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fomc | 1,977 | It's more pervasive in Southern California than in Northern California. | 11 |
fomc | 1,977 | Even less than Southern California, as I remember your board meeting last week. They talked about how, really, around San Diego-- | 26 |
fomc | 1,977 | Actually, it's in Orange County [unintelligible], east of Los Angeles, but it's certainly not limited to that. | 25 |
fomc | 1,977 | Well, people offer more money every day for that property down there and [unintelligible]. It must give a sense of speculative opportunity--every day the paper has got a new higher price bid for that urban property. | 45 |
fomc | 1,977 | But this is also happening in farm land, a very similar occurrence. It isn't just residential property, that type of speculation. I think the land that Mr. Mayo speaks of has been bid up unrealistically, and it has [been] in Missouri and some of these other areas [unintelligible]. | 62 |
fomc | 1,977 | Mr. Chairman, there is another side of this that I think is sometimes overlooked. We pay attention to the behavior of the stock market, that is, what it does to people's attitudes and their spending plans and so forth. But when we take a look at the financial assets of the consumer, we forget the changes in market valu... | 167 |
fomc | 1,977 | This [is] compensation for the very high rates of interest that people have to pay. Unless the property goes up, there is really no justification [for borrowing], but they are collecting for the interest by remortgaging the property. | 48 |
fomc | 1,977 | To what extent have we seen a growth in the use of margin accounts for personal consumption purposes versus securities purchases? Is there any indication of that--I know there are several plans afloat that would relate the two types of financing so that you could use a margin account for personal consumption purposes. | 57 |
fomc | 1,977 | I'm not aware of any dollar magnitudes that are available on that. The aggregate use of margin credit has been increasing and is now at a new high level. It's about a billion dollars over what it was six months ago. But I'm not aware to what extent it's to purchase securities as opposed to withdrawing the funds from th... | 66 |
fomc | 1,977 | I think there has been a good deal of that, Phil, simply because the brokers find that they can offer better rates than the banks, and I think another piece of evidence is that the performance of the stock market relative to the growth in margin credit is much weaker than you would otherwise anticipate. | 59 |
fomc | 1,977 | Well, that's my judgment. It's obvious the money is going someplace. | 14 |
fomc | 1,977 | Because otherwise you've got to assume [unintelligible]--somebody's moving out of the market and allowing the little guy to take it over, and that doesn't seem to fit the facts. | 40 |
fomc | 1,977 | Well, the last two years have been characterized, by and large, by remarkable [unintelligible] from excesses and speculation. This is the first significant sign that I have heard of and I'd like to see this watched very carefully. And I think that [in any] study that our staff may be undertaking, it would be very usefu... | 115 |
fomc | 1,977 | The System Research Advisory Committee. | 6 |
fomc | 1,977 | Will you make sure that whoever is responsible gets on top of it promptly, and next month we will get reports through the Redbook on this alleged phenomenon. | 31 |
fomc | 1,977 | All right. | 3 |
fomc | 1,977 | Mr. Black, may we hear from you now? | 11 |
fomc | 1,977 | Mr. Chairman, I find myself in close agreement with Mr. Kichline's assessment of the business outlook, in particular for the outlook in plant and equipment expenditures. I was puzzled about one thing, Jim, on [page] II-15 in the Greenbook, where you have the Commerce Department series on contracts and orders for plant ... | 71 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | The last couple of lines there show weakness of the last two months, February and March--and I'm just wondering if there were special factors in the private nonbuilding area for utilities and pipelines, or something of that sort, that would account for that weakness there. All the other indicators would be sort of stro... | 68 |
fomc | 1,977 | I truthfully don't know--this is a highly volatile series, as you know. I think that is part of it; the weather effect may have been another. We have also heard at McGraw-Hill that the bulge in March reflected some contracts that were just reaching fruition about the same time, and it may be sort of a lumping problem o... | 92 |
fomc | 1,977 | No. | 2 |
fomc | 1,977 | What I'm really trying to get at is whether the nonbuilding part of it-- | 16 |
fomc | 1,977 | It almost has to be, if you read that footnote. That's the only thing that isn't shown separately. | 22 |
fomc | 1,977 | But I was wondering whether it was just an aberration or whether that could be a weakness that might overwhelm the strength received. | 25 |
