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CONFIDENTIAL (FR)

March 9, 1977

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

By the Staff
Board of Governors
of the Federal Reserve System

TABLE OF CONTENTS
Section
DOMESTIC NONFINANCIAL DEVELOPMENTS

Page

Unemployment rate ...........................................
Nonfarm payroll employment..................................
Industrial production.........................................
Capacity utilization..........................................
Personal income..............................................
Index of consumer sentiment..................................
Auto sales...................................................
Retail sales ........
.................. ......................
Manufacturing inventories......................................
Nondefense capital goods orders..............................
Construction contracts for commercial and industrial
buildings...................................................
Capital spending surveys.................................... .
Newly approved capital appropriations........................
Private housing starts.......................................
Federal Government outlays..................................
Federal budget...................................
............
Average hourly earnings index................................
Consumer price index..............................................
.
Agricultural production........................................
Wholesale Price Index .......................................

1
1
4
4
4
5
7
7
7
9
12
12
13
13
16
16
19
19
21
21

TABLES:
Average monthly changes in nonagricultural employment...........
Selected unemployment rates...................................
Capacity utilization rates.......................................
.......
......
Average weekly hours of production workers .....
Personal income.................................. .. ...........
Retail sales...................................................
Auto sales......................... ...........................
Business inventories .........
...............................
Inventory ratios...............................
...............
Commitments data for business fixed investment................
Survey results of anticipated plant and equipment expenditures
New private housing units .....................................
Comparison of alternative budget estimates...................
Hourly earnings index.........................................
Recent price changes...........................................

2
3
3
4
6
8

8
10
10
11
14
15
17
20
22

Continued

TABLE OF CONTENTS

Section

Page

III

DOMESTIC FINANCIAL DEVELOPMENTS

Monetary aggregates......... ..........
..............
.
Bank credit and short-term business credit....................
Private long-term securities markets,........................

3
6
11

Government securities....................................

Mortgage and consumer credit....

...............

Selected financial market quotations,........................
Monetary aggregates.........................................
Commercial bank credit.....................................

2
4
7

...,..

TABLES:

Security offerings.........

................ .............

Private placement takedowns of corporate bonds
by life insurance companies...................

...........

Interest rates and supply of funds for conventional
home mortgages at selected S&L's..................... ......
Secondary home mortgage market activity....................

16
16

Consumer instalment credit......................

.........

CHART:
Market yield curves and deposit rate ceilings................
INTERNATIONAL DEVELOPMENTS

Foreign exchange markets..............................

International capital markets................................

Medium-term Euro-credits.........................

......

Euro-bond issues............................................

Foreign bond issues.,......

......
,...,....,.....

U.S. international transactions.,..................
......
Merchandise trade deficit........................... .....
Nonagricultural shipments.....................................

9
9
10

Agricultural exports..........................................

Imports.... ....

..........

.....

........

Bank-reported private capital transactions. ........ .......

New foreign bond issues...............................................

U.S. net purchases of foreign securities.....................
Foreign net purchases of U.S. stocks..........................
OPEC reserve assets............................. .....
...
Foreign official assets in the United States,..............
U.S. reserve assets.........
...............................

13
13
14
14
14

Price developments in major foreign industrial countries......

Continued

TABLE OF CONTENTS
Section

Page

INTERNATIONAL DEVELOPMENTS
TABLES:

Borrowing in international capital markets..................
U.S. merchandise trade..,........... .....
.........
Changes in consumer and wholesale prices in

5
9

major industrial countries. ..............................

Growth of money and prices in major
industrial countries.............

.,.........................

iii

March 9,

1977

T - 1

II --

SELECTED DOMESTIC NONFINANCIAL DATA
AVAILABLE SINCE PRECEDING GREENBOOK
(Seasonally adjusted)
Latest data
Release
Date

Period

Data

Per Cent Change From
Three
Preceding Periods
Year
Period
Earlier
Earlier
(At Annual Rates)

Civilian labor force
Unemployment rate (per cent)
Insured unemployment rate (%)
Nonfarm employment, payroll (mil.)
Manufacturing
Nonmanufacturing
Private nonfarm:
Average weekly hours (hours)
Hourly earnings ($)
Manufacturing:
Average weekly hours (hours)
Unit labor cost (1967=100)

Feb.
Feb.
Feb.
Feb.
Feb.
Feb.

3-4-77
3-4-77
3-4-77
3-4-77
3-4-77
3-4-77

96.1
7.5
4.3
80.8
19.2
61.6

Feb.
Feb.

3-4-77
3-4-77

36.4
5.07

Feb.
Jan.

3-4-77
2-28-77

40.4
147.8

Industrial production (1967=100)
Consumer goods
Business equipment
Defense & space equipment
Material

Jan.

Jan.
Jan.
Jan.
Jan.

2-15-77
2-15-77
2-15-77
2-15-77
2-15-77

131.5
139.5
140.9
79.2
130.2

-11.7
-17.8
-6.8
16.9
-14.6

Consumer prices (1967=100)
Food
Commodities except food
Services

Jan.
Jan.
Jan.
Jan.

2-18-77
2-18-77
2-18-77
2-18-77

175.6
183.5
161.6
187.2

9.6
10.6
8.2
11.0

Wholesale prices (1967=100)
Industrial commodities
rm products & foods & feeds

Jan.
Jan.
Jan.

2-11-77
2-11-77
2-11-77

188.5
189.0
184.5

Jan.

2-17-77

1443.3

Mfrs. new orders dur. goods ($ bil.)
Capital goods industries
Nondefense
Defense

Jan.
Jan.
Jan.
Jan.

3-3-77
3-3-77
3-3-77
3-3-77

55.0
16.4
14.8
1.7

Inventories to sales ratio:
Manufacturing and trade, total
Manufacturing
Trade

Dec.
Jan.
Dec.

2-16-77
3-3-77
2-16-77

1.48
1.61
1.34

1.521.581.37- /

1.53T
1.71 1.38-'

1/
1.52T1/

Jan.

3-3-77

.632

.6331/
.633-

.642/
.642-

. 1/
.616-

Ratail sales, total ($ bil.)
GAF

Jan.
Jan.

2-10-77
2-10-77

56.6
13.9

-2.0
-1.6

Auto sales, total (mil. units)2/
Domestic models
Foreign models

Feb.
Feb.
Feb.

3-3-77
3-3-77
3-3-77

10.7
8.9
1.9

2.3
.5
11.9

1976/
1977 '
QI '77

3-8-77
3-8-77
3-8-77
3-8-77

120.49
134.58
129.19
132.71

3-7-77

15,308

2/
sonal income ($ billion)-

7.9/I/
7.34.1- '
3.9
.0
5.1

Mfrs.' durable goods inventories to unfilled orders

2/
Plant & Equipment Expen. ($ bil.)
All Industries

QII'

QIV '76

ital Appropriations, Mfg.
ng starts, private

(thous.)-

ing indicators (1967=100)
1/ Actual data.
2/ At Annual rate.

Jan.
Jan.
3/

1,375
127.4

76-

4.3-

36.25. 00

36.4/

5.05-'

39.6-1
9.8

40.1-1
1.6

40.34.9

1/
1
35.9 -,

2.8
2.3
2.9
1/

4.75-'

3.4
7.6
14.7
3.6
-4.3

3.2

11.1
Annual Rates)

-4.3
-10.3
3.1
-58.3

7.9
-4.5
3.2
-42.5

3.6
.5

19.8
25.3
26.5
15.9

1.35-

9.7
10.3

10.5
11.2
7.2

6.1
1.6
34.2

3.2
2.7

-----

6.8
11.7
12.6
12.4

32.7

---

19.0

-27.0
-1.2
Planned-Commerce March Survey.
2-16-77
2-28-77

2.7 1

5.13.6
3.1
3.7

(Not at

Ratio:

1.1
8.01G

-19.8
.8

9.2
5.1

- 1

DOMESTIC NONFINANCIAL DEVELOPMENTS
Weather-related problems had significant cumulative impacts
on economic activity in January and early February, but current
information suggests both a prompt recovery of activity and somewhat
more underlying strength than had been indicated by earlier information.
Crop damage, of course, has pushed up wholesale and retail food
prices and this should be reflected in forthcoming price data.
The most substantial current evidence of a quick recovery
from weather-related problems is provided by the recent performance
of labor market indicators.

Total employment rose by 400,000 between

early January and early February.

The civilian labor force also grew

rapidly--by 630,000--more than offsetting January's sharp drop.

The

unemployment rate, rose to 7.5 per cent in February from 7.3 per
cent in January.

The increase in unemployment appears to have

resulted from energy and weather-related job losses.

The number of

workers on layoff for any reason rose 210,000 over the month, and
there was an increase of similar magnitude in energy-related claims
for unemployment insurance.

The latter had declined to a level of

less than 10,000 by early March.
The strong gain in employment indicated by the household
survey is supported by estimates from the survey of business
establishments.
month.

Nonfarm payroll employment rose 260,000 over the

The faster pace of employment growth over the past three

months about matched the rate of recovery during the initial year of
expansion.

The reacceleration of employment growth was widespread among private
industries and,

as the tabulation below shows,

included renewed

hiring in manufacturing, where production had been damped between
spring and early winter by excessive inventories as well as by
strikes.
AVERAGE MONTHLY CHANGES IN NONAGRICULTURAL EMPLOYMENT
(In thousands, seasonally adjusted)
June 1975-

May 1976-

Nov.

May 1976

Nov. 1976

Feb. 1977

288

111

300

267

113

229

-2

Employed persons-

Payroll employment

2 /

Manufacturing
1/
2/

1976-

Household survey data.
Establishment survey data, adjusted for strikes.

In February, manufacturing employment,
directly affected by gas curtailments,
early January level.

But,

which was most

remained at the advanced

the average factory workweek jumped 0.8

hour from the weather-depressed January reading of 39.6 hours.

The

lengthened workweek raised total factory manhours sharply in February.
At 40.4 hours in February,
higher than in

average weekly hours were significantly

December and 1976 as a whole.

may be somewhat overstated,

however,

The indicated strength

since the February survey had

a response rate somewhat below normal, making these data subject to
larger than usual revisions.

II - 3

SELECTED UNEMPLOYMENT RATES*
(seasonally adjusted)

Total, 16 years and older
Men, 20 years and older
Women, 20 years and older
Teenagers
Household heads
Married men

1975
IV

1976
III

1976
Feb.

1977
Jan.
Feb.

8.4

7.6

7.4

7.8

7.9

7.6

7.3

7.5

6.9
7.9
19.6

5.8
7.4
19.2

5.7
7.1
18.8

6.0
7.7
18.8

6.2
7.6
19.1

5.8
7.4
19.1

5.6
6.9
18.7

5.8
7.2
18.5

5.8
5.0

5.0
4.1

4.9
4.1

5.3
4.4

5.0
4.2

4.8
3.8

4.9
4.1

8.3
8.4

7.8
7.8

7.4
7.5

7.8
7.6

7.8
7.9

7.8
7.8

7.5
7.6

7.7
7.6

Total, Alternative Seasonal
Adjustment Method
All Additive Factors
1975 Factors

The revised labor force data reflect the inclusion of the 1976 experience in
the seasonal adjustment procedure. However, problems in seasonal adjustment
apparently are continuing to bias the seasonally adjusted unemployment figures
downward slightly over the first half of the year with a corresponding upward
bias later in the year.

CAPACITY UTILIZATION RATES
Per Cent of Capacity

Historical
Average1/

1973
Monthly
High

Manufacturing

83.2

88.0

79.0

80.2

80.8

80.5

Materials
Basic Metal
Textile, Paper & Chemicals
Energy

85.9
86.4
87.6
91.4

93.1
97.7
94.5
94.6

79.0
72.8
85.1
85.3

80.6
77.4
85.0
84.8

81.3
81.5
84.0
84.0

80.4
74.3
83.8
84.1

1976
Q3

1/ The historical average for manufacturing covers the period from 1955 to 1975
while that for the materials series includes 1967-1975.

II - 4

AVERAGE W
E EKLY HOURS OF PRODUCTION
(Seasonally adjusted)

WO R K E R S

1976

1977

Average

Dec.

Jan.

Feb.

Private industry

36.2

35.9

36.4

Manufacturing

40.1

40.0

39.6

40.4

Based largely on the establishment survey manhours data,
industrial production is tentatively estimated to have increased
about 1 per cent in February, recovering the entire January decline.
A generally widespread rebound in output is suggested for consumer
goods,

business equipment,

and most materials.

However,

weekly

production data for autos and raw steel indicate no increase from
depressed January output levels in

these sectors.

Capacity utilization in February also appears to have
returned to about the December level.

In manufacturing, the operating

rate probably averaged near 81 per cent, with materials capacity
utilization somewhat lower than the over-all rate.

The manufacturing

utilization rate has fluctuated within a narrow band of 79 to 81
per cent since last March as a consequence of nearly equal rates of
growth in both manufacturing capacity and output.

Rates of growth

of capacity and output--both at about 2-1/2 per cent over this
recent period--were well below the postwar historical average.
Personal income advanced at only a 3.2 per cent annual
rate in January,

following three months of relatively strong growth.

II - 5
Curtailments in

the workweek were a major reason for the January

slowdown, bringing an estimated weather-related loss of $2.0 billion
(annual rate) in wages and salaries.

Manufacturing and construction

payrolls were most severely affected.

Other significant factors in

slower income growth in January were a sharp drop in dividends from
an unusually high December level and an increase in employee social
security payments.
Consumers continue to be relatively confident in

their

attitudes about their prospective economic situation. The University
of Michigan Survey Research Center index of consumer sentiment,
according to its February survey which is still confidential, had
recovered some of the small decline shown in November.

