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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. CONFIDENTIAL (FR) CLASS II - FOMC August 10, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1979 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Producer prices .. . . . . . . . . . . . . 0 . . Book value of wholesale trade inventories . . . . . .. . . . . TABLES: Recent Changes in Producer Prices . . Wholesale Trade Inventories . . . . . * . . . . . .. . . . * . THE DOMESTIC FINANCIAL ECONOMY Revision of business loan figures, Table II-6 Commercial paper outstanding Commercial paper rates .. . . . ... . . . .. .. . . TABLES: Change in Commercial Paper Outstanding . ... Change in Business Credit at Finance Companies . . . . Selected Financial Market Quotations * . . . . * Monetary Aggregates . . . . . INTERNATIONAL DEVELOPMENTS ERRATA (Table: U.S. International Transactions) * . 6 * 0 * SUPPLEMENTAL NOTES Producer prices increased sharply in July at all stages of production. Prices of finished goods rose at a 1.1 percent, more than twice the rates in May and June. Prices of consumer foods were unchanged after three months of decline, while prices of consumer finished goods excluding foods rose 1.9 percent. goods the increase was 0.8 percent. Excluding energy items from these Capital equipment prices rose 0.8 percent rate, up from the increases in the two preceding months but about the same as the average monthly increase over the first half of the year. Prices of materials, both intermediate and crude, rose sharply again in July, particularly prices of foodstuffs. Sales of single-family homes fell sharply in June and prices continued to rise rapidly. Existing home sales--by far the largest part of the market--fell almost 8 percent in June to the lowest level in two years. At the same time, merchant-builder sales of new homes were down 5 percent with declines experienced in all regions of the country. Conversely, the average prices of both new and existing units sold rose sharply in June. The average price for a new home sold in June was $74,200, 17 percent above a year earlier; the average price for an existing home sold, $66,100, was 20 percent higher than in June 1978. The stock of unsold new homes continued at relatively high levels in June. The number of units on the market at the end of the month was down slightly from a month earlier, but it was within the range experienced during the past year. However, lower sales pushed the stock of units for sale to 7.5 months' supply--a figure well above recent levels. The book value of wholesale trade inventories rose at an $8.1 billion annual rate in June, well above the downward revised May increase of $3.4 billion but substantially below the average during the first four months of the year. For the second quarter as a whole, stocks rose at a $7.4 billion rate, about half the first quarter pace. In June the moderate rise in stocks was accompanied by only a modest gain in sales (0.5 percent). As a result, the inventory to sale ratio for all wholesale trade remained at the May level of 1.17, somewhat below average in the basis of recent historical experience. Inventories held by wholesalers of durable products increased at a $4.4 billion rate in June, following the $5.7 billion pace in the previous month. The increase for the second quarter was just below that during the first three months of the year. In June, the largest