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CONFIDENTIAL (FR)

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

April 11,
By the Staff
Board of Governors
of the Federal Reserve System

1973

TABLE OF CONTENTS
Section

DOMESTIC NONFINANCIAL SCENE
Summary and GNP outlook ..

Page No.

I
...

. ...

Industrial production . . .
.........
.
...
Retail sales
.
.
..
. . .
.
. . . . .
Unit sales of consumer durables
.
.....
..
Consumer surveys
. . .
.
.
..
. .
. .. *
. .
Construction and real estate . . . . . . . . . . . . .
Manufacturers orders and shipments. . . . .
. . . .
Inventories
. .
. . . . . .. . .......
. .
.
Cyclical indicators
. . .. . . . . . . ........
Labor market . . .
.
. .
.
.. .
. . .. . . . .
Unemployment and labor force . . . .
. .
. .. . .
Earnings . .
. . . . . ........
. .
. . . ..
Industrial relations
. . . . . . . . . . . . . . . .
Consumer prices . . . . .......
. . .
. .
.
Wholesale prices . . . . . . . . . . . .
. . . .
.. .
Agriculture .
. .
......
. . .. .
..
.

DOMESTIC FINANCIAL SITUATION

.
.
.

7
- 7
-9
-10
-12
-14
-15
-17
-18
-19
-20
-22
24
27
-30

Summary and outlook . . . . .
Monetary aggregates
. . . . .
Bank credit . . . . .
. . .
Consumer credit
.
.
.
Agricultural credit .
.
..
.
Short-term markets . .
. ..
Intermediate-term markets
. .
Long-term securities markets .
Nonbank thrift institutions .
Mortgage market . . . . . .
Federal finance . . . . . . . .

.
.
.
.
.

. ..
. . .
. ....
. . .
. . ..
. ..
.
. .
. . .
. . . . .
..
.
.
. ....
. . .
. ..
. ..
. . . . .
. ..
. . ...
. . .
.
. . . . . .
. .......
..
.
.. . . . . . . .
.

- 3
- 6
-11

-12
.
.

.
.

-14
-15
-18
-22
-24
-26

Summary and outlook . .
. .
. . . .
. . . . .. ..
Foreign exchange markets .
.
..
. . ...
.
Euro-dollar market .
. . . . ..
. . . . .
.
.
.

- 1
- 3
- 5

U.S. balance of payments

- 7

.
.
.
.

.
.
.
.
.

INTERNATIONAL DEVELOPMENTS

U.S.

foreign trade

. .

III

......
....

. .......
. ..

. ..

- 9

Price and wage developments in major
foreign industrial countries

. .

. ..

. .

. . .

-12

APPENDIX A
Selected policy measures by foreign countries
since January 20,

1973

. .

.....

. .

. . .

. .

A-1

DOMESTIC NONFINANCIAL
SCENE

April 11,
I--

1973

T - 1

SELECTED DOMESTIC NONFINANCIAL DATA
AVAILABLE SINCE PRECEDING GREENBOOK
(Seasonally adjusted)

Latest Data
Release
Period
Date
Data

Per Cent Change From
Three
Preceding Periods
Year
Period
Earlier Earlier
(At Annual Rates)

Consumer prices (1967=100)
Food
Commodities except food

Services 2/
Wholesale prices (1967=100)
Industrial commodities
Farm products & foods & feeds
Personal income ($ bil.)3/

9.6

4.6

5.11/

5.111

2.3
5.91/

3/26
4/6
4/6
4/6

2.71/
3.0
2.6
3.2

.3.31/

3.51/

4.7
4.1
4.9

4.0
5.0
3.7

Mar.
Mar.

4/6
4/6

37.2
3.80

37.21
6.3

37.0
5.3

Mar.
Feb.

4/6
3/27

40.9
122.5

40.9113.9

40.71

3/21
3/21
3/21
3/21

128.9
131.5
121.3
136.2

9.5
26.1
6.0
4.4

6.1
16.5
3.0
3.9

3.9
7.3
2.6
3.3

Mar.
Mar.
Mar.

4/5
4/5
4/5

129.4
122.5
148.4

26.8
14.0
56.7

19.9
9.9
45.0

10.5
5.0
25.1

Feb.

Unemployment rate
Insured unemployment rate
Nonfarm employment, payroll (mil.)
Manufacturing
Nonmanufacturing
Private nonfarm:
Average weekly hours (hours)
Hourly earnings ($)
Manufacturing:
Average weekly hours (hours)
Unit labor cost (1967=100)

88.3
5.0
2.7
74.9
19.6
55.3

Feb.
Feb.
Feb.
Feb.

Civilian labor force

3/19

993.9

10.1

7.3

9.4

Mar.
Mar.

4/6

Feb.
Mar.
Mar.
Mar.

4/6

8.3

37.15.8
1/
40.42.5

(Not At Annual Rates)
22.6
20.4
22.2
12.1

Nondefense
Defense

3/30
3/30
3/30
3/30

39.8
12.0
10.0
2.0

1.0
-2.7
-4.0
4.1

3/30

1.57

1.571/

1.60V

1. 731/

Feb.

3/30

.845

.8551

.8701

.9371-

Mar.
Mar.

Capital goods industries:

Feb.
Feb.
Feb.
Feb.

Feb.

Mfrs. new orders dur. goods ($ bil.)

4/10
4/10

42.3
11.2

2.3
3.7

7.2
11.0

16.0
16.0

Mar.

4/5
4/5
4/5
3/16

12.63
10.64
1.98
2,444
158.7

6.1

Mar.
Mar.

7.3
7.7
5.5
2.0
4.3

25.2
24.9
26.8
-3.8
17.6

Inventories to sales ratio:

Manufacturing
Ratio:

Mfrs.' durable goods inventories
to unfilled orders

Retail sales, total ($ bil.)
GAF

Auto sales, total (mil. units)Domestic models

3/
Foreign models
Housing starts, private (thou.)Leading indicators (1967=100)
1/ Actual data.

2/ Not seasonally adjusted.

Feb.
Feb.

3/27

3/ At annual rate.

7.5
-0.6
-2.1
1.8

I - 1
DOMESTIC NONFINANCIAL DEVELOPMENTS
The most striking developments in
first

the domestic economy in

the

quarter were a sharp upsurge of consumer spending and an excep-

tionally large and widespread increase in prices, led by farm products
and foods.

The staff is

now estimating a rise of $40 billion, or about

13.5 per cent annual rate,

in nominal GNP in the first

quarter.

Real

GNP is estimated to have increased at a 7 per cent rate and the implicit
deflator--and the private fixed weight index, as well--at a 6-1/4
per cent rate.

All of these estimates--particularly for prices--are

higher than four weeks ago.
With retail sales rising sharply further in March--up almost
2-1/2 per cent, according to the advance report--on top of large upward revisions for the previous two months, we are now estimating an
increase in consumer outlays of nearly $28 billion for the first
quarter, $6 billion more than in the last Greenbook.

Retail sales for

the quarter as a whole were up 6 per cent from the preceding quarter,
the most rapid advance since the Korean War.
While a considerable part of this increase reflected sharply
higher prices, especially for foods,

real consumer outlays also rose

very rapidly, particularly for durable goods.

Unit auto sales reached

a new high in March, at an annual rate of 12.6 million (10.6 million
domestic-type),

whole.

and were also at a record rate for the quarter as a

A slower rise in consumer spending in the months ahead is

suggested by recent consumer surveys which indicate a deterioration in

appraisals of future prospects and also growing expectations of further
inflation.

I-2
Because of the unexpectedly large increase in consumer
spending, inventory investment in the first quarter is likely to have
been smaller than in the fourth quarter.

The book value of inventories

through February was rising rapidly, but much of the increase
reflected higher prices.
Industrial output and employment rose appreciably further
last quarter.

Industrial production is tentatively estimated to have

risen about 0.5 per cent in March, with increases in business equipment,
For the first quarter

consumer nondurable goods, and some materials.

as a whole, the rise in industrial output is estimated at an annual
rate of about 8 per cent.

There are indications that output is now

pressing against immediately available capacity in a number of
important industries, especially in the intermediate materials lines.
Nonfarm payroll employment also rose considerably further in March,
following an exceptionally large increase in February.

For the quarter

as a whole, the increase was at an annual rate of 3.2 million.

But

the labor force has also grown rapidly in recent months, and the unemployment rate has remained at around 5 per cent.
Wage rates have been rising more moderately since late last
year; for the first quarter as a whole, the hourly earnings index was
up about 5-1/2 per cent from a year earlier.

Prices have been rising

at exceptionally rapid rates, however, and real hourly and weekly
earnings have declined somewhat since last fall.

Wholesale prices of

farm products and foods, paced by livestock and meats, rose almost 5
per cent in March and late in the month ceilings were imposed on meat

I-3

prices.

Prices of industrial commodities rose 1.2 per cent, following

an increase of 1 per cent in the preceding month.

The incidence of

increases among commodity groups was exceptionally high.
Outlook.

The staff is now assuming growth in the monetary

aggregates consistent with expansion in M 1 at a 5 - 5-1/2 per cent

annual rate this year, with some further rise in short-term market
rates likely by year-end.

The Federal spending assumptions of the pre-

ceding projection are essentially unchanged.
For the remaining three quarters of 1973, the present projection differs only a little from that of four weeks ago.

Growth in real

GNP is projected to slow to an annual rate of 3.8 per cent by the fourth
quarter and the unemployment rate is still expected to edge down to
4.7 per cent.

Consumer spending is now projected to increase a little

less rapidly in the middle quarters of the year, following the
exceptionally strong first quarter.

On the other hand, inventory

investment is expected to increase more rapidly, making up for the
unintended first quarter shortfall.
The rise in the private GNP fixed weight price index is now
projected to slow at an annual rate of 4.5 per cent in the second
quarter, on the assumption that the increase in food prices will
moderate considerably.

This increase is somewhat more than had been

projected four weeks ago.

In the second half of the year, this index

of prices is projected to rise at an average annual rate of about 4.5
per cent also.

I-4
Taking into account the upward revisions for the first
quarter, the figures for the year as a whole now show somewhat more
expansion in nominal GNP, mainly due to a larger rise in prices.

The

projected increase in real GNP over the year is little changed from
that of four weeks ago.

STAFF GNP PROJECTIONS

Change in
nominal GNP
$ billion
3/14/73 Current
I1

Date

Unemployment
rate
3/14/73 Current

74.0
101.4
124.4
1

-Ill/

-IV.1/
1973-I
-II
-III
-IV
Change:
1972-IV to
1973-TV

1/ Actual.

74.0
101.4
128.8

2.7
6.4
6.6

2.7
6.4
6.7

4.5

5.9

3.3

5.6

4.0

4.3

4.8

31.0

19711/
19721/
1973
1972-1

Per cent increase, annual rate
Private GNP
fixed weight
Real GNP
price index
3/14/73 Current 3/14/73 Current

31.0

6.5
9.4
6.3
8.0

4.5

5.8

2.5
2.9
3.1

5.7

5.6

5.3

6.5
6.2
4.8
3.9

7.0
6.1
4.8
3.8

5.1
4.0
4.3
4.6

6.2
4.5
4.3
4.6

5.0
4.9
4.8
4.7

S.5

4.6

5.0

-. 6

30.3
24.6
30.9

36.8
31.3

40.1
32.5

28.5

29.0

27.2

27.0

123.8

128.6

5.9

I-5
CONFIDENTIAL - FR

April 11, 1973
GROSS NATIONAL PRODUCT AND RELATED ITEMS
(Quarterly figures are seasonally adjusted.
Expenditures and income
figures are billions of dollars, with quarter figures at annual rates.)

1972

1973
Proj.

1972
III

1973
Projected
II
III

1151.8
1145.9
891.3
895.5

1280.6
1267.1
991.7
995.2

1164.0
1156.0
900.4
903.8

1194.9
1184.6
925.3
928.8

1235.0
1228.3
961.1
965.4

1267.5
1254.5
982.2
987.5

1296.5
1280.0
1002.1
1005.4

1323.5
1305.5
1021.5
1022.3

Personal consumption expenditures
Durable goods
Nondurable goods
Services

721.0
116.1
299.5
305.4

799.7
132.4
336.3
331.0

728.6
118.6
302.0
308.0

745.7
120.8
310.4
314.5

773.4
128.5
324.6
320.3

793.5
132.5
333.5
327.5

808.6

134.0
340.0
334.6

823.3
134.5
347.0
341.8

Gross private domestic investment
Residential construction
Business fixed investment
Change in business inventories

180.4
54.0
120.5
5.9
5.6

209.0
55.9
139.6
13.5
13.5

183.2
54.4
120.7
8.0
7.9

193.4
57.0
126.1
10.3
10.1

198.7
59.3
132.7
6.7
6.5

207.0
56.5
137.5
13.0
13.0

213.3
54.8
142.0
16.5
16.5

217.0
53.0
146.0
18.0
18.0

-4.2
73.7
77.9

-3.4
93.7
97.1

-3,4
74.4
77.8

-3.5
79.6
83.1

-5.3
92.1
97.4

-3.3
96.1
99.4

-0.8
99.6
100.4

Gov't.purchases of goods and services
Federal
Defense
Other
State & local

254.6
105.8
75.9
29.9
148.8

275.3
108.0
74.8
33.2
167.3

255.6
105.4
75.1
30.2
150.2

259.3

Gross national product in
constant (1958) dollars
GNP implicit deflator (1958 - 100)

789.5
145.9

842.2
152.1

Personal income
Wage and salary disbursements
Disposable income
Personal saving
Saving rate (per cent)

935.9
627.0
795.1
54.8
6.9

Gross National Product
Final purchases
Private
Excluding net exports

Nonfarm
Net exports of goods and services"
Exports
Imports

Corporate profits before tax
Corp. cash flow, net of div. (domestic)
Federal government receipts and
expenditures, (N.IA. basis)
Receipts
Expenditures
Surplus or deficit (-)
High employment surplus or deficit (-)
State and local government surplus or
deficit (-), N.I.A. basis
Total labor force (millions)

Armed forces

Civilian labor force "

Unemployment rate (per cent)
Nonfarm payroll employment (millions)
Manufacturing

Industrial production (1967 = 100)
Capacity utilization, manufacturing
(per cent)

