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Confidential (FR) Class I FOMC Part 1 CURRENT ECONOMIC AND FINANCIAL CONDITIONS Summary and Outlook Prepared for the Federal Open Market Committee By the staff of the Board of Governors of the Federal Reserve System CONFIDENTIAL (FR) March 12, 1975 SUMMARY AND OUTLOOK By the Staff Board of Governors of the Federal Reserve System SUMMARY AND OUTLOOK I - 1 DOMESTIC NONFINANCIAL DEVELOPMENTS Summary. in February. General business activity continued to drop rapidly Industrial production has apparently declined by a little less than in January, but nonfarm employment fell by a little more. Business demands for fixed capital and inventories have continued to drop and recent surveys indicate a pronounced weakness in fixed capital spending plans for 1975 as a whole. shown signs of leveling off. Consumer demands, however, have There were also indications that the anticipated turnaround in residential construction may soon develop-private housing starts turned up in January, and new commitments for mortgage loans rose further. Although production adjustments may be near completion in a few sectors--notably autos--strong efforts to liquidate inventories appear to be continuing, and further curtailments in industrial activity and employment are likely in coming months. Further progress has been evident in moderating the rate of inflation. The over-all index of wholesale prices declined for the third month in a row in February, due to a drop in farm and food prices. Moreover, the deceleration over recent months in the price rise for consumer finished goods at wholesale suggests a further moderation in retail price increases. The index of industrial production apparently fell by about 3 per cent in February, with reductions widespread among consumer goods and business equipment and materials. The index has dropped by around 12 per cent in the 5 months since its September peak--equalling the total decline over an 8-month period in 1957-58. I-2 Employment was curtailed substantially further in February and the factory workweek was cut sharply. Unemployment rates increased for adult males and heads of households, but the over-all unemployment rate was unchanged, reflecting a sharp reduction in the labor force as teenagers and women dropped out of the labor market. The insured unemployment rate rose by 0.4 percentage points in February, and further upward pressure on the over-all unemployment rate in March is suggested by the continued rise in the number of workers drawing unemployment benefits. Despite further layoffs and reduced workweeks cutting into wage and salary income, consumer spending has stabilized at a low level, and auto sales have picked up in response to the rebate program. Over-all, sales of domestic models were at a 7.2 million annual rate in February, up about one-fourth from the pre-rebate period. The increase was entirely in small cars, on which the rebates were largely concentrated. foreign models also rose strongly. Sales of By the end of February, domestic model auto stocks had declined about one-fourth from the November-December high. Production rates are scheduled to rise by about 800 thousand units (annual rate) in March--but only to about a 5-1/4 million rate--and stocks in dealers' hands may be reduced somewhat further this month. Aside from autos and nonconsumption items, retail sales in current dollars increased by almost 1-1/2 per cent in January and edged up slightly further in February. Recent data indicate further weakness ahead in business fixed investment as well as in inventory spending. Total new orders for durable goods dropped sharply again in January, although less than in December. In current dollars, these orders in January were more than a I-3 quarter below their mid-'74 peak. The outlook for continued weakness in capital spending was confirmed by a further sharp drop in nondefense capital goods orders in January and a large decline in fourth quarter capital appropriations of major manufacturing firms. In comparison with these substantial drops, the reduction in business plans for plant and equipment spending in 1975 shown in the recent Commerce survey--from a 4.6 per cent to a 3.3 per cent current dollar increase--was rather small. This, as well as a declining volume of publicly announced cancellations, suggests that the period of sharp cutbacks in capital spending plans may have passed. Vigorous efforts at inventory liquidation are still underway. The physical volume of inventories in manufacturing apparently rose slightly further in January, but the proportion of purchasing agents reporting inventory reductions in February was the largest since 1958. Moreover, the substantial decline in dealers' stocks of autos in both January and February and the continued sharp downward adjustment in industrial production in a period of near stability in real retail sales suggests a liquidation of stocks in other lines. Outlook. The contours of the current staff GNP projection have not changed much since the last Greenbook. Real GNP is projected to fall sharply during the current quarter, to decline less rapidly in the spring, and to begin a recovery in the third quarter of this year. I -4 Our underlying policy assumptions are also relatively unchanged. On the monetary