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CONFIDENTIAL (FR) SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System April 26, 1968 SUPPLEMENTAL NOTES The Domestic Economy The BLS wholesale price index increased another 0.2 per cent in April, to 108.4 per cent of the 1957-59 average, according to their preliminary estimate. Prices of farm products declined some- what but processed foods and feeds recovered their March dip, and the combined average for agricultural-based products edged up slightly further (0.1 per cent, to 107.0). The price rise for industrial commodities slowed further, to 0.2 per cent from 0.3 per cent in March and 0.5 per cent in February. (The April estimate for the industrial total was 108.8 per cent of the 1957-59 average.) About as many industrial commodity product classes showed increases in April as in March (107, per cent in March). or 48 per cent; as compared with 110, or 49 But most increases were relatively small; the earlier sharp rise for lumber slowed somewhat; copper prices began to recede from their greatly inflated March level; and prices of steel scrap declined substantially further. The BLS consumer price index increased 0.4 per cent in March, to 119.5 per cent of the 1957-59 average. which have been speeding up in recent months, Service costs, showed a further accel- eration in March with a rise of 0.6 per cent. Prices of foods and nondurable commodities except foods each rose 0.4 per cent, while prices of durable goods increased 0.2 per cent. The large March increase brought the rise in the past 6 months (September to March) the CPI for to an annual rate of 4.1 per - 2- cent. After rough allowance for seasonal influences, the rate of increase was about 4.3 per cent, with commodity prices increasing at The a rate of over 3.5 per cent and services close to 5.5 per cent. CPI in March was 3.9 per cent above a year earlier. The Domestic Financial Situation Preliminary estimates indicate that total loans and investments at all commercial banks, after declining in March, expanded in April at about an 8.5 per cent annual rate, This recent growth was entirely in quarter pace. first somewhat above the average ularly business loans, loans, partic- as bank security holding declined about $700 million on a seasonally adjusted basis over the month. CHANGES IN BANK CREDIT All Commercial Banks (Seasonally adjusted annual rates, per cent) February 1968 March 1st Qtr. 10.8 13.8 - 4.1 6.8 -10.1 54.8 -36.9 2.0 Other securities 19.5 3.8 17.2 13.7 - 1.9 Total loans 13.9 6.3 - 1.1 6.4 16.3 2.8 6.9 11.0 7.0 17.8 January Loans and investments U.S. Govt. securities Business loans 1/ April8.5 -12.0 All April figures are preliminary estimates based on incomplete data and are subject to revision. Data for weekly reporting banks indicate that while direct corporate borrowing at banks for tax payments in April was about the same as last year, total tax financing at banks was somewhat lower-- probably reflecting the larger amount of tax bills turned in payments. for tax - 3 CHANGES IN SELECTED BALANCE SHEET ITEMS AT WEEKLY REPORTING BANKS OVER THE APRIL TAX PERIOD(Millions of dollars) Item 1965 1966 1967 1968 Business loans + 77 +158 +646 +675 Government security dealer loans +276 +274 - 84 -562 Finance company loans +124 +293 +235 +521 Treasury bill holdings of banks + 26 +271 -287 -342 Negotiable CD's outstanding +121 + 65 -527 -697 +382 +931 +1,037 +989 1,187 2,440 4,295 4,600 6.5 7.0 15.0 14.7 32.2 38.2 24.1 21.5 Tax bills outstanding n.a. n.a. 2,510 3,507 Tax bills turned in for taxes n.a. n.a. 790 1,200 Tax bills turned in for taxes as a percentage of tax payments n.a. n.a. 18.4 Total bank financing Corporate income tax payments (1968 estimated) Direct bank financing (business loans) as a percentage of tax payments Total bank financing as a percentage of tax payments Memo: 1/ Reporting week including April 15. 