The Conference

Board index of consumer confidence for late January and early
February (slightly earlier than the Michigan survey period) was
little changed from its improved December level.

The two surveys,

however, differ somewhat in their assessment of consumers' buying
attitudes for autos:

the Michigan survey indicated a substantial

increase in the proportion of respondents considering this a good
time to buy autos, while the Conference Board survey shows a decline
in the proportion of consumers with plans to buy autos.

The Michigan

results usually have been better indicators of auto purchases than
the Conference Board survey.

The Conference Board also indicated a

decline in the proportion of consumers with plans to buy major
appliances.

II - 6
PERSONAL INCOME
(per cent change from previous quarter at a compound annual
rate; based on seasonally adjusted data)

1976

Nov. 76Dec. 76*

Dec. 76Jan. 77*

III

10.1
12.6

9.5
7.8

7.3
9.2

10.7
11.2

15.3
12.8

3.2
2.6

Wage and Salary Disbursements
Private
Manufacturing
Government

12.6
14.1
18.0
7.2

9.4
10.1
10.9
7.1

7.8
8.2
5.7
6.7

10.7
10.5
8.6
11.5

11.2
12.4
11.3
6.7

6.3
6.6
7.8
5.4

Nonwage Income
Transfer Payments
Dividends

7.1
14.1
11.7

9.3
-2.3
16.7

6.3
10.9
12.1

10.8
9.0
28.6

21.8
4.3
131.5

1.7
11.5
-103.7

4.7
7.1

4.4
2.8

1.5
3.3

6.1
6.6

10.4

-6.4
-7.0

7.0

4.3

2.0

6.1

5.4

4.0

-0.1

Current Dollar
Total Personal Income
Nonagricultural Income

Constant Dollars**
Total Personal Income
Nonagricultural Income
Wage and Salary Disbursements

Addenda:
Real Disposable Per Capita
Income

* Per cent change at annual rate, not compounded.
** Deflated by CPI, seasonally adjusted.

2.5

7.9

-3.3

II - 7

Despite adverse weather early in the month auto sales in
February were at a 10.7 million unit annual rate, close to their strike
rebound level of 10.9 in December and 200,000 units above January.
of the advance was due to sharply improved sales of imports.

Most

At a

1.9 million unit annual rate, foreign cars were selling better than at
any time in the past two years; these sales likely were boosted by dealer
incentive contests and cash rebates.
According to staff estimates based on weekly data for February,
retail sales of goods other than autos and nonconsumer items increased
about 1 per cent from the weather-affected January level.

Spending for

furniture and appliances was up 2 per cent, extending the gain in January
and the strong fourth quarter showing.
1 per cent.

Outlays for food rose more than

Spending for general merchandise, which had been strong

during the second half of 1976, was about unchanged for the month as a
whole after declining sharply in January.

Such sales, which are par-

ticularly likely to be postponed due to severe weather, appeared to
improve somewhat during the final weeks of the month.
The book value of manufacturing inventories rose at a $10.2 billion annual rate in January, following a revised $3.1 billion rate of
decline in December.

While stocks at producers of nondurables were

practically unchanged, durable manufacturers' inventories rose at a
$9.9 billion rate in January.

A significant factor in the rise in

durable stocks was a sizable turnaround in stocks of

II - 8
RETAIL SALES
(Per cent change from previous period;
based on seasonally adjusted data)

III

1976
IV

Nov.

Dec.

Jan.

Feb.1/

1.9

1.2

3.4

1.7

3.9

-2.0

1.0

2.1

1.5

3.5

-2.5

n.a.

Total, less auto and
noncomsumption items

1.3

1.7

3.1

1.7

-1.2

GAF

-. 2

2.9

4.3

1.3

-1.6

3.4
4.5

.2
-. 7

3.7
4.1

3.4
4.0

8.3
13.9

-3.2
-6.0

1.6
1.4

2.7

-.2

4.0

3.0

-.3

2.1

1.7
5.7
1.0
3.1
2.3

3.2
1.5
2.3
5.2
4.6

.9
-1.1
-. 2
.8
1.3

1.8
1.3
2.6
1.7
3.3

-1.4
4.5
-2.0
-3.8
-.2

.8
.3
1.2
-.2
1.2

Total sales
(Real*)

Durable
Auto
Furniture and
appliances

Nondurable
1.2
Apparel
-3.4
Food
1.2
General merchandise -.1
Gasoline
.0

1977

*Deflated by all commodities SA consumer price index.
1/
Staff estimate from weekly data.

AUTO SALES
(Seasonally adjusted, millions of dollars)

III

1976
Sept.

10.3

10.2

10.0

Imports

1.4

1.6

Domestic

8.9

8.6

Total

1977
Oct.

Nov.

Dec.

Jan.

Feb.P

9.9

9.3

9.7

10.9

10.5

10.7

1.7

1.6

1.7

1.9

8.3

8.2

7.6

8.0

9.3

8.8

8.9

II - 9

motor vehicle materials and supplies between December (-$8.2 billion)-when production and shipments were rebounding from the auto strike--and
January (+$4.9 billion).

It is possible that some of the January

inventory buildup may have been due to the severe weather, which
hampered shipments.

The slow rate of accumulation during the fourth

quarter--$7.6 billion, annual rate--and the relatively low inventorysales ratio in January could set the stage for a building of stocks
later this year.
In general, retailers entered 1977
position.

with a lean inventory

Although December nondurable retail trade stocks rose

rapidly, offsetting the drop in November, the average fourth quarter
annual rate of rise of nondurable retail stocks was still $1.5 billion
lower than that in the third quarter.

Durable stocks other than autos

were run off in December because of strong sales.
Recent data indicate a strengthening pattern of capital
spending.

Revisions in contracts and orders data showed that there

was more strength at year-end than was indicated previously, and this
strength continued in January.

The December increase in nondefense

capital goods orders was revised up sharply to 11.1 per cent, more
than recovering the November drop; the January increase was 3.1 per
cent.

Shipments of nondefense capital goods fell 2.3 per cent in

January probably because of bad weather but unit truck sales and
shipments of farm equipment both advanced.

- 10

BUSINESS INVENTORIES
(Change at annual rates in seasonally
adjusted book values, $ billions)

1975
III

Manufacturing and trade
Manufacturing
Durable
Nondurable

8.6
-4.2
-7.3
3.1

-.4
.6
-4.4
5.0

23.1
7.5
1.7
5.8

31.5
14.2
6.8
7.5

Trade, total
Wholesale
Retail
Auto

12.8
3.1
9.7
5.9

-1.0
-2.0
1.0
-.9

15.6
5.1
10.5
1.1

17.3
9.0
8.3
.1

1976
III

Dec.

1977
Jan.

29.6
15.4
6.7
8.6

11.4
7.6
7.5
.1

5.4
-3.1
-1.7
-1.4

n.a.
10.2
9.9
.4

14.2
4.3
9.9
4.8

3.9
1.6
2.2
1.3

8.5
-.4
8.9
5.7

n.a.
n.a.
n.a.
n.a.

INVENTORY RATIOS

1974

1975

III

Dec.

Jan.

Inventory to sales
Manufacturing and trade
Manufacturing
Durable
Nondurable

1.63
1.81
2.25
1.33

1.54
1.70
2.20
1.21

1.51
1.63
2.03
1.22

1.53
1.66
2.04
1.26

1.51
1.64
2.04
1.24

1.47
1.58
1.91
1.22

n.a.
1.61
1.99
1.21

Trade, total
Wholesale
Retail

1.45
1.23
1.63

1.36
1.21
1.48

1.37
1.22
1.48

1.38
1.22
1.51

1.37
1.23
1.47

1.34
1.22
1.43

n.a.
n.a.
n.a.

Inventories to unfilled orders:
Durable manufacturing

.551

.613

.625

.640

.633

.632

1976

1977

COMMITMENTS DATA FOR BUSINESS FIXED INVESTMENT
(Percentage change from preceding period; based on seasonally adjusted data)

Jan. 76
to
Jan. 77

1976
QIII
QII

QIV

Dec.

1977
Jan.

Total Durable Goods
Current Dollars
1967 Dollars 1/

8.1
6.3

5.5
4.4

-.8
-2.3

6.1
3.6

9.7
8.9

-4.3
-4.7

19.8
12.3

Nondefense Capital Goods
Current Dollars
1967 Dollars 1/

6.3
4.7

5.6
4.5

5.8
4.4

3.9
2.1

11.1
10.6

3.1
2.3

26.5
19.5

1.4
0.5

11.0
8.0

-7.1
-4.9

19.2 -16.4
4.8
4.3

3.8
-2.3

16.6
21.0

14.2
14.4

2.0
-.9

1.6
1.3

6.3
3.6

17.3
13.3

New Orders Received by Manufacturers

Construction Contracts for Commercial
and Industrial Building 2/
Current Dollars
Square Feet of Floor Space
Contracts and Orders for Plant & Equip. 3/
Current Dollars
1972 Dollars 4/

7.8
8.8

11.2
12.1

FR deflation by appropriate WPI.

Current Dollar series obtained from FR seasonal.
adjusted by Census.

Contracts and orders for plant and equipment (BCD Series No. 10) is constructed by adding new orders for nondefense capital goods to the seasonally
adjusted sum of new contracts awarded for commercial and industrial buildings
and new contracts awarded for private nonbuilding (e.g. electric utilities,
pipelines, etc.).

BCD series No. 20.

Floor space is

seasonally

II - 12

Although there was some slowing in the growth of fourth
quarter orders, the machinery component did not weaken, suggesting
that the underlying trend in capital goods orders is strong.

addition, construction indicators appear somewhat firmer than previously estimated.

The fourth quarter change in construction contracts

for commercial and industrial buildings--measured in square feet of
floor space--has been revised from a 2.8 per cent decline to a 4.8
per cent increase, just about offsetting the decrease that occurred
during the third quarter.

Nonresidential construction activity appears

to have been considerably hampered by bad weather in January as the
value of construction put in place fell 10 per cent.
Recent capital spending surveys and capital appropriations
data indicate that investment prospects for later in the year have
also improved somewhat.

The latest Commerce survey--conducted from

late January to mid-February--showed business planning to increase
plant and equipment outlays by 11.7 per cent in 1977, a slight upward revision from the results reported in the December survey.

The

McGraw-Hill survey--taken at about the same time--indicated plans for
a 15 per cent increase--up 2 percentage points from the fall survey.
The two surveys also show significant differences in several industry
categories.

Some of the disparity between the overall change indicate

by the two surveys can be attributed to coverage differences between
the two samples and the adjustments for systematic bias employed in

II - 13

The Conference Board reported that newly

the Commerce survey.-

approved capital appropriations of the 1,000 largest manufacturing
companies rose by 33 per cent in the fourth quarter after falling in
Some of the fourth quarter jump was due to a

the previous quarter.

sharp increase by petroleum producers.

Excluding this volatile

component, the increase in manufacturing appropriations was still a
considerable 20 per cent--up from a 16 per cent decline in the third
quarter.
Adverse weather also set back residential construction
activity in January.

Private housing starts dropped to 1.38 million

units annual rate--more
quarter average.

than a fifth below the advanced fourth

Declines in January were sharpest in the Northeast

and North Central regions, where the winter had been most severe.
Starts in the West, in contrast, were unchanged from December and 11
per cent above the fourth quarter pace.

In addition to delaying

housing starts, the severe weather conditions inhibited construction
progress on units started in earlier months.

Altogether, Census

Bureau estimates indicate that residential construction outlays
dropped nearly a tenth in January from the previous month.
1/

The methodologies used by Commerce to adjust responses for
systematic bias are not the same for the annual (December) survey
as for the recent quarterly survey. Thus, a comparison of the
changes between these two surveys may not be entirely meaningful.
On an unadjusted basis the increase shown in the Commerce survey
was revised upwards from 11.7 per cent in December to 14.2 per
cent in February.

II - 14

SURVEY RESULTS OF ANTICIPATED PLANT AND EQUIPMENT EXPENDITURES
1977
(per cent increase from 1976)1/

McGraw-Hill
Nov.
1976

McGraw-Hill
Feb.
1976

Commerce 2/
Dec.
1976

Commerce 2/
Feb.
1977

13.0

14.9

11.3

11.7

15.4

16.7

12.5

12.7

22.6

23.1

12.2

13.5

9.4

11.6

12.7

12.1

11. 0

13.4

10.4

10.9

Mining

10.1

25.1

11.0

7.2

Railroads

18.9

23.0

10.5

8.3

25.9

-13.7

-19.3

Electric Utilities

12.0

11.0

13.5

17.0

Gas Utilities

17.1

22.0

17.2

23.1

Communications

11.0

16.0

14.4

13.2

9.0

6.0

9.5

11.0

All Business
Manufacturing
Durable
Nondurable
Nonmanufacturing

Nonrail Transportation

Commercial and Other

Preliminary estimate of 1976 spending as estimated by the November Commerce survey.
Corrected for systematic bias. On an unadjusted basis, the December Commerce survey
showed an 11.7 per cent increase for 1977 and the February survey showed a 14.2 per
cent increase.

- 15

NEW PRIVATE HOUSING UNITS

(Seasonally adjusted annual rates, millions of units)

Per cent change in
SJan. from:
Jan.(p) Month ago Year ago
1977

1976
QI

QII

QIII

All Units
Permits
Starts
Under constructionr
Completions

1.17
1.39
1.06
1.30

1.13
1.44
1.06
1.33

1.34
1.57
1.11
1.37

1.53
1.77
1.19
1.38

1.51
1.88
1.19
1.38

1.31
1.38
n.a.
n.a.