side, we assume that growth in M1 over 1975 as a whole will average about 6 per cent. Interest rates toward the end of 1975 and in early 1976 are now projected to rise somewhat less rapidly than we expected a month ago, because we have reduced our projection of upward price pressures. in assumptions: On the fiscal side, there have been a few minor changes a $1 billion increase in highway grants has been added to expenditures in FY 1976 following the President's release of such funds; and the $1 per barrel oil import fee imposed at the beginning of February has been incorporated in the projection. This fee yields about $2.4 billion a year in revenues, and by itself tends to increase the average price of gasoline by 1 cent per gallon. We continue to assume the tax package in the House's Tax Reduction Act of 1975 (HR 2166). We are now projecting a drop in real GNP of about 11 per cent during the first quarter--slightly larger than in the last Greenbook. Inventory liquidation is now expected to be somewhat greater--mainly because of the substantial reduction in auto stocks. However, consumer outlays have been somewhat stronger than we anticipated, and it now appears that the net export position this quarter will not deteriorate as much as expected earlier. Following a decline of 3-1/2 per cent (annual rate) in real GNP in the second quarter, we continue to project an upturn in economic activity this summer, with real growth rising at an average rate of 6 per cent in the second half. The upturn is expected to stem from the effects I -5 of fiscal stimulus in consumer markets, the completion of inventory The rate of adjustments in some lines, and a recovery in housing. growth is projected to moderate in the first half of 1976, however, reflecting reduced fiscal stimulus and a cyclical climb in interest rates that damps the recovery in housing. We continue to expect an increase in the unemployment rate to the 9-1/2 per cent range around mid-year, and a slight moderation in unemployment thereafter. The staff has become more optimistic with regard to the outlook for prices. in We continue to project a 7 per cent annual rate of increase the fixed-weighted GNP price index this quarter--compared with a 12-1/2 per cent rate in the fourth quarter of 1974. But we have trimmed our estimates of price rises beginning in the second half of this year; by the second quarter of 1976 the annual rate of increase is projected at 4.5 per cent--about a percentage point less than last month. Smaller price increases are now expected for foods, other nondurable goods, and capital equipment. These downward revisions are based partly on the assumption that wage rate increases will slow further. But another important element is the expectation that the more competitive pricing that has recently developed in response to weak markets will continue. Thus, our projection now shows a slower rate of recovery for corporate profits, although the increase from the projected low in the second quarter of 1975 is still comparable to postwar experience for periods of recovery. I - 6 STAFF GNP PROJECTIONS Per cent change, annual rate Changes in Gross private product nominal GNP fixed weighted ($ billions) 2/12/75 3/12/75 136.9 101.8 55.8 77.8 103.1 136.9 102.4 53.2 1973-III 1/ 31.0 35.1 1974-1 1/ 14.8 25.0 32.5 11.7 77,8 1971 1972 1973 1974 1975 Iv 1/ 1975-I II III IV 1976-I II Change: 73-IV to 74-IV 74-II to 75-II 74-IV to 75-IV 75-II to 76-11 1/ Actual. 3.3 6.2 5.9 -2.2 3.3 6.2 price index 2/12/75 3/12/75 4.3 3.3 6.3 rate (per cent) 2/12/75 3/12/75 5.9 5.6 4.9 5.6 9.1 5.9 5.6 4.9 5.6 11.4 -4.5 -2.2 -4.6 8.8 4.3 3.3 6.3 11.4 8.8 31.0 35.1 1.6 2.3 1.6 2.3 8.4 9.1 8.4 9.1 4.8 4.8 14.3 25.0 32.5 13.9 -7.0 -1.6 -1.9 -9.1 -7.0 -1.6 -1.9 -9.1 14.1 12.3 13.8 12.0 14.1 12.3 13.8 12.6 5.2 5.1 5.5 6.6 9.5 40.5 46.5 -16.2 9.0 36.5 46.0 -10.5 -3.6 5.1 6.5 -10.9 -3.7 4.9 6.9 7.0 6.5 6.5 5.8 7.0 6.5 5.5 5.2 8.4 9.2 9.5 9.3 38.0 36.0 35.5 33.0 4.5 4.0 4.,6 4.2 5.5 5.4 4.8 4.5 9.3 9.2 34.0 86.2 -5.0 -5.0 39.2 39.2 -6.3 -6.5 9.6 82.0 75.3 - .9 - .9 6.4 -6.0 2.7 161.0 151.0 5.0 5.1 5.8 5.0 .0 103.1 Iv17 Real GNP 2/12/75 3/12/75 Unemployment -14.5 5.9 12.9 9.1 13.0 I-7 CONFIDENTIAL - March 12, FR 1975 GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of dollars, with quarter figures at annual rates.) 1974 III 1975 IV I II 1976 Projection III IV I II 1459.5 1470.8 1128.4 1130.9 1505.5 1510.0 1156.6 1161.9 1541.0 1540.5 1178.8 1186.9 1574.0 1094.3 1423.0 1439.5 1104.1 1104.7 895.8 120.7 391.7 383.5 909.7 124.0 395.7 390.0 918.8 121.5 400.5 396.8 939.7 126.2 407.7 405.8 963.1 131.2 417.5 414.4 981.0 136.2 421.9 422.9 998.5 136.7 428.7 431.1 205.8 46.2 150.9 8.7 6.6 209.4 40.4 151.2 17.8 17.5 173.6 36.6 148.0 -11.0 -9.5 169.4 40.1 145.8 -16.5 -15.5 179.9 44.2 147.0 -11.3 -10.8 194.3 48.7 150.1 -4.5 -4.5 206.4 52.7 153.2 .5 .5 214.7 55.8 156.4 2.5 2.5 Net exports of goods and services 1/ Exports Imports -3.1 143.6 146.7 1.2 146.4 145.3 .8 135.9 135.1 - .6 129.1 129.7 -2.5 130.1 132.6 -5.3 134.3 139.6 -8.1 138.5 146.6 -9.0 145.3 154.3 Gov't. purchases of goods and services Federal Defense Other State & local 312.3 117.2 78.4 38.8 195.1 323.8 124.5 84.0 40.6 199.3 329.9 125.5 84.0 41.5 204.4 335.4 126.9 84.5 42.4 208.5 342.4 85.7 43.0 213.7 353.4 133.9 89.5 44.4 219.5 361.7 136.3 91.0 45.3 225.4 369.8 