. In addi­
tion to their normal difficulties in coming up with an
accurate forecast of the economy’s performance in the
coming year, they have had to guess at the very
political question of the Arab oil embargo and the


10


prices expected to be announced by what amounts
to a foreign oil cartel. The announcement of the
embargo and the subsequent estimate of a substantial
petroleum shortfall from projected demands led the
consensus forceast for real G N P to be reduced from
one of a growth of somewhat less than 3.0 percent,
to an increase of only 1.2 percent. The energy con­
siderations also changed the prediction for the rate
of price increase from 5.0 percent to 6.4 percent.
Since most of the forecasters expected the oil boy­
cott to last until mid-year 1974, any change in the
duration of the embargo could substantially affect
their predictions.
Those forecasters who predicted a recession in
1974 apparently expect to see, at worst, one of mild
proportions that will have what are by historical
standards relatively minor effects upon business
profits and the unemployment rate. The price effect
of the expected petroleum shortage, however, is an­
other matter.
The combination of price rises in
petroleum products and certain nondurables with
the large number of workers covered by contracts
scheduled for re-negotiation in 1974 has led the fore­
casters to predict a substantial rate of price increase
in 1974.
Thus, if the forecasters are correct, and the 1974
economy is one in which rising unemployment com ­
bines with rising prices to yield a growth in real G N P
of only 1.2 percent, the year will be discouraging in­
deed. But again, if the forecasters are correct about
recovery beginning in the second half and a slowing
in the rate of price increase in the second half, the
stage will be set for a much better economic perform­
ance in 1975.
William E. Cullison

EC O N O M IC REVIEW, M A R C H /A P R IL 1974

Clouded by Uncertainties

THE AGRICULTURAL OUTLOOK FOR 74
Leading economists of the U. S. Department of Agriculture outlined their views of 1974’s prospects
for the nation s agriculture at the National Agricultural Outlook Conference in mid-December.
Below, in capsule form, is a summary of their forecasts.

American farmers can probably look forward to
another good year in 1974, although not quite as
good as the banner year just completed. Realized
net income will likely slip below the history-making
level chalked up last year but will still be the second
highest on record. The expected decline will result
from a combination of lower realized gross income
and higher production expenses.
Keys to the outlook are expectations for a con­
tinued strong domestic demand, despite a slowdown
in economic growth, and for a continuation of the
booming export demand. Farm exports, which
jumped 60 percent to an all-time high of $12.9 bil­
lion in fiscal 1973, may well reach $19 billion this
fiscal year.
Economists faced more uncertainties than usual
in appraising the outlook for 1974. Weather’s impact
on crop production, a major unknown, was on the
list as always. Other questionable factors included:
the availability and prices of fuel and fertilizer;
farmers’ response to new farm legislation designed to
encourage significantly expanded production of food
and fiber crops ; foreign production of farm products ;
rates of inflation; a cooling domestic econom y; and
the international monetary situation.
Farm Prices, Costs, and Income
Farm prices
may average about the same as last year, remaining
strong until midyear but probably trending down­
ward in the second half. W ith some upturn in live­
stock marketings likely, livestock receipts could be
somewhat higher. Receipts from crops could show
either a slight gain or a slight loss, the exact level
depending on the weather, farmers’ response to the
new farm program, and export levels. Direct Gov­
ernment payments to farmers will be down sharply.
So, some decline in realized gross income seems
probable.
The story on farm production expenses is the same
one farmers have heard for many years— they’ll be
higher. Extent of the increase, if in the neighbor­



hood of 5 percent as projected, will be much smaller
than the soaring 29 percent rise that took place in
1973.
Unlike a year ago, expenses for nonfarm
inputs will account for all of the upturn. Expenses
for inputs of farm origin may remain approximately
the same as last year.
Supplies of a number of important nonfarm inputs
— items such as fuel, fertilizer, certain chemicals, and
labor— will most likely be tight. But demand is e x ­
pected to continue strong. W ith this situation, prices
of farm inputs— especially fuel and fertilizer— could
well be sharply higher.
The likelihood of a downturn in realized gross in­
come and prospects for a further rise in production
expenses indicate some decline in realized net income,
possibly as much as 8 to 20 percent below a year ago.
But even if a 20 percent decline materializes, realized
net farm income in 1974 would still top any year
except 1973.
Farm Credit Situation Farmers in general were
in very good financial positions as they began the
new year. By and large, they carried over large
cash balances and time and savings deposits from
1973 and had unsold crop and livestock inventories
on hand.
W ith the outlook for farm prices and incomes in
1974 relatively bright and with a new farm program
that encourages larger plantings, farmers are likely
to invest heavily in equipment, farmland, and other
production inputs. Because farmers will use larger
quantities of purchased inputs, many such as fuel
and fertilizer at substantially higher prices, and be­
cause they will face the likelihood of a further rise in
farm real estate prices as they attempt to expand their
operations, farmers’ needs for loan funds can be ex­
pected to increase.

