ECONOMIC

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lation requiring ceilings on all CD's of less than $100,000. The volume oflarge CD's increased from $44.4 billion in January to $67.0 billion in August,a sharp contrast to the sizable decline in 1969.chart 5Interest RatesPERCENT PER ANNUM12SHORT-TERM10FEDERAL FUNDSI3-MONTH TREASURY BILLS(New Issues)V\u - r A\H _r r j'/^ / \ •• 1 r 1 ••"C /0 I i i 111 1 i i 111 I i 1111 h i n i 111 i i 111 i i i 111 i i 11 1111 11 I 111 11 111 i 11 I 11 1111 I 11 I i1968 1969 1970 1971 1972 197312LONG-TERM10NEW HOME MORTGAGES(FHLBB)CORPORATE Aaa BONDS....--•...-••%....•.HIGH-GRADEMUNICIPAL BONDSU.S. GOVERNMENT BONDS0 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I1968 1969 1970 1971 1972 1973SOURCES: DEPARTMENT OF THE TREASURY, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,FEDERAL HOME LOAN BANK BOARD, MOODY'S INVESTORS SERVICE, AND STANDARD & POOR'S CORPORATION.84
However, steps were taken to keep credit expansion within bounds. Thesupply of reserves through open market operations was kept at a level wherecommercial banks had to borrow heavily from the Federal Reserve discountwindow to acquire additional reserves. The Federal funds rate, a goodbarometer of money market conditions, rose to about 11 percent in Septemberfrom about 5/ 2 percent at the beginning of the year.Marginal reserve requirements on large CD's and on bank-related commercialpaper were also raised from 5 to 8 percent in May to increase theeffective cost of raising funds. As loans financed through large CD's continuedto accelerate, these marginal reserve requirements were raised againin September, this time to 11 percent. The new regulation meant an additional$465 million in required reserves for the banking system. Commercialbanks raised the prime lending rate to a record 10 percent in response to thehigher effective cost of large CD's and strong credit demand. The volumeof large CD's outstanding declined from $67 billion in August to about $63billion in December. The rapid rise of business loans at commercial bankscame to an end. As a result, there occurred in September and October asignificant rise in business borrowing by means of the placement of commercialpaper by dealers in the market.Recognizing these developments, the Federal Reserve Board lowered themarginal reserve requirement on large CD's and bank-related commercialpaper from 11 to 8 percent in December. The move lowered the effectivecost to banks of obtaining additional funds through the sale of large CD'sand bank-related commercial paper and prevented short-term interest ratesfrom rising even higher.Long-Term FinancingLong-term financing by corporations was lighter in 1973 than in 1972but showed a substantial increase in the final quarter (Table 19). Thereduction was partly a reflection of the large rise in internally generatedfunds. In the first 3 quarters of 1973 corporate profits after taxes plus capitalconsumption allowances were on average 16 percent greater than theannual average for 1972. Along with rising long-term rates, this contributedto the decline in bond market activity, while declining stock prices madefinancing through equity issues less attractive.With the rise in profits slowing down after midyear, and with requirementsfor new capacity continuing to increase, scheduled new bond offeringsrose substantially in the fourth quarter. These upward pressures on interestrates were counterbalanced when investors attempted to reshuffle theirportfolios in favor of longer-term securities in response to declining shorttermrates.Mortgage MarketsDuring the first 3 quarters of 1973 the sharp increase in short-term openmarket rates and the gap between those rates and yields on most types of85
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ECONOMICTRANSMITTEDTO THE CONGRESSF
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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of the inflation rate of 1973, and
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or permit incentives—including hi
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people of an easy time. Like our pa
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THE PRESIDENT:LETTER OF TRANSMITTAL
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CHAPTER 3. INFLATION CONTROL UNDER
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Page7. Unemployment Rates by Sex an
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Page53. Maximum Percent Change in E
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We have specific problems, too, asi
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This curtailment of supply does, of
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consumption we would not have chose
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outside the food and fuel sectors a
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about $14 billion from deficit to s
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8 percent, at annual rates. Continu
Page 40 and 41: A third method, which seems to have
Page 42 and 43: DEVELOPMENT OF LOW-COST ENERGY FOR
Page 44 and 45: would otherwise have been invested
Page 46 and 47: TRANSPORTATION REFORMLast year the
Page 48 and 49: constraints. Restrictions on entry
Page 50 and 51: In early 1974 the Commerce Departme
Page 52 and 53: Consumer SpendingConsumer expenditu
Page 54 and 55: Chart 1Changes in GNP, Real GNP, GN
Page 56 and 57: During the fourth quarter the downt
Page 58 and 59: A number of points may be noted abo
Page 60 and 61: income do not appear to have played
Page 62 and 63: Chart 2Changes in Real GNPPERCENTUN
Page 64 and 65: of essentially declining participat
Page 66 and 67: The unemployment rate for adult mal
Page 68 and 69: from job losers, the remainder of t
Page 70 and 71: to maintain a somewhat larger work
Page 72 and 73: Chart 3Changes in Selected Price Me
Page 74 and 75: TABLE 12.—Changes in selected pri
Page 76 and 77: production workers, and it is sensi
Page 78 and 79: the profits that companies report a
Page 80 and 81: Two measures of changes in income t
Page 82 and 83: About $8 billion of the growth in e
Page 84 and 85: effect of covered wage and employme
Page 86 and 87: Since these apparent stabilization
Page 88 and 89: MONETARY POLICY AND FINANCIAL MARKE
Page 92 and 93: TABLE 19.—Offerings of new securi
Page 94 and 95: CHAPTER 3Inflation Control Under th
Page 96 and 97: (A more detailed presentation of th
Page 98 and 99: ate of advance in grocery store foo
Page 100 and 101: to the economy but also in the sens
Page 102 and 103: were imposed, limiting prices to th
Page 104 and 105: spurring of domestic inflation by e
Page 106 and 107: was more than twice as high in 1973
Page 108 and 109: wage increases in many cases, const
Page 110 and 111: TABLE 26.—Behavior of items in co
Page 112 and 113: Chart 6Changes in RelatedWholesale
Page 114 and 115: and natural gas. A complex set of f
Page 116 and 117: CHAPTER 4Energy and AgricultureFOR
Page 118 and 119: al gas have contributed to the low
Page 120 and 121: TABLE 30*—Wholesale prices, all i
Page 122 and 123: tion sector, which in 1972 accounte
Page 124 and 125: United States on oil imports, OPEC
Page 126 and 127: of old oil and prices of imported a
Page 128 and 129: LONG-TERM PROSPECTSThe price of imp
Page 130 and 131: important that the higher costs be
Page 132 and 133: improving the environment. The fund
Page 134 and 135: pollutants into the atmosphere will
Page 136 and 137: of research and rapid mechanization
Page 138 and 139: lion in fiscal 1972. Actually the a
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a minimum income. Unless prices fal
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The Administration supports the exa
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and estimates of some of these effe
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Since families typically pool their
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ability were not perfectly correlat
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Farm wages and farm income received
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TABLE 37.—Average usual weekly ea
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Chart 9Real Incomes for Men in Diff
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ecause they have acquired more expe
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whose owners or white workers have
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Several factors can be mentioned to