-4.3
87.1
91.4

73.2
30.8
155.2

267.2
107.0
75.3
31.7
160.2

272.3
107.1
74.5
32.6
165.2

277.9
108.2
74.6
33.6
169.7

284.0
109.8
74.9
34.9
174.2

796.1
146.2

811.6
147.2

825.8
149.6

838.3
151.2

848.4
152.8

856.4
154.5

1028.5
693.7
879.0
58.7
6.7

939.9
630.8
798.8
50.8
6.4

974.6
648.8
828.2
62.8
7.6

994.5
668.9
851.0
57.4
6.7

1019.9
686.4
878.4
64.4
7.3

94. 3 p
91. 8 p

119.7
109.0

95.7
93.1

101.9p
2
97. p

117.0
106.3

228.7p
246.8

-18.lp

261.2
266.5
-5.3

229.8
241.6
-11.8

238.6p
262.7
-24.lp

252.6
262.9
-10.3

-0.4

-3.3

4.4

12.7p

10.2

9.4

89.0
2.4
86.5
5.6

90.8
2.4
88.4
4.8

72.8
18.9

75.3
19.7

104.0

-11.6

1040.0
702.5
885.6
56.2
6.3

1060.0
717.0
901.2
56.9
6.3

119.0
108.3

120.5
109.9

122.5
111.4

252.2
265.1
-12.9

267.1
267.1
0.0

272.7
270.8
1.9

-8.0

-7.0

-0.3

2.4

19.5p

13.7

10.1

9.0

8.1

89.3
2.4
86.9
5.6

89.6
2.4
87.2
5.3

90.0
2.4
87.6
5.0

90.6
2.4
88.2
4.9

91.0
2.4
88.6
4.8

91.4
2.4
89.0
4.7

72.9
18.9

73.8
19.3

74.6
19.6

75.1
19.7

75.6
19.8

75.9
19.8

114.4

124.0

115.0

118.4

120.7

123.3

125.2

126.6

77.6

81.0

78.1

79.6

80.2

81.0

81.4

2.05
1.90
2.18
2.40
2.38
2.13
2.37
Rousing starts, private (millions, A.R.) 2.36
11.50
11.00
11.69
12.23
12.10
10.94
11.71
11.53
Sales new autos (millions, A.R.)
10.00
9.50
10.27
10.35
10.03
9.91
9.90
9.32
Domestic models
1. .t62
1.68R
1.61
1.79
1.95
1.75
1.50
1.50
Foreign models
le 68
1 61
1/ GNP exports and imports estimates for 1972 have not yet been revised to reflect revised Balance of Payments
estimates incorporating new seasonal f factors; these revised estimates for 1972 and corresponding projections for
1973 are:
Net exports of goods and services
Exports
Imports

±4.2
77.5
77.8

-2.6
94.1
96.8

-3.5
73.9
77.3

-2.6
80.0
82.7

-3.5
87.5
91.0

-4.5
92.5
97.0

-2.5
96.5
99.0

0.0
100.0
100.0

I-

CONFIDENTIAL - FR

April 11,

1973

CHANGES IN GROSS NATIONAL PRODUCT
AND RELATED ITEMS

1972

1973
Proj.

1972
III

------------------------Gross National Product
Inventory change
Final purchases
Private
Excluding net exports
Net exports
Government

101.4
2.3
99.2
77.4
82.3
-4.8
21.8

GNP in constant (1958) dollars
Final purchases
Private

47.8
45.8
40.6

1973
Projected
II
III

Billions of Dollars-------------------------

128.8
7.6
121.2
100.4
99.7
0.8
20.7

24.6
3.0
21.6
20.1
18.3
1.8
1.5

30.9
2.3
28.6
24.9
25.0
-0.1
3.7

40.1
-3.6
43.7
35.8
36.6
-0.8
7.9

32.5
6.3
26.2
21.1
22.1
-1.0
5.1

29.0
3.5
25.5
19.9
17.9
2.0
5.6

27.0
1.5
25.5
19.4
16.9
2.5
6.1

52.7
47.1
43.6

12.2
9.8
11.1

15.5
13.8
13.7

14.2
17.5
15.6

12.5
7.6
6.5

10.1
7.2
5.9

8.0
6.4
5.1

------------------------ Per Cent Per Year---------------------------9.7
9.5
9.0

11.2
10.6
11.3

8.9
7.6
9.1

11.0
9.9
11.1

13.4
14.8
15.5

10.5
8.5
8.8

9.2
8.1
8.1

8.3
8.0
7.7

Personal consumption expenditures
Durable goods
Nondurable goods
Services

8.4
12.2
7.7
7.8

10.9
14.0
12.3
8.4

8.5
16.5
6.5
7.4

9.4
7.4
11.1
8.4

14.9
25.5
18.3
7.4

10.4
12.5
11.0
9.0

7.6
4.5
7.8
8.7

7.3
1.5
8.2
8.6

Gross private domestic investment
Residential construction
Business fixed investment

18.7
26.8
13.9

15.9
3.5
15.8

14.0
12.1
5.0

22.3
19.1
17.9

11.0
16.1
20.9

16.7
-18.9
14.5

Gov't. purchases of goods & services
Federal
Defense
Other
State & local

9.4
8.2
6.3
13.7
10.2

8.1
2.1
-1.4
11.0
12.4

GNP in constant (1958) dollars
Final purchases
Private
GNP implicit deflator
2/
Private GNP fixed weight index-

6.4
6.2
6.7
3.0
3.3

6.7
6.0
6.8
4.2
4.3

6.3
5.0
7.0
2.4
2.9

8.0
7.0
8.5
2.8
3.1

Personal income
Wage and salary disbursements
Disposable income

8.6
9.4
6.8

9.9
10.6
10.6

7.5
6.4
8.2

14.8
11.4
14.7

8.2
12.4
11.0

Corporate profits before tax

13. 2 p

26.9

17.9

5.9 p

Federal government receipts and
expenditures (N.I.A. basis)
Receipts
Expenditures

14. 9p
11.8

14.2
8.0

8.7
8.0

3.0
2.2

3.5
4.1

Gross National Product
Final purchases
Private

Nonfarm payroll employment
Manufacturing

7.1
14.9
6.8
7.4
3.3

Industrial production
Housing starts, private
Sales new autos
Domestic models
Foreign models
1/ Excluding Federal pay increase,

5.6

8.4
-9.8
7.1
7.6
4.2

2.4
-10.0
-17.8
8.1
11.5

8.2
4.1
0.5
12.3
10.9

12.2
11.5
11.5
11.7
12.9
7.0
8.7
9.4
6.36.2

6.9
-13.1
11.3
8.8
5.9
1.6
15.5
10.6

4.8
3.5
3.5
4.3
4.3

3.8
3.1
2.9
4.5
4.6

10.2
10.5
12.9

7.9
9.4
3.3

7.7
8.3
7.0

59.3

6.8

5.0

6.6

15.3p
34.9

23.5
0.3

-0.6
3.3

23.6
3.0

8.4
5.5

2.2
0.0

4.9
8.0

4.2
4.8

2.6
3.0

2.7
2.0

1.6
0.0

6.7
15.1
41.9
44.4
27.7

11.8
6.4
5.7
-0.5
44.1

7.9
-3.8
18.4
15.2
36.4

per cent annual rate.

2/ Using expenditures in 1967 as weights.

5.8
-5.3
-10.1
7.9
13.3

12.2
-12.0
13.1

8.5
-3.4
-4.2
3.0
-41.8

6.2
-23.0
-19.8
-13.5
-57.1

4.3
-29.3
-17.4
-20.0
0.0

I - 7

Industrial production.

Industrial production is tentatively

estimated to have increased about one-half per cent further in March
to a level about 9 per cent above a year ago.

The gains in output are

estimated to have been in non-durable consumer goods, business equip-

ment, and some industrial materials.

If the estimated March increase

is realized, the rise in the total index from the fourth quarter of
1972 to the first quarter of 1973 would be at an annual rate of
around 8 per cent.
Auto assemblies changed little in March.

Output of house-

hold appliances appear to have been maintained at record levels but
production of room air conditioners and furniture are estimated to
have risen further.
Advances in output of business equipment are estimated to
be widespread but at a somewhat slower rate of increase than in
recent months.

Among materials, production of textiles, chemicals,

and rubber products apparently rose further, but capacity limitations
seem to be restricting further gains in some other materials producing industries.
Retail sales.

Sales in March rose sharply, by 2.3 per cent,

according to the advance report.

All major types of stores reported

higher sales, with the largest increases in the automotive, apparel
and general merchandising groups.

Sales at food stores increased only

0.5 per cent.
As a result of the March increase, along with unusually
large upward revisions for January and February, sales in the first
quarter were 6 per cent above the fourth--much more than had been

I-8
anticipated.

This was the largest quarterly increase in retail sales

since the Korean War, with a large proportion of the rise representing
physical volume.
Durable goods sales in the first quarter were up 8.8 per
cent from the fourth quarter of 1972, with gains of about this size
in both the automotive and furniture and appliance groups.

First

quarter sales of nondurables were 4.6 per cent above the fourth
quarter; the sizable rise in the usually slow moving food group
largely reflected sharp price increases.

Sales in the general

merchandise category were 5.7 per cent above the fourth quarter.

RETAIL SALES
Percentage change from previous period
1972

IIIQ

1973
Jan.
Feb.

Mar.

2.6

Total

IVQ
3.7

6,0

3.3

1.5

2.3

3.9

5.4

4.6

6.0

8.8
8.3

4.4
2.5

1.1
.8

3.3
3.7

2.0

3.2

9.5

8.5

2.8

1.3

Food
General merchandise

1.9
1.7
2.6

2.8
1.7
2.0

4.6
4.0
5.7

2.7
5.0
3.6

1.7
- .5
2.4

1.8
.5
4.0

Total, less auto and
nonconsumption items

1.9

2.9

4.9

3.1

1.7

GAF

1.9

2.8

6.4

4.3

2.6

3.7

Total in constant prices*

1. 6

2.8

n.a.

2.6

Durable
Auto
Furniture and
appliance
Nondurable

* Deflated by all commodities CPI,
n.a.

Not available.

seasonally adjusted.

n.a.

III

I - 9

Unit sales of consumer durables.

March sales of new domestic-

type autos were at a 10.6 million seasonally adjusted annual rate in
units, up from 10 million in the fourth quarter and 8.5 million a
year earlier.

Sales were helped by several sales incentive contests

ending in March, including one by Chevrolet.

For the quarter as a

whole, sales of domestic-type autos were at a 10.3 million unit rate
compared with a 9.9 million unit rate in the fourth quarter.
Sales of foreign cars were at a 2.0 million annual rate for

both March and the first quarter following a 1.8 million rate in the
fourth quarter.

Consumers' anticipations of price increases as pre-

devaluation inventories are exhausted, probably helped maintain high
foreign sales.
Factory sales of major home appliances, TVs, and radios in
the first two-thirds of March were unchanged from February but were
15 per cent above a year earlier.

TV sales were 16 per cent above a

month earlier but radio and appliance sales were somewhat lower.
Inventories of major appliances in March rose 4 per cent above their
January-February level as sales were off somewhat.

I - 10

UNIT SALES OF SELECTED CONSUMER DURABLE GOODS
Seasonally adjusted

1972
March

8.5
1.6
10.1

Auto sales
Domestic
Foreign
Total

Jan.

Annual rates
9.9 10.6
10.3
1.9
2.Or/ 2.0
11.9 12.6
12.2
Index,
117

Home goods factory sales

TVs 1/

121

Radios 1/
Major appliances

Total

129
124

155
137

1973
Feb.

March

1967=100
153e/
132

107

104e/

151r/ 137p/
142e/p/
142

Per cent change from:
Month ago
Year ago

7
0
6

25
27
25

- 3

- 9
0

6
15

Estimated from data through March 17.
Based on data through March 24.
Includes foreign-made units sold under domestic labels; foreign-label

units not included.

Consumer surveys.

The latest surveys by the Michigan Survey

Research Center and the Conference Board confirm the deterioration in
consumer appraisals of future economic conditions reported in their
immediately preceding surveys.

The Michigan index of consumer sentiment

for February-March declined 10 percentage points--the largest one
quarter drop since the index was started in the early fifties.
index is

now 80.8 (Feb.

1966=100)

The

compared with 94.0 in August-

September 1972 and 75.4 at the index recession low in April-May 1970.
The precipitous decline in the Michigan index was mainly
attributable to substantial declines in expectations about business
conditions during the next year and the next 5 years.

There were

I - 11

also more unfavorable evaluations of present and expected personal
finances.

The recent change in sentiment is related to sharply

increased inflationary expectations.

In the February-March survey,

44 per cent of all respondents expected the rate of inflation to
accelerate during the next 12 months; at the end of last year, only
29 per cent expected acceleration.

Apparently, because respondents

expected prices to go higher, the proportion saying it is a good time
to buy automobiles, large household durables, and houses increased.
In the Conference Board survey taken in January-February,
there was also an increase in pessimism about prospects for business
conditions, employment and income in the next six months.

Appraisals

of present business and employment conditions and purchase plans for
homes were essentially unchanged from their relatively high NovemberDecember levels.

Purchase plans for autos were also unchanged--but at

a moderate rate inconsistent with the brisk auto sales currently
reported--and purchase plans for all major appliances were off sharply.

I - 12

Construction and real estate.

Seasonally adjusted value of

new construction outlays--revised slightly downward for February-remained about unchanged in March at an annual rate of $135.6 billion.
The March rate almost matched the peak now reported for January and
was the same as the record first quarter average.

Private residential

construction continued to expand in March, reflecting in part the
exceptionally high rate of housing starts in recent months.

Although

outlays for the other major construction categories remained below
their January highs, they were also quite strong in March.
The Census Bureau's composite cost index in March--which may
be understated--continued at the moderately increased level of 143 per

cent

(1967=100) reached in January.

In view of this most of the

first quarter increase in current dollar outlays for construction was

estimated to be real.

I - 13

NEW CONSTRUCTION PUT IN PLACE
(Seasonally adjusted annual rates, in billions of dollars)

1972

Per cent change
in March from:
Feb. 1973 Mar. 1972

QIV(r)

Residential
Nonresidential
Public
State and local
Federal
Total - 1967 dollars

135.5

135.6

102.2

103.0

56.9
40.1

59.3
42.9

60.2

42.8

32.1

Private

129.0
97.0

Total - current dollars

QI(p)

1973
March 1/

33,4

32.6

27.6
4.4

28.5
4.9

28.0

91.7

94.9

4.6

+10

+11
+13
--

-1

+ 7
--

-7

- 3
--

1/ Data for March 1973 are confidential Census Bureau extrapolations.
In no case should public reference be made to them.
A strongly sustaining factor in the housing market thus far
has been the high level of demands for both homeowner and rental
accomodations.

Of new rental apartments, 69 per cent of those

completed in the third quarter of last year were occupied by the end of
the fourth quarter, according to the Census Bureau.

This compared

favorably with initial "rent-up" ratios for new apartments in most
other recent quarters despite a considerable increase in the number of
completed units on the market in 1972.

Moreover, 93 per cent of the

apartments completed in the first quarter of 1972 were occupied by the
end of the year, virtually as high as the comparable ratio at the end
of 1971.

I - 14

Throughout 1972, median monthly rents for new apartments
continued around $191, some 4 per cent above a year earlier.

contrast, median prices of new one-family homes sold by merchant
builders--including the lot value--advanced 9 per cent in 1972, or
6 per cent after allowance for upgrading in the mix of units purchased.

Except for 1969, when prices after allowance for changes in the mix
rose 8 per cent, this was the largest annual increase since the series
began in 1963.
Manufacturers orders and shipments.
goods rose 1.0 per cent in February (p),
increase in January.

New orders for durable

following a 4.9 per cent

Orders for motor vehicles and parts were down

somewhat from an already high level and nondefense capital goods
declined for the first time since last July.

However, the January-

February average still showed strong gains from the fourth quarter for

most categories although therate of increase in orders for household
durables, construction,

and nondefense capital goods appears to have

moderated somewhat.
Durable goods shipments were about unchanged in February
after a 4.6 per cent increase in January.

Shipments of motor vehicles

and parts and defense and nondefense capital goods were reported off
from the previous month.

However,

the continued rapid increase in

unfilled orders suggests future strength in durable goods shipments.