A strong demand for farm loan

funds is anticipated this year, in fact. Farm borrow ­
ings actually are expected to be used to finance more
additions to capital in 1974 than in 1973.

FEDERAL RESERVE B A N K OF R IC H M O N D

11

Farmers can expect to find adequate supplies of
credit this year. Some shifts among lenders may well
occur, however, if farm borrowers take advantage of
the changed lending policies of some of the major
lending institutions.
Much uncertainty surrounds the exact level of in­
terest rates in the farm sector this year. Views of the
Department of Agriculture’s analysts indicate, how­
ever, that 1974 interest rates on new farm loans will
likely average near 1973’s fourth quarter levels.
Food Outlook1 A m erican housew ives, w eary from
struggling with last year’s reduced food supplies and
the most rapid rise in food prices in over a quarter
century, may find some comfort in the outlook for
1974. Retail food prices are likely to rise further,
but the increase, unlike 1973, will probably be moder­
ate. Grocery store food prices can be expected to
advance during the first quarter of the year as red
meat supplies decline and prices of most other food
categories rise.
But average grocery prices may
stabilize in the second quarter and hold comparatively
steady the rest of the year as larger meat supplies,
more poultry and eggs, and slightly increased sup­
plies of crop food commodities become available.
Rising food marketing costs appear likely, however,
and for the year are apt to offset generally falling
farm prices. Similarly, declining meat and poultry
prices for the year overall may offset price increases
for most other items of food.
Food consumption patterns changed and consump­
tion per capita dropped sharply last year in response
to skyrocketing prices and smaller supplies of food.
But with larger food supplies and more moderate
price increases in prospect for 1974, per capita food
consumption is expected to rebound from last year’s
reduced level. Most of the increased consumption
will probably consist of livestock products— more red
meat, poultry and eggs, but smaller quantities of
dairy products.
Consumers’ expenditures for food increased faster
than their disposable income in 1973. A s a result,
the share of income spent for food rose to 15.9 per­
cent— up from 15.7 percent in 1972 and the first
such upturn in 15 years. This year, however, with a
more moderate increase in food expenditures in sight
and a further gain in disposable income anticipated,
spending for food as a proportion of income may
average approximately the same as in 1973.
Commodity Prospects

A digest of the D epart­

1 The D epartm ent of Agriculture revised its projected increase in
retail food prices for 1974 just as this R eview was going to press.
N ow , instead o f a more moderate rise than in 1973, the Departm ent
predicts that grocery store food prices could soar as high as 16
percent and match last year’s advance. The climb in the first
quarter is expected to average 20.7 percent above a year ago; in
December, the outlook called for a 15 percent upturn.

Digitized 12 FRASER
for


ment of Agriculture’s outlook for major Fifth Dis­
trict commodities follow s:
Soybeans and Peanuts Soybean supplies for 197374 are about one-fifth above last year and record
large.
Demand continues strong, however, with
crushings probably rising 7 percent over last season
and exports increasing some 15 percent. Despite the
projected upturn in demand, a sharp buildup in soy­
bean stocks (more than four times last fall’s carry­
over) is likely next September. Nevertheless, soy­
beans probably will average around $5.25 per bushel
for the entire marketing season, or one-tenth above
1972-73. Soybean acreage may be down 3 percent
from last year if growers’ intended plantings are
realized.
Peanut supplies are at record levels, some 7 percent
above a year ago. Consumption of peanuts in all
food products during 1973-74 is expected to rise
some 5 or 6 percent. The gain in edible uses, how ­
ever, will not be nearly large enough to offset the
1973 production increase, and roughly one-third of
the crop will be acquired by the Commodity Credit
Corporation under the price support program. A cre­
age allotments for 1974 have again been set at the
minimum level permitted by law. But administrative
changes aimed at lowering the cost of the 1974-crop
peanut program include, among other things, a pro­
vision that could reduce acreage slightly.
Tobacco Both cigarette output and domestic ciga­
rette consumption are on the upswing, and indications
are that each will rise further to new record levels in
1974. Domestic tobacco use in the current marketing
year is expected to be larger than last year’s total.
Leaf exports are likely to continue near the sizable
shipments made last season, but they may drop some
because of tighter supplies. W ith total disappearance
expected to be about the same as last season and
larger than the 1973 crop, another decline in carry­
over is in prospect.
Price supports for eligible 1974-crop tobaccos are
expected to be 8 or 9 percent above 1973 levels and
nearly 50 percent higher than the 1959 base. The
basic flue-cured tobacco marketing quota, originally
set at 1,178.4 million pounds, has been increased 10
percent to help meet expected higher export demand.
The burley quota has been raised to 608 million
pounds, about 8 percent above the basic quota for
1973. The increase was made to comply with legis­
lation requiring that the burley quota for any year
cannot be less than 95 percent of estimated domestic
use and exports.
Cotton Strong demand and tight supplies, espe­
cially for some of the medium and longer staples,