- 14
- 27
+ 2*
- 5*

+ 14
+ 9
+ 15*
+ 4*

Single-family
Permits
Starts
Under constructiorrCompletions

.87
1.10
.59
.97

.81
1.10
.61
.99

.89
1.19
.64
1.05

1.04
1.28
.69
1.05

1.05
1.33
.69
1.04

.97
1.03
n.a.
n.a.

- 8
- 23
+ 3*
- 7*

+ 14
+ 6
+ 24*
+ 5*

.30
.28
.46
.33

.32
.34
.46
.34

.45
.39
.47
.32

.49
.49
.50
.34

.46
.55
.50
.34

.34
.35
n.a.
n.a.

- 27
- 37
+ 2*
+ 2*

+ 14
+ 21
+ 4*
+ 1*

.27

.24

.26

.25

.27

Multifamily
Permits
Starts
1/
Under constructionCompletions

QIV(r)j Dec.(r)

MEMO:
Mobile home shipments

* Per cent changes based on December data.
1/ Seasonally adjusted, end of period.
NOTE:

Per cent changes are based on unrounded data.
cent is indicated by --.

A change of less than 1 per

- 16

Underlying housing and mortgage market conditions suggest
that the harsh weather's impact on residential construction will be
short-lived.

Home sales in January--both new and existing units--

edged down only moderately from their record December rate.

In addition,

rental markets have continued to tighten in most areas and, with savings
inflows still relatively substantial at thrift institutions, mortgage
loan commitments outstanding at S&L's at the end of Janurry remained close
to the record December volume,
Federal government outlays fell below budgeted amounts in
January and February and growth of State and local government spending
continues to be weak.

Value of State and local construction put-in-

place fell sharply again in January, largely, it appears, because
extreme weather depressed building and road work.

State and local

employment in February was below the December figure and up only 160,000
from a year earlier--less than half the long term average.

In contrast,

State and local revenues have picked up sharply over the past year.
Total receipts increased by nearly 12 per cent over the four quarters
of 1976, led by a sharp increase in income tax payments as well as large
gains in sales and property tax receipts.
The Carter Administration has issued a revised Federal Budget.
Outlays are planned about $6 billion higher in fiscal year 1977 and
$19 billion higher in fiscal 1978.

Most of the increase in fiscal 1977

and approximately $8 billion of the fiscal 1978 rise

due to

- 17

COMPARISON OF ALTERNATIVE BUDGET ESTIMATES
(Fiscal years, billions of dollars)

1976
Actual

Ford
Budget

1977
Carter
Budget

Cong. 1 /
Adjusted

Ford
Budget

Carter
Budget

Outlays

$366.5

$411.2

$417.4

$418.4

$440.0

$459.4

Receipts

300.0

354.0

349.4

348.6

393.0

401.6

Deficit (-)

-66.5

-57.2

-68.0

-69.8

-47.0

-57.7

1978

The Congress treats the regular earning income credit--worth about $.9 billion--as
a tax cut; whereas the Board staff and OMB treat it as an expenditure. As adjustment, therefore, is needed to make the Congressional and Administrative totals
comparable as regards budget accounting. The Congressional targets without this
adjustment are: outlays $417.5 billion and receipts $347.7 billion.

II - 18

President Carter's previously announced fiscal package.

In addition,

for fiscal 1978 the new budget restores about three-quarters of the
spending reductions proposed by President Ford, which had totaled some
$12 billion.

The receipts forecasts of $394.4 billion in fiscal 1977

and $401.6 billion in fiscal 1978 assume extension of the 1975 "temporary"
tax reductions and the passage of the Administration's previously
recommended personal and corporate income tax cuts.

The Administration

now estimates that the Federal deficit for fiscal years 1977 and 1978
will be $68 billion and $57.7 billion, respectively.

These deficits

are each about $10 billion more than was announced by the Ford Administration in January.
for fiscal year 1977,

Congress also has revised its budget targets

The spending target set in the Third Concurrent

Resolution--when made comparable to the C arter budget--is now projected to be $418.4 billion.

Recent developments on the inflation front continue
mixed.

In February, the average hourly earnings index for private

nonfarm workers was only marginally higher following a sharp rise
in January when minimum wage increases became effective.

For the

two months combined this index increased at a 5.7 per cent annual
rate, compared to a 6.9 per cent rise during 1976.
The 0.8 per cent jump in the Consumer Price Index in
January was not generally weather-related.
early in

the month,

rose 0.9 per cent after little

the three prior months.
coffee prices,

Food, which is

priced

net change over

Much of the increase reflected higher

which are now 70 per cent above a year earlier, and

increases for meats, cereal and bakery products, which had declined
during the fall of 1976.
products were still

Prices of meats, cereal and bakery

below those of a year earlier.

Among nonfood items, car prices, particularly those for
used cars, continued to accelerate, as did prices for fuel oil.
Prices of natural gas and for medical care services continued rising
at double digit rates.

Some of the January advance,

however,

came

from large, infrequent adjustments for property taxes and water and
sewage rates.
The February CPI--to be reported March 18--is likely to
show more of the effects of the severe weather on food prices.

The

- 20

HOURLY EARNINGS INDEX*
(per cent change from preceding period, compound annual rate;
based on seasonally adjusted data)

Feb. 76Feb. 77

Dec. 76Jan. 77**

Jan. 77
Feb. 77**

1976
III

6.5

7.1

6.7

6.6

10.6

.8
-10.5

Private Nonfarm

6.9

Construction

5.1

7.6

5.5

4.0

5.8

18.9

Manufacturing

7.4

6.3

9.2

6.7

7.0

7.1

2.7

Trade
Services
Transportation and
Public Utilities

5.2
8.3

5.6
6.6

6.9
4.8

8.0
7.8

7.1
6.7

10.7
15.7

4.6
-1.8

9.1

9.3

6.6

4.6

5.5

2.9

3.8

* Excludes the effect of interindustry shifts in employment and fluctuations
in overtime pay in manufacturing.
** Monthly change at an annual rate, not compounded.

II - 21
weather's effect on agricultural production and food prices can be
only partially assessed as of this date.
U.S. will have adequate citrus supplies in
freeze damage in Florida.

Indications are that the
spite of the considerable

Vegetable production in Florida was

set back by the freeze, but loss estimates have been revised downward
from $150 million to $110 million.

Despite some recent rainfall the

outlook for California crops this year continues to be poor.

Cut-

backs in water supplies are projected at 25 to 75 per cent in the
Sacramento and San Joaquin valleys where a significant share of the
nation's fruits and vegetables are produced.

However,

the nation's

current meat supply situation continues to be favorable.
meat,

Milk,

and poultry production as of early February all were several

per cent higher than a year earlier.
The Wholesale Price Index for February will be released
on March 10 and reported in the Greenbook Supplement.

- 22

RECENT PRICE CHANGE
rates; based on seasonally adjusted data)1/
at annual
cent
changes
(Per

Relative
importtance
Dec. 76

Dec. 75
to
Dec. 76

Dec. 75
to
June 76

June 76
to
Sept. 76

Sept. 76
Dec. 76

Dec. 76
to
Jan. 77

Wholesale Prices
5.8

100.0

3.9

Farm and food products

21.6

1.0

Industrial commodities
Excluding fuels and
related products
and power
Materials, crude and
intermediate /2

78.4

4.8

8.2

5.7

67.7

5.6

6.7

8.1

49.1

5.4

7.7

4.8

18.7
12.1

3.1
5.8

8.2
5.0

11.6
4.7

All commodities

Finished goods
Consumer nonfoods
Producer goods
Memo:
Consumer foods

10.4

-2.5

-1.2

3.3

3.9

-12.2

-1.3

-13.8

Consumer Prices
All items
Food
Commodities (nonfood)
Services
Memo:
All items less food
and energy 2/3/
Petroleum products 2/
Gas and electricity

100.0

5.0

5.3

4.2

9.6

23.7
38.8
37.5

0.2
4.8
8.5

1.6
5.5
7.5

0.0
5.7
5.1

10.6
8.2
11.0

6.9
-2.2
9.8

6.5
9.9
12.9

4.6
9.5
17.8

10.6
-2.4
10.7

68.9
4.5
2.9

6.1
3.5
12.5

1/ Not compounded for one-month changes.
2/ Estimated series.
3/ Energy items excluded: gasoline and motor oil, fuel oil and coal, gas and electricity.
Note:

Seasonal factors have been revised.

III-T-1
SELECTED DOMESTIC FINANCIAL DATA
(Dollar amounts in billions)

Latest data
Level
Period

Indicator

Monetary and credit aggregates
February
February

Total reserves

Nonborrowed reserves

34.40
34.33

Net change from
Three
Month
ago
months ago

Year
ago

SAAR (per cent)
.9
-12.9
.9
-13.0

Money supply
February 314.1
February 749.9
February 1257.8

Ml
M2
M3
Time and savings deposits
(Less CDs)
CDs (dollar change in billions)
Savings flows (S&Ls + MSBs + Credit
Bank credit (end of month)

February
February
Unions) February
February

Market yields and stock prices
wk. endg.
dg.
Federal funds
Treasury bill (90 day)
Commercial paper (90-119 day)
utility issue Aaa
icipal bonds (Bond Buyer)
1 day
auction yield
(FHA/VA)
Dividends/price ratio (Common
wk. end g.
stocks)

NYSE index (12/31/65=50)

end of day

435.8
63.3
507.9
787.0

e - Estimated

5.2
9.8
11.2

5.8
10.6
12.6

11.1
.2
11.4
14.8

13.2
1.1
13.3
8.7

14.3
-12.1
15.6
7.6

Percentage or index points

4.68
4.70
4.75

.08
-.04

5.92
8.66

-. 01

3/2/77
3/8/77

4.35
54.83

6.10
-. 90

-. 10
.24

-.27

-. 41
-. 50

-.05

1.12
-.40
8.80
-2.00

17.30
9.50

Net change or gross offerings
Current month
Year to date
1977
1976
1977
1976

February
January
December 76
February

offerings)
February
Federally sponsored Agcy. (net borrowing) February
U.S. Treasury (net cash borrowing)
March
Total of above credits

7.2
9.0

3/2/77
3/2/77
3/2/77
3/4/77
3/3/77
3/7/77

Credit demands

Business loans at commercial
banks
Consumer instalment credit outstanding
Mortgage debt outst. (major holders)
Corporate bonds (public offerings)
Municipal long-term bonds (gross

1.9

1.5
1.9
6.6
1.2e

-1.3
1.1
5.3
2.1

2.7
1.9
61.2
4.1e

-.7
1.1
43.7
4.3

3.1e
-. 2
8.4

2.7
-1.1
7.3

6.5e
.7
20.7

5.1
-. 6
24.1

16.1

97.8

77.0

22.5

III - 1

DOMESTIC FINANCIAL DEVELOPMENTS
Securities markets in February were dominated by credit flows
to the government sector.

Treasury borrowing was much larger than in

January, and State and local units issued a record amount of long-term
debt for the month.

Public offerings of corporate bonds, on the other

hand, were down sharply from the January level, as prime-rated corporations were reluctant to bring issues to market against a background
of higher interest rates.

Although the volume of private placements

is estimated to have been large by historical standards, total
capital market issues of corporations in February were about 25 per
cent below the average monthly pace of 1976.

With long-term offerings

reduced, businesses relied more on short-term borrowings--both at
banks and in the commercial paper market--extending the broadly based
pickup in such borrowings that began early in the fourth quarter
of 1976.
Short-term interest rates have changed little on balance
since the February FOMC meeting, as Federal funds generally traded
in the 4-5/8 to 4-3/4 per cent range and published data showed only
a moderate expansion in the monetary aggregates.

Bond market yields,

however, have risen slightly on balance.
The rise in market interest rates during January and
February and the severe weather have had a depressive effect on
deposit flows to banks and thrift institutions.

Inflows of demand

deposits and small denomination time and savings deposits to
commercial banks in January and February were well below their his-

III - 2

SELECTED FINANCIAL MARKET QUOTATIONS
(One day quotes, except as noted, in per cent)

19761/:-

1977

Change from:

February
FOMC

1976

Feb.

May-June

December

High

Low

5.58

4.63

4.70 4.704.70
4.70

4.67
4.67

+.04
+.04

-. 03

Treasury bills
3-month
6-month
1-year

5.53
5.93
6.32

4.27
4.50
4.62

4.63
4.85
5.09

4.70
4.97
5.27

4.66
4.97
5.25

+.39
+.47
+.63

+.03

Commercial paper
1-month

5.65

4.48
4.63

4.63
4.75

+.15
+.12

0
0

Short-term rates
1/
Federal funds-

3-month

5.90

Feb. 15

Mar. 1 Mar. 8 Low

FOMC

+.12

+.16

Large neg. CDs2/
3-month
6-month

5.95
7.00

4.60

4.71

4.75
5.10

4.88
5.20

4.80
5.15

+.20
+.44

+.05
+.05

Bank prime rate

7.25

6.25

8.957/
8.84-

7.93
7.84

8.12

8.26

8.25p +.41

+.13

7.03 8

5.83

5.86

5.92

+.09

+.06

7.52
7.89
8.17

5.64
6.32
7.26

6.35
7.14
7.62

6.54
7.26
7.77

6.54
7.25
7.78

+.90
+.93
+.52

+.19

1003.87

881.51

938.33

944.73

952.04 +70.53 +13.71

56.96
107.26
664

49.06
86.42
520

54.80
112.24
645

54.68
111.13
623

54.83 +5.77
111.42 +25.00
623 +103

Intermediate and Longterm rates
Corporate 3 /

New AA-

4
Recently offered-

Municipal
(Bond Buyer)- /
U.S. Treasury
(constant maturity)
3-year
7-year

20-year

8.28

+.11

+.16

Stock prices
Dow-Jones Industrial

N.Y.S.E. Composite
AMEX
Keefe Bank Stock11

Daily average for statement week.
Highest quoted new issues.
Average for preceding week.