I - 15

MANUFACTURERS NEW ORDERS FOR DURABLE GOODS
Per cent changes
1972
QIV from

QIII

1973
Feb. from
Jan.-Feb.
from QIV
Jan. (p)

4.6
4.8

6.2
5.9

Primary metals
Motor vehicles & parts
Household durables

2.1
4.0
5.6

10.1
10.2
2.7

8.3
-6.1
9.4

Capital goods industries
Nondefense
Defense

5.2
6.1
.2

4.9
3.9
10.8

-2.7
-4.0
4.1

Construction & other durables

5.4

4.2

2.9

Durable goods total
Excluding defense

Inventories.

1.0
.8

Book value of manufacturing and trade inventories

continued to expand at a rapid rate in February, from upward-revised
January rates.

The January and February rates of expansion for

manufacturing and trade--an average of $23.8 billion--were the highest
since the 1950-51 period.

With wholesale prices rising rapidly, a

very high inventory valuation adjustment is likely in the first
quarter, and the high rates of book value growth translate into a
quite moderate amount of inventory investment in GNP terms.
In manufacturing, growth in book value of materials and
supplies was stepped up while finished goods stocks were down from
December to February.

At wholesalers, the largest book value

increases have been at dealers in farm products, raw materials, and
other nondurable goods.

I - 16

CHANGE IN BOOK VALUE OF BUSINESS INVENTORIES
Seasonally adjusted annual rate, $ billions

1972
QIII

QIV

(rev.)

1973
Feb.
(prel.)

13.3

14.9

26.1

21.6

Manufacturing, total
Durable
Nondurable

7.7
5.6
2.1

6.4
5.2
1.2

Trade, total
Wholesale
Retail

5.5
4.1
1.5

8.5
4.3
4.2

Jan.
Jan.

Manufacturing and trade

Note:

6.0
5.9
.. 2

10.9

6.5
4.4

20.1
10.2
9.9

10.7
4.5
6.2

Detail may not add to totals because of rounding.

Sales increased more rapidly than inventories in
February, and the inventory sales ratio declined to 1.42, the lowest
since March 1966.

The ratio of factory stocks of durable goods to

unfilled orders declined but remained higher than in any previous
expansion in the post-war period.
INVENTORY RATIOS
1972

1973
Feb.
(prel.)

Jan.

Feb.

Jan.
(rev.)

1.55

1.56

1.43

1.42

Manufacturing, total
Durable
Nondurable

1.72
2.07
1.31

1,73
2.07
1.32

1.57
1.86
1.22

1.57
1,86
1,21

Trade, total
Wholesale
Retail

1.38
1.19
1.50

1,39
1.24

1.29

1.48

1.18
1.36

1,28
1.16
1.36

0.939

0.937

0.855

0.845

Inventories to sales:
Manufacturing & trade

Inventories to unfilled orders:
Durable goods manufacturing

I - 17
Cyclical indicators.

The Census composite index of leading

indicators rose 1.8 per cent in February, following a pick up of 1.4
per cent in January.

These increases are larger than both the average

change in this series, and the average revision.

The index before

trend adjustment also rose significantly; based on past experience,
this would suggest that a turning point in general economic
is at least 6 months away.

expansion

The coincident and lagging indexes also

rose in January and February.
CHANGES IN COMPOSITE CYCLICAL INDICATORS
(Per cent change from previous month)

Nov.
12 Leading (trend adjusted)
12 Leading, prior to trend
adjustment
5 Coincident
5 Coincident, deflated
6 Lagging

Dec.

Jan.

Feb.

1.8

1.0

1.4

1.8

1.4
1.7
1.5
1.8

.6
.8
.7
1.4

1.1
1.2
.8
1.6

1.4
1.1
.7
2.6

(p)

Leading index components rising in February were the
manufacturing workweek, initial claims for unemployment insurance
(inverted), new orders for durable goods, industrial materials prices,
and the ratio of price to unit labor cost.

Series declining were

contracts and orders for plant and equipment, housing permits, and
common stock prices.

Since compilation of the index, an increase

also has been reported in growth in consumer instalment debt, but the
change in book value of inventories was down somewhat in February before
an upward revised January rate.
In March,

according to preliminary data, common stock prices

declined but industrial materials prices rose.

I - 18

Labor market.

sharply in March.

Total employment continued to increase

The unemployment rate at 5 per cent remained

virtually unchanged from late 1972 as rapid labor force growth accompanied the large employment gains.

Preliminary payroll employment

estimates for March also showed a considerable gain--200,000--and the
revised February increase totaled about half a million.

NONFARM PAYROLL EMPLOYMENT
(Seasonally adjusted,
Change from
a year ago*
March 1973

Total

in thousands)
Change from preceding quarter
1973
1972
Q I
Q IV
Q III
Q II

2832

743

428

898

2449

644

347

764

713

Goods producing

1020

260

374

287

Manufacturing
Service producing
Trade

941
1429
643

255
384
177

69
277
123

331
390
164

234
426
195

553

142

131

119

169

383
-47

99
-12

81
-37

134
20

69
-12

State & local
430
110
*Based on not seasonally adjusted data.

119

114

Private

Services
Government
Federal

782

Nonfarm payroll employment grew by 800,000 in the first

quarter, continuing the rapid rate of expansion which began in mid1972.

The manufacturing sector has grown rapidly, with large employment

gains, among others,

in the metal and metal-using industries.

Employ-

ment increases have also remained strong in private service industries.
In the public sector, Federal government employment has continued its
irregular decline while growth of State and local government employment
has slowed somewhat.

I - 19

Unemploment and labor force.

Although labor force growth

has accelerated in the past few months, the recent more rapid pace
followed a period of rather slow growth.

The civilian labor force in

March was 1.9 million higher than a year earlier, compared with a 1.6
million "normal" rate of increase.

Total employment has increased by

2.6 million, and unemployment has declined appreciably from a year ago.
Unemployment rates were unchanged in March among adults, but
the teenage unemployment rate fell back to the January level.

While

the total unemployment rate has come down considerably over the year,
the unemployment picture for Negroes and other races relative to whites
has continued somewhat more adverse than in 1970 and 1971.

The ratio

of the Negro to white unemployment rate has averaged 2 to 1 over the
past five quarters, compared to a ratio of 1.80 to 1 in 1971.
SELECTED UNEMPLOYMENT RATES
(Seasonally adjusted)

1972

1973
1973

1972
March
Total
Men:
20-24 years
25 and over
Women 20 years & over
Teenagers
Household heads
White workers
Negro workers
White collar
Blue collar

Sept.

Feb.

March

5.9

5.5

5.1

5.0

10.4
3.2
5.5
17.4

8.6
3.0
5.4
16.2

7.5
2.7
4.9
15.8

7.5
2.7
4.9
14.2

3.4

3.3

3.0

5.3
10.4

5.0
10.0

4.6
9.0

4.4
9.0

3.4
6.9

3.4
6.0

3.0
5.7

2.9
5.4

I - 20

Earnings.

Over the past year, wages have been rising at a

rate in line with stabilization goals, with a more moderate pace since
November following large increases in the fall.

In March, the private

nonfarm index of hourly earnings was up 5.6 per cent from a year
earlier; this compares with a rise of 6.6 per cent in the twelve months
ending in March 1972.

Wages of manufacturing production workers have

risen at a 5.4 per cent rate over the year.

Increases have also been

below 5-1/2 per cent in services and trade, but higher in transportation,
mining and construction.
With the increase in earnings slowing in recent months,
sharply rising consumer prices have been eroding real purchasing power.
Earlier, in 1971 and much of 1972, real earnings showed substantial
increases with real weekly earnings rising at about a 3-1/2 per cent
annual rate.

However, between October 1972 and February 1973 (the

latest month for which consumer price data are available) all measures
of real earnings showed declines.

(The exceptionally large decline in

spendable earnings from October to February also reflected an increase
in social security taxes effective at the beginning of 1973).

I - 21

AVERAGE EARNINGS OF PRODUCTION WORKERS
(Per cent change at annual rate,
based on seasonally adjusted data)
Mar. 1971Mar. 1972
Hourly earnings index*
Private nonfarm
Manufacturing

Construction
Transportation

Mar. 1972Mar. 1973

Mar. 1972Nov. 1972

Nov. 1972Mar. 1973

Feb. 1973Ma r . 1973

6.6
6.3

5.6
5.4

5.8
5.3

5.0
5.4

4.2
6.0

7.7
10.4

5.7
8.8

5.3
9.7

6.3
6.5

7.9
10.3

Trade

5.5

5.1

4.9

5.5

6.0

Services

5.9

4.6

5.0

3.6

Feb. 1972Nov. 1972

Oct. 1972Feb. 1973

Jan. 1973Feb. 1973

Feb. 1971Feb. 1972

Feb. 1972Feb. 1973

Real earnings, private
nonfarm (1967 dollars)
Hourly earnings index* 2.6
Real weekly earnings
3.3
Real spendable
earnings
4.1
* Average hourly earning adjusted for
only, for over-time hours.

1.7
2.5

2.7
3.6

-1.2
-1.4

-9.2
6.7

1.0
2.8
-4.0
5.0
inter-industry shifts, and in manufacturing

I - 22

Industrial relations.

The railroads and the rail unions

tentatively agreed on a 10.7 per cent wage and benefit increase over
the 18 months beginning July 1, 1973.

Covering 500,000 workers in

15 unions, the package provides a pay boost of 4 per cent effective
January 1, 1974 and additional increases of 6.7 per cent over-thelife of the contract reflecting reductions in employee contributions
to the railroad retirement system.
package amounts to 7.2 per cent.

On an annual rate basis the

Railroad workers have their own

pension plan which is outside the Social Security system.

Under this

plan they receive about twice the amount of Social Security benefits,
but their monthly payments into the pension fund are about twice as
large as those paid into Social Security.

Under the new agreement,

the railroads would assume all current costs of the railroad retirement system in excess of the amount paid under the Social Security
system.

So far, 4 of the 15 unions have formally ratified the agree-

ment and at least one union has announced opposition.

The rail con-

tracts expire June 30, 1973.
In other industrial relations developments, the steel
workers and the major steel producing companies approved a no-nationwide

strike plan to take effect when the present contract expires July 31,
1974.

The basic pact provides a $150 bonus to workers on August 1,

1974, a minimum annual wage increase of 3 per cent and continuation

of the current cost-of-living escalator with no maximum limit over the
term of the new contract.

The new agreement also provides for disputes

I - 23

to be settled by binding arbitration if not resolved in regular
bargaining.

This agreement should help to moderate greatly steel

stockpiling as a hedge against strikes.

The steel workers will

begin negotiations on additional wages and other benefits early in
1974.
Four of the Chicago area's seven trucking employers have
agreed to extend contracts with the Chicago Teamsters for 90 days,
until June 30, when the National Teamster contract will expire.
Under the three-month extension, the Chicago teamsters received a
pay adjustment April 1 which maintains their relationship with the
Teamsters covered under the national contract.

In exchange the

Chicago unions agreed to accept the economic package negotiated
nationally by the Teamsters.

In 1970 the Chicago unions held out

for an increase of $1.65 an hour after the National Teamsters tentatively had settled for an increase of $1.10 an hour under the
national contract.

The National Teamsters subsequently reopened

their wage talks, and eventually settled for $1.85.
In the first action of its kind under Phase III, the Cost
of Living Council blocked part of a two-year contract reached in midMarch between the International Association of Machinists and North
Central Airlines and covering about 600 machinists.

The CLC set aside

a pay hike totaling 8.9 per cent over the next twelve months pending
a more thorough review of the contract.

I - 24
Consumer prices.

In February the rate of rise in consumer

prices accelerated to 10 per cent, seasonally adjusted annual rate,
as food prices climbed sharply--at an annual rate of 30 per cent.
Prices of other commodities and of services rose more than in most
recent months--at annual rates of 6 and 4-1/2 per cent, respectively-bringing the total index to a level nearly 4 per cent above February
1972.

CONSUMER PRICES
(Percentage changes, seasonally adjusted annual rates)

Relative
Impor-

1972
Dec. 1971 June

tance
Dec. 1972

to
June 1972

100.0

2.9

All items

Dec. 1972

1973
Jan.

to
Jan. 1973

to
Feb.

3.9

6.5

9.8
29.5

to
Dec.

Food

22.5

3.5

6.1

25.4

Commodities less food

40.1

2.6

2.5

6.1

Services 1/

37.4

3.7

3.5

2.7

4.5

96.3

3.0

3.9

4.9

12.0

30.9

3.5

3.1

2.8

4.6

31.8

2.2

2.0

1.0

6.2

Addendum:
All items less mortgage
costs 2 /
Services less home
finance 1/ 2/ 3/
Commodities less food,
used cars, home

purchase 3/
1/

Not seasonally adjusted.

Home financing costs excluded from services reflect property taxes

and insurance rates as well as mortgage costs, which in turn move
with mortgage interest rates and house prices.
Confidential.

I - 25

Large advances in gasoline and fuel oil prices were of major
importance in the accelerated rise in prices of nonfood commodities.
Among services, the index for rents and for several other items also

rose more than in recent months; the advance in rents over the past
three months is the largest since early 1971.
With meat prices skyrocketing and continued large advances reported for most other foods, the index for all foods jumped over 4 per
cent between December and February, more than in any two-month period
since early 1951.

The two-month increase for meats, poultry and fish

was the largest in the postwar period.

The February food index also

included a sharp advance for fresh vegetables, and substantial increases for cereal and bakery and dairy products, partially offset by
a large drop in egg prices.
According to the USDA chainstore sample, beef and pork
prices at retail rose sharply further from early February to early
March (when food prices are collected for the CPI) and continued to
advance through the third week.

It is therefore likely that ceiling

prices on meats will be significantly above the levels registered in
the March index.

Prices in April, however, could drop from March as

a result of the boycott.
Since early in 1972 the climb in beef prices has been associated with a substantial and sustained widening of the estimated
spread between prices at the farm and retail levels.

Over the past

three quarters, this spread has averaged about 15 per cent, or 5-6
cents per pound higher than in the second half of 1971, an increase
out of line with that in the costs of processing and distribution.

I - 26
is farm prices, however, which account for the extraordinary surge
at retail this year.
In the case of pork, in contrast, throughout last year the
spread between farm and retail prices remained below the second half
of 1971 level; and it has declined further in February and March of
this year.

For meat products as a whole,

the estimated spread in

the second half of 1972 averaged about 8 per cent above the second
half of 1971 and about 30 per cent above 1967.

MEAT PRICES AND MARGINS 1/
(Indexes, 1967=100)

1971

1972

1973
March
(3-week
Feb.
average)

Week
ending 2 /
March 24

Second
half
Beef
Retail value
Farm value
Spread
Pork
Retail value
Farm value

Spread

First
half

Second
half

Jan.

128.3
130.7

137.2
139.0

138.3
134.7

148.1
155.5

157.7
165.1

163.4
174.3

165.0
176.6

124.2

134.1

144.7

134.8

144.6

143.9

144.3

106.5
99.0

118.2
126.6

129.3
148.4

140.0
168.1

144.5
186.2

152.4
202.3

153.4
196.8

114.7

109.3

108.8

109.9

99.7

98.8

106.8

1/ Calculated from USDA dollars-and-cents estimates for choice beef and pork.
2/ Preliminary estimate, not for publication.

I - 27

Wholesale prices.
and widespread in March.

Wholesale price increases were substantial

The increase of 2.2 per cent in

the wholesale

price index, seasonally adjusted, was the largest since January 1951.
Prices increased sharply further for both industrial commodities
1.2 per cent) and farm and food products (up 4.7 per cent).
acceleration in rates of price advance in
March, the first

(up

The

the WPI for February and

two months of Phase III, can be attributed in part to

the change in the economic controls program, but market conditions both
here and abroad as well as the currency realignments also were significant.