EC O N O M IC REVIEW, M A R C H /A P R IL 1974

highlight the 1973-74 outlook for cotton. Because of
limited supplies and high prices, domestic mill use
will probably be down moderately. Export prospects
are bright, however, and may total about 6 million
bales, up from last year’s 5.3 million and a 13-year
high. The gain in exports will more than offset the
downturn in domestic mill consumption and lift total
disappearance to about 13.5 million bales.
Total
prospective use, at this level, would exceed 1973 pro­
duction by about half a million bales and reduce the
August 1 carry-over slightly.
The 1974 cotton crop will be produced under pro­
visions of the new farm program. Special features
applicable to cotton include: a guaranteed “ target
price” of 38 cents per pound for normal production
on allotted acres; elimination of any set-aside crop­
land ; and the limitation of Government payments to
$20,000 per person from all three programs— cotton,
wheat, and feed grains— rather than $55,000 per per­
son for each program.
Poultry and E ggs This year’s output of broilers,
eggs, and turkeys is expected to increase after lag­
ging in 1973. Broiler expansion is likely to be mod­
erate, rising a little less than 5 percent. There may
also be some further slight increase in the average
liveweight of broilers marketed. Turkey production
could be substantially larger than in 1973 if producers
carry out their plans to hold 15 percent more breeder
hens for the 1974 hatching season. Indications point
to a rapid buildup in laying flocks by this spring,
paving the way for a big step-up in egg production
by mid-1974.
Poultry and egg prices are not expected to average
as high as they did last year. They will tend to be
supported throughout 1974 by relatively high red
meat prices and strong consumer demand for highprotein foods.
Milk Total milk production may drop again this
year, with most of the decline coming in the first
half. The possibility of moderating feed prices later




in the year, plus higher milk prices, could improve
milk-feed price relationships and encourage heavier
feeding rates. Should the milk-feed price ratio be
boosted to more favorable levels, milk output per
cow may resume its upward climb. But the resultant
gains may only partially offset the expected reduction
in milk cow numbers.
Farm milk prices in the first half of 1974 will
likely continue well above year-earlier levels. Prices
after the first quarter could be affected by the dairy
price support level set for the 1974-75 marketing
year. Under the new farm legislation, milk prices
during the upcoming marketing year must be sup­
ported at between 80 and 90 percent of parity.
M eat Animals The livestock outlook points to­
ward the expansion of red meats. Smaller beef sup­
plies and higher fed cattle prices are expected this
winter because of disruptions in last year’s livestock
economy that discouraged placements of cattle on
feed. But the large number of feeder cattle available
for feedlot placement last fall and the prospective
easing in feed prices could open the gates for a large
expansion in beef production by spring and summer,
probably accompanied by falling prices. Fed cattle
marketings for the year could exceed year-ago levels
by a sizable margin.
Lower hog marketings and prices well above a year
earlier are in prospect for the first half of 1974.
Second half marketings may be slightly larger than
last year’s low levels, with little net change in hog
production for the year as a whole. All in all, the
situation seems to add up to a relatively firm hog
market in 1974.
On balance, a modest gain in total per capita sup­
plies of red meats is likely this year. Larger beef
supplies will more than offset smaller supplies of
lamb, mutton, and veal.

Pork output will change

little.

FEDERAL RESERVE B A N K OF R IC H M O N D

Sada L. Clarke

13

FIN A N C IA L FORECASTS: 1974
The views and opinions set forth in this article are those of
various forecasters. No agreement or endorsement
by this Bank or by the author is implied.