increase was at wholesalers of hardware, plumbing, and heating equipment. Stocks rose at motor vehicle suppliers, mostly importers of foreign cars and also some truck distributors; these stocks had fallen for the three consecutive months preceding June. The book value of nondurable inventories rose at a $3.7 billion rate in June, following a decline now shown for May. In the second quarter as a whole, these stocks rose less than 1/3 as much as in the first quarter. All of the June increase in nondurable inventories was in raw farm products and "other" wholesale goods, all other published categories reported declines, with the largest decline at wholesalers of petroleum and petroleum products. RECENT CHANGES IN PRODUCER PRICES (Percent change at compound annual rates; based on seasonally adjusted data)1/ Relative importance 1979 Dec. 1978 1978 QI QII June July Finished goods Consumer foods Consumer nonfoods Capital equipment 41.0 10.4 18.6 12.1 9.2 11.9 8.4 8.0 14.3 21.0 13.4 10.3 6.8 -11.1 16.8 9.2 6.2 -14.5 16.6 6.1 13.0 .0 22.3 9.4 Materials: Intermediate 2/ Construction Crude nonfood Crude food 44.8 8.3 4.8 6.8 8.3 11.0 15.6 18.3 14.0 11.5 29.2 31.0 14.3 8.3 22.0 -7.1 11.6 6.4 39.1 -14.2 19.5 8.3 17.4 24.8 7.1 21.4 57.7 50.6 56.5 Memorandum: Energy commodities 3/ 11.0 1/ Changes are from final month of preceding period to final month of period indicated. Monthly changes are not compounded. 2/ Excludes intermediate materials for food manufacturing and manufactured animal feeds. 3/ Fuels and related products and power. This series is on a commodity basis, while the other data in this table are on a stage of processing basis. WHOLESALE TRADE INVENTORIES: CHANGE IN BOOK VALUE (Billions of dollars; seasonally adjusted, annual rate) 1978 1979 May(r) QII(p) QI June(p) QIII QIV 10.2 7.7 14.6 13.2 7.4 3.4 8.1 10.0 7.5 5.6 9.2 5.9 5.3 5.7 4.4 8.5 2.7 2.1 5.4 7.3 2.2 -2.3 3.7 Excluding farm 4.4 3.3 2.7 4.5 6.4 1.3 -. 6 1.9 Farm 4.1 -. 6 -. 7 .9 .9 .9 -1.8 1.8 QI Total Durable Nondurable QII 18.5 r = revised p = preliminary Totals may not add due to rounding. WHOLESALE TRADE INVENTORY/SALES RATIO QI Total Durable Nondurable r = revised p = preliminary QII 1978 QIII QIV QI 1979 May(r) QII(p) June(p) 1.26 1.20 1.20 1.20 1.23 1.19 1.17 1.17 1.76 1.70 1.68 1.67 1.68 1.66 1.65 1.65 .83 .78 .78 .78 .83 .79 .77 .77 The Domestic Financial _Economy Revision of business loan figures, Table III-6. Due to revisions of business loan estimates in one district, some of the seasonally adjusted annual rates of change for 1979 reported in the Greenbook have been revised. Where numbers have been changed, previous figures are shown in parentheses. 12 months ending 1979 Q2 6. Business loans 22.6 19.4 16.9 (21.8) (19.5) 22;8 (22.0) 22.1 21;1 21.5 July e June Q1 July e 17.0 (16.7) Memoranda: 11. 12. Sum of items 6 รท 10 (Business loans plus commercial paper) Memo item 11 plus business loans from finance companies (20.5) 19.8 (20.3) 18.3 (20.0) 18.8 20;1 n.a. n.a. (20.2) Commercial paper outstanding increased $900 million in July, sharply below the record $5.4 billion gain in June and the smallest monthly advance since October 1978 (see table). Bank-related issuers allowed a $300 million run-off in July after increasing their commercial paper outstandings in each of the four previous months. Nonbank-related finan- cial issuers, as a group, increased their outstandings by only $100 million, partly because