WHOLESALE PRICES
(Percentage changes at seasonally adjusted annual rates)
1972
June 1972
Sept. 1972
to
to
Sept. 1972 Dec. 1972
All commodities

Dec. 1972
to
Mar. 1973

1973
Jan. 1973
to
Mar. 1973

Feb. 1973
to
Mar. 1973

6.7

9.6

21.5

25.6

30.4

Farm and food products 1/
Farm products
Processed foods and feeds

17.4
32.6
9.0

30.1
25.8
31.4

53.1
73.8
40.3

59.3
73.1
66.0

74.1
103.1
51.2

Industrial commodities
Crude materials 2/
Intermediate materials 3/
Finished goods 4/
Producer
Consumer

3.2
10.6
2.4
3.3
2.0
3.9

2.0
14.6
3.7
- .8
-1.7
- .3

10.3
12.8
12.1
6.8
5.4
7.5

13.5
13.7
16.9
8.9
7.2
9.8

14.9
4.3
21.5
6.7
7.2
6.4

45.0

43.6

70.8

Finished foods
10.0
15.8
1/ Farm products and processed foods and feeds.
2/
3/
4/

Excludes crude foodstuffs and feedstuffs, plant and animal fibers, oilseeds,
and leaf tobacco.
Excludes intermediate materials for food manufacturing and manufactured
animal feeds.
Excludes foods.

I - 28
The extremely sharp increase in consumer finished foods in
March was due mainly to higher prices for meats, processed poultry,
eggs, fresh fruits and vegetables, and dairy products.

Prices of con-

sumer finished goods, excluding foods, also rose appreciably as increases
were posted for refined petroleum products, cigarettes, textile products,
mens' and boys' apparel, footwear, passenger cars, and household
furniture.

Higher prices

for machinery and motor vehicles were the main

elements in the increase in the index of producer finished goods.
Processed materials, excluding foods and feeds, increased
sharply as prices moved higher for metals, textile products, lumber and
plywood, paper products, and metal cans.

The nonfood crude materials

index reflected increases for scrap metals, bituminous coal, crude
natural rubber, and natural gas.
As has been the case in recent months increases in the prices
of farm and food products were of major importance in the seasonally
adjusted rise in the WPI for March, and prices of livestock and meats
were prominent influences on the rise.

Since mid-March, livestock

prices have declined about 5 per cent, and lower prices for meat have
been reported.

Prices of broilers, however, have increased further.

Eggs are lower, but prices of wheat, corn, cocoa, and coffee have risen.
Soybeans, now at about the price level of mid-March, have increased
recently--from lower levels reached in late March--on evidence of possible

lower-than-anticipated supplies later in the year.

Given the above, the

index of farm products may be little changed in the April WPI.

I - 29

Toward the end of March the Administration set ceilings on
the prices of beef, pork, and lamb.

The sellers' ceilings are the

highest prices charged during the 30 days ending March 29 at which at
least 10 per cent of sales were made.

About a week earlier, the Admini-

stration extended to all but the smallest meat packers regulations that
previously applied to only the 21 largest processors.

Price increases

were restricted to an amount equal to the increase in the cost of livestock or partially-processed meats.

Packers are required to lower

prices if such costs decline.
Hearings on lumber prices, which have spurted recently, were
held last week by the Cost of Living Council, but a decision has not
been announced on whether additional controls are to be applied to the
lumber industry.

I - 30

Agriculture.

During the month ending March 15, prices

received by farmers increased 7 per cent to a level 33 per cent above
March 1972.

Higher prices for livestock, eggs, onions, potatoes and

soybeans contributed to the increase.
From March 15 through the first week in April, hog and cattle
prices declined but broiler prices increased another 20 per cent,
This pattern reflects, in part, a shift in consumption from red meat
to poultry, encouraged by the recent meat boycott.
During the meat boycott week, April 1-7, cattle slaughter
fell 23 per cent below the March average rate, and hog slaughter was
off about 6 per cent.

Total red meat production was 17 per cent

below the March level.
The December-February pig crop, 5 per cent larger than last
year, indicates a moderately larger pork supply by early fall.
Numbers of cattle on feed on March 1 were 8 per cent above a year ago
but larger inventories reflect the placement of lighter animals and
consequently a longer required feeding period.

Beef supplies in the

second half of 1973 are expected to be about 2 per cent larger than
a year ago.
Of the additional 14 million acres of feed-grain set-asides
which were released for crops on March 26, about 3 million are expected
to be planted.
1972.

If realized, 1973 corn acreage would be 12 per cent above

Wheat and soybean acreages are expected to be 6 and 15 per cent

higher, respectively, than in 1972.

Wet weather has hampered plantings

but has contributed to the excellent condition of winter wheat.

DOMESTIC FINANCIAL
SITUATION

II-T-1
SELECTED DOMESTIC FINANCIAL DATA
(Dollar amounts in billions)

Latest data
Level
Period

Monetary and credit aggregates
Total reserves
Reserves available (RPD's)
Money supply
M1
M2
M3
Time and savings deposits
(Less CDs)
CDs (dollar change in billions)
Savings flows (S&Ls + MSBs)
Bank credit (end of month)
Market yields and stock prices
wk. endg.
Federal funds
"
Treasury bill (90 day)
"
Commercial paper (90-119 day)
New utility issue Aaa
Municipal bonds (Bond Buyer)
1 day
FNMA auction yield (FHA/VA)
Dividends/price ratio (Common
stocks)
wk. endg.
end of day
NYSE index (12/31/65=50)

SAAR (per cent)
8.9
9.7

32.0 p
29.6 p

13.5
13.8

March
March
March

256.6 p
532.7 p

-0.5
5.0

1.7
5.8

6.3
9.0

March
March
March
March

276.1 p
54.9 p

10.1
6.0

9.6
11.7

11.6
21.1

585.0

19.4

20.3

15.2

4/4/73
4/4/73
4/4/73
4/6/73
4/5/73
4/2/73
3/28/73
4/9/73

December

Percentage or index points
7.18
.16
1.57
6.44
1.28
.61
7.08
.68
1.45
7.51
5.22
-. 05
-. 14
.17
.. 11
7.86
2.87
59.02

.01
-2.0

.16
-6.27

Total of above credits
e - Estimated

March
February
January
January
April

April

3.02
2.62
2.67
17.0
.27
.31
.02
-1.96

Net change or gross offerings
Year to date
Current month
1971
1971
1972
1972
41.9
57.2
3.8
5.7
1973

Business loans at commercial banks
Consumer instalment credit outstanding
Corporate bonds (public offerings)
Municipal long-term bonds (gross
offerings)
Federally sponsored Agcy. (net borrowing)
U.S. Treasury (net cash borrowing)

Year
ago

March
March

Credit demands
Mortgage debt outs. (major holders)

Net change from
Three
Month
months ago
ago

1972

1973

3.6
2.0
1.0

1.2
0.9
1.8

12.8
3.9
1.0

1.9
2.1 e
-1.7 e
14.6

1.8
0.5

-2.1
7.9

1972

1.9
3.6 e
7.0
87.4

53.2

II - 1

DOMESTIC FINANCIAL SITUATION

In recent weeks, credit demands have continued

to center on

commercial banks, with large increases in business, real estate, consumer, and financial loans financed primarily by record sales of CD's.
Reflecting Regulation Q ceilings, most of the new CD issues in March-as in February--have been in the under 90 day maturity range, with
offering rates in early April about 25 basis points higher than at
the time of the last Committee meeting.

Although new issue volume

in other short-term market instruments was either unchanged or reduced, yields on these other instruments also increased by about 25
basis points with the exception of long-term bills.

Most recently,

however, bill rates have declined sharply--and other market yields
were also subject to some downward pressure--as market participants
came to expect less pressure on monetary market rates in light of
the recent weakening of the monetary aggregates, and increased prospects of a tightened wage-price controls program.
Despite substantially higher rates in short-term markets
over recent months, bond yields continued to fluctuate in a narrow
range.

Since the last Committee meeting, corporate bond yields have

changed little, with new offerings remaining relatively light, and
tax-exempt yields have declined 12 basis points, although the volume
of new offerings has been above average.

Mortgage yields, on the

other hand, have edged up 5 to 10 basis points since mid-March,
reflecting concern about fund availability and high forward commitments at the thrift institutions.

II - 2

Outlook.
strong at banks.

Credit demands this spring are likely to continue
With consumer-type time and savings deposit growth

likely to remain modest, banks are expected to reduce their acquisition of securities further, and to continue to seek CD funds in large
volume.

They may also step up their borrowing from domestic affiliates

and--if rate relationships turn more favorable--from their foreign
branches.
Credit demands from the Federal sector are not expected to
be large.

The Treasury, with higher than expected receipts, is now

projected to be out of the market for new money until July and may
reduce its debt by a little over $5 billion, net, over the second
quarter.

Agency financing, however, is expected to be sizable, a

amounting to about $3.0 billion in the second quarter.
Public corporate bond offerings also appear likely to
remain relatively modest this spring, with corporations financing
their needs not only internally and at banks, but also through private
placements and equity offerings.

Consumer credit demands are projected

to moderate from the rapid pace of recent months, partly reflecting
debt repayments from the proceeds of tax refunds.
Thus, supply and demand factors themselves suggest no significant upward pressure on interest rates in the near-term.

Most short-

term rates appear to have adjusted to the higher Federal funds rate,
and with the Treasury retiring debt and commercial paper volume declining, the market would seem able to continue to absorb a significant volume of CD's with little change in yield.

Similarly, the

relatively modest volume of bond offerings reported in the pipeline

II - 3

seems unlikely to result in other than continued fluctuation of bond
yields within a narrow range.

Should developments cast doubt on present

market expectations as to monetary policy and price and wage controls,
however, interest rates in both short- and long-term markets could adjust sharply upward.
Some further upward adjustment in mortgage yields may
develop this spring in any event.

Available data suggest a continued

slowing of thrift institution deposit inflows over the recently concluded reinvestment period, and with outstanding commitment volume
high these lenders may curb the rate of growth of new commitments.
Federal housing agencies are already positioning themselves to expand
their support to lenders and the mortgage market generally.
Monetary Aggregates.

Preliminary data indicate that M 1 re-

mained essentially unchanged in March, while M 2 continued to increase
at about half the pace of 1972.

For the first quarter as a whole,

M 1 expanded at only a 1.7 per cent annual rate, and for the fourth
and first quarters combined, increased at a 5.2 per cent pace.

While

some of the March weakening in M 1 may be associated with unusually
modest business borrowing over the mid-month tax date, demands for
money apparently have been restrained by the cumulative impact of
rising interest rates and perhaps also by shifts by consumers out of
cash into goods in anticipation of even higher prices of goods later.
Inflows of consumer-type time and savings deposits at banks
rose at a somewhat higher rate in March than in February.

However,

on balance, growth in these interest-bearing deposits has been weaker
in recent months than during the early part of 1972, with inflows

II - 4
slowing in both the fourth quarter of 1972 and the first quarter of
this year.

The recent slower growth was to be expected in view of

the rapidly rising rates on competing money market instruments.
With growth in demand and consumer-type time deposits
moderating and credit demands strong, banks continued to bid actively for funds through sales of large negotiable CD's.

Following

a record increase in February, outstanding CD's rose by an even
larger $6.1 billion (seasonally adjusted) in March. Thus, total outstanding CD's have increased close to $12 billion since the end of
December.

In addition, with offering rates on all maturities longer

than 90 days at ceiling levels, close to 90 per cent of CD sales in
both February and March were in shorter-term maturities at the large
New York City banks.

As banks competed for additional funds, posted

offering rates on shorter-term CD's increased over 75 basis points
at prime New York City banks in March, with some banks recently
offering rates as high as 7-1/4 per cent.
In March, banks also recorded a modest increase of $400

million in non-deposit sources of funds--primarily Eurodollars and
bank related commercial paper--whereas this series had been virtually stable in earlier months.

II - 5
MONETARY AGGREGATES
(Seasonally adjusted changes)

QII

1972
I
il111

1973
Feb.

Mar.p

Per cent at annual rates
M1 (Currency plus private
demand deposits)

8.2

8.6

1.7

6.1

8.5

10.3

10.2

5.8

5.9

5.0

10,8

12.4

11.5

8.4

8.7

6.3

Adjusted bank credit proxy

11,5

9.8

12.1

15.1

16.4

20.0

Time and savings deposits
at commercial banks
a. Total
b.
Other than large CD's

14.8
10.8

14.0

14.4

12.3

11.6

23.1
9.6

21.6
5.7

30.9
10.1

M
2

6.1

- .5

(M1 plus commercial bank
time and savings deposits

other than large CD's)
M (M plus savings deposits
3
2
at mutual savings banks
and S&L's)

Billions of dollarsBillions of

Memorandum:
a,

U.S. Government
demand deposits

-1.1

2.4

Negotiable CD's

1.4

3,3

4.4

6.1

1.0
11,7

c. Nondeposit sources
of funds

p - Preliminary and partially estimated.
Month-to-month and last-month-in-quarter to last-month-in-quarter
1/
changes in averages, not annualized.

II - 6

Bank Credit.

Paced by expansion in Cd's, bank credit

continued to expand sharply in March.

Business loan growth moderated

somewhat, though it remained very strong by historical standards.
Other loan categories, including consumer and real estate loans,
maintained their rapid rates of growth.

In addition, banks acquired

a modest amount of U. S. Government securities during March following
a substantial reduction in their holdings in February; bank holdings
of other securities remained essentially unchanged.
COMMERCIAL BANK CREDIT ADJUSTED FOR
LOANS SOLD TO AFFILIATES 1/
(Seasonally adjusted changes at annual percentage rates)
1972
QIV
Total loans and
investments 2/
U. S. Treasury
securities
Other securities

Total loans 2/

14.4 (15.0) 3/

-8.1

18.7 (19.5)-3

1973
Feb.

Mar.

20.3

21.9

19.4

- 9.0
3.5

-34.8
1.0

8.0

30.2

36.9

27.1

Business loans 2/
Real estate loans

39.1
16.0

47.2
15.8

30.9
15.6

Consumer loans
1/
2/

15.2
17.6

19.0

17.6

16.8

16.5

Last Wednesday of month series.
Includes outstanding amounts of loans reported as sold outright
by banks to their own holding companies, affiliates, subsidiaries,
and foreign branches.
Adjusted to exclude an $800 million matched sale-purchase transaction by the Federal Reserve on the last Wednesday of September.

II - 7
Most of the slowing in business loan growth in March occurred
around the mid-month tax period.

Despite the absence of available

tax bills, and no noticeable net reduction in outstanding CD's,
business borrowing from banks over the tax date was relatively small.
Apparently, corporations met their March tax liabilities mainly from
their larger holdings of liquid assets, including demand balances.
The somewhat slower growth of business loans apparently did

not reflect moderation in the substitution of such loans for commercial
paper.

With the spread between commercial paper rates and the prime

rate still wide, dealer-placed commercial paper declined $1.8 billion

in March, little different than the drop in February, as shown in the
table.

After adjustment for the shift from commercial paper to bank

loans, business loan expansion in March was only somewhat higher than

in the latter half of 1972.

