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CONFIDENTIAL (FR)

May 12, 1976

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

By the Staff
Board of Governors
of the Federal Reserve System

TABLE OF CONTENTS

Section

Page

DOMESTIC NONFINANCIAL DEVELOPMENTS

Industrial production............
Major materials capacity
utilization....................

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

Nonfarm payroll employment....... ..............................
Unemployment rate................ ..............................
Retail sales..................... ..............................
Domestic-type autos...................... ....................
Real personal income.............
Book value of manufacturers'

6

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

inventories .................................. ...............
Wholesale trade............................... ...............
New orders for durable goods ................... ...............
Business fixed investment ....................... ...............
Anticipated plant and equipment
expenditures................................ ...............
New orders for nondefense
capital goods............................... ...............
Construction contracts for
commercial and industrial buildings.......... ...............
Private housing starts.......................... ...............
Federal spending .............................................
State and local purchases...................... ...............
Average hourly earnings index.................. ...............
Major collective bargaining
agreements...................................

Productivity in the private
nonfarm sector..... .........................
Wholesale prices ................................
Consumer price index...........................

9
9
9
9
9

11
11
11
15
16
16

............... 16

..1......

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

....

TABLES:
Selected Unemployment rates............. ......................
Nonfarm payroll employment ............. ......................
Retail sales ........................... ......................
Auto sales............................... ......................
Personal income & saving................. ................* ...*.
Business inventories..................... ......................
Inventory ratios........................ ......................
New orders received by
manufacturers ..........................
Construction contracts for commercial
........
and industrial buildings.............................

TABLE OF CONTENTS

Continued

TABLES:

Page

Survey results of anticipated
plant and equipment expenditures:1976.......................
New private housing units.....................................
Home sales ....................................................
Federal budget................................................
Productivity and costs.......................................
Average hourly earnings
index .......................................................
Consumer prices ............
..................................
Wholesale prices ..............................................
DOMESTIC FINANCIAL DEVELOPMENTS

10
12
13
14
17
17
20
20

Section III

Money markets.................................................
Bond and stock markets ........................................
Monetary aggregates................................ ...........
Loan developments .............................................

1
2
6
9

TABLES:
Selected financial market quotations..........................
Security offerings.............................................
Monetary aggregates ...........................................
Commercial bank credit........................................
Interest rates and supply of funds for
conventional home mortgages at selected S&L's...............
Secondaryhome mortgage market activity........................
Consumer instalment credit....................................
INTERNATIONAL DEVELOPMENTS

3
5
8
10
12
12
14

Section IV

Foreign exchange market......................................
OPEC investment flows.........................................
U.S. international transactions................................
Net bank-reported private capital
transactions.............................. ................ ..
U.S. liabilities to foreign official

1
4
8
11

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

13

Mixed investment in major foreign
industrial countries.......................................
U.K. incomes policy...........................................

15
22

institutions.........................

TABLES:
Estimated disposition of OPEC surpluses.......................
U.S. merchandise trade........................................
Selected U.S. international capital
transactions................................................
Real fixed investment in major industrial
...............................
.......
countries................

5
9
12
17

May 12,
II

--

1976

T - 1

SELECTED DOMESTIC NONFINANCIAL DATA
AVAILABLE SINCE PRECEDING GREENBOOK
(Seasonally adjusted)
Latest Data
Period

Release
Date

Data

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

9.21/
" 1/
7.51/-

4. 1 1

4.2-

4. 53.6
5.0
3.2

6.413.2
4.4
2.8

36.24.77' /

36.5,1
4.731/

35. 9.
4.471'

39.3
149.1

40.21 /
5.7

40.51/
1.9

39.1-/
1.6

4-14-76
4-14-76
4-14-76
4-14-76
4-14-76

120.9
132.2
121.4
78.9
120.2

7.0
5.5
8.0
-3.0
14.1

8.4
6.1
10.8

9.8
11.8
3.8
-3.9
13.5

Mar.
Mar.
Mar.
Mar.

4-21-76
4-21-76
4-21-76
4-21-76

167.6
177.9
153.9
177.2

2.2
-10.0
3.1
8.2

2.9
-8.1
2.9

Apr.
Apr.
Apr.

5-6-76
5-6-76
5-6-76

181.0
179.5

10.0
4.0
33.4

Mar.

4-15-76 1333.5

Apr.
Apr.
Apr.
Apr.
Apr.
Apr.

5-7-76
5-7-76
5-7-76
5-7-76
5-7-76
5-7-76

94.4
7.5
4.2
78.9
19.0
59.9

Apr.
Apr.

5-7-76
5-7-76

36.0
4.77

Apr.
Mar.

5-7-76
4-28-76

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

Mar.

Mar.
Mar.
Mar.
Mar.

Consumer prices (1967=100)

Unit labor cost (1967=100)

Food

Commodities except food
Services
Wholesale prices (1967=100)
Industrial commodities
Farm products & foods & feeds
2/
/

Personal income ($ billion)-

184.9

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

4-30-76
4-30-76
4-30-76
4-30-76

48.0
13.7
11.0
2.7

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

Feb.

5-5-76
4-30-76
5-5-76

Mfrs.' durable goods inventories to unfilled orders Mar.

Ratio:

Feb.
Mar.

6.7
9.0
2.7

12.1
17.2
8.3

34.2
21.7
15.6
56.3

1.331/

1.371/

1.9/
9511.664
1.411'

4-30-76

.842

.8431/

.8291/

.8031'

.0
-2.5

5-5-76
5-5-76
5-5-76

10.5
9.0
1.5

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

1/
1975'

Housing starts, private (thous.)2/
Mar.
Leading indicators (1967=100)
Mar
Ma
1/ Actual data.
2/
At Annual rate.
3/

6.9
10.2
10.7
ates)
(Not at Annual R.

1.531
i. 53T-/
1.67'

Apr.
Apr.
Apr.

Nomanufacturing

5.3
6.2
2.9

1.62

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

;

2.4
2.9
2.4

1.491/
. 62/

53.3
13.1

1976f.
./
1975
/
619 7

10.2

6.1
4.3
5.0
8.5

1.47
1.60
1.32

5-10-76
5-10-76

197

-. 5
11.6

77.2

Apr.
Apr.

Manufacturing

8.6

45.7

Retail sales, total ($ bil.)
GAF

1976

5.2
6.6
4.8

2.41

5-7-76
5-7-76
5-7-76
5-7-76
5-7-76
5-7-76

13.8
9.3
9.6
7.8
22.7

112.79
127.34
47.95
54.62
64.84
72.72

12.5
-7.6
1,444
-4
105 1
1-4
Planned-McGraw-Hill April Survey.
4-16-76

4-28-76

43.4
57.9
-8.4

.3
12.9
4.2
13.9
-2.4
12.2

46.5
14.4
14 4

II - 1
DOMESTIC NONFINANCIAL DEVELOPMENTS

Most indicators of economic activity confirm a continued
Employment rose

vigorous expansion of aggregate demand and activity.

sharply again in April, industrial production advanced further, and
actual and planned capital spending by business have taken a pronounced
turn upward, reflecting increased business confidence.

Consumer price

increases have continued to be quite moderate because of declines in
food and fuel.

However, these declines have now come to an end,

suggesting a return to a somewhat higher rate of retail price increases
in coming months.
Industrial production for April is estimated to have increased
by three quarters per cent, about equal to the upward-revised March
rise.

Increases in April appear to have been widespread, with a

relatively large rise in durable consumer goods; auto assemblies
rose more than 3-1/2 per cent in April.

Production of nondurable

consumer goods, which had paced the recovery in production earlier,
advanced by only a small amount last month.

Business equipment

production appears to have registered another increase.

Steel output

rose sharply in April and some strength was evident in other metals,
while production of nondurable materials such as textiles, paper and
chemicals increased only moderately.

Over the past year, industrial

production has advanced about 11-1/2 per cent, but the index still
remains about 4 per cent below the high reached in the fall of 1973.

II

- 2

SELECTED UNEMPLOYMENT RATES
(Seasonally adjusted)
1974
Apr.

1975
May
Apr.

Feb.

1976
Mar.

Apr.

5.0
3.4
4.9
14.1

8.6
6.8
8.5
19.7

8.9
7.2
8.4
20.3

7.6
5.7
7.5
19.2

7.5
5.6
7.3
19.1

7.5
5.4
7.3
19.2

Household Heads
Full-Time Workers

3.0
4.5

5.8
8.3

6.1
8.5

4.9
7.1

5.0
7.0

4.8
7.0

White
Negro and other races

4.4
8.7

7.9
14.1

8.3
14.2

6.8
13.7

6.8
12.5

6.7
13.0

8.6

8.7

7.9

7.7

7.4

Total
Men, 20 years and older
Women, 20 years and older
Teenagers

Total, using additive
seasonal factors

(In

NONFARM PAYROLL EMPLOYMENT
thousands, seasonally adjusted)

Sept. 74
to
June 75

Nonfarm Total

Change From:
June 75
Feb. 76
to
to
Apr. 76
Mar. 76

Mar. 76
to
Apr. 76

-2,487

2,545

177

343

400
82

397
693

27
61

65
79

State and Local Government
Services and Finance
Nondurable Manufacturing
Trade

-

588
266

387
552

9
45

34
58

Durable Manufacturing
Construction

-1,416
510

469
-7

80
-20

70
30

NOTE:

September 1974 was the specific peak and June 1975 was the specific
low for total nonfarm payroll employment.

II - 3

Major materials capacity utilization is estimated to have
increased 0.3 per cent in April to nearly 82 per cent.
reflects mainly an upturn in primary metals production.

The increase
The utilization

rate for nondurable materials remained relatively stable, after recovering
sharply earlier this year.
The labor market continued to show considerable strength in
April.

Both the civilian labor force and total employment rose by

about 700,000 in April, with most of the job gain among adult men.
Nonfarm payroll employment (establishment survey) rose by 340,000 and
is now 2-1/2 million above its June 1975 low point.

Manufacturing

employment in April rose by 100,000, primarily in durable goods.

The

average workweek fell in manufacturing, but the decline was largely
in overtime hours--the result of holidays during the survey week.

The unemployment rate was unchanged at 7.5 per cent, but rates declined
for married men and household heads.
The rise in production and employment in recent months has been

in large part generated by vigorous growth in spending for consumer
goods--particularly autos--and a renewal of inventory accumulation.

Retail sales were about unchanged in April following a downward revised
March gain of 1.3 per cent.

April sales fell in most non-auto categories,

with substantial declines in each of the GAF categories and in food
purchases.

However, beginning with the surge last December retail sales

have risen at a 14.3 per cent annual rate over the past five months,
substantially more than prices, and well above the long run average

II - 4
RETAIL SALES
(Seasonally adjusted, percentage
change from previous period)

1975

1976
I

1976
Feb.
Mar.

Nov. 1975April 19761/

III

IV

3.9

2.2

3.3

-. 8

2.0

1.3

.0

14.3

(1.5)

(1.0)

(3.0)

(-.9)

(2.2)

(1.4)

(n.a.)

(13.0)

Total, less auto and
nonconsumption items

3.1

1.6

2.0

-.6

.8

2.2

-1.1

6.8

GAF

2.3

2.8

1.5

-4.4

3.9

2.3

-2.5

2.8

5.8

4.4

6.3

-. 9

4.0

-. 4

2.2

29.6

Auto

7.4

4.9

8.4

-3.2

7.7

-2.6

4.8

49.2

Furniture and
appliances

2.3

5.1

1.2

-2.7

2.6

3.2

-2.5

-.1

3.0

1.2

1.9

-. 7

1.0

2.2

-1.1

7.3

Apparel

3.0

.7

2.7

-1.8

2.5

.1

-7.5

-8.3

Food

2.8

1.0

2.2

1.4

-.1

1.9

-2.4

3.1

General merchandise

2.0

2.7

1.2

-5.6

4.7

2.6

-1.1

6.6

Gasoline stations

6.6

-1.2

2.6

.2

-.2

-.3

Total sales
(Real) -2

Durable

Nondurable

Jan.

