Page 18
Economy Has Not Fully Recovered
[Editor’» Note: George Hatch, a research analyst for
the Charlotte Chamber of Commerce, is a graduate of
Harvard and the Columbia School of Business. He has
had experience in securities research and analysis,
investment advising and had taught economics at college
level]
* by GEORGE HATCH
Financial Times Contributor
In my last economic forecast in March, I noted that a
real decline ip the money base between December 1974
and December 1975 meant bherise es the stock market in
early 197# was based on election year expectations.
The general economic recovery, ..measured by gross
national product, would thua-be bhxnted. Recovery in the
long run was still a problem because of the work ethic
ana currency problems.
Let us examine whether the basic expansionary forces
needed for long-term growth are any'less inhibited now
than they were in March. Specifically, has it been
possible, despite the danger of inflation, for the Federal
Reserve to expand the money supply?
Then let us examine the performance of the economy
and determine whether it has recovered from the
recession of early 1975.
In recent months, the financial media has been
speculating about whether the Federal Reserve is
actually intending from one week to the next to expand
or contract the money supply. One would assume from
B*§Bj headlines that the p&ftdtose and sale of U.S.
government securities through the Fed’s open market
committee was being done without much decisiveness.
Within a few weeks, the Wall Street Journal said the
Federal Reserve was rapidly expanding the money
supply (April 23) and then warned of a contraction in the
supply (May 11). The Fed is accused of doing that by
shifting billions of dollars in and out of the banking
system.
In both cases of expanding the money supply and
contracting it, the Fed gets blamed for raising interest
rates. The journalistic wailing is due to a failure to
analyze the cooperation between the Federal Reserve
and the U.S. Department of the Treasury today and to a
failure to analyze the banking data.
While increasing Federal Reserve holdings of U.S.
government securities expand the money supply,
increasing Treasury deposits with Federal Reserve
Banks decrease the money supply.
For example, when the holdings of U.S. securities
varies from $85.5 billion Feb. 11 to $90.2 billion Feb. 26,
it does not mean the banks have had a credit expansion of
$4.7 billion in two weeks.
The reason is that Treasury deposits with Federal
Reserve banks increased, at the same time, from $7
billion to SIO.B billion, decreasing reserves by $3.8
billion. Thus, the net expansion was less than $1 billion.
During the last two months, the net amount of U.S.
securities holdings by the Federal Reserve and U.S.
Treasury deposits with the Fed has varied week-to-week
tfm $80.6 billion t»582.1 bihion, or by $1.6 billion. To
smooth out weekly fluctuations, one can use a
three-week moving average which in this case shows
tMt the variations around a mean of $81.55 billion are
only $0.25 billion, or $250 million.
In other words, it seems that uncontrollable or
unforseen factors which cause some variation one week
are compensated for in the next week by coordinated
Federal Treasury action.
Moreover, a comparison between Federal Reserve
open market operations and U.S. Treasury deposits with
the Fed in the first five months of this year suggest that
the net effect on the money supply has been small.
For, in fact, the $80.5 billion at the end of the first
reporting week in January is little changed from the SB2
billion on May 19. The increase is only 1.9%.
Meanwhile, the consumer price index from December
1375 to April 1976 has increased from 166.3 to 168.2, or
1.1%. Thus, the real increase in the money supply due to
c >mbined Federal Reserve and Treasury operations is, in
terms of real dollars, less than 1%.
This increase is greater than the net decline between
December 1974 and December 1975 of 1.3% in real
money, to which I pointed out in my last article.
However, it is so small, and there are so many variables
Carolina Financial Times
and opportunities for statistical variation due to error,
we can conclude generally that money expansion in the
U.S. this year has been negligible.
In my judgement, that is good in terms of maintaining
economic stability and political integrity. Despite the
temptation during an election year, the U.S. government
has not irrepsonsibly expanded the money base and,
thus, enhanced the threat of inflation.
The increase in interest rates has been due to the
increased economic activity and expansion. It has not
been due to the maneuvering of the Federal Reserve.
The Fed has sought to maintain the integrity of the dollar
and avoid over issuing the currency and, thus, avoid
encouraging run-away inflation.
The media should stress the failure of the congress to
provide a major tax-cut this year, like the tax cut last
year. In my opinion, such a step is the only one that will
keep the expansion rolling. Issuing more money is not
feasible because of the threat of inflation.
Before concluding this article let us see how the
economy has performed since the beginning of the year.
Two commonly used indices to measure economic
performance are gross national product and the
unemployment rate.
In the fourth quarter of 1974, GNP was $1,441.3
billion; in the first quarter of 1975, $1,433.6 billion; and
in the fourth quarter of 1975, $1,573.2 billion. For the
first quarter of 1976, it was $1,616 billion.
To realize the real growth in the economy these
figures should be adjusted for the effects of inflation.