-2/ One day quotes for preceding Friday.
6/

One day quotes for preceding Thursday.
Average for first 6 days of statement week ending March 9.
High for the year was 8.94 on January 7.
High for the year was 7.13 on January 7.
nia. -- Not available.
- Preliminary.
p

+.03
-.82
-22

III -

torically high levels in the fourth quarter, and flows to thrift
institutions in this period show a similar--but not as dramatic-deceleration.
Monetary Aggregates
Reflecting sluggishness in demand deposit growth after
mid-month, M1 expanded at only about a 2 per cent annual rate in
February, down sharply from the 5-1/2 per cent pace in January.
The 3-3/4 per cent average rate of expansion of M1 in January and
February combined was almost 3 percentage points below that of the
fourth quarter.

The slower growth of M1 and the diminished net

inflows of savings and small denomination time deposits reduced the
pace of M2 expansion to a 7-1/4 per cent rate in February, also
considerably below the pace of late last year.

Similarly, smaller

increases in deposits at thrift institutions last month contributed
to a more moderate 9 per cent rate of expansion of M3 .
The slowdown in savings and small time deposit growth at
commercial banks and at thrift institutions has stemmed in part from
the firming in market yields since early in the year.

Increases in

market rates have been particularly large for intermediate-term
securities (see chart).

As a result, market interest rates have

become more competitive with rates offered on time and savings
deposits, especially since--as reported in earlier Greenbooks--many
depository institutions have cut their offering rates on some deposit
categories.

In addition, the unusually severe winter weather has

III - 4

MONETARY AGGREGATES1/
(Seasonally adjusted changes)

QIII

QIV

Jan

JanFebending
Feb

12 months
Feb

ending Feb

Per cent at annual rates
M1 (currency plus demand
deposits)

M 2 (M1 plus time deposits at
CBs other than large CDs)
M3 (M2 plus deposits at
thrift institutions)
Adjusted bank credit proxy

9.2

11.4

12.3

9.2

14.3

11.2

9.0
- -2-.

8.3

10.6

10.1

12.6

1.2

4.7

4.0

8.3

4.5

7.3

11.8

10.0

10.4

10.3

9.3

Time & savings deposits at CBs
a.

Total

Other than large
negotiable CDs

13.0

16.8

12.4

11.1

11.8

14.3

1. Savings deposits
2. Time deposits
2/
3. Small time deposits-

13.4
12.5
25.2

26.9
8.2
26.9

21.5
3.7
1.5

12.9
10.1
3.6

17.3
6.9
2.5

21.7
8.2
18.5

15.9

18.8

15.3

Deposits at nonbank thrift
institutions
a.

Savings and loan assoc.

.4e

Mutual savings banks

11.4

12.8

9.4

.8e

Credit unions

15.9

18.7

16.9

.5e

8.7
16

. 3e

17.0e
11.2
17

.8e

Billions of dollars
(Average monthly changes, seasonally adjusted)
Memoranda:
a.

Total U.S. Govt. deposits

Negotiable CDs

Nondeposit sources of
funds

1.1

-2.4
0.0

-1.0

0.1

-0.2

0.3

-0.8

0.0
-0.8

-0.3

1/ Quarterly growth rates are based on quarterly average data.
2/ Small time deposits are total time deposits (excluding savings)
less all large time deposits, negotiable and nonnegotiable.
e-- Estimated.

-1.0

MARKET YIELD CURVES AND DEPOSIT RATE CEILINGS

Ceilngs at S&Ls and
's

Yields--January 3, 1977

Ceilings at Commercial Banks

5
YEARS

TO MATURITY

III - 6

temporarily reduced wage and salary income for some workers and
increased fuel bills for consumers in the affected areas.

It is

likely that these transitory changes in personal income and expenditures have been partially financed by reductions in savings flows
to depository institutions.
With deposit

flows reduced and loan demand remaining

comparatively strong, outstanding negotiable certificates of deposit
at large banks expanded in February.

The $300 million seasonally

adjusted increase, while modest by historical standards, is only
the fourth monthly increase since January 1976, 1/
Bank Credit and Short-term Business Credit
Both loans and investments increased sharply in February
(last Wednesday of the month series) as bank credit expanded at a
14-3/4 per cent annual rate, faster than in any month since July
1974.2 /
1/

Acquisitions of U.S. Government securities were unusually

Recently available data indicate that banks have been obtaining an
increasing volume of long-term nondeposit funds through issues of
subordinated debt. June 1976 call date figures show a $460 million
net increase in subordinated notes and debentures for all insured
commercial banks during the first six months of 1976, the largest
half-year increase since 1972. Gross issues of bank debt continued
strong at about $1 billion in the last half of 1976, and issues
for the first two months of 1977 have outpaced those for the comparable period last year. A relatively large volume of this debt
has been placed privately with insurance companies. In addition,
a large money center bank has just announced a public issue of $350
million of 30-year notes to be offered in March.
In February, growth of bank credit and the credit proxy diverged
sharply. Such a divergence is not unusualy for a single month and
generally reflects changes in balance sheet items not included in one
or the other of these measures as well as statistical problems in
comparing averages of daily figures for member banks only for the
proxy with last-Wednesday measures for bank credit at all commercial
banks.

III - 7
COMMERCIAL BANK CREDIT
at annual percentage rates)1/
adjusted
changes
(Seasonally

HI
2/
Total loans & investments-

QIII

QIV

Jan

Feb

OctF
Feb

12 mon ths
n

ending Feb

4.9

7.2

7.9

9.0

14.8

9.6

7.6

12.4

5.0

8.0

-5.9

25.5

8.8

9.2

Treasury securities

36.8

0.0

10.6

-9.9

56.4

15.8

Other securities

-1.0

8.3

6.3

-3.2

5.6

4.2

3.6

1.6

8.2

7.9

16.0

9.9

10.1

6.9

-4.9

3.5

9.6

5.4

10.0

9.5

2.8

Real estate loans

8.0

6.0

8.1

8.2

11.5

8.9

7.9

Consumer loans

4.9

11.3

10.6

6.2

n.a.

8.2-

a. Nonfinancial commercial
paper 3/

50.9

-36.1

23.1

37.5

72.2

39.7

22.6

b. Business loans less
bankers acceptances

-3.5

0.5

5.9

12.5

14.4

9.6

2.3

c. Business loans less
bankers acceptances
plus nonfinancial
commercial paper

-0.3

-2.2

7.0

14.2

19.1

11.6

3.6

d. Business loans (including
bankers acceptances)
plus nonfinancial
commercial paper
-1.7

0.6

10.5

7.5

14.3

11.4

4.0

Investments

Total loans-

Business loans

n.a.

18.7

41n

Memoranda:

1/ Last-Wednesday-of-month series except for June and December, which are
adjusted to the last business day of the month.
Includes outstanding amounts of loans reported as sold outright by banks
to their own foreign branches, nonconsolidated nonbank affiliates of the
bank holding companies (if not a bank), and nonconsolidated nonbank
subsidiaries of holding companies.
3/ Nonfinancial commercial paper is measured from end-of-month to end-of-month.
4/ Twelve months ending in January.
n.a.--not available
2/

III - 8

large, with both large and small banks increasing their holdings.
Weekly reporting banks accounted for almost half of the $1.6 billion

unadjusted increase, as their acquisitions in the 1-5 year maturity
range more than offset declines in their holdings of bills and longerterm issues.

Holdings of other securities--mostly tax-exempt issues--

increased for the first time since November, but this rise was well
below the average monthly increase in the last half of 1976.
Total bank loans grew at a 10 per cent annual rate last
month.

Real estate and consumer loans have expanded fairly rapidly

in most recent months, reflecting underlying strength in residential
construction and consumer durable sales and a greater willingness by
1/
banks to offer these loans at attractive terms.Of particular significance is the continued strong expansion
of business loans.

Excluding holdings of acceptances, such loans

increased in February at an annual rate of 14-1/2 per cent.-2/

Non-

financial commercial paper also increased rapidly, advancing by
$800 million, as industrial companies and communications firms were
active borrowers.

In total, short-term business credit excluding

bankers acceptances (memo item c in the table) increased at a 19
per cent annual rate in February.
1/

According to the February Lending Practices Survey, nearly onefourth of all respondents reported that they were more willing to
make consumer loans, and none reported that they were less willing.
Twenty per cent of the respondents were more willing to make single
family mortgage loans, up significantly from the November Survey.
A more detailed review of this survey and of an informal staff
survey on loan commitment behavior appears in Appendix A.
Bank holdings of acceptances declined on a seasonally adjusted
basis by about $700 million in February, and now stand $200 million
above the level at the end of September 1976.

III - 9

The unusually rapid growth of short-term borrowing by
businesses in February reflects in part a slowing of capital market
In addition, business credit demands may have been tem-

financing.

porarily bolstered by production and distribution disruptions induced
by the weather in late January and early February and by some bridge
financing associated with several large advance refundings by telephone companies.

As such, the developments in February are the latest

in a series of "special factors" beginning last October--including
inventory fluctuations, changes in holdings of bankers acceptances,
and changing seasonal patterns--that have caused irregular movements
in the growth of business loans.
Over the entire five months October through February, however,
the effects of many of these special influences appear to cancel,
and business loans increased at more than a 9 per cent annual rate
while total short-term business credit rose at an 11-1/2 per cent
annual rate.

This suggests the possibility that a fundamental change

may have occurred in short-term business credit markets.

Further

support for this view is that business loans appear now to be growing
at both small and large banks.1 /

Moreover, borrowing from large

banks, seasonally adjusted, has increased since October for almost
all categories of business borrowers.2/
1/ Business loans at large banks declined about $7 billion, seasonally
adjusted, during the first three quarters of 1976.
2/ Showing particular strength have been primary metals manufacturing,
other fabricated metal products, the residual category of nondurable
manufacturing, mining, wholesale trade, and communications. Only
loans for transportation equipment manufacturing decreased on
balance over this period.

III - 10

Still, the factors contributing to any fundamental resurgence
in short-term credit demands since last fall are not readily apparent.
While there has been some slowing in capital market financing over this
period, long-term borrowing--with the exception of February--still has
been quite large by historical standards.

Moreover, although there was

some involuntary inventory accumulation early in the fall and perhaps
some effort more recently to replenish stocks drawn down at year end,
inventory accumulation over the period has been quite modest.

In addi-

tion, the total financing gap of the corporate sector remains moderate.
Changes in the availability and costs of bank financing may
have been a small contributing factor to the strong expansion in
business borrowing.

According to the February Bank Lending Practices

Survey, banks have continued to ease nonprice terms of lending and have
been more aggressive in seeking business loans.

Further evidence of an

easing in bank loan terms was found in an informal System survey of banks
which had reported growth in both takedowns and unused commitments in
the monthly Loan Committments Survey.

Strong growth in takedowns such

as occurred in late 1976 typically occurs simultaneously with a decline
in unused commitments.

However, both takedowns and commitments have

increased at large banks in most recent months.

The informal survey

indicates that the growth in outstanding commitments has been due more
to efforts by banks to attract customers than to increasing demands for
commitments by business borrowers.

Generally, banks in the survey have

stepped up their marketing efforts and, to a lesser extent, have lowered
fees and eased compensating balance requirements.

III - 11

Private Long-Term Securities Markets
Gross issues of publicly offered corporate bonds were $1.25
billion in February, less than half the volume in each of the previous
two months.

Some potential issuers, particularly higher-rated

borrowers, apparently were discouraged by the rise in long-term
rates.

Offerings of high-rated (Aaa and Aa) firms totaled less than

$500 million during February, compared to more than $2 billion in
January.

Offerings by lower-rated corporations declined to $700

million in both January and February after averaging more than $1.3
billion per month in the fourth quarter.

Underwriters report that

some of these companies have elected to place their debt issues
privately rather than offer them publicly; life insurance companies
continue to be flush with investable funds, and borrowing costs are
reported to be favorable.
Takedowns of privately placed domestic corporate bonds have
continued at a rapid rate.

In 1976 private placements are estimated

at more than $15 billion, almost 50 per cent above the previous record
total in 1975.

Life insurance companies--as is usual--have been the

principal purchasers of these bonds.

Lower-rated corporations,

particularly manufacturing and other industrial concerns, were the
largest borrowers (see table).

Approximately three-fourths of the

1976 commitments by life insurance companies were for third and
fourth quality issues, roughly equivalent to A and Baa-rated
obligations, respectively.