Apr.

.8

SAnnual rate.

2/

SDeflated by consumer price index for all commodities.
3/
- Staff estimate.
AUTO SALES
(Millions of units; seasonally adjusted annual rates)

III

IV

1976
I

Jan.

Feb.

1976
Mar.

Apr.

9.2

9.2

10.1

9.6

10.2

10.4

10.5

Imports

1.7

1.3

1.3

1.2

1.4

1.4

1.5

Domestic

7.5

7.9

8.7

8.4

8.7

8.9

9.0

Large*

4.3

4.4

5.1

4.9

5.1

5.4

n.a.

Small

3.2

3.6

3.5

3.5

3.6

3.5

n.a.

1975

Total auto sales

*Over 112 inch wheelbase; Includes intermediates and larger models.

12.4

3/

II -

5

Personal Income & Saving
(Per cent change from previous quarter; seasonally adjusted
at compound annual rate)

1974-IV
1975-IV

I

II

III

8.7

3.0

6.9

7.8

-1.3

8.1

IV

1976
I

13.0

10.8

9.6

3.4

10.4

12.1

3.2

24.5

2.0

10.3

9.7

-2.5

-2.9

2.5

5.0

5.1

5.5

-3.3

-7.0

-.8

2.6

6.3

6.2

-3.1

-2.8

19.7

-5.2

4.3

5.8

7.2

9.9

7.9

7.9

7.6

1975

Current dollars
Personal Income
Wage & Salary Disbursements
Disposable Personal Income

10.2

1/
Constant dollarsPersonal Income
Wage & Salary Disbursements
Disposable Personal Income
Addendum:
Personal Saving Rate (per cent)

7.5

-

--Deflated by personal consumption expenditures deflator.
2/Annual average.

Annual average.

II - 6

average growth rate.

Higher sales of the automotive group have dominated

this expansion; excluding auto and nonconsumer items retail sales have
increased at a 6.8 per cent annual rate since November.
Sales of domestic-type autos averaged 9.0 million units (annual
rate) in April, a small increase from March and up moderately from the
8.7 million unit rate in the first quarter.

The April increase continues

an upswing which began in the fall, with sales now having regained the
levels of late 1973.

Sales of imported cars rose slightly in April to

1.5 million units (annual rate).

While sales in this sector have improved

somewhat following inventory shortages associated with the late model
changeover, the foreign car market share, at 14 per cent, remains far below
the 18 per cent average in 1975.
Sales of larger domestic models in March were again stronger
than sales of small domestic models.

At a rate of 5.4 million units

in March, sales of larger cars were up 50 per cent from a year ago.
These gains have been principally in intermediate-size cars--where the
market share rose to 32 per cent (not seasonally adjusted) in the first
quarter of 1976, 6 percentage points above a year earlier.
The strength in consumer spending has been buoyed by sustained
increases in real personal income and by the recent sharp rise in wealth.
Real disposable personal income has grown at about a 5 per cent annual rate
in the past two quarters, after falling throughout 1974 and early 1975.
These gains, together with the marked improvement in consumer attitudes,
have generated higher purchases of durables, increased consumer borrowing
and reduced saving rates.

II

- 7

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

1976

1976

1975

II

III

IV

I

Jan.

Feb.

Mar.

-18.8

5.4

-1.3

n.a.

18.2

20.3

n.a.

-12.5

-6.6

.6

6.1

5.5

3.6

9.1

Durable

-4.3

-8.6

-3.5

1.1

-1.1

0.4

4.1

Nondurable

-8.2

2.0

4.2

4.9

6.6

3.2

5.0

Trade, total

-6.3

11.9

-1.9

n.a.

12.7

16.8

n.a.

Wholesale

-2.7

3.1

-2.0

5.0

6.4

7.9

0.6

Retail

-3.6

8.8

.1

n.a.

6.3

8.8

n.a.

Auto

-1.7

5.5

.3

n.a.

-1.8

-1.2

n.a.

Manufacturing & trade
Manufacturing

INVENTORY RATIOS

1974
I

1975
I

1976
I

Jan.

1976
Feb.

Mar.

Manufacturing & trade

1.49

1.66

n.a.

1.49

1.47

n.a.

Manufacturing total

1.63

1.92

1.63

1.65

1.62

1.60

Durable

2.05

2.50

2.09

2.15

2.09

2.02

Nondurable

1.18

1.32

1.15

1.15

1.14

1.15

Trade, total

1.35

1.42

n.a.

1.33

1.32

n.a.

Wholesale

1.12

1.25

1.21

1.20

1.19

1.18

Retail

1.55

1.53

n.a.

1.43

1.42

n.a.

.699

.803

.842

.838

.842

.842

Inventory to sales:

Inventories to unfilled orders
Durable manufacturing

- 8

II

NEW ORDERS RECEIVED BY MANUFACTURERS
(Seasonally adjusted; average monthly percentage change from preceding period)

1975

March 1975
to
March 1976 2/

QIII

QIV

1976
QI

2.5
2.2

.3
-. 5

2.4
1.9

1.0
.4

4.0
3.7

6.7
6.1

34.2
26.8

.6
.2

.2
-. 4

.6
.1

1.9
1.1

3.5
3.2

2.7
2.3

15.6
9.2

Jan.

1976 - QI
Feb.

Mar.

Total Durable Goods
Current Dollars
1967 Dollars 1/
Nondefense Capital Goods
Current Dollars
1967 Dollars 1/

1/ FR deflation by appropriate wholesale price
2/ Per cent change, not at a monthly rate.

index.

CONSTRUCTION CONTRACTS FOR COMMERCIAL AND INDUSTRIAL BUILDINGS
(Seasonally adjusted percentage change from preceding period)

1975

Total 1/
Commercial
Industrial

QIII

QIV

- 4.1

.6

- 1.2
-13.5

-3.2
18.8

1976
QI

1976 - QI
Feb.

Jan.

- 8.6

-24.1

7.5

3.6
-15.5

- 4.9
-31.1

4.3
26.0

Mar.

March 1975
to
March 1976

31.4 1/

37.0

9.3
-4.2

39.0
-9.8

1/ Components are seasonally adjusted by FR and may not add to total which is
seasonally adjusted by Census.

II -

9

The book value of manufacturers' inventories rose at a $9.1 billion
annual rate in March (p)--the largest monthly increase since the involuntary
increases of January 1975.

For the first quarter as a whole, the gain in

manufacturing inventories was at a $6.1 billion annual rate--up sharply
from the $0.6 billion rate of increase in the fourth quarter.

Durable

goods producers have begun to rebuild stocks following nearly a year of
liquidation, while nondurable goods producers continued to add to stocks
during the first quarter at about the same pace as last fall.

Inventories

of both finished goods and materials and supplies rose significantly
during March and the first quarter.

The ratio of inventories to sales

for durable manufacturing moved down to 2.02 in March, substantially
below the very elevated levels of a year ago.

In wholesale trade,

inventories were about unchanged in March, but for the first quarter as
a whole, these stocks rose at a $5.0 billion rate--up sharply from the
$2.0 billion rate of decline in the preceding quarter.

New orders for

durable goods rose 6.7 per cent in March with gains reported by all
major industries.

Substantial further gains in production thus seem

likely during the months ahead.
Business fixed investment has been slower than usual to respond
to the rise in aggregate activity, but incoming data now indicate that the
recovery in this sector is gathering momentum.

The McGraw-Hill spring

survey of anticipated plant and equipment expenditures--conducted
in March and early April--reports that business expects to increase capital
spending by 13 per cent in 1976.

This represents a substantial upward

Survey Results of Anticipated Plant and Equipment Expenditures
1976
(Percent increase from 1975)

McGraw-Hill
April
Oct.
1976
1975
All Business

Edie 1/
April
Fall
1976
1975

2/
Commerce-

Dec.
1975

Feb.
1976

8.8

12.9

2.9

7.3

5.5

6.5

8.4

13.9

1.3

8.1

5.0

8.1

1.0

8.1

-2.8

6.2

0.8

5.0

14.7

18.8

4.7

9.7

8.4

10.8

9.0

12.2

4.2

6.7

5.8

5.2

Mining

20.6

23.2

5.8

-3.7

-4.1

2.3

Railroads

-2.0

-9.8

-6.2

-5.9

-9.9

-18.4

Other Transportation

-1.1

5.6

-34.5

-15.3

-13.9

-17.3

Electric Utilities

13.0

18.0

15.6

15.6

17.7

15.7

Gas and Other
Utilities

32.1

42.0

23.1

13.1

20.1

13.7

Communications

7.0

9.0

6.3

9.9

13.1

6.5

Commercial and Other

5.0

7.0

0.1

5.1

0.8

3.4

Manufacturing
Durable
Nondurable
Nonmanufacturing

1/

SConfidential

2/

-

The Commerce Department adjusts their survey results for systematic bias. Without bias adjustment the
December survey showed a 7.3 per cent increase and the February survey showed a 9.0 per cent increase.

II -

11

revision from the 9 per cent increase reported last fall, and is also
significantly stronger than the latest BEA survey conducted in February.
Upward revisions were particularly large in the cyclically-volatile
manufacturing sector.

Nonmanufacturing industries are now projecting

an increase in capital spending of 12 per cent versus the earlierannounced 9 per cent rise.

Lionel D. Edie has also completed a spring

capital spending survey (results confidential) and their respondents
report capital outlay

increases of 7.3 per cent for 1976, up from 2.9

per cent announced last fall.

Although coverage differences make exact

comparisons between surveys difficult, these latest surveys are consistent in reporting upward revised investment plans in recent months.
Recent changes in orders and construction contracts tend to
confirm the survey indications.

New orders for nondefense capital goods

rose 2.7 per cent in March, and have now increased for three consecutive
months--the first such set of increases since the autumn of 1971.

In

real terms, March bookings for nondefense capital goods were 9.2 per cent
above their low of March 1975, but they are still 28.4 per cent below
the peak of April 1974. Construction contracts for commercial and
industrial buildings (measured in square feet of floor space) rose
sharply in March, but due to an earlier decline, total for the first
quarter was the lowest since late 1963.
The recovery in total private housing starts continued during
the first quarter of 1976, although starts in March declined 8 per cent
from the sharply-increased February figure.

The housing starts rate

increased 4 per cent in the first quarter and has risen about two-fifths
from its cyclical low a year earlier.

The first quarter increase was

concentrated in the single-family sector which averaged 1.1 million
units--the highest rate in 2-1/2 years.
contrast, remain quite low.

Multifamily starts, in

II

- 12

NEW PRIVATE HOUSING UNITS
(Seasonally adjusted annual rates, in millions of units)

Permits

1-family
2- or more-family

1/
Under construction
1-family
2-or more-family
Completions
1-family
2-or more-family

QI

Mar. (p)

1.06

1.14

1.13

1.16

+2

+71

1.37

1.41

1.56

1.44

-8

+46

1.03
.33

1.13

1.30
.27

1.14
.31

-12
+17

+49
+39

1.04

n.a.

1.06

n.a.

+2 2/

n.a.
n.a.

+4

+12 2-

-1 2/

-25

n.a.