As noted in the table, total bank loans

and commercial paper increased at a 14.4 per cent annual rate in
March, above the average pace for the third quarter of 1972 but
almost the same as the fourth quarter average.

- 8

CHANGES IN BUSINESS LOANS AND COMMERCIAL PAPER 1/
Business loans
at all
commercial banks

Dealer-placed
commercial
paper

Total

Annual percentage rate of
change of total

(Billions of dollars, seasonally adjusted)
1973 - January

3.9

- .2

3.7

31.0

February

5.3

-2,0e/

3.3e/

27.Oe/

March

3.6

-l18e/

1.8e/

14.4e/

Memorandum:

Average monthly changes

1972 - QIII

1973 - QI

1/
e/

- .4

1.6

4.3

QIV

1.3

-1.3e/

8.0

1.8

14,8e/

3. 0/

24.6e/

Adjusted for outstanding amounts of loans sold to affiliates.
Partly estimated.

The growing demand by businesses for bank credit over the
first quarter--while no doubt buoyed by relative cost considerations-appears to be related to the continuing cyclical needs of corporations
for working capital and investment funds.

As in previous months,

lending in March tended to be broadly based across most industry
groups.

However,

most of the strength in business loans in the first

quarter occurred at the largest banks, which generally have more
ready access to the CD market.

- 9

CHANGES IN BUSINESS LOANS BETWEEN DECEMBER AND MARCH
(Not seasonally adjusted; including loans
sold; in millions of dollars)

Year

All
commercial
banks

1970

1971

Nonweekly
reporting
banks

386

148

238

459

-1,551

-1,695

852

843

144

1972

114

715

635

1973

+9,333

845

Large weekly reporting banks
New
Total
York City
Outside, NYC

601

+8,002

+2,675

+5,327

+1,331 1/

Data are estimated on basis of change in total loans and on changes
in business loans in corresponding periods of other recent years.

In addition to continued strength in business, real estate
and consumer loans, loans to nonbank financial institutions in March
also rose rapidly.

With consumer credit demand high, finance companies,

even while continuing to borrow heavily in the commercial paper market,
also stepped up their borrowing from banks.

Bank borrowing was also

unusually large by mortgage bankers and real estate investment trusts,
in a period of heavy lending for both construction and property
purchase.
While loans to foreign commercial banks increased another $700
million, on balance, in March, some repayment had begun to develop in
late March and early April.

Since late January, these institutions

had borrowed up to $2 billion from U. S. banks.

II - 10

With loans still expanding at a rapid rate, and banks
acquiring a very moderate amount of securities, there was a further
decline in bank liquidity at large banks as measured by the ratio of
liquid assets to total liabilities.

The decline in liquidity ratios

at these banks has been moderate but continuous since December, with
New York City banks experiencing the sharpest decline.

Consumer credit.

- 11

Growth in consumer credit outstanding

slowed in February to a seasonally adjusted annual rate of $23.6
billion, down somewhat further from January, and more than 20 per cent
below the peak rate of $29.6 billion in December.

Although the over-

all increase was the smallest since last October,

the instalment credit

component of the total edged up to a new high in February for the
second month in a row.
large gains continued in

Among the various types of instalment credit,
the major commodities sectors--automobiles and

other consumer goods--while personal loans rose by a record amount.
As in January, both extensions and repayments of instalment debt reached
new highs.
Noninstalment credit has emerged as the "swing" item affecting
changes in the over-all total of consumer credit during recent months,
with especially large fluctuations in

charge account balances.

Charge

accounts showed an unprecedented seasonally adjusted annual rate of
increase of $6.3 billion in December, but have declined nearly $4.0
billion in the first

two months of 1973.

Consumers appear to be encountering no major difficulty in
obtaining credit to finance their purchases at relatively low interest
rates.

Rates on consumer instalment loans at commercial banks and

finance companies--although up slightly in some categories since yearend--have remained at or below year-earlier levels despite sharp
increases in the cost of funds to lenders.
finance companies have changed little

Rates on new car loans at

since last spring, and at 11.86

- 12

per cent in February were 13 basis points below February 1972; used
car rates were 7 basis points under their year-earlier level in
February.

Commercial bank rates on all types of consumer instalment

loans eased somewhat during March, after a small rise in February.
The ready availability of financing on such terms has
apparently encouraged an increased volume of borrowing by customers
of higher credit-risk, and delinquency rates on most types of consumer
credit have continued an uptrend that is counter to the usual behavior
at this stage of the business cycle.

The seasonally adjusted delin-

quency rate on auto contracts at major finance companies extended the
rising trend of recent months into January.

According to confidential

company data, the January delinquency rate--2.47 per cent of accounts
outstanding delinquent over 30 days--was moderately higher than the
December rate and was well above the 2.04 per cent rate of January
1972.

In fact, it was the highest rate in the 6-year history of the

series with the exception of some months in the first half of 1970.
At that time unemployment was rising and the Federal income tax
surcharge had restrained growth in disposable income.
Agricultural credit.

Demand for farm production loans will

probably be unusually high this spring as farmers seek to finance
higher-priced feed and livestock inventories as well as increased crop
production.

Farm machinery purchases are expected to maintain a strong

pace, and seasonal operating expenses to rise markedly.

According to

upward revised estimates of the Department of Agriculture, 1973 farm
production expenses will rise by $6 billion or 12 per cent, compared

II-

to annual increases of about 7 per cent in each of the last four years.
To some degree, the effects of the large cost increase on demands for
credit will be reduced by farmers' high current cash flow.
Rural banks generally will be able to accommodate increases
in farm production loan demands.

Due to improved farm income last

year, rural banks are more liquid than at any time since the spring
of 1969.

At production credit associations (PCA's), a rapid rate of

farm loan repayments left year-end loan volume at only 8.5 per cent
above a year earlier, well below the average gain for recent years.
However, new loan volume at PCA's picked up strongly in January and
February, running 19 per cent above the same months of 1972, perhaps
already reflecting the credit demand factors listed above.
A high level of activity continues in the farm real estate
market.

Land prices nationally rose 10 per cent in the year ended last

November 1, double the average annual gain of the last 20 years, and
indications are that the rate of increase has accelerated so far this
year.

The current profitability of farm operations and growing

optimism over longer-term prospects for farm income appear responsible
in view of the unusual price strength.
Farm mortgage debt is reflecting the higher land prices and
rate of transfers.

At Federal Land Banks, outstanding farm mortgage

holdings at the end of February were up by $1.3 billion, or 16.5 per
cent, from a year earlier.

Loan volume closed during the 12 months

ending in February and was 50 per cent higher than the total for the preceding 12 months, with the number of loans and the average size of loan
each up by 22 per cent.

II - 14
Short-term markets,

Interest rates on short-term securities

rose considerably further in the two weeks immediately following the last
meeting of the Committee.

Advances ranged to as much as 35 basis points

on short-term CD's and to about 20 basis points on 3-month Treasury bills,
although yields on longer maturity bills were up only 5-10 basis points.
Much of the rise reflected a lagged response of security rates to earlier
tightening of day-to-day money market conditions.

In addition, new data

documenting the strength of inflationary pressures tended to reinforce
expectations of further money market tightening ahead.

Continuing

aggressive efforts of commercial banks to sell large CD's added substantially to the supply of short-term market instruments during March,
despite a sizable decline in the total volume of outstanding commercial
paper.

This latter cut-back was attributable entirely to a drop of $1,8

billion in nonbank-related dealer placed paper reflecting continued
substitution of bank credit for commercial paper by nonfinancial corporations,

This decline more than offset the increase in both bank-

related and nonbank-related directly placed commercial paper.
Thus far in April, short-term interest rates have turned
down.

The largest rate reversal has been on 3-month Treasury bills which

have traded most recently around 6.20 per cent, about a quarter of a
percentage point below their early April high and 10 basis points below
the level prevailing at the time of the last Committee meeting.

Rates

on bank CD's and commercial paper have dropped an eighth of a percentage
point since early April, but are still 10 to 25 basis points higher than
at the last meeting,

II - 15

The recent general easing of short-term markets has reflected
a rather abrupt shift in market expectations about public economic
policies,

The recent tendency for the Federal funds rate to drift

back below 7 per cent--from the roughly 7-1/8 per cent average level
prevailing earlier--along with the much slower recent growth in the
money supply aggregates and evident Desk efforts to supply reserves
have led market participants to conclude that at least for the nearterm monetary policy will not be contributing to further tightening of

short-term rates.

At the same time the very large recent rise in whole-

sale prices has led market participants to conclude that a stronger program of wage and price controls will soon be forthcoming.

In addition

to these psychological factors, Treasury bill rates have been under

downward pressure recently from large, partly seasonal, demands, including some reinvestment of the $1.5 billion of revenue-sharing payments just received by State and local governments.
Intermediate-term markets.

During the latter part of March,

yields on Treasury coupon issued remained relatively stable despite the
further rise in short-term rates.

Continued foreign account purchases

of such issues, at a time when dealers' positions remained in a substantial net short position, contributed importantly to this relative
rate stability.

In addition, with the Treasury in a comfortable cash

position, it soon became clear that the $2 billion, 2-year Treasury

note, previously scheduled for offering at the end of March, would
not be needed after all.

In this market climate the sizable volume

II -16
of new Federal agency issues brought to market around the end of the
quarter was absorbed without much difficulty.
With the recent strengthening of short-term markets, dealers
have moved fairly aggressively to reduce the exposure of their short
positions in coupon issues.

As a result, yields on 10-year Treasury

issues, for example, are now about 10 basis points below the levels
prevailing at the time of the last meeting.
Looking ahead, staff projections indicate that the Treasury
probably will not need to enter the market for cash until July--barring
any sizable redemption of special issues by foreign central banks.
Although the Treasury may feel committed to offer an additional $2
billion note in its new 2-year cycle before the end of the fiscal
year, this could be incorporated into the May refunding,

If no further

Treasury cash offering is undertaken in the second quarter, net debt
repayment of a little over $5 billion seems likely by the end of June.
This figure includes the run-off of April and June tax bills and an
assumption that $1 billion of maturing May issues will be paid off.

Net

financing operations by Federal agencies, on the other hand, are expected
to amount to about $3.0 billion between now and mid-year.

This is a

considerably larger volume of financing than occurred in 1971 and 1972,

II - 17

SELECTED SHORT-TERM INTEREST RATES
(per cent)

Week
Ending

Mar

Mar26

1973
Apr.2

Apr. 9

Change
Mar. 19--Apr9

Treasury bills
3-month
6-month
1-year

6.22
6,70
6,72

6,23
6,64
6,64

6,46
6,79
6.74

6.16
6,29
6,30

-.06
-. 41
-.42

Federal agency
1-year

7.30

7,32

7.36

7.22

-.08

Commercial
paper
90-119 days

6,88

7,00

7.13

.25

Large negotiable CD's
60-89 days
90-119 days

6.63
6.75

6.88
6.75

7.00
6,75

7.13 (4/4)
6.75

.50

Bank prime ratemost prevalent

6,25

6,50

.25

Statement Week Ended
ar____~___2aAp._1/
Mar, 21 Mar, 28 Apr, 4 Apr. 10Federal funds(daily average)

6.96

7,11

7.18

I/ Average for first 6 days of the week.

6.98

Change--week ending
Mar, 21 to week
ending Apr. 10
.02

II - 18
Long-term securities markets.

On balance, yields on long-

term private securities have remained stable or even declined somewhat
since the meeting in mid-March,

Demands on the capital markets have

remained quite moderate, especially in the corporate sector.

And,

as of early April at least, the concern of market participants about

further increases in short-term interest rates and prospects for controlling inflation was offset by the positive effects of a strong
technical position in long-term markets and the limited prospective
supply of bonds.

Most recently, market participants appear to have come

to believe that monetary policy would not continue to be so restrictive
and that short-term rates are at or near their peaks,

SELECTED LONG-TERM INTEREST RATES
(Per-cent)
Long-term

New Aaa
1/ Recently offered
utility bonds- Aaa utility bonds 1/

U. S. Gov't.

State & local
(10-year conbonds 2/
stant matutty)

1971
Low
High

7.02 (2/5)
8,26 (7/30)

7.14 (12/31)
8.19 (1/2)

4.97 (10/21)
6,23 (6/24)

5,38 (3/23)
6,95 (7/28)

6,99 (11/24)
7,60 (4/21)

7,12 (12/1)
7,46 (4/21)

4,96 (12/7)
5,54 (4/13)

5,85 (1/14)
6,63 (9/25)

7,29 (1/12)

7,26 (1/5)

5.00 (1/19)

6.42 (1/5)

7.52 (3/16)

7.60 (3/16)

5,35 (3/23)

6,76 (3/23)

1972
Low
High
1973
Low

High
March

7,45

5,22

6,65

--*

7,50

5,27

6,67

16
23
April

7.52
7,45

7,60
7.53

5,34
5,35

6,72
6,76

30
6

--*
7
.51p

7,44
7,43p

5,26
5.22

6.71
6.72p

Preliminary
No observations available for new issues rated A or higher that meet the
criteria for inclusion in the series.
1/ FRB series
2/ Bond Buyer

p
*

II -

Offerings of public bonds by corporations amounted to $1.1
billion in March, and the staff estimates that April volume will be
somewhat lower.

Underwriters indicate that few industrial corporations

plan to issue debt in the near future.

At this time it appears that

public bond volume might average only about $1 billion a month during
the second quarter of 1973, a seasonally light supply.

On the other

hand, takedowns of private placements appear to be edging up further
on average from the high levels prevailing in 1972.

CORPORATE AND MUNICIPAL LONG-TERM SECURITY OFFERINGS
(Monthly or monthly averages, in millions of dollars)

1972

Corporate Securities
Total
Public bonds
Privately placed bonds
Stock
State and local gov't,
securities

1972
QIV

3,398

3,521

2,820

4,050

3,000

1,528
780
1,087

1,386
1,049
1,086

905
632
1,283

1,100
1,000
1,950

1,000
800
1,200

1,970

1,952

1,872

2,200

1,700

1973
Mar.e/

Apr. f/

e/ Estimated
f/ Forecast
The March estimate of new stock issues has been revised to about

$2 billion and now includes new issues of shares in closed-end income
funds, which the SEC recently began to report in the stock figures.

The

staff estimate for April has also been increased to take account of such
issues.

On the basis of scheduled utility stock issues, stock volume

might well remain close to the $1 billion level throughout the second
quarter.

Stock prices continued drifting lower on balance throughout
the month of March and into early April.

The gains registered in the

market rally over the fourth quarter of 1972 have now been largely
erased by the general decline in

stock prices since mid-January.

Recent

trading volume on major exchanges has been slow to moderate, reflecting
investor apprehension about high interest rates, inflationary pressures,
and the strength of the dollar in the international markets.

This lower

level of trading volume is, of course, generating reduced commission
revenues for brokerage firms.

RECENT STOCK PRICES AND VOLUME DEVELOPMENTS
Oct. 16, 1972Jan. 11, 1973

Jan. 11,
Apr. 9,

19731973

Price change (per cent)
+11.7
+13,8
+3,8
+8.5

Trading Volume (in millions of sharas)NYSE
AMEX
NASDAQ

-9.9
-9.9
-9.6
-16.2

18,6

16.5

4.2
9,0

NYSE
D-J Ind,
AMEX
NASDAQ

3.5
7.8

1/ Daily average for period.

Several large, long-term, tax-exempt offerings late in March
boosted the monthly total to almost $2.2 billion,

The April calendar

suggests a total of about $1.7 billion for this month.