138.2 92.5 45.7 231.6 Gross national product in constant (1958) dollars GNP implicit deflator (1958 = 100) 823.1 803.8 781.0 773.7 783.0 796.3 805.2 813.5 172.1 177.9 181.0 183.9 186.4 189.1 191.4 193.5 1186.9 769.2 1008.8 86.5 8.6 1193.4 762.3 1014.1 77.8 7.7 1212.6 769.8 1047.0 101.4 9.7 1416.3 1407.6 1095.3 1098.4 1430.2 1412.4 1088.6 1087.4 1414.0 1425.0 1095.1 Personal consumption expenditures Durable goods Nondurable goods Services 901.3 136.1 389.0 376.2 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm Gross National Product Final purchases Private Excluding net exports Personal income Wage and salary disbursements Disposable income Personal saving Saving rate (per cent) 1168.2 763.0 993.1 65.5 6.6 128.7 1243.1 783.2 1091.3 124.4 11.4 1269.7 800.4 1096.5 105.5 9.6 1293.1 816.7 1105.9 96.4 8.7 1571.5 1201.7 1210.7 1318.0 832.9 1125.6 98.1 8.7 Corporate profits & inventory val. adj. Corporate profits before tax 105.8 157.0 104.4 134.3 86.5 114.5 78.6 103.5 90.1 108.5 105.1 117.5 108.6 119.0 111.9 120.5 Federal government receipts and expenditures, (N.I.A. basis) Receipts 2/ Expenditures Surplus or deficit (-) 2/ 302.8 304.7 -1.9 296.4 319.3 -22.9 288.8 334.6 271.7 343.6 -71.9 260.1 357.2 -97.1 286.1 368.5 -82.4 305.1 375.2 -70.1 312.0 380.6 -68.6 -45.8 24.7 17.2 12.4 -2.1 -27.7 -16.8 -5.7 -3.1 2.1 - .1 -3.4 -4.9 -5.8 -4.0 -3.2 -3.8 Total labor force (millions) Armed forces Civilian labor force " Unemployment rate (per cent) 93.6 2.2 91.4 5.5 94.0 2.2 91.8 6.6 94.0 2.2 91.8 8.4 94.3 2.2 92.1 9.2 94.5 2.2 92.3 9.5 94.5 2.2 92.3 9.3 94.7 2.2 92.5 9.3 94.9 2.2 92.7 9.2 Nonfarm payroll employment (millions) Manufacturing 78.7 20.1 78.3 19.6 76.6 18.2 76.2 17.6 76.0 17.5 76.2 17.5 76.3 17.6 76.7 17.7 125.4 79.4 68.5 121.4 75.6 79.3 110.7 68.0 69.8 108.8 66.3 67.7 110.6 66.9 68.6 113.3 68.0 69.6 115.3 68.7 70.7 116.9 b9.1 71.4 1.60 1.70 9.50 8.00 1.50 -8.4 144.9 153.3 High employment surplus or deficit (-) State and local government surplus or deficit (-), (N.I.A. basis) Industrial production (1967 = 100) Capacity utilization, mfg. (per cent) Major materials (per cent) 1.21 1.00 Housing starts, private (millions, A.R.) Sales new autos (millions, A.R.) 10.07 7.38 Domestic models 8.52 6.05 Foreign models 1.33 1.55 .8 1/ Net exports of g. & s. (Bal. of Paymts.) -1.3 3/ Exports 146.8 3/ 152.8 152.0 Imports 148.1 1.05 8.50 6.75 1.75 .5 142.3 141.8 1.25 7.75 6.25 1.50 - .9 135.5 136.4 1.45 8.25 6.75 1.50 -2.8 136.5 139.3 9.00 7.50 1.50 -5.6 140.7 146.3 1.63 9.50 8.00 1.50 -9.3 151.7 161.0 2/ Federal government N.I.A. receipts are reduced in 1975-11 and III to reflect the $8.0 billion rebate of 1974 individual income taxes and in 1975-111 and IV to effect the $8.4 billion reduction in 1975 individual In 1976-1 and following quarters revenues are reduced by the continuing income taxes in those quarters. tax cut. 3/ Includes shipments of military equipment and supplies to Israel which are not included in GrP exports; amounts billions of dollars are: 1974-II, $.3; 1974-TV, $.4; 1975-I and II, $.3. CONFIDENTIAL - FR March 12, 1975 CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS III 1976 1975 1974 IV I II Projection III IV I II -------------------- Billions of Dollars-------------------Grosss National Product Ii nventory change F:Lnal purchases 32.5 -4.8 37.3 Private 29.4 Net exports -1.6 Excluding net exports 31.0 Personal consumption expenditures 32.2 Durable goods 6.6 Nondurable goods 13.2 Services 12.4 Residential fixed investment -2.6 Business fixed investment 1.5 Government 7.9 Federal 2.9 State and local 5.0 GNP in constant (1958) dollars Final purchases Private -4.0 - .8 - 9 13.9 9.1 4.8 -6.7 4.3 -11.0 -5.5 -15.4 2.7 7.3 -5.8 .3 11.5 7.3 4.2 -16.2 -28.8 12.6 6.5 - .4 6.9 13.9 3.3 4.0 6.5 -3.8 -3.2 6.1 1.0 5.1 9.0 -5.5 14.5 9.0 -1.4 10.4 9.1 -2.5 4.8 6.8 3.5 -2.2 5.5 1.4 4.1 36.5 5.2 31.3 24.3 -1.9 26.2 20.9 4.7 7.2 9.0 4.1 1.2 7.0 1.8 5.2 46.0 6.8 39.2 28.2 -2.8 31.0 23.4 5.0 9.8 8.6 4.5 3.1 11.0 5.2 5.8 35.5 5.0 30.5 22.2 -2.8 25.0 17.9 5.0 4.4 8.5 4.0 3.1 8.3 2.4 5.9 33.0 2.0 31.0 22.9 - .9 23.8 17.5 2.5 6.8 8.2 3.1 3.2 8.1 1.9 6.2 -19.3 -25.2 -25.6 -22.8 -4.4 -5.2 -7.3 -4.0 -5.2 9.3 6.8 6.2 13.3 8.9 9.0 8.9 4.6 5.7 8.3 6.5 5.9 ----------------------- In Per Cent Per Year-- ------- Gross National Product Final purchases Private 9.7 11.3 11.5 4.0 1.4 -2.4 -4.5 3.6 2.4 2.6 4.1 3.3 10.7 9.0 9.1 13.2 11.1 10.4 9.8 8.3 7.9 Personal consumption expenditures Durable goods Nondurable goods Services 15.7 22.0 14.8 14.3 -2.4 -38.1 2.8 8.0 6.4 11.4 4.1 7.0 4.1 -7.8 4.9 7.2 9.4 16.4 7.4 9.4 10.3 16.8 10.0 8.8 7.6 16.1 4.3 8.5 Gross private domestic investment Residential structures Business fixed investment -10.9 -19.7 4.1 7.2 -41.5 .8 -52.8 -32.6 -8.2 -9.3 44.1 -5.8 27.2 47.6 3.3 36.1 47.4 8.7 27.3 37.1 8.5 17.1 25.7 8.6 6.8 4.5 2.4 9.0 8.3 6.6 5.8 5.8 5.8 10.4 13.5 17.2 19.0 13.7 11,3 9.7 7.4 6.9 8.4 11.2 9.3 5.7 6.8 3.6 11.5 6.9 4.6 5.7 4.6 2.3 3.5 4.2 3.3 3.7 5.91/ 5.02/ 4.5 5.2 4.8 4.5 7.6 8.4 3.5 7.9 8.2 7.3 Gov't purchases of goods and services Federal Defense Other State and local 15.6 27.3 31.8 19.9 8.9 7.8 3.3 .0 9.2 10.6 GNP in constant (1958) dollars Final purchases Private GNP implicit deflator 3/ Private GNP fixed weighted index. -1.9 - .4 - .5 11.9 13.8 Personal income Wage and salary disbursements Disposable income 12.4 9.9 