26.1 n.a. - Not available. Immediately following the increase in Regulation Q ceilings, banks advanced their offering rates on most maturities of CD's. this week, Late posted rates generally were somewhat below ceilings on all maturities beyond 60 days, with a substantial volume of sales reported to be on 3-4 month maturities at the 6 per cent ceiling for this maturity -4- One bank is reported to be offering maximum rate on all range. maturities. Reflecting these higher rates, large banks in New York and Chicago raised their outstandings by $184 million and $34 million, respectively, during the week ending April 24. Corporate and municipal yields rose significantly in the week ended March 26, with the corporate yield surpassing its March peak. While the largest issue of that week, Bell Telephone Co. of Pennsylvania's $100 million bond offering, was reported as partially sold in the Greenbook, subsequent investor interest was sufficient to achieve a sell-out of the bonds at a yield of 6.75 per cent--as well as to drive the price to a slight premium. BOND YIELDS (Weekly average, per cent) Corporate Aaa With call protection Bond buyer municipals 1968 Low 6.12 (2/2) 4.16 (2/2) High 6.64 (3/29) 4.62 (3/14) Week ending: April 6.58 -6.41* 6.66 5 12 19 26 4.31 4.29 4.33 4.43 * - Some issues carry 10-year call protection. The corporate bond volume for May has been revised upward. It has been learned, on a confidential basis, that two industrial bond issues totaling $250 million will be announced next week with scheduled -5 offering dates in May. - At $1.1 billion the revised public bond volume expected in May would be the heaviest for any month so far this year. In the municipal market, the expected volume in May was also revised upward to reflect the announcement of a State of California $100 million issue schedule for May 7--which may reflect an acceleration of that State's financing plans. Even after this revision in the estimate, May volume in the municipal market is still expected to remain below the pace earlier in the year. SELECTED BOND OFFERINGS (Millions of dollars) QI estimate _(monthly average) Corporate bonds (publicly offered) Municipal bonds 1968 April estimate 820 825 1,232 1,100 May estimate 1,100- / 1,000 1 - 6- KEY INTEREST RATES g 1967 High 11968 Nov. 17- Apr. 1 Apr. 18 Apr. 25 Short-Term Rates 3-months Treasury bills (bid) Bankers' acceptances Euro-dollars Federal agencies Finance paper CD's (prime NYC) Highest quoted new issue Secondary market 6-months Treasury bills (bid) Bankers' acceptances Commercial paper Federal agencies CD's (prime NYC) Highest quoted new issue Secondary market 1-year Treasury bills (bid) Federal agencies Prime municipals (12/5) 4.67 4.88 5.75 5.05 5.13 5.13 5.75 6.25 5.29 5.50 5.34 5.63 6.06 5.44 5.50 5.50 5.88 6.50 5.54 5.75 5.50 (12/29) 5.70 (12/29) 5.25 5.30 5.50 5.70 5.50 5.70 5.88 5.95 5.60 5.88 6.00 5.55 (12/29) 5.13 5.00 5.13 5.40 5.22 5.88 5.75 5.67 5.46 5.75 5.75 5.73 5.63 6.00 6.00 5.73 5.50 (12/29) 6.00 (12/29) 5.38 5.60 5.50 5.90 5.50 6.00 6.00 6.15 5.71 (12/29) 5.95 (12/29) 4.00 (12/29) 5.27 5.75 3.40 5.34 5.67 3.60 5.32 5.60 3.50 5.65 5.80 3.65 5.91 (11/13) 5.72 5.70 5.63 5.53 5.72 5.44 5.85 5.81 (11/20) 6.25 (12/28) 6.98 (12/28) 6.13 6.76 6.21 6.97 6.20 6.95 6.22 6.96 6.55 (12/7) 6.70 (12/1) 6.53 6.68 6.63 6.41 6.49 6.66 4.45 (12/7) 4.33 3.98 4.54 4.28 4.33 4.08 4.43 5.07 5.63 6.88 5.30 5.88 (12/29) (11/28) (12/29) (1/6) (12/1) (12/29) (1/16) Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa With call protection Without call protection Municipal Bond Buyer Index Moody's Aaa FHA home mortgages 30-years 1/ 4.15 (12/28) 6.81 (Dec.) Pre-devaluation yield levels. 6.77(Nov.) - 6.83(Mar.) 6.78 (Feb.) 5.49 -- 4.18 -- -7- Volume of mortgage debt outstanding continued upward at an advanced rate in the first quarter of 1968 and reached a level of $375 billion, as shown in the table. Net mortgage debt formation by mutual savings banks and life insurance companies were apparently the lowest for any first quarter since 1962 and far short of year-earlier These year-to- levels, based on tentative indications now available. year shortfalls, however, were more than offset by advanced net takings by savings and loan associations--the dominant mortgage-lender group and the one with the fewest alternative investment options. At the same time, net mortgage acquisitions by commercial banks were exceptionally large, partly reflecting a less than seasonal decline in housing starts and related