fomc | 1,977 | When I read that table, I was disturbed by exactly the same point. Then I consulted the table on page 12, which seemed to contain a reassuring answer--that is, you find that, according to the latest McGraw-Hill survey, expenditures--plant and equipment expenditures [for] electric utilities are scheduled, if these figur... | 115 |
fomc | 1,977 | Well, that's what I felt. It was because everything seemed to indicate that it might be, but I just wanted to go ahead and take the information on it anyway. | 34 |
fomc | 1,977 | I'm sorry we don't-- | 5 |
fomc | 1,977 | Well, I think Chairman Burns has confirmed my feelings about it, by pointing these things out, that's certainly not [unintelligible]. | 28 |
fomc | 1,977 | Well, it's also, if you look at the last column there, the year-over-year is much less, possibly, than the other component. The other component would have to be remarkably weak. | 39 |
fomc | 1,977 | I think this is something that should be looked into. There are margins of uncertainty throughout. | 18 |
fomc | 1,977 | Fine. | 2 |
fomc | 1,977 | All right. Mr. Partee now, please. | 11 |
fomc | 1,977 | Well, I want to return to this question of a possible pattern developing throughout the year. I certainly agree that all of the figures currently look very strong. One can't really find anything--except for the concern about the rate of inflation--to be very disturbed about with the performance of the economy in the la... | 346 |
fomc | 1,977 | Well, yes, there was a very large increase, particularly in retail trading inventories in March. | 19 |
fomc | 1,977 | Yes, but the total is $33 billion; that's quite a large number. | 16 |
fomc | 1,977 | The $33 billion for total business--manufacturing and trade, the average for the first quarter is about $30 billion. Given the very rapid increase in wholesale prices, our IVA is jumping and now is somewhere in the low 20s, so that it's possible that the inventory figure, as you suggest, may be stronger in the first qu... | 340 |
fomc | 1,977 | But you do have every line moving up strongly. Except net exports, which moved up slightly; but everything else is moving up strongly in order to give you this 5-1/2 percent for GNP. | 43 |
fomc | 1,977 | We have business fixed investment certainly moving up strongly. I must say, our assumption about inventories remains approximately what it has been in recent months, to wit, a rather conservative rate of growth. The inventory-sales ratios continue edging off all through 1977, and we just turned them around as we move i... | 269 |
fomc | 1,977 | All right, we will hear from Mr. Wallich now, please. | 15 |
fomc | 1,977 | I wanted to address myself to the same subject as Chuck and look a little farther ahead, if possible. This recovery is now entering its third year, so it's beginning to be an old one, and while there are no clear imbalances-- | 48 |
fomc | 1,977 | An old one with new life. | 7 |
fomc | 1,977 | --a new one, maybe with new life; we certainly wish it a long and happy life. But what I seem to see in the projections is some kind of a rolling readjustment, with some things losing strength and other things therefore necessarily being relied on to gain strength if the expansion is to continue. So if housing were wea... | 276 |
fomc | 1,977 | But there could well be a pause there; you mentioned new cars. I recall 1955 as a year in which new car sales were extremely strong for a while, and when they fell off, why there wasn't really anything. Well, the economy continued all right, but there was a pause in the sense that there wasn't anything to take their pl... | 71 |
fomc | 1,977 | In those days I think your report, Mr. Chairman, called it a rolling readjustment, and [it] went from one sector of strength to another sector of strength, and so there was hope the business cycle had been overcome. | 48 |
fomc | 1,977 | As I remember that period, you had a decline in automobile production, and that was accompanied by a decline in homebuilding, and those economists who look upon those two industries as dominating the economy were crying, "We must have a depression, it's coming immediately." Eventually they were right, but we had a cons... | 83 |
fomc | 1,977 | Right, there was a real sequence, first housing in '54, then cars in '55, and plant and equipment thereafter, so it was really going from one support to another. It's just a question of whether these things will always show up in time. | 52 |
fomc | 1,977 | Jim, what's your balance between industrial production and inventory gain? You've had about a 2-1/2 to 3 percent increase in industrial production, first quarter, and I noticed looking down here that, taking off from the third quarter of 1977, our industrial production growth--7.8, 8.8, 9.0, 10.1--a steady rise through... | 92 |
fomc | 1,977 | I think the gains in industrial production--I don't have the numbers right handy--were stronger through the first quarter on average. I think it is closer to 5 percent. And given the strong surge in sales, the inventory numbers that we have, and what we would anticipate for the second quarter, much of the production is... | 170 |
