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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optical character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. Content last modified 6/05/2009. CONFIDENTIAL (FR) CLASS II - FOMC May 14, SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System 1976 TABLE OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Industrial production.................................. Retail inventories................ .................... . 1 2 TABLES: Industrial production.................................. 2 Business inventories................................... 4 THE DOMESTIC FINANCIAL ECONOMY Mortgage market......................................... 5 TABLES: Average rates and yields on new-home mortgages................................... 5 Interest rates.......................................... 6 SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Industrial production is estimated to have advanced 0.7 per cent in April reflecting widespread increases in output. Upward revised increases of 1.1 and 0.8 per cent in February and March respectively now indicate a much stronger first quarter. Major upward revisions occurred in durable consumer goods, equipment parts, and some other materials. The April index at 122.5 per cent of the 1967 average was 11-1/2 per cent above a year earlier but about 4 per cent below the 1973 high. Final products. Among consumer goods, auto assemblies rose sharply to an 8.6 million unit annual rate and are scheduled to increase over 3 per cent further in May. Production of other consumer durable goods continued to advance strongly in April and production of consumer staples and clothing rose somewhat further. Output of business equipment increased further following gains in February and March. Output of construction products continued to expand moderately. Materials. Production of durable materials advanced strongly reflecting increases in output of metals, equipment parts, and consumer durable parts. further. Nondurable goods materials rose somewhat -2- INDUSTRIAL PRODUCTION (Seasonally adjusted) Indexes, 1967=100 Jan. Total Feb. 1976 Mar. Apr. Per cent changes Month Year QIV to (p) (e) ago ago QI 119.5 120.8 121.7 122.5 .7 11.5 2.6 120.2 121.3 121.6 122.4 .7 8.3 2.5 Final products Consumer goods Durable goods Nondurable goods Business equipment 119.6 130.9 120.9 134.6 118.4 120.8 132.1 123.6 135.2 120.5 121.1 132.6 125.6 135.2 121.0 121.9 133.5 126.5 136.0 122.0 .7 .7 .7 .6 .8 8.3 11.5 17.3 9.7 5.7 2.1 2.5 3.9 1.9 2.7 Intermediate products Construction products 122.4 116.9 123.4 117.6 123.5 118.0 124.1 118.6 .5 .5 9.4 7.7 3.8 3.9 118.3 120.2 121.9 122.7 .7 16.6 2.9 Products, total Materials p--preliminary. e--estimated. Book value of retail inventories rose at an $8.9 billion annual rate in March, following an $8.8 billion rate of increase in February. For the first quarter as a whole, retail stocks were up $8.0 billion (annual rate) from the fourth quarter when there was virtually no change. Durable stocks were up at a $5.2 billion rate in March with all categories showing gains. Stocks of nondurable retailers were up $3.8 billion, annual rate, as increases at apparel and general merchandise stores more than offset declines at food and drug stores. The ratio of inventories to sales in retail trade was unchanged at 1.41 in March. -3- Book value of total manufacturing and trade inventories rose at an $18.7 billion annual rate in March, following a $20.3 billion increase in February. For the first quarter as a whole, such inventories rose at a $19.1 billion annual rate--up sharply from the $1.3 billion rate of decline in the preceding quarter. The ratio of inventories to sales for all business edged down from 1.47 to 1.45 in March. -4BUSINESS INVENTORIES (Change at annual rates in seasonally adjusted book values, $ billions) 1975 1975 IV I Manufacturing & trade Manufacturing Durable -1.3 .6 -3.5 Jan. 1976 1976 Feb. Mar. 18.2 20.3 18.7 3.6 9.1 .4 4.1 3.2 5.0 9.6 1976 1976 I 19.1 6.1 1.1 5.5 - 1.1 Nondurable 4.2 4.9 Trade, total -1.9 13.0 12.7 16.8 Wholesale -2.0 5.0 6.4 7.9 .6 6.3 8.8 8.9 - 1.8 - 1.2 1.5 Retail .1 8.0 Auto .3 - .5 6.6 INVENTORY RATIOS 1974 I 1975 I 1976 I Jan. 1976 Feb. Mar. Manufacturing & trade 1.49 1.66 1.48 1.49 1.47 1.45 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 1.33 1.33 1.32 1.31 Wholesale 1.12 1.25 1.20 1.20 1.19 1.18 Retail 1.55 1.53 1.43 1.43 1.42 1.41 Inventory to sales: Inventories to unfilled orders Durable manufacturing .699 .803 .842 .838 .842 .842 The Domestic Financial Economy Mortgage market. According to the HUD (FHA) opinion survey, average interest rates on new commitments for conventional new- and existing-home mortgages declined by 5 basis points during April. Yields on FHA-insured new-home mortgages for immediate delivery in the private secondary market declined to 8.82 per cent--implying discounts of only 2-1/2 points on 8-1/2 per cent FHA mortgages at the end of April. However, since secondary market rates have come under upward pressure since late April, a further cut in the ceiling rate on Government-underwritten home loans is unlikely. AVERAGE RATES AND YIELDS ON NEW-HOME MORTGAGES (HUD-FHA Field Office Opinion Survey) Secondary market 1/ FHA-insured loans Primary market Conventional loans nd of Month Level 2/ (per cent) 1975-Low High 8.90 (Mar.) 9.25 (Sept., Spread 4/ (basis points) -70 +15 (Mar.) (Jan.) Level 3/ (per cent) Spread 4/ Discounts (basis points) (points) 8.69 (Mar.) 9.74 (Sept.) -91 (Mar.) +31 (Oct.) 2.4 (Dec.) 6.2 (Aug.) Oct.) 1976-Jan. Feb. Mar. 9.05 9.00 8.95 +39 +42 +42 9.06 9.04 n.a. +40 +46 n.a. 2.4 2.2 n.a. Apr. 8.90 +32 8.82 +29 2.5 1/ Any gaps in data are due to periods of adjustment to changes in maximum permissible contract rates on FHA-insured loans. 2/ Average contract rates (excluding fees or points) on commitments for conventional first mortgage loans, rounded to the nearest 5 basis points. 3/ Average gross yield (before deducting servicing costs) to investors on 30-year minimum-downpayment FHA-insured first mortgages for immediate delivery in the private secondary market (excluding FNMA), assuming prepayment in 15 years. 4/ Average gross mortgage rate or yield minus average yield on new issues of Aaa utility bonds in the last week of the month. -6INTEREST RATES (One day quotes - in per cent) 1976 Highs Lows April 19 May 13 5.12(1/7) 4.70(2/18) 4.78(4/21) 5.02(5/12) 5.25(3/2) 5.38(5/13) 5.53(1/5) 5.94(5/13 4.68(1/29) 5.00(4/29) 4.80(4/21) 5.25(1/30) 4.77 5.00 4.95 5.31(4/15) 5.10 5.38 5.43(5/13) 5.94(5/13) 5.38(3/3) 4.88(4/21) 4.88(4/14) 5.25(5/12) 5.69(3/4) 5.50(5/13) 5.96(3/5) 4.97(1/29) 5.13(4/29) 5.31(2/2) 5.08 5.13 5.44 5.53 5.88(3/17) 5.38(4/21) 5.38(4/14) 5.75(5/12) 6.05(3/4) 6.56(3/5) 5.27(1/2) 5.82(4/14) 5.42 5.85 5.91 6.23p(5/11) 6.25(5/12) 3.50(5/13) 6.00(4/28) 3.00(1/30) 6.00(4/14) 3.05(4/15) 6.25(5/12) 3.50(5/13) 7.61(3/4) 8.17(5/12) 7.12(4/21) 7.77(4/14) 7.18 7.83 7.53(5/13) 8.16(5/13) 8.66(1/2) 10.34(1/2) 8.34(4/15) 9.74(5/7) 8.36 9.83 8.58(5/13) 9.76(5/13) 8.88(1/9) 8.38(4/22) 8.42(4/16) 8.82p(5/14) 7.13(1/8) 6.54(4/15) 6.54(4/15) 6.83 9.13(1/12) 8.83(4/19) 8.94(4/5) 8.94(5/3) Short-Term Rates Federal funds (Wkly. avg.) 3-month Treasury bills (bid) Comm. paper (90-119 day) Bankers' acceptances Euro-dollars CD's (NYC) 90-day Most often quoted new 6-month Treasury bills(bid) Comm. paper (4-6 mo.) Federal agencies CD's (NYC) 180-day Most often quoted new 1-year Treasury bills(bid) Federal agencies CD's (NYC) Most often quoted new Prime municipals 5.50 5 .72p(5/11) Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa Utility Municipal Bond Buyer Index Mortgage--average yield in FNMA auction
@FedFRASER