pressures for construction loans in the first quarter. And, in addition, net takings by the Federal National Mortgage Association of eligible Government-assisted mortgages exceeded those for any quarter on record, even including the first quarter of 1966. MORTGAGE DEBT OUTSTANDING BY TYPE OF HOLDER (Billions of dollars, without seasonal adjustment) Amount March 1968p Increase in 1st qtr. of: 1968p 1967 1966 1965 374.9 5.3 3.5 5.7 5.1 302.7 60.1 51.2 123.4 68.0 3.8 1.0 .5 1.7 2.5 .2 .8 .5 4.6 1.0 .8 1.7 1.2 4.8 .8 1.0 1.9 1.2 Federal agencies FNMA 19.6 1.2 .9 .6 .3 1.1 .8 .1 -.1 Individuals and others 52.6 .3 .4 All holders Financial institutions Commercial banks Mutual savings banks Savings and loan assoc. Life insurance companies 9.8 .4 1.1 S .2 -8- On a seasonally adjusted basis, net mortgage debt expansion for 1- to 4-family properties in the first quarter of this year are indicated to have dropped below the near-record rate reached in the previous quarter. advanced rate in However, the first quarter rate about matched the the third quarter of last year and was still than double the recent low in the fourth quarter of 1966. more The rate of increase for loans on multifamily and commercial properties edged higher, reflecting increasingly selective concentration in incomeproperty lending particularly by life insurance companies. Even so, over-all expansion of such debt remained appreciably under the highs in early 1966. INCREASE IN MORTGAGE DEBT OUTSTANDING (Seasonally adjusted annual rates in billions of dollars) Total 1-4 family Multifamily/ & commercial-- Far/ 1966 - I p II p. III p. IV p. 27.1 23.8 18.1 14.7 14.1 12.0 8.4 7.0 11.0 9.8 7.5 5.8 2.3 2.1 2.2 1.9 1967 - I p. II p. III p. IV p. 17.0 20.2 25.2 27.2 7.9 10.4 14.9 16.0 7.7 8.3 8.0 8.9 1.4 1.6 2.3 2.4 1968 - I p. 25.5 14.8 9.0 1.7 1/ Includes estimates for holdings of individual and others which are excluded in the flow of funds series. - 9- International Developments Complete but still preliminary data on U.S. liquid liabilities to foreign official and private accounts are now available. Together with the reserve data, they suggest that the first-quarter payments deficit on the liquidity basis before special transactions appears to have been at an annual rate of about $2 billion. On the official reserve transactions basis, the deficit (little affected by special transactions) appears to have been somewhat in excess of $1-1/2 billion annual rate. These estimates, expressed as quarterly amounts, are shown in the appended revisions of page I -- T - 3 and Appendix A. The new deficit estimates are confidential until publication of final figures at the middle of May. Revisions of seasonal adjust- ments, as well as of unadjusted data, will be incorporated in the final figures. With the March merchandise trade data (pp. IV - 4 to 6) it now appears that the goods and services balance in the first quarter may have been substantially less than the estimated $2.6 billion annual rate included in the preliminary GNP estimate (table on p. II - 7, "net exports"). As noted in the Greenbook (pp. IV - 3) offsetting improve- ments occurred in the capital account. It is possible, too, that dollar receipts from foreign trade in March were not delayed by the port strike as much as shipments were. -10-- - April 26, 1968 1 9 6 8 Feb. Mar. Revised T - 3 U.S. BALANCE OF PAYMENTS (In millions of dollars) 1 9 6 7 III II I IV I. Seasonally adjusted Goods and services, Tr.ade balance 2/ Exports 2/ Imports 2/ Services balance net 1/ Remittances and pensions Govt. grants & capital 3/ U.S. private capital Direct investments Foreign securities Banking claims Other 1,353 1,009 7,671 -6,662 344 1,320 1,154 7,712 -6,558 166 -6,549 331 719 243 7,454 -7,211 476 -264 -1,201 -395 -1,013 -356 -966 -269 -947 -984 -622 -263 69 -1,113 -648 -170 -228 -67 -1,741 -168 Foreign capital, nonliquid Official foreign accts. Long-term deposits U.S. Govt. liab. Int'l. institutions 4/ Other 5/ 858 392 304 88 70 396 -295 Errors and omissions 1,408 1,077 7,626 -939 -446 -392 36 -1,608 -818 -373 96 -513 1,194 736 584 152 97 361 808 25 -215 240 117 666 217 119 147 -28 15 83 -546 209 37 with and without seasonal adjustment (- Balances, Liquidity