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The last 30 days has seen a marked upturn in demands for motels, hotels, office buildings, apartment houses in the insurance industries. Demand really has gone up. A shortage, which we don't talk much about, is the fact that the union bottlenecks with respect to electricians, pipe fitters, plumbers, and that sort of th...
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Could they come back in?
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To a degree, but it's always at a price and slow, and they've got some problems--they shifted off in different areas. Our unemployment figures are very deceptive. There's a big structural problem that's not going to be cured by pouring money in there. And then some of the other shortages--I think they're going to take ...
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Mr. Baughman, please.
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I had reports with respect to the Houston market that, I think going back a month or two, insurance companies were a source or an outlet for single-family residential mortgages from that market. Another point I was going to make, Mr. Winn has just made--that there are significant markets in which the supply of labor is...
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All right, thank you very much. We will return to you, now, Mr. Mayo, and you were going to comment on the agricultural area.
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Just briefly, Mr. Chairman, one of which is on the subject that we're all following but wasn't mentioned in the forecast. I don't think anybody tries to make a forecast of this, but it relates to the valuation of farmland, sales of farmland. We have had an astronomical increase in many of our Midwestern states in farm ...
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A decline over what period?
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A decline over the preceding quarter. For the first time since 1960 for the District as a whole.
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Is that an annual rate?
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No, there isn't really any--this is a decline in sales prices of land.
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10 percent.
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8 percent in Illinois. But Illinois rose more, it rose 41 percent in '76 or--
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What is that--through forced selling or what?
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This is estates selling property at auction, in part, and just the open market price, Mr. Chairman, of farmland. And this is what's in our survey, and this is the first downturn in the value of farm land in our district since 1960. Quarterly.
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You're saying that the price of land is finally reflecting farm income?
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Yes, I am.
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Not quite yet.
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Well, no, but a corner has been turned.
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Got a few more percentage points.
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Oh sure, but a corner has been turned, and we haven't had a corner for 17 years. The second observation relates to the credit side. Many more of our banks are recording some worry about the need for a renegotiation or extension of loans that are current loans on farm operations, that the situation is growing rapidly. I...
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Any other comment on agriculture? Mr. Guffey.
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I'd only verify what Mr. Mayo has already said, and that is in this renegotiation time on the extension of loans, which really doesn't arise in our area until November, December, January, because the farmers are out harvesting their crops now. We have seen some improvement in the ratios within the banks in those agricu...
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How do you feel, Roger, about the outlook for farm products and supplies?
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Well, looking at our District only, as you know, there is a very good, very big supply now unsold. It's encouraging to hear the forecast for potential exports markets, particularly in wheat. But we're looking at very favorable conditions for 1978 crops--that is to say, throughout the District it's far advanced from thi...
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That's in wheat.
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That's in wheat and corn.
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Any other comment on agriculture?
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Is agricultural land continuing to be effective for foreign investment, which would influence our discussion?
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Yes, in our part of the country, it is, although it's a fairly small percentage of total sales--they happen to be big block sales that you hear about, but there are not that many of them. But it is still an attractive investment, particularly for West Germans that have come into the Midwestern and Southwestern areas.
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I've heard less of this recently than a few months back, but that may not mean anything.
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All right, Mr. Black is next.
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Mr. Chairman, mine's related to something we have not gotten to yet. It isn't on agriculture. Do you--
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Well, we're ready to shift to another subject.
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Earlier, either Jerry or Jim, I've forgotten which, mentioned that inflation for '78 would be 1/4 percentage point lower if you assume no imposition of the well-head tax. Have you done like computations on real GNP?
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Well, we've done that computation on GNP for the House-passed bill, which includes all of the major features of the President's program through 1985. And in total, I think our best guess was a reduction in real GNP from the full program averaging about 4/10 percent per year. And the well-head tax alone--I know that was...
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When you say less without the well-head tax, you mean but with the continuing control program and all? I mean, what's the alternative to the well-head tax?
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The existing situation.
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Have you seen this Rand Corporation study that I've read about in the press, which suggested that the current market price of oil products in the United States, excluding taxes, is about the same as in Europe. And therefore the implication is that the control of oil prices at the producer level, which was designed to a...
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I am not personally familiar with the details of that. We have had it analyzed within the staff in our international division. And the staff views on this entire energy program, I must admit, are quite split. But one portion of the staff, in effect, suggests what the Rand Corporation study came to, which was that, if y...
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I'd like to see it.
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Any other question, Mr. Black?
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I had just one minor one, Mr. Chairman, the question of the meaning of a chart back here on international [developments]; it's very minor. This second chart in international shows the ratio of foreign real GNP to U.S. real GNP. What is included in that foreign? What is included in that chart?
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The six big, the big six countries, Germany and--
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That's what I assumed.
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We've used this trade weighted.
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All right. Mr. Winn.
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Mr. Chairman, just one comment on the consumer area. In the tire business, the shift to radial tires led expansion of capacity. It's also led to a rather high-priced tire. Now the tire industry today is faced with big demand for tires both for new cars and for replacements. And the replacement demand has shifted rather...
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I think it's a failure of the radial tires to achieve their 40,000 miles guarantee in most instances.
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Any observation on the consumer market more broadly? Yes, Mr. Baughman.
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[Some of] our directors are in the retail business, and we happen to have a rather broad representation there at the present time. General merchandise retailing. They've been inclined to feel that the strength of the auto market has had a negative effect on their sales during this past year. And so they in fact are loo...