fomc | 1,977 | No, I think, Governor, that you were making a valid point in the sense that there is a somewhat closer relationship between the growth in industrial production and real final sales than between industrial production and, let's say, the commodity portions of GNP at the moment, because of the relatively sluggish growth i... | 124 |
fomc | 1,977 | I wonder if it's inventories. I wonder if inventories are the reconciling factor or the expenditures on services. | 22 |
fomc | 1,977 | Well, I--aren't they really basically the same? | 12 |
fomc | 1,977 | You and I are not on the same track. Go on, just elucidate your thought. | 19 |
fomc | 1,977 | The balance of gross national product has been heavily toward services, in part because of the lack of investment in inventories. If there were more rapid rates of growth of inventories, that sector of the economy would be growing somewhat more strongly, and so the balance between services and goods would be somewhat m... | 64 |
fomc | 1,977 | You lost me a little bit on that last comment. | 11 |
fomc | 1,977 | Inventory to services-- | 4 |
fomc | 1,977 | Well, I understand that. Coming back to the inventory question, though, I'm just a little bit puzzled. Jerry, if you take an early inventory buildup in nondurables at the manufactures level, which I believe is what Jim said, do we have enough track record to call that a forecasting development to [an] enlarged total in... | 93 |
fomc | 1,977 | I think it depends very heavily on one's expectation for sales and-- | 13 |
fomc | 1,977 | But you said yours was going down. | 8 |
fomc | 1,977 | That's right, but the inventory growth that we have projected is really quite moderate relative to sales, so we still have in our projection, in each of the four quarters this year, a decline in the inventory-sales ratio. | 44 |
fomc | 1,977 | That's exactly my point. That's where I think I get off the track--I think that the inventory-sales ratio either should level off or go up. If sales weaken and you continue your industrial production-- | 40 |
fomc | 1,977 | Well, the arithmetic, I think, is correct, so what one has to focus on is the two parts of that ratio. Either you get a faster increase in production--a buildup in inventories--or alternatively, sales don't keep pace and production adjustments come along with a lag and you get this buildup in the ratio because sales te... | 104 |
fomc | 1,977 | You do have a rapid increase in the inventory-sales ratio in early 1978? | 17 |
fomc | 1,977 | Right. It's in the first quarter, I think; it begins to turn around, and in the second quarter of 1978, we have it bouncing up. | 33 |
fomc | 1,977 | Well, Mr. Eastburn. | 7 |
fomc | 1,977 | I'd like to come back again for a minute to this question of a possible lull or rolling readjustment. We've been talking about this, too, and I think the probabilities that I would assign would agree with the ones that you have. At the same time, I've been concerned about the possibilities for further price increases. ... | 150 |
fomc | 1,977 | If we had something like we had a year ago, I think we'd be talking about significantly less real growth in total. And I must say, personally, I'm getting a bit discouraged with the behavior of markets in terms of pricing behavior relative to the strength of markets. I think increasingly, the staff is convinced that tr... | 312 |
fomc | 1,977 | But your overall industrial utilization figures are not so high until you get into next year, I think by the middle of '78. That's a pretty high number. | 32 |
fomc | 1,977 | They get in to the 85, 86 percent range. | 13 |
fomc | 1,977 | A lot of inventory accumulation, and then an 86 percent capacity utilization rate. But for the time being, you don't have that overall utilization pressure. And what Dave said occurred, you have to remember--the effect would be a higher unemployment rate. In other words, if there were slower real growth. And the questi... | 78 |
fomc | 1,977 | Well, the irony of it would be, Chuck--and this was the thrust of my question--that you might suffer a higher unemployment rate and still gain no ground on the price front. | 38 |
fomc | 1,977 | You might, yes. | 5 |
fomc | 1,977 | You sound like a very discouraging lot. We seem to be looking for trouble. Speculating about possible sources of trouble. Why don't we look for possible sources of price stability, possible sources of encouraging, balanced economic growth? Mr. Kimbrel, perhaps you'll supply that function. | 57 |
fomc | 1,977 | Well, Mr. Chairman, indeed, in our area, we are hearing an awful lot of very happy news. Everything is relative, though, I guess. But I was concerned at our breakfast meeting last Friday and in some of our sessions very recently with businessmen that, for the first time, we've been observing purchases anticipating high... | 86 |
fomc | 1,977 | Jerry, would you--Jerry has been watching this particular situation. | 13 |
fomc | 1,977 | There hasn't been too much; there have been some reports in that direction. We don't have very great quantitative information, but you have the reports of purchasing agents, which seem to be fairly concrete, and there has been some tendency in that direction, but nobody is complaining very greatly yet, as far as I can ... | 64 |
