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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) SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System October 16, 1970 SUPPLEMENTAL NOTES The Domestic Economy Personal income. Personal income rose by $5.4 billion from August to a seasonally adjusted annual rate of $811.8 billion in September. Wage and salary disbursements rose by $3.4 billion. The bulk of the increase occurred in government payrolls, primarily reflecting payment of the retroactive portion of the postal pay raise, amounting to $2.0 billion. The slight boost in private industry pay- rolls resulted from wage increases; private employment and average weekly hours declined in September. Manufacturing payrolls were adversely affected by the General Motors strike and were up slightly in September. Payrolls in non-manufacturing activities were also up only slightly in September. Increased transfer payments accounted for nearly half of the rise in nonwage income, with much of the increase reflecting boosts in Civil Service and railroad retirement benefits. PERSONAL INCOME (Seasonally adjusted, billions of dollars) Dec. 1969 to June 1970 Total personal income Wages and salaries Government Private Manufacturing Nonmanufacturing Other sources (net) Average monthly change July to June 1970 August to July August to September 4.0 5.1 3.1 5.4 1.7 .8 .9 -.4 1.3 2.3 3.4 .3 3.1 .6 2.5 1.7 1.7 .7 1.0 -.5 1.5 1.4 3.4 2.8 ,6 .3 .3 2.0 - 2 - Auto sales and stocks. Unit sales of new domestic autos declined sharply in September and were at an annual rate of 7.2 million units, 15 per cent below August and 20 below a year ago. Sales in the first 10 days of October remained at the September level and were 15 per cent below a year earlier. Dealers' stocks decreased 5 per cent in September, but because of the decline in sales, stocks represented 63 days supply at the end of the month as compared with 56 days at the end of August and 54 days a year earlier. The low selling rate in early October can be attributed mainly to the strike at General Motors. DOMESTIC AUTO SALES Per cent change 1st 10 dyas of October 1970 from a year earlier Per cent General Motors -34 Ford - 1 Chrysler American Motors 17 2 Seasonally adjusted private housing starts, which had declined by more than a tenth in August following the sharp July rise, advanced nearly 7 per cent in September. At 1.5 million units, the annual rate of starts in September was the second highest for any month in over a year, and brought the average for the third quarter as a whole to a 1.51 million unit annual rate, 17 per cent above the average in the second quarter of this year. -3- PRIVATE HOUSING STARTS AND PERMITS Septemberr 1970 10 (Thousands Per cent change from of units)/ August 1970 September 1969 2/ Starts- 1,504 + 7 + 2 1-family 884 + 7 + 7 2-or-more-family 620 + 7 - 5 Northeast 199 +12 +42 North Central 267 - 9 -27 South West 669 369 + 5 +23 + 9 + 2 1,368 + 3 +14 680 688 + 3 + 4 +20 + 8 Permits 1-family 2-or-more-family 1/ Seasonally adjusted annual rates; preliminary. 2/ Apart from starts, mobile home shipments for domestic use in August--the latest month for which data are available--were at seasonally adjusted annual rate of 407,000, down 6 per cent from July, though virtually as high as in August 1969. The rise in starts in September was widely based, both by type of structure and among most regions. Unlike recent months when the volatile movement of the multifamily sector overshadowed the changes in single-family units, both groups rose in equal proportions during September. Regionally, the advance was shared by all areas with the exception of the North Central States. Seasonally adjusted building permits posted another modest advance in