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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 some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. 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 optical 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. Content last modified 6/05/2009. 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 January 8, 1964. SUPPLEMENTAL NOTES The Domestic Economy Sales of new domestic autos in December were 12 per cent above a year earlier, setting a record seasonally adjusted annual rate of over 8.9 million units. Production of domestic cars set a new monthly record in December, but inventories at the end of the month were still 7.5 per cent below a year ago. Despite an estimated loss of over half a mil- lion cars during the autumn strike period, production in 1964 reached 7.7 million cars, exceeding the previous year but still below the 7.9 million peak reached in 1955. Total civilian employment, seasonally adjusted, rose by 150,000 to 70.9 million in December. In nonfarm activities, employment continued to show sustained improvement and advanced by 300,000 to 66.3 million. The unemployment rate declined slightly to 4.9 per cent and was at the low point of the 4.9 to 5.3 per cent range that has prevailed since May. 5.5 per cent. In December 1963, the unemployment rate was The labor force in December increased about as much as employment and, at 74.5 million, was 1.4 million above a year earlier. The unemployment rate for adult men remained at the low November level of 3.5 per cent. The rate for adult women dropped to 4.6 per cent, the first substantial decline since early 1964. previous 7 months the rate had been 5.0 per cent. In the The teenager unem- ployment rate, however, at 15.4 per cent was higher than in November or a year earlier. Long duration unemployment continued at about 900,000 but was 100,000 lower than a year earlier. Few construction put in place continued about unchanged in December, at a rate only slightly below the highs reached earlier in 1964. Residential activity receded further from the peak of last March, but nonresidential activity held at a record rate and public construction edged higher. For 1964 as a whole, total construction activity expanded slightly more than in 1963 with acceleration of the rise in private business construction in public construction the main factor. NEW CONSTRUCTION PUT IN PLACE December I/ 1r De b Total $65.7 Per cent change from year earlier c(billions) ember 1964 1963 +1 Private Residental Nonresidential Business 45.4 25.4 20.0 14.4 + + Public 20.3 +5 1 6 6 8 + 6 +5 + 5 + 3 + 8 +9 + 5 + 6 + 3 +4 + 7 + 5 Seasonally adjusted annual rate; preliminary. The Domestic Financial Situation Consumer instalment credit was up $301 million, after seasonal adjustment, in November. This was the smallest increase in more than two years, as a smaller rise in the automobile sector resulted from earlier work stoppages. Other consumer goods paper and personal loans showed about the same dollar rise as in the preceding month. -3- Net flows of savings to savings and loan associations which had fallen behind a year ago in October showed a moderate year-overAfter allowing roughly for seasonal year rise again in November. influences, however, the November inflow still ran behind the very large inflows that developed during the summer months. At mutual savings banks the rate of growth in deposits has also subsided a bit since the peak summer- months in which special promotional efforts were made at some banks in New York City. But a significant year-over-year growth has been maintained, particularly in November. NET SAVINGS FLOWS / (millions of dollars) To savings and loan associations Net change 1964 1963 August September October November 773 1,073 750 836 1964 August September October November 345 472 233 317 643 916 795 804 + 130 + 157 - 45 + 32 To mutual savings banks 1963 Net change 168 417 195 239 + 177 + 55 + 38 + 78 / Unadjusted for seasonal variation. The only major corporate bond issue to reach the market since before Christmas, a $40 million A-rated industrial, was an immediate sellout this week. The yield on this issue adjusted to 4.48 per cent on a triple A basis, about the same as that on the last previous eligible issue, offered in early December. In the municipal market, retail demand has strengthened further, and with new issues in small supply this week, dealers' advertised inventories of unsold securities dropped sharply to around $575 million. Yields on seasoned Aaa-rated municipal bonds were unchanged at 2.99 per cent, but yields on lower-grade issues edged off further. Standard and Poor's composite index of 500 stocks has continued to advance this week on rising trading volume. On January 7, it closed at 85.26 up 2-1/2 per cent from the December low, but still 1 per cent below the record November 20 high of 86.28. The seasonally adjusted money supply for the month of December was revised downward slightly from $159.5 billion to $159.4 billion, bringing the monthly increase to $300 million. Over 1964, the money supply increased 4 per cent compared with 3.8 per cent in 1963. International developments France has announced its intention to purchase $150 million of gold from the U. S. this month. Another purchase of this size is reportedly contemplated for later this year. These special purchases will be in addition to their usual monthly purchases, which over the past year have averaged approximately $35 million. French official reserves of gold and foreign exchange increased $647 million in 1964 and totaled $5,104 million at the end of the year. Almost all of the additions to reserves in 1964 were taken in the form of gold ($554 million). Gold holdings totaled $3,729 million at the end of 1964, and were 73 per cent of total reserves. -5- In Japan, the discount rate was reduced from 6.57 to 6.21 per cent effective January 9. This latest easing of Japanese mone- tary policy followed a reduction of commercial bank reserve requirements in mid-December and several other easing measures taken since last fall. Some of the credit restrictions adopted in late 1963 and early 1964, however, continue to remain in effect. A- 1 APPENDIX The results of the second quarterly survey of changes in bank lending practices conducted as of December 15, 1964, are summarized below. Reports were received from 81 banks in the quarterly interest rate survey. About two-fifths of the banks (32 of the 81) reported that demand for commercial and industrial loans had strengthened in the fourth quarter of 1964, substantially less than the three-fifths that had so indicated in the third quarter (item 1). For the most part the banks reporting strengthened loan demand were the same in both quarters. Few banks indicates a weakening in demand, and the appended comments suggest that some of these may not have made allowance for seasonal influences. Most respondents, including those reporting stronger demand for loans, had not changed their policies with respect to soliciting new loans (item 2). The few banks that had become less aggressive in seeking new loans also generally reported tighter lending terms and conditions. In considering credit requests, the borrower's value to the bank as a depositor and source of collateral business was considered more important than earlier at 34 of the 81 banks and the applicant's intended use of the proceeds of the loan also was at 14 of the banks (item 3). than in September. judged more important In each case, the number was about 10 less A - 2 Over one-fourth of the banks (23 out of 81) had established a firmer policy with respect to extending credit lines to new business borrowers and about the same proportion also had a firmer policy on lending to nonlocal businesses. proportions than in September. These were also somewhat smaller By contrast, a slightly higher, though still small, number of banks applied tighter lending standards to established and to local customers in December than in September (item 4). The most striking changes in the fourth quarter were in terms and conditions of lending. Over two-fifths of the banks, widely distributed geographically, indicated that they had a firmer policy with respect to interest rates charged as well as with respect to compensating balances (item 5). These proportions were substantially higher than in September, particularly with respect to interest rates. About one-fourth of the banks reported a firmer policy with respect to standards of creditworthiness of the borrower, but this was about one-third less than in September. There was little change from September in the small proportions of banks firming policies on collateral and maturity. Several banks commented on the change in interest-rate policy by referring to the narrowing spread between rates they must pay on funds and the rates charged on loans. They indicated that such changes would be selective and gradual, which may explain why the December survey of interest rates on short-term business loans showed so little increase--from an average of 4.98 in September to 5.00 in December. A- 3 Practices with respect to term loans changed little in the fourth quarter, although 10 banks, compared with 15 in September, reported that they had become less willing to make such loans. Practices in lending to finance companies also firmed, but to a lesser extent than for nonfinancial businesses. Except for establishing new or larger credit lines, considerably more banks reported firmer policies than in September. A - 4 Not for quotation or publication Jlnu.ry 7, 1i65. Quarterly Survey of Changes in Bank Lending Practices September - December 1964 (Numbers of banks) Lending to Nonfinancial Businesses 1. Strength of loan demand Stronger Weaker Unchanged 32 5 44 Greater Less Unchanged 2. Aggressiveness of bank in seeking new loans 3. Factors considered in deciding whether to approve credit requests: More important Less important Essentially unchanged Applicant's value to the bank as a depositor or source of collateral business Applicant's intended use of loan proceeds 4. Practices with respect to reviewing lines of credit or loan applications of: Essentially Firmer Easier unchanged Established customers New customers Local service area customers Nonlocal service area customers 5. 6 23 7 22 2 75 56 - 74 59 Terms and conditions of loans: Firmer Interest rates Compensating or supporting balances Standards of credit worthiness Type and amount of collateral Maturity Easier Essentially unchanged 35 46 33 48 59 22 14 6 2 67 73 6. Term loans Less willing More willing 10 3 Willingness to make Shorter Longer Maximum maturity bank will approve 3 1 Years Number of banks 3 5 6 7 7 34 1 16 Unchanged 68 Unchanged 77 4 8 10 n.a. 7 12 Lending to Finance Companies Interest rates Size of compensating or supporting balances required Enforcement of balance requirements Establishing new or larger credit lines Source: Firmer Easier Esbentially unchanged 12 - 69 8 -73 22 - 59 17 1 63 Survey of Lending Practices at Large Banks in the Federal Reserve Quarterly Interest Rate Survey conducted as of December 15, 1964.
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