11.5 6.6 3.3 6.5 2.2 -3.5 2.1 6.6 4.0 13.6 10.4 7.1 18.0 Corporate profits before tax 62.8 -46.5 -47.2 -33.2 20.8 37.5 5.2 5.1 Federal government receipts and expenditures (N.I.A. basis) Receipts Expenditures 21.2 19.2 -8.2 20.6 -9.9 20.6 -21.7 11.2 -16.0 16.8 46.4 13.3 29.3 7.5 9.4 5.9 Nonfarm payroll employment Manufacturing 1.7 - .6 -1.7 -10.4 -8.5 -25.5 -2.1 -12.5 -1.0 -2.3 1.1 .0 .5 2.3 2.1 2.3 -6.6 100.9 -30.9 -26.5 -46.0 6.7 81.1 28.4 36.0 .0 10.2 48.3 41.6 52.4 .0 7.4 27.4 24.1 29.5 .0 5.7 -15.5 .0 .0 .0 -10.9 -3.7 -9.1 -11.8 -2.2 -2.0 -14.4 -3.2 -3.2 14.41/ 7.21/ 6.5 12.6 7.0 6.5 Industrial production - .2 -12.3 -30.9 Housing starts, private -60.7 -53.4 22.0 Sales new autos 43.5 -71.2 76.2 Domestic models 31.7 -74.6 55.3 Foreign models 138.3 -46.2 199.7 I/ Percentage rates are annual rates compounded quarterly. 2/ Excluding Federal pay increases rates of change are: 1974-IV, 1975-IV, 5.2 per cent; and 1976-1, 4.8 per cent. 3/ Using expenditures in 1967 as weights. 13.7 per cent; 1975-1, 7.0 per cent; I-9 CONFIDENTIAL March 12, 1975 FR GROSS NATIONAL PRODUCT AND RELATED ITEMS (Quarterly figures are seasonally adjusted. Expenditures and income figures are billions of dollars, with quarter figures at annual rates.) IV I II 1308.9 1297.0 1020.1 1013.4 1344.0 1315.1 1028.7 1019.4 1358.8 1341.9 1045.6 1034.3 1383.8 1370.3 1065.9 1067.4 799.0 132,1 332.7 334.2 816.3 132.4 343.8 340.1 823.9 124.3 352.1 347.4 840.6 123.9 364.4 352.4 869.1 129.5 375.8 363.8 205.1 135.6 10.7 7.7 209.0 58.1 139.0 11.8 7.4 224.5 53.6 141.9 28.9 24.0 210.5 48.4 145.2 16.9 13.1 211.8 48.8 149.4 13.5 10.4 .5 95.4 94.9 6.7 103.7 96.9 9.3 113.6 104.3 11.3 131.2 119.9 -1.5 138.5 140.0 74.0 32.2 167.1 276.9 105.3 73.3 32.0 171.6 286.4 108.4 75.3 33.1 177.9 296.3 111.5 75.8 35.7 184.8 304.4 114.3 76.6 37.7 190.1 837.4 152.6 840.8 155.7 845.7 158.9 830.5 163.6 827.1 167.3 1068.0 698.2 913.9 73.2 8.0 1099.3 717.0 939.4 89.3 9.5 105.0 124.9 105.2 122.7 249.1 260.2 -11.2 255.0 262.4 -7.4 -8.5 IV I II 1169.3 1159.1 904.0 908.8 1204.7 1193.7 931.1 936.4 1248.9 1238.9 969.9 970.7 1277.9 1267.2 993.9 993.4 Personal consumption expenditures Durable goods Nondurable goods Services 736.8 121.2 302.0 313.6 757.2 124.3 310.9 322.0 781.7 132.4 323.3 325.9 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 182.1 54.5 117.5 10.2 9.6 190.2 56.7 122.5 11.0 10.4 199.0 58.5 130.5 10.0 6.5 -4.8 73.3 78.1 -5.3 78.5 83.8 - .8 88.8 89.5 Gov't. purchases of goods and services Federal Defense Other State & local 255.1 102.7 72.6 30.1 152.4 262.6 105.2 74.7 30.5 157.4 269.0 106.4 75.0 31.4 162.6 273.3 Gross national product in constant (1958) dollars GNP implicit deflator (1958 = 100) 798.1 146.5 814.2 148.0 832.8 150.0 Personal income Wage and salary disbursements Disposable income Personal saving Saving rate (per cent) 950.3 985.0 647.5 838.1 58.9 7.0 1013.6 667.6 Corporate profits & inventory val. adj. Corporate profits before tax 92.9 100.2 99,8 108.2 103.9 120.4 228.4 238.2 -9.8 235.6 261.2 -25.6 1.3 -19.2 Gross National Product Final purchases Private Excluding net exports Net exports of goods and services 1/ Exports Imports Federal government receipts and expenditures, (N.I.A. basis) Receipts Expenditures Surplus or deficit (-) High employment surplus or deficit (-) State and local government surplus or deficit (-), (N.I.A. basis) 631.4 807.2 49.3 6.1 1974 1973 1972 III 869.5 65.3 7.5 58.7 106.2 III 1112.5 727.6 950.6 84.4 8.9 1134.6 745.2 966.5 71.5 7.4 106.4 122.7 107.7 135.4 105.6 139.0 261.8 263.4 -1.7 268.3 270.6 -2.3 278.1 281.0 -2.8 288.6 291.6 -3.0 -3.4 4.6 4.8 14.0 19.6 1039.2 683.8 892.1 69.6 7.8 9.2 19.1 13.2 10,4 8.4 4.6 3.2 2.0 Total labor force (millions) Armed forces Civilian labor force " Unemployment rate (per cent) 89.3 2.4 86.9 5.6 89.6 2.4 87.1 5.3 90.0 2.4 87.6 5.0 90.8 2.3 88.5 4.9 91.3 2.3 89.0 4.8 92.1 2.3 89.8 4.8 92.7 2.3 90.5 5.2 92.9 2.2 90.6 5.1 Nonfarm payroll employment (millions) Manufacturing 74.0 17.5 74.9 19.5 75.8 19.8 76.5 20.0 77.1 20.1 77.8 20.3 78.0 20.2 78.3 20.2 116.3 79.4 90.6 120.2 81.5 92.3 123.1 82.8 93.0 124.8 83.3 93.4 126.7 83.3 93.5 127,0 2.39 11.68 9.90 1.78 -5.3 78.5 83.8 2.39 12.18 10.26 1.92 - .7 2.21 12.03 10.17 1.85 I .5 95.4 94.9 2.01 11.33 9.66 1.67 c 6.6 103.7 97.1 1.58 10.15 8.51 1.64 Industrial production (1967 = 100) Capacity utilization, mfg. (per cent) Major materials (per cent) Housing starts, private (millions, A.R.) 2.36 Sales new autos (millions, A.R.) 11.21 9.59 Domestic models 1.61 Foreign models 11 Net exports of g. & s. (Bal. of Paymts.) -4.8 Exports 73.3 78.1 Imports 2/ 88.8 89.5 82.6 92.3 114.8 104.8 124.9 80.5 90.2 1.63 9.04 7.49 1.55 11.61 132., ./ 121.0 125.5 80.1 90.2 1.57 9.20 7.95 1,25 - .7z1 140.8 1 141.5 IncludeF shipments of military equipment and supplies to Israel which are not included in GNP exports; amounts in Billions of dollars at annual rates are 1973-IV, $2.4; 1974-I, $.3; 1974-Il, $.3. CONFIDENTIAL - I - 10 FR March 12, 1975 CHANGES IN GROSS NATIONAL PRODUCT ANDRELATED ITEMS 1972 III 1973 IV I. II 1974 III IV I II ----------------- Billions of Dollars---------------Gross National Product Inventory change Final pqrchases Private Net exports Excluditg net exports Personal consumption expenditures Durable goods Nondurable goods Services Residential fixed investment Business fixed investment