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It does lead into something I was curious about, Jim. If you take a look at the real personal consumption expenditure chart and then you go back to the retail sales chart--and admitting that it's difficult to do this because one's on a seasonally adjusted annual rate basis on a real term and the other one's on billions...
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I'm not sure it's going to do all of it, but we're planning on a good deal. I think the major difference between the sales and the personal consumption expenditures chart is indeed the component of services in personal consumption expenditures.
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Yes, but I think there is another factor, purely statistical. Your retail sales figures run currently through September; your real personal consumption expenditure chart appears to run through the second quarter only, and the rest is sheer projection. I don't know why you don't have a third-quarter figure plotted.
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We will get the Commerce Department figure on Wednesday, but we're running right now with our own estimate of the third quarter.
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So that the retail sales is a more current look, you mean?
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Yes, that's it; does the third quarter show an acceleration?
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It shows an acceleration from the second quarter rate of increase, although not an extremely strong rate of growth in real personal consumption outlays.
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This chart shows the retardation through the second quarter, and then some acceleration starting with the third quarter.
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That's right in terms of our projection. These are quarterly numbers, as you know, in the real personal consumption expenditures chart; the other numbers are plotted monthly. But indeed, on average in the third quarter, we anticipate that they will be higher. But I might note that the recent retail sales data for Septe...
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Yes, that's what I would think.
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The second quarter was extremely weak, Mr. Chairman, and in real terms, personal consumption expenditures rose by less than 2 percent at an annual rate, and even with a reduced estimate for the third quarter, we probably may see a gain. I certainly hope so.
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You mean you're pinning that advance on the basis of real disposable personal income?
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That is the projection, yes, Governor. We have the rate of growth in the real personal consumption expenditures at a rate of somewhat under 4 percent during the period. It's not very rapid, and that's manifested, of course, in the tendency for the saving rate to rise, at least over the next couple of quarters. But the ...
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Yet there is some circularity there, isn't there.
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Absolutely.
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And Ernie was saying earlier, with the income and employment that was being projected, you have to have very strong consumption; but on the other hand, if you don't have the consumption, you might not have any income.
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You're absolutely correct.
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This raises a related question, if I might inject, Mr. Chairman, as to whether we are anticipating anything unusual in terms of labor strife. It seems to me that that could be a factor in the picture. We have a substantial strike going on in Houston at the present time, where the union has unequivocally rejected a 40 p...
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Union of what?
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Hughes Tool employees, Hughes Tool Company.
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Any broad observations on the prospects for retail trade and consumer markets? All right, then let's move on, then. Mr. Winn, do you have anything else?
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A comment, Mr. Chairman. In terms of all the projections, you really haven't factored anything in with respect to the so-called tax revision law, or what have you, in terms of--
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No, we have not. We would not know what to put in there. I think a dose of uncertainty in terms of our thinking about business fixed investment has implicitly crept into the forecast. Other than that, we don't have an explicit assumption.
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All right.
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One more comment. Several of our major companies in the area have at long last released their string on capital expenditures after running overtime and a very tight ship and all other means to avoid making the expenditures. But their demand has been so strong that they are now planning rather major capital expenditures...
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These are capacity pressures, Willis, in which industry?
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These are a couple of our major firms.
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Which industry?
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Well, they're electronic equipment and machine tools, this general area, auto parts business.
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These expenditures that are being projected now, are they large?
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Yes, these are going to be plant expansions. They've done everything with respect to improving tooling and that sort of thing to increase capacity, and they're just faced with market demand that they can't meet without breaking water.
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Do you happen to know how long it would take to bring that into operation?
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Probably several years.
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All right. Mr. Morris now, please.
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Mr. Chairman, I'd like to pursue something that we started talking about a little earlier, and that is the vulnerability of the thrifts in this cycle. We made a survey of the Boston savings banks this morning, trying to find out how they have been doing in October. Now in the past, the Boston savings banks have been ve...
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Well, if I may interrupt, I heard Phil Jackson say the other day that we've never had a net outflow; that all that we ever have is changes in the degree of intermediation, and we've never had any disintermediation. And I asked you, Mr. Axilrod, to look into that for me.
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Well, we did.
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Checking up on my colleague, Mr. Jackson.
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On a seasonally adjusted basis, there appears to be a very small net decline in deposits, that is, a net outflow, at S&Ls in January and February of 1970, and there was a similar--very small, 1 percent annual rate--decline in August 1966.
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Well, it's very rare then, on a seasonally adjusted. Is it--well, now wait, before seasonal adjustment--
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I don't have those figures here, but I'm sure there are some more.
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Don't be sure; you've got to take a look.
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I take that back, sir.
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Mr. Chairman, I think the aggregates figures cover up a great diversity of experience. But the Boston savings banks, for example, [in] '73 and '74, had net outflows in every month for 18 consecutive months, while at the same time, the savings banks outside of Boston were recording net inflows every month. I think there...
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There is disintermediation for individual institutions and regions, yes, but for the country as a whole, apparently it's an extremely rare and minuscule phenomenon. And the right term ought to be, not disintermediation, but reduction in the degree of intermediation.
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Isn't October one of your taxpaying months, also?
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Yes, it is.
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So, therefore, if your people had a good month this month, at least a reasonable month, it would be an even stronger month than you might expect.
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Yes, but they were comparing this October to last October, and they expected some outflow for tax reasons. But by and large, they're not terribly unhappy.
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