2/
+5 -

-6

QII

QIV

.90

1.04
1.26

.83
.22
1.05
.52
.53
1.24

.95
.31
1.04
.53
.51
1.28

Mar. from:
Month ago Year ago

Feb.(r)

QIII

1.05

Starts

Per cent change in

1976

1975

.28

.56
.48
1.27

.81
.43

.91
.37

.90
.37

.21

.23

.23

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

.59
.47
1.27
.93
.34

n.a.
n.a.

-8

+1i
+17

+18
-40 --

-17

+20

MEMO:
Mobile home shipments

1/ Seasonally adjusted, end of period.
2/ Per cent changes based on February.
NOTE--indicates change of less than 1 per cent.

.24

2/

II

-

13

HOME SALES

New Homes Sales and Stocks
Homes
Homes
Months'
Sold 1/ for sale 2/ supply
(thousands of units)

Median Prices
Sales Indexes of Unit Volume
of Homes Sold
(1972=100, seasonally adjusted) New
Existing
homes
homes
Existing
New
(thou. of dollars)
homes
homes 3/

1975
438
554
564
637

395
379
384
378

10.8
8.2
8.2
7.1

61
77
79
89

93
105
111
126

38.1
39.0
38.8
41.2

33.8
35.4
36.1
35.6

QI

601

391

7.8

84

121

42.8

36.6

Oct.
Nov.
Dec. (r)

610
660
641

389
381
378

7.7
6.9
7.1

85
92
89

122
126
131

40.7
41.1
42.1

35.4
35.7
35.8

570
677
555

380
386
391

8.0
6.8
8.5

79
94
77

116
122
124

41.5
42.8
43.7

36.3
36.2
37.2

QI
QII
QIII
QIV (r)
1976

1976
Jan. (r)
Feb. (r)
Mar. (p)

1/

Seasonally adjusted annual rate.
Seasonally adjusted, end of period.
Converted to 1972 index for comparison with existing home sales, which are
not available on any other basis.

Federal Sector Accounts
(billions of dollars)

Unified budget receipts
Unified budget outlays
Surplus/deficit (-), Unified budget
2/
Surplus/deficit (-), off-budget agencies-

Fiscal
Year
1975*
281.0
324.6
-43.6
-9.5

--------------7-------------e--/
/
Fiscal Year 1977Fiscal Year 1976Admin1
F.R.
Admin. Cong5,
F.R.
est. Board
est.
est.Board
297.5
301.6
351.3
362.5
357.0
374.4
372.1
395.8
413.3
412.0
-76.9
-70.5
-44.5
-50.8
-55.0
-9.3
-9.8
-11.1
n.a.
-11.1

(F.R.B. Estimate

CY 1976
F.R.
I3oard
319.3
388.9
-69.6
-13.5

e/

Calendar Quarters; Unadjusted data
1975
1976
,
III"
IV
I
II
IV
74.8
82.4
95.2
67.2 66.9
101.0
97.9
100.4
93.7 89.6
-26.6 -22.7
-2.7
-17.9
-26.2
-2.6
-3.8
-2.5
-4.5
-2.7

Means of financing combined deficits:
Net borrowing from public
Decrease in cash operating balance
Other 3/

50.9
1.6
.7

88.3
-1.4
-.7

84.0
-5.0
1.3

55.1
0.0
.5

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

65.6
0.0
.5

82.7
-.9
1.3

25.9
2.1
1.2

24.1
.4
2.0

10.5
-4.6
-.7

Cash operating balance, end of period

7.6

9.0

12.6

9.0

n.a.

9.5

9.4

8.5

8.0

12.6

11.0

5.1

3.3

10.8

n.a.

n.e.

2.5

1.8

.3

.4

281.5
328.7
-47.2

307.4
378.7
-71.3

307.1
376.8
-69.7

364.7
404.5
-39.8

n.a.

n.e.
n.e.
n.e.

n.a.

n.a.

Memo:

Sponsored agency borrowing 4/

NIA Budget
Receipts
Outlays
Surplus/deficit (-)
High Employment surplus/deficit (-)
(NIA basis) 8/ 9/
*Actual

e--estimated

5.6

n.a.

-8.6

n.a.
n.a.

328.7
393.2
-64.5

-.9

-7.0

9.5

9.4
.9

.9

Seasonally adjusted, annual rates
302.4 311.1 323.6
334.9
345.3
405.8
397.9
374.1 380.2 388.9
-63.0
-60.5
-71.7 -69.1 -65.3
-7.8 -10.4

-8.8

n.a.--not available

-3.0

-5.7
---

I-~---------~--------'

n.e.--not estimated

19.4
3.1
-.1

--

p--preliminary

Spring update of FY 1977 Budget, 3/25/76; recent statements by OMB official indicate that outlays may be $2-$3 billion below the March estimate.
Includes Federal Financing Bank, Postal Service, Export - Import Bank, Rural Electrification and Telephone revolving fund, Housing for the
Elderly or Handicapped Fund and Pension Benefit Guaranty Corporation.
Checks issued less checks paid, accrued items and other transactions.
Includes Federal Home Loan Banks, Federal National Mortgage Association, Federal Land Banks, Federal Intermediate Credit Banks and Banks for
Cooperatives.
Conference report on the First Concurrent Resolution, Fiscal Year 1977 Budget, May 6, 1976.
Effective in CY 1976, the fiscal year for the U.S. Government changes from July 1 - June 30 to October 1 - September 30, hence 76 QIII represents
a transition quarter.
Quarterly average exceeds fiscal year total by $.5 billion for FY 1976 due to spreading of wage base effect over calendar year.
Estimated by F.R.B. staff.
The high employment budget estimates now fully incorporate taxes on inventory profits beginning ]973.

II

- 15

While investor caution concerning the profitability of
multifamily housing is likely to continue to dampen the overall
recovery in residential construction, a number of other factors
suggest further gains in housing starts over te near term:

Out-

standing mortgage commitments at S&L's rose in March to a three-year
high, reflecting continued substantial savings inflows; purchases of
both new-and-existing single-family homes, while receding somewhat
in the first quarter, remained at fairly high levels; and the rental
vacancy rate has declined to about 5-1/2 per cent--the lowest rate
since 1973.
The outlook for the Federal spending in the current fiscal
year is essentially unchanged from last month's estimate.

Outlays

and receipts are projected at $372 billion and $302 billion
respectively.

A recent development of note has been a slight decline

in defense spending in the first quarter.

This, together with other

spending shortfalls, has led the Administration to revise downward
its outlay estimate to around $372 billion.
For fiscal 1977, the staff projects budget outlays of $412
billion.

This estimate is $2 billion higher than that shown in the

last Greenbook, mainly reflecting the outlay impact of higher interest
rates currently projected by the staff.

Federal revenues for the

next fiscal year are now expected to total $357 billion, an upward
revision of $5 billion, which reflects higher assumed levels of
personal income and corporate profits.
is estimated at $55 billion.

The FY 1977 deficit accordingly

II

- 16

On a full employment basis, our estimates indicate that the
Treasury's fiscal position will shift toward restraint in the coming
fiscal year, moving from a deficit of $9 billion in fiscal 1976 to a
slight deficit of $1 billion in fiscal 1977.
Growth in State and local purchases slowed distinctly in the
first quarter.

Preliminary NIA estimates show purchases increasing at

a 4.5 per cent annual rate in current dollars and by only 0.5 per cent
in real terms.

This is the smallest quarterly increase in nominal

purchases in fourteen years.

The weakness in the first quarter was

due to a $1.7 billion drop in outlays for structures and an unusually
small gain in State and local government employment.

However, new

data suggest a resumption of more normal growth in both these areas.
Value of construction put-in-place, as measured by the revised data
series, increased sharply in March and State and local employment gains
picked up beginning with February.
Recent information on wages, costs and prices has continued to
be generally favorable.

In April, the average hourly earnings index

for private nonfarm production workers increased at an annual rate of
3.7 per cent--about the same as in the previous month.
Wage adjustments in major collective bargaining agreements (1,000
or more workers) had moderated in the first quarter.

First-year wage

increases averaged 8.8 per cent compared with 10.2 per cent in 1975.
First quarter agreements, however, related to only 84 contract settlements
(270,000 workers) and these include a sizable proportion of construction

II

-

17

PRODUCTIVITY AND COSTS
(Per cent change at a compound annual rate,
seasonally adjusted)

QI 75
to
QI 76p

1975
QII to
QIII

QIII to
QIV

QIV 75
to
QI 76p

Output per hour

Total private

5.2

9.9

4.9
4.9

9.4
10.0

Compensation per hour
Total private
Private nonfarm
Manufacturing

7.3
7.4
7.3

Unit labor costs
Total private
Private nonfarm
Manufacturing

2.0
2.4
2.3

Private nonfarm
Manufacturing

.6
-

4.6

.6
5.4

3.3
1.4

6.7
8.7
6.5

7.8
6.5
6.1

8.5
7.8
8.8

-2.9
- .7
-3.2

7.1
7.2
.7

3.7
4.3
7.3

p = preliminary

AVERAGE HOURLY EARNINGS INDEX*
(Per cent change from preceding period, seasonally adjusted,
compounded annual rate)
1975

1976

April 1975-

QII

QIII

QIV

QI

Private Nonfarm

7.5

8.6

8.3

6.4

3.7

7.4

Construction

8.1

6.6

4.4

5.0

-6.1

5.2

Manufacturing

8.9

8.6

8.3

6.8

7.0

7.8

Transportaion & P.V.

8.8

13.2

11.3

8.1

8.3

10.5

Trade

6.1

8.7

6.4

4.6

2.5

6.2

Services

4.8

7.3

10.6

8.6

1.5

7.7

*

April**

April 1976

Excludes the effects of interindustry shifts in employment and fluctuations in
manufacturing overtime pay.

** Monthly change at an annual rate, not compounded.

II

- 13

and apparel workers--in both industries high unemployment and nonunion
competition constrained wage increases.

In the second quarter, 451 major

agreements covering 1.6 million workers will be up for negotiation.

The

new Teamster settlement, which provides for a 9 per cent first-year
wage increase, will be reflected in the second quarter data.

Additional

key negotiations are in the rubber, electrical equipment, and construction
industries.

A strike is currently in progress in rubber where the

union and management remain far apart on the economic package.
Productivity in the private nonfarm sector rose at a 3.3 per
cent annual rate in the first quarter of 1976, following the slight
decline of the fourth quarter.

With compensation per hour up at a 7.8

per cent annual rate in the first quarter, the rise of unit labor costs
slowed to a 4.3 per cent annual rate--compared to 7.2 per cent in the
fourth quarter of 1975.
After five months of little change, wholesale prices rose 0.8
per cent in April, as prices for farm and food products reversed their
recent trend and rose steeply.
just 0.3 per cent.

Industrial commodity prices increased

Higher prices were recorded for metals and metal

products, paper and paper products, and machinery and equipment, but
declines for fuels and power, and lumber and wood products, helped to
brake the overall increase.

II

- 19

The consumer price index rose 0.2 per cent (seasonally adjusted)
in March as reduced meat and gasoline prices continued to largely offset
increases for other groups.

Excluding food and energy, the index rose

0.5 per cent in March, below the average rate in the first quarter, but
about in line with the average increase in the second half of 1975.
Price increases in March for most nonfood commodities were moderate-except for another sharp rise in used cars.

Service costs continued to

rise rapidly.
The temporary factors which helped to retard inflation in
consumer markets during recent months appear to have ended.

Livestock

prices have been rising since March, and recent gasoline price hikes
should soon be reflected in the CPI.
still going up rapidly.

Moreover, service prices are

Costs of medical care, with a 6 per cent

weight in the CPI, have been rising quite rapidly and are likely to
continue to do so in coming months, as are gas and electricity rates.
In addition, there may be some further adjustments in such regulated
prices as public transport and auto insurance, which had lagged
markedly in recent years.

