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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) CLASS II - FOMC March 12, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1976 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Retail sales.......................................... .... Merchant builder sales.......... ...... .............. 1 2 The Joint Economic Committee's Report on the Budget................................... .. 4 TABLES: Retail sales............................................... Home sales.. ..... ................ 2 ........................ 3 .. .......... ............. 4 Interest rates....... ............................. . ......... 6 Comparison of alternative budget estimates. ......... ..... THE DOMESTIC FINANCIAL ECONOMY TABLE: ERRATA Part II.................. ........................ ........ 7 SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Retail sales. More complete data indicate that sales in December were $300 million higher than the preliminary estimate, raising the gain from November to an exceptional 3.4 per cent instead of 2.8 per cent. The preliminary level for January is estimated almost the same as the advance count, but the higher December base increases the decline in January to 0.9 per cent from the advance estimate of 0.3 per cent. The advance release for February reports that sales last month increased 1.6 per cent from January, a strong addition but smaller than implied by the weekly data reported in the Greenbook. The auto- motive group with a 5.5 per cent increase in sales contributed importantly to the February increase; sales in February excluding autos and mainly nonconsumer items, were up 0.6 per cent. On the basis of these new figures, sales of furniture and appliances, beginning with December, now look substantially weaker than before. - 2- RETAIL SALES (Seasonally adjusted, percentage change from previous period) Total sales (Real*) III 1975 IV Dec. 3.9 2.2 3.4 (1.5) 1976 (1.0) (3.0) Jan. - .9 Feb. 1.6 (1.1) (n.a.) 1975 IVFeb. 3.0 (n.a.) Total, less auto and nonconsumption items 3.1 1.6 1.6 - .6 .6 1.4 GAF 2.3 2.8 2.1 -3.4 3.4 2.5 5.8 4.4 7.1 -1.4 3.5 6.7 7.4 4.9 13.3 -3.5 5.5 9.4 2.3 5.1 - .5 -2.7 .2 -1.3 3.0 1.2 1.7 - .7 .7 1.3 3.0 2.8 2.0 6.6 .7 1.0 2.7 -1.2 3.7 .5 2.4 4.6 - .1 .7 -4.5 - .6 4.4 -1.3 4.0 .2 7.3 - .5 2.3 2.2 Durable Auto Furniture and appliances Nondurable Apparel Food General merchandise Gasoline stations *Deflated by an unpublished Bureau of Economic Affairs price measure. Merchant builder sales of new single-family homes dropped 16 per cent in January to a seasonally adjusted annual rate of 552,000 units. The sharpness of the decline may have been due, in part, to the year-end 1975 expiration of the 5 per cent tax credit, as sales had been very strong in both November and December. The stock of unsold new homes edged up and by the end of the month represented 8.3 months' supply at the January sales rate. - 3 - Sales of existing homes, which had been extremely strong throughout late 1975, also slowed in January. index of unit sales was 116 (1972=100)--11 in December, but still The seasonally adjusted per cent below the record the fourth highest figure for this series which dates from 1968. HOME SALES New Home Sales and Stocks Median Prices Sales Indexes of Unit Volume of Homes Sold Homes Homes Months' (1972-100, seasonally adj.) Sold 1/ for sale 2/ supply New Existing (thousands of units) homes 3/ homes New Existing homes homes (thou. of $) 1975 I (r) QII (r) QIII(r) QIV (r) 438 554 564 640 395 379 384 378 10.8 8.2 8.2 7.1 61 77 79 89 93 105 111 126 38.1 39.0 38.8 41.3 33.8 35.4 36.1 35.6 Oct.(r) Nov.(r) Dec.(r) 610 655 655 389 382 378 7.7 7.0 6.9 85 91 91 122 126 131 40.7 41.1 42.1 35.4 35.7 35.8 552 384 8.3 77 116 41.9 36.3 1976 Jan.(p) 1/ Seasonally adjusted annual rate. 2/ Seasonally adjusted, end of period. 