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1975/11/03 - Economic Policy Board
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James M. Cannon Files (Ford Administration)
James Cannon's Meetings Files
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The original documents are located in Box 53, folder "1975/11/03 - Economic Policy Board"
of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 53 of the James M. Cannon Papers at the Gerald R. Ford Presidential Library
EPB MEETING
Monday, November 3, 1975
8:30 a.m.
gmc
EYES ONLY
MINUTES OF THE
ECONOMIC POLICY BOARD
EXECUTIVE COMMITTEE MEETING
October 31, 1975
ATTENDEES: Messrs. Simon, Seidman, Dunlop, Robinson, Dunn,
Cannon, Zarb, O'Neill, MacAvoy, Malkiel, Parsky,
Katz, Goldstein, Kasputys, Porter, Davis
1. Council of Economic Advisers Annual Report
Mr. Malkiel reported on the outline of the CEA Annual Report,
which will be published in January 1976. The report would
include chapters on economic policy and outlook, economic
development and policy in 1975, longer run economic problems
and policies, and the international economy.
Decision
Executive Committee members were requested to provide Mr.
Malkiel with any comments they have on the outline no later
than c.o.b. Tuesday, November 4.
2. Tax Cut Strategy
Secretary Simon reported on his meetings yesterday with minor-
ity members of the House Ways and Means Committee and their
discussion of strategy on the tax cut bill. He will meet
again with them to further consider strategy Monday morning.
3. EPB/NSC Task Force on Commodities
The Committee went into executive session to discuss alterna-
tive procedures for the Economic Policy Board and National
Security Council to consider commodity related issues. There
was general agreement on the need for the EPB and NSC to be
systematically informed on commodity related international
matters and for them to consider in a timely manner any
policy issues which arise in the area of commodities.
Decision
An EPB/NSC Task Force on Commodities, jointly chaired by the
Departments of Treasury and State, will serve as the focal
point for monitoring and regularly reporting on commodity
issues to the EPB/NSC.
EYES ONLY
RBP
EYES ONLY
2
Messrs. Robinson and Parsky will prepare a paper outlining
the procedures for the functioning of the Task Force for
review by the EPB/NSC.
4. Energy
Mr. Zarb reported on recent developments with respect to
Congress. decontrol and energy legislation currently pending in
EYES ONLY
RBP
THE WHITE HOUSE
WASHINGTON
October 31, 1975
FOR EPB EXECUTIVE COMMITTEE MEMBERS
The attached materials are for your
information.
U.S. DEPARTMENT OF LABOR
OFFICE OF THE SECRETARY
WASHINGTON
October 29, 1975
MEMORANDUM FOR ECONOMIC POLICY BOARD
Subject: Unemployment Insurance: The Administration
Proposals and the Subcommittee Bill
On October 20, 1975, the Unemployment Compensation
Subcommittee of the House Ways and Means Committee approved
a clean bill (H. R. 10210) for consideration by the full
committee. The vote was 7-3 as follows: Pro--Corman,
Fisher, Keys, Jacobs, Burke, Frenzel and William Steiger;
Con--Pickel, Burleson and Ketchum. The Ways and Means
Committee hearing is now expected to be held on October 31.
Although the changes made by the Subcommittee are in
my view consonant with the Administration's proposals, the
Subcommittee's bill does differ in some respects from the
original Administration bill (H.R. 8614) :
Coverage. The Administration proposed increased farm cover-
age--employers with 4 or more workers in each of 20 weeks or
$5,000 in a calendar quarter. The Subcommittee bill makes
the crew leader the employer, rather than the farm operator,
if the crew leader is registered under the Farm Labor Contrac-
tor Registration Act.
The Subcommittee bill provides for domestic service--
employers with quarterly wages of $600 or more compared to
$500 or more in the Administration bill.
The Subcommittee bill provides with respect to State
and local government employment that States are required
to cover State and local government workers, excepting only
legislators, judges, elected and appointed officials, emer-
gency employees, National Guardsmen, and inmates of custodial
and penal institutions. (The Administration bill would have
-2-
extended required coverage, now limited to State hospitals
and colleges and universities, to all State and local govern-
ment hospitals and institutions of education, including pri-
mary and secondary schools.)
Coverage changes effective January 1, 1977.
The Subcommittee bill would increase coverage by about
9 million workers compared to 6 million provided in the
Administration bill.
Financing. The Subcommittee bill provides that the net
Federal unemployment tax rate is increased from 0.5 percent
to 0.7 percent, beginning in 1976; to drop back to 0.5 per-
cent in 1982 or earlier, if the general revenue advances to
the Federal extended benefit account are repaid sooner than
1981.
The Federal unemployment tax base is increased, from
the present $4,200 to $8,000, beginning January 1, 1977.
(The Administration bill would have, beginning in 1977,
raised the tax base to $6,000 and the tax rate to 0.65 per-
cent, to drop back to 0.45 percent when the advances to the
extended benefit account were repaid.)
Extended benefits. The Subcommittee bill provides that the
national trigger rate for extended benefits (weeks 27-39) is
to be based on the most recent 13 weeks, as is the case now
for the State trigger. The State trigger rate is to be sea-
sonally adjusted as is already being done for the national
trigger rate. The national trigger rate remains 4.5 percent
(insured unemployment) and the State trigger rate 4.0 percent.
The 120 percent factor is deleted from the State trigger. (This
provision is the same as the Administration bill except for the
deletion of an option to the States to use area triggers.)
Repeal of UCFE finality provision. This provision now makes
Federal agency findings of the reasons for Federal workers'
separations binding on State agencies (not in the Administra-
tion bill).
Ban on State UI disqualifications based solely on pregnancy.
(Not in the Administration bill.)
-3-
Requirement that States pay administrative costs and entire
extended benefit costs (weeks 27-39) of State and local
government workers. (Same as Administration bill but effec-
tive date changed from January 1, 1976, to January 1, 1978.)
Transition from SUA. Provision for Federal reimbursement
from general revenues to the extent that benefits are paid
on the basis of services newly covered under H.R. 10210,
until July 1, 1977; after July 1, 1977, to the extent that
benefits are based on such services performed before January 1,
1977. (No transition from SUA provided for in Administration
bill.)
UI Study Commission. As in Administration bill, with only
minor changes.
Benefit Amount Standard. The subcommittee deadlocked, 5-5,
on the Administration's proposal for a weekly benefit amount
standard (50 percent of the individual's average weekly wage,
up to the State maximum; State maximums of two-thirds of the
statewide average weekly wage). No benefit amount standard
is included in H.R. 10210 and this issue will be presented
to the full House Ways and Means Committee. It is my inten-
tion to seek to get the Ways and Means Committee to put the
standard into the bill. I intend to urge this position at a
meeting with the full Committee in the near future.
We have been working closely with the Committee to see
to. it that the bill which emerges for consideration by the
House stays on track, within the scope of Administration
proposals.
Labor
STATEMENT
of
ALAN GREENSPAN, CHAIRMAN
COUNCIL OF ECONOMIC ADVISERS
before
THE JOINT ECONOMIC COMMITTEE
October 28, 1975
I am pleased to appear before this Committee today to
discuss the economic impact of the President's tax and
expenditure proposals for next year. As necessary background
however, I should like to begin by touching first upon some
of the recent evidence on the state of the economy and the
recovery which has been underway for six months.
The surge in industrial production and gross national
product indicate that the rebound in economic activity from
the depressed levels of last April has been running ahead
of forecast. Over the same period, there has been an
excellent gain in total employment and a more rapid decline
in joblessness than we had expected last spring. Equally
important, the flareup in prices during June and July abated
during the past two months, and the easing of pressures in the
farm product markets have served to allay partially the wide-
spread concern regarding an early renewal of strong inflationary
pressures. One result has been the restoration of a much better
-2-
expectational climate in the money and capital markets and
a retreat in interest rates from this summer's highs. The
recovery is underway and in its initial stages at least,
it is stronger than we could have prudently expected.
The course of the economy this year has been dominated
by sharp movements in business inventory investment, as I
have pointed out before this Committee on earlier occasions.
The preliminary estimates indicate a very sharp inventory
swing in the third quarter. Although inventories were still
being run down the much slower pace of liquidation accounted
for more than half of the gain reported in GNP. We have
known for some time that the inventory liquidation of earlier
in the year was simply unsustainable and that its reversal
was inevitable, as the excessive inventory overhang which
was built up last year was worked off. Moreover just as
inventory movements accentuated the recession earlier in
the year they will continue to be a source of strength ----
although a decline one -- over the next two or three quarters
at least.
One impressive aspect of the third quarter figures is
the strength in final demand. Final sales in real terms
rose at an annual rate of 4.4 percent, just about as rapidly
as in the second quarter of the year, largely because of a
continued strong rise in personal consumption expenditures.
Consumer outlays in real terms rose at a 7 percent annual
rate -- slightly more rapidly than the 6.3 percent rate of
-3-
advance during the second quarter. I should point out that
some of these growth rates are exaggerated by a quirk in
the statistical techniques used to put the GNP in constant
dollars. The real GNP gain during the third quarter would
be closer to 9 percent than 11.2 percent if more updated
techniques were used in removing the effects of inflation
from the current dollar GNP levels.