It is now fairly apparent that the 1974 economy
will experience a sharply slower pace of real growth
than in previous years. The consensus1 opinion is
that gross national product in current dollars, after
expanding 11.5 percent in 1973, is forecast to in­
crease only 7.6 percent in 1974. Personal consump­
tion expenditures will rise to $861 billion or 7.0 per­
cent, with most of the gain in the nondurable and
service sectors. A sharp decline in residential struc­
tures is expected to result in a $210 billion level for
gross private domestic investment. In terms of real
G N P, 1974 economic growth appears even more
dampened. After expanding nearly 6 percent in 1973,
real G N P is projected to increase only 1 percent, if
at all, in 1974. Predicted declines in corporate profits,
housing starts, and auto sales, combined with slowed
industrial production growth, make the outlook for
1974 appear rather gloomy. The final factor, prices,
further clouds the picture, with the implicit price
deflator predicted to rise at a 6.4 percent annual rate
during the coming year.
The Arab oil embargo makes any forecast, finan­
cial or otherwise, uncertain at best. Fiscal and mone­
tary policies will be geared to adjust to energy de­
velopments as the year unfolds. The need to take
into account not only the pace of economic activity
but also the rate of inflation and the dollar’s position
abroad presents a challenging proposition. The key
for policymakers in 1974 will be flexibility.
Funds Raised in 1974 T he total volum e of funds
raised, without regard to maturity length, is expected
to register roughly $175 billion in 1974, markedly
lower than the $185 billion in 1973 (Table I ) . The
decline is attributable to a substantial drop in the
volume of short-term funds, from $85 billion in 1973
to an anticipated $59 billion in 1974. Some down­
ward pressure on short-term rates should result. On
the other hand, funds raised in the long-term market
are predicted to jump to $116 billion in 1974 from a
1973 level of $100 billion, foreshadowing some up­
ward pressure on long-term rates.

There are four categories that must be examined in
any discussion of the funds markets: banks, busi­
nesses, consumers, and government. The past year
saw an almost unprecedented demand for bank credit.
Total bank loans were roughly $31 billion, substan­
tially higher than in 1971 or 1972. This strong de­
mand is expected to abate in 1974 with the increase
in bank credit returning to a more traditional $14
billion. The prime rate is projected to return to a
level more in line with other short-term market rates;
and as the economy slows, the demand for working
capital funds should diminish.
The volume of business loans will vary more
dramatically in composition than in amount during
1974, with the emphasis shifting from short-term to
long-term business financing. In 1973, the business
sector borrowed nearly $20 billion in the long-term
markets; this figure will rise to $33 billion during
1974, with the major emphasis on the corporate bond

Tab le

CONSENSUS FUNDS FORECASTS *
(b illio n s )
1973

Funds Raised in the
Short-Term M arket
Bank loans
Consumer credit
Open m arket paper
U. S. Governm ent
Agencies
Funds Raised in the
Long-Term M arket
Mortgages
Corporate bonds
Corporate stocks
State and local
Total Funds Raised

1974

$ 85.3
30.5
19.9
5.7
7.9
21.3

$ 59.2
14.0
11.5
10.8
8.5
14.4

99.7
68.4
10.8
9.0
11.5

116.2
68.7
20.2
12.8
14.5

185.0

175.4

*These num bers re p re se n t an e s tim a tio n o f th e consensus
fo re ca sts o f m a n y w e ll-k n o w n e conom ists.