Chrysler Financial Corporation tapped its bank credit lines to redeem maturing paper. In the nonfinancial sector, public utilities and several foreign corporations were active issuers in July as outstandings climbed $1.2 billion, well-above the monthly average in the first half of this year. Commercial paper rates have increased somewhat further in recent days. Dealers report that this upward movement mostly reflected delayed reaction to recent increases in other money market interest rates as well as large sales by several major issuers. These individuals indicate also that the current problems of Chrysler Corporation have had very little impact on the market and that spreads between high- and lower-rated commercial paper have not widened. Business credit at finance companies climbed by $1.0 billion during June (latest available data). Retail automotive loans on commercial vehicles decreased slightly reflecting in part the reduced pace of truck sales in June, but wholesale automotive credit expanded by $600 million as dealer inventories of cars and trucks continued to increase (see table). The equipment and all other loan category expanded by $800 million in June. Industry representatives reported strong sales of agricultural equipment accounted for a major portion of this increase. Weaker than anticipated deposit flows at sampled savings and loan associations in the last 10 days of July have led to a downward revision in the estimated combined growth rate for S&Ls and MSBs to about 5-1/4 percent from the 6-3/4 percent reported in the Greenbook (end-of-month basis). CHANGE IN COMMERCIAL PAPER OUTSTANDING (monthly totals or monthly averages, sea. adj., billions of dollars) QI QII 1979 May Total commercial paper 2.4 3.6 Bank-related 1/ Nonbank-related Financial Dealer-placed Directly placed Nonfinancial 0.2 2.2 1.8 0.6 1.2 0.4 0.8 2.7 1.8 0.8 1.0 0.9 June July Outstanding 7/31/79 3.4 5.4 0.9 102.5 0.9 2.5 2.2 0.7 1.5 0.2 1.0 4.4 3.4 1.3 2.1 1.1 -0.3 1.2 0.1 0.4 -0.3 1.2 18.7 83.8 58.9 13.1 45.8 24.8 1/ Not seasonally adjusted. NOTE: Components may not add to total due to rounding. CHANGE IN BUSINESS CREDIT AT FINANCE COMPANIES (monthly totals or monthly averages, sea. adj., billions of dollars) QI QII 1979 April May June 0.8 1.0 0.9 1.0 1.0 68.8 Retail automotive (com'l.) 0.2 0.5 Wholesale automotive -0.1 Accounts receivable 1/ Equipment loans & all other 0.2 -0.6 -0.4 -0.5 0.1 0.2 0.1 0.6 0.1 0.2 -0.1 0.6 -0.2 0.8 15.2 16.1 6.7 31.0 Total business credit 1/ Includes factored accounts receivable. Outstanding 6/30/79 SELECTED FINANCIAL MARKET QUOTATIONS (percent) 1978 1/ 1979 1/ , FOMC July 11 1979 2/ July 31 August 9 Change from: July FOMC High* High Low** 10.25 6.58 10.75 9.93 10.28 10.75 10.67 +.39 9.25 9.30 9.51 9.62 5.82 6.16 6.45 6.55 9.99 9.69 9.63 9.68 8.76 8.85 8.91 8.64 9.35 9.27 9.18 8.76 9.07 9.18 9.28 8.95 9.36 9.40 9.41 8.96 +.01 +.13 +.23 +.20 10.29 10.52 10.56 6.48 6.68 6.70 10.36 10.57 10.62 9.49 9.66 9.60 9.91 9.86 9.78 9.95 9.99 9.96 10.33 10.14 10.06 +.42 +.28 +.28 10.36 10.96 11.52 6.61 6.76 7.01 10.36 10.92 11.51 9.82 9.84 9.86 10.04 10.05 10.10 10.12 10.27 10.46 10.35 10.39 10.49 +.31 +.34 +.39 11.48 11.95 11.57 6.86 7.20 7.75 11.14 11.81 11.75 10.30 10.40 11.50 10.61 10.64 11.50 11.03 11.13 11.75 10.90 11.00 11.75 +.29 +.36 +.25 9.58 9.22 8.99 7.38 7.72 8.00 9.61 9.35 9.31 8.76 8.73 8.80 8.90 8.90 8.90 9.05 9.02 8.98 9.00 8.98 8.94 +.10 +.08 +.04 6.67 5.58 6.58 6.08 6.08 6.19 6.13 +.05 9.30 9.54 8.61 8.48 9.87 9.94 9.39 9.40 9.41 9.59 9.44 10.38 Short-term rates Federal funds 1/ Treasury bills 1-month 3-month 6-month 1-year Commercial paper 1-month 3-month 6-month Large negotiable CDs 3/ 1-month 3-month 6-month Eurodollar deposit 1/ 1-month 3-month Bank prime rate Low 8.98 11.13 10.38 11.13 11.08 11.08 Intermediate- and longterms rates U Q. Treasury. 