III - 12
SECURITY OFFERINGS
(Monthly totals or monthly averages, in millions of dollars)

1976
OIII

QIV e/

Jan.e/

Feb.e/

1977
Mar.f/

Apr.f/

Gross offerings
Corporate securities-Total

4,667

3,796

4,238

4,650

3,050

4,800

3,700

Publicly offered bonds
By quality 1/
Aaa and Aa
Less than Aa 2/
By type of borrower
Utility
Industrial
Other

2,499

1,635

2,195

2,800

1,250

2,450

1,800

1,354
1,145

700
935

792
1,403

2,075
725

475
775

720
1,055
724

575
515
478

735
865
500

660
1,100
1,040

400
350
500

Privately placed bonds

1,055

1,541

1,284

1,200

1,400

1,200

Stocks

1,112

200

Foreign securities-Total
Publicly offered 3/
Privately placed
State and local gov't.
securities
Total
Long-term
Short-term

600

928
530
398

702
422
280

808
598
210

5,033
2,886
2,147

4,428
2,747
1,681

4,351
3,033
1,318

1,173
433
740

4,800
3,400
1,400

4,200
3,100
1,100

4,700
3,500
1,200

5,600
3,000
2,600

2,837
658

7,750
-467

9,102
1,484

-4,500
378

Net offerings

U.S. Treasury
Sponsored Federal
agencies

e/
f/
1/
2/

5,128
207

5,218
383

5,984
647

Estimated.
Forecast.
Bonds categorized according to Moody's bond ratings.
Includes issues not rated by Moody's.
3/ Classified by original offering date.

III

- 13

PRIVATE PLACEMENT TAKEDOWNS OF CORPORATE BONDS BY LIFE INSURANCE COMPANIES

Total
($ mils.)

Period
1972
1973
1974
1975
1976

Railroads

8,948
7,817
5,981
9,808
15,313

23.2
26.6
32.4
37.1
32.8

34.6
43.0
39.5
35.0
43.5

16.2
11.7
6.6
6.2
6.8

24.0
15.6
16.9
18.0
15.7

2.0
3.1
4.7
3.7
1.2

1975-Q1
Q2
Q3
Q4

2,434
1,859
2,032
3,483

35.0
42.2
36.5
36.1

31.8
34.1
28.9
41.2

2.5
2.9
12.1
7.3

26.2
14.9
19.5
13.2

4.5
5.9
3.0
2.3

1976-Q1
Q2
Q3
Q4

2,817
3,389
4,081
5,026

39.4
28.0
31.7
33.3

36.6
43.9
41.4
48.8

6.9
7.1
7.4
6.1

14.1
19.9
18.5
11.4

3.0
1.2
1.0
0.4

SOURCE:

Percentage Distribution by Industry
Other
Finance
Public
indust.
cos.
utils.
Manuf.

American Life Insurance Association. Data are for companies representing
nearly 80 per cent of assets of U.S. life insurance companies.

III - 14
Corporate bond yields have continued to move higher since
the February FOMC meeting.

The Board's index of recently offered

Aaa-rated utility bond yields currently stands at 8.25 per cent,
about 10 basis points above its

level just prior to the last FOMC

meeting and about 40 basis points above its low in December.
Apparently the rise in

bond rates was the result of heightened

concern about the outlook for inflation.

Apprehension over future

inflationary pressures appeared to have increased in

response to

signs that the economy was rebounding from the weather induced slowdown of late January and February at a time when passage of the new
Administration's fiscal stimulus package seemed assured.

The

release of unfavorable CPI statistics for January reinforced such
worries.
Stock market prices have changed little since the February
FOMC meeting, and daily volume has remained moderate.

Although many

corporations recently have reported higher earnings per share for
the final quarter of 1976, investors reportedly remain wary about
the outlook for inflation as well as the impact of the cold weather
on first quarter operating results.

During February new stock

offerings continued the moderate pace established in recent months
but are scheduled to increase somewhat during March,

line with

normal seasonal patterns.
Government Securities
During February, the Treasury raised $7.7 billion of new
money in the market through auctions of notes and bonds.

Thus far in

III - 15
1977, the Treasury has raised $13.6 billion through marketable
borrowing and another $1.5 billion through nonmarketable issues.
February's volume of long-term tax-exempt securities
offerings is estimated at $3.1 billion, a record for the month and
about 15 per cent above the volume sold in February last year.
Advance refunding issues, amounting to $900 million last month,
continue to bolster the credit demands of State and local borrowers.
These funds are required to be reinvested in nonmarketable Treasury
securities.
As in January, February's large volume of tax-exempt
securities was absorbed at relatively stable yields, and the Bond
Buyer index now stands at 5.92 per cent--about the level prevailing
just before the February FOMC meeting.

According to dealers,

property-casualty insurance companies continued to be important
institutional purchasers.

Risk premiums in this market have narrowed

since the turn of the year, as yields on lower-rated bonds have
changed little while yields on the higher grade bonds have moved
higher.

Apparently, institutional interest has shifted to lower-

rated securities in an effort to achieve larger returns on their
portfolios. 1/
Mortgage and Consumer Credit
Mortgage acquisitions by S&Ls slowed in January, probably
a temporary interruption induced by the weather, but the volume was

A review of the recent financial crisis in New York City will
appear in the Supplement.

III - 16
INTEREST RATES AND SUPPLY OF FUNDS FOR
CONVENTIONAL HOME MORTGAGES
AT SELECTED S&Ls
Average rate on
new commitments
for 80% loans
(Per cent)

End of period

Basis point
change from
month or
week earlier

1/
Spread(basis
points)

Per cent of S&Ls
with funds in
short supply

1976--High
Low

9.10
8.70

---

+93
-17

11
0

Oct.
Nov.
Dec.

8.90
8.80
8.78

- 7
-10
- 2

+61
+75
--

8
6
3

1977--Jan.

8.73

- 5

+51

+53
-+47
+37

14
12
8
6

Feb.

4
11
18
25

8.68
8.70
8.65
8.65

- 5
+ 2
- 5
0

Mar.

8.65

n.a.

1/ Average mortgage rate minus average yield on new issues of Aaa utility bonds.

SECONDARY HOME MORTGAGE MARKET ACTIVITY
FNMA auctions of forward purchase commitments
Govt.-underwritten
Conventional
Yield
Yield
Amount
($ millions)
Offered
Accepted
1976--High

Amount
($ millions)
Offered
Accepted

to 1/
FNMA-

securities for
immediate
delivery 2/

171

127

9.31

634

321

9.20

8.44

8.80

8.39

7.57

143

106

8.83

362

263

8.49

7.92

7
14

152

120

8.85

390

214

8.52

7.92
7.96

148

116

8.87

479

271

8.58

7.99

Low
1977--Jan. 24
Feb.

to 1/
FNMA-

28
Mar.
1/

Yields on GNM
guaranteed
mortgage backed

8.06
206

153

8.90

703

325

8.66

8.08

Average gross yield before deducting fee of 38 basis points for mortgage servicing.
Data, based on 4-month FNMA purchase commitments, reflect the average accepted bid
yield for home mortgages, assuming a prepayment period of 12 years for 30-year loans,
without special adjustment for FNMA commitment fees and related stock requirements.
Mortgage amounts offered by bidders relate to total bids received.
Average net yields to investors assuming prepayment in 12 years on pools of 30-year
HA/VA mortgages carrying the prevailing ceiling rate on such loans.

III -

still large.

At the end of January, outstanding mortgage commitments

remained near their record December level.

With deposit inflows at

these associations slowing, net paydowns of Federal Home Loan Bank
advances have been smaller than normal for this time of year.1/
Interest rates on new commitments for conventional home
mortgages at reporting S&Ls have continued to edge down irregularly.
In contrast, yields in

secondary mortgage markets have moved upward

since the last FOMC meeting.

Since the beginning of 1977,

rates on

GNMA-guaranteed pass-through securities, which generally move closely
with bond rates, have advanced about 50 basis points--somewhat more
than the rise in corporate yields.

While the increase in yields of

FNMA forward purchase commitments has been more moderate, these
rates also have continued to rise, as mortgage bankers--wary of
possible further reductions in GNMA security prices--have maintained
offerings in

comparatively large volume.

Following four quarters of net expansion at about a 10 per
cent annual rate, consumer instalment credit grew in January at
nearly a 13 per cent rate--still

below the 15 per cent average for

the comparable phase of earlier recoveries.

Expansion of automobile

credit was less vigorous in January that in December,
types of consumer credit grew more strongly.

but most other

Commercial banks accounted

Although their liquidity ratios
SLS remain relatively liquid.
likely have declined slightly in recent months, their holdings
of short-term financial assets at the end of December were $8
billion above the minimum level required by the FHLBB.

III - 10
for a smaller share of the total net change,

although growth in bank

card credit recovered from the small seasonally adjusted contraction
experienced in December.

Recently available fourth quarter data indicate an improved
consumer loan repayment performance,

Instalment loan delinquency

rates at commercial banks held steady at a level about one-fifth
below their recession peak, while the number of personal bankruptcies
was down nearly one-fourth from its peak.

III - 19
CONSUMER INSTALMENT CREDIT

Total
Change in outstandings
$ Billions
Per cent
Bank share (%)
Extensions
$ Billions
Bank share (%)
Liquidations
$ Billions
Ratio to disposable income
Delinquency ratio, banks (%)
Extensions/Sales Ratio (%) 2/
Automobile Credit
Change in outstandings
$ Billions
Per cent

Extensions
$ Billions
Per cent of sales 3/
New-car loans over 36 mos. as %
of total new car-loans
Commercial banks 4/

Finance companies
New-car finance rate (APR)
Commercial banks
(36 mo. loans)
Finance companies

1974

1975

1976

QIII

1976 1/
Dec.
QIV

9.0
6.1
44.4

6.8
4.4
41.7

16.7
10.3
39.7

16.7
10.0
43.8

18.5
10.7
42.4

21.9
12.5
50.0

23.0
12.9
29.5

160.0
45.4

163.5
47.2

186.6
47.5

186.8
47.9

194.1
48.0

200.4
49.0

202.4
44.7

151.1
15.4
2.64
68.7

156.6
14.5
2.60
65.5

169.8
14.4
2.39
65.3

170.1
14.3
2.38
65.4

175.6
14.4
2.37
65.2

178.5
14.7
2.40
64.1

179.4
14.6

0.3

2.6

7.5

7.1

8.1

12.2

0.7

5.2

14.2

12.6

13.6

20.3

15.0

43.2
46.5

48.1
47.1

55.8
44.5

55.8
44.6

57.9
44.5

63.2
44.0

59.3
44.0

8.8

14.0

25.4

28.5

30.7

8.6

23.5

33.9

35.8

37.4

38.2

38.6p

10.97
12.61

11.36
13.11

11.08
13.17

11.07
13.18

11.03
13.21

11.02 10.99
13.21 13.18

Jan.

67.1

9.1

1/ Quarterly and monthly dollar figures and related percentage changes are SAAR.
2/ Ratio = Total instalment credit extensions divided by selected categories of
retail sales: auto dealers, general merchandise, apparel, furniture and appliances.
3/ Auto sales = Census automobile dealer retail sales series, which includes new and
used models of both domestic and import makes.
4/ Series was begun in May 1974, with data reported for the mid-month of each quarter.
Figure for 1974 is average of May, August, and November.

U.S. International Transactions
(In millions of dollars, seasonally adjusted 1/)
March 9, 1977
IV - T - 1
1475

1 9

7 f

YEAR

Merchandise exports
Merchandise imports
Trade Balance

114,518
124,028
-9,510

28,379
29,914
-1,535

29,466
32,553
-3,087

29,676
33,237
-3,561

10,344
11,632
-1,288

9,712
11,606
-1,894

Bank-reported private capital flows
Claims on foreigners (increase -)
Long-term
Short-term
(of which on commercial banks in
offshore centers 2/)

-9 813
-20789
-2,135
-18,654

-1,243
-4,764
-381
-4,383

-1,590
-3,355
-993
-2,362

-4,022
-,U35
-470
-8,568

-1,821
-)U U
-63
-4,995

161
,z--11
5,222

10,976
160
10,816
8,087

Other private securities transactions (net)
Foreign net purchases (+) of U.S. corp.
securities
(of which stocks)
U.S. net purchases (-) of foreign securities

O/S bal. excluding OPEC

(1,901)
290
847

(-3,546)
-97
-989

-56

-605

463

-7,778

-1,262

-2,821

-2,148

-1,048

159

(300: (2,867)
916
1,178
-1,194
814

1,094
187
*
-82
246
(924)
(189)
(-32
(-178)
(158)
-8,872
-1,449
-2,821 -2,066
-1,294
(-9,803) (-1,622) (-3,011,(-2,340) (-1,504)

13,854

Statistical discrepancy

43.

-5,050
66
-5,116
-4,030

3,026

Other capital account items
U.S. Gov't capital, net claims 4/ (increase -)
U.S. direct investment abroad (increase -)
Foreign direct investment in U.S. (increase +)
Nonbank-reported capital, net claims
(increase -)

Official settlements balance

3,237
44
3,193
2,056

-592

-2,530

Current account balance

5,016
222
4,794
2,802

2,815

Change in U.S. reserve assets (increase -)

42.

1,765
66
1,699
1,977

(3,430)

(1,204)
471
855

12,962
6,558
(1,828)
6,404

41.

3,521
-25
3,546
2,220

I Jan.

(4,148)
2,718
11

Change in foreign official assets in the U.S.
OPEC countries (increase +)
(of which U.S. corporate stocks)
Other countries (increase +)

Other transactions and statistical discrepancy
(net payments (-))
Other current account items
Military transactions, net 4/
Receipt of income on U.S. assets abroad
Payment of income on foreign assets in U.S.
Other services, net
Remittances and pensions
U.S. Gov't grants 4/

1 Dec.

(-11,788) (-2,323) (-2,386)(-3,467) (-2,093)

Liabilities to foreigners (increase +)
Long-term
Short-term
to commercial banks abroad
(of which to commercial banks in
offshore centers 3/)
to other private foreigners
to int'l and regional organizations
Foreign private net purchases (+) of
U.S. Treasury securities

(new foreign issues on bonds and notes)

3,314
2,737
(591)
577
-1,578

2,896

199
(170)
-40
(-373)

1,267
1,228
(374
39

6,056
363
(308
5,693

-407

228

740

-419

3,612

3,503

-239

286

2,159
-146
5,594
-3,134
765
-452
-468

1,977
366
5,797
-3,085
824
-464
-1,461

-1,202
-212
-202
422

49
301
-1,245
784

-1,210

209

1,939

1,586

4,261
367
(116)
3,894

1,244
1,442
(101)
-198

624

-1,110

n.a.