balance, S.A. Seasonal component Balance, N.S.A. Official settlements bal. , S.A. Seasonal component Balance, N.S.A. 6/ 92 7,921 -7,830 156 2,758 -2,602 -175 2,438 -2,612 deficit) -533 295 -238 -553 330 -223 -638 -573 -1,211 -1,851 -52 -1,903 -542 300 -242 -1,817 537 -1,280 -832 143 -689 456 -495 -1,205 -401 533 132 34 -200 -904 -1,362 401 57 170 -103 59 214 -864 -1,197 511 -178 -39 -185 -1,390 -72 -19 Reserve changes, N.S.A. (decrease -) Total monetary reserves Gold stock Convertible currencies IMF gold tranche 1/ 3/ 4/ 5/ 6/ -1,027 -51 -1,007 31 419 -15 424 10 181 -1,012 1,145 48 Equals "net exports" in the GNP. Balance of payments basis which differs a little from Census basis. Net of scheduled and non-scheduled repayments. Long-term deposits and Agency securities. Includes some foreign official transactions in securities. Differs from liquidity balance by counting as receipts (+) increase in liquid liabilities to commercial banks, private nonbanks, and international institutions (except IMF) and by not counting as receipts (+) increases in certain nonliquid liabilities to foreign official institutions. -11APPENDIX A Revised - April 26, 196 MEASURES OF THE U.S. BALANCE OF PAYMENTS AND SELECTED "SPECIAL" TRANSACTIONS (Millions of dollars) 1/ 1 9 6 7 Liquidity deficit (-), NSA Seasonal adjustment I II -3,575 -238 -295 -533 -223 -330 -553 -1,211 573 -638 -1,903 52 -1,851 -242 -300 -542 +893 +306 +634 -214 +167 + 90 +172 +70 +24 +54 +24 - 51 +28 + 60 -11 - 46 SYear 1. 1968 IV III I Liquidity deficit, SA 2. SELECTED "SPECIAL" TRANSACTIONS A. Investments in long-term deposits: Foreign governments 2/ International and regional institutions B. Investments in U.S. Govt. Agency securities: *Foreign governments 2/ International and regional institutions C. U.K. official transactions: *In U.S. stocks and agency issues Long-term time deposits and Ex-Im participations D. *Nonscheduled debt repayments +28 +120 -6 +70 -495 +9 +52 +4 -560 -72 -1 -50 -1 -20 - +95 +207 +12 - 35 to the U.S. Government E. +5 -16 -- Transactions in nonmarketable, nonconvertible, medium-term U.S. Govt. securities +414 -1 -3 +3,23 F. *Canadian Government trans- actions: Advance repurchase of Canadian bonds Purchase of IBRD bonds Rescheduling of new Canadian issues +30 +12 +30 TOTAL SELECTED "SPECIAL" TRANSACTIONS +1,107 +377 +757 +238 -265 +209 3. LIQUIDITY DEFICIT BEFORE REDUCTION BY "SPECIAL" TRANSACTIONS -4.682 ^-^rf^^^-- -910 -1,310 -876 -1,586 -751 -3,398 -1,280 -537 -1,817 -689 -143 -832 -39 495 456 -1,390 185 -1,205 132 -533 -401 -420 +9 +82 +9 -520 + 25 6. OFFICIAL SETTLEMENTS BALANCE BEFORE -2,978 REDUCTION BY "SPECIAL" TRANS. -1,826 -914 447 -685 -426 4. Official settlements deficit (-), NSA Seasonal adjustment Official settlements deficit, SA 5. "SPECIAL" TRANSACTIONS AFFECTING OFFICIAL SETTLEMENTS BALANCE (Items marked * above) 1/ Figures may not add because of rounding. 2/ Excluding U.K. ADDENDUM TO THE SUPPLEMENT OF APRIL 26, 1968 Corrections to: GREENBOOK Page II - 4, paragraph 2. The rise in consumer prices over the past year was almost 4 per cent. Page III - 21, in table titled, "MARKET YIELDS ON U.S. GOVERNMENT SECURITIES," the figures below are the correct ones: Bills April 1 1-month 5.05 3-month 5.13 6-month 5.22 1-year 5.34 SUPPLEMENT Page 9. Substitute the following paragraph for the first paragraph under International Developments: Complete but still preliminary data on U.S. liquid liabilities to foreign official and private accounts are now available. Together with the reserve data, they suggest that the first-quarter payments deficit on the liquidity basis before special transactions was about $3 billion at an annual rate. (An estimate of $3-1/2 billion was corresponding balance after reduction by special have been at an annual rate ofabout $2 billion. transactions basis, the deficit (little affected given on page I - 7.) transactions appears to On the official reserve by special transactions) appears to have been somewhat in excess of $1-1/2 billion These estimates, expressed as quarterly amounts, revisions of Page I -- T - 3 and Appendix A. The annual rate. are shown in the appended
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