3tant maturity) year 7-year 20-year Municipal (Bond Buyer) 4/ Corporate Aaa New issue 5/ Recently offered 6/ Primary conventional mortgages 6/ -9.63 9.39 +.03 -.05 Low Stock prices Dow-Jones Industrial NYSE Composite AMEX Composite NASDAQ (OTC) 1/ 2/ 3/ 4/ 5/ 6/ 7/ ** High Low High FOMC July August July 7/ 7/ 7/ 7/ July 11 31 9 FOMC 742.12 48.43 119.73 102.66 907.74 60.38 176.87 149.53 813.71 54.25 154.98 119.92 873.66 60.36 200.54 144.27 843.86 58.86 197.83 138.85 846.42 59.14 198.69 141.33 858.28 60.14 200.54 144.27 +14.42 +1.28 +2.71 +5.42 Daily averages for statement week except where noted. One-day quotes except as noted. Secondary market. One-day quotes for preceding Thursday. Averages for preceding week. One-day quotes for preceding Friday. "lendar week averages. highs were reached at or close to the end of 1978. as were generally reached at end of June or early July. Updated MONETARY AGGREGATES (Seasonally adjusted annual rates of growth) 1/ to H1 Major monetary aggregates 1. M-l (currency plus demand deposits) 2. M-2 (M-1 plus time & savings deposits at CBs, other than large CDs) 3. M-3 (M-2 plus all deposits at thrift institutions) Bank time and savings deposits 4. Total 5. Other than large negotiable CDs at weekly reporting banks Savings deposits 6. 7. Individuals 2/ Other 3/ 8. Time deposits 9. Small time 4/ Large time 4/ Time and savings deposits sub12. ject to rate ceilings (6+10) Deposits at nonbank thrift institutions 13. Total 14. Savings and loan associations 15. Mutual savings banks 16. Credit unions MEMORANDA: 17. Total U.S. Govt. deposits 6/ 18. Total large time deposits 7/ 19. Nondeposit sources of funds 8/ July '78 1979 1978 QIII 8.0 7.9 4.1 -2.1 7.7 9.8 7.6 8.3 10.3 12.2 JulyP 7.6 14.8 10.1 5.0 1.8 8.6 14.2 12.7 7.7 9.3 4.7 7.9 11.9 10.6 8.4 11.3 12.3 8.4 1.2 0.8 12.2 7.6 7.6 2.9 2.7 5.2 11.7 6.8 21.5 11.0 2.9 4.1 -10.1 17.9 12.7 26.9 10.2 0.2 0.0 0.0 18.2 15.8 22.4 4.5 9.3 13.6 7.8 -9.6 -3.1 -9.4 -2.9 6.5 -13.0 -8,1 24.7 15.6 18.5 17.6 16.5 36.3 36.0 13.6 -12.1 -16.9 14.6 9.4 11.2 -8.1 18.1 21.4 10.3 9.7 -1.5 -1.3 -3.3 18.9 24.9 8.0 4.7 6.9 7.0 15,3 10,0 QI 2.2 QII July '79P June QIV 15.1 21.6 9.2 11.1 11.6 8.8 6.8 8.8 7,6 9.5 12.3 13.1 11.3 7.8 9.9 9,6 5.6 6.8 7.8 4.6 3.1 1.7 1.7 17.0 13.7 10.1 0.8 8.3 17.8 6.6 Average monthly changes, billions of dollars 1.1 -0.4 -2.0 1.5 4.5 2.2 0.3 3.6 2.9 4.7 1.3 -6.3 -7.2 0,7 0.8 1.4 3.0 2,4 2,3 3,9 1.91' 9.4 11.1 5.0 7.9 0.1 0.4 2.4- / p-preliminary 1/ Quarterly growth rates are computed on a quarterly average basis. 2/ Savings deposits held by individuals and nonprofit organizations. 3/ Savings deposits of business, government, and others, not seasonally adjusted. 