II -

20

CONSUMER PRICES
(Per cent changes at annual rates; based on seasonally adjusted data)1/

Relative
importance
Dec. 75
All items
Food
Commodities
Services

(nonfood)

Dec. 74
to
Dec. 75

Dec. 75
to
Mar. 76

Feb. 76
to
Mar. 76
2.2

100.0

7.0

2.9

24.7
38.7
36.6

6.5
6.2
8.1

-7.9
2.9
10.6

-10.0
3.1
8.2

68.1
4.5
2.7

6.7
10.1
14.2

7.7
-15.7
6.4

5.9
-16.2
12.6

Memo:
All items less food
and energy 2/3/
Petroleum products 2/
Gas and electricity

Not compounded for one-month changes.
Estimated series.
Energy items excluded: gasoline and motor oil, fuel oil and coal, and
gas and electricity.
WHOLESALE PRICES
(Per cent changes at annual rates; based on seasonally adjusted data)1
Rela t ive
importance
Dec. 75
All commodities

Dec.

74
to
June 75

June 75
to
Oct. 75

Oct. 75
to
Mar. 76

Mar.
to
Apr.

100.0

20.9

0.5

11.7

0.0

10.0

Farm and food products

22.8

11.0

-5.6

16.9

-14.1

33.4

Industrial commodities
Excluding fuels and
related products and
power
Materials, crude and
intermediate2/

77.2

25.6

3.0

9.9

5.3

4.0

66.8

22.5

2.6

6.6

7.2

4.2

48.1

28.0

2.0

8.4

6.2

5.1

18.7
11.9

20.5
22.6

3.8
8.7

11.3
8.6

3.2
6.5

-0.8
4.2

11.1

13.0

5.0

10.6

-13.8

46.2

Finished goods
Consumer nonfoods
Producer goods
Memo:
Consumer foods
1/
2/

Dec. 73
to
Dec. 74

Not compounded for one-month changes.
Estimated series.

/

76
76

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

Indicator

Monetary and credit aggregates
Total reserves
Nonborrowed reserves
Money supply
M1
M2

M3
Time and savings deposits
(Less CDs)
CDs (dollar change in billions)
Savings flows (S&Ls + MSBs & Credit Unions)
Bank credit (end of month)
Market yields and stock prices
wk. endg.
Federal funds
"
Treasury bill (90 day)
"
Commercial paper (90-119 day)
"
New utility issue Aaa
1 day
Municipal bonds (Bond Buyer)
FNMA auction yield
(FHA/VA)
Dividends/price ratio (Common
stocks)
wk. endg.
end of day
NYSE index (12/31/65=50)

Latest data
Period
Level

34.0
34.0

April
April

1.2
1.6

April
April
April

302.3
690.0
1139.1

April
April
April
April

387.7
71.3
449.1
737.7

5.03

5/7/76
5/10/76

3.77
54.90

e - Estimated

-1.3
-1.1

15.7
14.6
14.5

9.5
12.6
13.3

6.1
10.1
12.5

14.1
-1.8
14.1

15.0
-7.9
14.4
7.1

-17.1
16.3
4.8

4.9

13.4

.13
1.49

-.39
-.53
-.85
-.61
-.15
-.35
-.36
6.92

.14
1.34

Net change or gross offerings
Year to date
Current month

1976

Total of above credits

SAAR (per cent)
-2.4
-2.0

Year
ago

Percentage or index points
.48
.30
.06
-.06
4.88
.13
-.07
5.13
-. 02
8.66
-. 15
6.71
.06
-. 13
8.94

5/5/76
5/5/76
5/5/76
5/7/76
5/6/76
5/13/76

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
offerings)
Federally sponsored Agcy. (net borrowing)
U.S. Treasury (net cash borrowing)

Net change from
Month
Three
months ago
ago

April
March
February
April
April
April
may

1975

1976

1975

-1.0
1.5
4.3
2.4e

-. 5
-.5
2.7
2.8

-3.4
4.0
7.7
9.7e

-2.1
-0.8
5.4
13.6

2.2e
.8
4.2

2.4
.7
8.6

10.4e
1.1
29.8

9.3
.5
35.5

III

-

1

DOMESTIC FINANCIAL DEVELOPMENTS
Developments in domestic financial markets since the last
FOMC meeting have been influenced by a tightening of the Federal
funds rate in an environment of rapid expansion in the monetary
aggregates.

As market expectations changed, the earlier downtrend

in interest rate patterns was reversed.

Interest rates in all

sectors of the money and bond markets increased moderately.

Yields

on home mortgages in the secondary market also backed up somewhat,
and the more sluggish primary market rates stopped falling.
M1 increased at an annual rate of more than 15 per cent
in April, and growth in time and savings deposits at banks and nonbank
thrift institutions remained strong.

With bank loans to business

registering another decline, banks continued to acquire a large
volume of Treasury securities.

Total funds raised in credit and

equity markets by the business sector appear to have edged higher,
however, and lower-rated issuers apparently continued to enjoy the
improved access to open-market financing attained in recent months.
Household demands for both consumer and home-mortgage credit have
remained strong along with retail sales and real estate activity.
Money markets.

In response to a 3/8 percentage point rise

in the Federal funds rate, moderate upward pressure on all short-term market
interest rates has developed since the April FOMC meeting.

Treasury

bill rates have risen 30 to 40 basis points during this period,

III - 2

despite $2.9 billion of Desk purchases for System and foreign accounts
and net redemptions of nearly $3 billion in bills since early April.
Although commercial paper rates at first responded slowly
to the increase in the funds rate, they have backed up about 25
basis points since late April.

On average, the spread between

commercial paper rates and the bank prime rate widened further in
April, and outstanding commercial paper of nonfinancial corporations
expanded by $1.0 billion during the month, according to preliminary
data.

Total commercial paper grew somewhat less, as bank-related

paper declined by an estimated $400 million.
Bond and stock markets.

Yields on most longer-term

securities have also risen moderately since the April FOMC meeting.
Continued favorable news concerning the strength of the economic
recovery, together with an increasing conviction that the System
may be shifting to a less accommodative monetary policy stance,
have been factors in the adjustment of rates.
Treasury coupon yields have increased 30 to 40 basis
points since the April FOMC meeting, reflecting the general tightening
of credit market conditions as well as market adjustments to heavy
financing activity.

In its early May operation, the Treasury

auctioned $2 billion of 2-year notes and $750 million of a reopened
24-year bond.

In addition, $3.5 billion of 10-year notes were

offered on a subscription basis at par and, when bids for this issue

III - 3
SELECTED FINANCIAL MARKET QUOTATIONS
(One day quotes--in per cent)

Apr. '75
FOMC
Apr. 15

Feb. '76
FOMC
Feb. 18

Mar. '76
FOMC
Mar. 16

Apr. '76
FOMC
Apr. 20

Apr. 27

May 4

May 11

Short-term
Federal funds

5.44

4.70

4.77

4.78

4.93

5.03

4.995

Treasury bills
3-month
6-month
1-year

5.48
5.80
6.28

4.92
5.27
5.61

5.01
5.48
5.88

4.73
5.08
5.42

4.89
5.22
5.59

4.87
5.28
5.64

5.08
5.44
5.83

Commercial paper
1-month
3-month

6.00
6.13

5.00
5.25

5.13
5.38

4.75
5.00

4.75
5.00

4.88
5.13

5.00
5.25

Large neg. CD's2/
3-months
6-months

6.15
6.70

5.25
5.65

5.40
5.90

5.05
5.45

5.15
5.60

5.25
5.75

5.38
5.88

Federal agencies
1-year

7.05

6.07

6.46

5.84

6.04

6.15

6.19p

Bank prime rate

7.50

6.75

6.75

6.75

6.75

6.75

6.75

9.65

8.64

8.63

8.42

8.38

8.58

8.66p

9.60

8.68

8.64

8.44

8.54

8.57

8.62p

7.03

6.95

6.98

6.54

6.55

6.55

6.71

(20-year constant
maturity)
8.29

8.06

7.98

7.82

7.93

7.98

8.15p

Stock prices
Dow-Jones
815.08
45.66
N.Y.S.E.
82.77
AMEX
Keefe Bank Stock 491

960.09
53.39
101.14
565

983.47
53.90
103.62
564

1003.46
54.76
103.07
589

995.51
54.25
102.82

993.70
53.97
101.97

605

595

Long-term
Corporate
New AAA1/
Recently 3/
offeredMunicipal
4/
(Bond Buyer)U.S. Treasury

1/

Weekly average.

2/ Highest quoted new issues.
3/
4/
5/

One day quotes for preceding Friday.
One day quotes for preceding Thursday.
Average for first 6 days of statement week ending May 12.
p--preliminary.

1006.61
54.84
104.75
587

III - 4
amounted to $8.9 billion,
notes to subscribers.

the Treasury alloted $4.7 billion of the

Altogether, these financings provided the

Treasury with nearly $7.5 billion, $4.1 billion of which is being
used to repay debt maturing on May 17.
Corporate bond yields,which had recorded 2-year lows of
around 8.40 per cent in mid-April, have increased about 25 basis
points since the last meeting.

While the amount of bond financing

by domestic corporations in April was below the exceptionally heavy
pace of the previous month, volume remained high by historical

standards.

Gross issues, which had reached $4 billion in March,

declined to $3.3 billion in April.

The reduction was concentrated

in publicly offered bonds; privately placed issues are estimated
to have remained relatively large.
reflected mainly a smaller volume o

The decline in public offerings
prime-rated industrial corpora-

tion issues, although offerings of public utilities were also
somewhat lower.

In contrast, publicly offered issues of finance

companies--many of which are subsidiaries of industrial companies--

increased in April to over $600 million.
New issues of common and preferred stock by domestic
corporations totaled $1.0 billion during April, well below the
extremely large March volume.

Approximately half of the decline

in stock offerings reflected postponements in late April when
stock prices generally moved lower in reaction to undertainties

III -

(monthly or

5

SECURITY OFFERINGS
monthly averages, in millions of dollars)

1975
Year
QIV

1976
Qg./
Mar.e./
Apr.e/
Gross Offerings

May./

June/

4,474

4,359

4,558

5,900

4,300

4,800

4,800

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

2,715

1,939

2,433

3,000

2,400

2,400

2,500

1,422
1,293

776
1,163

1,473
960

1,525
1,475

1,100
1,300

925
1,429
360

783
756
396

633
1,300
600

930
1,480
590

Privately placed bonds

852

1,378

883

1,000

900

1,000

1,000

1,500

1,300

2,200
2,532

2,900
2,700

2,900
2,200

-1,650
-395

6,400
-875

1,400
854

Corporate securities--Total

Stocks
By type of issuer
Manufacturing
Utility and transp.
Other

907

1,042

1,242

1,900

123
598
186

158
664
221

308
833
101

425
1,275
200

2,544
2,420

2,252
2,216

2,739
1,676

3,232
2,409

securities/
Foreign
Foreign
securitiesState and local government
securities
Long-term
Short-term

Net Offerings
U.S. Treasury
Sponsored Federal Agencies

e/
f/
1/
2/
3/

7,564
187

8,048
390

7,897
416

7,497
2,243

Estimated.
Forecast.
Bonds categorized according to Moody's bond ratings.
Includes issues not rated by Moody's.
Includes only publicly offered issues of marketable securities.

III

- 6

about the course of monetary policy and interest rates.

New stock

offerings scheduled for May amount to $1.5 billion, including $450
million of issues postponed from April.

Industrial concerns,

including oil companies, account for more than half the May calendar.
The volume of new long-term tax-exempt issues fell
sharply in April from the record March level, while issues of shortHowever, the decrease in bond issues

term debt increased slightly.

is expected to be only temporary, with a large volume of new offerings
estimated for May and June.