Perhaps more important to the immediate outlook, the
evidence to date for October indicates that the pickup in
economic activity has continued into the present quarter.
Retail sales of durable goods are exhibiting special strength
as automobile sales, following the introduction of the new
models, are continuing the pattern of increase which began
in the first quarter of the year. The strength in final
demand is laying a solid foundation for a further recovery
next year and this is more important than the precise pattern
and timing of the inventory swing which we are now
experiencing.
A second encouraging aspect is that recent evidence
suggests a somewhat earlier bottoming out in business capital
investment outlays than many have anticipated. Business
fixed investment in real terms held even during the third
quarter despite the wide margins of excess capacity which
prevails throughout the economy. Nor is this development
-4- -
without support. Following the sharp declines of late last
year, the inflow of new orders for capital goods in August
was up by 12 percent from the March low and this level held
up in September. Production of business equipment in the
industrial production index rose at a nearly 10 percent
seasonally adjusted annual rate between June and September.
There are also indications of a more favorable upturn in
corporate earnings in the second half and this would
facilitate the recovery in investment. There are still
reasons, however, to question the speed and the timing of
the upturn in business investment next year but the evidence
continues to provide support for the possibility of an earlier
and a more substantial upturn in capital outlays than past
experience might indicate.
As one would expect the sharp pickup in production has
resulted in a correspondingly marked improvement in the
employment situation. Between March and September civilian
employment, as measured in the monthly household survey, rose
by 1.5 million. In recent months, and especially since June,
rising employment in the household survey has been accompanied
by a significant pickup in nonfarm payroll employment.
Although the labor force has continued to expand at a rapid
2.0 percent annual rate since December, the level of
unemployment has declined, and the decline from the second
quarter peak has been more rapid than we had anticipated.
-5-
Of course there are problem areas and we all recognize
them. The recovery in housing has lagged expectations.
Housing starts in September were at a seasonally adjusted
annual rate of 1.24 million units, a full 41 percent above
the levels of December, 1974. Nonetheless they were still
below our earlier expectations for this time and the levels
consistent with the country's long-term housing needs and a
healthy residential construction sector. Mortgage interest
rates have moved upward in the past several months, and by
September the rise in short-term interest rates seemed to
imperial the inflow of funds into the mortgage lending
institutions. Although mortgage interest rates remain at
very high levels, short-term rates have come down. The savings
flow data now indicate resumed inflow and a more reassuring
outlook for the availability of mortgage financing in the months
ahead. Accordingly we expect the gradual recovery in housing
to continue in 1976.
Even with the easing of the June and July price flareup,
consumer prices have risen at a 7 percent annual rate so
far this year, a rate which is too high in comparison with
historical standards and the requirements for a stable
prosperity. High inflation and inflationary expectations
moreover have their direct counterpart in high interest
rates. Perhaps most important of all consumers and
businessmen are not yet convinced that economic recovery
-6-
can be achieved without setting off another set of forces
which will quickly recreate the virulent inflationary
conditions of 1973 and 1974. These are problems which policy
must recognize and deal with.
But it is important to recognize that economic conditions
have undergone a marked improvement in recent months. Quite
apart from the inventory swing, the recovery appears to be
resting upon solid enough foundations to suggest a continuation
during the present quarter and into next year as well.
Now that the recovery is underway it is even more
important to focus upon the problems which we are going
to confront in the next year and beyond. Unless we carefully
assess the risks that are involved with alternative policies
we may exacerbate the problems which we will face by late
next year and greatly increase the chances of setting off
another inflation-recession cycle.
The dilemma is how to achieve recovery without recreating
inflation. At this juncture in the recovery, ideally, one
would want assurance that fiscal and monetary policy will be
adequate to support the continuation of a healthy recovery.
At the same time the improvement in the economy makes it
even more important to assure that the thrust of fiscal and
monetary policy does not have embedded in it the seeds of
future inflation.
-7-
A second and, in a sense, more difficult problem, is
that consumers and businessmen are not convinced that the
dilemma of achieving recovery without inflation can be
resolved. Recent experience has made them wary, watchful and
mindful of the risks which the various policy alternatives
pose for the future. Past experience indicates that it is
easy to continue expansive policies, but it is very difficult
to curb budget deficits and hold monetary expansion to rates
which are appropriate for high employment price stability.
Rightly or wrongly our past mistakes have created a
situation in which recovery itself is dependent upon
confidence that policy will become significantly less
expansive when and as circumstances require.
Fiscal and monetary policies are, in my judgment, generally
suitable for present circumstances. But as circumstances
change, policy must also change. The budget deficit must
be closed as the recovery proceeds and unless we are able to
rein in the rapid rise in federal outlays I do not believe
that we can count on the passive growth in revenues from the
recovery to fully close it.
-8-
In fact it is this longer-term fiscal problem to which
the President's program, to tie a $28 billion cut in the growth
in federal outlays to a comparable cut in taxes, was addressed.
It was not proposed for its short-term effects -- although
the discussion and the criticism has tended to concentrate
upon these aspects. The major economic thrust of the
President's program is directed at what we perceive to be
one of the most important long-term economic problems
confronting the United States. It is directed at what is
clearly an accelerating and increasingly uncontrollable rate
of increase in federal outlays. The flexibility, or so-
called controllability, of our expenditures has sharply
decreased during the last decade. Nearly three fourths of
the budget now is in outlays for programs for which payment
is required under existing law or contracts. These payments
must be made unless substantive law is changed. Government
payrolls make up an additional one-sixth of the federal
budget. The largely discretionary remaining one-tenth
includes mainly nonpayroll purchases of goods and services.
In 1967 when such analyses were first initiated, a fifth of
the budget was discretionary.
An even more important problem is that the rate of
increase in nondefense budget outlays, in real terms, in
recent years, has exceeded the real growth in the economy.
-9-
Payments to individuals in real terms for example, rose at
a 10.9 percent annual rate between fiscal 1965 and fiscal
1975. Real outlays for all nondefense programs excluding
NASA and interest payments rose at an annual rate of more
than 8 percent.
The size of the developing problem has been obscured
for years by the decline in real defense outlays following
the Vietnam War peak. Between fiscal years 1968 and 1975
such outlays declined by an average of 6.4 percent per
year. The sharp shift in the underlying composition of
outlays in the budget and practical realities of the forces
that have produced it, clearly suggest three choices -- a
sharp curb in the growth of domestic programs, a further
gradual dismantling of eur defense establishment, or
significant tax increases. Even should we, as a nation,
short-sightedly opt for either of the latter two courses
of action, we would be only postponing again, the inevitable
confronting of the unsustainable real rise in domestic
programs.
The full significance of this acceleration in outlays
became particularly evident during the spring and summer
of this year as the fiscal 1977 budget began to take shape.
As the magnitude of the increases in outlays which would
-10-
have to take place under existing law became clear, the
President directed the Office of Management and Budget to
devise measures and ways by which the expenditure growth
could be slowed. He further directed that any savings be
refunded to the American taxpayer in order to maintain
private purchasing power and job creation.
One problem that the President had in formulating his
program was that the temporary tax cut for calendar year 1975
expired on December 31st. Unless the new permanent tax
structure were put in place as of January, income tax rates
would have risen automatically. In order to reduce the
uncertainty with respect to taxes, he decided to recommend
his tax legislation to be effective as of January 1, 1976.
Should the spending curtailment lag the tax cut, the
deficit for the first nine months of calendar year 1976
would be increased and this in itself is admittedly undesirable.
Additional fiscal stimulus does not seem to be necessary
considering the extent of the economic recovery now underway.
As a consequence, the President has indicated that he would
support further crubs in fiscal 1976 expenditures.
In any event, the deficit increases are certainly not
large when compared with a program of an extension of the
current tax withholding rates and prospective outlays. As
a consequence, the impact on the path of economic recovery
-11-
would not be significant.
What would be significant are the effects on the levels
of federal outlays during the fiscal years 1978, 1979 and
beyond. The $28 billion cut in the fiscal 1977 rate of
increase in outlays, which the President has proposed, would
help insure that the dangerous acceleration in federal
spending would be dramatically slowed. This would be a
major first step toward defusing the very strong inflationary
bias that has gripped our economy.
OF
The Department of the TREASURY
NEWS
SEPARTMENT
THE
WASHINGTON, D.C. 20220
TEL EPHONE 964-2041
THE
TREASURY
1789
FOR RELEASE AT 1:00 P.M.
October 15, 1975
ADDRESS BY THE HONORABLE WILLIAM E. SIMON
SECRETARY OF THE TREASURY
TO THE ASSOCIATED PRESS MANAGING EDITORS ASSOCIATION
WILLIAMSBURG, VIRGINIA, OCTOBER 15, 1975
As a public figure who spends a good deal of time talking
with reporters, I very much appreciate the opportunity to
address such a distinguished gathering of journalists.
Six months ago, I had the pleasure of speaking to the
American Newspaper Publishers Association in New Orleans where
we talked extensively about the state of economic reporting
today. I told them that in my view the state of the art was
much higher now than in the old days. You may recall that only
a few years ago, the Chairman of the Council of Economic Advisers
under President Johnson, Gardner Ackley, was so vexed with report-
ing that he urged that every economics reporter be required to
meet two standards:
-- First, that he had taken an introductory college course
in economics; and,
- Second, that he had passed it.