-10,432

-1,736

-860

-6,284

-5,001

-825

-3,874

1,001

368

-5,921

-4,634

617

n.a.

NOTES:
1/ Only trade and services, U.S. Govt. grants and U.S. Govt. capital are seasonally adjusted.
2/ Offshore centers are United Kingdom, Bahamas, Panama and Other Latin America (mainly Cayman Islands and
Bermud).
3/ Represents mainly liabilities of U.S. Banks to their foreign branches in offshore centers which are the
United Kingdom, Bahamas, Panama and Other Latin America (mainly Cayman Islands and Bermuda).
4/ Excludes prepayments for military purchases.
*/ Less than $50,000.

INTERNATIONAL DEVELOPMENTS

Foreign exchange markets.

In foreign exchange markets during

the past four weeks, the dollar appreciated against the Canadian dollar,
Italian lira and Swiss franc and depreciated against the Japanese yen and
the European snake currencies, remaining virtually unchanged on a tradeweighted average basis.

The recent announcements of a record U.S.
trade deficit and a decline in leading indicators in January had little
lasting impact on the dollar in exchange markets.
The Canadian dollar dropped 2-1/2 per cent during the past
four weeks, to a level of 95.37 cents.
. The two major factors
underlying the downward pressure on the Canadian dollar were a decline
in Canadian interest rates relative to U.S. rates and continuing uncertainty
about future political and economic developments in Canada, following
the Quebec election late last year.

While U.S. interest rates have remained

little changed since early February, Canadian three-month interest rates
have dropped 25 basis points, and are expected to decline further, reflecting

the Bank of Canada's efforts to raise its M1 growth rate.

The impact of

the political situation in Quebec was reflected in a drop in Cnandian
bond issues in the United States during January-February.

Quebec, which

accounted for one fourth of Canada's $5-1/2 billion new issues in 1976,
has sold no new issues in the U.S. market so far this year.

IV-

The Italian lira came under downward pressure in late February,
following the easing of restrictions on capital outflows.

Italy's foreign

currency purchase tax was removed and the non-interest-bearing import
deposit requirement was reduced from 25 per cent to 10 per cent.

These

moves led to a substantial net private capital outflow,

The Swiss franc has dropped nearly 2 per cent since mid-February
and 4-1/2 per cent since the beginning of the year.

. The continued downward pressure on the Swiss franc probably
reflects the market's reassessment of the relative attractiveness of
franc-denominated financial assets.

With interest yields on these assets

well below interest yields on financial assets elswwhere, their major
attraction was in the expectation of the continued appreciation of the
Swiss franc.

The decline in the franc early this year, following a period

of fairly steady increase throughout 1976, may have altered this expectation.

Moreover, statements in the market that Swiss price inflation

may be higher this year than earlier anticipated have probably contributed
to this revision of expectations.

Current projections of Swiss money

and income growth rates could be consistent with an inflation rate of
4 per cent or more in 1977, compared with 1.7 per cent in 1976.
The Japanese yen has appreciated against the dollar by about 1-1/2
per cent in the past four weeks, and nearly 4 per cent since the beginning

IVof the year.

This appreciation reflects a substantial increase in Japan's

current-account surplus in January and the impact of various public and
official statements suggesting that the yen may be undervalued and should
be allowed to appreciate.
The pound dropped 1.3 per cent in mid-February, following the
announcement of a very large U.K. trade deficit and an acceleration of
price inflation in January.

Most of that drop has been recovered since.

The Mexican peso has fluctuated in a narrow range against the
dollar during the past four weeks,

The price of gold has jumped $12.00 since mid-February to $148.25,
its highest level since September 1975.

While no hard information is

available on shifts in underlying demand or supply conditions that could

explain this price increase, factors that have been cited in the market
include inflationary expectations, reports of increased industrial demand

IV-

and optimism following the market's relatively easy absorption of IMF
auction sales and reported sales by China, the Soviet Union and countries
that have received gold under the IMF restitution.

At the seventh IMF

gold auction on March 2, the first on the new monthly schedule, 524,400
ounces were sold at an average price of $146.51 per ounce.
International capital markets.

New medium-term credits arranged

in the Euro-currency market rose markedly in the fourth quarter of 1976
as developing countries borrowed more heavily, and for the full year 1976
new credits were almost 25 per cent greater than in the preceding year.
After a pause in January, activity in this market was up again very sharply

in February as several industrial countries raised large sums.

In the

Euro-bond and foreign bond markets, new issue volume in the fourth quarter
of last year continued to run below the high rates of the first half of
1976.

Subsequently, Euro-bond activity rose smartly early this year, but

sales of foreign bonds in national markets, especially in the U,S. market,
are lagging somewhat.
Medium-term Euro-credits of $8.0 billion in the fourth quarter
of 1976 were up about 40 per cent from the seasonally-low third quarter
and 30 per cent from the quarterly rate in the first half of last year.
Borrowings by industrial countries remained high, the principal loans
being those arranged by the U.K. Electricity Council ($500 million),
the government of Denmark ($400 million), the governments of Austria
and Ireland ($300 million each), and the government of South Africa

IV - 5

Borrowing in International Capital Markets
(in billions of dollars)

Year

1975
Year

1976
Year 1st H Q-

28.5

20.6

26.1

12.3

5.8

8.0

9.7
.8
.8
1.7
2.2
4.2

3.9
.4
.7
.3
1.0
1.5

3.0
0
.1
1.2
.6
1.1

2.8
.4
0

1.7
.4
.3
.7
0
.3

.4
.1
*/
.2

1.5
.1
.1
.1
1.0
.2

1974

Medium-term Euro-credits
total

Oil-exporting countries
Algeria
Indonesia
Iran
Venezuela
Other

II.

III.

19.5
.4
3.3
1.1
5.7
9.0
.8
0
.4
.1
.1
.2

Othet developing countries
Argentina
Brazil
Mexico
Philippines
Other

6.7
.5
1.6
1.5
.9
2.2

Socialist countries + org's.

1.1
.4

6.6
.3
.5
1.0
,6
4.2
3,2
.5
1.6
.2
.2
.7

10.6
1.1
2.3
2.0
.9
4.3

4.5
.1
1.2
.7
.7
1.8

2.7

2.2

1.4

1.0

0
.1
1.8
0
.8
.4
.1
.5

8.4 3.3
1.9
.6
.8
.3
.7
.2
2.4 1.2
.4
.4
2.0
.6

Foreign bonds:

7.8

11.9

17.6

9.6

By market:

Canada
IBRD
Other
U.S.Switzerland

Other

2.0
3.1
2.7
3.6
1.0
3.2

3.4
5.5
2.4
2.7
9.4
6.1
6.8 10.0
3.4
5.0
2.6
1.7

3.4
1.0
.3
.9
.1
1.1

15.2
2.9
1.3
1.1
5.4
1.3
3.0

By borrower:

4.5 10.2
.4
1.2
1.3
.3
1.2
.2
1.4 4.4
.1
.5
2.0 1.4

.1
.0
.1

Euro-bonds: total
Canada
France
Japan
Other ind. countries
Developing countries
Int'l. org's.
total

1977
Jan.

Industrial countries
Denmark
France
Spain
United Kingdom
Other

Int'l. org's. and others

Q-4

*/
0

.5
0
.1
0
0
.4
.1
0

3.6
.4
.2
.2
1.9
.5
.4

4.1

3.9

3.4 1.2
1.6
.6
4.6 2.3
5.4 2.1
1.3
2.6
0.7
1.6

.9
.5
2.5
2.5
1.1
.3

1.0

1/ Publicized credits of over one-year maturity.
2/ Breakdowns may not add to totals because of lack of comprehensive revised
data.
3/ Figures differ from those from U.S. sources.
*/ Less than $50 million.
Source: World Bank.

IV - 6

(two loans totalling $240 million).

In 1976 the largest borrowers in

this market among the industrial countries were the United Kingdom ($2.2
billion and Spain ($1.7 billion)

followed at some distance by Denmark,

France and South Africa ($700-800 million each).

Borrowings by industrial

countries as a group in 1976 were nearly 50 per cent greater than in 1975,
although still only one-half of 1974's record amount.
Credits arranged by oil-exporting countries and non-oil developing
countries rose sharply in the fourth quarter of last year to rates substantially above those of the first half.

A $1 billion 7-year credit

to Venezuela to refinance short-term debts dominated activity by the oilexporting countries.

For the year, both Venezuela and Iran arranged $1

billion of credits, several times their 1975 borrowings; credits to Algeria
and Indonesia in 1976 were sizeable, but well below 1975 in the case of
Indonesia.
Mexico raised about $900 million in the fourth quarter, of

which $800 million in a 5- and 7-year two-tranche loan from a predominantly
North American syndicate, while Argentina received 4-year loans from
syndicates of U.S. banks ($500 million), Canadian banks ($66 million),
European banks ($312 million) and Japanese banks ($75 million) to restructure
its external debt.

After lengthy negotiations the Peruvian Government

signed agreements in December for 5-year loans from syndicates of U.S.
banks ($210 million), Canadian banks ($30 million), and European banks
($90 million), of which one-half of each was drawn immediately and the
remainder in February.

In early March Peru arranged dollar and yen loans

from Japanese banks for $33 million equivalent.

Euro-credits announced

IV - 7

for non-oil LDC's came to $10.6 billion last year, 38 per cent more than
in 1975.

For the fourth consecutive year the largest borrowers in this

group were Brazil and Mexico ($2.3 billion and $2.0 billion, respectively);
other large borrowers in 1976, including the Philippines, Argentina, and
South Korea, also tended to be countries that have used the medium-Eurocredit market for some time.
Loans to Socialist countries declined again in the fourth quarter,
and the $2.2 billion total of credits to those countries in 1976 was less
than in 1975.

Legal uncertainties may hold back further loans to the two

Comecon banks in coming months.
Few Euro-credits were completed in January, but February was
extremely active with over $4-1/2 billion.

The United Kingdom borrowed

$1.5 billion for seven years to bolster reserves; $1 billion is scheduled
to be drawn by mid-March.

The Government of Sweden arranged a 7-year

loan of $1 billion as part of a program to borrow $2-3 billion in 1977,
the Caisse Nationale des Telecommunications in France arranged to borrow
$500 million for 7-8 years, Pemex of Mexico $300 million, and three loans
for a Brazilian steel plant totaled almost $500 million.

The Swedish

and French loans carried an interest rate of 7/8 per cent over LIBO for
the first five years and 1 per cent for the remainder, the lowest spreads
since the current downtrend in spreads began last year.

Another large

loan was a further credit to Venezuela, this time for $1.2 billion for
seven years.
Euro-bond issues rose seasonally in the fourth quarter but stayed
considerably below first-half levels.

While total Euro-bond issues in the

IV - 8

second half were down from the first half, issues by developing countries
increased notably, and for the year 1976 developing countries' issues
rose 2-1/2 times in volume to 9 per cent of total Euro-bonds compared
with 5 per cent the year before.
for much of this rise.

Brazilian and Mexican issues accounted

Total Euro-bond issues of $1.5 billion in January

were followed by about the same volume in February according to preliminary
data, indicating a return to a substantially higher level of activity this
year.
Foreign bond issues dipped in the fourth quarter and in the second
half of 1976 were down 15 per cent from the first half, reflecting lower
issues by Canadian borrowers and the World Bank. This decline was felt
primarily in the U.S. market.

New foreign issues in January were at a

quarterly rate well below that of the fourth quarter.

IV - 9
U.S. International Transactions.

Among the major developments

in January, the merchandise trade deficit widened to a record $22.7
billion at an annual rate, there was a small net inflow of bank-reported
private capital after sizable outflows in December and in the fourth
quarter, sales of new foreign bonds in the United States dropped off,
and foreign official assets in the United States (other than OPEC funds)
declined, reversing the build-up in December.

In January, the United States had a record merchandise trade
deficit of $22.7 billion at an annual rate (international accounts
basis).

This followed a December deficit rate of $15.5 billion (revised).

The sharply larger January deficit occurred as exports dropped back from
the unusually high December levels and imports were little changed.
U.S. Merchandise Trade, International Accounts Basis
(billions of dollars, seasonally adjusted annual rates)
r

1 9 7 6r

19 7 6

Year

EXPORTS
Agric.
Nonagric.

IMPORTS
Fuels
Nonfuels
BALANCE
NOTE:

11977
3

Nov.

Dec.

Jan

114.5
23.4

108.0
21.5

113.5
23.1

117.9
25.3

118
23.7

115
21.2

124.1
23.0

116.5
22.3

91.1

86.5

90.4

92.6

95.0

94.1

101.1

94.3

124.0
37.1
86.9

113.3
32.5
80.8

119.7
35.3
84.4

130.2
40.1
90.1

132.
40.5
92.5

130.1
41.0
89.1

1396
42.3
97.2

139.3
40.6
98.7

-9.5

-5.3

-6.1

-12.3

-14.2

-14.7

-15.5

-22.7

Details may not add to totals because of rounding.