The relatively modest April volume,

together with strengthened demand by banks and casualty insurance
companies for tax-exempt securities, were largely responsible for
stability in municipal bond yields during the latter half of the
month.

Yields moved up about 15 basis points in early May, responding

to the rapid buildup in the calendar of forthcoming issues and to
rate movements in otherfinancial markets.

Investors in the municipal

market are still highly sensitive to risk; lower-rated issuers
continue to pay a premium more than double the premium prevailing

during the first half of last year.
Monetary aggregates.

Growth of M1 in April accelerated to

a seasonally adjusted annual rate of 15.7 per cent, and involved
large increases in both the currency and the demand deposit components.

The April bulge appears to be associated in part with the recent
sharp decline in Treasury balances at the Federal Reserve and

III - 7

commercial banks--balances that had risen td extraordinary levels in
February and March.

Some of these funds were undoubtedly lodged,

temporarily,in private demand deposits.
Enlarged transactions demand associated with the vigorous

expansion of the economy, and the timing of the Easter holiday
period, may also have contributed to the rise in the narrowly defined

money stock in April.

In addition, it is possible that the money

demand function is beginning to stabilize and that more rapid rates
of growth in M1 will now be associated with given growth rates in
GNP than has been the case over the past year or two.

However, there

is still considerable uncertainty about the source of the bulge in M1
The more broadly defined money stock measures--M2and M3-also expanded rapidly in April.

This was due in part to the surge

in M1, but also reflected the continuing low rates on alternative
market instruments relative to deposit rates.

Time and savings

deposits other than large CD's at commercial banks rose at an annual
rate of almost 14 per cent, as time deposits rebounded after contracting slightly in March.

Growth in savings deposits at banks,

though moderating somewhat from earlier months, continued at a rapid
pace in April.

Business savings accounts expanded further, suggesting

that business accumulations of such deposits in earlier months had
not been simply in anticipation of April income tax payments.
deposit flows to the nonbank thrift institutions also continued

Net

III -

8

MONETARY AGGREGATES 1/
(Seasonally adjusted changes)

1976

1975
HII

HI

QIV

QI

Mar.

Apr. p

Twelve
months
ending
April 1976

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

4.0

4.8

2.5

3.0

6.1

15.7

6.1

M 2 (M1 plus time deposits
at commercial banks
other than large CDs)

8.0

8.2

6.1

9.5

8.3

14.6

10.1

10.2

11.4

9.2

11.1

10.5

14.5

12.5

M 3 (M2 plus deposits at
thrift institutions)
Adjusted bank credit proxy

4.7

3.7

6.0

2.6

1.2

Total time and savings deposits at commercial banks

8.3

6.9

9.1

6.8

2.4

11.3

11.0

9.1

14.8

9.8

14.1

13.4

15.7
8.3

16.9
6.8

14.7
4.9

28.6
4.4

23.3
-1.1

21.4
7.4

23.3
6.3

15.6
9.4
17.6

15.0
9.1
16.8

15.9
9.8
14.9

14.9
11.2
n.a.

18.0
11.6

a.

Other than large CD's
Savings deposits
Time deposits

Deposits at nonbank thrift
institutions:
a.
b.
c.

Savings and loan
associations
Mutual savings banks
Credit unions

15.1 18.2
9.3 11.9
19.0 18.6

19. 3-'

Billions of dollars
(based on seasonally adjusted monthly data not annualized)
Memoranda:
a.
b.
c.

-

I

Total U. S. Government
deposits
Negotiable CD's
Nondeposit sources
of funds

0.1
-1.0

0.3
-0.2

0.2
1.3

1.1
-3.3

0.1
-2.3

-0.2

0.2

0.5

0.1

0.3

-3.8
-1.8

Half-year and quarterly growth rates are based on quarterly average data.
Twelve months ending March 1976.

0.1
-1.4

III - 9

relatively strong in April, as deposit balances at mutual savings
banks and S&L's taken together expanded at an annual rate of about
13 per cent.
With demand deposits and other time and savings deposits
growing rapidly, and with loan volume remaining sluggish, banks
permitted large negotiable CD's outstanding to contract for the
fourth consecutive month; since the beginning of 1976, CD's at
weekly reporting banks have declined by about $15 billion.

Reflecting

the runoff of CD's as well as the decline in bank-related commercial
paper, the adjusted credit proxy grew by only 3 per cent in April.
Loan developments.

Business loans at commercial banks

declined for the third consecutive month in April, and acquisitions
of securities accounted for most of the 4.9 per cent expansion in
total bank credit outstanding.

Treasury issues again accounted for

the bulk of the increase in bank investments, although holdings
of other securities--particularly tax-exempt obligations--rose
moderately.
Nonfinancial corporations have continued to meet their
short-term financing needs primarily from internal cash flows and
from the proceeds of capital market financings.

Total short-term

business credit outstanding was about unchanged in April, as the
drop in business loans was offset by a rise in commercial paper

III - 10

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

H1

1975
H2

QIV

QI

Feb.

1976
Mar.

Apr.

7.3

8.1

8.2

4.9
40.8

2/
Total loans and investments
U.S. Treasury securities
Other securities
2/
Total loans

5.1

3.4

3.1

96.7

15.2

4.2

53.4 62.8

55.4

3.7

2.7

1.4

-3.6 -2.5

-10.8

3.3

-3.3

1.8

3.4

2.4

5.8

-1.0

-6.6
2.2
-6.7

1.3
2.3
5.5

2.5
4.3
5.2

-5.3 -5.3
5.4 5.4
3.7 1.4

-12.7
6.3
2.8

-6.8
6.2
n.a.

-.8

-1.0

-3.4 -2.5

-12.5

3.2

2/
Business loans
Real estate loans
Consumer loans
MEMO:

Business loans plus
nonfinancial commercial
paper 3/

-6.9

Last Wednesday-of-month series except for June and December, which are adjusted
to the last business day of the month.
2/ 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.
1/

p - Preliminary.
n.a. - Not available.

III

issued by nonfinancial companies.

- 11
There are few indications that

banks have been easing their lending terms or standards materially.
Although Citibank reduced its prime rate to 6-1/2 per cent at the

end of April (in line with its current formula), other major banks
held at 6-3/4 per cent since money market rates had come under upward
pressure.
Average interest rates on new commitments for home mortgages
at S&L's, which had drifted down by 50 basis points between the
recent peak in October and the April FOMC meeting, remained unchanged
since then.

In the more sensitive secondary market, yields on GNMA-

guaranteed mortgage-backed securities have increased 8 basis points
since late April, reflecting the upturn in bond rates.

With upward

pressure on GNMA security yields, the volume of offerings rose sharply
in the most recent FNMA commitment auctions for home loans, and
average auction yields increased about 10 basis points.
During March, mortgage lending picked up further, but
remained concentrated in loans for home purchase or construction;
the multifamily and commercial components have continued quite
weak.

S&L's have been accounting for about 70 per cent of the

total net change in home mortgage debt outstanding in recent months,
while purchasers of GNMA-guaranteed mortgage-backed securities-chiefly thrift institutions, but to some extent pension funds and
other bond investors as well--have been providing most of the

III -

12

INTEREST RATES AND SUPPLY OF FUNDS FOR
CONVENTIONAL HOME MORTGAGES
AT SELECTED S&Ls

End of Period

Average rate on
new commitments
for 80% loans
(Per cent)

1975--High
Low

Basis point
change from
previous
week

Per cent of
S&L's with funds
in short suppy

9.59
8.80

---

66
7

1
0
3
1
1

1976
Apr.

2
9
16
23
30

8.70
8.70
8.75
8.75
8.75

-5
0
+5
0
0

May

7

8.75

0

n.a.

SECONDARY HOME MORTGAGE MARKET ACTIVITY
FNMA AUCTIONS OF FORWARD PURCHASE COMMITMENTS 1/
Govt.-underwritten
Conventional
Yield
Yield
to
to 1
Amount
Amount
2/
1/
FNMA($ millions)
FNMA($ millions)
___OfferedlAccepted
Offered Accepted

Yields on GNMA
guaranteed mortgage
backed securities
for immediate
delivery 3/

7.99
9.10

100
10

51
9

10.92
8.96

643
25

366
18

9.95
8.78

5
12

8.27
8.12

56

32

9.05

106

56

8.94

19

8.27

55

33

9.00

132

60

8.83

26

8.23

3
10

8.31
8.31

110

60

9.09

483

222

8.94

1975--High
Low
1976
Apr.

May

1/
2/

3/

FNMA auction are ordinarily held bi-weekly.
Average gross yields before deducting fee of 38 basis points for mortgage servicing.
Data 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 FNMA stock purchase and holding requirements on 4-month commitments. 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
FHA/VA mortgages carrying the prevailing ceiling rate on such loans.

III - 13
balance.

With stronger flows of savings to private sources, Federal

and related agencies operating in the secondary mortgage market
sold about $1.2 billion of residential mortgages in March.
By the end of March, S&L mortgage commitments outstanding
(including loans in process) had reached a three-year high of $19.4
billion.

With liquid asset holdings of about $33 billion and out-

standing debt reduced further, S&L's continued to be in a relatively
strong balance sheet position.
Consumer instalment credit extensions reached a record
annual rate of $196 billion in March, and outstanding credit grew
at a rate of more than 11 per cent.

As in February, commercial

banks accounted for the largest share of the expansion, while credit
unions and finance companies also recorded sizable gains. Auto loans
again paced the growth in total instalment credit, although all
major types of consumer credit except mobile home loans increased
substantially.

The auto-credit advance was bolstered by a further

lengthening of loan maturities, permitting the financing of more
expensive cars with less than proportional increases in monthly
payments.
As the economic recovery has progressed, consumers have
been able to meet their debt obligations more readily.

Both

personal bankruptcies and delinquency rates on instalment loans
have continued to decline from highs reached early last year.

III - 14

CONSUMER INSTALMENT CREDIT

1974

1975

9.5
6.5
39.0

3.6
2.3
-1.8

1975
QIV

QI

1976
Feb.

Mar.

6.4
33.7

15.9
10.0
31.6

14.0
8.7
40.7

18.2
11.3
37.9

180.0
44.3
169.9

193.4
42.9
177.5

189.9
43.9
175.9

195.8
43.5
177.7

Total
Change in outstandings
$ Billion (SAAR)
Per cent
Bank share (%)
Extensions
$ Billion (SAAR)
Bank share (%)
Liquidations ($ billions (SAAR)

166.1
43.6
156.3

166.9
44.0
163.1

10.1

Automobile Credit
Change in outstandings
$ Billion (SAAR)
Per cent
Extensions, $ billion (SAAR)
New-car finance rate (%, APR)
Finance companies
Banks (36-month loan)
New-car loans over 36 mos. (%)
Finance companies
Commercial banks 1/

0.9
1.8
43.3

2.7
46.7

5.3
10.2
51.3

13.3
53.7

7.6
14.2
52.5

7.9
14.9
54.4

12.61
10.97

13.12
11.36

13.17
11.24

13.14p
11.17

13.14
11.18

13.10p
11.13

23.7
14.0

24.8
17.0

29.4
20.0

29.6
20.0

31.1

1.4

7.1

Preliminary
Series was begun in May 1974, with data reported for the mid-month of each
quarter.
1974 figure is the average for May, August, and November.

May 12,

IV - T - 1

1976

U.S. International Transactions
(In millions of dollars; seasonally adjusted
1 9 7 5
YEAR
0-4
9,045 2,165
107,184 27,689
98,139 25,524

1. Trade balance
Merchandise exports
2.
Merchandise imports
3.
Net service transactions
Balance on goods and services 1/

4.
5.