Fortunately, times have changed and reporters have changed
for the better. There is far more economic sophistication among
the writers in Washington today, and I think a large portion of
the credit belongs to the Associated Press and the other wire
services. By emphasizing the need for accuracy and straight,
factual reporting, the Associated Press is not only enhancing its
own reputation but is performing a valuable service for the
American people. I congratulate you for your performance.
Let me turn now to my theme for this address: Government
spending and inflation.
WS- 413
- 2 -
"The credit of the family depends chiefly on whether that
family is living within its income. And that is equally true of
the Nation. If the Nation is living within its income, its credit
is good.
"If, in some crises, it lives beyond its income for a year
or two, it can usually borrow temporarily at reasonable rates.
"But if, like a spendthrift, it throws discretion to the
winds and is willing to make no sacrifice at all in spending; if
it extends its taxing to the limit of the people's power to pay
and continues to pile up deficits, then it is on the road to
bankruptcy."
That's strong language-- the fire and brimstone you might
expect-from a Bill Simon, or as the New York Times called me
this weekend, the Cotton Mather of fiscal orthodoxy.
But that statement was actually issued more than 40 years
ago and it came from the Democratic candidate for President in
1932, one Franklin Delano Roosevelt. To Mr. Roosevelt it was
unconscionable that the Hoover administration has permitted the
National debt to increase by more than $3 billion.
One can only wonder what the FDR of those early days before
the New Deal would think of all that has come to pass in the
Nation's fiscal affairs since then. Consider just a few of the
most salient points about the growth of government spending:
* Under FDR's predecessor, government spending at all levels
amounted to 10% of our Gross National Product. Today it accounts
for fully one third of the GNP and by the year 2,000, if recent
trends in transfer programs were to prevail, it could be nearing
60% of the Nation's economic activity.
*
It took 195 years of our history for the Federal budget
to reach $200 billion. Now we are threatening to double that
amount in only 6 years.
*
To those who say that the economy is growing rapidly so
that higher spending can be accommodated, it should be pointed
out that over tha past decade, Federal spending has increased
by 175% while the economy has grown by only 120%.
* Prior to the New Deal, this Nation during its peacetime
years kept its Federal budget in surplus for four years out of
almost every five. Since the beginning of New Deal, the Federal
budget has been in the red in nearly 4 years out of every five,
and over the last 15 years we have had only one budget surplus.
- 3 -
* It took 74 years for the Nation to accumulate a national
debt of $1 billion. Now our national debt is climbing at the rate
of more than $1 billion a week.
* Paying interest on the national debt has now become the
third largest item in our budget--ranking behind only national
defense and social security. In fact, paying interest on the debt
now costs us more than $160 a year for every man, woman and child
in the country- $36 billion a year and climbing.
* As large-scale deficits have mounted in the regular agencies
and departments as well as the off-budget agencios--the creatures
set up in recent years partly to avoid the discipline of the
regular budgeting process- the Federal Government has been forced
to borrow extraordinary amounts of money in the private money
markets--money that would otherwise be available to private enter-
prise to expand their operations and create new jobs. In the past
10 fiscal years, the Federal Government has borrowed over a third
of a trillion dollars from those markets. Last year, four out of
every five dollars borrowed in the long-term capital markets ex-
cluding housing--were borrowed by an agency of the Federal Govern-
ment.
* Growth in federal programs has accompanied growth in spending.
In 1960, at the end of the Eisenhower years, there were approxi-
mately 100 Federal programs for domestic assistance. Today there are
1009.
* And with the growth of government, there has also come a
growth in governmental bureaucracy, especially at the state and
local level. Today one out of every six people in the labor force
works for the Government.
By citing the growth of government in recent years, I do not
mean to suggest that all of these spending programs have been ill-
advised or that they ought to be abolished to the contrary, it is
clear that many of the actions taken by the government have been
progressive and helpful. The human hardships resulting from the
recession, for instance, would have been much more painful had
their impact not been cushioned by expanded benefits for unemployed
workers. The poor and disabled people of this country are also
much more secure than they were a few years ago.
Yet, it is time to recognize that this explosive growth in
government spending, in government deficits, in government
bureaucracy, and in government regulation is exacting a higher
and higher toll within our nation. Unless we change direction soon,
we will drift relentlessly--even aimlessly--into a society that is
- 4 -
run and directed out of Washington and in which the freedoms we
once enjoyed will be nothing more than a page in our history.
One of the most pernicious results of the horrendous growth
in government spending during the past decade--and a result that
now lies at the root of many of our economic problems- has been
the persistent rise in prices.
When the Federal Government increases its spending and runs
deficits year after year, especially during periods of high
economic activity, it becomes a major source of economic and
financial instability. The huge increase in Government spending
in the 1960s and 1970s has added enormously to the aggregate
demand for goods and services and thus has been a major factor
in the upward pressures on price levels.
In addition, the heavy borrowing by the Government has been
an important factor in forcing up interest rates and in the strains
that we have seen in the financial markets. With the Treasury
Department standing at the head of the credit line with oversized
borrowing needs, interest rates are naturally driven up, some
private needs go unfulfilled and private investment suffers. This
is the essence of the "crowding out" problem that has become so
apparent now in the financial markets. Even with a considerable
degree of slack on the economy, access to the capital markets
today is for all practical purposes limited to only top-rated
companies. Marginal companies, new growth companies, and even
solid companies with less than A-ratings have almost been totally
shut out from the long-term sector. And interest rates today are
more illustrative of the terminal stages of a boom that the early
months of economic recovery. To be sustainable, the recovery must
be broad-based; the credit system must be capable of putting funds
into the many and diverse sectors of the economy. That is why it
is essential that as the recovery progresses, the Government must
play a less dominating role in the financial markets.
And even worse result of recent budgetary practices is the
erosion of public confidence in the ability of our Government to
deal with inflation. As Government spending and deficits continue
year-in, year-out and inflation mounts, inflationary expectations
are built into the very frabic of our economy. There is a growing
public perception that those who promise the most tend to deliver
the least--except for inflation.
Closely related to these excessive fiscal policies in recent
years have been excessive monetary policies. Our printing presses
have been churning out more and more currency that is worth less
and less. Indeed, the monetary supply during the past decade has
grown more than two and one-half times as rapidly as in the decade
before when we enjoyed greater price stability. Ultimately, this
monetary growth has increased the upward pressure on the rate of
- 5 -
inflation and interest rates. And one prime reason for this
monetary growth, I might add, has been the need to accommodate
the chronic budget deficits.
Thus, excessive spending policies and excessive monetary
policies lie at the very foundation of much of our inflation-- an
inflation that in turn rose so high that it tipped us into recession.
Economists did not agree at first that it was excessive inflation
which forced us into a recession, but now there is widespread
recognition of that fact.
I. do not mean to suggest that excessive government policies
are the only factors behind inflation. Higher food and energy
prices have plainly had an impact, especially in most recent years.
Devaluations of the dollar and other actions have also played a
role. But I would argue that the underlying causes of the past
decade of higher and higher inflation are the clearly excessive
fiscal and monetary policies that began back in the 1960s.
I believe the American people are fed up: they are fed up with
a government that spends more and more of their money with so few
results; they are fed up with massive deficits; they are fed up with
overzealous bureaucracy; they are fed up with unemployment and under-
employment; and most of all, they are fed up with inflation. They
know something is seriously wrong in Washington--and believe me,
they're right.
Sometimes when one is looking at the national economic picture,
it is possible to lose sight of what inflation has come to mean for
the average working family in this country.
The housewife going to the supermarket last year must have
felt that she was wandering through a mine-filed, with prices
exploding on every side. Indeed, at 1974's inflation rate of 12
percent, the bill for a bag of groceries costing $10 would triple
in only 10 years- to $31. Even at today's inflation rate of 7-8
percent, the bill for that bag of groceries would double in 10 years.
How many can continue to make ends meet under those conditions?
While everybody suffers from inflation, those who are hardest
hit are those who can least afford it: the poor, the unemployed,
the retired, the disabled and the dependent. At last year's inflation
rate, a person retiring on a $500 monthly check would see the
purchasing power of that check cut by two thirds in only 10 years--
to only $161. Even at the current rate of inflation, the value of the
check would be sliced in half in 10 years. How can a retired couple
be expected to live in any kind of comfort with that kind of
shrinking dollar!
- 6 -
And I'm sure you need few reminders of what's happened
to the cost of running a newspaper -- or what inflation has
done to any businessman who has to replace worn-out equip-
ment and machinery. It's like the bag of groceries all
over again. If you bought a printing press for $1 million,
today's inflation rate would mean it would cost you $2
million to replace it in 10 years. It's small wonder that
with the persistent inflation of the past decade, we have
suffered from underinvestment and that more and more serious
observers are becoming worried about the prospects of future
"capital shortages" and more unemployment than we should
have.