In spite of this

relatively large volume, yields on long-term tax-exempts have declined
moderately.

Casualty companies continue to make heavy purchases of

revenue bonds and longer-term tax-exempt bonds in general.

Under-

writers also report that in recent weeks banks outside the money centers
have increased their net purchases of municipals somewhat.
Short-term municipal debt, as measured by the FRB series
on the net change in short-term debt, declined by about $2 billion
in March, the first monthly decline of such magnitude in the history of
the series.

The run-off in short-term securities undoubtedly reflects

the combination of higher tax receipts for State and local governments
and revenue-sharing payments.

Nonbank thrift

- 22

institutions.

During the month of March,

deposit growth at thrift institutions is estimated to have been
slightly above the pace recorded in February.

Most of the deposit

inflow at S&L's and MSB's was received in the first

three weeks of the

month, with both sets of institutions experiencing some outflows or
only very small inflows during the latter part of March--a normal
seasonal pattern.
month-end,

However, the large volume of interest credited at

and the fact that this amount has increased substantially

in recent years, may tend to inflate the seasonally adjusted growth
rate.

On the basis of net new money alone, seasonally adjusted deposit

inflows at insured S&L's were only about half of the amount received
in February.

DEPOSIT GROWTH AT NONBANK THRIFT INSTITUTIONS
(Seasonally adjusted annual rates, in per cent)

Savings and loan

Mutual

associa tions

savings banks
1972 - QI
QII
QIII
QIV
1973 - Qe

Both

13.6
10.7
11.6
11.0

22.5
15.9
18.2
14.2

19.7
14.3
16.2
13.2

8.0

14.0

12.0

23.3
9.0e
10.0

19.4
8.1e
9.0

10.6
1973 - January
6.1
February
7.0
March e/
Estimated on the basis of sample data.
e/

End-of-month deposit outflows were most prevalent at the large
New York City mutual savings banks,
have been quite interest sensitive.

in which depositors historically
Recent data available for the

first five business days of April indicate that these large banks
experienced an outflow of $78.8 million.

This, of course, compares

unfavorably with 1972 and 1971, but in both of those years the large
New York MSB's received contraseasonal net inflows when rates on market
securities were low relative to rates on depositary claims.

The dollar

volume of outflows is the same as during the similar period of 1969,
but the 1973 outflow represents a much smaller proportion of total
deposits than in the 1969 period.
Apparently reflecting increased seasonal demands for commit-

ments, as well as anticipation of the month-end reinvestment period,
savings and loan associations increased their borrowings from the
FHLBanks by over $400 million during the month of March.

In the

preceding 3 years, S&L's repaid substantial amounts of outstanding
borrowings from the FHLBanks.

Given the moderation in deposit flows,

the usual seasonal rise in extensions of mortgage credit during the
spring could lead to increased borrowings through the FHLB system and

somewhat more restrictive S&L lending policies.

II Mortgage market.

With slackening deposit flows to nonbank

thrift institutions and uncertainty about interest rate prospects for
mortgages, offerings of home loans to FNMA and FHLMC have increased in
recent weeks and costs of housing finance have remained under upward
pressure,

According to field reports and trade opinion, rates on new

commitments for permanent home loans have apparently risen somewhat,
at a time when seasonal demands for mortgage credit have strengthened.
In the primary market during early March, average contract
rates on conventional first home mortgages closed under prior commitments remained essentially unchanged from a month earlier, and nonrate terms continued to be quite liberal, according to the newly-reconstituted FHLBB series.

More than a tenth of all such loans closed

during the first quarter of 1973 were for amounts in excess of 90 per
cent of property value.

Savings and loan associations and mortgage

companies have accounted for nearly all of these high-ratio mortgages.
Such loans--which typically require private insurance--have in many
cases replaced mortgages which might otherwise have been underwritten
by the Federal Housing Administration at lower effective yields.
In the secondary market, the steady uptrend in mortgage
yields has accelerated slightly.

Average yields on Government under-

written home loans rose 5 basis points further in the latest bi-weekly
(April 2) auction of FNMA forward purchase commitments.

At a level of

7.86 per cent, yields were up 18 basis points from their recent low
late last year.

A somewhat sharper yield uptrend has been evident in

FNMA's commitment auction for high loan-to-value ratio conventional
home mortgages.

However, offerings to FNMA of this kind of loan,

- 25

while rising, have remained substantially below those of FHA/VA
mortgages.
FNMA PURCHASE AUCTIONS
(FHA/VA HOME MORTGAGES)

Total Offers
Received
Accepted
(millions of dollars)
1972 - High

365 (5/1)

- Low

1973 - Jan.

336(5/1)

Per cent
of offers
accepted

Yield to
FNMA 1/
(per cent)

92 (5/1,7/24)

7.74 (10/30)

61 (11/27)

36 (11/27)

42 (3/20)

7.53 (3/20)

Feb.

7.69

107

7.70

129

7.71

110

7.73

Mar.

5
19

171
297

108
169

63
57

7.75
7.81

Apr.

235

146

7.86

1/ Data show gross yield to FNMA on 4-month commitments, before deduc-

tion of 38 basis point fee paid for mortgage servicing, assuming a
prepayment period of 12 years for 30-year loans, without special
adjustment for FNMA charges for commitment fees and stock purchase
and holding requirements.

II -

Although foreclosure rates remained quite low, the average
delinquency rate on home mortgages (MBA series) increased more than
usual during the fourth quarter of 1972 to reach 4.7 per cent of out-

standing loans held by reporting institutions, a new high for the
series which dates from 1953.

The increase continued an uptrend that

has persisted with little interruption since early 1969.

Although

the average 30-day and over delinquency rate moved higher for all
types of mortgages, most of the rise was in FHA-insured loans, both
subsidized and unsubsidized.

Federal Finance.

Our forecast of receipts for fiscal 1973

has been raised $3,5 billion from the estimate given in the March
Greenbook.

As a result, budget receipts for the fiscal year are now

projected at $231.5 billion.

With fiscal year outlays still projected

at $249.8 billion, the budget deficit of $18.3 billion has been revised
downward by the same amount as the upward revision in receipts.
A substantial part of the increase in the estimate of receipts
reflects the larger than anticipated revenues obtained in February and
March, especially in the area of withheld and social insurance taxes.
Projections of receipts over the remainder of the fiscal year have
also been raised, partly because previously expected taxpayer adjustments to overwithholding have not materialized to any considerable
degree.

The increase in social insurance taxes includes larger social

security payroll tax collections as well as larger projected inflows
in a number of miscellaneous social insurance receipts.

Estate and

gift tax collections are also running higher than expected earlier,
Because the corporate profits projection has been increased approximately

II - 27

$8.0 billion for calendar

1973, we have increased our receipts pro-

jection for the second half of calendar 1973 by $1.5 billion. The total
calendar 1973 increase in our receipts projection is therefore $5.0
billion.
Considerable uncertainty remains about the size of final
payments on calendar year 1972 personal tax liabilities, but collections
so far are somewhat above our projections.

The fiscal 1973 refunds

projection remains essentially unchanged at $20.1 billion.

However,

the delay in the processing of refunds continues, due in part to
delays caused by the need to verify taxpayer residences for revenue
sharing purposes.

The staff now expects cash refunds in the second

quarter to be $5 billion above last year, even though actual first
quarter refunds were only $1 billion above last year on a cash basis.
Outlays have been running substantially below expected levels.
During February and March they were $2.1 billion below their projected
two month total.

A continuation of this trend would result in fiscal

1973 outlays falling $2 to $3 billion below current projections.
However, because the Administration has not changed its expenditure
projection, the staff anticipates an acceleration of spending or reduced asset sales as the fiscal year draws to a close and is therefore
maintaining its own projection at the Administration's official
estimate of $249.8 billion.
The end-of-March Treasury cash balance was $12.9 billion.
The excess of $1.9 billion over that projected in the March Greenbook
reflects the increased receipts and reduced outlays discussed above.

II - 28
Because April cash flows are projected to continue in surplus, the

end-of-April cash balance is forecast up $.3 billion at $13.2 billion.

- 29

PROJECTION OF TREASURY CASH OUTLOOK
(In billions of dollars)

March

-1.7

-0.6

-2.2

0.1
-2.5
--

3.0

-0.7

Other net financial sources-

Plus:

Budget surplus or deficit (-)
Change in cash balance

1.9

0.3

0.6

Plus:

Memoranda:

June

0.2
-2.0

Weekly and monthly bills
Tax bills
Coupon issues
As yet unspecified new
borrowing
Special issues to foreigners
Agency transactions, debt
repayment, etc.

Equals:

May

3.3

Total net borrowing

\pril

-0.7

-4.1

-3.5

4.8

1.1

-3.5

1.9

Level of cash balance,
end of period

12.9 b/

13.2

9.7

11.6

Derivation of budget
surplus or deficit:
Budget receipts
Budget outlays

15.6
19.7

24.9
23.2

18.2
21.7

27.6
22.0

Maturing coupon issues
held by public
Sales of financial assets

4.3

0.9

Budget agency borrowing
Net borrowing by government-sponsored agencies
a/
b/

0.4
-0.6

0.4

2.1

Checks issued less checks paid and other accrual items.
Actual

1.1

FEDERAL BUDGET AND FEDERAL SECTOR IN NATIONAL INCOME ACCOUNTS
(In billions of dollars)

Fiscal 1973 e/
Jan.
F.R.
Budget
Board

FY 1974 e/ Calendar Years
1972
Jan.
1973
Actual F.R.B.
Budget

F.R. Staff Estimates
Calendar Quai
s
1972
1973
IV*
I
II
III
IV

Federal Budget
Surplus/deficit
Receipts
Outlays
Means of financing:
Net borrowing from the public
Decrease in cash operating balance
Other 1/

-24.8
225.0
249.8

3/
Sales of financial assetsBudget agency borrowing 4/
Sponsored agency borrowing 5/

-12.7
256.0
268.7

-17.4
221.5
239.0

-11.3
248.4
259.7

-10.5

50.5
60.9

-8.8 3.0
54.8 70.7 64.5
63.5 67.7 64.5

5.5
1.4
7.6

21.6
-1.5
-1.8

16.5
n.a.
n.a.

15.2
0.2
2.0

8.2
3.1
0.1

8.7 -4.5
1.7
12.3
-1.3 -1.8
1.3 -0.2
.2
-1.5
-0.5
1.9

11.6

25.0
3.0
-3.2

Cash operating balance, end of period
2/
Memo- :

-18.3
231.5
249.8

n.a.

11.1

8.0

11.1

3.1
0.8
3.1

n.e.

5.9
0.4

6.5

4.0
2.5
9.6

0.2
10.9

12.9

11.6

1.1
0.3

1.3
--

0.8

1.5

2.7
-0.6
3.6

11.8
n.e.
0.4
3.4

-5.6
58.4
64.0

2.3
3.8

-0.5
8.0
n.e.
0.4
2.4

National Income Sector
Surplus/deficit
Receipts
Expenditures
High Employment surplus/deficit
(NIA basis) 7/

233.3
259.9

-19.0
-12.5
239.16. 263.0
258.1
275.5

n.a.

- 5.6

-26.6

n.a.

-18.1

-5.3

228.7
246.8

261.2

-0.4

266.5
-3.3

-24.1

10.3 -12.9
238.62 52.6 252.2
262.7 262.9 265.1

-11.6

-8.0

-7.0

-1.9
267.1 272.7
267.1 270.8

-0.3

p.--preliminary
* Actual
n.e.--not estimated
n.a.--not available
e--projected
Includes such items as deposit fund accounts and clearing accounts.
The sum of sponsored and budget agency debt issues and financial asset sales does not necessarily reflect the
volume of debt absorbed by the public, since both the sponsored and budget agencies acquire a portion of
these issues.

Includes net sales of loans held by the Commodity Credit Corporation, Farmers Home Adm., Government
National Mortgage Assn., Federal Housing Adm., and Veterans Adm.
against Federal Budget Outlays shown above.

Receipts from these sales are netted

Includes, for example, debt issued by the U.S. Postal Service, Export-Import Bank, and Tennessee
Valley Authority, which is included in the Net Treasury Borrowing from the Public shown above.

Federally-sponsored credit agencies, i.e., Federal Home Loan Banks, Federal National Mortgage Assn.,
Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives.

Quarterly average exceeds fiscal year total by $4.2 billion due to spreading of wage base and refund
effect over calendar year.

7/ Estimated by F.R. Board Staff.

INTERNATIONAL
DEVELOPMENTS

4/11/73

STRICTLY CONFIDENTIAL (FR)
III --

T - 1

U.S. Balance of Payments
In millions of dollars; seasonally adjusted

1 9 7 2P/
Year I

Goods and services, net 1/
Trade balance 2/

-4.219 4 -2.703
-6.816 -3.608
48,840 23,220
55,656 -26,828
905
2,597
-,-- -.

Exports 2/
Imports 2/
Service balance

-4

19 7 3

2H1

Jan.*

-1.520
-3.208-4 a.25,620 4,972
-28,828 -5,415
1,688
-

Feb,*

Remittances and pensions
Govt. grants & capital, net

-1,556
-3,575

-772
-1,574

-784
-2,001

U.S. private capital (- = outflow)

-8,339
-3,339
-619
-733
-2,780
-406
-462

-3,302
-1,366
-747
-221
-650
-255
-63

-5,039
-1,973
127
-512
-2,130
-151
-400

Foreign capital (excl. reserve trans.)
Direct investment in U.S.
U.S. corporate stocks
New U.S. direct investment issues
Other U.S. securities (excl. U.S. Treas.,
Liquid liabilities to:
Commercial banks abroad
Of which liab. to branches 3/
Other private foreign
Intl. & regional organizations
Other nonliquid liabilities

10,488

4,322

6,167

Liab. to foreign official reserve agencies

440
5,020
-5,460

Direct investment abroad
Foreign securities
Bank-reported claims --

liquid

other

Nonbank-reported claims -"
"
"

liquid
other

U.S. monetary reserves (increase.
Gold stock
Special drawing rights 4/
IMF gold tranche
Convertible currencies
Errors and omissions
BALANCES (deficit -) 4/
Official settlements, S.A.
S"
, N.S.A.
Net liquidity, S.A.
"

, N.S.A.

Liquidity, S.A. 5/
, N.S.A.
*
1/
2/
3/
4/
5/

-127
3
444

46
-1,193
-1,664

481

438

322
2,463
1,974
64
4.816

860
1,062
101

3,905
(178)
809
102
849

1,456
(196)
334
-47
566

332
1,603
912
-37
3.073
2,449
(-18)
475
149
283

10,265

3,847

6,417

-724

7,676

742
547
7
153
35

554
544
7
184
-181

188
3

128

-31
216

-4
101

-4
132

-3,806

-372

-3,433

-4,401
-3,957
-5,668
-6,122
-6,144
-6,738

-6,605
-7,050
-9,015
-8,562
-9,678
-9,085

627

_7,804

-11,007
-14,684
-15,823

-10

1. 743

-1,896
3 -2,033
(-67) (-544)
109
-54
28
-34

Monthly, only exports and imports are seasonally adjusted.
Equals "net exports" in the GNP, except for latest revisions.
Balance of payments basis which differs a little from Census basis.
Not seasonally adjusted.
Excludes allocation of $710 million of SDRs on 1/1/72.
Measured by changes in U.S. monetary reserves, all liabilities to
foreign official reserve agencies and liquid liabilities to
commercial banks and other foreigners.