Government Federal State and local GNP in constant (1958) dollars Final purchases Private 26.3 2.2 24.0 22.7 2.1 20.6 16.2 35.4 .8 34.6 27.1 - .5 27.6 20.4 44.2 -1.0 45.2 38.8 4.5 34.3 24.5 29.0 .7 28.3 24.0 1.3 22.7 17.3 31.0 1.1 29.8 26.2 6.2 20.0 17.3 35.1 17.1 18.1 8.6 2.6 6.0 7.6 14.8 -12.0 26.8 16.9 2.0 14.9 16.7 25.0 -3.4 28.4 20.3 -12.8 33.1 28.5 5.0 3.1 8.1 - .3 .3 -8.1 - .4 5.6 4.6 6.6 1.6 2.8 1.3 -3.2 4.5 8.9 8.4 2.2 5.0 7.5 2.5 5.0 12.4 3.9 1.8 8.0 6.4 1.2 5.2 9.4 8.3 .2 5.1 4.3 - .2 4.5 11.1 5.9 - .6 3.4 3.6 - .9 4.5 8.3 7.3 -4.5 2.9 9.5 3.1 6.3 12.3 5.0 -5.2 3.3 9.9 3.1 6.9 11.4 11.4 .4 4.2 8.1 2.8 5.3 11.5 9.7 11.7 16.1 15.6 14.4 18.6 20.2 19.1 4.6 4.1 4.3 3.4 3.1 3.3 4.9 -7.0 -9.0 -15.2 -5.8 -6.1 -3,4 -1.0 - .8 ---------------- 1/ In Per Cent Per Year- -------------- 7.6 8.7 8.0 Gross National Product Final purchases Private 9.5 8.7 10.7 12.7 12.5 12.5 15.5 16.0 17.7 9.6 9.5 10.3 10.1 9.7 11.0 11.2 5.7 3.4 4.5 8.4 6.7 Personal consumption expenditures Durable goods Nondurable goods Services 9.3 18.4 6.3 8.9 11.5 10.6 12.3 11.2 13.6 28.7 16.9 4.9 9.2 - .9 12.1 10.6 3.8 8.9 .9 -22.3 14.0 10.0 8.9 7.3 8.4 -1.3 14.7 5.9 14.3 19.3 13.1 13.6 Gross private domestic investment Residential structures Business fixed investment 15.9 12.7 10.1 19.0 17.2 18.1 19.8 13.3 28.8 12.8 1.4 16.6 7.8 -4.0 10.4 33.1 -27.6 8.6 -22.7 -33.5 9.6 2.5 3.3 12.1 2.1 -11.5 -16.3 1.3 12.7 12.3 10.1 12.1 5.4 13.8 10.1 4.6 1.6 12.3 13.9 6.5 - .7 -5.2 10.6 11.5 5.4 -3.3 -3.7 -2.5 11.2 14.4 12.3 11.4 14.5 15.5 14.6 11.9 2.7 35.3 16.4 11.4 10.4 4.3 24.4 12.0 Private GNP implicit deflator Private GNP fixed weighted index 2/ 6.0 5.1 7.6 3.3 3.6 8.3 8.1 9.2 4.1 3.8 9.5 10.4 12.0 5.5 7.4 2.2 2.0 2.5 7.3 8.1 1.6 1.5 1.9 8.3 6.4 2.4 -3.3 -5.1 8.6 9.1 -7.0 -2.6 -3.5 12.3 14.1 -1.6 - .5 - .5 9.4 12.3 Personal income Wage and salary disbursements Disposable income 8.6 7.5 9.0 15.4 10.6 16.2 12.1 13.0 15.8 10.5 10.1 10.8 11.6 8.7 10.1 12.2 11.2 11.6 4.9 6.0 4.9 8.2 10.0 6.9 Corporate profits before tax 18.7 36.0 53.3 15.8 -6.9 .0 48.3 11.1 Federal government receipts and expenditures (N.I.A. basis) Receipts Expenditures 7.9 -8.7 13.2 44.6 25.0 -1.5 9.8 3.4 11.1 1.5 10.3 11.4 15.4 16.3 16.0 16.0 3.6 3.3 4.8 7.3 5.0 6.3 3.9 4.4 3.0 2.1 3.8 3.7 1.0 -2.4 1.6 - .3 Industrial production 9.1 14.1 10.0 Housing starts, private 15.4 4.7 1.0 Sales new autos 22.2 17.9 18.3 Domestic models 20.8 13.4 15.4 Foreign models 30.9 48.0 35.4 1/ Percentage rates are annual rates compounded quarterly. 2/ Using expendtures in 1967 as weights. 5.6 -27.0 -5.0 -3.5 -12.9 6.2 -32.0 -21.3 -18.6 -35.0 1.0 -61.4 -35.5 -39.8 -5.9 -6.5 11.6 -37.1 -40.0 -20.0 1.9 -14.4 7.4 27.1 -57.8 Gov't. purchases of goods and services Federal Defense Other State and local GNP in constant (1958) dollars Final purchases Nonfarm payroll employment Manufacturing I - 11 March 12, 1975 CONFIDENTIAL - FR GROSS NATIONAL PRODUCT AND RELATED ITEMS (Expenditures and income figures are billions of dollars) 1969 1970 1971 1972 1973 1974 1975 1397.3 1383.0 1450.5 1461.3 1121.1 1123.0 Proj. Gross National Product Final purchases Private Excluding net exports 930.3 922.5 712.5 710.6 977.1 972.6 753.1 749.5 1054.9 1048.6 814.4 814.6 1158.0 1149.5 893.8 899.8 1294.9 1279.;6 1003.2 999.3 Personal consumption expenditures Durable goods Nondurable goods Services 579.5 90.8 245.9 242.7 617.6 91.3 263.8 262.6 667.1 103.9 278.4 284.8 729.0 118.4 299.7 310.9 805.2 130.3 338.0 336.9 876.7 127.5 380.2 369.0 932.8 125.7 405.4 401.8 Gross private domestic investment Residential construction Business fixed investment Change in business inventories Nonfarm 139.0 32.6 98.5 7.8 7.7 136.3 31.2 100.6 4.5 4.3 153.7 179.3 54.0 116.8 8.5 7.8 209.4 57.2 136.8 15.4 11.4 209.4 46.0 149.2 14.2 11.9 179.3 42.4 147.7 -10.8 -10.1 3.9 100.4 96.4 2.0 139.9 138.0 -1.9 132.4 134.3 340,3 128.8 85.9 42.8 211.5 Net exports of goods and services 1/ Exports Imports 1.9 55.5 53.6 3.6 62.9 59.3 42.8 104.6 6.3 4.9 - .2 65.4 65.6 -6.0 72.4 78.4 1073.8 1071.8 Gov't. purchases of goods and services Federal Defense Other State & local 210.0 98.8 78.4 20.4 111.2 219.5 96.2 74.6 21.6 123.3 234.2 97.6 71.2 26.5 136.6 255.7 104.9 74.8 30.1 150.8 276.4 106.6 74.4 32.2 169.8 309.2 116.9 78.7 38.2 192.3 Gross national product in constant (1958) dollars GNP implicit deflator (1958 = 100) 725.6 128.2 722.5 135.2 746.3 141.4 792.5 146.1 839.2 154.3 821.1 170.2 783.5 185.1 Personal income Wage and salary disbursements Disposable income Personal saving Saving rate (per cent) 750.9 509.7 634.4 38.2 6.0 808.3 542.0 691.7 56.2 8.1 864.0 573.0 746.4 60.5 8.1 944.9 626.8 802.5 52.6 6.6 1150.5 751.2 979.7 77.0 7.9 1229.7 778.9 1062.2 102.3 9.6 79.8 84.9 69.2 74.0 78.7 83.6 92.2 99.2 105.1 122.7 105.9 141.4 90.1 111.0 197.3 189.2 8.1 192.0 203.9 -11.9 198.5 220.3 -21.9 227.2 244.7 -17.5 258.5 264.2 -5.6 291.4 299.1 -7.7 276.7 351.0 -74.3 8.8 3.7 -4.7 -6.7 - .7 18.9 -8.5 .7 1.8 3.4 12.3 9.2 1.8 -4.5 Total labor force (millions) Armed forces Civilian labor force " Unemployment rate (per cent) 84.2 3.5 80.7 3.5 85.9 3.2 82.7 4.9 86.9 2.8 84.1 5.9 89.0 2.4 86.5 5.6 91.0 2.3 88.7 4.9 93.2 2.2 91.0 5.6 94.3 2.2 92.1 9.1 Nonfarm payroll employment (millions) Manufacturing 70.4 20.2 70.9 19.3 71.2 18.6 73.7 19.1 76.8 20.1 78.3 20.0 76.3 17.7 Corporate profits & inventory val. adj. Corporate profits