IV -

The January decline in exports occurred largely in nonagricuttural shipments and was concentrated in those commodities that
had increased sharply the previous month -- machinery, transportation
equipment (primarily aircraft), and chemicals.

Only a small part of

the decline can be directly attributed to delivery or production
problems resulting from the unusually cold weather; the drop in coal
exports by $1.2 billion at an annual rate was the clearest example of
such reduced exports.

Even so, the level of nonagricultural exports

in January, $94.3 billion at an annual rate, was about the same as in
November and both months were slightly stronger than the level of nonagricultural exports in the third quarter.

While new orders for

machinery exports declined in January, slow but continuing growth in
economic activity in other industrial countries, and continuing demand
from OPEC countries suggest a gradual rise in the value of U.S. nonagricultural exports.
Exports to the developing countries dropped sharply in January
to a level lower than in any month in 1976, but exports to the major
industrial countries were still above the level of most of 1976, and
shipments to the smaller industrial countries have been gradually
increasing in recent months.
Agricultural exports declined slightly in January.

The value

of wheat, corn, and rice exports all declined; with good wheat crops
and larger stocks around the world than in recent years, the volume
of wheat exports in January was the lowest since April 1972.

However,

IV - 11
the value of soybean and tobacco exports increased.

The average price

paid for soybean exports rose to $7.26 per bushel, the highest since
February 1975.
Imports amounted to $139.3 billion at an annual rate in
January, about the same as in December and about 5 per cent higher than
the fourth quarter average.
basis, fell by 4 per cent.

Fuel imports, on an international accounts
This decline was entirely due to a sharp

drop from a record December volume of petroleum imports into the U.S.
Virgin Islands, mostly crude oil for a refinery on St. Croix.

(Imports

into the U.S. Virgin Islands are not included in Census Bureau statistics
and recent press reports of rising oil imports in January referred just
to imports into the rest of the United States.)

The quantity of oil

imported daily fell to 8.4 million barrels per day (mbd) from 8.8 mbd
in December.

The average price of oil rose to $12.48 per barrel in

January from $12.35 in December and an average of $12.32 in the fourth
quarter of 1976.
Nonfuel imports rose to $98.7 billion at an annual rate in
January, 1-1/2 per cent above the December level and 6-1/2 per cent
higher than the fourth quarter rate.

Increases in food imports (owing

to higher coffee and cocoa prices), iron and steel products, capital
goods, and consumer goods were partly offset by declines in other
industrial materials (largely nonferrous metals) and foreign-type cars
(as inventories reached a five-month high.)

IV - 12

Bank-reported private capital transactions resulted in a
net inflow of $160 million in January -- a partial reversal of the
$1.8 billion outflow in December.

Both claims on, and liabilities to,

foreigners were reduced sharply from their end-of-year peaks.

U.S.

banks reduced their borrowings from their overseas branches by about
$2 billion in January, partly owing to reduced needs for funds and
partly to the cessation of certain year-end tax incentives to place
loans on head office books.

The latter effect is most readily seen

in the $1.8 billion fall in January in bankers' acceptances held by
weekly-reporting banks.

The reduction in bank-reported claims also

reflects a large withdrawal of year-end placements by U.S. offices
of foreign banks with banks abroad.
New foreign bond issues in the United States dropped to $400
million in January.

Foreign issues expected in the first quarter

should amount to $1.65 billion -- $1.2 billion of Canadian issues
and $450 million of other foreign issues.

This compares with fourth

quarter new issues of $2.3 billion.
Canadian issuers may find the U.S. market somewhat less
attractive in 1977 than last year, as the differential between Canadian
and U.S. interest rates has narrowed.

In addition, Quebec Hydro and

the Province of Quebec have not yet appeared in the U.S. market this
year; last year they and the municipalities of Quebec accounted for
about 25 per cent of total Canadian borrowings in the United States.

IV - 13
The uncertainty concerning Quebec's future political status
has been reflected in the bond markets: the spread between Ontario and
Quebec U.S. issues increased from 25 basis points prior to the provincial election to 105 basis points in February just after the visit
to the New York investment community by Quebec's Premier Levesque.
U.S. issues of the province of Ontario have only shown a slight
widening of spread against prime U.S. borrowers.

At the end of February,

the province of Quebec successfully marketed $175 million in new issues
in Canada, its first long-term borrowing in the Canadian public capital
market since the provincial election in November.

Given the large

capital needs of national resource development projects in the province,
it is likely that an effort will be made in the second quarter to re-

enter the U.S. markets.
U.S. net purchases of foreign securities dropped to under
$50 million in January (compared to a
in 1976).

$750 million monthly average

This drop reflected both the lull in offerings of new

foreign bonds and $300 million of redemptions of maturing securities
of the IBRD.
Foreign net purchases of U.S. stocks (excluding purchases by
OPEC) continued at a moderate rate in January.

Amounting to $170 million,

they were slightly above December's rate and ran contrary to the usual
pattern of foreign net purchases in a rising market and net sales
in a declining market.

IV - 14
OPEC reserve assets in the United States increased by $1.4
billion in January, an increase only slightly below that of the entire
second half of 1976.

Recorded second half inflows from OPEC had been

low relative to the surpluses that were accumulated, but the January
increase does appear to reflect a rebuilding of liquidity positions
by some of the high absorption countries who benefited from the run-up
in oil demand for stockpiling in the latter part of 1976.
Foreign official assets in the United States (excluding OPEC)
decreased by $200 million in January.

A $400 million increase in U.S. reserve assets in January
largely corresponds to the increase in the United Kingdom drawing on the
IMF stand-by facility.

Also includedwas a $60 million increase in U.S.

gold reserves as a result of IMF gold sales for "restitution" to
member countries;
in

the U.S.

the counterpart of this transaction was a decrease

reserve position in

the IMF.

In February,

assets were little changed from the January level.

total U.S. reserve

IV -

Price Developments in Major Foreign Industrial Countries.
Price inflation rates in most of the major foreign industrial countries
remain high.

During the course of 1976, consumer price increases showed

little tendency to decelerate, while wholesale price inflation rates tended
to accelerate in the first half of 1976 and then to decelerate in the
second.

(See following table.)

Inflation rates continue to vary widely

among the major countries, with Germany at one extreme and Italy at the
other.
Consumer price inflation in 1976 (December 1975 to December 1976)
was relatively moderate in Germany and Canada (4-6 per cent) but was at
or near double-digit rates for the rest of the major foreign industrial
countries.

For this latter group, the rate of inflation ranged from about

10 per cent in France to 22 per cent in Italy.

A disturbing feature of

consumer price performance in 1976 is that only the United Kingdom and,
to a lesser extent, Canada made substantial progress in reducing their
rates of inflation below those prevailing in 1975.

Furthermore, in all

of the major foreign industrial countries except Germany, there has been
no significant and sustained decline in consumer price inflation from
first-half 1976 rates.

With the exception of Switzerland, where consumer

prices are rising at an annual rate of less than 2 per cent, inflation
rates in the smaller industrial countries are mostly in the 7-10 per
cent range and are exhibiting little tendency to decline.
Wholesale price inflation was higher in 1976 than in 1975 in
almost all countries, but has moderated considerably in recent months
in all of the major foreign industrial countries except Italy and the
United Kingdom.

Again individual country experience was diverse, with

Japan joining Canada and Germany with relatively moderate (5-6 per cent)

IV - 16

Changes in Consumer and Wholesale Prices
in Major Industrial Countries
(Not Seasonally Adjusted)

Percentage

Annual Rate of Change
Quarter over Previous Quarter

Chane
Dec.75

Dec.76

Dec. 74

Dec.75

(per cent)
1976

Latest

3 Monchs

Month

CONSUMER PRICES:
Canada

9.5

5.8

5.4

6.2

6.0

5.9

January

France

9.6

9.8

10.1

9.4

9.6

10.6

8.7

January

Germany

5.4

3.9

7.0

6.0

0.5

2.0

3.6

January

Italy

10.8

21.8

17.7

27.8

11.7

27.9

December

Japan

8.5

10.6

11.1

11.7

2.5

12.6

11.0

February

24.9

15.1

15.2

15.5

9.5

19.7

21.0

January

7.0

4.8

3.9

5.0

6.5

4.6

4.4

January

Canada

3.7

4.7

1.0

7.4

1.0

2.6

December

France

-4.5

12.3

10.0

19.5

18.9

3.2

2.5

January

Germany

4.3

4.7

13.1

3.3

1.1

-1.6

-1.2

January

Italy

4.9

31.5

29.0

55.1

17.3

26.0

25.2

January

Japan

1.1

6.1

8.1

6.6

7.8

3.2

2.3

January

20.0

17.8

16.5

15.4

17.3

20.7

25.0

February

4.2

4.7

2.0

5.9

4.8

3.8

5.2

United Kingdom
United States
WHOLESALE PRICES:

United Kingdom
United States

January

Definitions and Sources: All countries; consumer or retail price index; all
countries except France and the United Kingdom: general wholesale price index;
France: industrial products; United Kingdom: manufactured products, home sales.
National sources.

IV - 17

rates for 1976,

and with rates in the remaining countries ranging from

France's 12 per cent to Italy's 32 per cent.

Only in the United Kingdom

was there an improvement in wholesale price performance in 1976 relative
to that in 1975, and even the U.K.'s improvement was slight.

The wide-

spread increases in wholesale price inflation rates were due in part to
a sharp increase in commodity prices during the year.

Between December

1975 and December 1976, the Economist dollar index for all commodities
rose some 34 per cent.

During the second half of 1976 pressure from

commodity prices abated somewhat as the index rose at an annual rate of
only 15 per cent, but the 49 per cent (annual rate) increase between
December and February could indicate renewed upward pressure on wholesale prices and eventually consumer prices as well.
To a large extent the disparity of inflation rates among the
major foreign industrial countries reflects the differing rates of
monetary growth that they have experienced during the last several years.
The monetary growth may have merely accommodated upward price pressures or
it may have been the actual initiator of the price changes; and in the
latter case the mechanism may have involved direct aggregate demand
effects or simply expectations effects.
ing table shows,
tion in

1976 --

But in any case, as the follow-

those foreign countries with the lowest rates of inflaCanada and Germany --

have also had the lowest rates of

monetary growth, and the countries with the highest rates of inflation
have had the highest monetary growth rates.
table,

In fact, reading across the

the rankings are remarkably consistent.
Among other factors associated with recent inflationary exper-

ience has been the divergent growth of nominal

wages;

for example,

Germany between October 1975 and October 1976, hourly wages and salaries in

The Growth of Money and Prices in Major Industrial Countries
Money Stock (M1)

Annual Rate
End1976
Endl971

End1976
Endl975

Canada

10.4

1.8

France

11.4

11.8

Germany

8.4

2.0

-Rank
Endl976
Endl971

End1976
End1975

Prices
(Dec.76/Dec.75)
Rank
Consumer
Prices

Wholesale
Prices

l(tie)

Memorandum:
Trade-weighted Exchange
Rate (May 1970=100)
Dec.76/Dec.75
Rank

Annual
Rate

+ 3.3

- 8.2

l(tie)

+16.0

Italy

15.5

21.7

-20.4

Japan

14.5

13.2

+ 8.1

United Kingdom

11.6

13.3

-16.3

5.8

United States

l(tie)

+ 4.5

Definitions and Sources: "End" denotes the latest month available in the year and refers to December in all
countries except France where it refers to November, and Italy where it refers to October. All money stock
data refer to M1 and are from national sources. Prices are from Table 1. Trade-weighted exchange rates are
calculated by FRB staff.

IV - 19
industry rose 8 per cent whereas in Italy during the same period minimum
contractual wages, although not strictly comparable, grew by 27 per cent.
Wage increases such as those in Italy create a difficult choice between
unemployment and inflation for policy-makers, even where they reflect
mainly compensation for past or expected inflation rather than an autonomous wage-push.

Thus, in some cases wage demands may have induced the

monetary expansion noted in the table.

The European drought and the

general revival of world economic activity also put upward pressures on

prices during 1976.

However, fairly strong growth in labor productivity,

particularly in the first half of 1976, eased price pressures somewhat.
Foreign industrial countries continue to consider inflation a
major policy problem.

All countries are pursuing cautious demand-manage-

ment policies, despite the continued high levels of unemployment, and
many have incomes policies aimed at controlling wage and price increases
directly.
The dramatic acceleration of inflation in Italy during 1976 has
In

led the Italian government to adopt new anti-inflationary measures.
particular, attention has been focussed on the wage indexation scheme

(the scala mobile) which automatically passes on nearly 100 per cent of
any change in the cost-of-living to money wages.

However, the govern-

ment has been unsuccessful in fundamentally reforming the scala mobile
and has had to settle for some other changes:

1) an agreement between

industry and the unions to boost productivity;

2) the taking-over of

some employer social insurance payments by the government, to be paid
for by an increase in indirect taxes that will not be included in the
scala mobile index; and

3) a few minor reforms in the indexation scheme

IV -

itself.

The exclusion of the indirect tax increases from the scala

mobile index is being protested by some unions and their opposition
jeopardizes the change in social insurance payments.

costs -

Average labor

offset to an extent by strong productivity gains unlikely to

be repeated in 1977 -- are estimated to have grown 28 per cent in 1976,
but it is hoped that the above-mentioned measures will help to reduce
this figure in 1977.
tightening.

In addition, Italian macroeconomic policy has been

There have been substantial tax increases and the government

budget deficit should fall as a percentage of national income.