7,363
16,408

1976
Q-1
-1,598
26,827
28,425

Jan.*
-574
8,940
9,514

-1,763
-432
-4,546 -1,199

8. Bank-reported private capital, net change
9.
Claims on foreigners (inc.-)
Short-term
10.
Long-term
11.
Liabilities to foreigners (inc.+)
12.
13.
Long-term liabilities
Short-term liabilities 2/
14.
to commercial banks abroad
15.

-9.855 -3.515
13,099i-4,799)
10,846 -3,902

-2,561
(-3,653)
-3,377

-739
-1,326)
-1,399

-897
-2,253
(3,244(1,284)

-276
(1,092)

73
(587)

141
951

27
560

153
-39
3,024 -2,491
(2,682X 2,889)
(531 (2,267)
(233)
(313)
(165)
(29'

-826
-2.429
Lasc
O,
n
secur
L
es.
net
U.S. purchases (-) of foreign securities
(-6,328 2,361)
(-7,168 (-2,573)
of which: New bond issues
Foreign purch. (+) of U.S. corp. securities (3,899 (1,535)
Stocks
4,453 1,309

-1.050
(-2,556)
(-2,892)
(1,506)
1,465

207
(-333)
(-557)
(540)
517

-487
-770
(-1,201 .1,022)
(-1,296 -1,039)
(535)
(431
577
371

(519)

(531)

(197)

(177

23

60

400

271

to other private foreigners
to int'l regional organizations
DP..tra

24.

-

4 ,t

....

inrci

i

i

i

of which by OPEC

25.

Bonds (includes U.S. Govt. agencies)

2
S. direct investment abroad, (inc.-)
2
Preign direct investment in U.S.. (inc.+)
28. Nonbank-reported: liquid claims, (inc.-)
29.
other claims, (inc.-)
30.
liabilities, (inc.+)

31. Changes in liab. to foreign official agencies
32.
33.

-250
2,338)

(914)
(916)
(-255)
(-99)

17.
18.

20.
21.
22.
23.

-99
(2,985)

(565)
(-820)
(291)
(95)

(of which liab. to branches) 3/

r

91
1,193

445 -2.040
(298)
(-2,540)
548
-2,441

(-501: (-283)
(231 (1,234)
(865)
(1,823:
(2,277:
(611)

16.

.

Mar.*
-797
9,110
9,907

1,973
4,138

6. Remittances and pensions
7. Gov't grants and capital, net

-355
3,599

Feb.*
-227
8,777
9,004

OPEC countries (inc.+) 3/
Other countries (inc.+)

Changes in U.S. reserve assets (inc.-)
Gold
Special drawing rights
Reserve position in the IMF
Convertible currencies
39. Errors and omissions

(1,469
-554

227

41

-5,760 -1.765
1,934 1.008
-267
-113
-1.211
-529
379
-75

(157)
-42

3.0704 2.4494
4,208 1,261

847
-49

573
26

634 -1.332
-117
42

1,1884

896

547

592 -1,215

-773

-404

-39

-330

--

.-

--

--

-491

-45
-106
-253

-76
37

-55
-275

-74
898

-169

1,662

-123
849

-143

1,545

-1,138
S-607
--

89
--

-66
-466
-75

-21
-57
167

4648.

770

.- 45

4237

Memo:

Official settlements balance, S.A.
N.S.A.
0/S bal. excluding OPEC, S.A.
N.S.A.

-2,538
-2,463 -1,918
-1,277
1,745
-657

*/ Not seasonally adjusted (except for merchanidse trade data lines 1-3).
The GNP basis excludes U.S. Government
l/ Differs from "net exports" in the GNP account.
interest payments for foreigners from service imports and special military exports to Israel.
2/ Includes transactions in U.S. Treasury bonds and notes.
3/ Not seasonally adjusted. p = preliminary.
Excludes a $250 million increase in liabilities resulting from the revaluation of System
labilities
to Belgium and Switzerland.

INTERNATIONAL DEVELOPMENTS

Foreign exchange markets.

In the four-week period since the

last greenbook, exchange market attention has focussed on the politicaleconomic problems of the Italian lira and the British pound.

The trade-

weighted value of the dollar has changed very little during this time,
with its movements largely mirroring the much larger movements of the
lira.

The dollar's value declined about 1/3 per cent, but it still remains

about 4 per cent above the level it held in the September through February

period.
The Italian lira drifted steadily downward during most of the
period, both before and after the long expected resignation of Premier
Aldo Moro's government on April 30.

Attempts by Italy's EC partners and

Switzerland to slow the decline by discouraging the importation of Italian
banknotes into their countries seem to have had little effect.

However,

this pattern changed abruptly on May 6, following an announcement by the
Italian government that it was requiring a 90 day, non-interest bearing
deposit equal to 50 per cent of the value of (a) all foreign exchange
purchased (except to import wheat) and (b) all additions to lira accounts
held abroad.

Over the next week the lira rose a net 8 per cent, more

than offsetting the 5-1/2 per cent decline it had experienced earlier
in the period.

The major impact of this deposit requirement will probably

come through an estimated 13 per cent reduction in the monetary base over
the next three months, rather than through an increase in the direct cost
of purchasing foreign exchange (which amounts to only about 2 per cent).

IV - 2

In addition to this deposit requirement the Italian government also took
several minor steps to discourage the speculation against the lira that
was taking place through the lagged receipt of foreign currency payments
and through sales of forward lire.
temporary support for the lira.

These actions, however, provide only

The basic problem of political uncertainty

still remains, with parliamentary elections to be held June 20 and 21.
The pound sterling was very sensitive during the last four weeks
to news reports about progress in the negotiations between the government
and the unions on a wage limitation for next year.

The U.K. currency

declined 2-1/2 per cent early in the period, partly because of doubts
that the unions would accept the government's proposed 3 per cent limit
on wage increases.

The Bank of England reacted to the pound's decline

by raising the Minimum Lending Rate on April 23 a very sharp 1-1/2 percentage
points to 10-1/2 per cent.

This action boosted the pound slightly, and

it was further sustained by the May 5 announcement of an agreement between
the Government and the trade union leadership on a 4-1/2 per cent limit
on wage increases for the year beginning August 1 -- an outcome generally
considered to be highly favorable for the government's anti-inflationary
program.

The Trades Union Congress will hold a conference on June 16,

at which time it will formally decide whether to approve the new pay agreement.
On May 4 the German monetary authorities announced a two-stage
increase in bank reserve requirements.

The Bundesbank stated that it

wanted to offset the expansionary effects on the money supply of the
large amount of dollars purchased in the foreign exchange market during

IV - 3

the first quarter.

However, it seems likely that the Bundesbank may also

wish to move toward a less accomodative monetary policy as the German
economic expansion progresses.
Reports received from the Bank of Mexico and the behavior of
the forward peso discount both indicate that downward speculative pressure
on the Mexican peso continues.

This pressure abated slightly immediately

after Easter, but soon returned to its pre-Easter levels.

There was very little market intervention by the System during
the last four weeks.

The System purchased only a nominal amount of Belgian

francs in the market, but a substantial amount directly from the Belgian

National Bank, and it repaid $64 million equivalent of the Belgian franc
swap debt.
Euro-dollar interest rates rose about 1/4 per cent on average
during the period -- following the general trend in U.S. rates.
On May 6 the IMF announced some of the details of its plan for
selling 25 million ounces of the Fund's gold over the next four years.
The Fund will auction approximately 780,000 ounces of gold about every six
weeks for the next two years, with the first auction taking place on June 2.
The schedule for the auctions in the last two years of the program will be
decided upon at a later date.

The Bank for International Settlements

IV-4

will be allowed to bid in the auctions, but member governments and central
banks will not be allowed to bid until the new IMF amendment takes effect -perhaps two years from now.

The IMF also announced arrangements to sell

an additional 25 million ounces of gold at the official price of 35 SDR/ounce.
This restitution will take place every six months over the next four years.
The U.S. Treasury will receive nearly 5 million ounces of the IMF's gold
in exchange for dollars.

The IMF's announcements had little impact on

the market price for gold which has fluctuated very narrowly around the
$128 level for the last four weeks.
OPEC investment flows.

The estimated $37 billion OPEC goods

and services surplus in 1975 shown in the table is almost $3 billion smaller
than the estimate presented in the February green book, this adjustment
reflecting a higher estimate of OPEC net payments for current invisibles.
The $37 billion figure is substantially below recent comparable U.S. Treasury
estimates of about $42 billion and is well above the Morgan Guaranty Trust
Co. estimate of under $30 billion, but it agrees quite closely with the
Bank of England's unpublished estimate that allows for some unidentified
investment flows.
In the first quarter of 1976 the OPEC surplus is believed to
have been about $10 billion, somewhat above the estimated average quarterly
rate of $9 billion in the second half of last year when oil cash receipts
did not fully reflect price and production increases occurring in the autumn.
But OPEC acquisitions of assets in the United States amounting to $1.1
billion in the first quarter were substantially less than the $2.5 billion

IV -

5

Estimated Disposition of OPEC Surpluses
(in billions of dollars)
1975

I. In United States
A. Short-term assets1 /
B. Treasury bonds + notes
C. Other assets2/
II.

In United Kingdom
A. Short-term assets
in sterling3/
B. Other loans + investments

III.

In Euro-Currency Market
A. United Kingdom
B. Other centers (est.)

IV.

International Institutions
A. Bonds
B. IMF Oil Facility

V. All Other (residual)
Total=investible surplus
VI.

OPEC grant aid
Surplus on goods and services4 /

VII.

1975
1st Half 2nd Half

1974
Year

Year

11.3
9.3
0.4
1.6

6.2
0.3
1.9
4.0

2.0
-1.2
1.2
2.0

4.2
1.4
0.7
2.1

7.2

0.2

0.7

-0.5

-0.3

5.3
1.2

0
0.2

0.4
0.3

-0.7
0.2

-0.4
0.1

24.5

9.8

13.8
10.7

4.1
5.7

6.1
2.1
4.0

3.7
2.0
1.7

1.4
-0.1
1.5

3.5
0.9
2.6

1.8
0.8
1.0

1.7
0.1
1.6

1.5
0.3
1.2

6.8

8.0

3.3
1.5
1.8
11.3

14.8

57.6

34.5

2.4

2.5

60.0

37.0

17.4
1.6
19.0

1976

q-I
1.1
-0.6

0.5
1.2

n.a.

17.1

n.a.

0.9

n.a.

18.0

10+

1/ Principally Treasury bills, repurchase agreements, bank deposits, and
CD's.

I/

Long-term bank deposit, corporate and Federal Agency bonds, equities,

real estate (estimated).

_/ Treasury
4/ With oil

bills and bonds, bank and other deposits.
receipts on a cash basis.

IV - 6
recorded in the third quarter and the $1.7 billion (revised) recorded in
the fourth quarter of last year.

In the first quarter, purchases of equities

and Treasury, Agency, and corporate bonds totaling $1.3 billion (provisional)
were at about the same quarterly rate as in the two preceding quarters.
However, short-term holdings (Treasury bills, repurchase agreements, and
bank deposits) were drawn down by $600 million, compared with a rise or
a much smaller decline in the two previous quarters respectively, partly

because of increased lending to the IMF Oil Facility.

The $1.1 billion

total inflow for the quarter also includes a $400 million rise in long-term
bank deposits and a rough estimate of $50 million for real estate purchases,

which last year are believed to have totaled about $250 million for the
full year.
OPEC countries reduced their sterling holdings in the United
Kingdom by $300 million equivalent in the first quarter, of which only
$100 million occurred in March when the pound came under intense selling
pressure.