Even this listing of the consequences of inflation is
far from complete, for it does not take into account the
far-reaching social and political implications of chroni-
cally high inflation rates. Indeed, such inflation would
place the entire free enterprise system in this country in
peril. If our financial markets remain under the strain
they are today, if utilities have trouble obtaining
necessary financing to keep up with inflation, if money
flows out of the thrift institutions because of inflation,
if the housing industry suffers along with the thrifts,
and if the airlines, the real estate investment trusts,
and others go to the wall, who will be called in to the
rescue? If the retired people of this country cannot
protect themselves against inflation, who is it that can
serve as a rescuer? You know the answer: Government.
Clearly, continued inflation would bring a massive expan-
sion of the public sector and would threaten the very
survival of large areas of the private sector.
Those who are so liberal in spending other people's
money are fond of quoting from the economist John Maynard
Keynes. I suggest to them that they not forget a very
critical passage in the book by Lord Keynes on the Versailles
peace conference:
"Lenin is said to have declared that the very best way
to destroy the Capitalist System was to debauch the currency
Lenin was certainly right. There is no subtler, no
surer means of overturning the existing basis of society
than to debauch the currency. The process engages all the
hidden forces of economic law on the side of destruction,
and does it in a manner which not one in a million is able
to diagnose."
- 7 -
Some observers call this message negative and hard-
hearted. These so-called compassionate people say we are
callous and unsympathetic to be against massive new
spending, to be against huge deficits, and to be against
the government running our lives. I am sorry, but I
respectfully disagree. There is no such thing as true
compassion without responsibility; to show true concern,
we must take into account not only the short-term effects
of our actions but the long-term as well. The suggestions
that we simply spend and spend are precisely those which
have over the years hurt the poor and the disadvantaged
the most. It would be a grave injustice to the people
of this nation, and especially to those who deserve a
helping hand, to continue down that path when we know from
experience that the short-term prosperity we buy now will
be followed by years of even greater hardship and suffering
tomorrow. It is time in these United States to put our
economy back on a sound, steady footing so that people may
have lasting jobs and lasting hope for the future.
Inflation has been and remains today the most funda-
mental economic problem in the United States. It is
inflation that caused the recession and it is the reapper-
ance of persistent high inflation that could jeopardize
our future. Despite what some may say, it is not necessary
to make an agonizing choice between fighting inflation and
fighting unemployment. They are part of the same economic
challenge, and must be faced simultaneously. The real
choice is between policies that work and policies that
don't work.
It was against this backdrop that President Ford acted
last week in announcing his proposals to seek a $28 billion
reduction in the projected levels of government spending
during fiscal year 1977 and to return the savings, dollar
for dollar, to the American people. The benefits in this
program are concentrated among the working people of the
country -- the men and women who have borne so much of the
burden of high taxes and high inflation, and who badly
need and deserve some relief. It is a program designed to
place the Federal budget in balance within three years.
And it is a program which presents a critical choice to the
American people: Whether we will continue down the path
toward Big Government or whether we will finally change
course before it is too late.
- 8 -
As the President pointed out in his October 9th press
conference, this package is not proposed simply as a
stimulant for the early part of 1976.
The major economic thrust of the President's program
is its longer-run impact on our economy and hence on our
society. It is an attempt to blunt the underlying infla-
tionary momentum that we face, which -- if not accomplished
-- is likely to prevent an early attainment of full economic
recovery. Unless the growth in Federal spending is markedly
slowed, the choice in future years will be between higher
taxes or highly inflationary budget deficits followed by
significant distortions which are inconsistent with a stable
prosperity.
The President's proposal is focused on reducing the
rapid growth in expenditures and reducing the tax burden
imposed upon the American people -- and in a manner which
would reduce the risks of inflation. We have become too
accustomed to looking at the near term and to assessing
only the short-term benefits of what government policies
do. As a consequence, we have often lost sight of where
we are heading and the ultimate costs that we are imposing
upon the productivity of our economic system. It is long
past time that we stood back and took stock of where we
are going.
As the President pointed out in his State of the Union
message last January, "Part of our trouble is that we have
been self-indulgent. For decades, we have been voting
ever-increasing levels of government benefits and now the
bill has come due. We have been adding so many new programs
that the size and growth of the Federal budget has taken
on a life of its own.
"One characteristic of these programs is that their
cost increases automatically every year because the number
of people eligible for most of these benefits increases
every year. When these programs are enacted, there is a
dollar amount set. No one knows what they will cost. All
we know is that whatever they cost last year, they will
cost more next year.
"It is a question of simple arithmetic. Unless we
check the excessive growth of Federal expenditures or
- 9 -
impose on ourselves matching increases in taxes, we will
continue to run huge inflationary deficits in the Federal
budget.'
You have hear it said -- as I have -- that it is
unrealistic to ask the Congress to set a ceiling on 1977
expenditures as low as $395 billion.
Is it really? The implication of that statement is
that Congress cannot come to grips with the problem of
accelerating Federal spending -- that spending is now
beyond our control -- and that this must somehow be taken
for granted when we formulate tax and spending and spending
policies.
The critical question is not what will happen if we
succeed in slowing the growth in spending but what will
happen if we fail. What happens if we remain on the
"spending as usual" path through fiscal 1977 and beyond?
To me, if we fail, we will have surrendered control over
our own economic destiny and we will be struck in the
same quicksand that has pulled down other great nations
in the past.
It will be exceptionally difficult to hold expenditures
to a $395 billion level in the next fiscal year, as the
details of the President's budget will clearly indicate,
but if we value the future of the country's economy and
society we must do SO. We do not have the luxury of "spend-
ing as usual. Remember: this is not a reduction in spending
but a slowing in the growth of spending. Our expenditures
will still grow by 7%, high by an historical standards.
As the President said last Monday night: "For several
years, America has been approaching a crossroads in our
history. Today we are there ... I deeply believe that our
nation must not continue down the road we have been traveling.
Down that road lies the wreckage of many great nations of
the past. Let us choose instead the other road -- the road
that we know to be tested, the road that will work."
I have said this once before and I repeat it to you
now: what we face in the United States is the classic choice
between socialism and freedom.
Thank you.
o0o
THE DEPUTY SECRETARY OF STATE
WASHINGTON
October 29, 1975
MEMORANDUM TO:
Mr. William Seidman
The White House
FROM:
Robert S. Ingersoll
KSI
SUBJECT:
Implementation of the Trade Reform
Act's Provisions on Generalized
Preferences As They Relate to
Expropriation Cases
Attached is a report from the CIEP Interagency
Coordinating Group on Expropriation describing how
it proposes to implement provisions of the TRA with
regard to generalized preferences in expropriation
cases.
DEPARTMENT OF STATE
Washington, D.C. 20520
October 24, 1975
TO:
Members of the CIEP Interagency Coordinating
Group on Expropriation
FROM:
EB/IFD - Paul H. Boeker
SUBJECT: Application of Section 502 (b) (4) of the
Trade Act of 1974
Subsequent to the Group's October 14 meeting to
consider country eligibility for generalized
preferences (GSP), I have had further consultations
with members of the Group and now believe we have
broad agreement on how we should proceed over the
next couple of months in implementing 502 (b) (4).
We would propose to proceed as follows:
1. Amend Executive Order 11844 of March 24 desig-
nating beneficiary developing countries by adding
Somalia, Turkey and Uganda to the list of eligible
beneficiaries.
2. For each of those gray-area cases where a
determination of appropriate steps toward settlement
is fragile at this point, we shall make a diplomatic
demarche as soon as possible. The gray-area cases
are Argentina, Bangladesh, Central African Republic,
Congo (Brazzaville), Dahomey, Ethiopia, Morocco, Peru,
Tanzania, and Turkey. This demarche, while varying
somewhat from case to case, would essentially make the
following points:
(a) While the country is for now on the bene-
ficiary list, the U.S. frankly believes a positive
determination of appropriate steps toward settlement
will be difficult to sustain beyond the January 1
implementation date for GSP unless significant concrete
progress toward settlement of outstanding expropria-
tion cases is made prior to that time.
2.
(b) The USG will be reconsidering elegibility
of each of these countries prior to January 1, and
on or before that date further decisions on formal
exclusion from GSP may be made.
(c) We are taking this procedure because we
wish to give the governments concerned some addi-
tional time to settle outstanding expropriation
cases, or to take steps resulting in significant
progress toward settlement, before the USG finds
itself possibly having to give formal public notice
of intent to exclude a country from beneficiary
status.
3. The CIEP Expropriation Group will keep all
of these cases under continual review. In December
the Group will review each of these gray-area cases.
If a finding of appropriate steps toward settlement
cannot be sustained in some of these cases at that
point, we would recommend to the President that formal
notification of intent to withdraw GSP eligibility
be given on January 1, simultaneously with implementa-
tion of GSP or earlier if events make a clear finding
possible. We will also consider at that point whether
any particularly egregious cases should be considered
for "suspension" under 504 (a), in addition to "termina-
tion" under 502 (the difference being that the latter
requires 60 days notice, while the former does not).
4. State will ask STR to inform the concerned
Congressional Committees by letter that the Adminis-
tration's review of expropriation cases is not yet
completed, that in the case of several countries we
will have to review their situation in December, and
that further decisions on exclusion of countries from
the list of GSP beneficiaries may be made at that
time.