Monetary

policy -- as indicated by the rate of increase in the monetary base -tightened in 1976 and is expected to be somewhat restrictive this year.
However, despite these policy measures and the prospect of sluggish real
growth, most forecasters expect Italian inflation to be around 20 per cent
this year, with some deceleration toward the end of the year.

A deprecia-

tion of the lira similar to that experienced last year would put considerably more upward pressure on Italian prices.
In the United Kingdom, considerable progress was made in reducing the rate of price inflation between 1975 and 1976.

However, in

recent months inflation has accelerated again due in part to the decline
in the exchange value of the pound sterling last fall, some indirect tax
increases in January, and perhaps to the adverse expectations effects of
high money supply growth rates last summer and fall.

The inflation rate

has increased despite the U.K.'s depressed level of economic activity
and its success at holding wage increases within the incomes policy's
limits.

During the twelve months to December 1976, average earnings rose

IV - 21

by 12 per cent compared with 15 per cent for consumer prices; labor
productivity in industry has been rising at an annual rate of about
3-5 per cent.

If a third phase of the incomes policy satisfactory to

all sides can be worked out -- negotiations should begin in earnest in
April and are expected to result in a settlement -- it

is likely that..

inflation will resume decelerating in the second half of 1977 since
the pound has been strong recently and monetary growth has been quite
low.

Complementing the U.K.'s incomes policy are the prospect of sub-

dued real growth, a continued high level of unemployment, and the restrictive monetary and fiscal policy measures adopted in part as conditions for a $3.9 billion IMF loan last December.
In Japan, the rate of increase in wholesale prices seems
already to have subsided after its increase in the first three quarters
of 1976, but consumer price inflation does not appear to be decelerating.
The Japanese government's response to this situation has been to maintain
an accommodative, but not a stimulative, monetary policy, and a fiscal
policy that is only moderately expansive.

Although Japan has no formal

incomes policy, it does urge the unions and industry to hold wage increases within certain limits.

During 1976, wages and labor productivity

grew at about the same rate and the yen appreciated some 8 per cent.
Both of these factors eased Japanese price pressures in 1976 and may
continue to do so this year, although increased economic activity -both domestic and foreign --

could result in inflation rates in 1977

not much lower than those experienced last year.
In France, consumer price inflation has declined in the three
months to January after accelerating to an annual rate of over 10 per
cent between the third and fourth quarters of 1976.

The extremely

IV - 22

volatile French wholesale price index has fluctuated widely.

The decel-

eration in inflation in the three months to January reflects the price
freeze in effect between September and December, and a lowering of
indirect taxes in January.

Hourly wages in the third quarter of 1976

were 15 per cent higher than in the same period a year earlier.

The

government has now taken steps to limit the growth of wages in the public sector to the rate of increase in the cost-of-living, but no similar
arrangement exists in the private sector.

The French government is

attempting to reduce inflation by means of agreements with industry to
keep average price rises below certain limits and by following a
restrictive demand-management policy.

The government budget deficit is

expected to be smaller in 1977 than in the two previous years -- both
absolutely and as a percentage of national income.

Targeted money stock

growth and credit ceilings are intended to be moderately restrictive as
well.

During 1977, French consumer price inflation is expected to de-

cline somewhat --

perhaps to 7-1/2 per cent (December over December).

Canada's improved price performance in 1976 can be attributed
in part to government policy measures.

M1 growth has actually been even

below the announced target range and fiscal policy has aimed at keeping
the level of real government spending constant.

In October 1975 -- in

response to the persistent nature of Canadian inflation -- the government
adopted an elaborate system of wage and price controls.

This incomes

policy, along with the demand-management policies mentioned, may have
helped to improve price performance in Canada.

However, much of the

improvement in 1976 was due to the virtual stability of food prices,
which are not subject to the controls.

Wages do not appear to have

IV - 23

been affected much by the incomes policy; between September 1975 and
September 1976 average wages (in manufacturing) grew by 13 per cent,
just as they did in the previous twelve months.

The recent decline in

the exchange rate for the Canadian dollar, if sustained, could have an
adverse impact on Canadian inflation rates in 1977 and calls into
question the likelihood of any further deceleration of inflation
this year.

On the other hand, real growth was sluggish in Canada

during the last three quarters of 1976, which may indicate that inflation will continue to moderate.
Of the major foreign industrial countries, Germany has had
the most success in keeping general price movements under control.

In-

deed, during the second half of 1976 both consumer and wholesale price
increases were under 2 per cent at an annual rate.

(The "jump" in

consumer prices in January was due mostly to an increase in excise taxes.)
Although recent wage increases have been around 6-8 per cent (annual rate),
recent labor productivity gains have been within a few percentage points
of this figure and it is unlikely that wages will exert much upward
pressure on prices in 1977.

Despite their success to date, the German

authorities continue to consider inflation to be a major problem and are
expected to press on in their attempt to establish general price stability.
To that end, the authorities plan to continue reducing the public sector
deficit and to enforce more rigidly the targets for monetary growth.
Germany has no formal incomes policy but the government periodically
meets together with business and labor to discuss wage and price developments.

IV - 24

Among the small foreign industrial countries, price developments in Switzerland are the most interesting.

Among the factors

contributing to Switzerland's extremely low rate of price inflation are
the external strength of the Swiss franc in 1976, the deep and prolonged
nature of the recession in Switzerland, modest wage increases, a policy
of price surveillance, and low rates of monetary growth in recent years.

A-1
APPENDIX A*
RESULTS OF MOST RECENT SURVEY OF
CHANGES IN BANK LENDING PRACTICES AND SURVEY OF LOAN COMMITMENTS
The Survey of Changes in Bank Lending Practices taken at 121
large banks in mid-February suggests that the recent strength in business
loans reflects both a moderate upturn in demand and easier lending terms
at banks. While two-thirds of the respondents reported that business
loan demand was essentially unchanged as compared with three months earlier,
about one-fourth reported moderately stronger demand. For the last two
reporting periods taken together, over two-fifths of the respondents have
reported stronger demands for business loans. Moreover, more than half
the respondents in the February survey indicated that business loan demand
was expected to strengthen in the next three months, up from one-third in
November.
Easing of price and nonprice terms of lending was reported by
a growing minority of large banks. Somewhat over one-fourth of the respondents reported moderately easier policy on interest rates for business
loans. 1 / Further, the trend toward easing of compensating balance requirements has continued. During the six months covered by the February and
preceding November surveys, about one-third of the sample banks reported
easier policy toward compensating balances on business loans. There also
appears to be a significant trend toward easier policies on extending
term loans to business. One-third of the respondents reported easing
of policy in negotiating maturities of term loans during the last two
survey periods, and over one-half indicated that they were more disposed
to make such loans. Banks, however, report no easing in standards of
credit worthiness.
With regard to other types of loans covered in the Lending
Practices Survey, about 20 per cent of the respondents reported greater
willingness to make consumer instalment and single family mortgages loans.
Only modest easing was reported on the terms of lending to finance
companies and brokers.
The view that banks have become more aggressive in marketing
their business loan services gains support from the Monthly Loan Commitments Survey taken at 135 large banks, including all of the 121 participants
in the Quarterly Lending Practices Survey.

Unused commitments to businesses

rose by $1-3/4 billion in the second half of last year, when takedowns
totaled $2-1/4 billion. This implies that net new commitments extended
over this period totaled $4 billion.

1/ Interpretation of the responses is difficult since some banks consider
a cut in the prime rate to reflect easier policy, while others focus
on the relationship between the prime rate and open market rates.
*

Prepared by John Scott, Economist, Banking Section, Division of Research

and Statistics.

A-2

To determine the reasons for the recent growth in outstanding
commitments, an informal System survey of participants in the commitments
survey was conducted in the last week of February. Banks that lead
reported increases in unused commitments at the same time that takedowns
were large generally indicated that growth in commitments reflected aggressive marketing efforts. Most reported a desire to increase their share
of the anticipated growth in business loans.
Regional banks appeared to
be more successful in marketing new commitments than money center
institutions, reportedly because many firms do not see their credit demands
in the near term being so large that they need commitments from major
banks. Only a handful of respondents registering an increase both in

takedowns and in unused commitments indicated that their growth in commit-

ments reflected an underlying strengthening in demand for commitments.

NOT

FOR QUOTATION

PUBLICATION

PAGE 01

TABLE 1
QUARTERLY

SURVEY OF CHANGES IN BANK LENDING PRACTICES
AT SELECTED LARGE BANKS IN THE U.S. 1/
(STATUS OF POLICY ON
FEBRUARY 15, 1977
COMPARED 10 THREE MONTHS
(NUMBER OF BANKS & PERCENT OF TOTAL BANKS REPORTING)

MUCH
STRONGER

TOTAL
BANKS

PCT

BANKS

PCT

EARLIER)

MODERATELY
STRONGER

ESSENTIALLY
UNCHANGED

MODERATELY
WEAKER

BANKS

PLT

PC1

PCT

MUGH
WEAKER
BANKS

PCT

STRENGTH OF DEMAND FOR COMMERCIAL AND
INDUSTRIAL LOANS (AFTER ALLOWANCE FOR
BANK'S USUAL SEASONAL VARIATION)
COMPARED

TO THREE

MONTHS AGO

ANTICIPATED DEMAND IN NEXT

3 MONTHS

121

100.0

0.0

27.3

66.9

5.6

0.0

121

100.0

55.4

43.0

O.b

oG.

MUCH
FIRMER
POLICY

ANSWERING
QUESTION
BANKS
LENDING

PCT

BANKS

PCT

MUODERATELY
FIRMER
POLICY

ESSENTIALLY
UNCHANGED
POLICY

MODERATELY
EASIER
POLICY

BANKS

PCT

Pt.T

TO NONFINANCIAL BUSINESSES

TERMS AND CONDITIONS:
100.0

70.3

26.4

COMPENSATING OR SUPPORTING BALANCES

100.0

78.5

19.8

STANDARDS OF CREDIT

100.0

1*7.5

0.0

100.0

75.2

100.0

90.9

100.0

90.1

100.0

92.6

100.0

6n.4

INTEREST RATES

MATURITY OF

WORTHINESS

TERM LOANS

REVIEWING CREDIT
ESTABLISHED

CHARGED

24.0

LINES OR LOAN APPLICATIONS

CUSTOMERS

NEW CUSTOMERS
LOCAL SERVICE AREA

CUSTOMERS

NONLOCAL SERVICE AREA CUSTOMERS

1/ SURVEY OF LENDING PRACTICES AT
AS OF
FEBRUARY 15, 1977.

121 LARGE BANKS REPORTING IN

THE

FEDERAL

RESERVE QUARTERLY INTEREST

RATE SURVEY

MULH
EASIER
POLICY

bANK.

PCT

NOT

FOR QUOTATION

TABLE I

PUBLICATION

MUCH
FIRMER
POLICY

ANSWERING
QUESTION
BANKS

PCT

BANKS

PAGE

(CONTINUEDO)

PCT

MODERATELY
FIRMER
POLICY

ESSENTIALLY
UNCHANGED
POLICY

MODERATELY
EASIER
POLICY

BANKS

BANKE

BANKS

PCT

PC1

PLT

MUCH
EASIER
POLICY
BANKS

PCT

FACTORS RELATING TO APPLICANT 2/
VALUE AS DEPOSITOR OR
SOURCE OF COLLATERAL BUSINESS
THE

INTENDED USE OF

121

100.0

1.7

6.6

81.0

9.9

0.8

121

100.0

0.8

115

95.1

3.3

0.0

121

100.0

0.8

0.0

106

87.6

11.6

0.0

BALANCES

121

100.0

0.6

0.8

112

92.6

5.6

0.0

REQUIREMENTS

121

100.0

0.8

112

92.6

4.1

0.0

121

100.0

1.7

3.3

103

85.1

9.9

0.0

LOAN

LENDING TO "NONCAPTIVE"

FINANCE COMPANIES

TERMS AND CUNDITIONS:
INTEREST

RATES

CUMPENSATING

CHARGED

OR SUPPORTING

ENFORCEMENT OF BALANCE
ESTABLISHING NEW OR

LARGER

CREDIT

LINES

ANSWERING
QUESTION
BANKS
WILLINGNESS TO MAKE

bANKS

PCT

MODERATLY
LESS
WILLING

ESSENTIALLY
UNCHANGED

MODERATELY
MORE
WILLING

BANKS

PCT

PLT

LONSIDERABLY
MURE
WILLING
BANKS

PCT

OTHER TYPES OF LOANS

TERM LOANS TO BUSINESSES

121

100.0

0.8

0.0

62.8

34.7

CONSUMER

120

100.0

0.0

15.6

21.7

2.5

120

100.0

0.8

75.9

21.7

6.6

118

100.0

2.5

1.7

105

89.0

6.8

0.0

120

100.0

2.5

0.8

101

84.Z

1&.5

0.0

121

100.0

0.0

0.8

81.9

16.5

6.8

121

100.0

0.8

0.6

10S

b6.b

9.1

2.Z

SINGLE

INSTALMENT

FAMILY

LOANS

MORTGAGE

MULTI-FAMILY MORTGAGE
ALL

OTHER MORTGAGE

PARTICIPATION LOANS
CORRESPONDENT BANKS
LOANS

PCT

CONSIDERABLY
LESS
WILLING

BROKERS

LOANS
LOANS

LOANS

1.7

WITH

FOR THESE FACTORS,
FIRMER MEANS THE FACTORS WERE CONSIDERED
CREI1T REQUESTS. AND EASIER MEANS THEY WERE LESS TMPURTANT.

IMPORFANT

IN MAKING DECISIONS

FOR

APPROVING

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, March 15, 1977 : Greenbook Part 2

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