1 The “ consensus” figures represent a modal average o f approxi­
mately 30 individual forecasts.


14


1

E C O N O M IC REVIEW, M A R C H /A P R IL 1974

market. A subsequent decline in short-term business
borrowing is anticipated. From a 1973 level of $36
billion, short-term financing is forecast to dip to $25
billion in the coming year as a result of the major
decline in bank loans.
Consumer net borrowing in 1974 is expected to
amount to $80 billion, only slightly below the 1973
level. The decrease is wholly attributable to an an­
ticipated $8 billion decline in short-term consumer
credit— installment loans— as automobile and con­
sumer durable sales decline. The demand for mort­
gage funds is forecast to remain strong at $69 billion,
partly because a large amount of construction begun
in 1973 was carried over to 1974 and mortgage
money should be more readily available in the second
half of 1974. It is the consensus opinion, however,
that housing activity is headed downward for 1974
as a whole.
The volume of funds raised by the government
sector is predicted to advance slightly in 1974 to
$23 billion. The U. S. Treasury is expected to main­
tain its modest level of borrowing at almost $9 billion,
an increase of less than $1 billion over 1973. State
and local governments are forecast to increase their
financing more dramatically to nearly $15 billion,
with the volume of security issues up substantially.
The agency market during 1974 is predicted to re­
duce its financing needs sharply to $14 billion from
$21 billion last year. A decline in the volume of funds
needed to support the housing industry is anticipated,
although recent data indicate the drop-off may not
be as large as originally predicted.
The Interest Rate Outlook
Interest rates are
undoubtedly the most volatile part of any financial
forecast. The past year was a bitter experience for
rate forecasters, and as a result, most predictions for
1974 mention interest rates in the briefest fashion.
The consensus view, as shown in Table II, is that
short-term rates will decline from the very high
levels reached in August and September 1973. The
decline will be moderated by the atmosphere of in­
flationary expectations that pervades the money mar­
kets, but such factors as a decreased demand for
short- and intermediate-term credit combined with
the expectation of a less stringent monetary policy
should exert a downward thrust on short-term rates.
On the other hand, rates in the long-term sector are
predicted to be almost unchanged from 1973; how­
ever, stronger-than-anticipated demand for funds in
the long-term markets along with intensified infla­
tionary expectations could push long-term rates to
new highs in 1974. A closer look at the anticipated
behavior of some individual rates may produce a
clearer picture of 1974 predictions.



T ab le II

CONSENSUS INTEREST RATE FORECASTS*
(percent)

Y ear
1973

Treasury Billst
Commercial Paperf
Prime Rate
Aaa Corporate Bonds
Aa U tility

7.07
8 .1 1

8.01
7.63
7.76

Second
h a lf a vg
1973

8.05
9.39
9.45
7.62
8.14

Y ear
1974

6.35
7.30
7.34
7.75
7.87

*These num bers re p re se n t an e stim a tio n o f the consensus
fo re ca sts o f m a ny w e ll-k n o w n econom ists
fT h re e -m o n th m a tu rity .

Short-term rates A s Table II indicates, the con­
sensus rate on three-month Treasury bills is expected
to decline some 60 basis points by the close of 1974
to a level of 6.35 percent. This figure is over 125
basis points below the average rate for the second half
of 1973. Relatively modest Treasury needs combined
with a reduced demand for short-term funds account
for the downward pressure on bill rates.
In the
market for prime, three-month commercial paper the
rate declines are predicted to be more dramatic. By
the close of 1974 the commercial paper rate should
be down just about 80 basis points from 1973 at 7.30
percent, over 200 basis points below the average rate
for the second half of last year. Closely related to the
commercial paper rate is the rate charged prime bank
borrowers— the prime rate. After rising to 10 per­
cent on several occasions during 1973, the prime rate
is forecast to drop below 7V2 percent by late 1974,
or over 200 basis points below the average rate for
the entire second half of 1973. The consensus fore­
cast places the prime rate in closer proximity to the
commercial paper rate than the traditional 50-75
basis point spread, but corporate financing patterns
among other things will dictate a tight parallel be­
tween the commercial paper and prime rates during
1974.
Long-term rates The consensus forecast for 1974
shows long-term rates rising slightly over 1973 levels.
The rate on new issue Aa utility bonds is expected to
be at 7.87 percent at the close of 1974, up just over
10 basis points. The heavy bond calendar for the
coming year is the primary stimulus behind the up­
ward shift in the utility rate. As cash flows fail to
keep pace with investment spending and inflationary
expectations strengthen, the rate on Aaa corporate

FEDERAL RESERVE BAN K OF R IC HM O ND

15

bonds should rise during 1974, though not dramati­
cally. The consensus forecast shows the corporate
rate at 7.75 percent in 1974, up 12 basis points. The
rate could move sharply higher if forecasters have
underestimated the volume of long-term financing
needed by the business sector in the coming year.

against each other in the coming year, each trying to
influence the course of monetary policy. The con­
sensus of the forecasts shows that a policy of relative
ease is' anticipated with moderate growth in the ag­
gregates. A 5.7 percent M j growth rate is forecast

Monetary Policy T he course of m onetary p olicy
plays an important role in shaping conditions in the
financial markets. The conflicting forces of slowed
economic growth, a high inflation rate, an improved
international monetary situation, and a relatively low
level of anticipated Treasury financing will be pulling

be moving toward a policy that allows the aggregates


16


for 1974.

The monetary authorities are expected to

to expand at a pace consistent with balanced economic
growth

and

long-term

price

stability,

carefully

avoiding unnecessarily sharp movements in interest
rates.

E C O N O M IC REVIEW, M A R C H /A P R IL 1974

B. Gayle Ennis


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102