-5,908

III - 1

INTERNATIONAL DEVELOPMENTS
Summary and outlook.

In foreign exchange markets there has

been no definite trend since the end of the upheaval in February and
early March.

There has been little in the general economic news to

reassure the market about future stability.

In the United States the

market has seen an upsurge of commodity prices after a period in which
the U.S. price performance was greatly admired abroad.

Also in the U.S.

picture have been the varied amendments to the Par Value Modification
Bill (one of which would allow dealings by private citizens in gold
markets), and pressure to put ceilings on interest rates.

Abroad,

with overall economic activity generally strengthening, there has been
a rapid rise in prices of foods and raw materials, tempered somewhat by
currency revaluations.

Efforts to restrain inflation abroad have

involved some further tightening of monetary policy--facilitated in

some cases by stronger barriers against capital inflows--and some
measures in the areas of indirect taxation, tariffs, and income policies.
The U.S. trade balance showed some further gain in the
January-February average, to an annual rate of deficit of about $5-1/4
billion.

There was a remarkable increase in exports of agricultural

products to a $14-1/2 billion annual rate.

Other exports also exceeded

the fourth-quarter rate, and information on export orders points to
further increases ahead in exports of machinery and durable goods.
A strong plus factor in January and February was foreign net
purchases of U.S. corporate stocks totalling about $900 million.

There

III - 2

were also sizable purchases of U.S. corporate bonds, including substantial official Japenese purchases.
The selling pressure on the dollar in the period from the end
of January through mid-February and the renewed pressure early in March
were reflected in a large increase in foreign claims reported by U.S.
banks (including agencies of foreign banks) and a decline in their
liabilities to banks abroad.

Taken together, these shifts reported by

banks corresponded to about half of a total official settlements deficit
of about $12 billion in the six weeks to March 14.

From the middle of

March through the week ended April 4, the weekly indicators have shown
a sizable surplus on the official settlements basis.

More than half

of the reduction in official dollar holdings was for Japan, with a much
smaller reduction for Germany.
In the current quarter there may well be some increase in
the trade deficit because of higher import prices and domestic demand
strong enough to maintain import volumes.

Also on the negative side,

the inflow of foreign capital to the U.S. stock market is apparently
not being sustained at nearly the January-February rate.

On the other

hand, the scope for further lending abroad by U.S. banks is under some
pressure from the VFCR ceilings.

III - 3
Foreign Exchange Markets.

Activity in the exchange markets since

the official re-opening of the European and Japanese markets on March 19
has been rather subdued.

The dollar has strengthened against major foreign

currencies except for sterling and the Swiss franc, probably reflecting
some unwinding of leads and lags in commercial payments as well as the
effects of the negative interest rates on non-resident deposits imposed
by several European countries.

The Bank of Japan sold $745 million in

market intervention around the end of March; otherwise, there has been very
little dollar intervention by major foreign central banks.
Volume in most markets on most days since March 19 has been
considerably below normal, but has tended to increase from the extremely
low levels of March 5-16 when markets were officially closed.
The dollar has appreciated by about 2 per cent since March 14
against the guilder and the Belgian franc, and by 1/4 to 1/2 per cent
against the French franc and the German mark.

(The relatively greater

depreciation of the guilder and the Belgian franc probably reflects the
effects of the negative interest rates on non-resident deposits imposed
by those two countries, effective March 26.

Details of these and other

capital control measures are covered in Appendix A).
The European band has been fully extended much of the period
since March 19, and the mark has received a moderate amount of central
bank support against other European currencies, particularly the French
franc and the Scandinavian currencies.

In recent days the narrower

Benelux band has also been fully extended, and the guilder has been
supported by central bank sales of Belgian francs.

III - 4
The dollar has depreciated by about 1 per cent against sterling
since mid-March and on balance has shown no change against the Swiss franc.
Sterling strengthened on the basis of encouraging developments in the
domestic labor situation and the continuation of very high interest rates
available to foreigners, at a time when most other European countries
have imposed negative interest rates on non-resident deposits.
relative strength of the Swiss franc reflects,

The

inter alia, the continued

tight liquidity position of Swiss banks.
The dollar appreciated by around 2-1/2 per cent against the
yen, which is currently trading at 16 per cent over its Smithsonian
central rate.

The softness of the yen in the past few weeks, particularly

before the end of March, can be attributed to several factors, including
a seasonal weakness of Japan's trade balance, large pre-payments for

special uranium imports from the United States, and certain corporate
remittances abroad associated with the end of the Japanese fiscal year
on March 31.
The Canadian dollar depreciated against the U.S. dollar by
1/2 per cent from March 14 through April 9, with the Canadian dollar
falling below U.S. $1.00 on the latter date.

net, U.S. $38 million to cushion the decline.

The Bank of Canada sold,

The weakness of the

Canadian currency was attributed to the rise in U.S. dollar interest

rates relative to Canadian dollar interest rates over that period.

On Friday, April 6 the Bank of Canada raised its discount rate by 1/2
per cent to 5-1/4 per cent, and on Monday the Canadian dollar moved back

above U.S. $1.00 with the Bank of Canada taking in U.S. $13 million.

III - 5

Euro-dollar Market.

Euro-dollar rates have eased markedly since

the passing of the exchange market turmoil in February and early March,
but remain well above their levels at the beginning of the year.

In recent

weeks U.S. banks have found reserve-free overnight Euro-dollar borrowing
slightly more expensive than borrowing in the Federal funds market, a
reversal of the relationship that prevailed throughout the last quarter
and 1972 and the first month of 1973 before February's massive speculative
selling pressure on the dollar in exchange markets drove the overnight
Euro-dollar rates above 9 per cent.

Rates on one-and three-month Euro-

dollar deposits have on average exceeded rates on CD's of comparable
maturity by about 1 percentage point in recent weeks.

This contrasts with

the situation of near equality between the two sets of rates which prevailed in late 1972 and the excess of several percentage points of longer
maturity Euro-dollar rates over comparable maturity CD rates in February.
U.S. banks have allowed their reserve-free Euro-dollar borrowing bases
to decline to about $1-3/4 billion by reducing average daily borrowings
from their foreign branches by over $100 million during the computation

period ended March 14.

III - 6

SELECTED EURO-DOLLAR AND U.S. MONEY MARKET RATES

(1)

Average for

(2)

Overmonth or
week ending night 1/, Federal,

Wednesday

Euro-$- " Funds-

(6)

(5)

30-59 day
1-month
Euro-$1 / CD rate,

(1)-(2)(*)Deposit-

(Adi.)-

Differential

(4)-(5)(*)

5.10
5.08
6.05
5.97
7.70
8.79

5.10
5.01
5.25
5.79
6.35
7.20

0.00
0.07
0.80
0.18
1.35
1.59

(1.28)
(1.34)
(2.31)
(1.67)
(3.28)
(3.79)

(7.38) 8.64
(2.11) 9.63

6.45
6.72

2.19
2.91

(4.35)
(5.32)

1.03 (3.07) 8.89
0.47 (2.33) 8.24
0.18 (2.00) 8.57
1.37 (11.63) 8.38
-0.05 (1.68) 7.96

6.84
7,11
7.24
7.37
7.37

2.05
1.13
1.33
1.01
0,59

(4.27)
(3.19)
(3.47)
(3.11)
(2.58)

1972 - Oct, 4.77
Nov. 4,74
Dec. 4.75
1973 - Jan. 5.72
Feb. 9.03.,
Mar. 9.19-'

5.05
5.05
5.33
5.94
6.58
7.09

-0.28
-0.31
-0.58
-0.22
2.45
2.10

11.30
7.29

6.75
7.00

4.55
0.29

14
8.16
21
7.43
28
7.29
Apr. 4 15.05
11 -/6.93

7.13
6.96
7,11
7.18
6.98

1973 -Feb.28
Mar. 7

(4)

(3)
Differential

(0.91)
(0.88)
(0.61)
(1.21)
(4.71)
(4.40)

1/ All Euro-dollar rates are noon bid rates in the London market; overnight rate adjusted for technical factors to reflect the effective cost of
funds to U.S. banks.

2/ Effective rates.
3/ Offer rates median, (as of Wednesday) on large denomination CD's by
prime banks in New York City; CD rates adjusted for the cost of required
reserves.
4/ 8.07 excluding March 29. A technical anomaly involving a quarter-end
squeeze on dollar balances raised overnight Euro-dollar borrowing to 60 per
cent on that date.
5/ 7.57 excluding March 29.
*/ Differentials in parentheses are after adjustment of Euro-dollar rates
for the 20 per cent marginal reserve requirement (relevant to banks with
borrowings in excess of their reserve-free bases).
p/ Preliminary.

III - 7

U.S. balance of payments.

With foreign exchange markets calm

since mid-March, and some countries raising barriers against non-resident
funds, there has been a moderate reversal of the enormous outflows of
funds from the United States in February and early March.

Consequently

the overall U.S. balance of payments has recorded sizable surpluses in
recent weeks.

For the three weeks ending April 4, the balance on the

official settlements basis was a surplus of $1.8 billion, a sharp turnaround from the $12-1/2 billion deficit registered from the end of January
through March 14.
Large flows of funds involving changes in bank assets and
liabilities occurred in the first quarter.
their foreign branches declined sharply --

Liabilities of U.S. banks to
by $1.1 billion --

in the

three weeks to February 14, but on balance over the first quarter as a
whole they declined by only a small amount, $300 million.

U.S. agencies

and branches of foreign banks returned about $3/4 billion to their
home offices and affiliates during the 3 weeks to February 14.
year these foreign agencies had been bringing in funds --

Last

$1/2 billion

in the fourth quarter and over $2-1/2 billion in the year 1972 as a
whole.
Bank claims on foreigners also increased sharply in the first
quarter.

The flow totaled over $2-3/4 billion in February alone, with

over $1 billion in claims on Japan.

The increase in claims in February

was about equally divided between U.S. banks and U.S. agencies of foreign
banks.

Weekly banking statistics indicated continued large increases in

claims by U.S. banks through most of March, turning to reductions at the

end of March and early April.

III

Information regarding operations in late January and early
February shows that only a small part of the rise in U.S. banks' foreign
assets was in foreign currency holdings.

The rise in dollar "loans"

included at that time an increase in overnight overdrafts of correspondent
banks abroad, as well as drawings on outstanding commitments.
Probably both the decline in foreign liabilities and the rise
in foreign assets of banks in the United States reflected in large part
pressures in the Eurodollar market related to currency speculation.
Initially, banks in Europe from which Eurodollar deposits were withdrawn
or at which there was a rise in dollar loans drew on resources quickly
available to them in the United States.

Subsequently some of the

lending from the United States has no doubt served to refinance Eurodollar borrowings.
Foreign net purchases of U.S. stocks were surprisingly strong
in February, amounting to $450 million, only slightly smaller than the
very large amount -- $480 million -- purchased in January.

However, the

bulk of the February purchases occurred immediately after the devaluation on February 12, after which purchases dropped sharply.

A small

sample of brokers indicate that there was little business in March and
there may have been net sales of stocks by foreigners in that month.
Bond purchases by private foreigners--particularly offshore issues-also held up well in February but were probably small in March.

III - 9

U.S. foreign trade.

The trade deficit in February was at an

annual rate of $5-1/4 billion (estimated balance of payments basis),
about the same as the deficit in the two preceding months but considerably
below the $6-3/4 billion deficit rate of the fourth quarter of 1972.
Exports and imports both rose slightly in February, after very sharp
increases in January.

(These balance of payments data for January and

February have been adjusted for timing of entry of imports.

The published

Census data for February include a substantial amount of imports which
actually arrived in January.

This slippage resulted from computational

difficulties resulting from the introduction of new statistical classifications, as explained in the March Greenbook.)
It is quite likely that the trade deficit will worsen in the
next few months as dollar prices of imports rise, reflecting more fully
the impact of the exchange rate changes of 1971 and early 1973.

Some

foreign suppliers have announced higher prices beginning with March
deliveries.

Dollar prices of exports will probably also rise as a

result of the devaluation, but on average these increases may be more
gradual than for imports since a significant portion of U.S. exports
consists of specialized machinery or other heavy equipment contracted
for earlier at a fixed dollar price.
The values of both exports and imports in January-February
were exceptionally high, reflecting the continued strength of U.S.
demand, the further growth in foreign economic activity, and high
prices of agricultural commodities and nonagricultural industrial

III - 10

materials.

Exports in the first two months were at an annual rate of

$60 billion, 13 percent higher than in the fourth quarter and 23 percent

above the average for all of 1972, a further acceleration of the very
steep rates of increase that had already occurred in the third and
fourth quarters of last year.

Over one-half of the increase in exports

in January-February was in shipments of agricultural commodities, which

rose to an extraordinarily high annual rate of $14-1/2 billion, 35
percent higher than the previous record posted in the fourth quarter.
Only a small part of the increase was in the value of agricultural shipments to the Soviet Union, partly because the export prices of the wheat
corn and soybeans currently being shipped to that country are at the
levels of last summer when the sales were made; these prices are
considerably below the present export prices of the same commodities
shipped to other countries.

For example, the price of wheat exported

to Russia in February was $1.62 per bushel; to other countries the
average price was over $2.05 per bushel.
Exports of nonagricultural commodities also rose sharply in
January-February, continuing the advance which had begun in mid-1972.
Shipments of a broad variety of nonagricultural industrial materials-steel, ferrous scrap, nonferrous metals, chemicals, logs, etc.--were
very strong as were exports of machinery.

Foreign orders for U.S.

machinery, and other types of durable goods (aside from aircraft), rose
by nearly 20 percent from January to February.

New orders for machinery

in January-February combined were about 30 percent higher than a year
earlier.

III - 11

Imports in January-February also increased very sharply, though
not as much as exports.
quarter.

They were 9 percent greater than in the fourth

The advance, as throughout 1972, was led by imports of

industrial materials; imports of fuels were up to $6 billion at an
annual rate, about $3/4 billion higher than in the fourth quarter.
Imports of lumber, paper, copper and chemicals also rose substantially,
but imports of steel were no higher than in the fourth quarter.
Imports of other major commodity groups--particularly foods
and other consumer goods (except autos)--were also considerably stronger
in January-February.

Imports of capital equipment were also higher in

January-February, after being relatively flat in the middle quarters of
1972, reflecting the increasing strength in domestic investment
expenditures.
The major exception to the broad growth in imports in the
first two months was the continued stability in imports of cars from
Europe and Japan.

Domestic sale of these cars have been extremely high--

about 2 million units at an annual rate in each month from December
through March, with a surge occurring after the devaluation of February 12.
These sales are far in excess of the number of cars imported and have
resulted in a sharp decrease in inventories.

While sales of these cars

are expected to drop as new higher prices resulting from the devaluation
become effective (assuming, of course, that domestic car prices hold
steady), it is quite likely that even a partial replenishment of inventories will result in a large increase in auto imports during the
coming months.

III - 12

Price and wage developments in major foreign industrial
countries.

The most striking feature of the price picture in the

past few quarters has been the sharp acceleration of the increase in
agricultural and raw materials prices beginning in the second half of
1972.

This has been observed in all of the major industrial countries.

Despite somewhat more favorable price performance for manufactured
products in most countries, the general level of prices at both wholesale and retail levels has also tended to increase more rapidly since

mid-1972.

(See Table 1.)