before tax Federal government receipts and expenditures, (N.I.A. basis) Recepits Expenditures Surplus or deficit (-) High employment surplus or deficit (-) State and local government surplus or deficit (-), (N.I.A. basis) Industrial production (1967 = 100) Capacity utilization, mfg. (per cent) Major materials (per cent) 110.7 86.5 90.0 Housing starts, private (millions, A.R.) Sales new autos <millions, A.R.) Domestic models Foreign models -c: 1/ Net exports of g. & s. (Bal. of Paymts.) Exports Imports 2/ 106.7 78.3 86.2 1055.0 691.7 903.7 74.4 8.2 106.8 75.0 85.3 115.2 78.6 89.6 125.6 83.0 93.0 124.3 78.9 87.0 2.05 11.44 9.67 1.77 - I 4.4 101.0 96.6 1.34 1.34 8.87 8.38 7.45 6.81 1.42 1.56 2.5 21 -2.; 2/ 143.0 2/ 136.8 1/ 141.0 140.5 1.47 9.57 8.46 1.43 8.40 7.12 2.05 10.24 8.68 2.36 10.93 1.11 1.28 1.56 1.3 55.0 53.6 2.9 ~2.3 59.4 - .2 65.4 65.6 1.61 -6.0 72.4 78.4 9.32 121.4 67.3 69.2 Includes shipments of military equipment and supplies to Israel which are not included in GNP exports; amounts in billions of dollars are: 1973, $.6; 1974, $.325; and 1975, $.150. CONFIDENTIAL - I - FR 12 March 12, 1975 CHANGES IN GROSS NATIONAL PRODUCT AND RELATED ITEMS 1969 1970 1971 1972 1973 1974 Proj9 1975 --------------Billions of Dollars-------------Gross National Product Inventory change Final purchases Private Net exports Excluding net exports Personal consumption expenditures Durable goods Nondurable goods Services Residential fixed investment Business fixed investment Government Federal State and local GNP in constant (1958) dollars Final purchases Private 19.0 18.7 20.6 -3 1 - 4 6.2 23.8 -22.5 18.5 103.1 2 2 100.9 79.4 -5.8 85 2 61.9 14.5 21.3 26.1 11.2 12.2 21.5 7,3 14.2 136.9 6 9 130 1 109.4 20.0 20.7 1.7 19.0 102.4 -1.2 103.4 70.6 -1.9 72.5 71.5 -2.8 42.2 32.1 -11.2 12.4 32.8 10.3 22.5 46.2 -44,4 46.1 46.7 43.0 45.2 -18.1 -15.9 -17.5 9.9 99.5 76.2 11.9 38.3 26,0 3.2 -------------- Per Cent per Year/--Gross National Product Final purchases Private 53.2 -25.0 78.3 47.3 -3.9 51.2 56.1 -1.8 25.2 32.8 -3.6 -1.5 31.1 11.9 19.2 -37.6 -21.4 -23.6 ------ 11.8 11.3 12.2 7,9 8.1 7.0 3.8 5.7 4.4 6.4 -1.4 6.6 8.9 Personal consumption expenditures Durable goods Nondurable goods Services 8.1 8.1 6.5 9.7 6.6 .6 7.3 8.2 8 0 13.8 5.5 8.5 9.3 14.0 7.7 9.2 10.5 10.1 12.8 8 4 8.9 -2.1 12.5 9.5 Gross private domestic investment Residential structures Business fixed investment 10 3 8.3 10.9 -1.9 -4 3 2.1 12.8 37.2 4 0 16.7 26 2 11.7 16 8 5.9 17 1 .0 -19.6 9.1 Gov't purchases of goods & services Federal Defense Other State and local 5.2 .0 .1 - .5 10.3 4.5 -2.6 -4 8 5.9 10.9 6.7 1.5 -4.6 22.7 10.8 9.2 7.5 5.1 13.6 10.4 8.1 1.6 - .5 7 0 12.6 11.9 9.7 5.8 16.6 13.3 10.1 10.2 9.1 12.0 10.0 2.7 2.7 3.7 - .4 - .1 1.1 3.3 3.1 3.9 6.2 6.0 6.7 5.9 5.5 6,5 -2.2 -1.9 -2.6 -4.6 -2.6 -3.5 GNP in constant (1958) collars Final purchases Private GNP implicit deflator 2 Private GNP fixed weighted indexr Personal income Wage and salary disbursements Disposable income -14.4 -7.8 -1.0 4.8 5.5 4.6 3.4 5.6 10.3 8.8 4.7 4.8 4.3 3.3 6.3 11.4 8.8 9.0 9.6 7 6 6 3 6 9 5 8 9.4 9.3 11.7 10.4 9.1 8.6 6.9 3.7 7.3 9.0 7.9 7.5 12.6 8.4 8.4 Corporate profits before tax -3 1 -12.8 13 0 18.7 23.7 15.2 -21.5 Federal Government receipts and expenditures (N.I.A basis) Receipts Expenditure 12.7 4.2 -2 7 7.8 3 4 8.0 14 5 11.1 13.6 8.0 12.7 13.2 -5.0 17.4 4 3.5 4.2 2.0 -2.6 -4 0 2.8 5.0 - .2 -11.6 9.0 -13.2 4.7 3.7 9.8 -1.0 -34.6 Nonfarm payroll employment Manufacturing Industrial production Housing starts, private Sales new autos Domestic models Foreign models 1/ 2/ 3.7 2.0 7 -4.1 -3.6 -2 3 -12 3 -15.9 15.5 Percentage rates are annual rates compounded quarterly Using expenditures in 1967 as weights -22.5 -23.0 -20.1 -10.8 .1 -5.5 -8.6 10.2 I - 13 DOMESTIC FINANCIAL DEVELOPMENTS Summary. Private short-term interest rates have fluctuated in a relatively narrow range since the last Committee meeting. The recent slowing of the decline in the Federal funds rate, in conjunction with renewed growth of the money supply,has apparently induced more cautious investor judgments about the prospects for further near-term rate declines. The volume of private short-term credit contracted in February as the decline in production and inventory investment reduced overall business needs for funds, and firms continued to substitute long for short-term credit. Because short-term business credit demands were weak, increased offerings of Treasury bills were absorbed with only minor upward rate pressures. In long-term securities markets, new issue volume remained large. While interest rates on corporate bonds edged down a little, on balance, investors continued to show a distinct preference for high quality issues and the market in general exhibited a relatively cautious tone. In the municipal bond market the early 1975 rally ended abruptly around mid-February, partly as a result of the default of a New York State agency on its obligations. subsequently rose more than 25 basis points. Municipal yields Similar yield increases occurred in the market for intermediate-term Treasury issues, following announcement that $7 billion would be raised by the Treasury in coupon area during March and early April. the Banks and other financial institutions, which have absorbed most of the expanding Treasury I - 14 deficit to date, do not generally