September. As in the case of starts, both single and multi- family units shared about equally in the rise. -4- With starts rising at a slightly more rapid rate than projected in the third quarter and with inflows to the thrift institutions holding up well, the possibility is suggested of a fourth quarter average slightly above the 1.53 million rate projected in the Greenbook. Money supply. Estimated growth in the money supply for the month of September has been revised to a 1.7 per cent annual rate of advance from the -.6 per cent annual rate of decline that was indicated in the Greenbook. An upward revision in the estimated volume of private demand deposits was responsible for this change. With the higher September estimate, the third quarter pace of advance is now estimated to have been at a 5.3 per cent annual rate rather than the 4.5 per cent annual rate that was indicated in the Greenbook. Savings and loan associations. Complete data for the September-October reinvestment period confirm earlier indications that savings and loan associations were enjoying a favorable deposit flow. For the reinvestment period as a whole, associations gained net new deposits (i.e., excluding interest credited) in an amount nearly as large as in the most favorable recent similar period, which was in 1968. West coast S&Ls not only shared in the generally favorable experience, they improved relative to their flows in 1968. - 5 - SAVINGS AND LOAN ASSOCIATIONS SEPTEMBER - OCTOBER REINVESTMENT PERIODDEPOSIT FLOWS EXCLUDING INTEREST CREDITED (Millions of dollars) All U.S. San Francisco District U.S. except San Francisco October 3-9-2/ 1967 1968 1969 1970 297 324 68 570 97 68 -30 95 200 256 38 475 -618 260 -365 84 -252 176 3/ Total reinvestment period1966 1967 1968 389 1969 1970 -646 366 - 92 481 -243 64 -403 302 1/ Universe estimates based on a FHLB sample of 480 associations. 2/ Dates are for 1970. Covers 5 business days in each year shown. 3/ Covers the last three business days in September plus the first ten calendar days, generally, in October. Although complete data are still unavailable, a tentative sample run by the FHLB suggests that during September S&L mortgage lending volume and commitments may have increased somewhat, on a seasonally adjusted basis. The sample also suggested very little change in S&L's liquid positions. Mortgage market. Reflecting in part the improved inflows at the thrift institutions and as a further sign of some easing in the market for residential home loans, yields in both the primary and secondary mortgage markets declined in September, as reported by the FHA. In the primary market, the average contract rate on conventional - 6 - first mortgage new-home loans declined for the first time in almost two years, and at 8.50 per cent the average was at its nine months. lowest level in Regionally, the reduction in the conventional home loan rate was most pronounced in the West where thrift institutions inflows have improved considerably more than in other areas since April. Smaller conventional loan rate declines were registered in the Northeast, Southeast and the Southwest. AVERAGE RATES AND YIELDS ON NEW HOME MORTGAGES (Per cent) Conventional loans FHA-insured loans 1969 Low 7.55 (Jan.) 7.85e (Jan.) 1970 High 8.60 (July, Aug.) 9.29 (Feb.) July 8.60 9.11 August September- 8.60 8.50 9.07 9.01 Note: FHA data; interest rates on conventional first mortgages (excluding additional fees and charges) are rounded to the nearest 5 basis points. e/ Estimated. 