Liquidation of official sterling balances by all holders as

a group was small in March, but intensified in April; to what extent OPEC
countries may have stepped up such sales in April is not yet known.
OPEC holdings of Euro-currency deposits with banks in the United
Kingdom, which had increased regularly in 1975 and early 1976, were drawn
sharply by $900 million in March, to show a small net reduction for the
quarter.

The reasons for this shift are not known.

The estimate of a $1.5

billion rise for the quarter in Euro-currency deposits in other centers
is very tentative and, inter alia, because of data lags makes no allowance

IV

- 7

for any increase in OPEC deposits with U.S. bank branches in the Caribbean
and the Far East following the $700 million rise in such deposits in the
fourth quarter of last year.
Placements with international institutions were speeded up to
$1.5 billion in the first quarter.

Purchases of World Bank bonds were

larger than the 1975 quarterly average, and lending to the IMF Oil Facility
increased as the IMF made its final disbursements prior to the Facility's
expiration on March 31.

IV -

8

U.S. International Transactions.

U.S. merchandise trade

recorded a $6.4 billion deficit in the first quarter of 1976 (seasonally)
adjusted annual rate, balance-of-payments basis), a swing of more than
$15 billion from the large surplus of $8.7 billion in the fourth quarter
of 1975 and $9.0 billion for all of last year.

With a continued large

surplus in net service transactions expected for the first quarter, however, net exports of goods and services are believed to have recorded
a small surplus.

Other significant developments in the first quarter

included (1) a continued net outflow of bank-reported private capital,
largely through an increase in claims on foreign branches and affiliates
of banks located in the United States and (2) further large U.S. purchases
of foreign securities--mostly Canadian bond issues--which were offset
in part by sizable foreign purchases of U.S. securities.
The sharp decline in the balance on U.S. merchandise trade
in the first quarter of 1976 occurred as exports fell slightly while
imports picked up strongly with the recovery in U.S. domestic activity.
Merchandise exports declined by 3 per cent to $107.3 billion at an
annual rate.

About half of the decrease was in nonagricultural and

about half in agricultural goods.

IV - 9

U.S.

MERCHANDISE TRADE

i

1975

1976

1973 1974
1975
II
III
IV
I
annual'rates)'lj
adjuted
seasonally
(billions of dollarg,
Exports
Non-agricultural
Agricultural

71.4
53.4
18.0

98.3
75.9
22.4

107.2
84.9
22.3

103.4
83.8
19.6

106.4
84.1
22.3

110.8
87.7
23.0

107.3
86.2
21.2

Imports
Non-fuel
Fuel

70.4 103.6
61.5 76.2
8.9 27.4

98.1
69.8
28.3

90.3
63.8
26.4

97.9
68.0
30.0

102.1
72.7
29.4

113.7
82.1
31.6

Balance

+1.0

+9.0

+8.4

+8.7

-6.4

-5.3

+13.1

Index Numbers. 1973=100

Exports
Value
Price 2/
Volume

Imports
Value
Price 2/
Volume

100.0

137.7

150.2

144.8

149,0

155.2

150.3

100.0
100.0

127.0
108.4

142.9
105.1

142.9
101.3

142.0
105.0

142.6
108.8

144.3
104.2

100.0

147.1

139.4

128.2

139.1

145.0

161.5

100.0
100.0

150.4
97.8

162.9
85.5

166.2
77.1

160.4
86.7

160.5
90.3

162.8
99.2

1/ Components may not add to totals because of rounding.
2/ As measured by the unit value index.
Much of the 2 per cent decline in the value of nonagricultural
exports was concentrated in the volatile transportation equipment category.
But the most significant development was that machinery exports, having
increased steadily during 1975, showed no growth in the first quarter.

The volume of machinery exports actually declined by 2.6 per cent as
machinery prices continued to rise, though at a slower rate than in 1975.
This decline in volume reflected the weakness in investment activity in
most foreign industrial countries, as well as the slowdown in exports

IV -

10

both to non-OPEC developing countries due to their continuing financial
difficulties, and to OPEC countries because of problems of port congestion and other bottlenecks.

However, the volume of new orders for

machinery exports rose 7 per cent in the first quarter, though this
number may be revised downward due to a questionable seasonal-adjustment

factor.
The value of agricultural exports declined 8 per cent to a
rate of $21.2 billion in the first quarter, in line with earlier
projections.

Most of the decline was in volume.

Shipments to the

Soviet Union and to the developing countries of Africa and Asia had
been heavy in the second half of 1975 and were expected to slow down in
early 1976.

Recent additional Soviet grain purchases, have raised that

country's total purchases from the 1975-76 U.S. crop by 2.7 million
metric tons (mmt), to a total of 16.5 mmt, about the level previously
projected.
crop.

The U.S.S.R. has also made some purchases from the 1976-77

In accordance with the U.S.-U.S.S.R. grain agreement of last

October, these purchases have been made in smaller quantities over a
longer period of time than in recent years,in an attempt to reduce disruption of the grain markets.
U.S. imports

jumped by 11 per cent in the first quarter to

$113.7 billion at an annual rate, with most of the increase in volume.
Imports had dropped sharply in the first half of 1975 with the recession
in domestic activity and especially with the liquidation of nonfarm
business inventories.

Since that time imports have risen strongly in

IV -

volume, along with domestic activity.

11

The volume of nonfuel imports

climbed 12.3 per cent in the first quarter and is now back to the
level of late 1974, although it is still 10 per cent below its prerecession peak in early 1973.

The increase in nonfuel imports in both

volume and value was spread among all major commodity groups.
While the increase in nonfuel import volume

was directly

related to the recovery in domestic activity, it was also stimulated
by the decline in import prices stemming from the appreciation of the
dollar in exchange markets in the second half of 1975.

The effective

dollar exchange rate was more stable in the first quarter, and U.S.
import prices rose slightly, following the rising trend in foreign
prices.

This price increase till offset some of the earlier stimulus

to imports in the quarters ahead.
Fuel imports rose by 7.4 per cent to a $31.6 billion rate in the
first quarter.
third of
duction.

The volume of imports rose 3.9 per cent; about one-

the increase

attributable to a decline in domestic pro-

Fuel import prices rose by 3.4 per cent, reflecting last

October's OPEC price hike.

From October to March the price of imported

crude petroleum rose by about nine-tenths of the $1.0 per barrel posted
OPEC price increase.
Net bank-reported private capital transactions for the first
quarter showed an outflow of $2.6 billion(seasonally-adjusted
rate), somewhat below the outflow of the previous quarter.

quarterly

Bank-reported

claims on foreigners increased by $3.7 billion, continuing the rapid

IV -

12

growth that has occurred since January 1974.

The increase in the first

quarter of 1976 took the form primarily of increases in claims on
directly-related financial institutions abroad --

foreign branches of

U.S. banks and overseas affiliates of agencies and branches of foreign
banks in the United States --

supporting the continued brisk pace of

lending in the Euro-markets.
Selected U.S. International Capital Transactions
(billions of dollars, seasonally adjusted)

Bank-reported private capital, net
Claims on foreigners (inc.-)
Liabilities to foreigners (inc.+) 1/

1974
Year Year
-2.7 -9.9
-19.5 -13.1
16.8
3.2

1

9 7 5
Q-1 Q-2 Q-3 0-4
-5.6 -4.0 3.2 -3.5
-3.7 -3.8
-.8 -4.8
-1.9 -.2 4.0 1.3

1976
0-1

-2.6
-3.7
1.1

Transactions in securities, net
-1.3 -2.4 -1.4
-. 3
.1 -. 8 -1.1
U.S. purch. (-) of foreign securities net -2.0
-. 9 -2.4 -2.6
-6.3 -2.0 -1.0
of which: New bond issues
(-2.4:'(-7.2) (-2.1)(-1.2)(-1.3)(-2.6 (-2.9)
Foreign purchases (+) of U.S.
1.5
.7
1.0 1.5
.7
(excl. Treasury'issues) Securities net
.7
3.9
Stocks
1.3
1.5
1.0
1.3
.5
4.5
.9
of which by OPEC
)
(.5)
(1.5)
(.3) (.3) (.4) (.5
(.2
*
Bonds (includes U.S. gov't agencies)
.2
-. 3 -. 2 -. 3
.1
-.6
Changes in liabilities to foreign
Official agencies (inc.-:-)
OPEC countries
Other countries

9.8
10,0
-. 2

Changes in U.S. reserve aseets (inc.-)

-1.4

2/
3.1- 3.5
.3
4.2
-1.11 3.2

-,6

-. 3

1..8 -4.7
I. .0 1.7
.8 -6.3
*

-.3

2.4

-2/

1.31

.8
*

1.2-= .9
.1

-. 8

*/ Absolute value less than $50,000.

1/ Includes Treasury bonds and notes.
2/ Excludes a $250 million increase in
liabilities resulting from the revaluation
of System swap liabilities to Belgium and
Switzerland.

Components may not add to totals
because of rounding.

IV -

13

The $1.1 billion increase in U.S. liabilities to private
foreigners largely reflected an increase in liabilities to Canada, as
deposits of the proceeds of Canadian bond issues in the U.S. market
had not yet been converted to Canadian dollars.
Securities transactions in the first quarter showed a
net outflow of $1 billion.

Total new foreign bond issues sold in the

United States in the first quarter amounted to $2.9 billion; preliminary
data for April show an additional $0.5 billion in new foreign bond
issues.

Canadian issuers accounted for about 70 per cent the first

quarter total.

The remaining 30 per cent, issued by other foreigners,

appear to have been purchased largely by foreign investors.

These

purchases are netted against the sales in the U.S. market and have no
affect on net U.S. securities transactions.

Foreigners also purchased

$1.5 billion of U.S. securities during the first quarter, above the
average quarterly rate of $1.1 billion in 1975.

Identifiable OPEC

purchases were one-third of the first quarter total.
U.S. liabilities to foreign official insitutions increased
by $0.8 billion in the first quarter,

IV - 14
The lack of change in official holdings of OPEC countries in the
first quarter, as contrasted with the average rate of increase of
more than $1 billion per quarter in 1975, partly reflected the
diversion of funds, particularly by Saudi Arabia, to the IMF oil
facility.

OPEC official holdings apparently jumped

by $1.0 billion

in April.

U.S. reserve assets increased by $775 million in the first

quarter, more than the total increase for 1975.

Most of the rise was

in the form of System holdings of lire following the Italian drawing
of $500 million under swap arrangements.

The remainder reflected an

increase in the U.S. reserve position in the IMF due to the dollar
drawings by other members.

IV - 15

Fixed Investment in Major Foreign Industrial Countries.

As the

major industrial countries emerge from the most severe of the postwar
recessions, many observers still have doubts about the underlying
strength of the present recovery.

A current concern of authorities in

the major foreign countries is the role which might be played by fixed
investment in consolidating the economic recovery and laying a foundation
for future growth.

A longer-range concern is the potentially adverse

impact on new private investment of the continued large public sector
deficits which are anticipated in most of these countries.
Several features of recent and current economic conditions
bear on prospects for increased levels of investment.

First, despite

substantial rises in industrial output in recent months, capacity
utilization in the major countries still remains below rates which were
regarded as average in previous years, and well below rates which could
be regarded as ceilings.
countries have been weak
t he recession.

Second, profits earned by enterprises in most
for some time, and were especially so during

In recent months authorities in several countries have

begun aggressively to

advocate increased profitability as a way to

stimulate what they regard as essential new private investment.
A third important issue arises from the persistence of high
rates of unemployment in the major OECD countries.

Even where economic

recovery seems to be gathering momentum, as in Germany, neither the
authorities nor independent observers are very optimistic about labor
market prospects.