PHB:jb
FOR OFFICIAL USE ONLY
Business
Conditions
Report
October 31, 1975
DEPARTMENT OF COMMERCE
*
UNITED STATES OF AMERICA
U.S. Department of Commerce
DOMESTIC AND INTERNATIONAL
BUSINESS ADMINISTRATION
Bureau of Domestic Commerce
FOR OFFICIAL USE ONLY
FOREGOING RESTRICTIONS MAY BE REMOVED
90 DAYS AFTER PUBLICATION
FOR OFFICIAL USE ONLY
CONTENTS
Page
PRICE DEVELOPMENTS
PAPER INDUSTRY: Improving market seen in printing paper
bid prices
1-1
FERTILIZER: Prices of phosphatic fertilizer materials
reduced
1-1
PHOTOCOPIER INDUSTRY: Stronger price competition
1-2
FERROUS SCRAP: Price continues to decline
1-2
PRICE INDICATORS
WHOLESALE PRICES: Tuesday Spot Market Prices
2-1
Materials drop less than 1 percent; foodstuffs
decline 1.7 percent.
KEY COMMODITY PRICES: Copper; Ferrous Scrap
2-2
LME price of copper drops 1.5 percent while U.S.
producer price remains unchanged; ferrous scrap
decline slows to 1 percent.
SPOT AGRICULTURAL PRICES: Steers, Hogs, Broilers, Eggs,
Wheat, Corn, Soybeans, Sugar
2-3
Declines outnumber advances; hogs down 7.4 percent;
corn down 5.7 percent; sugar up 8.4 percent.
GASOLINE PRICES IN 52 CITIES
2-7
Pump price down slightly for the month.
SUPPLY SITUATIONS
CASTINGS AND FORGINGS: Major U.S. manufacturer of
heavy electrical equipment reports no worldwide
difficulty in obtaining forgings and castings
3-1
i
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FOR OFFICIAL USE ONLY
Page
INDUSTRY HIGHLIGHTS
AUTOMOBILES: Car sales and production improved;
imports decline
4-1
RETAILING: Sales improved by auto sales may be
temporary
4-2
WHOLESALE TRADE: Merchant wholesalers showing
some optimism
4-2
SAVINGS: Deposit outflows reappear
4-3
CONSTRUCTION INDUSTRY: Moderate optimism on 1976 new
construction contracts
4-3
SCREW MACHINE PRODUCTS: Turnaround appears in August
activity
4-4
LEATHER INDUSTRY: Executives report definite upturns
...
4-4
LUMBER INDUSTRY: Japan's construction plans should
strengthen demand for U.S. lumber and wood products 4-5
BANKING: Largest failure of 1975
4-6
CRIME: Convenience stores and rising number of robberies 4-6
HEALTH CARE INDUSTRY: Computerization increasing
4-7
SMALL BUSINESS: Loan fund aids OSHA compliance
4-7
BUSINESS INDICATORS
MERCHANDISE IMPORTS AND EXPORTS
5-1
Trade balance holds at $1 billion surplus;
exports and imports increase.
KEY COMMODITIES -- FOREIGN TRADE: Ferrous Scra;p;
Refined Copper and Copper-Bearing Scrap
5-2
Scrap exports continue to decline; refined copper
exports up sharply while copper scrap exports
decline.
VALUE OF U.S. PETROLEUM IMPORTS FOR CONSUMPTION: Crude
and Refined Products
5-3
September imports up 8.9 percent.
ii
FOR OFFICIAL USE ONLY
FOR OFFICIAL USE ONLY
Page
QUANTITY OF U.S. PETROLEUM IMPORTS FOR CONSUMPTION:
Crude and Refined Products
5-4
September quantity imported up 13.8 percent.
COAL: Production, Exports
5-5
Production increases by 13 percent for the month;
exports decline.
CHEMICALS: NITROGENOUS FERTILIZERS
5-6
Chemical imports up slightly, exports drop;
fertilizer imports increase, exports fall 22 percent.
FREIGHT MOVEMENT: Class I Railroads; Truck Tonnage
5-7
Rail and truck tonnage up slightly but below
last year.
MONTHLY CHANGES IN PERSONAL INCOME
5-8
Personal income up 1.2 percent for September,
increase is 7.8 percent over September 1974.
PRODUCTIVITY
5-9
Productivity sharply up for the third quarter;
decline in unit labor cost is first since second
quarter 1972.
SAVINGS FLOWS IN THRIFT INSTITUTIONS
5-10
S & L's new savings drop to half of previous month;
mutual savings banks experience large outflow.
DEVELOPING ISSUES
SOLID WASTE RECOVERY SYSTEMS: Industry sees problems and
remains cautious in assessing prospects for future
developments
6-1
BACKHAUL REGULATIONS: Impact of proposed Trucking
Regulatory Reform Act
6-2
iii
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FOR OFFICIAL USE ONLY
Page
LABOR DEVELOPMENTS
PRODUCTIVITY AND UNIT LABOR COSTS: Productivity
increases while unit labor costs decline
7-1
STRIKES: Striking employees, and major strike data
7-1
NEW AND SETTLED MAJOR STRIKES: Affected companies and
unions, locations
7-1
CANADIAN PAPER INDUSTRY: Strike escalates in Eastern
Canada as British Columbia mills reopen under
90-day cooling-off period
7-2
INCOME: September personal income increases
7-3
For further information contact:
Mr. Samuel B. Sherwin 967-5491
Mr. Charley M. Denton 967-5223
Questions and suggestions are welcomed.
iv
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FOR OFFICIAL USE ONLY
PRICE DEVELOPMENTS
PAPER INDUSTRY: IMPROVING MARKET SEEN IN PRINTING
PAPER BID PRICES
Government Printing Office (GPO) paper procurement
bid prices were among first to reflect declines in
domestic printing paper demand in 1974-75 period.
Marked and progressive declines were noted in GPO
paper bid prices through first half 1975.
CURRENT
Latest GPO bid prices opened October 7, 1975,
averaged 4 percent higher than previous quarter's
offerings and marked first price increase since
declines began in fourth quarter 1974.
Development is significant in that short-term GPO
contract competitive bidding can be compared to
spot market transactions which are reflective of
basic market changes. Bid price increase follows
announced price increases in selected domestic
paper and board packaging areas.
PRICES OF PHOSPHATIC FERTILIZER MATERIALS REDUCED
U.S. and Morocco are among major world producers
of phosphate rock, accounting for 37.6 percent and
17.5 percent of 1974 world output, respectively.
Both countries are the major exporters of phosphate
rock. Morocco accounted for 33.5 percent and U.S.
for 23.1 percent of 1974 world exports.
Moroccan price of $68 per metric ton for rock
phosphate has been one of highest in world market.
Moroccan exports during first nine months 1975
declined sharply, and, as a result, production
fell by one third.
CURRENT In effort to recover its market, the Office Cherifien
des Phosphate (Moroccan government phosphate
monopoly) reduced price on top quality phosphate
rock by 12 percent, from $68 to $60 per metric ton.
This is designed to bring Moroccan price closer to
U.S. price of $58 per metric ton.
1-1
FOR OFFICIAL USE ONLY
FOR OFFICIAL USE ONLY
In U.S., Phosphate Chemicals Export Association
(recently formed by five important producers of
phosphatic fertilizer materials) revised the list
prices at which its members will sell fertilizers
for export in October. F.o.b. list price for
diammonium phosphate fell from $200 to $155 per ton
(22.5 percent), and for granulated triple super-
phosphate, from $150 to $120 per ton (20 percent).
Despite current list prices, average U.S. export prices
in August 1975 were above these levels, $162 for diammonium
phosphate and $136 for triple superphosphate.
U.S. exports of triple superphosphate amounted to
1,046,729 tons in 1974 and 598,857 tons in January-
August 1974. Exports of diammonium phosphate, shown
separately in government export tabulations for first
time in 1974, totaled 1,583,475 tons for January-August.
STRONGER PRICE COMPETITION
IN PHOTOCOPIER INDUSTRY
Since appearance of modern automated photocopier in
1960, the industry has enjoyed a steadily expanding
market and steady profits.
But market is nearing saturation point.
Last month, Xerox, the leading producer, announced an
11 percent decrease in per-copy charges. (See
Business Conditions Report, October 10.)
CURRENT IBM countered Xerox move by reducing its fees by 10
percent. Eastman Kodak has set its rates for its
new Ektaprint machine 10 percent below comparable
Xerox models.
With the market nearing saturation, intensified
market competition and declining prices could result
in shakeout of some smaller manufacturers.
FERROUS SCRAP
CURRENT Composite price of No. 1 Heavy Melting Steel Scrap
declined by 66 cents per ton to $61.67 per gross ton
from last week through October 27. Lowest price SO
far in 1975 was $58 per ton last July.
1-2
FOR OFFICIAL USE ONLY
FOR OFFICIAL USE ONLY
Ferrous scrap market is expected to continue weak
for balance of year because of reduced steel
production in U.S. and overseas.
Exports of ferrous scrap fell to 771,000 net tons in
September, lowest monthly exports since February of
this year.
September exports were 4.7 percent below August, but
37 percent higher than in September 1974 during
period of quantitative export controls on ferrous
scrap.
For first nine months 1975, sales of scrap abroad
totaled 7.5 million tons, 10 percent above same
1974 period.
