3. Memorandum From Secretary of the Treasury Dillon to President Johnson 1


  • First Quarter Balance of Payments Results

We now have preliminary overall balance of payments figures for March which are reasonably complete and reliable. When added to the more complete figures for January and February they show an overall unadjusted surplus of just over $200 million for the first quarter.

Quarterly balance of payments figures are subject to strong seasonal influences of various kinds: a prime example is the heavy outflow for tourist travel abroad during the third quarter of each year. As a result quarterly figures are only used after adjustments for seasonal variations which are calculated by technicians in the Department of Commerce. These seasonal adjustments serve to reduce our surplus or increase our deficit in every quarter except the third when they work in the opposite direction. Last year the seasonal adjustment for the first quarter increased the deficit by $180 million. This calculation has not yet been made for the first quarter of this year. Should the adjustment be the same this year as last we would have an overall seasonally adjusted surplus of $25 million in the first quarter or $100 million at an annual rate.

However, the chief of the technical staff at the Department of Commerce, who is responsible for these figures, is extremely conservative. Therefore, I would not be surprised if the seasonal adjustment this year turned out to be somewhat larger so as to eliminate any overall surplus.

These first quarter figures will be published by the Department of Commerce as preliminary estimates some time the latter part of May. Your earlier statement that we might be in approximate overall balance should be borne out of that time. However, these quarterly figures are subject to further revisions on the basis of more complete information which will become available early in June, and which will be the basis of the official Commerce Department figures for the first quarter to be published in late June. This revision could easily run as high as $50 million, which it did in the most recent case when the deficit for the fourth quarter of 1963 was increased by $50 million between the publication of preliminary figures in February and final figures in March. Such a change could easily wipe out the small overall surplus that seems likely to be reported in the preliminary figures.

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Another important element to bear in mind is the fact that the most popular figure for portrayal of balance of payments results is our balance on “regular transactions”, which excludes all special arrangements, such as advance repayments of debts and advance payments on military orders. While we do not have good figures yet and will not have them until about the first of June, it seems likely that progress payments received from Germany on military purchases during the first quarter were somewhat larger than actual deliveries. This excess will be classified by the Department of Commerce as a special transaction. Therefore, it is likely that our balance on “regular transactions” during the first quarter will turn out to be in deficit by anywhere from $50 to $100 million, or $200–$400 million at an annual rate. The fact that we may have a small surplus on an overall basis and a deficit on regular transactions will undoubtedly cause some public confusion but the press is likely to put most weight on the regular transactions figure.

All of the above indicates the complexities involved in our balance of payments statistics and the dangers in making any public use of early and preliminary estimates. The preliminary figures we now have for the first quarter are $150 to $200 million less favorable than the result that would have been calculated on the basis of the flash weekly figures which were all we had at the time of your original press comment. Such a shift in figures is not at all unusual. I took this probability into account in telling Chairman Heller, at your request, that we might well break even in our balance of payments during the first quarter. It was because of this sort of uncertainty that I also asked him to caution you against any public use of such preliminary horseback estimates.

Finally our weekly figures show us once more running a fairly substantial deficit in April. We see no reason to expect a continuation of the exceptionally favorable first quarter results, although we do expect that 1964 will, for the first time, show really substantial progress toward our goal of eliminating the deficit.

Douglas Dillon
  1. Source: Johnson Library, White House Central Files, Confidential File, FO 4–1, Balance of Payments, 1963–1965. Confidential.