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y social pressures, however, which
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TABLE 42.—Relation of wage and sa
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ferences in their mix of occupation
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for public housing may be valued by
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8 to 20 percent for black females.
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sufficiently high to cover the addi
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TABLE 45.—Federal Government tran
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given to the problems of poverty du
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TABLE 47.—Trends in the employmen
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enefit increases greater than the i
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(Table 45). Medicare is chiefly des
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Public assistance is specifically d
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Then, subtracting equation (4) from
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policies, and the tensions among co
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In the fourth quarter the dollar ro
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which include trade, grants and oth
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tarily by foreign central banks, ev
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ply of oil, and by domestic price c
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in the United States. In view of th
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TABLE 52.—U.S. balances on intern
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esult from changes in market value
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TABLE 54.—Major changes in capita
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attempt was made to agree on a code
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The official price of gold was rais
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system, these demand changes were a
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What Pressures Should Be Exerted on
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The composition of reserves among d
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prices of approximately the same or
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tained, they would probably be felt
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Reducing Nontariff BarriersIn order
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Structural problems. Agreements on
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arrangements which are designed to
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capital and the means of putting th
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Canada and four smaller countries u
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currencies have appreciated relativ
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Effective Changes in Other Currenci
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Activities of the Advisory Committe
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Appendix BREPORT TO THE PRESIDENT O
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Report to the President on the Acti
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govern the exploitation of the reso
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Manpower and Social Affairs Committ
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Junior Staff EconomistsJames S. Fac
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Appendix CSTATISTICAL TABLES RELATI
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PRODUCTION AND BUSINESS ACTIVITY:Pa
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE C-2.—Gross national product
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TABLE C-3.—Implicit price deflato
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TABLE C—8.—Gross national produ
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TABLE C-10.—Gross national produc
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TABLE C-12.—Personal consumption
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TABLE C-14.—Relation of gross nat
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TABLE C—16.—Relation of nationa
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TABLE C-18.— Total and per capita
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TABLE C-19.—Sources of personal i
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TABLE C-21.—Saving by individuals
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POPULATION, EMPLOYMENT, WAGES, ANDP
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TABLE C-24.—Noninstitutional popu
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TABLE C-26.— Selected unemploymen
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TABLE C—28.—Unemployment insura
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TABLE C-29.—Wage and salary worke
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TABLE C-31.—.•Average weekly ea
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TABLE C-33.—Changes in output per
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TABLE C—35.—Industrial producti
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TABLE C-37.—Capacity utilization
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TABLE C—38.—New construction ac
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TABLE C-39.—New housing starts an
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TABLE C-41.—Sales and inventories
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TABLE C-43.—Manvjacturers* new an
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TABLE O45.—Consumer price indexes
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TABLE C—47.—Consumer price inde
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TABLE C~49.—Wholesale price index
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TABLE C-50.—Wholesale price index
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194819491950.,1951195219531954Yearo
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TABLE C-53.—Commercial bank loans
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TABLE G-54.—Total funds raised in
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TABLE C-56.—Federal Reserve Bank
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TABLE C-58.—Bond yields and inter
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TABLE C-59.—Short- and intermedia
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TABLE C-61.—Mortgage debt outstan
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TABLE C-63.—Net public and privat
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TABLE C-65.—Federal budget receip
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TABLE C-66.—Relation of the Feder
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TABLE C-68.—Receipts and expendit
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TABLE C-10.—State and local gover
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TABLE C-72.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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TABLE C-76.—Relation of profits a
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TABLE C-77.—Sources and uses of f
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TABLE C-79.—State and municipal a
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TABLE C-81.—Business formation an
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Year1929...1933...1939...1940...194
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TABLE C-85.—Indexes of prices rec
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TABLE G-87.—Comparative balance s
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TABLE G-88.— U.S. balance of paym
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TABLE C-90.— U.S. merchandise exp
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TABLE C-92.—International reserve
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TABLE G-94.—International investm
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TABLE C-96.—Consumer price indexe
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ECONOMIC

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