1-3
FOR OFFICIAL USE ONLY
PRICE INDICATORS
WHOLESALE PRICES
1967=100
TUESDAY SPOT MARKET PRICES
300
290
280
270
9 Foodstuffs
260
250
240
230
231.8
220
210
200
190
13 Industrial Raw Materials
180
180.9
170
160
150
140
130
120
110
0
J F M A M J J A S 0 N D J F M A M J J A S 0 N D
1974
1975
Source: Department of Labor
2-1
KEY COMMODITY PRICES
COPPER PRICES
(Wirebar Basis)
Cents per Pound
TUESDAY PRiCE EACH WEEK
160
140
120
100
80
U.S. Producers
60
63
52.6
40
London Metal Exchange
20
0
FERROUS SCRAP
(Composite Price, No. 1 Heavy Melting Steel
Scrap Pittsburgh, Chicago, Philadelphia)
Dollars per Gross Ton
Friday Price Each Week
160
140
120
100
80
60
61.67
40
20
0
J A S 0 N D J F M A M J J A S 0 N D J F M A M J J A S 0 N D
1973
1974
1975
Source: American Metal Market
2-2
SPOT AGRICULTURAL PRICES
Steers, Choice
Dollars per cwt.
OMAHA
70
60
50
47.40
40
30
0
Hogs
Dollars per cwt.
OMAHA
70
60
54.25
50
40
30
0
J A S 0 N D J F M A M J J A S 0 N D J F M A M J J A S 0 N D
1973
1974
1975
Source: Agricultural Marketing Service, Department of Agriculture.
2-3
SPOT AGRICULTURAL PRICES
Broilers, Dressed 'A'
NEW YORK
Cents per lb.
80
70
60
50
47.11
40
30
0
Eggs, Large White
CHICAGO
Cents per dozen
90
80
70
60
59
50
40
0
J A S 0 N D J F M A M J J A S 0 N D J F M A M J J A S 0 N D
1973
1974
1975
Source: Agricultural Marketing Service, Department of Agriculture.
2-4
SPOT AGRICULTURAL PRICES
Wheat No. 2 Ord. Hard
KANSAS CITY
$ per bu.
7.0
6.0
5.0
4.0
3.96½
3.0
2.0
0
Corn No. 2 Yellow
$ per bu.
CHICAGO
5.0
4.0
3.0
2.54 1/4
2.0
1.0
0
J A S 0 N D J F M A M J J A S 0 N D J F M A M J I A S 0 N D
1973
1974
1975
Source: Agricultural Marketing Service, Department of Agriculture.
2-5
SPOT AGRICULTURAL PRICES
Soybeans No. 1 Yellow
$ per bu.
CHICAGO
14
12
10
8
6
4
4.56 ½
0
Raw Sugar
$ per cwt.
NEW YORK
60
50
40
30
20
15.60
10
0
J A S 0 N D J F M A M J J A S 0 N D J F M A M J J A S 0 N D
1973
1974
1975
Source: Agricultural Marketing Service, Department of Agriculture.
2-6
GASOLINE PRICES IN 52 CITIES
WEEKLY AVERAGES¹/
Cents per gallon
50
Price ex. Tax
Pump Price
1975 Avg. to date
45.16
56.47
1974 Avg. to date
40.17
51.46
48.42
48
46
44
42
40
0
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEPT
OCT
NOV
DEC
1975
Prices exclude Federal, state and local taxes ranging from 9' to 13'
Source: Oil and Gas Journal
2-7
Supply Situations
FOR OFFICIAL USE ONLY
SUPPLY SITUATIONS
CASTINGS AND FORGINGS
The National Association of Purchasing Agents and
other groups have reported domestic shortages in
certain castings and forgings.
CURRENT On October 20, however, during a briefing to Secretary of
Commerce, the Chairman of the Board of a major
U.S. manufacturer of heavy electrical equipment
reported that, worldwide, his company is not
experiencing any difficulty in obtaining castings
or forgings.
Commerce is attempting to obtain additional infor-
mation regarding the extent of any actual or
reported short supply problems.
3-1
FOR OFFICIAL USE ONLY
Industry Highlights
FOR OFFICIAL USE ONLY
INDUSTRY HIGHLIGHTS
AUTOMOBILES
Car Sales and Production:
CURRENT
Car sales in mid-October increased 37 percent over same
1974 period. All U.S. car makers reported sales gains
from mid-October 1974; American Motors up 54 percent,
Chrysler gained 33 percent, Ford up 28 percent, and
General Motors increased 43 percent.
During September, auto makers produced 672,000 units,
3 percent more than the 654,000 scheduled earlier.
A few assembly plants in October are curtailing pro-
duction to keep inventories under control.
October should end with inventories of 1.5 million units,
an estimated 56 selling day supply. While this inventory
is near normal, some auto models have aproximately 100
or more selling days' supply.
Auto industry, which has capacity to produce 1.5 times
the number of cars presently being sold, is using inventory
control as a guideline for production schedules.
Automobile Imports:
Foreign built cars imported dropped 31 percent to 83,683
units in September, lowest monthly total in 1975. August
imports totaled 122,000 units.
For first nine months 1975 imported automobiles totaled
975,209 or 33.6 percent below total in same 1974 period.
Historically, number of cars imported declines in fourth
quarter. Further reductions of shipments to U.S. will
result in shortages of various models in dealer showrooms.
Unavailable models will result in a drop in market pene-
tration.
Market share held by imports is expected to decline below
17 percent by end of 1975. Importers are concerned about
possible protectionist reaction if foreign car models sold
exceed 15 percent share of U.S. Market.
4-1
FOR OFFICIAL USE ONLY
FOR OFFICIAL USE ONLY
RETAIL SALES IMPROVED BY AUTO SALES MAY BE TEMPORARY
CURRENT
Retail sales during the last 4 weeks averaged 10 percent
above year-ago comparable totals. This is also con-
siderably higher than annual rate of sales increase of
7 percent for January through mid-October 1975.
Favorable overall increase in sales is attributed mainly
to gain in automotive sales.
Rate of auto sales may moderate soon, reflecting industry
plans to close or curtail production at some assembly
plants. (See preceding Automobiles article.)
In this eventuality, growth rate in retail sales will
probably return to its sluggish pattern of 7 percent.
Non-automotive retail sales remain sluggish. Department
store sales for year to date are ahead by 7 percent.
Furniture, home furnishings and equipment stores show no
increase and building materials, hardware and farm equip-
ment dealers are ahead by 3 percent.
Sales of eating and drinking places and gasoline service
stations are experiencing higher rate of increase, as
they have all year, and are ahead by 14 and 11 percent,
respectively.
WHOLESALE TRADE
Merchant wholesalers are showing optimism regarding future
sales and are now increasing inventories in response.
Stock-sales ratio for all lines was 123 in August compared
with 109 the year before and shows first rise in 6 months.
A "normal" ratio is in the 120 to 125 range.
Sales of merchant wholesalers at end of first 8 months,
1975 reached $287.8 billion, trailing comparable 1974
sales levels by 3 percent. For same 8-month period,
wholesale price index rose 3.4 percent.
Durable goods sales totaled $122.4 billion, 9 percent
below comparable 8-month period. Of 9 major commodity
lines, only machinery and equipment remained above year
ago sales levels.
Nondurable goods sales totaled $165.4 billion, 3 percent
above same 1974 period. Of 8 major commodity lines, 4
were above year ago sales levels.
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Merchant wholesalers' inventories, valued at $44.9 billion
(unadjusted) in August, were 5 percent above August 1974
levels.
SAVINGS: DEPOSIT OUTFLOWS REAPPEAR
CURRENT Following substantial savings inflows over past twelve-
month period, disintermediation appeared once again as
two separate Treasury sales of high-yield notes attracted
large volume of funds from individuals.
Consequently, Mutual Savings Banks experienced a $300
million outflow in September compared to a revised $21
million outflow in August and a $264 million inflow in
July.
Savings and Loan Associations, although not experiencing
an outflow, showed a sharp decline in inflow. September
gain was $618 million down from $1,326 million in August
and $2,865 million in July. (See chart in Business
Indicators.)
CONSTRUCTION INDUSTRY: MODERATE OPTIMISM
ON 1976 NEW CONSTRUCTION CONTRACTS
The 36th annual Building Products Conference held in
Washington, D. C. on October 23 produced only moderate
optimism concerning situation facing U.S. construction
industry in 1976.
Speakers from industry, as well as many participants from
the construction sector, showed little enthusiasm for
immediate prospects as the industry passes from a poor
1975 year into 1976.
Lack of funds for capital expansion, high interest
rates, environmental regulation problems, rising costs,
and lack of productivity growth were cited as factors
behind relatively dim prospects for building and con-
struction businesses.
Formal construction outlook of the F. W. Dodge Division
of McGraw-Hill underlined basic uncertainty about con-
struction demand. Dodge predicted that housing starts
could rise to 1,525,000 units, a forecast conditioned
by the assumption that mortgage money flows will not be
impeded by disintermediation (see article on Savings
in this section) or by aborted economic recovery.
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Contract volume for construction of housing facilities
is estimated to rise from $31.4 to $43.0 billion in 1976,
a rise of 37 percent.
However, contracts for all other types of facilities,
nonresidential buildings, engineering projects, and
public works, are slated to rise by only 4 percent from
$62.3 billion to $65.8 billion between 1975 and 1976.