Because increasing the capital stock is viewed as

an effective way to create more jobs in the long run, authorities are

IV - 16

reviewing recent investment trends and turning more attention to ways
in which capital formation can be accelerated.
Data on changes in real fixed investment over the 1970-1975
period are shown for six major foreign countries in the table on the
following page.

Also shown in the table is, for each country, the most

recent national forecast of investment developments in 1976.

As is

evident from the table, the experiences in these countries are diverse,
and their short-term prospects differ greatly.

Although it is normal

for private investment to lag behind other demand components during
periods of economic recovery in several countries the anticipated

lag

this time appears to be rather long.
Fixed capital formation in Germany has been weak for several
years.

Rapid increases tool

place in the 1970-71 period, but real

investment gains fell off sharply thereafter.

This weakening was

partly the result of deteriorating profits and partly a consequence of
policies pursued by German authorities to counter inflationary pressures.
During 1973, for instance, a surtax was temporarily levied on new
investments and depreciation rules were tightened.

In 1974 real

investment in Germany dropped by 8.2 per cent, with the residential

construction sector especially hard-hit, due to overbuilding that had
occurred in the early 1970's.

Real capital outlays fell further in 1975,

with the construction sector bearing the brunt of the decline.
Since 1974, there have been several modest programs to
encourage new investment.

The most important stimulus, however, came

in December, 1974, with the government's announcement

of a 7.5 per cent

IV

-

17

Real Fixed Investment in Major Industrial Countries:
1970-75 and Forecasts for 1976
(Percentage change from previous period)

United Kingdom - Total

Machinery & Equipment
Constructton
Germany - Total

Machinery & Equipment
Construction

1974

average

Year

2,2
3.3
1.2

-2.0
-1.5
-2.5

-1.7
-7.7
4.4

-2.6
-3.0
-2.2

4.5
2.9
6.0

-3.7

4.9

-8.2

5.9
3.9

-8.0
-8.4

-2.4
-1.8
-3.0

0.0
1.8
-1.9

0.6
1.2
0.0

2.4
4.0
0.6

-4.8
-0.3
-9.3

0.6

0.0

2.4

-4.0

Canada - Total

Machinery & Equipment
Construction
Japan - Total
Machinery & Equipment(Private)
Construction
(Private)
Public

Sources:

Q1

Q2

-3.1

2.1
8,3
-2.1

3.6
6.8
1.3

-3.6
-6.6
-1.3

-1.7
-2.9
-0.7

5.3
7.2
4.3

5.4
8.5
3.6

0.8
5.2
-1.8

0.1
-1.3
1.0

-2.8
-6.4
-5.7
6.3

3.0
-0.4
14.6
1.2

Other2/

Machinery & Equipment
Construction

197 p)

3.1
2.8
4.0
2.2

France - Total
Business1/
Res. Construction

Italy - Total

76f

1970-73
annual

11.6
10.8
12.6
13.4

-9.8
-10.4
-11.2
-7.4

1970-75 data from national sources and OECD.

Q3

-3.1
-3.0
-3.1
2.8
2.5
3.0
-0.6
-2.1
-0.5
2.0

Q4

Year

Year

0.2

-0.9

0.6

-11.2 -12.7

1.6
-5.2
5.9

1.6
2.8
0.8

3.5
0.1
6.0

-1.9
-3.7
-1.1
0.2

-3.4
-14.4
5.0
13.3

5.6
5.5
6.0

1975 fourth quarter data

for United Kingdom and Italy estimated as residuals. Blanks indicate appropriatelLy
detailed data not available.
p - preliminary; seasonally adjusted.
f - forecast: national sources and FRB staff.
I/ Includes investment by state-run enterprises.
2/ Includes investment by financial institutions and the public sector (excluding
state-run enterprises).

IV - 18

investment bonus to be paid on buildings and equipment ordered prior
to June 30, 1975, and delivered (or paid for) before specified dates.
As expected, this program generated a large increase in the volume of
new orders for capital goods just prior to the deadline.

The subsequent

decline in orders was, in addition, less than had been feared, and toward
the end of 1975 domestic orders for capital goods resumed their upward
trend.

The outlook for total fixed investment in 1976 is now relatively

optimistic, although the major economic institutes expect demand for
machinery and equipment to grow substantially faster than construction
output.

Both the government and the Bundesbank have spoken out in favor

of improved profit margins for domestic firms as a way to bolster the
upward trend.
Fixed capital formation in France rose by a little over 3 per
cent in 1974, and declined by an estimated 4 per cent in 1975.

Private

nonresidential investment, which was affected by stringent monetary
conditions as well as by a weak profits picture, suffered a particularly
sharp drop of about 10 per cent, but this was partially offset by
accelerated outlays for public investment.
During

1975 French fiscal authorities introduced a number of

investment incentive programs aimed at both the public and private sectors.
Under a program set forth in April, FF 16 billion (about $3.8 billion)
was made available, partly for public sector programs and partly for
loans to small and medium-sized firms.

The French also offered a

deduction, equal to 10 per cent of the value of investment goods ordered
by firms prior to December 31, 1975, from 1975 and 1976 valued-added

IV - 19

tax liabilities.

As in the German case, this program produced a surge

of orders toward the end of the eligibility period.

Additional incentives

were set out in a FF 30.5 billion (about $6.8 billion) restimulation
package announced in September 1975.

The bulk of the investment funds

were again earmarked for public purposes, but large amounts were also
set aside for private industry.

Most of the incentives under this program

are in the form of reductions or postponements of 1975 and 1976 profits
taxes and 10-15 year low-interest loans to industry.
Such measures notwithstanding, the outlook for French investment
during 1976 cannot be described as optimistic.

The most recent projection

by the National Accounts Committee, made last month, forecasts an investment gain of only 0.6 per cent.

Such gains as there are will result

largely from public sector investment, which may rise by as much as
10 per cent.

Nonresidential business investment may well show a further

decline from 1975 levels, due primarily to the still-depressed state
of capacity utilization in French industry.
In the United Kingdom real fixed investment declined by about
2 per cent in 1974, and may have increased marginally in 1975.

Investment

in machinery and equipment during 1975 appears to have suffered a large
setback, but residential construction, public investment expenditures and
outlays in connection with the North Sea oil fields provided some
positive stimulus last year.

U.K. authorities,

like those in other

countries, are looking to new investment as the most promising way to
reduce the unemployment problem and are advocating higher enterprise
profits as a way to stimulate more capital expenditures.

IV - 20

Evidence of the British government's shift of priorities
toward increased private investment can be found in its White Paper
on Public Expenditure, presented last February, and the FY1976/77 Budget,
which was presented in April.

Provisions of the budget call for

continuation of the one-year write-off of fixed investment, abolition
of certain duties, and extra funds aimed at industrial investment.
Whether these measures will have the desired effect this year
remains in doubt.

The most recent survey (early May) by the Confederation

of British Industry shows some improvement in producer sentiment, but
concludes that the U.K. profit picture is still unsatisfactory, and
projects that manufacturing investment may fall by a further 8 per cent
during 1976.
Of the major foreign industrial countries, Italy experienced
the sharpest drop in fixed caoital formation during 1975 -- an estimated
12.7 per cent decrease, after a weak

gain of 3.6 per cent in 1974.

The

rapid fall of Italian real investment in 1975 followed a number of years
of only moderate increases, except in 1973, when investment rose strongly.
As elsewhere, the 1974-1975 recession led to low rates of capacity
utilization (about 69 per cent on average during 1975), and a squeeze
on profit margins.
While business surveys by the main economic institute, ISCO,
do not explicitly cover investment intentions, other indicators, such
as reports on new orders, until recently showed some slight improvement
in outlook.

However, confidence factors appear to have worsened again

after the fall of the Italian government and as a result of the

IV - 21

precipitous drop of the exchange value of the lira.
likely that the Italian investment outlook

Cn balance it appears

for 1976 has worsened appreciably

since the already pessimistic forecasts made at the end of 1975.
Canada was the only major industrial country to show a
measurable, although modest, gain in fixed investment during 1975.

The

1.6 per cent increase, which was largely accounted for by gains in the
public sector, was down sharply from the 5.4 per cent rise shown in
1974.

A major sourceof weakness through the first half of 1975 was

residential construction, although this sector revived during the second
half of the year.

In the private sector, the main source of strength

during the past year was investment in machinery and equipment.
Canada has relied less than most other major countries on
investment incentives, although there is a special 5 per cent tax credit
on new investment which may be increased in the new budget to be presented on
May 25.

Compared with projections made late in 1975, the 1976 outlook

has improved, and observers are confident that fixed capital formation
will show moderate growth this year.

The housing sector continues to

show strength, and appears to be leading other types of investment
expenditures.

Large firms in energy, minerals and other primary product

sectors will probably account for the bulk of nonresidential outlays this
year.
Fixed investment expenditures in Japan reached a peak in the
fourth quarter of 1973 and then declined through the first quarter of
1975.

Quarterly data for 1975 show an erratic recovery of private

construction activity and continued positive stimulus from the public

IV - 22

sector, but an unbroken downward trend in private outlays for machinery
and equipment.

Overall, fixed capital formation in the last quarter of

1975 was still about 15 per cent below the peak level reached two years
earlier.
The decline in business investment in Japan appears to stem
more from demand factors than from policy actions, although some observers
feel that in the early part of the recession fiscal policy may have acted
pro-cyclically through cutbacks in public works expenditures.

During

1975,fiscal policy resumed its usual countercyclical role, as public
investment outlays were accelerated.
Economic developments in Japan often reflect close governmentprivate sector cooperation.

Reportedly at the urging of the Ministry

of Internationa. Trade and Industry, the major steel firms are planning
large investment increases for FY1976/77 (which began April 1).

Available

survey data show substantial increases in real nonmanufacturing investment,
but no increase in manufacturing investment generally.

Although total

fixed investment in Japan is projected by the government to rise perhaps
5.5 per cent this year, most of the gain will be attributable to public
works expenditures and continued advances in residential construction.
The U.K. Incomes Policy.

On May 5, the U.K. government

announced that it had reached an agreement with the Trades Union Congress
that will limit pay increases to an average of about 4-1/2 per cent
during the twelve months starting August 1, 1976 in return for a tax
reduction.

The agreement involves a £2-1/2 per week raise for all

workers earning less than £50 per week; no more than a £4 raise for

IV - 23

those earning more than £80 per week; and a five per cent limit to
raises for those earning between £50 and £80 per week.
industrial wage is about £67 per week.)

(The average

Under the present £6 per week

limit on pay increases those with weekly salaries over £163 receive no
wage increases; under the new agreement they will get a raise of £4
per week (less than 2-1/2 per cent).
The new pay limits will be subject to the same overall rules
as the present £6 limit and the same enforcement procedures will apply
(i.e., industry will not be able to pass on any part of an excessive
wage bargain in the form of higher prices, and any excessive settlements
by government bodies will not be funded).

According to the government,

there will be no exceptions to the wage limits.

Price controls are to

remain in effect throughout the period covered by the new wage agreement,
but the present controls are to be modified to encourage investment and
employment.
In the April 6 Budget message, the government offered the unions
tax relief in return for a "low" pay limit.

It was suggested in the

Budget message that 3 per cent was an appropriate limit and that anything
in excess would mean fewer tax concessions.

However, even though the new

agreement exceeds 3 per cent, the government intends to grant the full
amount of the conditional tax reductions proposed in the Budget.
The initial reaction within the United Kingdom to the pay deal
has been generally favorable.

Both organized labor and industry have

IV - 24

endorsed the new agreement.

Although some individual unions and

union leaders have expressed their opposition, at this time there seems
to be more acceptance of the 4-1/2 per cent limit than there was for the
present universally-adhered-to £6 limit at a comparable time last year.