Though maybe not the best, the consumer price index is
readily available. In terms of the base 100 = $967, it
was 138.5 in December 1974, 157.8 in March 1975 and
166.3 December 1975. The April 1976 figure is 168.2.
Thus, the GNP in terms of constant 1967 dollars has
been $1,040.6 billion in December 1974, $908.5 billion in
(Continued on page 20)
Muis mr. m* ?>* “>*
Closing quotes 5*3 -* 3 5| 52 <K 8 “x 8
are the previous O O ui -*• hi -j >_. ~ S _i
Wednesday quote. > **> * O
Selected New York Exchange Quotes
AOAMS-MILLIS 6,800 6,300 6% 2UB 4-3/8 5 4Vi 4-7/8
AKZONA 25,100 73,800 25% 10% 17% 18 17-3/8 17-7/8
BLUEBELL 73.700 63,600 48% 12% 43% 45-1/8 44% 44%
BURLINGTON , 102,800 229,900 33 5/8 14 7/8 24% 26%. 26 26
C ' B,Q 5,100 5,600 3% 1 2 2-1/8 1-7/8 2-1/8
CAROLINA FR.C 1,900 4, 800 7 3/8 4% 5-5/8 5-5/8 5% 5%
CP&L 83,800 108.800 28% 11 19 20 19-3/8 20
CONE MILLS 28.900 40,800 56 15% 45-7/8 45-7/8 42% 43
DUKEPOWER 103.600 184 JOO 20% 10% 18-5/8 18% 18-1/8 18-1/8
ECKERD DRUGS 3,700 6 ,000 21 7/8 6 5/8 17% 18-1/8 17-7/8 17-7/8
FIELDCREST MILLS 19,100 62.100 225/8 7% 18% 19% 18-5/8 19%
HANES •••■ 26.900 48.300 26 7/8 6 % 23 24 % 22% 24-3/8
HARDEE'S FOOD SYSTEMS . 9 300 20,400 91/8 3 7 % 7% 7-3/8 7%
HATTERAS INCOME SEC 5,300 7,100 177/8 145/8 16% 18% 16% 16%
HWVCK 20,200 38,400 195/8 11 7/8 12-7/8 12-7/8 12% IZ%
INTEGON 15,000 10,100 S% 41/8 7% 7% 7-3/8 7%
JEFFERSON-PILOT 54,600 68,800 38% 24% 25-5/8 26-5/8 25% 26-5/8
LIGGETT a MYERS 24.800 29.800 36 257/8 31% 32-5/8 31-3/8 32-5/8
McLEAN TRUCKING 13.300 8.900 56% 16 52-5/8 52% 52 52
NUCOR 16,900 10,700 30% 107/8 29 29% 29-1/8 29-1/8
PIEDMONT NAT. GAS 5.200 8,000 17% 9% 15% 15% 15 15
R.J. REYNOLDS IND 215,600 181,900 7 3 49% 5/ 8 60% 58-7/8 58-7/8
TEXFIIND Oi'C 16,900 9% 2% 5% 5% 4-7/8 4-7/8
UNITED GUARANTY 17,500 23,000 13 55/8 10-1/8 10-7/8 10% 10%
WACHOVIA 40.700 40,700 26% 12% 20 21% 20% 21%
Selected Americain Stock Exchange Quotes
ALBA-WALDENSIAN 3.500 1.400 3 % 7/8 2% 2-7/8 2-5/8 2-5/8
AMIC 47.500 45,300 175/8 4 3/8 10-1/8 12 11% 11%
BRADRAGAN 4.000 6,100 25% 7 7/8 11-1/8 113/4 11% 11%
FAMILY DOLLAR STORES 3.800 1,800 8 3/8 1% 5-5/8 5-7/8 5-7/8 5-7/8
GUILFORD MILLS 2.500 5,300 7% 2 5% 5.3/8 5 5%
HAMPTON INDUSTRIES 5 700 4.100 8% 1 1/8 6-7/8 6-7/8 6% 6%
KEYCOMPANY 300 300 3% 1 2 1-7/8 1-7/8 1-7/8
OAKWOOD HOMES 2.700 2.500 131/8 3 3/8 9-7/8 10-5/8 10-1/8 10-1/8
PIC 'N PAY 1.800 4.900 11 1/8 21/8 8-7/8 9% 8-5/8 8 3 /4
RUDDICK 8.900 2,000 4-1/8 3 4 4-1/8 4 4
SKY CITY STORES 3.300 1,000 10% 31/8 8-5/8 8-5/8 8-5/8 8-5/8
SPEIZMANIND 6.200 3.500 2 7/8 % 1 1-1/8 7/8 1-1/8
WELLCO ENTERPR 2 700 2.000 5% 2% 5% 5% 5-1/8 5-1/8
Hanes Sets
$.25 Dividend
WINSTON-SALEM - The
board of directors of Hanes
Corp have announced an
increase in the quarterly
dividend from 19 cents to 25
cents per share on a common
stock outstanding.
The dividend will be pay
able Sept. 10 10 shareowners
of record Aug. 18.
Robert E. Elberson, Hanes
president and chief executive
officer, said the 31% increase
was in recognition of higher
level of earnings in the last
quarter of 1975 and the first
quarter of 1976.
He said that earnings for
the second quarter of 1976 are
also expected to be higher
than the same quarter of
1975. Second quarter 1976
earnings will be announced
around July 20.
Noland Okays
2-1 Stock Split
NEWPORT NEWS, V*. -
Noland Co. stockholders have
approved a two-for-one split
of Noland common stock,
reducing its par value from
S2O per share to $lO.
The split, effective June 15,
increased the number of
outstanding shares to nearly
2.5 million.