This would be an increase less than the assumed inflation
rate for construction next year.
Dodge spokesman verbally revised the Dodge housing outlook
to 1.6 million units, which represented a last minute
up-date of the outlook in its printed report which was
1,525,000 units.
TURNAROUND APPEARS IN AUGUST SCREW MACHINE PRODUCTS ACTIVITY
Screw machine products producers, suppliers to broad range
of durable goods industries, experienced a 21 percent
drop in shipments during first seven months 1975, from
comparable 1974 level.
During same 7-month period, orders booked by screw machine
products producers declined 41 percent from 1974 level.
CURRENT
Although still below 1974 levels, encouraging signs of
turnaround in both shipments and orders appeared in
August 1975.
Monthly industry shipments index increased 3.5 percent
to 117 in August from 113 in July 1975 (1967 = 100).
Monthly orders booked index rose 5.8 percent to 109 in
August from 103 in July 1975 (1967 = 100).
Continued improved activity suggests expansion in shipments
by capital goods producers.
LEATHER INDUSTRY
The leather tanning and finishing industry faced with
serious problems in raw material supplies, pollution
abatement and control, and imported leather and finished
leather products, has been in the doldrums for several
years.
The industry had been operating at less than 80 percent
capacity and at least a half dozen important tanneries
discontinued operations in past couple of years.
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CURRENT At its recent annual fall meeting, executives report
a definite upturn in the small industry. Demand for
leather is rising sharply and producers are gearing up
to meet it.
Although tanning capacity has been reduced significantly,
remaining tanners are currently operating at nearly 100
percent capacity, despite continued depressed conditions
of its largest customer, American footwear manufacturing
industry.
Leather garment producers and exports have taken up most
of slack created by reduced domestic shoe production.
While there has been increased demand by domestic users,
foreign trade picture is also bright. Exports from January
through August 1975 are up by 33 percent, to $90.1 million,
over comparable 1974 period. In same period, imports
have dropped to $50.4 million, down 43 percent from $88
million.
Although raw materials continue to present problems,
tanners are not as reluctant to pay increased prices
for many types, as consumers appear willing to pay higher
prices to get genuine leather products.
LUMBER INDUSTRY: JAPAN'S CONSTRUCTION PLANS
SHOULD STRENGTHEN DEMAND FOR U.S. LUMBER AND WOOD PRODUCTS
CURRENT
Japanese Ministry of Construction announced a five-year
plan to build 8.6 million new housing units from April
1976 to March 1981. Annual rate for this plan is 1.72
million units.
This is a reduction from annual rate of 1.92 million units
targeted in previous five-year plan, but is slightly above
the 1.67 million units per year actually achieved. Thus,
Japanese government commitment to provide new housing
apparently remains intact, despite currently depressed
Japanese housing market.
New plan differs in emphasis from its predecessor. New
stress is on home size and quality, with planning for
average home size of 958 square feet compared to 818
square feet attained in previous plan. Plan also puts
some emphasis on housing built with public funds.
U.S. forest products industry sources consider plan
promising, but note that current Japanese market conditions
indicate that demand for U.S. lumber and wood products
will not increase rapidly as:
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- current housing starts in Japan are 4 percent
below 1974 level, and 1974 was down 31 percent
from 1973; and
- apparent large inventories in Japan of wood products
are estimated at four months consumption.
LARGEST BANK FAILURE OF 1975
CURRENT A medium-sized Milwaukee bank ($145 million in deposits),
was declared insolvent in Nation's largest bank failure
this year, but no losses will be sustained by the 35,000
depositors of the American City Bank and Trust Company.
Losses will be prevented because of $94 million in loans
made by the Federal Government and "a substantial premium"
of $6 million paid by Marine National Bank of Milwaukee,
that will assume most of American City's assets and
liabilities. American City's main office will become a
Marine National branch.
Previous largest failure in 1975 was the collapse of
the Northern Ohio Bank of Cleveland ($95 million in
deposits) which folded in February.
CONVENIENCE STORES AND CRIME
A report by National Assocation of Convenience Stores
(NACS) confirms belief that convenience stores are major
victims of robberies.
Study was made to determine and identify scope of
crime in the industry, and to obtain necessary data to
request state legal changes.
Data obtained from survey of seven convenience store
companies operating 10,516 company-owned and franchise
stores in four selected states (Arizona, Texas, Georgia
and Florida) showed that they had 10,274 robberies in
1974, an average of .98 robberies per store.
Highest incidence rate (robberies per store) occurred in
urban cities with population exceeding 650,000.
Actual losses for these seven companies totaled more than
$1,847,000. Average loss per robbery was $175.
Based on statistics for first 6 months 1975, an estimated
11,786 total convenience store robberies will occur among
these seven companies in 1975. This represents a 15 per-
cent increase in robberies over 1974.
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COMPUTERIZATION IS INCREASING IN HEALTH CARE INDUSTRY
American hospitals are estimated to spend approximately
30 percent of their budgets, or some $8 billion annually
on data collection, recordkeeping, and other processing
and communication of information of various types. As
much as half of this spending is for functions which
could probably be automated.
A leading market research firm estimates that sales of
computers for use in hospitals totaled $156 million in
1974. This may reach nearly $380 million in 1979
according to the firm.
With mounting labor costs, needs for better administration
and management, and to meet various regulations and
reporting requirements, hospitals are turning to auto-
mation of information functions.
According to another study, over 60 percent of hospitals
polled had moved to computerization in health care or
financial applications.
OSH COMPLIANCE LOAN FUND AIDS SMALL BUSINESS
CURRENT
A special loan fund administered by Small Business
Administration is available to help small businesses
comply with Occupational Safety and Health (OSHA)
regulations. Only 8 companies applied for such loans
during the first 14 months of program but number of
applications is now increasing.
Advantages of OSHA compliance loans include a 6.5 percent interest
rate for as much as a 30-year period and no closing fees.
Loan money may be used for renovation or moving to a new
location.
Guidelines for compliance loans require firms:
- to be independently owned and operated and not dominant
in their field;
- to submit a report of a plant survey prepared by a
licensed engineer or architect identifying hazards
that are in violation of OSHA standards; and
- to submit a contractor's estimate of cost of violation
correction.
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BUSINESS INDICATORS
MERCHANDISE IMPORTS AND EXPORTS
(Seasonally Adjusted)
BILLION DOLLARS
10
Imports
9
9.2
8
8.2
Exports
7
6
Trade Surplus
5
4
0
TRADE BALANCE
BILLION DOLLARS
3
2
1.0
1
0
- 1
- 2
- 3
J A S 0 N D J F M A M J J A S 0 N D J FMAMJJASONDJFMAMJJASOND
1973
1974
1975
1976
Source: Bureau of the Census
5-1
KEY COMMODITIES - U.S. EXPORTS
FERROUS SCRAP
Thousands of Short Tons
1400
1200
1000
800
771
600
Quantitative Export controls
400
Were Imposed July 2, 1973;
decontrolled December 31, 1974
0
REFINED COPPER AND COPPER-BEARING SCRAP
Short Tons
30,000
25,000
Refined Copper
20,000
15,000
11,253
10,000
8,167
Copper Scrap
5,000
'J A S 0 N D J F M A M J J A S 0 NDJFMAMJJASOND J F M A M J J A S 0 N D
1973
1974
1975
1976
Source: Bureau of the Census
5-2
VALUE OF U.S. PETROLEUM IMPORTS FOR CONSUMPTION
CRUDE AND REFINED PRODUCTS
MILLIONS OF DOLLARS
3500
1975 Total to date $18,418
1974 Total-$24,259
1973 Total-$7,674
3000
2500
1975
2,324.1
2000
1974
1500
-
Oil Embargo
Oct. 19, 1973-Mar. 19, 1974
1000
1973
500
0
J
F
M
A
M
J
J
A
S
0
N
D
Source: Bureau of the Census.
5-3
QUANTITY OF U.S. PETROLEUM IMPORTS FOR CONSUMPTION
CRUDE AND REFINED PRODUCTS
MILLIONS OF BARRELS PER DAY
10
1975 Average 5.9 Mil/BBL per day to date
1974 Average 6.0 Mil/BBL per day
1973 Average 6.3 Mil/BBL perday
Oil Embargo
8
Oct. 19, 1973-Mar. 19, 1974
1973
6.86
6
<<<<<<<<<<<<<<<<<<<<<<<<<
<<<<<<<<<<<<<<<<<<<<<<<<<
------------
Smith
1974
1975
4
2
0
J
F
M
A
M
J
J
A
S
0
N
D
Source: Bureau of the Census.
5-4
COAL
Million Short Tons
PRODUCTION OF COAL
70
60
1975
55.7
50
<<<<<<<<<<<<<<<<<<<<<<<<<
1973
40
1974
30
0
Source: U.S. Bureau of Mines
Thousand Short Tons
U.S. COAL EXPORTS
8000
1975
7000
Note: Imports Negligible
6000
1974
5000
4,470
4,537
4000
1973
3000
2000
0
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Source: Bureau of the Census
5-5
CHEMICALS
Millions of Dollars
SITC - Section 5
1,000
Exports
800
682
600
Trade Surplus
400
Imports
275
200
0
Source: Bureau of the Census
NITROGENOUS FERTILIZERS
Thousand S.T.
