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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) February 2, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS -------- ---------- --- - ---- ~--- - '~- ~~~LV Y 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 Total employment . . . . . . . . . . . Book value of manufacturers' inventories Consumer instalment credit outstanding . S0 0e* O . O O000oo TABLES: Changes in Employment Selected Unemployment Rates . * . Hourly Earnings Index * . . . . . Manufacturer's Inventories: Change in Book Value Manufacturers' Inventory/Sales Ratio , *0 6a q a THE DOMESTIC FINANCIAL ECONOMY TABLES: Monetary Aggregates . . . * Interest Rates *.. 0 * * S 6 5 5 * * 6 0 0 0 * * Commercial Bank Credit . . . 6 6 0 S . . *50 INTERNATIONAL DEVELOPMENTS U.S. Merchandise-trade . . . . . . * * * * TABLES: U.S. Merchandise Trade, International Accounts Basis .. SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Total employment (household survey) rose nearly 450,000 in January; unemployment edged down a little, and the unemployment rate declined to 5.8 per cent from 5.9 per cent in December. The unemploy- ment rate has been either 5.8 or 5.9 per cent for the past 6 months. Similarly, jobless rates for adult men (4.0 per cent) and adult women (5.7 per cent) were essentially unchanged in January. Over the last twelve months, the overall unemployment rate has declined about half a percentage point. Nearly all worker groups have shared in the over-the- year improvement with the exceptions of male teenagers and part-time workers. Nonfarm payroll increased 325,000 (350,000 on a strike-adjusted basis) in January, about on a par with the strong gains of the last three months. Hiring gains took place in nearly all of the major industry divisions. The largest increase was in retail trade, 130,000, somewhat more than the small decline in the previous month. In the goods-producing sector, manufacturing employment continued to rise,although at a slower pace than in recent months. A 65,000 gain in factory jobs during January was widespread in both durable and nondurable goods industries. The factory workweek edged downward 0.1 hour to 40.6 hours. Wage rates, as measured by the hourly earnings index, rose 0.9 per cent in January to a level 7.9 per cent above that of a year earlier. Large increases were reported in retail trade and services, in part due to the boost in the minimum wage to $2.90 on January 1. -2The book value of manufacturers' inventories rose at a seasonally adjusted annual rate of $8.6 billion in December, down substantially from the sizable November increase. For the fourth quarter as a whole, stocks grew at an annual rate of $13.0 billion, the smallest quarterly gain this year. The December inventory investment was accompanied by an increase in shipments that was large enough to further reduce the ratio of inventories to sales for all manufacturers to 1.47, very low on an historical basis. The accumulation of stocks by manufacturers in December was concentrated in durable goods, as it had been in every other month of 1978. In December these stocks increased at an annual rate of $7.3 billion, following the $18.9 billion rise in November. In the fourth quarter, durable inventories increased $11.2 billion, down somewhat from the gain over the first three