appear interested in longer-term issues at this time. Some lenders in the mortgage market have eased non-rate terms, and rates on home mortgages have declined another 10 basis points or so since the last FOMC meeting. However, while outstanding commitments to acquire home mortgages have risen this year, net mortgage debt formation has continued to decline. Outlook. Credit demands between now and mid-year are expected to remain strong in markets for corporate bonds, State and local government securities, and Treasury debt. Businesses and consumers, on the other hand, are expected to continue reducing their short-term incebtedness as economic activity contracts. These demands are summarized in Table 1 (on page 17), while the expected supplies of funds are shown in Table 2. As line 9 of the first table shows, net funds raised by nonfinancial sectors during the second quarter of 1975 are expected to be little different from the average of the second half of last year. Over half of the borrowing will be by the U. S. Treasury, however, whereas in the second half of last year the Treasury accounted for only a little over 10 per cent of such credit market borrowing. Reduced private credit demands should provide room for the additional Treasury borrowing, with banks in particular investing heavily in U. S. government obligations. Continued debt repayment by privately owned Federal agencies will also release funds that may move into Treasury issues. I - 15 Bank credit expansion, which has been quite sluggish thus far this year, is likely to accelerate over the coming months as banks take on an increasing volume of Treasury issues. While bank time and savings deposits (other than large CD's) may not expand any more rapidly than in recent months, the staff expects demand deposits to show more normal growth as businesses and consumers adjust to transaction needs that would be anticipated as economic recovery gets under way. Deposit inflows to thrift institutions are also likely to remain strong into early summer. These institutions are likely to acquire additional Treasury issues as part of their continued effort to rebuild liquidity, but in addition they will probably increase mortgage commitments further and ease both rate and non-rate mortgage terms. In addition, over the next few months take-downs of existing commitments are likely to pick-up somewhat, as the residential housing market turns around. The pattern of demand and supply suggests that very large Treasury credit demands could be fairly readily absorbed by markets this spring, with heavy reliance on institutional investors and little or no need to attract individuals into the market. It appears unlikely, however, that any significant further decline in short-term open market interest rates will develop without a clear signal of further monetary policy ease, such as a drop in the Federal funds rate. Moreover, in the absence of such a signal, short-term rates may be expected to begin rising later this spring, in reaction to the I - 16 cumulative pressure of current and prospective Treasury credit needs, and particularly if signs of economic recovery should become evident. Longer-term market interest rates are likely to fluctuate in a narrow range over the months ahead as the large volume of offerings limits significant downward movements. Further reductions in such rates depend fundamentally on abatement of heavy credit demands and a further moderation of inflationary expectations. How- ever, if short-term rates were to drop further over the near-term, some spill-over effect on longer-term markets might develop, especially if bank lending rates and terms were to ease substantially further and attract corporate borrowers back to banks. I - 17 Table 1 FUNDS RAISED IN CREDIT MARKETS Quarterly flows at seasonally adjusted annual rates 1974-75 ($ billion) (Flow of 1974 9. 10. 11. 12. QIII QIV QI qII (1) (2) (3) (4) 35.0 - 8.0 43.0 34.0 21.0 17.0 15.8 20.0 - 2.0 65.0 14.5 5.5 174.7 146.4 137.5 165.0 33.9 19.2 - 6.5 - 7.0 - 7.1 - - 158.6 130.5 78.9 50.2 28.7 Residential mortgages Consumer credit U. S. Govt. 3/ State and local Other 35.3 15.8 18.2 15.1 11.3 Total funds raisednonfinancial sectors Total funds raised in credit markets-all sectors 5/ 32.5 61.1 22.0 39.1 Nonfinancial business Short-term 1/ Long-term 27 Sponsored agencies 4/ Credit & equity borrowing of private financial institutions 5/ Funds basis) 1975 proj. 23.9 232.5 - 2.6 .5 - 3.5 36.0 24.0 - 1.5 90.0 19.5 1.5 .5 167.5 Business bank loans and open-market paper. Bonds, equities, and non-residential mortgages. Direct marketable and nonmarketable debt, savings bonds, and issues by on-budget and off-budget agencies. 4/ 5/ FNMA, FHLB, FICB, Banks for Coops, Land Banks, and GNMA guaranteed mortgage backed securities. Excludes FHLB advances to savings and loan associations. NOTE: Totals may not add due to rounding. I - 18 Table 2 FUNDS ADVANCED IN CREDIT MARKETS Quarterly flows at seasonally adjusted annual rates 1974-75 ($ billions) (Flow of Funds basis) 1974 1975 proj. QII QI QIV QIII (1) 1. Private financial institutionsTotal 7/ (2) (3) (4) 104.6 92.2 104.5 136.5 3. Domestic commercial banks and affiliates Thrift institutions 1/ 7/ 39.7 7.4 20.6 20.0 28.5 30.0 54.5 38.5 4. 