(Content Tons of N)
200
160
Exports
120
Trade
105.8
Trade
Surplus
Deficit
99.3
80
40
Imports
JASOND J FMAMJ JASONDJ FMAMJ J A S 0 N D J FMAMJ
1974 Crop Year
1975 Crop Year
1976 Crop Year
Source: Bureau of the Census
5-6
FREIGHT MOVEMENT
CLASS 1 RAILROADS
Billion ton-miles
20
1974
The
15.8
15
1975
10
Source: Association of American Railroads
TRUCK TONNAGE
Index (1967 = 100)
200
1974
150
the
122
100
1975
50
0
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Source: American Trucking Associations
5-7
MONTHLY CHANGES IN PERSONAL INCOME
Billion dollars
20
29.8
Total Personal Income
18
Commodity-Producing Industries-includes manufacturing
(Represents an average of 20-25%
16
of total personal income.)
14.4
14
12
10
8
6
4.2
4
2
0
-2
-4
-6
-8
-10
J F MAMJJASOND|JFMAMJJASONDJFMAMJ J A S 0 N D
1973
1974
1975
Source: Bureau of Economic Analysis
5-8
Productivity and Unit Labor Costs
(Seasonally Adjusted)
Index 1967=100
Total Private Economy
170
160
157.8
150
140
130
Unit Labor Cost
120
114.0
110
Output per Man-hour
100
Index 1967=100 =
Manufacturing
150
139.6
140
Output per Man-hour
129.2
130
120
110
Unit Labor Cost
100
1970
1971
1972
1973
1974
1975
Source: Bureau of Labor Statistics.
5-9
SAVINGS FLOWS IN THRIFT INSTITUTIONS
Millions of Dollars
5,000
4,000
3,000
2,000
Savings and Loan Associations
1,000
THE
0
A Mutual DEPARTMENT Savings \ Banks 618
-300
Then
-1,000
-2,000
-3,000
J F M A M J J A S 0 N D J F M A M J J A SONDJFMAMJJASON D
1974
1975
1976
Source: National Association of Mutual Savings Banks and Federal Home Loan Bank Board
5-10
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DEVELOPING ISSUES
PROBLEMS FACE SOLID WASTE RECOVERY SYSTEMS
Recent publicity has focused on growing number of
solid waste recovery projects, most of which are
considered demonstration or experimental.
These plants, primarily municipally operated,
generate several different types of end product.
Most frequently, solid waste is converted into gas
which is used as boiler fuel or for heating and air
conditioning, Metals and glass may also be recovered.
Fuel generated is carried by pipeline and must be used
in close proximity to the processing plant.
A Baltimore facility, built by Monsanto, will pyrolize
1,000 tons per day of waste when fully operational.
American Can is constructing a 900 ton per day
facility in Milwaukee. Facilities in Massachusetts
and Connecticut will convert waste collected on
regional basis.
Municipalities see recovery systems as easing landfill
problems, and as potential alternate energy sources.
Contracts now being negotiated fix a price of $12.40
to $13.00 per ton to local governments for processing
the solid waste.
CURRENT The industry remains cautious in assessing prospects
for future development of solid waste recovery. Full
utilization of Baltimore plant will be delayed while
state air pollution standards are met by installing
an electrostatic precipitator.
Industry sources also foresee need for Federal con-
struction grants to stimulate new construction. One
major manufacturer has indicated that it may not go
beyond its present construction commitments.
Municipalities have shown little enthusiasm for
negotiating long term contracts with manufacturers to
operate the facilities. Also, state and local bond
issues for future facilities are expected to face
close legislative scrutiny.
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PROPOSED TRUCKING REGULATORY REFORM ACT
Backhaul in the food industry is the practice of using
normally empty trucks returning from runs that
transport manufacturers goods to wholesalers and/or
retailers warehouses.
The National Commission on Productivity estimates
that full use of backhaul could result in annual
savings in food distribution costs of $100 million.
Fuel savings, based on Census Bureau figures, could
be up to 250 million gallons annually.
Full use of backhaul has been limited by Federal
Trade Commission's interpretation of the Robinson-
Patman Act.
A recent FTC letter to the Council on Wage and Price
Stability indicated that there is no administrative
remedy for increasing backhaul. Any improvement
would have to be in the form of legislative changes
by Congress.
CURRENT
The Ford Administration's soon to be proposed
Trucking Regulatory Reform Act is last of three
proposals designed to reduce federal controls on
rail, airline, and truck industries, and also permit
broad free market competition.
This proposal would reduce waste of energy involved
in both superfluous highway travel and presently
required empty hauling.
American Trucking Association is lobbying to defeat
the measure before it is sent to Congress.
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LABOR DEVELOPMENTS
PRODUCTIVITY AND UNIT LABOR COSTS
CURRENT
Output per man-hour in total private economy rose in
third quarter 1975 at a 9.5 percent annual rate, as
reported by BLS. In manufacturing, output per man-
hour increased at an annual rate of 8.9 percent in
same period.
As result of slower rate of increase in compensation
per hour and the larger increase in productivity,
unit labor costs in third quarter declined 2.4
percent in the private economy and 0.8 percent in
manufacturing sector. (See chart in Business
Indicators.)
This was first decline in unit labor costs in private
economy since second quarter 1972 and largest
decline since third quarter 1965. In manufacturing,
this was the first decline in unit labor costs since
first quarter 1973.
STRIKES
(Source: Federal Mediation and Conciliation Service)
During week ending October 22, approximately 105,400
employees were involved in 345 strikes throughout
the United States.
Eighteen work stoppages were in the major and/or
significant category where 1,000 or more employees
were in the bargaining unit.
During approximately same year-ago period (October 16,
1974), there were 300 work stoppages, involving
102, 100 employees. Twenty-three of these work
stoppages were in the major and/or significant
category.
NEW AND SETTLED MAJOR STRIKES
(Source: Federal Mediation and Conciliation Service)
New: Brown & Sharpe Mfg. Co., and the IAM
North Kensington, Rhode Island
1,598 employees; began 10/22/75
Elevator Industries Assn., and the IBEW
New York, New York
1,200 employees; began 10/27/75
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Settled: Ready Mix Concrete Co.
and the Teamsters
New York, New York
1,500 employees; 10/3/75 through 10/15/75
Mead Corporation and the
Paper Workers
Chillicothe, Ohio
2,440 employees; 8/12/75 through 10/27/75
Mechanical Contractors Assn. of D. C.
and Pipe Fitters
Washington, D. C., 9/3/75 through 10/28/75
Excavating Industry Contractors and
the Teamsters
Metropolitan New York and vicinity
1,200 employees; 10/3/75 through 10/22/75
Tentative agreement has been reached, subject to
membership ratification:
Union Electric Power Co. of
Missouri and IBEW
St. Louis, Missouri
4,189 employees; began 7/12/75;
tentative agreement reached 10/24/75
CANADIAN PAPER INDUSTRY:
Strike Escalates in Eastern Canada as British Columbia
Mills Re-open Under 90-Day Cooling-Off Period
CURRENT Canadian Paperworkers Union extended its strike
action to Canada's Atlantic Provinces with announce-
ment that within next two weeks eight pulp and paper
mills in Nova Scotia, Newfoundland, and New Brunswick
will be shut down. (Includes five newsprint facili-
ties with combined production capacity of 1.3 million
tons or 13 percent ot total Canadian newsprint
capacity.)
With eight additional newsprint mills in Quebec shut
down over past two weeks, estimated 46 percent of
total Canadian newsprint capacity was down as of
October 24. This level of idled capacity takes into
account British Columbia's five newspring mills that
re-opened October 11 as result of provincial govern-
ment back-to-work order that specifies a 90-day
cooling-off period.
Despite new strike action that may idle 60 percent of
Canadian newsprint capacity in two weeks, U.S. newsprint
inventories continue at a high level with more than
adequate domestic supplies forecast through remainder
of 1975.
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PERSONAL INCOME IN SEPTEMBER INCREASES
CURRENT
Personal income increased by $14.4 billion in
September to a seasonally adjusted rate of $1,270.3
billion. This increase compares to August gain of
$17 billion (revised from $18 billion).
Personal income from wages in commodity-producing
industries has been a coincident indicator of
overall national economic trend over the past two
years. (See chart in Business Indicators). In
September personal income from commodity-producing
industries increased by $4.2 billion.
While September increase from commodity-producing industries
is substantial, it is a decline from the sharp climb of
$5 billion (revised from $6.1 billion) in August.
Personal income generated from manufacturing was
a principal factor in rise in personal income
commodity-producing industries. Income from
manufacturing rose by $3.4 billion in September,
compared to $4.5 billion in August.
Rise in income generated from manufacturing was attributed
to gains in employment and higher average hourly earnings
and was broadly based throughout manufacturing.
7-3
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FOREGOING RESTRICTIONS MAY BE REMOVED
90 DAYS AFTER PUBLICATION
AMERICAN REVOLUTION 1776-1976 WICENTENNAL
DEPARTMENT OF COMMERCE
STATE NOTIVESINING DOMESTIC
AND INTERNATIONAL BUSINESS ADMINIST
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