3/ Converted to 1972 index for comparison with existing home sales, which are not available on any other basis. -4- The Joint Economic Committee's Report on the Budget. The JEC has recommended a target for Federal outlays of between $412-$418 billion, and it expects that receipts will total $352-$357 billion in the next fiscal year. Under these assumptions the deficit would reach approximately $60 billion. A comparison of alternative budget forecasts is presented in Table I. Table I COMPARISON OF ALTERNATIVE BUDGET ESTIMATES (billions of dollars) Fiscal Year 19772/ 1/ Administration 1 / Outlays Receipts Deficit 3/ JEC-3 FRB $394.2 $410.0 $412 - 418 351.3 356.5 352 - 357 42.9 53.5 60 - 4/ 61- 1/ Estimates contained in the Administration FY'77 Budget. 2/ March 10, 1976 Greenbook. 3/ Report of the Joint Economic Committee on the February 1976 Economic Report of the President, March 1976. 4/ The JEC states that the combination of a $418 billion outlay total and a revenue total of $357 billion should be enough to prevent the budget from moving in a restrictive direction. If outlays were to total $412, a larger tax cut would be needed to sustain a neutral fiscal policy. More specifically, the Committee recommended that: 1. the January 1, 1977 tax rate increases proposed by the administration for the social security and the -5- unemployment-insurance trust funds should not be adopted at this time; 2. the tax reduction provided by the Revenue Adjustment Act of 1975 scheduled to expire on June 30, 1976, should be extended through FY'77, with possible further tax cuts if the real growth in GNP falls below a 7 per cent annual rate; 3. Congress should expand the public service employment program and pass a revised public works bill in order to create an additional 650,000 jobs; 4. the President should establish a voluntary program designed to insure that price increases are held to a necessary minimum during 1976 and that real wage increases are kept in line with productivity gains; and 5. the Federal Reserve should conduct monetary policy "so as to avoid any substantial rise in short-term interest rates and to encourage reductions in longterm rates." The Domestic Financial Economy No textual addendums to the Greenbook were required, but the usual updating of interest rate developments is contained in the table on page 6. - 6- INTEREST RATES (One day quotes--in per cent) 1975 Highs Lows Feb. 17 1976 Mar. 11 Short-Term Rates Federal funds (wkly. avg.) 3-month Treasury bills (bid) Comm. paper (90-119 day) Bankers' acceptances Euro-dollars CD's (NYC) 90-119 day Most often quoted new 6-month Treasury bills (bid) Comm. paper (4-6 mo.) Federal agencies CD's (NYC) 180-269 day Most often quoted new 1-year Treasury bills (bid) Federal agencies CD's (NYC) Most often quoted new Prime municipals 7.70( 1/8) 5.13(5/21) 4.70(2/18) 4.86(3/10) 6.90( 1/2) 9.00( 1/2) 9.00( 1/1) 4.88 4.99 5.25 5.05 5.56 5.25 10.25( 1/3) 4.88(6/16) 5.38(6/2 ) 5.40(5/30) 5.69(5/21) 9.00( 1/1) 5.38(6/11) 5.13(2/11) 5.25(3/10) 7.05(8/25) 8.75( 1/2) 5.21 5.25 5.50 5.38 7.67( 1/2) 5.18(6/11) 5.38(5/23) 5.68(6/12) 5.51 5.87p 8.38( 1/1) 5.75(6/18) 5.50(2/11) 5.75(3/10) 7.35(8/21) 8.00(8/25) 5.37(2/5 ) 6.03(2/20) 5.56 5.91 6.04 6.43p 8.00( 1/1) 6.00(3/12) 3.40(2/7 ) 6.00(2/11) 3.15(2/13) 6.25(3/10) 4.35(8/15) 8.56(9/16) 8.71(9/16) 6.93(2/19) 7.58(2/21) 7.44 8.04 7.56 8.01 5.20 5.63 3.25(3/12) Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa Utility 9.02(4/30) 10.63(1/20) 8.57(2/26) 8.57 10.27(4/3 ) 10.09 8.55(3/10) 10.02(3/10) 8.6 4 p(3/10) 9.80( 4/3) 8.89(2/6 ) Municipal Bond Buyer Index 7.67(10/2) 6.27(2/13) 6.95(2/13) 6.98(3/11) Mortgage--average yield in FNMA auction 9.95(10/6) 8.78(3/10) 9.07(2/9) 9.06(3/9 ) -7- ERRATA: Part II: Page II - 8: Manufacturing and trade inventories, Dec. 1975, should be $-15.5 billion. The minus sign had been dropped. Page III - 16 , line 2: sentence should read "Estimated new mortgage commitments at these institutions increased in January and outstanding commitments remained at $18.2 billion-the highest level since mid-1973."
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