fomc | 1,977 | From deliverywise? | 4 |
fomc | 1,977 | Deliverywise. | 3 |
fomc | 1,977 | You would not assign a great dimension of current purchases against borrowing from the future. | 16 |
fomc | 1,977 | On the part of consumers or on the part of businessmen? | 12 |
fomc | 1,977 | Well, businessmen. | 4 |
fomc | 1,977 | It's a little hard to evaluate since we have no real concrete information. But it would seem to me that, given the generally available capacity and no significant indications of shortages in the immediate future, I wouldn't think that there would be too much stockpiling except as you suggested, some possibility of anti... | 63 |
fomc | 1,977 | Thank you, Mr. Kimbrel. Mr. Volcker, please. | 16 |
fomc | 1,977 | I don't know whether I want to add a great note of cheer around the table, Mr. Chairman. I came in feeling somewhat the way Mr. Winn started us off with, maybe a little more reason for uneasiness about the pattern over time. I think our basic forecast is a little stronger in the short run and a little weaker as time pa... | 193 |
fomc | 1,977 | Let me just say a word about the staff. Chances are that members of the staff have thought of many of the uncertainties that have been mentioned around the table, but they don't know how to translate that into numbers over time, so they have a smooth-- | 51 |
fomc | 1,977 | That's right, that always happens in forecasting, and I sympathize. | 14 |
fomc | 1,977 | If I may say--add another word--I have the feeling that this is true of much of mankind--it's certainly true of this Committee today--we do a constant amount of worrying. We don't have real problems to worry about, but we'll still worry, and we will create problems. | 58 |
fomc | 1,977 | I agree with all that, but I still have a little more worry. Not quite as much as the general tone that's emerged. Yes, I think for the first time, maybe, in this expansion you can begin pointing to some things that could develop in an unsustainable way over time. But maybe the most serious thing in the background is, ... | 187 |
fomc | 1,977 | Perhaps the only word that I can add to this discussion is that, we are having, I think, a very normal expansion. That's all that I see, with all the uncertainties--prices accelerating, and there will continue to be surprises--but I see nothing abnormal about the expansion so far. The one disturbing thing that I've hea... | 159 |
fomc | 1,977 | May I ask, that first-quarter compensation increase had some--was more--and perhaps you were referring to that, Paul, about the faster compensation rates. But that had some special factors in it, didn't it? | 43 |
fomc | 1,977 | Well, the first quarter was certainly more, but if you just look at the projections beyond the first quarter, it is also more than it was last year, although not as much as the first quarter. | 41 |
fomc | 1,977 | Are we seeing a speed-up in the size of contract settlements or nonunion wages? Are they accelerating? Is there anything detectible as yet in the figures on that? | 34 |
fomc | 1,977 | It's a mixed picture. I hate to use that phrase, but it is. You mentioned the contract settlements in the first quarter. They were not out of line with what we had been having through 1976. But there has been a distinct speed-up in average hourly earnings, and we think that this is a function in part of the composition... | 136 |
fomc | 1,977 | It discourages me about this a little bit more. One more comment on this point, purely a qualitative reaction. The more time passes, businesses seem to take it more and more for granted that you give a 9 to 10 percent [compensation] increase, and we don't even raise much question about it. It's the normal, expected way... | 96 |
fomc | 1,977 | Just a question, Jerry. What does the staff think about the proposal to increase Social Security withholding applied solely to the employer? | 25 |
fomc | 1,977 | It's going to be expensive. Obviously that goes directly into labor costs. The proposals, which carry through over a number of years and eventually involve no ceiling on employer contributions, run into a fair amount of money. We have some rough estimates of the amount. Most of that is far off, several years from now. ... | 76 |
fomc | 1,977 | It must be at least 1 percent of payroll. | 11 |
fomc | 1,977 | It runs above 1 percent of payroll, Governor. I think, if I remember correctly, the adjustments run 1, 1-1/2, and 2 percent of payroll over three succeeding years. | 43 |
fomc | 1,977 | Well, I hate to join the questioners and doubters, but I have to at this point. Not so long ago the Administration made a proposal to its Congress, namely that business firms be granted a tax credit in the amount of 4 percent of their payments on account of the Social Security tax, and this measure was described as an ... | 129 |
fomc | 1,977 | Oh, no, no, on the contrary. The Secretary was asked about that, and he said that it would have no effects on employment. And then he was asked about the effects on prices, and he said it would have no effects on prices. And the reason is the business would absorb costs. | 61 |
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