quarters. The book value of nondurable goods stocks rose at an annual rate of $1.2 billion in December, less than half the November increase. In the fourth quarter as a whole, nondurable goods inventories increased at only an $1.8 billion annual rate, following a $4.1 billion rate of rise in the third quarter. New orders for durable goods are now estimated to have risen .2 per cent in December, instead of the .1 per cent decline originally published in the partial-sample advance report. Nondefense capital goods orders were revised down and now indicate a 3.8 per cent decline, rather than the 1.4 per cent reduction reported earlier. Shipments of durable goods were revised little and now show a .7 per cent increase with shipments of nondefense capital goods up 0.9 per cent. Unfilled orders are now estimated to have increased 2.1 per cent in December. Consumer instalment credit outstanding, seasonally adjusted, increased $3.7 billion in December, according to preliminary estimates. This rise followed a $4.1 billion rise in November. The smaller increase in December reflects a reduction in extensions at all lenders, while credit liquidations continued near record levels. In the fourth quarter, consumer instalment credit outstanding increased at a 17 per cent annual rate, the same as in the third quarter. The increase in 1978 as a whole was 19 per cent. CHANGES IN EMPLOYMENT 1/ (Thousands of jobs; based on seasonally adjusted data) 1977 1978 --- H1 QIII 1978 QIV Dec. 1979 Jan. Average Monthly Changes -- Nonfarm payroll employment2/ Manufacturing Durable Nondurable Construction Trade Services and finance State and local government 284 66 50 16 30 79 82 28 294 62 53 8 37 64 78 17 380 55 43 12 54 84 78 47 56 -10 19 -29 7 45 71 -44 362 146 108 38 32 45 86 17 212 122 80 42 27 -21 60 29 325 67 38 29 18 146 61 5 Private nonfarm production workers Manufacturing production workers 215 52 221 45 260 37 69 -20 296 125 172 107 179 76 3/ Total employment3/ Nonagricultural 342 336 275 268 347 327 123 129 282 288 104 -8 445 600 1/ Changes are from final month of preceding period to final month of period indicated. 2/ Survey of establishments. Not strike adjusted. 3/ Survey of households. SELECTED UNEMPLOYMENT RATES (Per cent; based on seasonally adjusted data) 1973 1978 Annual average QI QII QIII QIV Total, 16 years and older Dec. 1979 Jan. 5.8 4.9 6.2 6.0 6.0 5.8 5.9 15.7 14.5 16.9 16.1 16.1 16.3 16.5 20-24 years old Men, 25 years and older Women, 25 years and older 7.8 2.5 4.1 10.2 3.5 5.0 9.6 3,3 5,1 9.4 3.3 5.2 9.0 3.2 4.9 9.3 3.2 5.0 8.6 3.2 5,0 White Black and other 4.3 8.9 5.4 12.4 5.2 12.1 5.2 11.7 5.1 11.5 5.2 11.5 5.1 11.2 Fulltime workers 4.3 5.7 5.5 5.5 5.2 5.3 5.2 White collar 3.0 3.6 3.6 3.6 3.3 3.5 3.3 Blue collar Craft and kindred Operatives, ex. transport 5.3 3.7 6.1 7.2 5.1 8.3 6.7 4,4 8.2 6.8 4.4 8.4 6.7 4.5 7.6 6.8 4.7 7.7 6.4 4.5 7.6 Teenagers HOURLY EARNINGS INDEX 1/ (Per cent change at compound annual rates; based on seasonally adjusted data) I, Dc 7Dec. 781978 1977 1978 HI H2 Jan. 79 10.5 7.5 8.2 8.8 7.6 Manufacturing 8.3 8.3 8.2 8.5 5.7 Contract construction 4.0 7.5 9.3 5.8 9.9 Transportation and public utilities 9.1 6.7 8.0 4.1 Total trade 7.4 9.4 10.0 17.7 Services 7.1 7.5 8.1 16.0 Total private nonfarm 1/ Excludes the effect of interindustry shifts' in employment and fluctuations in overtime