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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

August 14,

1964.

SUPPLEMENTAL MOTES

The Domestic Economy
Gross national product in the second quarter is now estimated
at $618.6 billion, seasonally adjusted annual rate, according to
revised Commerce estimates.
August 18)

(Confidential until released Tuesday,

These estimates,shown in the following table, are virtually

the same as those of a month earlier.

The major difference is the

sizable increase in the figure for inventory accumulation.
According to the Commerce preliminary estimate, corporate
profits before tax in the second quarter were $57.4 billion, seasonally
adjusted annual rate, $800 million higher than in the first quarter.
On an income and product basis, total government receipts in
the second quarter are estimated at a seasonally adjusted annual rate
of $180.2 billion and total expenditures at $187.1 billion.

Thus,

the annual rate of government expenditures exceeded receipts by $6.9
billion; in the first quarter, receipts and expenditures were in
balance.
For the Federal Government alone expenditures in the second
quarter exceeded receipts by $9.2 billion, as compared with $2.4
billion in the first quarter.
effect of the tax cut.

The increase resulted from the full

State and local government expenditures were

less than receipts by an annual rate of $2.3 billion in the second
quarter and by $2.4 billion in the first quarter.

-2-

CONFIDENTIAL
until released 8/18/64

GROSS NATIONAL PRODUCT
(Seasonally adjusted at annual rates)
Billions of dollars
1964

2nd Qtr.

1st Qtr.

GROSS NATIONAL PRODUCT

618.6

608.8

Final sales

614.9

606.4

Personal Consumption Expenditures
Durable goods
Nondurable goods

396.1
57.0
175.3

390.0
55.9
172.9

163.8

161.1

Services

Gross Private Domestic Investment
Residential construction, nonfarm
Other construction
Producers' durable equipment
Change in inventories
Nonfarm

87.2
26.2
22.7
34.6
3.7
3.4

85.9
26.9
22.3
34.2
2.5
2.2

Net exports of Goods and Services
Exports
Imports

5.7
33.7
27.9

7.7
34.5
26.8

Government Purchases of Goods and Services

129.6

125.2

67.1

64.3

57.0
10.1

54.0
10.3

62.5

60.9

GROSS NATIONAL PRODUCT -- 1954 PRICES

513.5

508.0

PERSONAL INCOME
Disposable personal income
Saving/disposable income (per cent)

487.9
431.3
8.2

480.9
419.5
7.0

Federal Government

National defense
Other, net of sales
State and local government

Corporate Profits Before Tax

57.4p

56.6

GOVERNMENT SURPLUS (+) OR DEFICIT (-)
National Income Basis
Federal
State and local

-6 .9 p
-9 .2p
2.3p

.0
-2.4
2.4

*--For earlier data see Table I - T-2 from FOMC notes for July 22, 1964.

Industrial production continued to rise in July, the eighth
consecutive increase since November 1963.

At 132.7 per cent, the index

was 1 point above June and 5-1/2 per cent above a year earlier.
Increases were shown by nearly all major groups of industries.
Among final products, consumer goods output rose further in
July and was also 5-1/2 per cent above a year ago.
were widespread among consumer goods.
expanded

The gains in output

Production of business equipment

further, reflecting increases in industrial and commercial

machinery, and was 9 per cant above a year earlier.
Output of materials also rose in July with increases in iron
and steel, construction materials, and most nondurable materials.

INDUSTRIAL PRODUCTION

Seasonally Adjusted 1957-59=100
Per cent change from
pJuly 1964

Total

Month ago I Year ago I Nov. 1963

132.7

+ .8

+ 5.6

+4.4

132.3
131.9

+ .5
+1.1

+ 5.3
+ 6.7

+4.3
+4.8

129.3

- .1

+ 4.0

+4.2

Business equipment

140.5

+1.0

+ 9.1

+6.4

Materials

Consumer goods
Home goods & apparel
Staples

133.1

+1.1

+ 5.7

+6.0

Durables

132.2

+1.1

+ 6.2

+7.9

Nondurables

134.1

+ .8

+11.8

+9.5

Nonfarm payroll employment increased 140,000 in July, and
May and June figures have been revised upward to show a rise of 250,000
for those two months (preliminary data had indicated a rise of only
165,000 from April to June).

At 58.9 million, seasonally adjusted,

nonfarm employment in July was 1.55 million above a year earlier.

As in earlier months, most of the July increase was outside the
A 20,000 advance in manufacturing employment was

industrial sector.

in durable goods industries.

Primary metals increased 18,000, while

transportation equipment, employment declined 14,000 and was 30,000
In the nonindustrial sector, the increase was

below the April level.

concentrated in the service industry where employment rose by 56,000.
Further gains were also recorded in trade and finance.

State and local

government employment declined somewhat following steady gains in earlier

months.
The average workweek, seasonally adjusted, in manufacturing
industries continued at 40.6 hours, unchanged from June and 0.2 hours
longer than a year earlier.

Average hourly earnings were $2.53, or

at the level maintained since April, and 3.3 per cent higher than a
year

earlier.

Average weekly earnings, at $103 were down less than

seasonally from the June high and were 3.8 per cent above a year earlier.
Wholesale prices advanced 0.4 per cent in July, but remained
below a year earlier.

Major price movements in July included a sub-

stantial rise in livestock and meat prices and significant increases in
fuels and metals prices.

A variety of other industrial products

advanced moderately.
WHOLESALE PRICES
(1957-59=100)
Per cent change from

July 1964
Total
Farm products & foods
Other commodities

June 1964 I July 1963

100.4

+0.4

-0.2

98.1
101.1

+1.0
+0.2

-1.7
+0.3

The Domestic Financial Situation
Turnover of demand deposits at 343 centers outside New York
increased to 35.5 (preliminary) in July from 35.0 in June.

Over the

past four months turnover has averaged 3.5 per cent above the first
quarter of 1964 and 6.6 per cent above the April-July period last year.
Turnover had begun to increase in April this year after having shown
little net change since July 1963.
Yields on corporate bonds--both new and outstanding--increased
slightly last week. Adjusted to an Aaa basis, an August 12 utility
issue was priced to yield 4.39, up 2 basis points from relevant July
offerings.

Moody's Aaa series for outstanding bonds rose 1 basis

point to 4.42.

Stock prices recovered further from the drop associated

with the Vietnam crisis and are now only 2 per cent below their July
peak,

International Developments
The preliminary figures for the outflow of short-term capital
in June have been revised downward because of the correction of a reporting
error and the receipt of some additional information.

The corrected

total outflow of $223 million was about equally divided between bank
credit and movements of liquid funds.
Japanese trade figures for July show a further diminution of
the trade deficit.

The deficit was about half as large as the peak

monthly average deficit of the first quarter; imports have shown
little net change while exports have risen by nearly one-sixth.