1/ DATA FOR SEPTEMBER IS STRICTLY CONFIDENTIAL UNTIL PUBLIC RELEASE ON OCTOBER 20. In the secondary market for FHA-insured home loans, the average rate continued to edge lower in September, and has now declined 15 basis points in the past three months. The level of the discount associated with the FHA secondary market yield now has fallen to less than four points for the first time since February of last year. As a - 7 result of the relatively low discount, the FHA-insured market should be more attractive to both builders of new homes and sellers of existHowever, if as some trade sources expect, the FHA and VA ing units. rate ceilings are reduced in the near term, discounts may again be forced back to a level which could restrict the government-underwritten segment of the residential mortgage market. It should be noted that all September data are STRICTLY CONFIDENTIAL until October 20. Bond markets. to a sharp rise in The continuing large volume of offerings led yields on new corporate bonds during the week of October 16; the new issue yield series rose almost 20 basis points and at 8.53 per cent is about the same as at the time of the last Committee meeting. While tax exempt yields edged lower this week, they remain somewhat above their September high. BOND YIELDS (Per cent) I/ New Aaa SCorporate Bonds- Long-term State2/ and Local Bonds- 1969 Low High 6.90 (2/21) 8.85 (12/5) 4.82 (2/23) 6.90 (12/18) 1970 Low High 8.20 (2/27) 9.30 (6/18) 5.95 (3/12) 7.12 (5/28) 4 11 18 25 8.40 8.52 8.50 8.35 6.16 6.30 6.26 6.28 2 8.37 6.39 Week of: September October 6.38 8.35 9 6.35 8.53 16 1/ with call protection (includes some issues with 10-year protection). 2/ Bond Buyer (mixed qualities). -8INTEREST RATES 1970 Highs Lows Sept. 14 Federal funds (weekly averages) 9.39 (2/18) 6.34 (8/26) 6.64 (9/9) 3-months Treasury bills (bid) Bankers' acceptances Euro-dollars Federal agencies Finance paper 5.71 (9/23) 6.33 6.50 (10/15) 7.13 7.69 (9/2) 8.13 Oct. 15 Short-Term Rates 7.93 8.75 10.50 8.30 8.25 (1/6) (1/13) (1/9) (1/9) (2/1) CD's (prime NYC) Most often quoted new issue 6.75 Secondary market 9.25 (1/23) 6-month Treasury bills (bid) Bankers' acceptances Commercial paper (4-6 months) Federal agencies CD's (prime NYC) Most often quoted new issue Secondary market 7.99 8.88 9.13 8.50 (1/5) (1/13) (1/8) (1/28) 7.00 9.38 (1/23) 1-year Treasury bills (bid) 7.62 (1/30) CD's (prime NYC) Most often quoted new issue 7.50 Prime municipals 5.60 (1/9) 6.21 (10/4) 5.91 6.50 8,14 6.17 (10/9) 6.70 (9/11) 6.24 7.12 (10/15) 7.50 7.12 6.00 (1/16) 6.75 (9/9) 6.75 (10/15) 7.44 (9/9) 6,75 (10/14) 6.75 (10/14) 6.12 6.62 6.88 6.41 6.55 7.25 (e) 7.38 7.03 (9/11) 6.12 6.62 (e) 6.88 6.60 6.25 (1/16) 7.00 (10/15) 7.00 (9/9) 7.47 (9/9) 6.75 (10/14) 6.19 (9/23) 6.48 6.21 (10/15) (10/15) (10/15) (10/9) 7.00 (10/14) 6.25 (1/16) 7.50 (9/9) 7.00(10/14) 3.75 (10/15) 4.10 (9/11) 3.75 Intermediate and Long-Term Treasury coupon issues 5-years 20-years 8.30 (1/7) 7.73 (5/26) 7.05 (3/25) 6.55 (2/27) 7.38 6.96 7.10 6.85 Corporate Seasoned Aaa Baa 8.60 (6/24) 9.45 (7/8) 7.78 (3/10) 8.57 (3/10) 8.12 9.43 8.00 9.34 9.29 (6/17) 8.20 (2/27) 8.52 (9/11) 8.53 Municipal Bond Buyer Index Moody's Aaa 7.12 (5/28) 6.95 (6/18) 5.95 (3/12) 5.75 (3/12) 6.30 (9/11) 6.35 6.00 (9/11) 6.10 Mortgage--implicit yield in FNMA auction 1/ 9.36 (1/2) New Issue Aaa 9.04 (9/8) 8.92 (10/5) 1/ Yield on 6-month forward commitment after allowance for commitment fee and 9.03 (8/26) required purchase and holding of FNMA stock. Assumes discount on 30-year loan amortized over 15 years. e--estimated. -9- Corrections: Section I, page 3, paragraph 2, line 2, should read: "to second quarter 1971 is now estimated to be somewhat smaller than projected in the preceding Greenbook." Table II, page 6a. Footnote 2/ relates to the projected GNP implicit deflator for QI 1971. Section IV, page 1. Second paragraph, line 8, should read: "in July-August there was an inflow of $375 million (roughly seasonally adjusted.)".
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