pay in manufacturing. MANUFACTURER'S INVENTORIES: CHANGE IN BOOK VALUE (Billions of dollars; seasonally adjusted, annual rate) QII 1977 QIII Total Durable Nondurable 15.7 7.8 7.9 10.2 7.7 2.4 Stage of Fabrication Materials & Supplies Work-in-Process Finished Goods 8.7 -1.3 8.4 -.2 6.0 4.3 QI QII 1978 QIII QIV 2.8 3.8 -1.0 16.6 13.2 3.4 22.8 15.9 6.9 18.0 14.0 4.1 13.0 11.2 1.8 22.2 18.9 3.3 -3.9 3.0 3.8 1.8 10.9 3.9 6.8 9.0 6.9 5.0 7.6 5.4 1.0 9.6 2.4 6.3 6.1 9.9 QIV MANUFACTURERS' QII Total Durable Nondurable r = revised. p = preliminary. 1.60 1.96 1.22 1977 QIII 1.61 1.96 1.22 Nov.(p) Dec.(p) 8.6 7.3 1.2 -1.5 9.3 .7 INVENTORY/SALES RATIOS QIV 1.56 1.90 1.18 QI 1.56 1.90 1.17 QII 1978 QIII QIV Nov.(r) Dec.(p) 1.52 1.86 1.15 1.54 1.87 1.16 1.49 1.81 1.12 1.49 1.79 1.12 1.47 1.79 1.11 UPDATED MONETARY AGGREGATES (Seasonally adjusted)1/ QIII 1978 Oct. QIV Nov. Dec. Dec. '77 to Dec. '78 1979 Jan.e HI Major monetary aggregates 1. M-1 (currency plus demand 6.7 -5.0 2.0 -4.6 3.7 4.5 7.6 8.1 deposits) M-1+ (M-1 plus savings 2. deposits at CBs and checkable deposits at 4.3 -7.0 -2.3 1.8 -7.1 5.3 2.4 5.9 thrift institutions) M-2 (M-1 plus time & savings 3. deposits at CBs, other 7.7 -1.8 4.3 2.1 7.0 8.9 7.5 7.4 than large CDs) 4. M-3 (M-2 plus all deposits 4.2 8.9 5.2 6.7 9.8 9.6 10.1 7.8 at thrift institutions) Bank time and savings deposits 11.5 8.3 5.2 23.7 12.5 7.9 9.5 11.7 Total 5. Other than large negotiable 6. CDs at weekly reporting banks (interest bearing component 8.5 0.2 2.4 9.1 10.7 10.0 9.6 6.9 of M-2) 0.3 -10.4 -8.7 -11.3 -0.9 -1.6 1.3 2.1 Savings deposits 7. 8. Individuals 2/ 2.1 2.5 -0.8 -2.9 -8.6 -8.7 0.7 -13.4 Other 3/ 1.3 -15.5 -2.7 16.0 -39.5 -16.3 -5.2 41.4 Time deposits 11.1 17.3 18.1 17.7 27.7 10.8 15.5 8.7 13.4 8.1 8.5 13.0 23.5 4.7 5.2 8.5 11. Small time 4/ 12. Large time 4/ 22.7 32.7 27.1 8.1 67.8 14.1 29.0 1.1 13. Time and savings deposits subject to rate ceilings (7+11) 3.4 4.4 5.1 9.4 -4.2 -1.2 3.8 0.3 Deposits at nonbank thrift institutions 5/ 8.6 10.6 9.7 10.1 13.0 13.6 11.6 8.3 14. Total 10.6 11.5 11.8 12.2 14.9 14.5 12.8 8.5 15. Savings and loan associations 16. Mutual savings banks 4.8 7.1 9.3 11.2 6.9 4.3 6.6 4.2 n.a. 6.8 13.9 2.3 10.0 6.8 17.4 13.6 17. Credit unions Average monthly changes. billions of dollars Y I~ MEMORANDA: -3.2 -4.6 0.3 3.8 0.5 18. Total U.S. Govt. deposits 6/ -0.1 0.0 4.1 4.0 4.4 0.8 13.1 2.9 19. Total large time deposits 7/ 4.2 5.1 -1.9 3.8 1.2 n.a. 2.3 20. Nondeposit sources of funds 8/ 0.7 e-estimated. n.a.-not available. 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 CDs at weekly reporting banks. 5/ Growth rates computed from monthly levels based on average of current and preceding end-of-month data. 6/ Includes Treasury demand deposits at commercial banks and Federal Reserve Banks and Treasury note balances. 7/ 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. UPDATED COMMERCIAL BANK CREDIT (Per cent changes at annual rates, based on seasonally adjusted data)1/ 12 months ending 1978 Nov. Dec. Dec. 6.7 1.1 10.9 -4.5 -20.0 -6.5 -36.2 -24.7 -61.8 -25.2 -7.5 4.8 7.1 3.6 3.5 7.5 3.9 14.6 QII QIII QIV 1. Total loans and investments2/ 17.0 8.7 5.9 2. 11.7 1.1 -10.3 -6.1 3. 