Data are generally not available beyond

January or February; thus the effects of the February exchange rate
changes in holding back the advances in nondollar prices of internationally traded goods -increases --

at least in relation to dollar price

are not yet evident.

The rise in the prices of primary products has been
particularly sharp.

(See Table 2.)

The United Nations dollar-

based price index for primary commodities was 17.1 per cent higher
in

the fourth quarter of 1972 than it had been a year earlier.

Over

that period the index for food rose by almost 19.6 per cent; the
index for non-food agricultural commodities rose by 18.5 per cent,
with wool prices --

which have a large weight in

the index --

almost

doubling; the index for metal ores rose by 8.7 per cent; and the
index for fuels rose by 9.9 per cent --

the only major category in

which prices rose less in 1972 than in 1971.

III - 13

Table 1. Wholesale Prices of Manufactured Products
(percentage changes at annual rate)
1971-Q2

1971-Q4

197 2 -Q2

197 2 -Q4

to
1971-Q4

to
1972-Q2

to
1972-4

to
latest-

5.2
4.0
2.8
4.6
2.0
7.2
4.6

9.2
4.0
5.57.8
8.6
9.0
3.8

5.4
8.4
n.a.
5.1
19.2
n.a.
16.3

3.4
1.4
2.2
4.4
-1.4
6.0
2.2

France
Germany
Italy
U.K.
Japan
Canada
U.S.

1/ Latest data include March for the United States and the
United Kingdom; otherwise, only January data are available.

2/ Data available only through November.
Source:

OECD Main Economic Indicators and national sources.

Export Prices of Primary CommoditiesTable 2.
(percentage changes at annual rate)
1970-Q4
to

1971-Q2
to

1971-Q4
to

1972-Q2
to

1971-Q2

1971-Q4

1972-Q2

1972-Q4

Total
Food
Agricultural

11.0
7.0

3.5
0

18.8
18.8

14.1
18.8

non-food

5.9

7.7

18.5

16.9

8.3
30.6

1.6
4.7

12.6
18.3

4.4
1.4

Metal ores
Fuels

1963 = 100.
1/ The indices are computed in U.S. dollars.
Source: United Nations Monthly Bulletin of Statistics.

III - 14

These prices reflect both demand factors (including substantial
rebuilding of stocks) and supply factors.

Various shortages of materials

developed toward the end of the year, and agricultural production was
lower than in 1971 in many industrial and non-industrial countries.
These prices, expressed in dollars, also reflect the effect of dollar
exchange rate depreciation since the base period.

In countries whose

currencies have appreciated against the dollar, import prices for
primary commodities have of course increased somewhat less.

This was

a factor holding down the rate of general price increase in Japan,
Germany, and Switzerland, especially.
Significant upturns in aggregate demand in most industrial
countries were an important factor putting upward pressure on prices
of manufactured goods and services, as well as on prices of primary
commodities.

Tightening labor market conditions increased the likeli-

hood that the rise in prices --

especially food prices --

reflected in new labor contracts.
yet.

would be

This apparently has not happened

Indeed, with wage rates and earnings generally rising more

slowly in 1972 than in 1971, and with productivity increasing more
rapidly, there was actually some deceleration in the rate of increase
in unit labor costs in 1972 (although that rate generally remains
higher abroad than in the United States.) But it is feared in many
countries that cost pressures may intensify as spare capacity and unemployment is increasingly eliminated.

III - 15

Authorities in virtually all the major countries, therefore,
have been attempting to hold inflationary pressures in check.

In many

countries (France, Germany, Switzerland, and Japan) these efforts have
largely taken the form of less expansionary aggregate demand management
policies.

In France, and to a lesser extent in Switzerland, these

measures have been supplemented with voluntary price and wage restraint
agreements or surveillance procedures which appear to be fairly weak.
Tax and tariff reductions have been implemented in France and Canada
(and in the EEC as a whole) to lower some prices directly.

In the

Netherlands, Austria, Luxemburg, Norway, and Sweden, some prices have
been quite strictly controlled.

In Italy, a large reduction in

social security taxes, to reduce firms' production costs, is planned
for the near future.

Only in the United Kingdom, however, has a

comprehensive set of wage/price controls been employed.
Although the underlying price picture is largely the same in
most countries, some particular developments in individual countries
deserve mention.
The imposition of a wage/price freeze in the United Kingdom
last November has had a marked effect on the rate of increase of those
prices which have been controlled.

Retail prices for all non-food

items rose only 0.6 per cent in the three months since the freeze, compared to 2.7 per cent in the previous three months.

In the same recent

period, wholesale prices of manufactured products rose 1.1 per cent,

III - 16

precisely half the rate observed in the three months prior to the freeze.
Average earnings have remained essentially unchanged since November, and
basic hourly and weekly wage rates have risen only 1/2 per cent.
On the other hand, increases in those prices which were not

controlled (food and imported raw materials) accelerated sharply -even more sharply than elsewhere, reflecting the devaluation of sterling
as well as the rapid rise of world commodity prices discussed above.
The Government is relying almost exclusively on the success of
its wage/pr ce policy to keep prices under control.

Under a Phase II

program (which replaced the wage freeze on March 31 and is to replace
the price freeze on April 28), a Price Commission and a Pay Board have
been established to enforce the final version of the Pay and Price Code
published on March 26.

This Code provides that prices of controlled

items (e.g., items other than imports and most fresh foods) will be
allowed to reflect higher "allowable cost per unit of output"1 / only
if:

(I) cost increases were incurred before October 1, except for

companies previously observing voluntary price restraint and now intending

to invest; and (2) labor costs rose, but not by more than the freeze and
Phase II allow.

Even so, only half the increase in wages can be passed

1/ Allowable costs include certain services such as rental of equipment,
insurance, storage, and maintenance, as well as labor, materials,
components, fuels, rents, taxes, and interest charges.

III - 17

on in prices.2/

In addition, prices must be lowered if net profit margins

exceed the average of the best two of the last five years, unless

(1) the

profit margin does not produce a return of 5 per cent on capital, or 1 per
cent on turnover for service industries;

(2) increases in volume sales

have led to reduced costs; or (3) companies have been trading for two years
or less.

Allowable cost increases or profit margin limits can be modified

if the Price Commission thinks that the prospective rate of return would
prevent a company from going ahead with investment.
Interest rates are exempt, but banks will not be able to increase other charges unless the above cost rules permit.
The limit on pay increases is £1 a week per individual, plus
4 per cent of the average wage bill for a group of workers.
increase for any individual is £250 a year.

The maximum

Exceptions include extra pay

to bring women's pay closer to men's; reduction in hours, down to 40;
increases in holidays, up to 3 weeks; merit, age, or seniority increases;
individual promotions; and better pension or redundancy payments.

All

of this adds up to something on the order of an 8 per cent annual rate
of increase of earnings -- about half the rate experienced in the year
preceeding the freeze.
In France, an anti-inflationary program was announced in December.
Large reductions in the value-added tax (especially on food and

2/ Where the share of a company's labor costs exceeds 35 per cent of total
costs, the company will only have to absorb an amount equal to that which
would apply if labor represented 35 per cent of total costs.

III - 18

manufactured goods) were included, and are expected to reduce retail
prices in the first quarter by 1.2 per cent below what they would
otherwise have been.

Retail prices were stable in January and rose

only 0.3 per cent in February, after rising previously at annual rates
of 6 to 7 per cent.
There was also a recommendation in the December program that
both firms in the private sector and unions hold wage increases to 6
per cent in 1973 unless prices rise more than 4 per cent, in which case
a 2 per cent gain in real income should be maintained.

But unless the

Government decides to put some teeth into this policy there is little
question that the price increase will exceed 4 per cent, and it is
expected that union leaders will begin, after a quiet winter, to voice
stronger demands.
In Italy new labor contracts were signed in recent weeks.

The

most important contracts were those for the metal and engineering
industries, where hourly earnings reportedly will increase by 16-18 per
cent over 3 years, as the result of a 12 per cent across-the-board pay
rise coupled with reductions in average hours worked per week and longer
vacations.

The increases are probably front-loaded, the bulk of the 3-

year increase coming in the first year.
The Japanese authorities have taken various measures in recent
months to reduce inflationary pressures, even though these pressures have
developed more recently in Japan than elsewhere.

The measures include

III - 19

credit ceilings, higher commercial bank reserve requirements, and an
increase in the Bank of Japan's basic discount rate (from 4.25 to 5.0
per cent, effective April 2).
There has been some discussion in the Canadian press about
price and wage controls, but the government has so far been opposed to
such measures.

Instead, some of the provisions in the budget which

was announced February 19 were aimed at decreasing inflationary pressures.
Specifically, temporary tariff reductions averaging 5 percentage points
on about 1.3 billion Canadian dollars of imported consumer goods were
introduced, and sales taxes on food products and some clothing, and some
excise taxes, were abolished.

In addition, in order to stop the decrease

in real after-tax income resulting from the interaction of inflation and
a progressive tax system, the personal income tax system will be indexed
to price increases beginning in 1974.

The indexing would consist of

raising tax brackets to which given percentage rates apply and increasing
principal exemptions each year by an inflation factor based on the Consumer Price Index.

However, the basic thrust of the new budget -- and of

policy generally -- remains expansionary in order to encourage growth and
reduce unemployment.

APPENDIX A: SELECTED POLICY MEASURES TAKEN BY
FOREIGN COUNTRIES SINCE JANUARY 20, 1973*

This list refers to: 1) measures taken by foreign
countries in reaction to the exchange market developments of
January-March (excluding exchange rate changes and exchange
market intervention); 2) the abolition or expiration of those
measures; and 3) measures taken to affect foreign exchange
markets, other than official intervention.

Belgium
Week of February 26. Effective March 1 the National
Bank took administrative actions to prevent speculative inflows in
the form of nonresident holdings of commercial francs. These
measures were lifted on March 16.
Week of March 26. Under an agreement with the National
Bank, beginning March 26 the banks would levy a charge of 0.25
per cent per week on increases in nonresident franc deposits
above the daily average level in the fourth quarter of 1972.
The charge is equivalent to a negative interest rate of 13.75
per cent per annum.

France
Week of March 12. The following new control measures
were announced on March 16:
1. Payment of interest is prohibited on new franc deposits
made by nonresidents on or after January 4, 1973, for periods of
less than six months.
2. A 100 per cent marginal reserve requirement is imposed
on increases in deposits of nonresidents on or after January 4, 1973.
This marginal requirement supplements the existing average reserve
requirement of 10 and 5 per cent for resident sight and time deposits,
respectively, and 12 and 6 per cent for nonresident sight and time
deposits.
3. Financial-franc accounts may not be debited for the
purpose of buying any short-term securities, especially Treasury
bills, certificates of deposit, private bills, or payments to a
passbook account. This implies that nonresidents are strictly
prohibited from purchasing any short-term French securities,

A -2

These provisions do not apply to financial-franc accounts
opened for nonresident natural persons to the extent of wages,
salaries and fees, social insurance compensation payments, pensions,
and annuities collected to the credit of these accounts.
4. Resident commercial banks may not increase any surplus
(or reduce any shortfall) of forward exchange purchases over
forward exchange sales beyond the level as of February 28.
Week of March 26.
A.
French banks announced that due
to the 100 per cent marginal reserve requirement imposed by the
Bank of France, they are imposing a charge on nonresident deposits.
B. The Bank of France informed the commercial banks on March 31
that henceforth they may no longer enter into or renew operations
with any nonresidents which would amount to a swap operation
against French francs.

Germany
Week of January 29. Effective February 5, Bundesbank
approval is required for: purchase of German equities by nonresidents;
direct investment, in excess of DM 500,000, by nonresidents in
enterprises in Germany; borrowing in excess of DM 50,000 by residents
from nonresidents; and any changes in the terms of payment for
commercial transactions that constitute a "departure from normal
practices." Note: Since the end of June, the sale by residents to
nonresidents of German bonds has required Bundesbank approval.
Also, since July commercial banks have been under orders not to
sell to nonresidents "any types of claims on residents, shares
of mutual and real estate funds, and foreign bonds out of their
portfolios." The banks have also been instructed "not to arrange
and/or guarantee foreign credits to residents in excess of
DM 500,000."
On February 23, the German Parliament
Week of February 19.
completed passage of an amendment to the Bardepot law authorizing a
rise from 50 to 100 per cent in the legal ceiling on the proportion
of the proceeds of a loan by a nonresident to a German nonbank
which the latter must maintain interest free with the Bundesbank.
However, the new authority has not been invoked and the required
deposit remains at 50 per cent.

A-

Italy
Week January 22. Effective January 22 Italian
of
residents were required to liquidate, by sale on the exchange
market or other authorized uses, foreign exchange held in foreign
currency accounts with banks by the end of the month following that
in which the exchange was originally deposited.
Week of January 29. On February 1, transactions in
foreign banknotes were transferred from the commercial lira
market to the financial lira market.

Japan
Week of February 26. A. The Ministry of International
Trade and Industry (MITI) indicated that it would tighten up its
investigative procedures, which were first instituted in March 1972,
in order to ensure that the benefits from yen revaluation are
passed on to the public in the form of lower prices for imported
consumer goods. Twenty items, such as wristwatches, fountain pens,
automobiles, and gasoline, are to be the targets of continuous
price investigations, with the results being made known to the
consumers. MITI also intends to warn industries if it finds
that they are not cutting prices when they could do so.
B. In a move to reduce excessive bank liquidity, caused in
part by the large balance-of-payments surpluses, the Bank of Japan
announced that effective March 16 commercial bank reserve requirements would be raised for the large city banks by 0.5 percentage
points to 1.5 per cent for time deposits, and by 1.0 percentage
points to 3.0 per cent for other deposits.
Reserve requirements for smaller banks were also raised
by 0.25 percentage points. This was the second such action in
two months, reserve requirements having been raised earlier on
January 16, 1973.
Week of March 12. The Government instituted emergency
measures for aiding smaller enterprises seriously affected by
the revaluation of the yen. Three specific measures were taken:

(1) ¥220 billion ($840 million) has been set aside by the Government
for the use of three governmental financial institutions to aid
small enterprises; (2) the period for the repayment of special loans

that were extended to small enterprises after the last yen revaluation in 1971 has been extended by one year; and (3) the
ceiling on the amount of insurance obtainable under the Smaller

A- 4
Enterprises Credit Insurance System has been increased. The Smaller
Enterprise Agency of the Ministry of International Trade and Industry

will also study the operations of small enterprises in 16 industrial
areas and make recommendations for restructuring their operations in
view of the yen revaluation.

Netherlands
Week of March 12, Effective March 26, negative interest
is being charged on the convertible guilder deposits of nonresidents
in Dutch banks. Specifically, a so-called commission of 0.25 per
cent per week (13 per cent, annual rate) is being charged on that
part of such deposits in excess of the average balance in the

period February 1 through February 14. The commission can legally
be raised to as much as 2 per cent per week. "0" guilder accounts
are exempt from the commission, as are balances not exceeding
guilders 100,000 on account of individuals, associations and
foundations. Commercial banks must deposit these proceeds with
the Netherlands Bank.
Switzerland
Week of January 29. Effective January 29 the Swiss
National Bank reimposed on banks the requirement that their foreign
currency assets (spot and forward together) be at least equal to
the corresponding liabilities on every day.

*Prepared by Larry Promisel, Economist, Division of International
Finance.

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, April 17, 1973 : Greenbook

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