4/ Small time deposits are time deposits in denominations less than $100,000. Large time deposits are time deposits in denominations of $100,000 and above excluding negotiable 5/ 6/ 7/ 8/ 9/ CDs at weekly reporting banks. Growth rates computed from monthly levels are based on average of current and preceding end-of-month data. Includes Treasury demand deposits at commercial banks and Federal Reserve Banks and Treasury note balances. All large time certificates, negotiable and nonnegotiable, at all CBs. Nondeposit borrowings of commercial banks from nonbank sources include Federal funds purchased and security RPs plus other liabilities for borrowed money (including borrowings from the Federal Reserve), gross Eurodollar borrowings, and loans sold, less interbank borrowings. Based on data through'July 25, 1979. -10- International Developments ERRATA: Replace the corrected table on the following page for page IV-8. Transactions U.S. International RESTRICTED (in millions of dollars; receipts, or increase in liabilities, RESTRICTL l U S sactions Internatiop 1977 1978 Year Year -. ,325 14,371 -16,696 -2.685 14,843 -17,528 3.562 -13.568 13.753 5.463 2.004 5.850 -2.391 5,616 -11,400 7,173 -1,425 -2,880 -6,628 14,452 742 7,599 -1,165 -2,271 4,122 5,464 454 4,406 -5,741 -424 1,436 -9,435 1,501 -2,642 456 -4,836 776 -984 -458 -1,750 778 -135 287 -727 659 -3.068 1,112 1,326 -5,506 -783 1,583 1,124 -3,490 -114 378 -17 -475 -108 513 297 -918 -564 -11 423 -976 -94 258 274 -626 217 177 48 -8 242 * 171 71 534 2.264 -1.069 1,551 2,583 -239 1.245 -1.194 -290 35.448 31.243 4.700 16.728 -8.696 -10.342 -6.156 -6.921 2.736 -13.719 Through interbank transactions with a) Own offices in foreign countries b) Unaffiliated banking offices in foreign countries -2,718 -2,204 Foreign net purchases of U.S. Treasury obligations 2/ 14. Change in foreign official reserve assets in U.S. (increase +) June Apr. -2.629 13,546 -16,175 -3.909 13. 1979 I Q2 -7.639 42,760 -50,399 Change in net foreign positions of banking offices in U.S. (excl. liab. to foreign official inst.) 9. Private securities transactions, net (excl. U.S. Treas. Oblig.) 10. Foreign net purchases of U.S. corp. bonds 11. Foreign net purchases of U.S. corp. stocks 12. U.S. net purchases (-) of foreign securities 1979 Q1 -6.098 41,350 -47,448 4. Through nonbank transactions a) Claims on nonbanks in foreign countries (increase, -) b) Liabilities to private nonbanks in foreign countries (inc. custody liab.) I Q4 -6.369 39,315 -45,684 Trade balance 1/ Merchandise exports Merchandise imports 7. 8. 1978 Q3 .34 R17 -8.012 36,491 141,884 -44,503 -176,071 -30 873 120,816 .151,689 1. 2. 3. 5. 6. +) -888 -168 -553 82 55 -690 15. 16. 17. By Area G-10 countries and Switzerland OPEC All other countries 29,414 5,743 291 30,200 -1,290 2,333 5,151 -1,475 1,024 15,570 956 202 -7,191 -1,972 467 -11,496 134 1,020 -7,861 1,159 546 -6,922 71 -70 3,287 -1,095 544 18. 19. By Type U.S. Treasury securities Other 3/ 30,266 5,182 23,836 7,407 3,167 1,533 13,348 3,380 -8,085 -611 -12,846 2,504 -7,990 1,834 -7,913 992 3,057 -321 -237 662 14 200 -3.008 446 255 -827 1.018 2.105 14.520 919 L 566 2.030 12,405 5.064 5.175 2.165 14.1 -13.9 -12.9 -1.3 .6 n. -14,1 -13.9 -12.9 -1.3 .6 n.a, 20. Change in U.S. reserve assets (increase -) 21. All other transactions and statistical discrepancy MEMO:Current Account (i. Current Account (bil. $, seasonally adj., annual rates) I/ / 3/ 4/ */ n.a n.. n.a. na. International accounts basis, seasonally adjusted. Includes U.S. Treasury notes publicly issued to private foreign residents. Includes deposits in banks, commercial paper, bankers' acceptances, and borrowing under repurchase agreements. Includes $1,103 million of newly allocated SDR's. Less than $500,000. NOTE: Details may not add to total because of rounding.