4. Investments Treasury securities 17.1 8.5 9.0 Oct. 1.9 5. Other securities 2/ Total loans- 19.1 11.7 12.1 15.3 16.8 6. Business loans 17.4 10.3 6.7 10.6 10.0 -0.5 13.0 7. Security loans 88.9 -26.8 -43.1 -67.7 -52.2 -13.6 -7.0 8. Real estate loans 19.3 17.6 17.5 16.7 21.1 13.8 19.1 9. Consumer loans 23.7 15.6 17.6 17.3 20.8 13.9 19.6 Commercial paper issued by non- 3/ financial firms- 30.6 18.9 49.7 33.9 52.7 56.8 25.9 Business loans at banks net of bank holdings of bankers acceptances 17.9 10.3 8.6 12.4 12.8 0.5 14.1 12. Sum of items 10 & 11 18.8 10.9 11.8 13.9 15.8 5.3 14.9 13. Memo item 12 plus business loans from finance companies 17.4 9.1 14.9e 18.8 17.7 7.8e 14.8e MEMORANDA: 10. 11. n.a.--not available. e-estimated 1/ Last-Wednesday-of-month series except for June and December, which are adjusted to the last business day of the month. 2/ Loans include outstanding amounts of loans reported as sold outright to a bank's own foreign branches, nonconsolidated nonbank affiliates of the bank, the bank's holding company (if not a bank), and nonconsolidated nonbank subsidiaries of the holding company. 3/ Measured from end of month. INTEREST RATES (One day quotes--in per cent) 1978 Highs Lows 1979 Dec. 18 Feb. 1 Short-Term Rates Federal funds (wkly. avg.) 10.25(12/27) 6.58(1/11) 3-month Treasury bills (bid) Comm. paper (90-119 days) Bankers' acceptances Euro-dollars CDs-Secondary market 9.37(12/22) 10.60(12/28) 10.88(12/20) 12.19(12/21) 11.04(12/21) 6.09(4/24) 6.63(1/6) 6.70(1/6) 7.00(2/8) 6.72(1/3) 9.26 10.38 10.70 11.75 10.89 9.25 9.96 9.92 10.56 10.17 6-month Treasury bills (bid) Comm. paper (4-6 mos.) CDs-Secondary market 9.61(12/20) 10.64(12/28) 11.64(12/20) 6.43(1/4) 6.66(1/5) 6.97(1/6) 9.55 10.46 11.41 9.31 10.04 10.51 9.69(12/29) 5.60(12/22) 6.53(1/4) 9.54 3.55(3/3) 5.50(12/15) 9.60(12/28) 9.25(12/21) 9.03(12/20) 7.38(1/4) 7.71(1/5) 8.00(1/5) 9.46 9.14 8.98 9.64(12/29) 8.28(1/3) 9.09(1/3) 8.48(1/6) 9.21 9.93 9.29(12/15) 9.35(12/15) 6.45(12/15) 1-year Treasury bills (bid) Prime municipal note 9.75(12/20) 10.12(1/31) 9.28 5.40(1/26) Intermediate- and Long-Term Treasury (constant maturity) 3-year 7-year 20-year Corporate Seasoned Aaa Baa Aaa Utility New Issue Recently offered 9.28(12/28) 9.30(11/10) 9.54(12/22) 8.61(3/24) Municipal Bond Buyer index 6.67(12/21) 5.58(3/16) Mortgage--average yields in FNMA auction 10.60(12/26) 9.13(1/9) 10.40(12/11) 9.16 8.93 8.89 9.18(1/31) 10.06(1/31) 9.41 6.22 10.73(1/22) -10- U.S. merchandise trade data on an international accounts basis was released Thursday, February 1. The deficit in the fourth quarter was $29.5 billion at an annual rate slightly less than the deficit in the second and third quarters. trade deficit was $34.2 billion. For the year 1978 the -11U.S. Merchandise Trade, International Accounts Basis (billions of dollars, seasonally adjusted annual rates) 1977 1 9 7 8 I T I r 29 Year Year i 9r EXPORTS Agric. Nonagric. 120.6 24.3 96.2 141.8 122.8 25.9 96.8 140.4 IMPORTS Petroleum Nonpetrol. 151.7 176.0 42.3 133.7 167.2 171.2 45.0 106.7 29.9 112.0 39.8 127.5 31.9 108.5 43.1 128.1 39 r 4 Nov r Dec. 156.3 157.2 155.5 116.2 30.0 126.3 29.7 127.5 124.4 179.7 185.9 43.2 43.1 142.7 187.0 45.3 141.7 147.8 31.6 136.5 31.1 184.7 41.8 142.8 -319. -30.9 -29.5 -29.8 -44.5 -29.2 L NOTE: Details may not add to totals because of rounding, r/ Revised */ The monthly International Accounts figures are only rough estimates and are subject to considerable revision. BALANCE -31.1 -34.2
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