5. Insurance and pension funds 2/ All other 3/ 40.8 16.7 46.3 5.3 44.5 0.5 44.5 0.5 49.7 37.0 13.5 13.5 5.0 34.0 10.7 13.8 21.5 1.7 14.0 - 4.5 4.0 14.0 - 4.5 4.0 54.6 23.8 8.0 21.3 5.5 7.0 232.5 158.6 130.5 2. 6. 7. 8. 9. U. S. Govt. Direct 4/ Sponsored credit agencies 5/ Federal Reserve 10. 11. Households All other 6/ 12. Total funds advanced in credit markets 7/ 1/ 2/ 3/ - 3.0 11.0 158.0 Savings and loan associations, mutual savings banks, and credit union. Life and other insurance companies, private and public pension funds. Finance companies, REITS, open-end investment companies, securities brokers and dealers, and foreign banking agencies in the United States. 4/ Lending by on-budget and off-budget agencies. Includes GNMA guaranteed FNMA, FHLB, FICB, Land Banks, Banks for Coops. 5/ mortgage backed securities. 6/ Businesses, state and local governments, and rest of world. 7/ Net of FHLB advances to savings and loan associations. NOTE: Totals may not add due to rounding. I - 19 INTERNATIONAL DEVELOPMENTS Summary. After a brief rally early in February, the dollar weakened further in foreign exchange markets during the remainder of the month. Most recently, however, it has strengthened again. In the week ended March 12, the weighted average value of the dollar against 10 leading foreign currencies was up about 3/4 percent from the low of the previous week, but was about 2 percent lower than one month earlier, and about 5 percent lower than in March 1973 just after the second devaluation of the dollar. The brief rally early in February reflected substantial intervention purchases of dollars by the Federal Reserve and foreign central banks. The latest strengthening seems to be more broadly based, reflecting sharper declines in short-term European interest rates than in U.S. rates, recent evidence of moderation of inflation in the United States, and a decline in the German trade surplus in January. Federal Reserve purchases of dollars for foreign currencies swelled from $159 million in January to $616 million in February, but have been only $103 million in the first 12 days of March. Support purchases of dollars by foreign central banks have also been small recently. The U.S. merchandise trade deficit in January was $7.5 billion at an annual rate, up only moderately from the fourth quarter rate of $6.0 billion despite a large bulge in recorded oil imports prompted by the $1-a-barrel oil tariff increase of February 1. Nonfuel imports increased somewhat, mainly due to price increases. Agricultural exports I - 20 increased sharply, and other exports were little changed in value, but down in volume. Preliminary and partial data on international capital flows in January and February help to explain the continuing weakness of the U.S. dollar in foreign exchange markets. Bank-reported private capital flows in January show a small net reduction of about $250 million in claims on foreigners, a reversal of the $2 billion-a-month increases in November and December. On the other hand, there was a substantial reduction -- about $1.2 billion -- in liabilities to private foreigners, in contrast to inflows through December. Thus the net outflow through banks to private foreigners in January was about $1.0 billion, about the same as in December; earlier last year there had been substantial net inflows. Foreign official holdings of U.S. assets declined in January by about $0.6 billion. Assets of OPEC countries increased by $0.6 billion, but those of other countries decreased by $1.2 billion, including a decrease of $0.9 billion in BIS holdings. In February, foreign official holdings apparently increased substantially, but the increase of about $1/2 billion in OPEC holdings remained well below the inflows of last summer and fall. U.S. purchases of foreign securities have been about $1-1/2 billion in January-February, compared with only $650 million in November-December. I - 21 Recession in leading countries abroad has proved a good deal more serious than earlier expected. Industrial production dropped sharply in the fourth quarter in all leading countries and unemployment rose further. Central banks' discount rates have been reduced during the past month in France, Switzerland, Germany, the Netherlands, United Kingdom, and Belgium. Outlook. The recent OECD review of the economic outlook in major countries suggests that output in most major countries will continue to decline into the second quarter as inventories are worked off. There are said to be signs of an upturn in new orders in Germany, in response to recent stimulative policy actions, but in Japan, where industrial production declined further in January, the authorities are postponing major easing actions until after the spring wage settlements scheduled for April-May. Both U.S. exports and imports are expected to decline in the months ahead as a result of weakness in demand both here and abroad. Recent declines in spot prices of agricultural commodities will probably soon be reflected in a sharp decline in agricultural export values. The balance on goods and services is still expected to shift increasingly into deficit, as net investment income from petroleum declines. But capital outflows, which have been large early this year, may now diminish as foreign interest rates decline and as foreign investor interest in the U.S. stock market revives.
@FedFRASER